Can Japan Counter China’s Dominance in AI?

Por Bonnie Girard — The Diplomat

Read The Diplomat , Know The Asia-Pacific

Since 2025, Tokyo has acted boldly and decisively to ward off foreign AI-related threats by developing AI for Japan, in Japan.

Japan, a nation historically known for innovations and new technologies, has not held that advantage in artificial intelligence (AI). The United States and China dominate AI’s development. According to one Japanese expert, Dr. Takahiro Tsuchiya of Kyoto University, Chinese companies in Japan even dominate Japan’s domestic market. A major factor is cost. Prices for Chinese-developed AI products are well below those charged by Japan’s home-grown AI enterprises.

This is a sea change in the global technology pecking order, but not one that the Japanese are willing to passively accept. While Japan has ceded market territory to Chinese firms in AI, Japan is nonetheless quickly establishing a leading position in “physical AI” – integrating AI into robotics and machinery – and sovereign AI deployment.

Critically, the Japanese government has woken up to the problem. Since 2025, Tokyo has acted boldly and decisively to ward off foreign AI-related threats by developing AI for Japan, in Japan.

The fact remains that Japan has not kept up with global leaders – the United States and China – in core AI, Tsuchiya confirmed. AI is globally considered to be both a revolutionary technology as well as a potential threat mechanism for those who dominate its use and development.

Speaking to reporters at the Japanese Embassy in Washington, D.C., and to his lecture attendees at the Japanese Consulate in Boston, Tsuchiya “strongly advocates for a robust U.S.-Japan alliance to counter regional threats” (read: China and North Korea). However, the readout highlighted “a growing school of thought in Tokyo regarding strategic autonomy.”

Tsuchiya emphasized that “while Japan must tighten technology export controls alongside the U.S. to counter China’s military-civil fusion, Tokyo’s defensive and economic calculations must remain grounded in its own reality.”  Part of that reality, suggested Tsuchiya, is that Japan is not only geographically close to China, but is also deeply tied in trade with China, as well.  

The Diplomat asked Tsuchiya to describe Japan’s priorities in handling the delicate balancing act of maintaining its strong and strategic relationship with the United States while maintaining at least a stable relationship with China.

Tsuchiya said that “Japan cannot copy the U.S.  Japan makes its own assessments” of the threats it may face, and how to handle them. Those assessments include risks related to AI development and rollout.

The Japanese government launched a $6.34 billion initiative beginning in fiscal year 2026 with the goal of wedding Japan’s unmatched industrial robotics industry with next-generation AI.  Heavy industry, transport, and infrastructure are all planned to be AI-automated. As an example, autonomous AI pipelines are due to manage the heating and cooling infrastructure of Tokyo.

Japan’s population is aging. One of the most immediate impacts of that demographic dilemma is a labor shortage. As a result, some Japanese companies are heeding the call to modernize and develop new AI capabilities.

Nikkei reported on September 9 that trading house Sumitomo Corp. “has partnered with Sakana AI to bring the startup’s artificial-intelligence models to its 100,000 or so client companies, helping the Tokyo-based company sell its solutions even to small businesses and giving a huge push to Japan’s homegrown technology.”  Nikkei added, “Sakana AI’s models are said to be comparable to cutting-edge overseas models.” 

The new partnership reflects the AI-related security concerns facing Japan, particularly those related to and coming from China. “Japanese companies have fallen behind U.S. and Chinese rivals in leveraging AI for structural and operational reforms. Japan Inc. has been cautious, partially due to security concerns, as full-fledged adoption would mean exposing confidential data to a generative AI model,” Nikkei explained.

Critically, there are “high expectations for Sakana AI as a provider of AI models that do not rely on overseas companies’ services.” In other words, neither the U.S. nor China are involved, keeping the new Sumitomo-Sakana AI enterprise a Japanese homegrown venture, one intended to be safe from prying eyes.

Japan is now committing vast resources to its own AI development, Hello World Japan reported in May 2026. It started by putting an AI Act into force in June 2025. The government then “adopted a formal AI Basic Plan in December 2025, created a Prime Minister-led AI Strategic Headquarters, and committed more than 10 trillion yen in public support for AI and semiconductor infrastructure – all in under a year.”  

The Japanese Cabinet then passed its Second Artificial Intelligence Basic Plan on July 14. The plan explicitly targets agentic AI and tech sovereignty. This is backed by a massive road map aiming to mobilize 370 trillion yen ($2.3 trillion) in public and private funding by 2040 for AI and semiconductors.

Hello World Japan noted that the official language in the initial plan is “unusually direct.” The plan explicitly noted “gaps between Japan and other growing countries in utilization rates and private investment” – gaps that “widened” up through 2025. As a result, Hello World Japan noted, “the strategy is framed as recovery, not regulation.”

Such stark and transparent language is indeed a rare phenomenon for the Japanese government.

“That is a different story from the ‘Japan is cautious on AI’ read that still circulates outside the country,” concluded Hello World Japan.

This proactive approach from the Japanese government is an antidote against Chinese dominance in Japan’s AI environment, and the risks that come with that presence.

Subscribe today and join thousands of diplomats, analysts, policy professionals and business readers who rely on The Diplomat for expert Asia-Pacific coverage.

