Japan's Ministry of Economy, Trade and Industry (METI) is making a major push into generative AI with its 2026 fiscal year budget proposal. The ministry plans to allocate approximately 300 billion yen in related expenses, marking the first step in a five-year, 1 trillion yen program to support domestic AI development. (In the budget approved by the cabinet on December 26, this line was set at 387.3 billion yen; see below.)

As global AI development competition intensifies, Japan finds itself lagging behind the United States and China. METI's strategy aims to reverse this situation through public-private partnerships to accelerate the development of domestically-produced AI foundation models.

SoftBank and Over Ten Companies to Establish New AI Venture

At the core of the initiative sits a new company backed by more than ten Japanese firms, with SoftBank at the center. It is expected to launch in spring 2026, staffed by roughly 100 engineers drawn mainly from SoftBank and Preferred Networks (PFN).

The new venture targets approximately 1 trillion parameters, an indicator of AI performance. This represents Japan's ambition to develop large-scale AI models at the "1 trillion parameter" level, which is becoming the global standard. Development will involve mass procurement of high-performance semiconductors from NVIDIA to build large-scale computing infrastructure.

SoftBank plans to invest 2 trillion yen over six years starting in fiscal 2026 for data centers used in AI training and development. Sites in Tomakomai, Hokkaido and Sakai, Osaka are under consideration.

Update: The venture launched in April 2026 as Japan AI Foundation Model Development, headquartered in Shibuya, Tokyo. SoftBank, NEC, Honda, and Sony Group each took stakes in the low-to-mid teens as principal shareholders, joined by Nippon Steel, Kobe Steel, MUFG Bank, Sumitomo Mitsui Banking Corporation, and Mizuho Bank. PFN participates on the development side. The president is a SoftBank executive who led its domestic generative AI work, and roughly 100 engineers previously scattered across the country have been brought under one roof.

The company was later renamed Noetra, and the investor list was finalized at 44 companies. On June 30 it was selected for a NEDO program, with 387.3 billion yen committed as development funding for fiscal 2026. On July 16 it announced, together with the four core companies, that research and development had formally begun, laying out a path to an omni-modal foundation model in fiscal 2028 and a "real-world native AI" handling spatial understanding by fiscal 2030 (as of September 2026).

Leveraging Manufacturing Strengths Through Physical AI

A particularly noteworthy aspect of this support initiative is the development of "Physical AI," technology that combines AI with robotics to autonomously control machinery in manufacturing settings.

Japan's manufacturing sector, where the country holds competitive advantages, has accumulated valuable industrial data over many years. However, if this data flows to overseas AI companies, Japan risks losing its competitive edge. Driven by this concern, METI aims to utilize domestic industrial data to develop Japanese AI that can be deployed across various industries according to their specific needs.

Support will be provided in stages rather than as a lump sum. The government will conduct annual reviews of development progress and provide additional investment when technical standards are deemed to have been met. The "GX Economic Transition Bonds" are being considered as a funding source, given the energy-efficient nature of the AI being developed.

10 Trillion Yen Support Framework for AI and Semiconductors Over Seven Years

This generative AI support is part of a larger initiative. Based on the "AI and Semiconductor Industrial Base Strengthening Framework" formulated in the November 2024 economic package, the government plans to provide over 10 trillion yen in public support over seven years through fiscal 2030.

In the fiscal 2026 budget approved by the cabinet on December 26, METI's total came to 3.0693 trillion yen, about 50% above the 2.0524 trillion yen initial budget a year earlier. Of that, AI and semiconductors accounted for 1.239 trillion yen, 3.7 times the previous initial budget, with 387.3 billion yen going to domestic foundation model development, data infrastructure, and physical AI. The roughly 300 billion yen figure cited above was fixed at that level once the cabinet signed off.

This aims to stimulate over 50 trillion yen in public-private investment over ten years and generate roughly 160 trillion yen in economic ripple effects. Semiconductors and AI sit directly on economic security, yet the required investment outruns what private firms can carry alone. Hence the state committing money first, and over a long horizon.

Continued Advancement of Next-Generation Nuclear Reactor Development

In the energy sector, budget allocation continues for next-generation innovative reactor development. Support using GX Economic Transition Bonds continues for demonstration reactor development of both fast reactors and high-temperature gas-cooled reactors.

Mitsubishi Heavy Industries has been selected as the core company for fast reactor development and is conducting conceptual design work for sodium-cooled tank-type fast reactors from fiscal 2024 through 2028. Mitsubishi Heavy Industries is also responsible for high-temperature gas-cooled reactors, which are being developed as next-generation reactors with superior inherent safety features and diverse heat utilization capabilities.

These next-generation reactors are positioned as essential technologies for achieving both carbon neutrality and energy security.

Government-Wide AI Utilization Initiative

Prime Minister Sanae Takaichi announced on December 19, at the AI Strategy Headquarters, that the government would put over 1 trillion yen into AI development and use. The government's own AI, "Gennai," goes to more than 100,000 officials from May 2026, expanding later to some 180,000 across every ministry and agency.

The AI Safety Institute (AISI) is set to grow from roughly 30 staff to 200, matching the UK body it benchmarks against. AISI was established inside Japan's IPA in February 2024 and has run far behind its US and UK counterparts on both budget and headcount.

Update: On May 28, 2026, the Digital Agency announced the start of the large-scale Gennai trial covering all ministries. About 100,000 officials had access by the end of that month, with the Ministry of Defense, MEXT, the health ministry, and METI to follow. Gennai's core source code was released as open source under the MIT license on April 24, 2026. The trial runs to March 2027, with full operation planned from fiscal 2027. National LLMs for use in Gennai were also selected on March 6, seven of fifteen applicants, including NTT Data's tsuzumi 2, KDDI and ELYZA, SoftBank's Sarashina2 mini, NEC's cotomi v3, Fujitsu's Takane 32B, and Preferred Networks' PLaMo 2.0 Prime. Government procurement is being used as a proving ground for domestic AI.

In Japan, large-scale investments in AI development through public-private partnerships are gaining momentum. How is your country approaching AI development and next-generation energy technologies? We'd love to hear your perspectives on the role of government and collaboration with private companies.