Market Overview

Japan’s cloud services market (IaaS/PaaS) was estimated at 2.71 trillion yen in 2025, representing 118.1% of the previous year. Growth has been driven primarily by ongoing cloud migration and the increasingly strategic adoption of hybrid and multi-cloud architectures. While both trends have gained momentum in recent years, their trajectories differ somewhat.

Cloud migration is shifting from relatively simple, easy-to-transfer systems—such as standard OS-based applications with minimal dependencies—to more complex, heavily customized environments. These proprietary systems take longer to migrate, which in turn is expected to sustain steady demand over time.

Hybrid and multi-cloud architectures, meanwhile, have evolved from being a byproduct of IT decisions into a deliberate strategy. Companies are now adopting these models to balance performance and cost at the enterprise level. By integrating on-premises infrastructure with multiple public cloud platforms, firms can take advantage of cloud capabilities while maintaining flexibility and scalability. This shift is expanding the volume and variety of systems and data flows in the cloud, further supporting market growth.

Noteworthy Topics

Rise of Sovereign Cloud

While there is no universally accepted definition of a sovereign cloud, the term generally refers to cloud environments designed to comply with the laws and regulations of a specific country or region, with data storage, processing, and operations confined within those boundaries. Demand for sovereign cloud solutions is rising globally, driven by geopolitical tensions and increasingly stringent compliance requirements. As governments and businesses place greater emphasis on protecting critical infrastructure, managing supply chain risks, and achieving technological self-reliance, ensuring the security and reliability of underlying cloud infrastructure has become a priority.

In Japan, a growing number of offerings are being positioned as sovereign cloud solutions, particularly by established cloud service providers. Ongoing enhancements in these services are beginning to lay the foundation for migrating mission-critical systems—once restricted to on-premises environments—to the cloud.

For now, the scope of data and systems requiring sovereign cloud remains relatively limited. However, even highly sensitive systems are beginning to demand the scalability, operational efficiency, and access to advanced technologies that cloud platforms provide. In response, companies are increasingly adopting hybrid and multi-cloud strategies that incorporate sovereign cloud elements: highly confidential workloads or those subject to strict data sovereignty requirements are placed in sovereign environments, while other applications are deployed more flexibly on public cloud platforms. Over time, sovereign cloud is expected to become an integral part of enterprise digital infrastructure.

Future Outlook

With sustained momentum, the cloud services (IaaS/PaaS) market is projected to grow at a CAGR of 18.0% between 2023 and 2029 to reach 5.22 trillion yen by 2029 (based on the sales of businesses).
Artificial intelligence (AI) is a key driver of the market. While many vendors remain in the proof-of-concept stage in 2025, working to validate technical feasibility and business viability, broader commercialization is expected in the coming years. With major cloud providers continuing to invest heavily in AI-related capabilities, the cloud services market is positioned for substantial growth.

Rising data volumes are also contributing to demand. The proliferation of AI applications, along with the expansion of OTT services, IoT, and 5G, is accelerating the flow of data into the cloud. This, in turn, is increasing the need for data storage, processing, and analytics. At the same time, the gradual migration of mission-critical systems from on-premises environments is providing a steady source of demand.

That said, a growing number of companies are deliberately retaining on-premises systems or adopting private cloud solutions for confidentiality and control. While this may temper the pace of public cloud adoption to some degree, the overall outlook remains positive, with multiple growth drivers expected to outweigh these constraints.

*OTT (Over The Top) service refers to platforms that deliver video, audio, and messaging directly over the internet (bypassing traditional broadcast, cable, and satellite channels).

Research Outline