October 2020
With the end of the Abe era, Japan has experienced the close of a period of general economic growth and political stability. The new government, headed by former Chief Cabinet Secretary (CCS) Suga Yoshihide, contains many familiar faces and there are few expectations of changes in policy. The most surprising changes were the appointment of Kishi Nobuo, who is hawkish toward China, as defense minister, the creation of a Digital Agency that will be led by Hirai Takuya and moving Kono Taro from the Defense Ministry to the head of Administrative Reform.
The Digital Agency and Administrative Reform are priorities in the Suga administration. While the government continues to deal with the new coronavirus, Suga has made clear that administrative reform will be central to his administration. In his campaign platform he pledged to revamp government regulations and “fight vested interests” and sectionalism. In his inauguration speech, Suga cited his track record as CCS in tackling administrative reform.
However, this effort, which will be led by Kono, is unlikely to lead to substantial regulatory reforms. Kono is actually not new to the post. He held the same position from 2015 to 2016, when he sought to “cut government waste.” This time he will focus on reforms that “create value.”
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But Suga has said that his government will create an outline for a Digital Agency by the end of the year. Its task will be to digitize both the government and the private sector, and loosen regulations in industries like medical services and education. It remains to be seen if this agency will be able to tackle reforms across multiple ministries, as each government organization has its own embedded culture and administrative framework.
The degree to which Suga will simply continue his predecessor’s policies versus pursue actual regulatory reform will become clear in the 2021 Diet session. Many premiers have attempted to change Japan’s bureaucracy before and failed. If Suga’s government proves successful, it could transform his administration from a caretaker of the Abe legacy to a true changemaker.
This month’s edition of Policy Radar focuses on developments in Technology, Defense, Finance, Energy and Diplomacy. You can also check out the new cabinet line-up here.
Technology:
Government to launch Digital Agency next year
The prime minister has asked Minister for Digital Reform Hirai Takuya to prepare to launch a new government agency promoting the digitalization of the bureaucracy and the private sector. PM Suga aims to establish the agency early next year so it will have ample time to begin reforms before his term as LDP president expires in September 2021. Digitalization was previously handled by the Ministry of Internal Affairs and the Ministry of Economy, Trade and Industry, but the Digital Agency is intended to unify these efforts.
Hirai has signaled his intention to staff the new agency with personnel from the private sector, and a preparatory office has been created. Hirai will soon produce a roadmap for the agency’s creation, and the government plans to introduce legislation to create the organization and amend the information technology basic law in the Diet session that begins in January 2021.
Langley Insight: Suga has highlighted digitization as a policy priority and created a ministerial portfolio for it. Digital Minister Hirai has been asked to move “at a speed never seen before.” Japan ranks in the top-tier of the E-Government Development Index alongside Denmark and Singapore, but it will encounter difficulty in digitizing the different administrative systems of its many ministries. It remains to be seen how Hirai will define “digital transformation,” what he will choose as his policy priorities and in which sectors he will first carry out reforms. We expect the government to act on this flagship policy in healthcare or education.
Government, METI mull digitizing tax payment procedures
The government is considering easing requirements for tax-related documents, such as receipts and bills, that are converted into digital form. It also plans to allow paper documents to be immediately discarded once they are stored online. METI will include the digitization of tax payment procedures in its request for tax reforms for the fiscal year that starts April 2021. Officials are also considering abolishing hanko seal requirements for tax-related documents and linking digital receipts and payments issued by banks. The government is also mulling a rule to require paper documents to be converted into digital form within three days of the original’s creation. Formal discussions are slated to be carried by the government later this year.
Finance:
LDP will request the government draft a comprehensive law promoting economic security
The LDP will request the government craft a comprehensive law to promote economic security for both the private sector and society more broadly. This comes after the LDP’s strategic headquarters issued a report on the shift toward a new international regime. The report said the international order may have changed due to the pandemic and the countries’ increasing reliance on digital technology. The report also called for a renewed strategy for each region and sector, saying for example that Japan should cooperate more with the Five Eyes alliance to help strengthen information-gathering capabilities, and that Japan should invest in the research and development of 6G. It also requested sending more Japanese personnel to international organizations to play a greater role in international policymaking.
The LDP is also requesting the government draft laws to promote the use of industrial data and a national digital currency in cooperation with Western nations. The ruling party will submit a proposal to the government after it finishes formulating a national strategy on economic security near the end of this year.
Langley Insight: The ruling party is becoming increasingly concerned about economic and financial security. It has already limited foreign investments in industries deemed important to national security, and increased the number of sectors that fall into that category. Most recently, it has limited foreign operators’ access to Japan’s offshore windfarms and their research capabilities in Japanese waters. While these policies are aimed at limiting Chinese economic influence in Japan, they create serious limitations on American and European enterprises, which will have to go through government reviews and controls. As the importance of digital technologies increases, the LDP is likely to push for legislation limiting foreign entry into the Japanese market. This will likely result in a standoff between the Digital Agency, which is set to push for looser restrictions, and more conservative ministries like the Finance Ministry and METI.
