September 2021
This month’s edition of Policy Radar covers developments in Finance, Technology, Defense and Healthcare.
Month Focus: Japan Creates Digital Agency to Oversee Government DX
The Digital Agency is officially up and running as of Sept. 1, marking the true start of the government’s push for digital transformation.
The government has been attempting to support digital transformation in Japan since the 1990s through different initiatives, but little progress has been made. Until now, different ministries were responsible for different elements of the initiative, and there has been little coordination and no integrated approach. The Digital Agency, directly under the control of the Prime Minister’s Office, aims to unify the government’s digitization efforts in one space.
That agency’s day-to-day operations will be led by Ishikura Yoko, a professor at Hitotsubashi University. She will in turn report to Hirai Takuya, the current digital minister (himself accountable to the prime minister). The organization will be staffed by around 600 officials, including 400 civil servants and 200 experts coming from the private sector. The agency will work through various forms of public and private collaboration.
The agency has a lot on its plate: initially it will focus on increasing the issuance and use of the My Number card, as well as setting up a centralized system to manage personal information. It will also seek to advance digitization in local, prefectural and national governments (including related agencies and ministries) services infrastructure. With the help of the Minister for Administrative Reform and Regulatory Reform Kono Taro, the agency will also look at facilitating electronic signatures and abolishing hanko seals. It will also assist ministries and local governments with smart city initiatives.
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The digital laws passed by parliament also include the Guiding Principles & Values for Digital Society, which defines the government’s goal for a digital society; a Basic Law for the Formation of a Digital Society that effectively abolishes the IT Law passed twenty years ago; the Law for the Establishment of the Digital Agency; the Law Concerning the Development of Related Laws for the Formation of a Digital Society, a package of revisions aiming to smoothly transition toward a digital society; the Law on the Registration of Savings/Deposit Accounts for the Prompt and Reliable Payment of Public Benefits, which allows for direct government transfers of money to individuals during national emergencies; and the Law for the Standardization of Local Authority Information Systems, a law aiming to centralize and standardize government IT systems.
The agency will operate with a budget of 542.6 billion yen ($4.9 billion) for fiscal 2022, with 530 billion yen going to the maintenance and operation costs of IT infrastructure. The agency’s operating budget will total 7.95 billion yen. 182 million yen will be provisioned for cybersecurity efforts.
The agency will be overseen by a government compliance committee to ensure that the agency’s actions fall within its established prerogatives. Most notably, the committee will also attempt to curb the influence of officials recruited from the private sector in favoring their own companies through either procurement or policies. The compliance committee, headed by former prosecutor Natori Toshiya, will advise the agency when drafting procurement guidelines and ethical codes.
Finance:
Japan to Place Rare-Earths Industry Under Government Scrutiny
The Japanese government and ruling Liberal Democratic Party (LDP) are tightening controls on foreign investment in domestic industries related to the exploration and mining of rare earths, effectively protecting the rare-earth industry from being acquired by countries that are not diplomatically aligned with Japan. Multiple ministries issued a draft amendment to the Foreign Exchange and Foreign Trade Law, proposing that rare earths and 34 other materials be added to Japan’s list of critical industries. This means the materials are important to national security and the government can restrict unwanted foreign investment. Japan’s foreign exchange law requires prior notification of foreign purchases of stakes in companies important to national security. The LDP also proposed that in addition to the advance notice, a monitoring system should be created so that the government can more closely follow the activities of foreign investors even after purchases. For the government, rare-earths are considered of strategic importance because of their prevalence in the technology, defense and energy industries. The importance of rare earths continues to grow as demand for materials in high-tech applications increases with Japan pushing ahead with its 2050 decarbonization goal. However, as Japan imports all of its rare earths, the government is wary of its dependence on the global supply chain.
Cabinet Approves ¥1.4 Trillion for COVID-19 Measures
The Cabinet approved about 1.4 trillion yen from fiscal 2021 reserve funds to purchase additional COVID-19 vaccines and medicines for patient treatment. About 841.5 billion yen will be allocated to vaccine procurement and implementing the inoculation campaign. Another 235.2 billion yen will be directed toward the purchase of medicines used as antibody cocktail treatments. Additionally, households severely affected by the pandemic will be provided with zero-interest loans of up to 200,000 yen until November, and employment subsidies for businesses will also be extended beyond their original deadline. The decision to use reserve funds from fiscal 2021 came after the government decided to expand the state of emergency.
