Executive Summary.
Japan faces a mix of deep-rooted economic challenges. Its shrinking workforce and historic challenges in moving on from export-led growth have suppressed domestic demand. Additionally, regional imbalances within the country mean that economic benefits are overly concentrated in Tokyo.
AI presents an opportunity to reset the Japanese economic model. It can shift Japan towards a more innovative, high-value service-led economy by stimulating demand and investment in domestic sectors like software and digital services. AI can help boost economic productivity in Japan by making workers more productive, helping boost Japan’s services sector and spreading economic opportunity across the country.
The AI Opportunity.
AI can catalyse economic growth.
AI provides a once-in-a-generation opportunity to catalyse economic growth by tackling Japan’s longstanding labour productivity challenges. In our research, we found that AI could help power the next stage of Japan’s growth, boosting the economy by JPY 53 trillion (USD 350 billion), a 9% increase in Gross Value Added (GVA).
AI could help power the next stage of Japan’s growth, boosting the economy by JPY 53 trillion (USD 350 billion), a 9% increase in Gross Value Added (GVA)
GVA
*Gross Value Added (GVA) is Gross Domestic Product (GDP) minus taxes and subsidies.
Powering Japan’s Economic Revival.
AI can offset ageing-related labour shortages.
Demographically induced labour shortages have been a blight on Japan’s economic prospects. In total, we estimate that the greater use of AI could help offset 41% of potential labour shortages in Japan driven by an ageing population.
Regional economies outside Tokyo will benefit widely from AI.
Despite regional economic imbalances between Tokyo and the rest of Japan, AI usage remains consistent across the country. In our modelling, we found that over half of all gains from AI, or JPY 26.5 trillion (USD 175 billion) will benefit prefectures outside Tokyo.
AI can increase labour productivity.
With Japan facing the lowest labour productivity in the G7, AI can help Japanese workers increase their outputs and boost their wages. Our modelling suggests that the potential skills gains from AI could boost average worker productivity by over JPY 220,000 (USD 1,400) a year. This is equivalent to around an extra month’s wages for the average Japanese worker.
AI in Action.
AI could prevent 59% of the costs from cybersecurity threats and fraud.
Once widely deployed, new AI technologies can help Japan combat its recent surge in cyber attacks cost effectively.
AI could help increase productivity in the public sector in Japan by 8%.
AI could create a more transparent, flexible and responsive public sector, freeing up worker time for higher value activities.
AI could help Japan’s biotech firms reduce the average time for drug discovery by 40%.
As new pharmaceutical drugs take significantly longer to gain domestic approval, Japanese patients often turn to imported treatments, leaving Japan with a major pharmaceutical import deficit. By integrating AI tools into pharmaceutical R&D, drug discovery time could decrease for Japan’s biotech firms.
Maximising the AI Opportunity.
Japan will need to boost confidence across the population and encourage adoption.
At present, AI adoption remains slower among women, older and non-graduate citizens. If we don’t work to reverse the gap in worker AI adoption, it could reduce the overall potential economic benefits from AI by 31%.
Japanese SMEs will need improved tech infrastructure to accelerate AI adoption.
Wider investment in the digital infrastructure of smaller and older Japanese businesses will be key to unlocking the economic gains from AI. At present, if the worst-performing Japanese small businesses increase their productivity growth, national productivity is expected to increase by 1.8 percentage points.