The ones in Japan go outdoors.
Most homes in Japan for decades have been designed for Tankless Gas Water Heaters stuck on the side of the building so there is no room indoors for a water tank.
The condenser unit for this literally just looks like the same one as for a regular mini split air conditioner, just a little bit larger.
I can't remember which is condenser... This heats 300 or 400 liters - about the size of a US tank water heater. Tankless is typically a lot smaller.
I have a tankless in my house and I'm not going back... I wish someone made a heat pump tankless water heater (I don't know if that is possible)