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Japan is advancing digital transformation efforts to build a digital society. Adopting a top-down approach, the Japanese government started to modernize its IT infrastructure and services and build a digital workforce to support a future-proof digital society, bridge the digital gap between urban and rural areas and drive economic growth.

Its Society 5.0 initiative aims to create an economic model that taps on technological innovations to drive the digitalization of government services and departments in the country. GlobalData predicts that this will drive Japan’s IoT IT solutions market up from $42.1 billion in 2021 to $60 billion in 2026, or a compound annual growth rate of 7.4% during this period. Of which, the manufacturing sector, involving the usage of robotics and automation, will account for 13.1% of the revenue of the overall ICT market in Japan.

In 2021, Japan established the Digital Agency of Japan to upgrade the country’s public sector’s online services and infrastructure. Since its inception, the agency has forged strategic partnerships with many countries to drive its digital ambitions forward. In June 2022, the agency inked a three-year deal with Singapore’s GovTech to focus on the exchange of knowledge and experience in areas of digital identity, artificial intelligence, cybersecurity and cloud services. In October 2022, Japan joined the UK in strengthening cooperation in deepening digital government transformation. The Philippines became one of the latest partners to help push forth digital transformation efforts.

Once a country touting tech supremacy, Japan now has a lot of catching up to do. In the International Institute for Management Development (IMD) 2022 Digital Competitiveness Index, Japan ranked 29th out of 63 countries, dropping one place from the previous year.

Last year, Japan’s prime minister, Fumio Kishida, made it known that the government would promote Web3 services, including NFTs and the metaverse.

One of the first countries to launch 5G, Japan aims to achieve 98% 5G population coverage nationwide by the end of the first quarter of 2024. Apart from growing 5G technology, the government is funding research into future 6G. With 5G being a key enabler for digital transformation, Japan’s 5G aims to serve industrial markets and use cases to positively impact its economy.

However, Japan’s digital transformation is not without its hiccups, as its society is very much entrenched in traditional approaches in the workplace.

Forrester cited that more than 25% of Japanese firms delay digital transformation, while close to 10% are completely unreceptive. Last year, Japan’s new digital minister, Taro Kono, publicly pledged measures to eradicate the use of floppy disks to store data, a practice long seen as obsolete among many governments or offices in many countries.

As with many countries, Japan lacks the adequate digital talents to meet its digital needs. The country also needs to play catch-up in terms of cloud adoption to fully unleash the potential of today’s technology. With investments in cloud computing accounting for only 4% of all of Japan’s IT spending in 2021, Japan is behind many countries.

Japan’s Semiconductor Industry

Once the world’s largest chipmaker, manufacturing more than half of the world’s semiconductor supply in the 1980s, Japan now accounts for only about 9% of the global semiconductor production, based on information from the World Production Forecast for Semiconductors. To grow its competitiveness, the country is attempting to revive the industry to close in on gaps with Taiwan, South Korea and China through a slew of initiatives.

Driven by supply chain vulnerabilities brought to light during the pandemic, Japan wants to rely less on imports of these advanced chips from Taiwan and South Korea.

To increase its semiconductor production and grow its expertise in producing advanced chips, Japan approved $7.7 billion in funding to grow semiconductor manufacturing in 2021. Additionally, the government has provided subsidies for joint ventures with Taiwanese and US semiconductor suppliers. For example, in June 2022, Japan’s Ministry of Economy, Trade and Industry (METI) provided $3.5 billion in subsidies for the construction of an $8.6 billion semiconductor foundry on Japan’s west coast, the first foundry jointly invested in by TSMC to receive government subsidies and set to be the most advanced foundry when production begins by the end of 2024. More plans are in the pipeline to raise the country’s competency in advanced chip-making.

Even though Japan no longer holds a leadership position in tech, the country continues to be a major tech player in the region, with a long history of tech innovations and vested interests in growing IoT, artificial intelligence and 5G to drive new applications in the digital economy.

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