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	<title>Economic Analysis | The Daiwa Institute of Research</title>
		<link>https://www.dir.co.jp/english/research/report/analysis/index.html</link>
		<language>en</language>

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			<title>Challenges in the Societal Implementation of Physical AI</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260508_025746.html</link>
			<pubDate>Fri, 08 May 2026 10:10:00 +0900</pubDate>
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    ◆In recent years, there has been growing interest in ‘physical AI’ as a new area of application. Physical AI refers to AI that performs actions and tasks in the real world through robots and other means, representing a new form of AI application that differs from conventional business automation. However, given that it operates in the real world, this is not a field where widespread adoption will occur naturally through technological advancements alone.

◆Internationally, the United States is leading the way with an approach centered on advancing foundational models, backed by massive computational resources, while China is simultaneously promoting adoption and standardization under policy-driven initiatives. In contrast, while Japan possesses strengths in fields that prioritize safety, quality, and on-site applicability, its investment in foundational models and computational resources falls short of that of the United States and China; consequently, it is difficult to say that Japan can realistically compete with the US and China on a scale comparable to theirs.

◆Against this backdrop, the Japanese government has outlined a plan to leverage industrial data while developing domestic base models and evaluation and demonstration environments, with the aim of enhancing the competitiveness of the manufacturing sector and other industries. This strategy can be considered sound, as it focuses resources on areas where Japan’s strengths can be most effectively leveraged.

◆However, as Japan moves toward the societal implementation of physical AI, it faces different bottlenecks during the development and validation phase versus the deployment phase. In the former, constraints on field trials due to safety concerns and the potential impact on operations mean that it is important to secure simulation platforms and computational resources. In the latter, the pursuit of site-specific optimization tends to create significant implementation burdens, making it difficult to scale solutions across sites or achieve continuous improvement.

◆Consequently, the success of deploying physical AI in society depends not only on the technical performance of the technology but also on how non-technical factors—such as safety, quality, and the delineation of responsibility—are designed. While Japan’s strength lies in having carefully established these conditions in a manner tailored to real-world settings, the key focus going forward will be on whether it can transform this strength into a form that can be applied across various sectors.

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			<title>Challenges Lurking Behind the Record-High Current Account Surplus</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260423_025724.html</link>
			<pubDate>Thu, 23 Apr 2026 09:50:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆According to the Balance of Payments by the Ministry of Finance and the Bank of Japan, Japan’s current account balance in 2025 posted a record-high surplus of 32.2 tril yen. Over the past two decades, the composition of the current account surplus has changed markedly: while the trade and services balance has shifted into deficit, the expanding surplus in the primary income balance — driven mainly by returns on overseas investments — has become the key factor pushing up the overall current account surplus.

◆As the focus of capturing external demand has shifted from exports to investment income, the benefits of the current account surplus have become less likely to reach households. When exports rise, domestic production expands and households tend to benefit through higher employee compensation. By contrast, increases in overseas investment income have weaker spillover channels of this kind. Measures such as supporting household financial asset formation are important so that households can share more fully in the gains from overseas corporate expansion.

◆The trade and services balance is likely to remain in deficit for the time being due to structural factors, such as energy-import dependence on the trade side, and payments including fees related to digital-related services and reinsurance on the services side. As a result, Japan’s current account surplus is expected to remain reliant on the primary income balance. Over the medium term, meanwhile, population aging and the accompanying decline in the household saving rate are likely to exert downward pressure on the size of the current account surplus.

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			<title>External Shocks Looming Over Inbound Tourism</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260413_025695.html</link>
			<pubDate>Mon, 13 Apr 2026 11:00:00 +0900</pubDate>
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    ◆In response to the Chinese government’s request to refrain from travel, which began in the fall of 2025, the number of Chinese visitors to Japan has decreased. The magnitude of this decline is comparable to that seen in the fall of 2012, when the Senkaku Islands were nationalized. On the other hand, the number of visitors from Hong Kong, Taiwan, North America, and South Korea has remained steady, so the overall inbound tourism market has not lost its momentum.

◆The number of foreign travelers from countries and regions that send large numbers of visitors to Japan is generally on an upward trend. While the proportion of travelers choosing Japan as a destination has declined in mainland China due to requests to refrain from travel to Japan, it remains stable at a high level in South Korea and Taiwan, and is on the rise in the United States.

