Policy Radar June 2019

Welcome to June’s Policy Radar!

This is a continuation of Langley Esquire’s new initiative to deliver up-to-date information on political developments in the Japanese Diet. This is the last time we will post Policy Radar on our website for the general public, so please subscribe to our policy mailing list below if you wish to keep receiving these via email.

Extending the Diet Session?

The Japanese Government announced that it will not extend the Diet session, and so the current ordinary session has therefore ended on June 26th. The 198th Session has witnessed the submission of 57 government-sponsored bills, many of which have been approved by both houses, while others await approval in the next legislative session. This Diet session has had the lowest number of government-sponsored bills since the start of Abe’s second ruling term in 2013.

Initially, there was some speculation that the government might dissolve the lower-house before the end of the session to call for a double-election, however, the LDP dissipated rumours by formally communicating to its coalition partner, Komeito, that it will not do so. The campaign for the upper-house elections is set to begin on July 4th with voters going to the polls on July 21st.

Just before the session ended, the government adopted the “Super City Initiative Bill” to promote the use of AI in several cities. However, the bill will have to wait for the next Diet session to be enacted because the Cabinet Legislation Bureau asked the government to further revise the law in March, due to some legal inconsistencies.

Trade Deal:

Japan and U.S. governments drift in agricultural products and automobile tariffs

Donald Trump has been pressuring PM Abe (and his cabinet) to deliver further progress on a revised trade deal between the U.S. and Japan. U.S. Ambassador to Japan, William Hagerty has reflected Trump’s frustration absent concrete results after two years since the start of the negotiations. The U.S. is aiming to get results by August, just after July’s upper-house elections, while Japan remains committed to a deadline just before the U.S. presidential election. Beef and farm goods from the U.S. seem to remain a point of contention, as it is a politically sensitive issue, especially in the most rural parts of Japan where voters are adamant about foreign imports. Another point of contention has been Toshimitsu Motegi’s proposal to eliminate tariffs on Japanese automobiles in a step-by-step process. American negotiators have expressed their refusal at this request and have threatened to impose even higher tariffs on Japanese automobiles if the trade imbalance between the two countries does not improve. It remains to be seen whether Japan can get more concessions.

Japanese government ousts currency devaluation from trade talks

Finance Minister Aso Taro is on the sidelines of the finance ministers’ G20 in Fukuoka on the 8th and 9th of June. He has firmed his stance in not including currency devaluation in trade negotiations with the U.S. Headed by Treasury Secretary Steven Mnuchin, he has insisted on seeing currency devaluation rules included so as to come up with bilateral responses to the issue. The Japanese government is likely to oppose any endeavour in this effort, as a diversion from the status quo may reduce Japan’s leverage in its own trade policy. Allowing monetary easing to avoid deflationary pressures contributes to a weak yen. However, the U.S. has reiterated, again, that it may increase automobile tariffs if Japan continues to depreciate its currency.

METI pushes for WTO reform and regulation of the digital economy

The Minister of Economy, Trade and Industry, Seko Hiroshige, has confirmed that details concerning reform of the World Trade Organisation (WTO) have been included in the ministerial statement for the first time, raising the issue in the G20 agenda. WTO reform, Seko indicates, is necessary to tackle the inefficiency of the WTO’s appellate body in settling disputes. The ministerial gathering also included a focus on the use of AI as well as the free and secure flow of data, setting “guiding principles,” as initially viewed by the Japanese government. These will be included under Abe’s “Data Free Flow with Trust” (which was backed by trade ministers in Tsukuba earlier this month in general terms) proposal at the G20 summit in Osaka, which seeks cross-border transfer of information under a framework that ensures privacy and government security. The Japanese government also believes that companies should not be required to locate computing facilities in a country where they hope to run their operations. Japan is likely to use its power as chair of the summit to include the governance of the world’s rapidly expanding data flow. Japan’s position echoes the government’s policy efforts to place AI and the digital economy in the center of policy-making.

