Over 80% of Japanese Firms Lag in AI Adoption Despite Productivity Pressures

Strong majority of Japanese firms have yet to fully embrace AI: Reuters poll

TOKYO, Aug 13 (Reuters) - More than 80% of Japanese companies use artificial intelligence in only a limited capacity in their operations or not at all, a Reuters survey showed on Thursday, a trend that could hinder official efforts to boost productivity. About 60% of respondents said AI is being used only in some parts of their companies or in other limited ways. Another 18% said they have not decided whether to introduce AI into the workplace while 6% are not even considering AI adoption. The remaining 16% have deployed AI company-wide as an integral tool, the survey showed. "We have started using it company-wide, but its use is limited ⁠to tasks such as document creation," a manager at a wholesaler wrote in the survey. Separately, a real estate firm official said, "We don't know how to put it in use." A government report this year showed Japan lagged other industrial powers in AI adoption, with 86.4% of local firms using generative AI for at least one task, compared with China's 98.1%, Germany's 91.6% and the United States' 90.9%. Asked in the Reuters poll about their AI budgets for the next one to two years, 4% said they expect annual growth of 50% or more, 21% said the increase will likely be somewhere between 10% and 50%, and 30% projected single-digit expansion. Another 14% said their AI budgets would likely remain largely unchanged, while 31% have not decided yet. None of the respondents said ⁠they will be spending less on AI. The poll was conducted by Nikkei Research for Reuters from July 29 to August 6. Nikkei Research contacted 510 companies, of which 219 responded on condition of anonymity. INVESTMENT DESTINATION On resource allocation, 82% of respondents said they favoured domestic investment over overseas investment, a preference that broadly aligns with Prime Minister Sanae Takaichi's growth strategy. In an effort to revive the Japanese economy, Takaichi has vowed to ⁠put an end to "excessive austerity" and to boost domestic investment, with a focus on key areas such as AI, semiconductors and quantum technology. "We already have our major production facilities concentrated in Japan and export products from there. Given the continued weakness of the yen, we see little ⁠merit in investing overseas," an official at a machinery maker said. A softer yen helps boost Japanese exporters' earnings, while making overseas investment more expensive in yen terms. Some managers among the 18% of respondents who place greater emphasis on overseas investment said they see ⁠stronger growth potential abroad than in Japan, which is saddled with a shrinking population. About 41% of respondents said they would increase domestic investment in the business year to March 2027 from a year earlier, while 9% expected a year-on-year decline. The remaining 50% plan to keep the level of domestic investment unchanged. Reporting by Kiyoshi Takenaka; Editing by Sam Holmes Our Standards: The Thomson Reuters Trust Principles., opens new tab