◆Looking ahead, the number of visitors to Japan from mainland China may recover more slowly than expected if the deterioration in Japan-China relations persists. The number of visitors from South Korea is expected to be sluggish in 2026 but is projected to begin increasing in 2027. On the other hand, the number of visitors from Taiwan and the United States is expected to show steady growth in both 2026 and 2027. However, caution is warranted regarding the possibility that rising crude oil prices due to tensions in the Middle East and a slowdown in the global economy could dampen visitor numbers.

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			<title>Can Japan Win in the Global Competition for Talent?</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260413_025694.html</link>
			<pubDate>Mon, 13 Apr 2026 10:20:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆For the Japanese economy, accepting foreign workers not only increases the labor supply but also contributes to improving total factor productivity (TFP) and leads to improvements in pension finances. On the other hand, due to prolonged low growth and the weakening of the yen, Japan’s nominal GDP per capita in dollar terms has been overtaken by South Korea and Taiwan, and there are concerns about whether Japan will be able to continue attracting foreign workers in the future.

◆Estimates of the number of foreign workers as of the end of 2030 indicate that the number of highly skilled workers will reach 1.22 million (1.8 times the level at the end of 2025), while that of medium and low-skilled workers will reach 2.08 million (2.5 times the level). The driving factors behind this growth are Japan’s economic growth and population increases in sending countries. In particular, the latter is projected to grow at a pace that exceeds the government’s admission cap in our estimates. However, if slower economic growth coincides with a prolonged period of yen weakness, the number of highly skilled workers at the end of 2030 is estimated to be 190,000 lower than in the above scenario, while that of medium- and low-skilled workers is estimated to be 630,000 lower. Since medium- and low-skilled workers are predominantly employed in industries facing severe labor shortages, this could further exacerbate labor shortages in those sectors.

◆To secure foreign workers in necessary sectors and alleviate labor shortages while curbing the decline in the working-age population, it is essential to implement measures that strengthen growth potential, such as investments in labor-saving technologies and growth-oriented initiatives. Furthermore, it is necessary to steadily advance the normalization of monetary policy and fiscal consolidation to prevent further depreciation of the yen.

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			<title>A 10% Reduction in Crude Oil and LNG Imports from the Middle East Would Push the Japanese Economy into Negative Growth</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260326_025663.html</link>
			<pubDate>Thu, 26 Mar 2026 14:30:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆A large share of crude oil and LNG (liquefied natural gas) transported through the Strait of Hormuz is exported to Asian economies. If a de facto closure of the Strait leads to a significant reduction in supplies of Middle Eastern crude oil and LNG, it would not only directly constrain domestic production in Japan but would also indirectly weigh on the economy through spillover effects on Japan’s exports stemming from production reductions in other Asian economies.

◆If WTI crude oil prices were to rise to 120USD/bbl, Japan’s real GDP growth rate in FY2026 is estimated to be reduced by around 0.5%pt. Furthermore, if WTI prices were to surge to 150USD/bbl and crude oil and LNG imports from countries surrounding the Strait of Hormuz were to decline by 10%—resulting in supply shortages across Japan and other Asian economies—the negative impact on Japan’s GDP growth would widen to approximately 2.0%pt. Under this scenario, the Japanese economy would likely fall into negative growth in FY2026.

◆In addition to Japan, China, South Korea, and Taiwan are also reported to hold a certain level of petroleum reserves. Therefore, the likelihood of a crude oil supply shortage is limited in the short term in these economies. While the Japanese government is expected to take supply-side measures, such as securing alternative sources of procurement, caution is warranted regarding household support measures that may inadvertently stimulate energy demand.

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			<title>Acceptance of Foreign Workers and Coexistence in an Era of Labor Shortages</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260313_025636.html</link>
			<pubDate>Fri, 13 Mar 2026 17:20:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Labor shortages have become a serious problem for corporations, and the degree of labor scarcity is expected to intensify further across many industries going forward. While measures to address the declining birthrate and to raise productivity through labor‑saving investment are necessary, the effects of birthrate policies take time to materialize, and firms may miss opportunities to expand profits under supply constraints, potentially leading to insufficient investment.

