Japanʼs
New Digital andEnergy ShiftMISSION STATEMENT
Japan has emerged from what was known as its three ʻlostʼ decades to again become a
global focus of interest in business, geopolitics, investment and even tourism. But thecountry is also in the middle of a turbulent transformation and the challenges it faces
are most prominent in the shifts toward digitalization of data and ﬁnding cleaner formsof energy.
With a so-called "Digital Cliﬀ" looming in 2025 and an ambitious decarbonization
agenda for 2030, there is a pressing demand for Japanʼs leaders to act and shake up thestatus quo. At stake are the nation s long-term economic prosperity and the prominenceof its role on the international stage.
The government has identiﬁed digitalization and clean energy as two of the top
priorities in its broader "New Capitalism" transformation program. However, it is yet tobecome clear how these two initiatives overlap, support or even contradict each other,and what the overall consequences of their execution will mean. The government itself
has only just begun to pay attention to these implications.
This is where GxxD reports aim to shed some light. The reports are a new series of casestudies and white papers from research ﬁrm Yuri Group about the latest trends andinnovations in Japan s digital and green energy transformation.
We will use terms popularized by current Prime Minister Kishida Fumio's administration:
GX for Green Transformation, and DX for Digital Transformation. Indeed, our project
title takes inspiration from them. However, we see the GxxD ﬁndings as applicablebeyond this current administration and Japan itself.
The issues of digital and green energy transformation are the existential questions ofour generation. We hope the reports will oﬀer insights into the journey ahead.

Balancing decarbonization with digitalization
is an attempt to connect our future and ourpast. It is one of the key challenges of our era,and could define how human society evolves.
‒ Yuriy HUMBER, CEO Yuri Group1 ￨ Japan s New Digital and Energy ShiftDigitalize to Survive
In less than 12 months, Japan is going to start sliding oﬀ what has been termed the“2025 Digital Cliﬀ.” How steep the fall will be remains to be seen, but left unchecked it
threatens to nudge many traditional businesses down a slope of increasing irrelevancewithin the global economy.
This scenario is not the work of doomsday analysts, but a warning from Japan s
preeminent authority on industrial and economic policy, the Ministry of Economy Tradeand Industry (METI), in a report that was ﬁrst published in 2018 and since updated into a
Digital Governance Code.
The Digital Transformation Report projected that by 2025 Japan s economy will face asevere shortage of Information Communication Technology (ICT) personnel,
amounting to almost half a million ICT workers. This is happening at a time when 60%
of Japanʼs mission-critical computer systems are well behind the technology curve at 20
years or older.
Without drastic measures, the IT skills shortage and outdated technology could cost thecountry ¥12 trillion a year (US$ 77.2 billion) in lost economic opportunity, or roughly 2%of GDP, warns METI.
The inadequacies of the country s digital infrastructure came into sharper focus in early2020 during the Covid-19 pandemic. Companies hit by pandemic shutdowns were
eligible for government subsidies, but these were delayed due to failures in the online
application system. Medical reports on Covid testing of patients were slowed by areliance on fax machines.
In response to these bottlenecks, the public sector went into policymaking overdrivefrom 2020, introducing various schemes to tackle the most pressing issues. These
included the Digital Governance Code, DX Stocks and the DX Certiﬁcation System, each
designed to identify, certify, support and promote speciﬁc companies attempting to
upgrade their digital processes, alongside the digital capabilities of workers.
A dedicated Digital Agency was established in 2021. It was tasked with overseeing
public sector initiatives designed to kickstart innovation in Japan, reboot the economy
and upgrade the ability of its companies to compete on the digital international stage.
Will it help Japan shift to a decentralized, yet highly connected, data-ﬁrst, autonomous
society that previous administrations labeled “Society 5.0 ?

