Policy Radar November 2019

Langley Esquire’s initiative to deliver up-to-date information on public policy in the Japan. 

The current extraordinary session is to last until December 9th, running for 67 days. While the focus has remained in preparations for the Emperor’s enthronement ceremony and the damages caused by the typhoon, the Diet started its session with the PM’s calls to advance a social welfare system that will provide security to all generations — from young children to the old. The Government will submit legislation dealing with reforms to corporate laws, the ratification of the U.S trade deal, and an amendment to the National Strategic Special Zone Law to create “super cities.” The ruling parties will push forward for amendment to the referendum law, echoing the Government’s wish to push for serious parliamentary debate over constitutional revision. Due to the opposition parties boycotting talks on constitutional revision, there was an appeal for the Prime Minister to call for a snap election, now seen unlikely by both Komeito and LDP lawmakers in order to take care of supplementary budget allocations for the reconstruction efforts in typhoon damaged-areas. 

This month’s edition of Policy Radar focuses on developments in the Data, Tobacco, and Cryptocurrency industries, and the establishment of Japan’s first Integrated Resorts.  

Data: 

Tokyo to place greater scrutiny on foreign purchase of shares (cont.) 

Following the initial plans to place greater scrutiny on foreign involvement in Japanese high-tech companies through mandatory government review, the Cabinet has finally approved the revisions amending the Foreign Exchange and Foreign Trade Act. This revision sets to lower minimums for screening requirements from 10% to 1% of the company’s issued shares  of national strategic industries if bought by a foreign investor. This will also apply to foreign investments comprised of at least 1% of the company’s total voting rights. Recently, national sensitive sectors were expanded by adding companies dealing with semiconductors, software, phones, etc. to the already heavily protected nuclear power, weapons, shipping, and aircraft industries. The Finance Ministry revealed that foreign influence in the governance of these companies will be strictly scrutinised: appointment of Directors and proposals to sell operations by foreign investors will also require the ministry’s prior approval. Nonetheless, the Government has indicated that exceptions will apply to asset management companies if they invest passively— meaning, not serving as Directors, proposing the sale of key operations, or accessing confidential technology or information. However, if deemed ‘problematic’ by Tokyo, stock purchases could be halted or changed by regulators. The revisions will be submitted to the Diet before the end of the current extraordinary session in December and, if approved, are planned to be implemented before April 2021. Further clarifications will be issued through a ministerial ordinance soon. 

Japan’s ruling party to invite three Chinese e-tech companies into Competitiveness Commission

The Liberal Democratic Party plans to invite executives from Chinese e-giants (Baidu, Alibaba, and Tencent) to hearings on the companies’ use and collection of data. Such hearings are geared towards the preparation of future policies to protect consumers and local businesses. Lawmakers are concerned about the handling of private information and consumer data by Chinese giants, aiming to introduce tougher regulations. Additionally, the companies’ expansion into finance and retail may harm Japanese businesses, the LDP’s Research Commission on Market Competitiveness has voiced. There is some belief that e-giants are tightly connected with the Chinese government, with concerns over basic privacy rights and intellectual property from both parties. However, some LDP lawmakers have recommended not to press heavily on the Chinese giants, as it may harm Japanese companies in the process due to eventual retaliatory measures from the Chinese government. 

Tobacco: 

Used heat-non-burn products to be regulated by the Tobacco Institute of Japan

The Tobacco Institute of Japan will soon start to collect used heat-not-burn tobacco devices using lithium-ion batteries, which are believed to have caused multiple fires when discarded as non-combustible trash. It has been widely reported that when disposed of incorrectly, these devices’ batteries may cause fires at waste treatment plants and recycling firms when they are crushed. Neither the Act on Promotion of Recycling of Small Waste and Electrical and Electronic Equipment nor the Act on the Promotion of Effective Utilization of Resources cover tobacco cartridges, with many local waste management bodies refusing to accept their disposal, let alone their treatment. Additionally, heat-not-burn tobacco consumers have also been complaining about the lack of clarity, and the non-existence, of rules concerning tobacco cartridges. To this effect, the Tobacco Institute of Japan will implement rules soon, even some Tobacco giants (Japan Tobacco) have already started to collect used products at their own shops, with others expected to follow in 2020. 