◆Against this backdrop, foreign workers are expected to play an important role in expanding labor supply. An increase in foreign workers would raise labor input and total factor productivity (TFP) and is estimated to boost Japan’s annual potential growth rate by 0.4 percentage points through FY2035.

◆At the same time, while the public's acceptance of foreigners tends to improve until the proportion of foreigners reaches a certain level, it may deteriorate if that share becomes excessively high. The analysis also suggests that language barriers reduce acceptance. It is therefore important to adjust the scale of acceptance in line with economic and local community conditions, and to improve Japanese-language proficiency. There is an urgent need to implement introductory programs open to all foreigners that cover Japanese language and everyday living rules, as well as to develop environments that make it easier to learn while working, such as weekend and evening classes and childcare support.

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			<title>What Does “the Death of SaaS” Mean?</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260310_025622.html</link>
			<pubDate>Tue, 10 Mar 2026 11:10:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆In early February 2026, software stocks were sold off and the phrase “the death of SaaS” rapidly spread through the market. This reaction stemmed from Anthropic’s release of “Claude Cowork” and its department-specific and function-specific plugins. While similar discussions occurred at the end of 2024, the market's current response can be attributed to the fact that, following advances in AI agent implementation, what was previously an abstract future vision has now become clearer as a concrete idea.

◆However, the “death of SaaS” does not signify the disappearance of SaaS as a service delivery model. Replacing SaaS with in-house solutions like AI agents requires not only operational accuracy but also significant compliance burdens, including security governance and audit logs. The load of designing, implementing, and maintaining these solutions individually is substantial for each company. Therefore, leveraging SaaS with embedded AI remains a practical choice. It is anticipated that SaaS itself will coexist while becoming more sophisticated through AI integration.

◆Meanwhile, the SaaS business model is being forced to change. As the primary operator shifts from humans to AI, foundational aspects like external integration (APIs, etc.), permission management, and auditability may become key differentiators over UI/UX. Furthermore, traditional pricing structures based on user numbers are likely to be reevaluated. The competitive landscape will also vary. Areas requiring heavy regulatory compliance and exception handling may see relatively stable demand, while in general-purpose domains, the ability to create added value through AI will determine competitiveness, leading to intensified competition.

◆As the SaaS industry moves toward an “agent-driven” model, client companies will increasingly redesign their business processes, raising expectations for productivity gains. However, during the transition period, skill shortages and organizational capacity will become bottlenecks, requiring employers to adapt to changing roles and necessary skills. In Japan, amid tightening labor supply constraints, the key will be whether companies can systematically advance reskilling and job reassignments rather than letting employees go. These AI-driven changes to business models are not limited to the SaaS industry; it is appropriate to view them as leading examples for the broader redesign of white-collar work.

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			<title>Trustworthy AI Is the Goal in the Artificial Intelligence Basic Planx</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260309_025618.html</link>
			<pubDate>Mon, 09 Mar 2026 11:20:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆In December 2025, the “Artificial Intelligence Basic Plan” (hereinafter referred to as the Basic Plan) was approved by the Cabinet. It strongly emphasized the policy of aiming to become “the world's most AI-friendly country for development and utilization,” while placing “trustworthy AI” as its core concept. Examining “trustworthy AI” through the lens of the OECD's AI Principles reveals a strong emphasis on human-centered values, fairness, robustness, and safety. Looking at the approaches of the United States and the EU, the items they prioritize and their methodologies differ from Japan’s. For Japan to continue leading the creation of international cooperation frameworks, there are many challenges, including the harmonization of evaluation criteria.

◆The Basic Plan cites “high-quality data” as a key strength for Japan in realizing “trustworthy AI,” citing healthcare, research, and industry as examples. However, progress in data infrastructure and utilization varies significantly across sectors. Healthcare and research, being highly public-oriented, benefit from government and research community leadership in establishing foundational frameworks, making data and usage environments relatively easier to develop. In contrast, while cross-sector and cross-industry collaboration is advancing in the industrial sector, inter-company collaboration across the sector remains slow. In addition, digital transformation (DX) has lagged among small and medium-sized enterprises (SMEs), making it difficult to say that “high-quality data” currently exists to a significant degree across the entire industry.