2025

430,000
Projected ICT worker shortage2￨ Japan s New Digital and Energy Shift¥12(2% of GDP)

trillion

Lost economic opportunity per yearProjected total population by age group
150

Down in the

Demographic
Dumps

Actual65+

Estimated

15-64 years old
0-14 years old

120

90

60

30

0

1970

1990

2005

2020

2045

2065

2070

2085

2100

Source: National Institute of Population and Social Security Research + Ministry of Internal Affairs and Communications

Japanʼs annual birth rate peaked at 2.1 million about 50 years ago and has been on a
downtrend ever since. Earlier predictions said the number of births would fall below
760,000 by 2035, but that was well oﬀ the mark as the number dipped to that level in
2023, according to government data.
Prime Minister Kishida has called the baby slump “Japanʼs biggest crisis,” and like previous
administrations has thrown money at the problem in the form of family and child subsidies, but so far with scant impact. This has forced the government to start to come toterms with the political hot potato of immigration.
This has brought about several generous tweaks to working visas for people with theskills that Japan needs ‒ mostly software and technology specialists and digital nomads,
but blue-collar workers are also in the mix as the country, for example, faces a chronic
shortage of truck and delivery drivers.
As a result, a record number of foreign nationals (3.4 million) now live in Japan, but that
number is still nowhere near enough to meet the projected worker shortfall.
This reﬂects the countryʼs well reported depopulation trend that is threatening to drastically dent Japanʼs industrial output and economic performance. On the current trajectory, Japanʼs population is projected to fall by around half to 63 million people by 2100
with the result that 40% of its regional municipalities may cease to exist due to a lack ofpeople.
On top of that, there are a range of societal phenomena that, while far from exclusively
Japanese problems, are becoming particularly acute, causing alarm bells to ring and causing
headaches aplenty for policymakers.
There are, for example, 1.5 million people in Japan deﬁned as hikikomori, or extremesocial recluses. Unable to leave their houses or even their bedrooms, this group now
makes up 2% of the working-age population. On top of that, a health ministry survey
released in March found that by 2050 there will be almost 11 million elderly people living
alone in Japan, making up one ﬁfth of the nationʼs households.
3￨ Japan s New Digital and Energy ShiftAs in the digital sphere, Japanʼs public sector embarked on an environmental policymaking drive in part due to the pandemic. After lagging behind China in terms of making aninternational pledge to bring the countryʼs emissions to net-zero, Japanʼs oﬃcials havesince sought to burnish their green credentials.

Going
Green

A series of clean energy roadmaps were assembled under Prime Minister Kishida andampliﬁed as a so-called GX Basic Policy, which was published in February 2023. While his
predecessor set up a ¥2 trillion Green Innovation Fund, Kishida unveiled a ¥150 trillion GX
investment program that is supposed to span a decade and invigorate both state andprivate money into the decarbonization of all parts of the economy.
This policy framework is fundamental to the governmentʼs goal by 2050 of carbon
neutrality, which Japan has committed to ‒ by law ‒ under the terms of the 2015 Paris
Agreement on mitigating climate change. As the ﬁrst stage of that process, Japan aims
for a 46% reduction in emissions by 2030.
The country is projected to fall short of this target, with current data suggesting it willachieve a reduction of around 40% by the end of the decade. Even that will take amassive eﬀort in terms of human, ﬁnancial and natural resources, but it has not sparedJapan from criticism by climate groups that point to even more ambitious goals outlinedby Germany (65% emissions reduction by 2030) and Sweden (63% by 2030).
So what can Japan do to kick start its journey toward carbon neutrality and keep pacewith the targets set elsewhere? The national approach allocates much of the responsibility for change to the private sector.
To gather support from businesses for the GX initiative, Kishidaʼs administration has
created a so-called GX League, which now comprises 568 companies. Many are among
Japanʼs biggest carbon emitters and their cooperation with public and academic initiatives is vital to setting credible carbon transition goals. The GX League pushes members
to move beyond the abstract thinking of long-term targets and toward more practicalshort-term measures.
The GX League, set up in 2023, was also used as the foundation for launching a nationwide carbon credits marketplace on the Tokyo Stock Exchange, which is currently in trial
mode, and was followed by the government issuing the worldʼs ﬁrst GX Economy Transition Bond, also known as the GX Bond or a climate transition bond. The issuance israising private capital, including from overseas, to ﬁnance the GX programʼs industrial
transition roadmaps.
In this way, GX Bonds could be said to act as more than a ﬁnancial instrument. They are
an investor-led vote on the validity of Japanʼs GX strategy, which while termed ʻgreen,ʼ
diﬀers in places from the green taxonomies of other developed nations, especially thosein Europe. Should Japanʼs GX strategy win international investor approval, it could evencarve a path for a new kind of Asia-centric energy transition.

