The Japan paradox

Japan has always been a paradox for outsiders. On the one hand it has a reputation for innovation with pioneering preeminence in hardware, consumer electronics and semiconductors, as well leading SaaS adoption in the APAC region.

On the other, there’s a traditionalism, isolationism and a resistance to technological disruption that has baffled or even deterred western champions of free-market innovation.

For some time the latter version of Japan has appeared to be in the ascendant.  And yet scattered indicators suggest a different story is already unfolding.

Weak signals, strong indicators of change

Such “weak signals”from some of the world’s most influential and innovative players reflect a renewed interest in the country, and a new spirit of openness and determination from Japan itself. The first part of 2024 looks set to mark a turning point for Japan and for global sentiment about its future.

Warren Buffet, who has been investing steadily in Japan for the last few years, recently increased his holdings in Japanese trading houses, and expressed his belief that Japanese stocks are still undervalued. As the Japanese market is currently trading at a 34-year high, this is a massive vote of confidence in its future.

In April, Japan’s Prime Minister Fumio Kishida visited his US counterpartto discuss collaboration and investment in “critical and emerging technology”, including AI.  Japan is already the direct investor in the USA, and this would clearly signal a two-way exchange of innovation and investment.

Open to AI

Microsoft’s plans to invest “ $2.9 billion to increase its cloud computing and AI infrastructure in Japan, and open its first Microsoft Research Asia lab in the country”.

But it’s not just the institutional giants of US finance and technology that are blazing a trail Eastwards.  OpenAI’s choice of Tokyo for its first office outside the English-speaking world, puts Japan firmly on the map for US-fueled expansion for this transformative technology.

Putting aside OpenAI’s own motives for this move (Japan is the G7 chair on generative-AI, so it makes sense to be up close to the policy formers), this development appears to conclusively challenge Japan’s reputation as isolated and protectionist.

Yet it’s not quite that simplistic. Historically, the outside innovations that have been embraced by Japan have been those that can complement rather than disrupt the existing ecosystem. While the innovations that Japan has pioneered are those that reflect or serve Japanese values and cultural norms.

We see both at work in OpenAI’s move, and Japan’s high-level encouragement.

Japan is the world’s leader in humanoid robotics, promoting the positive image of the machine as humanity’s friendly helper in familiar domestic contexts, in contrast to the more dystopian fantasies of the west. Humanoid hardware now meets its counterpart and complement in the software solution making the biggest advances in normalizing adoption of everyday artificial companions for the world’s digital citizens.

Responding to the call?

The US has taken the lead, AI has once more dominated the headlines, but that’s not the entire story. Nor should it be.

Just a month ago VivaTech named Japan the Most Innovative Country of 2024, recognising the government’s investment of $72.4 billion in nurturing innovative companies, as well as Tokyo’s bid to become: “the world’s most startup-friendly city”. While almost simultaneously Eurazeo announced its opening of a Tokyo office, to consolidate its Asian operations. .

Taken together, these “weak signals” appear to point to a renascent country open to innovation.

What could this mean for European startups getting ready to scale?

Should Japan now feature on your priority list for global growth?

To discover more about what Japan offers and demands for European tech read FastTrack’s Spotlight on Japanfrom our Asia Next series.