Cryptocurrencies:

House of Representatives amends two cryptocurrency laws

At the end of May, the House of Representatives successfully amended two laws concerning cryptocurrency exchanges: the Payment Services Act and the Financial Instruments and Exchange Act, will both come into effect in April 2020. The first act aims to introduce clear mechanisms of accountability related to users’ assets and money laundering from service providers. Service providers will need to register with the Financial Services Agency and will need to manage their own cash flows separately from their users’ money from crypto exchanges. However, the Payment Services Act does not regulate anonymous cryptocurrencies. The second act, the Financial Instruments and Exchange Act, introduces the notion of Electronically Recorded Transferable Rights (ERTR) to stipulate that initial coin offering (and security token offerings) are to fall under this law granted a few requirements. Crypto derivatives transactions will also be regulated by this law, since 80% of these same transactions were previously left unregulated. This act also lays down some prohibitions such as the dissemination of false rumours or the use of fraudulent means for purposes of selling or purchasing of cryptocurrency assets.

Japan to propose international cryptocurrency standards at G20

The G20 Ministers will reach an agreement to establish a registry of cryptocurrency exchanges. The Japanese government has taken the initiative of tackling money laundering and tax evasion through internet cross-border transactions. Virtual asset service providers are likely to be targeted through international regulations that the Japanese government is seeking to introduce in the G20 conference. In 2017, Japan was the first country to create a registry of cryptocurrency exchanges.

Cryptocurrency specialists deployed across the country to tackle tax evasion

Japan’s National Tax Agency will dedicate 200 specialists, across 12 tax offices spread throughout the country, to detect undeclared incomes generated from cryptocurrencies and monetised videos starting from July. Their digital expertise is expected to assist tax officials in their investigations. While online gains have often fallen into regulatory grey zones, a new law on cryptocurrency and digital gains will come into effect in January 2020, granting the National Tax Agency more discretion in its investigations. These new powers include: requesting information from clients and the filing of penalty procedures if companies do not cooperate.

Climate Change:

Japan cabinet sets carbon-neutral goal by 2050

The Japanese cabinet adopts a policy aiming to become carbon neutral by 2050. The policy seeks to promote a “carbon neutral society” with the extended use of renewable energy, however coal plants will continue to be used partly. Even though fossil fuels (i.e. coal-fired power plants) will still be allowed under the adopted bill, it carries a pledge to reduce greenhouse gasses by at least 80% by 2050, accompanying the previous pledge to have non-fossil fuel energy account for 44% of its energy consumption. It also seeks to decrease its reliance on nuclear energy. Just like in new technologies, Japan has sought to place itself as a leader in compliance of the goals set by the 2016 Paris Agreement (UNFCCC).

Japan eyes bill to cut single-use plastic usage

The Japanese government wants to ban retailers from giving out plastic bags for free. In an effort to reduce plastic waste and build an international reputation in the battling of marine contamination, the Minister of the Environment, Harada Yoshiaki, seeks to enact the proposed bill in April 2020 just before the start of the summer olympics. At this stage, the ministry has expressed its intention to ban providers like supermarkets, convenience stores and department stores from handing out free single-use plastic bags. Thus, retailers would be obliged to charge for plastic bags, however the price would be left at their discretion. The minister also said that it will seek to make plastic bag proceeds be used to cover the costs of environmental protection. Discussions and consultations within the ministry, alongside other ministries and industry organisations, will now begin to lay down the specifics of the bill (i.e. type of plastic bags to be affected by a fee). A Mainichi Shimbun poll revealed that around 70% of respondents were in favour of the government’s proposal.

METI to further liberalise the renewable energy market

The Ministry of Trade, Economy and Trade will further liberalise the renewable energy sector by introducing a competitive bidding system by 2020. The new system will replace fixed prices set by METI (feed-in-tariff policies) as is set to cut costs while alleviating consumers with more competitive prices. High rates were passed down to consumers by energy providers through electricity bills. Under the new system, the price for renewable energy supply will not be fixed but rather negotiated under the laws of supply and demand, with companies compensated if prices fall below a previously fixed standard. Renewable energy providers will have to find their buyers and carry out their own transactions, away from government-set prices, making prices more flexible and competitive.

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