Why Japanese firms are being so slow to use AI

Facing acute labour shortages, ageing demographics and chronic productivity problems, Japanese companies should be fertile ground for the take-up of artificial intelligence (AI). Yet, compared with the US and UK, adoption in many workplaces remains sluggish and cautious. Japan's response to AI is beginning to resemble one of the country's slow-moving, traditional Noh plays. All the masked characters up on stage agree that action is urgent, and the call is repeated with solemn agreement. Yet the actors remain frozen in place. Great for heightening drama, terrible for addressing the country's immediate difficulties. Data showing the use of AI in the workplace suggests that Japan has fallen behind. Just 8.4% of Japanese workers use AI as part of their job, according to a report at the end of last year by the Organisation for Economic Co-operation and Development (OECD). By contrast, separate statistics puts the US figure at 50%, and the UK at 32%. In Singapore, which is said to have seen the second-highest take up of AI after the United Arab Emirates, and the most in Asia, 56% of workers are said to use AI "multiple times a week". So why is Japan dragging its feet? Austin Xu, co-founder of US start-up Kuse AI, says it is due to Japanese companies being conservative and risk adverse. His business recently set up an office in Japan to sell its AI systems to firms in the country. "There are organisations where process and consensus culture genuinely slow things down," he says. "Where tolerance for AI mistakes is close to zero, especially in anything client facing. Some would rather leave a role unfilled than let a machine handle it." Xu says the situation in the US is very different, with some businesses already allowing AI agents far more freedom to boost productivity. "In the US, AI colleagues enter as helpers and gradually become part of the workflow. The attitude [of US bosses] is often - let it try, then correct it." He adds that Japanese companies need more proof before they trust AI enough to use it. Parrisa Haghirian, professor of international management at the Kyoto University of Advanced Science, agrees that many Japanese companies are too risk adverse to look at AI. "The challenges of adopting it are the same as adopting any change in Japanese firms. This is why AI use is still quite limited and cautious, especially in the workplace." Haghirian also contrasts this with the more entrepreneurial culture of the US, arguing that Japanese firms are highly sensitive to error, uncertainty and reputational risk. "Since generative AI is still not fully reliable, it is mainly used [in Japan] for low-risk tasks such as writing, summarising, or information gathering, but much less for core operations or decision-making and for improving overall processes," she says. Japan's healthcare sector is said to be particularly slow to look at AI, with some hospitals yet to even fully digitalise patient files. "Paper documents accumulate at a staggering scale," says one employee at a Japanese hospital, who asked not to be named. "It's like the Stone Age." The Japanese government is aware of the wider problem of low AI adoption, and is trying to get more companies to take up the technology. Last year its AI Promotion Act was passed by the country's parliament. This aims to use light-touch regulation to encourage businesses to invest more in AI. Tokyo pledges that Japan will become "the world's most-friendly country for developing and utilizing AI". The government believes that the increased use of AI can help Japan improve its productivity. Currently it continues to have the worst level in the G7 group of advanced nations. Japan's Ministry of Finance says that AI adoption by businesses has already increased substantially, with 75% of companies now using the technology, up from 11% five years ago. However, critics argue that at each of these businesses only a tiny proportion of staff are actually using the AI, and that those who do so are only using it to a very limited extent. Prof Yasushi Ogasawara, an expert on Japan's social system and technology at Meiji University, says there aren't enough tech-savvy people in the workforce. "Although the Japanese like playing with gadgets such as smartphones, digital literacy is low here," he says. This is highlighted by one report earlier this year which said Japan faced a shortfall of almost 800,000 IT professionals by 2030. Many companies are also said to struggle with out-of-date computer systems, with around 60% more than 20-years-old. Moreover, Ogasawara adds that Japanese companies are under more pressure to avoid fuelling unemployment than they are to develop AI which could result in job losses. "The government is talking about AI, re-skilling, digital skills, but in reality, it is difficult to adapt human resources to digital skills because the top priority is to maintain full employment," he says. But there is a shift in recruitment, with some companies now prioritising "AI literacy" in their new graduate hiring. In the private sector, larger firms such as Kanematsu, a major general trading company, are hiring savvy graduates such as Uta Yamaguchi who joined in April. "I use AI quite often at work," she says. "Many of my colleagues use it a lot. For writing emails for my boss, summarising complicated documents, meeting recording and summarising." But, by contrast with the US, she says AI systems that can autonomously handle multi-step work are still virtually unheard of in Japan. However, her employer, known for its forward thinking, now has them onboard. Ogasawara says that "change in Japan is limited". He adds: "Japanese society expects painless reform, so I think it can be said that drastic reform is difficult, to say the least." Disruption may be a dirty word in Japan, but without it the productivity gains the country needs could remain elusive.

Japan AI Adoption: Strong majority of Japanese firms have yet to fully embrace AI: Reuters poll

About 60% of respondents said AI is being used only in some parts of their companies or in other limited ways. Another 18% said they have not decided whether to introduce AI into the workplace while 6% are not even considering AI ⁠adoption. More than 80% of Japanese companies use artificial intelligence in only a limited capacity in their operations or not at all, a Reuters survey showed on Thursday, a trend that could hinder official efforts to boost productivity. About 60% of respondents said AI is being used only in some parts of their companies or in other limited ways. Another 18% said they have not decided whether to introduce AI into the workplace while 6% are not even considering AI ⁠adoption. The remaining ⁠16% have deployed AI company-wide as an integral tool, the survey showed. "We have started using it company-wide, but its use is limited to tasks such as document creation," a manager at a wholesaler wrote in the survey. Separately, a real estate firm official said, "We don't know how to put it in use." A government report this year showed Japan lagged other industrial powers in AI adoption, with 86.4% of local firms using generative AI for at least one task, compared with China's 98.1%, Germany's 91.6% and the United States' 90.9%. Asked in ⁠the Reuters poll about their AI budgets for the next one to two years, 4% said they expect annual growth of 50% or more, 21% said the increase will likely be somewhere ⁠between 10% and 50%, and 30% projected single-digit expansion. Another 14% said their AI budgets would likely remain largely unchanged, while 31% have not decided yet. None of the respondents said they will be spending less on AI. The poll was conducted by Nikkei Research for Reuters from July 29 to August 6. Nikkei Research contacted 510 companies, of which 219 responded on condition of anonymity. INVESTMENT DESTINATION On resource allocation, 82% of respondents said they favoured domestic investment over overseas investment, a preference that broadly aligns with Prime Minister Sanae Takaichi's growth strategy. In an effort to revive the Japanese economy, Takaichi has vowed to put an end to "excessive austerity" and to boost domestic investment, with a focus on key areas such as AI, semiconductors and quantum technology. "We already have our major production facilities concentrated in ⁠Japan and export products from there. Given the continued weakness of the yen, we see little merit in investing overseas," an official at a machinery maker said. A softer yen helps boost Japanese exporters' earnings, while making overseas investment more expensive in yen terms. Some managers among the 18% of respondents who place greater emphasis on overseas investment said they see stronger growth potential abroad than in Japan, which is saddled with a shrinking population. About 41% of respondents said they would increase domestic investment in the business year to March 2027 from a year earlier, while 9% expected a year-on-year decline. The remaining 50% plan to keep the level of domestic investment unchanged.