Policy Under Pressure: Digital Transformation (DX)
Introducing Policy Under Pressure
Welcome to Policy Under Pressure, a new blog series diving into the evolving dynamics of Japan’s political landscape and their impact on key policy areas. With the unprecedented emergence of a minority government, Japan’s opposition parties now hold significant sway in the National Diet. Minority party stances can now shape—and sometimes redefine—policy decisions across various sectors.
In this series, we aim to explore the positions and priorities of Japan’s minority parties on critical issues; shedding light on how their perspectives may influence national policy. Each post will focus on a specific sector offering insights into the debates and potential collaborations between the ruling coalition and opposition forces.
Overview
For the second time in modern history, Japan faces a minority government within the halls of the National Diet Building. After the Liberal Democratic Party’s (LDP) stunning loss of their majority government in Ishiba’s gamble to obtain a mandate after Kishida’s resignation, we find ourselves in uncharted political waters. The opposition parties, from the Constitutional Democratic Party of Japan (CDP), to the Democratic Party For the People (DPP), and Nippon Ishin no Kai (The Japan Innovation Party; henceforth known as Nippon Ishin), all stand to have an oversized role in the 215th session of the National Diet.
The DPP has secured an agreement with the ruling LDP/Komeito parties on an economic stimulus package that will gain parliamentary approval in the upcoming weeks. While the contents of the economic package are not the focus of this blog post, the deals that the DPP has made regarding raising the income-tax threshold and subsidies to support lower-income households and families to deal with rising costs, indicate that the LDP has a dancing partner with the DPP (at least until the next budget deliberations in December 2024 and January 2025). However, the DPP, unlike Komeito, is not required to support the central government in all of its endeavours, meaning the LDP will face continued political instability.
In this era where opposition parties have an outsized role compared to previous sessions, we will analyze where these parties align and where they differ. These policy positions will point to areas of potential cooperation with the government and likely points of friction. In successive blog posts, we will cover major policy themes, leveraging each party’s platform in the 2024 election for our political analysis.
Digital Transformation (DX)
With the Fourth Industrial Revolution (i.e. the Digital Revolution) in full swing, it’s no surprise that each of the three major parties has ideas on how Japan should take advantage of the technological innovations that are radically redefining modern life. The CDP frames its digital transformation (DX) policies under a framework of fostering a ‘human-friendly digital society’ where no one is left behind. Taking a holistic approach, the CDP is careful not to create a ‘digital divide’; an important consideration given an aging population that may not be able to fully grasp technological advances. Along with enhancing the industrial policies that are within the realm of the Fourth Industrial Revolution, the CDP also supports the human resource development and infrastructure necessary to prepare Japan for the Fifth Industrial Revolution, although details remain vague. The largest opposition party clearly sees the role that ICT (information and communication technology) plays in improving people’s lives and wants to build an inclusive future.
The DPP want to bring about “Society 5.0”: a human-centered society where Japanese people prosper by incorporating cutting-edge technology in all aspects of daily life. Leveraging IoT (internet of things), the DPP envisions a society that utilizes data-driven policies and procedures to harness the power of the Fourth Industrial Revolution. They want to foster interconnectedness in all aspects of Japanese society, from all levels of industry/academia/government, to create globally competitive Japanese industries. To realize this, the DPP wants to further increase R&D subsidies and prioritize the government’s budget for IT and IoT (with a special focus on software and cybersecurity).
Nippon Ishin, the political party with ‘innovation’ at its core, aspires to build a competitive environment where technological innovations can be championed and grown in Japan. While not specifically mentioning the Fourth Industrial Revolution in their 2024 campaign platform, Nippon Ishin is extremely bullish on artificial intelligence (AI; see below). In terms of governance, Nippon Ishin wants to build a safe and prosperous digital society buttressed by government entities such as the formation of a “Digital Revenue and Benefit Agency” to further support the digitization of government and society writ large.
All three parties focus on maintaining the human element within the new Digital Age. Data protections like those proposed by the CDP to align with the EU’s GDPR (known to be one of the most impactful digital privacy pieces of legislation internationally), along with the primacy of cybersecurity in supporting Japanese citizens as espoused by all parties, lend themselves to opposition cooperation in the House of Representatives. A major difference between the parties, however, is that the CDP focuses more of its rhetoric around bridging the ‘digital divide’. This does not appear to be as prevalent in DPP and Nippon Ishin party language, and may have further implications down the road.
Supporting the Digital Economy: Semiconductors, Digital Tax, AI, and Web3
With the opposition parties’ general positions on DX in mind, we can drill deeper into industrial digital policy. All parties call for further subsidies for and investments in the digital economy, but they go about it in different ways. One consistent theme is the promotion of the domestic production of semiconductors. With global tensions rising and the general consolidation of advanced manufacturing domestically, it should come as no shock that Japan, looking to remain (or in some cases become) a leader in technological innovation, wants a piece of the semiconductor pie that is critical for innovative technologies like AI and other digital economies. The major opposition parties are pushing for the domestic production of these valuable assets. The ruling LDP/Komeito are also on board with this, and we will likely see further financial support in the supplementary 2024 budget.
Another area where we can see alignment is strengthening the taxation of giant international tech companies. The CDP and DPP both want to tighten international taxation frameworks to ensure these companies are paying their fair share. Nippon Ishin does not specifically call these companies out in their campaign platform, but one can imagine that they would be sympathetic – or at least be willing to hear out – both the CDP and DPP on this point.
