Japan Data Center Market Assessment, By Data Center Rating, By Type, By Infrastructure, By Enterprise Size, By End-user, By Region, Opportunities and Forecast, FY2018-FY2032F

Japan data center market is projected to witness a CAGR of 9.27% during the forecast period FY2024-FY2032F, growing from USD 8.52 billion in FY2024 to USD 17.32 billion in FY2032F.

The upward trend in Japanese cloud computing consumption has created substantial market expansion for data centers in the country. Digital transformation in businesses has driven the essential need for cloud services to store, manage, and process increasingly vast volumes of data. Traditional industries along with tech startups in Japan are adopting cloud-based solutions which is leading to a strengthening market demand for data centers. Additionally, the ongoing development of artificial intelligence (AI), the Internet of things (IoT), and 5G networks is significantly driving data center expansion in Japan because these technological networks need substantial computing power together with quick response infrastructure to function properly.

Furthermore, many prominent players within the data center market are strengthening their operations in Japan to serve rising business and government institution requirements in the country. For instance, in April 2024, Oracle Corporation Japan announced USD 8 billion investment plans to meet the growing demand for cloud computing and artificial intelligence (AI) infrastructure in Japan for over the next 10 years. Also, the firm expanded its operations and support engineering teams with Japan-based personnel to help customers and partners address the digital sovereignty requirements in Japan.

Environmental Sustainability Goals Driving the Japan Data Center Market

The data center market of Japan is experiencing a crucial boost from environmental sustainability targets set by the nation. Businesses are concentrating on energy-efficient and environmentally responsible data centers because the government aims to reach carbon neutrality by 2050. The growing demand for data consumption together with cloud computing is continuously driving investments in the industry because of their need for sustainable infrastructure.

Also, more companies are implementing green data center solutions through implementing liquid cooling systems alongside renewable energy sources and AI-powered energy efficiency management to decrease their carbon footprint. For instance, in FY2023, Japanese ISP Internet Initiative Japan Inc. (IIJ) installed 336kWp rooftop solar panels on the data hall and administrative buildings at its Shiroi data center campus in Chiba Prefecture. Additionally, many other prominent players like KDDI Corporation are exploring the use of perovskite solar cells while Nippon Telegraph and Telephone Corporation (NTT) planning to implement solar panel rollout across its Japanese data center portfolio. All such initiatives taken by the various prominent key players within the country are significantly accelerating the growth of the data center market in Japan.

Government Initiatives are Proliferating the Japan Data Center Market

The Japanese data center market has been significantly driven by various country's government initiatives and policies. The government of Japan has prioritized data and infrastructure development as a part of its digital transformation strategy to support the growing digital economy. One of the key initiatives taken by the Japanese government is the Digital Garden City Nation plan outside Tokyo and Osaka, which aims to decentralize data centers by promoting the construction of regional facilities. The initiative is expected to enhance disaster resilience and reduce congestion in major hubs. Moreover, the government of Japan is making significant investments in providing tax-based incentives and subsidies which is further encouraging the investment in data centers, particularly in rural areas. One notable example of the Japanese government's efforts to encourage investment in data centers, particularly in rural areas, is the subsidy for Development of Regional Data Centers introduced by the Ministry of Economy, Trade and Industry (METI) in FY2023. The subsidy is reported to cover 50% of the costs associated with developing land for new data centers along with providing financial support for the development of electric power infrastructure required for the data centers. Additionally, the subsidy stated covers the costs of developing the telecommunications infrastructure necessary for the data centers. Furthermore, as per the Japan External Trade Organization (JETRO), the subsidy amounts can be substantial, with up to 120 million USD (approximately 15.54 billion yen) for land and infrastructure development, and up to 230 million USD (approximately 30 billion yen) for the entire project, including buildings and equipment.

Colocation Data Centers Segment Significantly Driving the Japan Data Center Market

The Japan data center is experiencing robust growth, driven by the increasing adoption of colocation data center services. These services allow businesses to lease physical space, network bandwidth, and other computing resources within an established data center infrastructure. The colocation data centers service model offers cost-efficiency, heightened reliability, scalability, proximity to end-users, and reduced technical personnel requirements thereby, driving demand in this segment. Moreover, the colocation data center segment is gaining traction due to the increasing demand for cloud services, data storage, and digital transformation initiatives across various industries in Japan.

Furthermore, several other factors such as expanding e-commerce sector and the rise of remote work, have created a strong demand for robust data storage solutions to manage large volumes of transaction data and secure data centers to support virtual business operations. Additionally, the ongoing adoption of hybrid cloud strategies which involves both on-premises and colocation data centers for optimal efficiency and security by a number of enterprises is further adding value to the Japan data center market. As a result, continuous advancements in artificial intelligence and machine learning are expected to drive the need for powerful data processing facilities, thereby boosting the colocation data center segment.

Future Market Scenario (FY2025 - FY2032F)

The upward trend towards the growing consumption of cloud computing services along with the growing digital transformation in businesses has driven along with the country's focus on environmental sustainability goals has driven innovation and various investments within the Japan data center market landscape.

Growing government initiatives and policies to prioritize data and infrastructure development as a part of its digital transformation strategy to support the growing digital economy are anticipated to fuel the growth and demand of the Japanese data center market.

The increasing adoption of colocation data center services, along with the rising demand for cloud services, data storage, and digital transformation, and with additional factors like e-commerce growth, remote work, hybrid cloud strategies, and advancements in AI and machine learning, the Japan data center market is expected to experience robust growth.

Key Players Landscape and Outlook

The Japan data center market is moderately fragmented with a diverse array of key players contributing to the growth of the market. Key players are heavily investing in expanding their data center facilities to cater to the growing demand for cloud services, data storage, and digital transformation. For instance, in January FY2024, Amazon Web Services, Inc. unveiled its 15.07 billion USD (JPY 2.26 trillion) investment plans into its existing cloud infrastructure in Tokyo and Osaka by FY2027 to cater to the growing customer demand for cloud services in Japan. The AWS Economic Impact Study (EIS) for Japan reported the investment is anticipated to contribute USD 37.15 billion (JPY 5.57 trillion) to Japan's Gross Domestic Product (GDP) and support an estimated average of 30,500 full-time equivalent (FTE) jobs in local Japanese businesses each year. Furthermore, many prominent key players are also contributing to the Japanese data center market growth by forming strategic collaborations and partnerships to solidify their presence within the market. For instance, in August FY2024, Singapore Telecommunications Limited and Hitachi, Ltd. formed a strategic partnership to contribute to next-generation data centers and Graphics Processing Units (GPU) Cloud in Japan and potentially the wider Asia Pacific region under the lead of Singtel's Digital InfraCo unit. The collaboration will combine Singtel's extensive data center and connectivity expertise and technology platforms with Hitachi's differentiating capability that enables end-to-end data center integration including green power solutions, cooling systems, storage infrastructure, and data management.