AWS’s Asia chief is relocating to Japan as the country scrambles to modernize its legacy IT systems

Amazon Web Services’ top Asia executive is moving to Tokyo, as the global cloud computing provider bets that Japan’s potential for AI adoption makes it a far more interesting market than its sluggish headline GDP growth suggests.

“Japan is in a moment of change,” Jaime Valles, AWS’ managing director of Asia-Pacific, Japan and China, tells Fortune at the firm’s Singapore office.

“AI, security and competition are three strong reasons for Japanese companies to move from a traditional mainframe-based platform to the cloud.” Japan’s government has warned that a failure to modernize the country’s IT systems, which it dubs a looming “digital cliff,” could cost the economy as much as $76 billion each year.

The country was once a global pioneer in technological innovation, playing a leading role in the spread of technologies like LEDs, lithium-ion batteries, and notebook computers.

But Japan’s corporate culture shifted to reward caution over disruptive innovation, a trend that the World Economic Forum attributes to a cultural aversion to failure and risk.

“The technology posture Japan has today is still very based on traditional, legacy on-premise technology,” Valles says.

“Even if you go deep into Japan, most of the support, enablement, applications and technology is run by four local companies: Hitachi , NEC, Fujitsu and NTT Data.” Yet this conservative mindset has caused Japan to fall behind its peers in reaping the benefits of the AI boom.

China has pulled forward in the development of humanoid robots and frontier open-source AI models , while Taiwan and South Korea’s chipmakers have entrenched themselves in global AI hardware supply chains.

While Japan lags on manufacturing advanced logic chips, it is still a major manufacturer of legacy and specialized automotive chips, as well as materials and equipment.

Last year, Japan began a push to reboot its innovation engine with a plan to channel $2.3 trillion in public and private investment to 17 strategic sectors by 2040.

Semiconductors will get the largest share of the money, receiving $426 billion.

Around $66 billion will go to physical AI, a catch-all term that includes robotics and autonomous systems.

“With AI development moving so fast, Japan can’t afford to fall behind,” the country’s digital minister, Hisashi Matsumoto, said during a press briefing last June.

“I hope many Japanese people understand that we need to press ahead with AI development, or we’ll end up becoming an AI colony.” For Valles, that renewed technological push creates an opportunity for cloud providers to drive digital transformation among local companies.