There is no mention of fintech in the DPP’s platform, but the CDP and Nippon Ishin both want to create a regulatory environment that allows for innovation and growth in this sector. The CDP, coming from their position of ‘protecting the consumer’, hopes to encourage the fintech sector while ensuring consumer protections and education. Nippon Ishin supports the promotion of financial service innovation through regulatory reform across the banking, securities, and insurance sectors.
AI, given its potential to radically redefine how we live and work, is a topic discussed by all parties; with Nippon Ishin spilling the most ink on the subject. For the CDP, balancing regulation and innovation is key in AI development. It will push for the establishment of rules for social regulations, advocate for implementing ethical considerations and measures to prevent copyright infringement, and combat the spread of misinformation, surveillance, and discrimination. Both the CDP and DPP champion international standards and regulatory harmonization. The DPP supports regulation without hindering innovation; a vague perspective that is not fleshed out in its campaign platform and may indicate a more pro-deregulatory AI stance. It is also interesting to note that the DPP wants to develop legislation to monitor and regulate technology leakages in AI and the acquisition of technology companies by foreign capital. This protectionist stance, given the working relationship with the LDP that seems to be developing, may harden into concrete policy (although there is nothing in the LDP’s whitepaper on AI that would indicate such a policy position held by the ruling party).
Nippon Ishin, true to its name, devotes serious consideration to the development and implementation of AI. Promoting the principle of ‘open by default’, where data is public unless specifically justified otherwise, Nippon Ishin desires to leverage AI in all aspects of both daily life and government. It wants Japan to develop a national strategy for the AI industry and supports an ‘agile governance’ model for the AI era; thereby promoting business’ voluntary initiatives and accountability regarding generative AI. Generative AI, in its view, will accelerate innovation and improve productivity for an aging society dealing with declining birthrates. The human element and primacy of the user is not lost on Nippon Ishin, and the party supports the development of human capital necessary to use AI in a safe and responsible manner.
While Nippon Ishin wants to push the envelope in integrating AI, the CDP, based on its 2024 platform, seems a bit more reticent to take the plunge. The DPP takes a middle-of-the-road approach. How this impacts future government policy remains to be seen, but all political parties are dedicating policy bandwidth to addressing this paradigm-shifting innovation.
Another avenue of innovation under discussion is the development of Web3 (i.e. technologies that involve the blockchain). The three opposition parties want to revise the tax system for crypto assets, with the DPP and Nippon Ishin providing specifics (e.g. the DPP wants to change cryptocurrency taxation from miscellaneous income to a 20% separate declaration tax with loss carryforward deduction for three years, with crypto-to-crypto exchanges tax free, while Nippon Ishin would change the current taxation as miscellaneous income to capital gains taxation). Digital currency like crypto is mentioned in each party’s platform, albeit with different levels of enthusiasm. The CPD wants to promote the Bank of Japan's pilot studies and research on Central Bank Digital Currency (CBDC) but doesn’t go as far as the DPP, which would digitize the yen as legal tender and also create the issuance of local government “Digital Local Currency” (the tentative name for this crypto asset) to revitalize regional economies. Nippon Ishin would further the development of CBDC through regulatory sandboxes and special zones and would consider the introduction of CBDCs with set target dates. All three parties want to avoid becoming a laggard behind other nations: a position that may push the government to take more aggressive stances on digital currency adoption. Other Web3 policies, such as the CDP’s desire to establish the legal framework to allow for the incorporation of decentralized autonomous organizations (DAOs) to clarify their legal status and the rights & obligations of their members and participants, to Nippon Ishin’s stance on non-fungible token (NFT) adoption to support the cultural content industry, are also present in party platforms. Unsurprisingly, Nippon Ishin has the most developed policy perspective on Web3, but the persistent idea that Japan cannot be seen as falling behind permeates though each party’s digital industrial policies.
On a tangential, but interesting, note, all three parties call for the development of e-sports (competitive computer and video gaming). The CDP wants to work towards supporting ‘sports for all citizens’, highlighting the growing interest in competitive video gaming among younger generations. The DPP sees e-sports as an opportunity to bolster regional revitalization and would seek to advocate for tournaments in regionally diverse areas to attract more visitors, and their money, to areas outside of major metropolitan centers. Nippon Ishin also recognizes the draw of international e-sports competitions and would push for the private and public sectors to cooperate to foster such competitions in Japan.
Conclusion
A major theme that emerges from analyzing the digital policies of all three major opposition parties is ‘keeping up with the Joneses’: or ensuring that Japan does not fall behind other nations in the creation and adoption of digital innovations. While some parties, like the CDP, are more in the ‘research and analyze’ phase of the policy spectrum, the DPP and Nippon Ishin are champing at the bit to unlock the full potential of the Fourth Industrial Revolution. This is not to discount the full buy-in of the CDP on the potential of the Fourth Industrial Revolution, but the party is not as aggressive policy-wise compared to the DPP and Nippon Ishin. The human-centered element of digital policy rings through in all party platforms, a fact that will impact the development of the Japanese government’s digital policy writ large. There are many avenues for collaboration with the ruling coalition, and all parties are more aligned than not on where Japan needs to head to take full advantage of the innovative wonders that the Fourth Industrial Revolution will create.
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