Energy and Climate Change:
Environment Ministry to launch initiative aimed at reducing single-use plastics
The Ministry of the Environment will launch a new initiative supporting companies and non-profit organizations that perform cleanup events and introduce services to reduce single-use plastics and marine plastic waste. The program will offer aid to private-sector companies and NGOs working with local governments. The ministry will request proposals from business coalitions made up of companies and local governments, and it will help implement approved proposals from fiscal 2021. The ministry will also send experts to companies and municipalities to give advice on how to have sustainable businesses and events, and it will create councils with local financial bodies and industrial associations to develop a larger support base in the business community. Finally, the ministry will back public-sector or private-sector projects aimed at developing products using materials that replace the use of plastic. The new initiative will be included in the Environment Ministry’s budget request for fiscal 2021.
Langley Insight: These are the latest in a series of reforms from the Environment Ministry that seek to reduce the use of single-use plastics. Previously it introduced fees for single-use plastic bags. Environment Minister Koizumi Shinjiro faces an uphill battle in reducing plastic consumption, but he is hopeful that his ministry can reduce the amount of plastic waste that ends up in the sea. Japan ranks second in production of plastic per capita, even though it also has a plastic recovery rate of 90%, according to the Plastic Waste Management Institute.
JAXA to use water-derived fuel for moon exploration missions
The Japan Aerospace Exploration Agency (JAXA) said that it will seek to engage in lunar exploration using hydrogen generated from water in the moon’s ice deposits in the mid-2030s. This will significantly reduce the cost of transporting fuel, if research indicating the presence of ice in a lunar crater is accurate. The water-derived fuel will be used in a reusable space vessel that will transport four astronauts and a vehicle. For a surface exploration trip, about 21 tons of water-derived fuel will be necessary. Japan is also trying to work with the U.S. to build a lunar orbit space station named Gateway and a fuel factory at the moon’s south pole, by around the 2020s and 2035 respectively.
Langley Insight: Lunar exploration is a critical avenue for further strengthening Japan’s relationship with the U.S. This announcement comes on the heels of a joint declaration in late August that Japan and the U.S. will seek to boost their cooperation on military and other operations in outer space. As the military applications of this and similar technologies become clearer, so too will the need for more robust coordination in space between allies.
Defense:
Defense minister weighs different missile strike capabilities systems
New Defense Minister Kishi Nobuo said he expects to replace the scrapped Aegis Ashore missile defense system with mobile offshore missile platforms. At the National Defense Division and Research Commission on National Security, the minister said he envisions either a new mobile vessel specialized in intercepting missiles or offshore platforms similar to oil rigs. Neither option risks harming inhabitants in residential areas. The technology used for the new vessel will include SPY-7 radar systems and launch equipment. The government will decide on the final replacement plan before introducing the budget for fiscal 2021 in December 2020.
The defense minister also asked for a record defense budget of 5.4 trillion yen. Part of the budget increase will be for developing new technologies, training personnel for electronic- and cyber-warfare and the development of a new jet engine for the Air Self-Defense Force.
Langley Insight: After weeks of semantic debate about the constitutionality of extending defense capabilities to preemptive missile strikes, the Defense Ministry wants to adopt a term that would not limit it only to striking bases, but to mobile launchers as well. The change is part of Japan’s shift from a defense-oriented strategy to a “sword and shield” alliance with the U.S. Japan wants to come up with its own system combined with foreign technology to replace Aegis Ashore. A stronger emphasis on defense and a larger budget is a result of the shifting balance of power in East Asia toward China.
Diplomacy:
Japan and U.K. trade deal to enter force in 2021
The governments of the U.K. and Japan have reached a general agreement on an Economic Partnership Agreement (EPA). The two countries will mitigate the impact of the U.K. leaving the EU-Japan EPA agreement by adopting many of the preferential tariffs in that deal. Foreign Minister Motegi Toshimitsu said that this agreement will allow Japan to maintain the benefits of the EPA with the EU and ensure the continuity of Japanese companies in the U.K. Tariffs on railway cars and auto parts exported from Japan to the U.K. will be abolished once the treaty comes into force. Tariffs on Japanese vehicles will be as low as those found in the EU EPA, and end in 2026. British agricultural products will not have any duty-free scheme in Japan. The Japanese government will establish a system to impose a lower tax rate on imports that are not part of the import quota set by the EU and Japan each fiscal year. Additionally, the U.K.-Japan EPA has limited control over digital sectors compared to the EU-Japan EPA. The trade agreement is slated to come into force on January 1, 2021, after approval by both countries’ parliaments. Prime Minister Suga has told his British Prime Minister Boris Johnson that he hopes the U.K. can seal a trade agreement with the European Union. He also welcomed the U.K.’s intention to join the Trans-Pacific Partnership agreement.
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