Get unlimited access to in-depth analysis you won’t find anywhere else, from South China Sea tensions to ASEAN diplomacy to India-Pakistan relations. More than 5,000 articles a year.

Already have an account? Log in .

Japan, a nation historically known for innovations and new technologies, has not held that advantage in artificial intelligence (AI). The United States and China dominate AI’s development. According to one Japanese expert, Dr. Takahiro Tsuchiya of Kyoto University, Chinese companies in Japan even dominate Japan’s domestic market. A major factor is cost. Prices for Chinese-developed AI products are well below those charged by Japan’s home-grown AI enterprises.

This is a sea change in the global technology pecking order, but not one that the Japanese are willing to passively accept. While Japan has ceded market territory to Chinese firms in AI, Japan is nonetheless quickly establishing a leading position in “physical AI” – integrating AI into robotics and machinery – and sovereign AI deployment.

Critically, the Japanese government has woken up to the problem. Since 2025, Tokyo has acted boldly and decisively to ward off foreign AI-related threats by developing AI for Japan, in Japan.

The fact remains that Japan has not kept up with global leaders – the United States and China – in core AI, Tsuchiya confirmed. AI is globally considered to be both a revolutionary technology as well as a potential threat mechanism for those who dominate its use and development.

Speaking to reporters at the Japanese Embassy in Washington, D.C., and to his lecture attendees at the Japanese Consulate in Boston, Tsuchiya “strongly advocates for a robust U.S.-Japan alliance to counter regional threats” (read: China and North Korea). However, the readout highlighted “a growing school of thought in Tokyo regarding strategic autonomy.”

Tsuchiya emphasized that “while Japan must tighten technology export controls alongside the U.S. to counter China’s military-civil fusion, Tokyo’s defensive and economic calculations must remain grounded in its own reality.”  Part of that reality, suggested Tsuchiya, is that Japan is not only geographically close to China, but is also deeply tied in trade with China, as well.  

The Diplomat asked Tsuchiya to describe Japan’s priorities in handling the delicate balancing act of maintaining its strong and strategic relationship with the United States while maintaining at least a stable relationship with China.

Tsuchiya said that “Japan cannot copy the U.S.  Japan makes its own assessments” of the threats it may face, and how to handle them. Those assessments include risks related to AI development and rollout.

The Japanese government launched a $6.34 billion initiative beginning in fiscal year 2026 with the goal of wedding Japan’s unmatched industrial robotics industry with next-generation AI.  Heavy industry, transport, and infrastructure are all planned to be AI-automated. As an example, autonomous AI pipelines are due to manage the heating and cooling infrastructure of Tokyo.

Japan’s population is aging. One of the most immediate impacts of that demographic dilemma is a labor shortage. As a result, some Japanese companies are heeding the call to modernize and develop new AI capabilities.

Nikkei reported on September 9 that trading house Sumitomo Corp. “has partnered with Sakana AI to bring the startup’s artificial-intelligence models to its 100,000 or so client companies, helping the Tokyo-based company sell its solutions even to small businesses and giving a huge push to Japan’s homegrown technology.”  Nikkei added, “Sakana AI’s models are said to be comparable to cutting-edge overseas models.” 

The new partnership reflects the AI-related security concerns facing Japan, particularly those related to and coming from China. “Japanese companies have fallen behind U.S. and Chinese rivals in leveraging AI for structural and operational reforms. Japan Inc. has been cautious, partially due to security concerns, as full-fledged adoption would mean exposing confidential data to a generative AI model,” Nikkei explained.

Critically, there are “high expectations for Sakana AI as a provider of AI models that do not rely on overseas companies’ services.” In other words, neither the U.S. nor China are involved, keeping the new Sumitomo-Sakana AI enterprise a Japanese homegrown venture, one intended to be safe from prying eyes.

Japan is now committing vast resources to its own AI development, Hello World Japan reported in May 2026. It started by putting an AI Act into force in June 2025. The government then “adopted a formal AI Basic Plan in December 2025, created a Prime Minister-led AI Strategic Headquarters, and committed more than 10 trillion yen in public support for AI and semiconductor infrastructure – all in under a year.”  

The Japanese Cabinet then passed its Second Artificial Intelligence Basic Plan on July 14. The plan explicitly targets agentic AI and tech sovereignty. This is backed by a massive road map aiming to mobilize 370 trillion yen ($2.3 trillion) in public and private funding by 2040 for AI and semiconductors.

Hello World Japan noted that the official language in the initial plan is “unusually direct.” The plan explicitly noted “gaps between Japan and other growing countries in utilization rates and private investment” – gaps that “widened” up through 2025. As a result, Hello World Japan noted, “the strategy is framed as recovery, not regulation.”

Such stark and transparent language is indeed a rare phenomenon for the Japanese government.

“That is a different story from the ‘Japan is cautious on AI’ read that still circulates outside the country,” concluded Hello World Japan.

This proactive approach from the Japanese government is an antidote against Chinese dominance in Japan’s AI environment, and the risks that come with that presence.

Bonnie Girard is President of China Channel Ltd. She has lived and worked in China for half of her adult life, beginning in 1987 when she studied at the Foreign Affairs College in Beijing.

Get briefed on the story of the week, and developing stories to watch across the Asia-Pacific.

Fonte: The Diplomat