Crypto Currency: 

G20 Finance Ministers agree to setting stricter regulations for stablecoins

The G20’s Finance Ministers have agreed to the setting of strict regulations on cryptocurrencies, citing concerns for the issuing of stablecoins when their risks have not yet been addressed by government bodies. Finance Ministers agree that even though cryptocurrencies may have several benefits, they see that the further issuance of stablecoins may cause serious public policy and regulatory risks such as money laundering, illicit finance, and consumer protection. G20 ministers also petitioned for the International Monetary Fund (IMF) to assess the economic consequences of stablecoins on areas such as monetary sovereignty. The Governor of the Bank of Japan, Kuroda Haruhiko, following the IMF and World Bank meetings in Washington D.C., advanced plans to set up domestic agenda regulations from recommendations it receives from international bodies like the Financial Stability Board and the Financial Action Task Force from the G20. They will report their proposals and findings on stablecoins to the G20, when they meet again next year. Kuroda also warned (echoing views from G20 Finance Ministers) of the risks associated with stablecoins, and until these risks are addressed, issuance should not be allowed. On the sidelines, Finance Ministers had the opportunity to openly criticise e-tech giants’ attempts to create a world currency (i.e. Facebook’s Libra). Finally, Kuroda also called policymakers for discussion on securing efficiency in existing private-sector cross-border settlements and payment systems. 

Japan’s Financial Services Agency issues draft guidelines for crypto investments

Japan’s financial agency, the Financial Services Agency (FSA), has released draft guidelines for funds that invest in cryptocurrencies. Financial authorities will include the further management of crypto assets, highlighting its prudent approach towards the emerging market. However, while it sees the rising trends in crypto investments, it argues that there are nonetheless risks involved with digital currencies as they could lead to speculation. In order to do so, the regulating body seeks, in its draft guidelines, to control the formation and sales of investment trusts investing in virtual assets. They also warned about the importance of evaluating potential risks concerning assets which lie outside of the original scope of the trust.  The agency named such assets “non-specific assets”, and warned investors and lawmakers about the danger relating to volatility and liquidity. The FSA’s draft amendment is open to public comments until the end of October. Japan’s efforts to regulate, and not kill, the virtual currency industry is evident; in the first half of 2019, the FSA had already authorized three exchanges to operate in the country. The amended Payments Services Act and Financial Instruments and Exchange Act will enter into force in April 2020. 

Integrated Resorts: 

Government adopts ordinance establishing long-awaited Casino Management Committee

The Cabinet adopted an ordinance that is to finally institutionalise Japan’s Casino Management Committee (カジノ管理委員会) on January 7th next year. The committee will be an independent agency under the authority of the Cabinet Office consisting of five members. It will be organised under two divisions – a division supervising IR operators and another drawing public policy to counter gambling addiction. These divisions will be responsible for security, probity, and background checks. As set by the ordinance, the members will need to be confirmed by the Diet and will serve five-year terms. The government plans to submit their candidate members for parliamentary ratification during this extraordinary session (ending on December 9th). Following the release of the draft basic policy in September, the Government is rumoured to be releasing the final version of its IR Basic Policy early next year, clarifying the Government’s criteria for selecting IR locations. After the legislation specifics are approved by the Diet, a public comment process will be held, giving a chance for outsiders to give their assessment. While the Casino Management Committee will be mainly responsible for social and security matters pertaining to Integrated Resorts, the International Tourism Department (headed by Takashina Jun), under the Japan Tourism Agency and the Ministry of Land, Infrastructure, Transport and Tourism, will be responsible for the final selection of IR locations.  

Candidate locations continue preparations to host IRs

Until now, only four local governments have announced their bid for an Integrated Resort license: Wakayama, Osaka, Nagasaki, and Yokohama. However, the list of cities mulling to opt for a candidacy is even larger, including cities such as Tokyo, Chiba, Hokkaido, Kawasaki, Nagoya, Kamakura, among others. 

Yokohama has just launched its Request For Concept (RFC) process for those interested in developing an IR in Yamashita Pier: businesses interested are to register by October 30th and submit their concept proposals by December 23rd. The city will likely select its casino partner by 2021, though Yokohama’s Mayor, Hayashi Fumiko, is likely to receive pressures from anti-casino movements to submit a referendum to the IR plans. On the other part of the island, the Osaka City Council recently approved a special budget for environmental assessment in Yumeshima. The Prefectural Assembly will also enact its part of the budget in late October. Closer this time, the Wakayama Prefectural Assembly rallies behind Governor Nisaka’s quest to build an IR in Marina City. Wakayama has already gained interest from multiple international operators as doubts linger as to whether or not Hokkaido (Tomakomai) will make a bid for a license; Hokkaido’s governor, Suzuki Naomichi, is likely to decide by the end of the year. Until then, Governor Suzuki said he will be studying public opinion. Keep in mind, that the IR legislation approved by the Diet (just over a year ago) initially only allows for three locations to operate in the country. 

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