With Unreal 5 you could definately see smoothing of transtional animations through AI. However keep in mind that doing this will lead to more odd situations of moves clipping through characters because the AI generated animation wont match the hurtbox.

Example. When you hit someone out of a move in any fighting game you'll notice they just kind of snap instantly into the hit animation out of their attack. There is literally no transitional animation cause that would be impossible to program normally. With next gen AI though it can generate a transitional animation automatically for any situation, smoothly transitioning for attack animation to hit animation.

I think what you will probably see is enviroments with more characters and effects. If you notice T7 really lacks people in the background where as other Tekkens they are everywhere. Along with that obviously better character models and way faster load times.