46
4￨ Japan s New Digital and Energy Shift%Japan’s greenhousegas reduction target

150¥

trillion
Japan’s 10 year
GX investment plan

There is an elephant in the room.

Japan power generation mix forecast
100
Renewables(inclu. hydrogen)Nuclear80

Natural Gas
Coal

60

Oil
40

20

% 0

2022

2030

2035

TWH/Year
9,000

15000

10000

12,000

23

93
90

2018

2030

2050

5000

0

Network

20000

Data center

The Ministry of Communications
projects that electricity consumption
associated with data centers andconnected networks will grow 550-foldby 2050, based on 2018 levels.

25000

0x

How exactly do the DX and GX initiatives
talk to each other? Is it even possible forthe two goals to work in tandem? Moreover, is anyone in government thinking
holistically about a DX drive that will
involve construction of huge amountsof electricity guzzling infrastructure,such as data centers, at a time when GX
goals dictate signiﬁcant cuts in carbon
emissions?

55

Where
DX and GX
Meet

Increase in power consumption

14

Source: Ministry of Internal Affairs and Communications

The most recent Basic Energy Plan fromMETI ‒ the ministry also leading the charge
on digital transformation ‒ set a goal of
36-38% renewables and 20-22% nuclear
power in the national energy mix by 2030,
the latest date in government projections.
There is speculation that Japan will be
unable to meet these goals and that METI
will submit a revised plan later this year.
So, while Japan seeks to decarbonize its
power sector by weaning itself oﬀ fossil
fuels, it faces a major surge in electricity
consumption, particularly after committing
to a revival of its semiconductor industry
as part of the DX shift.

Source: S&P Global

Japanese companies engaging in both DX and GX

The twin needs of energy and digital are yet to ﬁlter through to the plans of Japanʼs
3,686 listed companies. According to a recent survey by the Tokyo Foundation for Policy
Research think tank, only 8.4% of Japanʼs listed ﬁrms engage in green policies, 9.3% indigitalization, and just 3.5% in both DX and GX.

8.4%
GX

3.5

%
DX&GX

9.3%

Source: Tokyo Foundation for Policy Research

5￨ Japan s New Digital and Energy ShiftDX

The data shows that there is a long
way to go before a majority ofJapanese businesses take on the GX
and DX initiatives proposed by thegovernment. On the ﬂip side, thereis clearly a business opportunity for
any founder, entrepreneur orinvestor who oﬀers solutions toconnect the twin issues.

A number of factors are now priming overseas entities to reconsider Japan as an investment destination, not least the array of U.S.-China trade conﬂicts that have opened slots
in the global supply chain. Endorsements from investors like Warren Buﬀet and Larry
Fink have also put the spotlight on Japan.
But where is that spotlight shining brightest? Increasingly, it is in areas that we identify in
the GxxD reports as either related to GX, DX or ‒ most promising of all ‒ a mixture of both.

