The Japanese government is reportedly looking into web3 innovation to revive its sluggish economy and regain its number one position as global leader in car manufacturing and electronic goods.

Sota Watanabe, the founder of Astar Network and key advisor to the Japanese government's national strategy, told Yahoo Finance UK during an episode of The Crypto Mile that the world was in the age of web3 and the country wanted to stay ahead of the game.

The Astar founder also talked about the country's initiative to become "number one again."

"A lot of the Japanese companies, such as Toyota and Sony, would like to work in web3 and the Japanese government made web3 a national strategy back in September and published a web3 whitepaper," Watanabe.

"So, we are now in the age of web3 and Japan needs to create the Sony of this era, but if we cannot do this, our economy is going to shrink," Watanabe added.

While many policymakers around the world are still wary of crypto integration, Japan is incorporating web3 into its national strategies to provide a boost to the economy, which has been sluggish over recent years.

Japan was once seen globally as a pioneer in car manufacturing and electronic goods. However, it could not offer the world any groundbreaking innovations in the Web2 space. Japan has no homegrown alternative to the US' Google, Meta, and Amazon or China's Tencent, WeChat and Alibaba. Therefore, the country is now exploring the web3 world to ensure it does not miss out on an economic opportunity.

"At one stage Japan was number one, but we are losing right now, and web3 is an opportunity for Japanese companies and as a country," Watanabe added.

However, Watanabe, a member of the Japanese government's web3 task force, said the country will have to overcome domestic obstacles to do so.

"Japanese people are conservative compared to Americans and Europeans, a Japanese company needs to make one successful web3 use-case, so the other companies will feel confident to follow this lead," said Watanabe.

Japanese innovators, who have largely focused on the production of hardware and electronic goods, allowed software designing to take the backseat, said Watanabe, who hopes this will change.

"As a country Japanese people and Japanese companies need to invest more in software, such as creating web3 platforms on blockchains and with digital wallets," Watanabe said in the interview.

Another factor that the Japanese government will have to consider is the country's aging population. Nearly 29% of Japan's population is over 65 years old, making it the country with the world's fastest-aging population. This complicates the process of finding the right market because most users of web3 products such as Defi, digital wallets and NFTs are from the Gen Z demographic.

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Less than one in 20 internet users, between the ages of 55 and 64, own any cryptocurrency, according to a DataPortal report.

"Because of the aging demographic, Japan needs a company, founder or product that makes money outside of Japan to grow the economy, this is what the entire country needs to focus on," Watanabe added.

Ibrahim Ipek, global expansion lead of Japanese company Syfu, also believes Japan is moving in the right direction for web3 innovation.

"Japanese conglomerates have already begun investing in the Japanese web3 ecosystem, which is noteworthy given the downturn in venture capital)investments in other parts of the world," he told Yahoo Finance.

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