AI Trends for 2025 - Has AI Put Japan’s Startup Scene on the World Map?

While Japan has a longstanding reputation for innovation, its startup market has not historically drawn the same degree of interest as those in the U.S. and other countries, despite a tenfold increase in ecosystem investment over the last decade. However, as discussed at MoFo’s AI conference held last November, several factors have been working to turn this tide, including the Japanese government’s continuing efforts to increase investment in domestic companies (e.g., Tokyo’s “Global Innovation with Startups” plan), increased appetite for risk-taking as Japan shifts away from lifetime employment, and an expansion of investment capital from Japanese companies looking to diversify.

In 2024, however, there was a dramatic increase in interest in Japan fueled primarily by its robust AI market. A few key facts:

• Investment in the AI industry was strong in 2024, with investors looking to capitalize on a domestic AI market expected to reach $10.75 billion in 2025 and to grow at an annual rate of 27.71% through 2030. Highlights include Sakana.ai’s JPY10 billion investment round (drawing investment from NVIDIA and U.S.-based VCs and helping Sakana reach unicorn status) and Liquid AI’s launch in Japan and its partnership with Itochu CTC. These deals continue a trend of dramatic increases in VC investment in Japan over the last decade. While in-bound investment slowed somewhat in 2022–23, strong interest in Japan-domiciled AI companies is likely to drive these numbers up, as evidenced by the numerous U.S.-based VCs continuing to operate in Japan (e.g., Plug and Play, Geodesic, etc.), and Andreessen Horowtiz’s announcement to open an office in Tokyo.

• The AI startup ecosystem in Japan has grown increasingly attractive to founders (including expatriates), buttressed by the accelerating scope of investment in generative AI in Japan by Microsoft, OpenAI, SoftBank, and others (fueled in part by a pivot from China due to geopolitical risks), the thriving AI community in Japan (with organizations such as Tokyo AI (TAI) having over 1,700 members), and Japan’s superior infrastructure conducive to building and deploying AI solutions. Government support for AI growth-stage companies in Japan—both through the establishment of domestic incubators, such as J-Startup, and the government’s recent announcement to launch a new JPY2 trillion stimulus package to encourage investment in AI and semiconductors—has only furthered this interest.

• Finally, Japan has become a highly desirable place to live for founders and engineers alike. Japan ranks near the top across the globe when it comes to metrics for quality of life, cost of living, and healthcare quality. Add to this Japan’s increased cultural influence (e.g., for food, manga, etc.), and its no surprise that more and more young entrepreneurs are being drawn to Japan.

We were privileged to have worked with a number of clients over 2024 participating in the active AI market in Japan and are very excited for the possibilities that lie ahead across the coming year.