Technology:
Japan and Taiwan Ruling Parties Conduct First Security Talks, Focus on Semiconductors
The ruling parties in Japan and Taiwan, the LDP and the Democratic Progressive Party respectively, held security talks concerning the semiconductor supply chain, future investments and joint projects in Japan by Taiwanese company TSMC. The meeting was attended by Sato Masahisa, a member of the House of Councillors and the head of foreign affairs within the LDP, and Otsuka Taku, a member of the House of Representatives and head of the LDP’s defense policy. This was the first time both parties held talks on regional security, but the emphasis was on the semiconductor industry and how Taiwanese companies can facilitate investment in Japan. The Japanese government is eager to relocate the global supply chain to its advantage. TSMC is currently in negotiations with the Japanese government over incentives for the construction of an advanced semiconductor plant in Kumamoto Prefecture. Lawmakers from both parties also discussed Taiwan’s inclusion in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Japanese representatives supported the idea of the island joining the trade pact in the future. Officials from both parties also discussed ways to collaborate with the U.S., as well as Japan-Taiwan defense collaboration. However, details were not available. The Taiwanese side said that higher party-level talks could be held next time.
Langley Insight: Japan does not recognize Taiwan (formally, the Republic of China) as a country. However, this has not stopped the ruling party from carrying out negotiations in a semi-official capacity without involving the government or the foreign ministry. This is the first time both sides have engaged in regional defense and security issues, a development noted by the Chinese government. Beijing said the meeting between the two parties was a mistake and demanded that Japan “immediately correct its mistakes.” Japanese businesses have a strong economic presence in mainland China, and Beijing could make their business environment more difficult. There are different strains of thinking within the LDP, including those who want stable diplomatic relations and to protect Japanese business interests in China and those who wish to press their neighbor on issues ranging from human rights to national and regional security.
Defense:
Japan to Revise Five-Year Defense Plan Ahead of Schedule due to Regional Tensions
The Japanese government plans to revise the Medium Term Defense Program earlier than initially planned as a countermeasure to China’s maritime assertiveness and the ongoing developments regarding Taiwan. The Medium Term Defense Program was approved by the Abe administration in 2018, and it stipulated that the plan could be revised after three years depending on the changing security environment. The revision is expected by the end of this year at the earliest, with discussions between the Ministry of Defense and the National Security Secretariat in progress. The revision of the defense program will incorporate the basic elements of the joint statement by Prime Minister Suga Yoshihide and U.S. President Joe Biden, which calls for Japan to strengthen its defense capabilities to maintain security in the Indo-Pacific region. The Ministry of Defense has requested an increase in spending on Self-Defense Force equipment, including F-35 fighter jets, transport ships, and unmanned submersibles. The budget request, submitted to the Ministry of Finance at the end of August, also set aside a significant amount for space defense strategy, cyber security, and the development of AI. If approved, Japan’s defense expenses could total 5.34 trillion yen, expanding for the ninth consecutive year.
Government Assesses Lands Subject to Control over Foreign Acquisitions
The government has started considering which areas among 600 installations critical to national security will be subject to further government control from foreign buyers. The Japanese government passed legislation to tighten regulations on the acquisition and use of land around infrastructure considered vital to national security. The law will take effect in fiscal 2022 making it harder for prospective foreign buyers to acquire land close to vital infrastructure. Officials are also considering the demolition of buildings judged to pose a threat to national security. The Cabinet is considering establishing an office to review land use and leases in sensitive areas in fiscal 2022. Prospective foreign purchasers will be obliged to submit their personal information and acquisition plans to this office if they want to acquire those government-monitored areas.
Healthcare:
Digital Vaccine Passports Available for Travellers from December
The government will issue digital vaccination certificates from December. Paralleling those of European countries, online vaccine passports will include the user’s vaccination information, which will be read through unique QR codes using a smartphone app. The passport will be implemented and overseen by the newly established Digital Agency. In line with its policy of using certificates only for travel rather than domestic use, the government intends for QR codes to be read at airports for travellers. However, it has not ruled out that these could be used domestically for purposes other than travel in the future. Standards of the digital passports will be based on those designed by the International Civil Aviation Organization, after the G7 agreed to use common standards.
Langley Insight: The Japanese government, through local governments, is already issuing paper vaccination certificates to those who wish to travel overseas. The paper certificates are currently accepted by a number of countries, including France, Singapore and Canada, but travelers still must quarantine and comply with other restrictions when coming back to Japan. Entries in Japan continue to be closed for those not possessing current residency or Japanese nationality. In an attempt to restore the country’s economic and tourism activity, Japan’s largest lobby, Keidanren, has proposed the government waive the mandatory two-week quarantine for fully vaccinated travelers. The government’s health experts have also requested the government to make it easier for those vaccinated or having a negative PCR test to enter the country. Keidanren also proposed reducing quarantine for unvaccinated travelers from 14 to 10 days. The proposal was passed to the prime minister, but with the election coming it is difficult to imagine the restrictions will be eased with the public largely against such a move.
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