Investment
Policy labels come and go, and the GX and DX monikers may well disappear with thenext change of government (indeed, thereʼs already talk of ʻGX 2.0ʼ). However, the trends
Makes
and needs captured by those acronyms ‒ digitalization and decarbonization ‒ are built
on the back of years-long eﬀorts to grapple with the major shifts in Japanʼs society and
Perfect
economy.
And whether consciously or otherwise, the inﬂow of capital into Japan today is concentrated in those key sectors and industries that are, or could be, transformed the most by
the GX and DX drives.
As the Nikkei 225 stock market in March 2024 surpassed record highs set in the days ofthe bubble economy 30 years prior, one of the drivers was Japanʼs eﬀorts to revive thedomestic semiconductor industry. That same theme was echoed in the governmentʼs GX
bond issuance, which cited the need to fund investments in decarbonization pathways
that include new semiconductor chips.
The semiconductor push connects many of Japanʼs issues. Better chips are needed to run
decentralized digital and energy systems. These systems rely on access to data centers andcloud computing that consume huge amounts of energy. The chips enable greater automation in manufacturing and remote-access technology, which alleviate depopulation
constraints. But for the sake of sustainability, the energy underpinning all this must be clean.

Some of the biggest investments in Japan in the last year:
The government is pouring as much as ¥5 trillion to create a semiconductor ﬁrm,
called Rapidus, to produce cutting edge chips on the northern island of Hokkaido
On the southern isle of Kyushu, Taiwan Semiconductor Manufacturing Co, or TSMC,
is building two, possibly three, factories as part of a $20 billion investment in Japan
Open AI, creators of ChatGPT, chose Tokyo as the location for their ﬁrst Asia oﬃce
Google announced a $1 billion investment to improve digital connectivity between
the U.S. and Japan via deep sea cables
Microsoft pledged to invest $2.9 billion in Japan data centers by 2025
Amazon Web Services, the world's top cloud computing ﬁrm, will put $15.5 billion
in Japan over ﬁve years between 2023 and 2027
The biggest deals in Japanʼs stock market in 2023 was the privatization of ToshibaCorp, an engineering group focused on energy and digital infrastructure, withrelations to the chips supply chain, and JSR Corp, a producer of materials vital to thesemiconductor manufacturing process
If this is the smart money, then itʼs all betting on a massive transformation in tech andclean energy. But these transformations are still in an early phase.
6￨ Japan s New Digital and Energy ShiftForeign Direct Investment

100
80Trillion yen

Smart
Money

120

60
40

The Japanese government aims to
attract ¥100 trillion ($650 billion) in
foreign direct investment by 2030.

2002014 2015 2016 2017 2018 2019 2020 2021 2022

2030

Source: Ministry of Economy, Trade and Industry (METI)

5-year startup development plan (2022 to 2027)
Facilitate success of

100 unicorns
Develop

100,000 startups
Attract ¥10 trillion

per year in startup investment

Source: Keidanren business federation, ‘Startup Review Book 2023’

As part of Kishidaʼs “New Capitalism”, in November 2022 his administration approved aﬁve-year plan for a 10-fold increase in investment in startups to ¥10 trillion (US$64 billion).
This aims to create 100,000 startups and 100 ʻunicorns,ʼ which are startups valued at morethan US$1 billion, in order to transform Japan into Asiaʼs startup hub and one of the worldʼsmajor innovation clusters.
According to the Japan External Trade Organization, investment in startups stood at ¥877
billion in 2022 ‒ well below the ﬁve-year target but already a more than 13-fold increase insuch funding since 2012.

Green Investment Bonds
80

80
70

60

60
Trillion

Government support
Overall public& private sector investment

50
40
30
20
10
0

6-8
Expansion of
non-fossil energy

9-12Structural transformation& energy saving

2-4

Resource recycling& carbon ﬁxation technologies

Source: METI, ‘Japan Climate Transition Bond Framework,’ Nov 2023

7￨ Japan s New Digital and Energy Shift10

The government will issue¥20 trillion in green investment bonds (also known
as GX bonds) over the nextten years as a catalyst to
unlock ¥150 trillion in
public-private investments.

