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June 2020

Japan’s state of emergency has been lifted nationwide, although some cautionary measures remain in place in some prefectures because of recent spikes in the number of cases. Until now, the government and lawmakers have largely focused on economic and financial policies to address the COVID-19 pandemic. Last month, the government enacted the first supplementary budget for the fiscal year that ends next March, and it soon began preparations for a second one. This used much of its political capital.

Although the second budget has not been enacted yet, the government is starting to legislate again — policies and bills suspended due to the crisis are now back on the agenda. Some lawmakers are calling for Prime Minister Abe Shinzo to extend the current Diet session, now slated to end June 17. This would give legislators more time to catch up with all of the bills scheduled to be approved in these coming weeks. However PM Abe has so far shown no indications he will do so.

This month’s edition of Policy Radar focuses on policy developments in finance, technology and foreign affairs.

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Finance:

Finance

Government approves second supplemental budget to help companies hit by crisis

The government approved a second supplemental budget to fund a spending package worth ¥117.1 trillion ($1.07 trillion) for the fiscal year ending March 2021. This policy package aims to further help small- and medium-sized enterprises (SME) and people under major financial strain because of the virus.

More than ¥60 trillion will go to financing for businesses through the Japan Finance Corporation and private lenders. ¥12 trillion worth of capital support will come in the form of state-backed loans from the Japan Investment Corporation, the Development Bank of Japan and the Japan Finance Corporation. Another ¥15 trillion will be added to an existing state reserve aimed at safeguarding struggling lenders. The budget also includes a measure to provide two-thirds of monthly rent up to ¥500,000 through loans for a period of six months. Those eligible must have seen their income drop by 50% from the same month last year, or by an average of 33% over the last three months.

On June 8, the government brought the budget to the House of Representatives, aiming for approval on June 10. If the process goes smoothly, enactment is set for Friday June 12, once it clears the House of Councillors.

Government drafts proposal to make it easier for banks to buy stakes in fintech firms

The government plans to relax regulations to make it easier for banks to invest in fintech firms. Banks currently require approval from the Financial Services Agency (FSA), Japan’s financial regulator, to take stakes worth 15% or more in such firms. The government envisions a framework in which bank holding companies simply report their investments to the FSA and no longer need prior approval for purchases. The goal is to enable banks to quickly develop new services based on sales data. The plan would also permit banking and brokerage units within the same conglomerate to share customer data without consumer consent.

The ruling Liberal Democratic Party would also like to allow banks to offer real estate brokering services. However, the party also wishes to restrict the entry into the banking sector of non-financial entities. The LDP’s taskforce is still working on the proposal, but it aims to submit an amendment to the Banking Act in the next ordinary Diet session (January 2021).

Government to submit legislation making it easier for financial institutions to opt for public funding

The government will ease rules for public funding for financial institutions to increase support for firms lending to companies hit by the crisis. The process will be streamlined, and certain conditions for public funding will be scrapped: clarification of management responsibility for poor performance, profit targets and repayment deadlines. In the past, management that did not meet government-set targets were forced out of the company.

The aim of the changes is to let local banks increase their reserves, which will facilitate more lending to distressed companies and boost local economies. The total amount available for public funding will also be increased to ¥15 trillion from ¥12 trillion, and the dividend paid to the government will be reduced. The deadline to accept public funding will be extended to March 2026 from the current cutoff of March 2022. The Cabinet plans to submit these changes to the Diet during the current session in the hope that that new conditions can go into effect from this summer.

Technology:

Parliament enacts super city initiative

The Japanese parliament enacted a bill creating “super cities,” areas where authorities promote the use of cutting-edge technology, AI and big data. The new legislation will reduce national and local regulations. Previously, technology developers had to go through multiple applications with different ministries and government agencies to get their products approved, but the new law creates a top-down approach to accelerate the process. The new rules will only apply to selected municipalities that have launched forums with private companies and the national government. After gaining approval, the Prime Minister will urge government agencies to suspend regulations in that area. Smart cities will have to collect and share surveys and data with the central government. The government will accept applications from this month, and is looking to approve the first candidates as early as this summer.