◆The Basic Plan also expresses concern about Japan’s lag in AI-related development and investment. The international upper echelons of general-purpose foundational models are led by the United States and China, with Japan's presence currently limited. Furthermore, considering the uneven international distribution of computational resources (GPU clusters) and the gap in private investment scale, it suggests Japan may not yet have sufficiently established the prerequisites for continuously developing and operating competitive AI models.

◆In light of the principle of “trustworthy AI,” the Basic Plan’s direction—developing AI foundation models suited to Japanese culture and customs, ensuring a certain level of autonomy, and building social implementation using high-quality data in areas requiring reliability—is desirable. However, resolving challenges such as data preparation outlined in the Basic Plan will take some time, and concerns remain regarding the concrete measures, execution capability, and speed required for its realization. The government has indicated its policy to compile a public-private investment roadmap by spring 2026, necessitating continued close monitoring of developments.

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			<title>Examining the Takaichi Administration’s Consumption Tax Cut and Growth Strategy</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260304_025614.html</link>
			<pubDate>Wed, 04 Mar 2026 14:50:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆The Sanae Takaichi administration plans to accelerate discussions toward eliminating the consumption tax on food and beverages for two years. However, this consumption tax cut would result in an annual revenue loss of approximately 5 tril yen, while its GDP-boosting effect would be limited to around 0.3 tril yen. Given that household support measures—such as increases in the basic income tax deduction—have already been implemented, and that the inflation rate is expected to decelerate, there is little need for this policy.

◆Redirecting the fiscal resources required for a consumption tax cut toward “growth investment” and “crisis-management investment” would be more effective for the Japanese economy, which faces structural supply-side constraints. In doing so, rather than allocating resources evenly across the 17 priority areas identified by the administration, it will be important to apply a clear sense of prioritization—focusing investment on areas with particularly large growth effects, such as semiconductors and AI—based on policy objectives and expected economic impact.

◆In the realm of crisis-management investment as well, attempting to bring low-probability risks completely under control would be inefficient from a cost–benefit perspective. Instead, efforts should be concentrated on areas where the likelihood of risk materialization is relatively high and the potential impact is significant—such as disruptions to imports of rare earths and other critical materials from China.

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			<title>Social Implementation of AI and Accelerating Infrastructure Investment</title>
			<link>https://www.dir.co.jp/english/research/report/analysis/20260203_025568.html</link>
			<pubDate>Tue, 03 Feb 2026 11:45:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆2025 marked the year AI took its first step toward collaborating with humans. Technologically, advancements in AI model sophistication and multimodal capabilities enabled the processing of more complex tasks and expanded the types of information AI could handle, broadening the range of tasks AI could perform. Furthermore, the emergence of lightweight yet high-performance AI models increased options for corporate adoption. Against this backdrop of improved AI model performance, proof-of-concept experiments focused on social implementation intensified even in practical domains like AI agents and physical AI.

◆From 2026 onward, the social implementation of these AI agents and physical AI are expected to advance further. While challenges remain in areas such as permission management, security, and institutional frameworks, implementation is likely to progress first in routine tasks with relatively minor impacts and in closed environments like factories. The year 2026 is anticipated to mark the turning point when the entire economy transitions toward an AI-based industrial structure.

◆Investment in AI infrastructure such as data centers by various AI companies has been increasing year by year. While some voices suggest this represents overinvestment, this trend is expected to continue into 2026. While technological efficiencies are improving, the performance gains of AI models are outpacing these efficiencies, leading to strained computational resources. Therefore, it is difficult to immediately label this as overinvestment. On the revenue side, however, corporate AI adoption is still in the trial phase, and monetization is likely to take time, necessitating close monitoring of developments.

◆Monetization depends not only on the performance of AI models but also on how widely and deeply they are adopted and established within companies. For the time being, it is crucial to carefully assess the expansion of implementation areas and usage track records, evaluating them from a long-term perspective rather than as short-term trends. The utilization of specialized AI models is also advancing, and their combined use with optimization tailored to specific applications is expected to grow. Beyond technological progress and infrastructure development, the key to AI market growth will likely be whether the level of adoption within companies translates into sustained demand.

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