Japan in the age of transformation

CONCLUSION
Japan often seems to exist in a ﬁshbowl, with the whole world looking in. It s an eﬀectof the nation s past economic successes and an enduring fascination with Japaneseculture. But it also speaks to an understanding of Japan as an arbiter for change, abellwether of things to come.
Suﬀering from a low fertility rate, an aging and dwindling population, urban ﬂight andthe abandonment of rural life, Japan is facing challenges known the world over. But inJapan, these challenges are more advanced and becoming acute. Other nations are
now peering into the ﬁshbowl, looking for guidance, business opportunities or both.
Increasingly, Japan is turning to digital solutions ‒ robotics, AI, decentralized operating
systems ‒ to help bridge the gaps in an increasingly dispersed and stratiﬁed society.
Adopting a “nobody left behind” attitude, the idea is that technological innovation can
provide the means to draw more participants into the broader economy, building out
the nation s ability to provide for those in need.
But digital infrastructure of this kind requires electricity. The nation s commitment tocarbon neutrality by 2050 dictates that any additional power demand must be met
with green or CO2-free supply. And it s here that things get interesting.
The goals outlined by the GX, DX and other government agendas are often well intentioned
and relevant within their own domain, but contradictory when read as a whole.

Adapting the tech to allow everyone to live as they wish,
remote and self-sufficient but also hyper-connected tosociety, is limited by the combined resources of Japan s aging
society.
There will be tradeoﬀs.
Japan s most aggressive industrial push of recent decades ‒ to recover the nationʼs
glory in the semiconductor industry ‒ encapsulates the dilemma. Alongside AI, the chip
sector is positioned as key to Japan s future economic vitality. And yet, the process ofbuilding new semiconductor fabrication plants requires vast new energy resources. If
these have to be ʻgreen,ʼ then Japan will need to replace over 80% of its fossil-reliant
energy system and build new power facilities all at the same time.
New chips can power the clean energy systems that Japan needs to decarbonize. But aslong as society burrows further into technological reliance, demand for digital andenergy will just keep going. The circular dynamic is at the heart of Japan s green anddigital transformation.
Can the public, private and academic sectors come together eﬀectively to put thatcycle into rotation and make it all work? It s a big ask, but the GxxD series will help you
understand just how they are going about it.
8￨ Japan s New Digital and Energy Shift

AI

Augmented reality
Metaverse
Robotics

Quantum computing
Blockchain / Fintech

Infrastructure
and utilities

Sectors to
Keep anEye OnEmerging tech

GxxD reports provide detailed case studies of the most transformative, under-the-radar
innovations in Japan today in the realm of digital and energy. But we also recommendthat you keep an eye on four key areas and connected industries that will beneﬁt fromGX-DX developments:

Fiber optics

CO2 trading /carbon recycling
Smart cities

Cyber security

Semiconductors
Urban recycling

Space-based power and fuels
Satellites and space mapping
Bio and synthetic fuels
Driverless vehicles
Hover / ﬂying vehicles and drones

Medicine andlongevity

Space andtransport

Asteroid mining

9 ￨ Japan s New Digital and Energy Shift

Remote / online careand diagnostics
Microanalysis
AI drug development
Gene construction
Regenerative medicine

The GxxD reports series covers the megatrends,
business models, and innovations at thecrossover between digital and clean energy.
With stories on areas as diverse as AI, the CO2
economy, robotics, and fusion, we share
intelligence that anyone with an eye on Japan
will want to explore further.

For further details about the GxxD project:

info@yuri-group.co.jp

www.yuri-group.co.jp/gxxd
linkedin.com/company/yurigr/

Senior Writer:

Will Fee

Editor-at-Large:

Peter Langan

Yuri Group President:

Yuriy Humber

Designer:

Memi Fee

Hulic Ochanomizu Bldg. 3F, 2-3-11, Surugadai,
Kanda, Chiyoda-ku, Tokyo, 101-0062
Disclaimer: This communication has been prepared for information purposes only. Yuri
Group retains all copyright to its content. Yuri Group is not registered as an investment
advisor in any jurisdiction. The information contained in this report is obtained fromsources believed to be reliable and in good faith. No representation or warranty ismade that it is accurate or complete. No responsibility is accepted for the use of or
reliance on the information provided. In no circumstances will Yuri Group be liable forany indirect or direct loss, or consequential loss or damages arising from the use of, any
inability to use, or any inaccuracy in the information.
All rights reserved May 2024.