New law requires transparency from e-giants

The Japanese Diet enacted a law requiring leading technology companies and e-giants to be more transparent about their contracts and business practices. Companies with online commerce websites and applications are now required to submit annual reports to the Ministry of Economy, Trade and Industry. The ministry is able to request comments from merchants, conduct reviews and publicize the results. If METI considers a company to have an insufficient level of transparency, it can issue an improvement order. If it decides the company has taken insufficient efforts, it will ask the Fair Trade Commission to see if there are antitrust violations.

E-commerce giants will have to give advance notice of any contract changes and create systems that allow for complaints from other parties. Companies will also be asked to clarify how they determine order results on their websites. The law does contain any penalties or fines. The government is also planning to enact more regulations on online advertising, especially concerning personalized ads that involve the use of consumers’ data.

Finance Ministry publishes list of 500 companies requiring government screening for foreign investments

Foreign investment in more than 500 Japanese companies will be subject to stricter regulations from June 7. Overseas investors who want to be 1% of issued shares in companies in 12 strategic sectors, including technology, now need prior government approval. Revisions to the Foreign Exchange and Foreign Trade Act lowered that threshold from 10%. The rule also applies to foreign investors who want to buy investments that comprise at least 1% of a company’s total voting rights.

Foreign influence in corporate governance in these sectors will be strictly scrutinized, according to the Finance Ministry. The appointment of directors and proposals to sell operations by foreign investors will also require the ministry’s approval beforehand. However, investors that stay out of management and leadership positions can be exempted from the screening requirements. The Finance Ministry has also published a list of over 1,500 companies where no screening is needed, but where submission to the government of a report of shares’ purchase is necessary.

LDP begins discussions pushing forward regulations tackling online bullying

The LDP has begun discussions on new regulations to stop online harassment and abuse following the suicide of a celebrity who suffered online bullying. During its first meeting the LDP’s Online Abuse Task Force discussed a law that would force internet providers to identify anonymous users who post derogatory content on social media platforms. The task force has concluded that existing laws are ineffective, and Representative Mihara Junko is pushing for stronger penalties for online abusers. The group will also consider the creation of a hotline for victims of cyber-bullying.

Foreign affairs:

Prime Minister Abe and President Trump agree on virus response cooperation, North Korea strategy

PM Abe and U.S. President Donald Trump agreed in a phone call to cooperate in their countries’ COVID-19 responses and in the research and development of vaccines and medicines to treat the virus. They explained their respective government’s plan for dealing with the virus and their plans to stimulate their economies. They also agreed to cooperate in containing North Korea’s nuclear missile program and in resolving the issue of Japanese abductees.

Tokyo to reschedule Chinese state visit, LDP lawmakers urge to reconsider

Chinese President Xi Jinping is unlikely to attend a state visit in Japan this year after Japanese Foreign Minister Motegi Toshimitsu said that the G7 and G20 summits would occur first. The visit was originally scheduled for April, but was postponed because of COVID-19.

However, some LDP party members and lawmakers want the government to call off the visit altogether after Beijing enacted stricter security measures for Hong Kong. In a resolution drawn up by two LDP foreign policy panels, they expressed “grave and serious concern from the standpoint of respecting freedom and democracy.” They have also asked Beijing not to undermine Hong Kong’s autonomy. Chief Cabinet Secretary Suga Yoshihide said that the government will take the resolution into consideration.

Japan to attend G7 summit, calls it essential to coordinate responses on global issues

After President Trump criticized the G7, the Japanese government called the forum an “important framework” for coordinating a response from major industrialized countries to global issues. CCS Suga Yoshihide affirmed Japan’s determination to take full advantage of the G7 to cooperate with others in tackling global issues.

In addition to criticizing the G7, President Trump also called for the expansion of the group to form a front against China. He pressed other members to allow Russia, which was expelled after it annexed Crimea in 2014, to rejoin. Japan continues to condemn Russian actions regarding Crimea. PM Abe nonetheless is set to attend the meeting later this year.

As the outbreak of the COVID-19 pandemic continues to bring unprecedented impact around the world, public and private sectors rush to adapt to a rapidly-changing global environment. While there is uncertainty for what lies ahead, new opportunities emerge for business and government partnerships. Every day brings new insights, opportunities, and technology that affect Japanese politics, business, and society.

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