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January 2021

As the government readies for the opening of the 204th Diet session, a legislative session that was to focus on some of the administration’s biggest policies (e.g., digitization, social welfare reform, green energy and so on), COVID-19 infections have once again surged in urban centers and a new state of emergency has been declared. These developments could limit the government’s attention to any topics beyond pandemic-related measures.

The government’s lacking response to the pandemic and scandals involving LDP lawmakers have ended Prime Minister Suga Yoshihide’s honeymoon with the public. Nikkei/TV Tokyo polls showed the support rate dropped to 42% from 74%, a 32 point drop, from September to December. That is the largest drop since 2008 when Aso Taro was premier.

The government will start the legislative session with bills related to the new coronavirus pandemic. Some of these are aimed at increasing the power of prefectural governments to ensure compliance among businesses and individuals with government requests. However, these measures are not popular, as they are seen as curtailments of individuals’ civil liberties. The third supplementary budget for the current fiscal year will provide more economic support for businesses and individuals, and should be far less contentious. Another critical issue will be the regulatory approval and subsequent rollout of vaccinations. Healthcare workers and the elderly are set to receive priority in inoculations. Getting all of these legislative and administrative processes underway will be critical in ending the pandemic in Japan.

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Only a successful vaccine rollout will enable the government to successfully host the Tokyo Olympics this summer, and thereby leverage it in the LDP presidential election in September and a possible general election in October. A further surge in infections, cancellation of the Olympics or further tanking of the economy could thwart the possibility of Suga’s reelection as LDP leader and therefore prime minister. The creation of the Digital Agency, the lowering of mobile fees and a green growth strategy could work in the government’s favor to the extent that the pandemic response does not prove to be a complete disaster.

This month’s edition of Policy Radar covers developments in Finance, Energy, Technology and Healthcare.

Finance:

Finance Policy

Cabinet approves record-high ¥106.61 trillion budget for fiscal 2021

The Japanese government has approved another record-high draft budget of ¥106.61 trillion ($1.03 trillion). This marks the third consecutive year in which the budget, if approved, will surpass the ¥100 trillion mark, despite the country’s heavy debt load.

The budget will finance additional measures to combat the pandemic and address Japan’s aging society. Finance Minister Aso Taro said that it is hard to achieve a balance between restoring fiscal health, revitalizing the economy and preventing a rise in infections. A third of the overall budget will be dedicated to social welfare, covering spiralling pension and healthcare costs resulting from the aging population. The government has reduced spending on healthcare from initial forecasts, as it expects to carry out drug price reviews that will lower pharmaceutical prices. The defense budget will increase by 0.5% to ¥5.34 trillion, as the ministry increases its capabilities in cybersecurity, space and the development of standoff missiles. About ¥5 trillion will be set aside for future responses to the pandemic. The government’s draft budget will be submitted to the Diet once the ordinary session begins on January 18.

Langley Insight: The new budget will increase Japan’s public debt, which will grow from ¥1,106 trillion to ¥1,201 trillion. To partially finance this year’s record-high budget, the government will need to increase its issuance of new bonds by ¥11.04 trillion, meaning a total issuance of ¥43.60 trillion. The Ministry of Finance aims to have a primary balance surplus by 2025, but this year’s primary balance deficit is expected to double last year’s. Much of the increased spending stems from the growing costs of healthcare and the need to support growth during the pandemic. For a more thorough analysis of this year’s budget, please read the following article.

Tokushima consumer office to receive ¥470 million in budget for FY 2021

The Strategic Headquarters for Frontiers of Consumer Policy, which was set up in Tokushima Prefecture in mid-2020, will receive about ¥470 million in funding for fiscal 2021. The office is a part of the government’s effort to transfer agency functions away from Tokyo to other regions.

From April, the agency will explore more ways to integrate the use of AI and digitization to fight against COVID-19 infections. More precisely, the agency plans to develop an AI system to monitor fake and misleading online ads for supplements and food items that are said to promote virus immunity. The agency will also develop an app to allow users to learn about cashless payments. The current office is staffed by about 80 workers, but most of the agency’s personnel remain in Tokyo. The agency’s main operations will remain in Tokyo unless a large-scale disaster forces it to move elsewhere.

Energy:

METI devises plan to generate 10 gigawatts by 2030 through offshore wind

The Ministry of Economy, Trade and Industry (METI) and the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) have devised a plan to use offshore wind power to generate 10 gigawatts by 2030, and between 30 and 45 gigawatts by 2040. This plan tracks with the government’s pledge to reduce carbon emissions to net-zero by 2050. Currently, Japan only produces 20,000 kilowatts from wind power, much less than the world’s top offshore wind power generators. Officials from both ministries agreed to provide different types of support for industry operators, such as surveys on seabeds and wind movements. Officials have also indicated that as the country’s capabilities develop, the costs of offshore wind power will become cheaper than thermal power sometime between 2030 and 2035. Since October 2020, ministries and agencies have been updating their energy policies to meet the government’s goal of achieving carbon neutrality by 2050. 

Government drafts roadmap aiming renewables to produce 50% of power by 2050

Japan’s government has released a roadmap aiming to triple the share of renewable power generation to 50% of the nation’s total to achieve Suga’s pledge of carbon neutrality by 2050. The roadmap comprises an agenda listing expected challenges and solutions for 14 fields, which include hydrogen and offshore wind (specifics of the latter are analyzed below). For example, the document calls for zero emissions from the construction of buildings and homes by 2030, and for the end of sales of new gasoline-only vehicles in the mid-2030s. While a shift from fossil fuels to electricity will increase power demand by 30% to 50%, the government thinks that their green growth strategy will not constrain economic growth, and that it will generate about ¥190 trillion yen in 2030. The roadmap aims for about 30 million tons of hydrogen consumption in 2050, and the production of 20% of electricity by thermal power plants.

Langley Insight: While the public may view these measures positively, many in the auto industry have openly criticized the government for its radical energy shift that could see Japan decoupled from global supply chains. Toyoda Akio, chairman of the Japan Automobile Manufacturers Association and president of Toyota Motor, has voiced concerns about the industry’s parts suppliers and the lack of technological innovation needed for a greener industry. The government so far has only revealed its targets, and to assuage the discontent in Japan’s major industries it will also need to provide support and incentives.

Technology

Technology

Communications Ministry to include ¥50 billion for 6G development in budget

The Japanese government has included ¥50 billion in the third supplementary budget for fiscal 2020 for the research and development of 6G services. The government has recognized Japan’s lack of competitiveness in rolling out 5G infrastructure, as it is seen as lagging behind foreign competitors. This time authorities hope to lead in 6G research and development through public and private sector collaboration. A ¥30 billion fund will be used for supporting research and development, commissioned to companies and universities through the Ministry of Internal Communications’ National Institute of Information and Communications Technology. The other ¥20 billion will be used to build a facility to be used by recipients of government funds to test their developed 6G-related products. The ministry is mulling adding more capital to the ¥30 billion fund by taking money from fees paid by telecommunications operators. The government hopes to see the basics of a 6G infrastructure laid out by 2025 and put into general use by around 2030.

Japan to accelerate e-textbook use in classrooms by removing screen time limits

The Ministry of Education, Culture, Sports, Science and Technology has removed a cap limiting the amount of time students can spend using screens in class from April. The goal is to clear a path for the introduction of digital textbooks to all schools by fiscal 2025. The ministry believes that a relaxation of rules will lead to a more “diverse classroom education.” Past rules only allowed for the use of digital textbooks for under half of time spent in each subject because of concerns that extended screen use can adversely affect students’ health. Additionally, the government is considering whether to pay for digital textbooks and materials. This would involve ¥2.2 billion for buying the materials for children from the 5th to 9th grades. The Education Ministry will also draft guidelines on the use of e-books, relaxing rules for 5th graders and above. By the end of March, it will deliver tablets to all students from the 1st to 9th grades. The Suga government sees education as an important field in which it can advance digitization.

Langley Insight: Digital reform is a key issue for the Suga Cabinet, and the use of digital textbooks is one of the avenues where the government can rapidly demonstrate success. The overall target is for 100% digital usage by fiscal 2025, but incremental use will begin before then. Like their paper counterparts, digital resources will need to be approved by the Education Ministry. However, the government needs to ensure all students have access to digital tools (e.g., tablets, computers, reliable internet, etc.) before e-textbooks can be considered a success. While the provision of devices is underway, the government plans to provide digital textbooks to elementary and junior high schools that are interested. With more usage of digital devices and tools in the classroom, there will be a growing reliance on digital and cyber security — both education on the issues and software for implementation — to protect students. 

Kaga City to use blockchain technology for online voting

The city of Kaga in Ishikawa Prefecture will use blockchain technology to allow its residents to vote online in local elections. Local authorities have asked two Tokyo-based blockchain and digital ID solution firms to take up the project of creating a safe and convenient online voting system. The city hopes that by allowing online voting through blockchain technology, its elderly citizens living in peripheral areas will be able to vote more easily. LayerX, one of the two commissioned companies, has created an e-voting protocol that seeks to balance the transparency of the process and the confidentiality of votes. While some security concerns linger on the use of blockchain, the city has said that if online voting proves to be a success, it will consider the further use of blockchain for other policy areas.

Healthcare:

Government finalises plan to raise medical fees for people 75 or older

The government has finalized a plan to raise medical fees that are not reimbursed by social security for people aged 75 or older. The plan will require people aged 75 or older who live alone and have an annual income of ¥2 million or more to pay 20% of medical fees from fiscal 2022. For households of two people 75 or older, the income threshold will be ¥3.2 million. The increase in medical fees is expected to affect 3.7 million people. Until now, seniors were paying only 10% of their medical expenses, compared to the usual 30% paid by younger citizens. However, the increase in medical fees will be carried out over three years in gradual hikes. The measure comes as a part of a government effort to avoid another hike in the burdens shouldered by younger generations, tax payers and the government. The government will submit a package of social security legislation after the ordinary Diet session convenes on January 18.

Langley Insight: The increase of out-of-pocket medical expenses comes after an agreement between the LDP and Komeito, the two ruling parties. There was initially disagreement between them over who would pay higher fees. The Health Ministry and the LDP wanted the change to apply to the top 22% to 40% income groups, including those already paying 30% of their fees. Komeito wanted the measure to apply only to the top 20% income earners, those with a yearly income of at least ¥2.4 million. The two sides reached a compromise that authorities say will save younger generations from having to pay ¥88 billion a year.

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

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