Japan Turns Its Attention to Economic Security

Last week, the Japanese Diet passed a law to begin a comprehensive effort to protect the economy from hostile actors.  This, along with a revision of national strategy and a long-term defense plan, will enhance Japan’s ability to navigate the growing geopolitical tensions in the Indo-Pacific and across the globe.  Designed to bring Japan’s infrastructure, technology and supply chains under greater watch, the law will require government ministries to define the steps needed to implement this goal over the next several years.

Economic security was a priority for the Kishida Cabinet, and in October of last year, Prime Minister Fumio Kishida added a new Cabinet position dedicated to economic security.  Appointing Takayuki Kobayashi as its minister, he then set up a promotion council to draft legislation outlining economic security goals.  Finally, the Kishida Cabinet appointed a private sector advisory group to help refine those goals and to prioritize government planning.  Needless to say, Keidanren and Keizai Doyukai, the major business associations, also weighed in urging the government to remain in close contact with private sector actors that the state would oversee as it sought to enhance economic security. 

Japan’s political parties have had little criticism of this new initiative as the government presented legislation first to the Lower House and then to the Upper House.  During deliberations in the Lower House, several opposition parties presented their own ideas. The Ishin no Kai emphasized strengthening governmental oversight capabilities, while the Constitutional Democratic Party of Japan suggested shifting the focus from technology and patents to industries like energy and food production.  The only real criticism came from the Japan Communist Party, which initially said it was concerned that this would simply be a means of allowing bureaucrats to get lucrative jobs post-retirement (amakudari). Later the JCP argued that this new law would allow too much state control over the private sector.  In the end, however, the bill passed both houses easily. 

Four areas of policy attention make up this economic security initiative.  First, securing supply chains of critical materials, such as semiconductors, will be a priority.  Second,  the security of basic infrastructure will be ensured.  Third, research by the government and private sector to identify leading areas of innovation and technology development will be undertaken to ensure competitiveness.  Fourth, select Japanese patents will be classified to protect critical technologies.   

The law provides the mandate for government action, but various ministries must now refine this economic security agenda through ordinances and other executive actions.  Securing supply chains and identifying critical next generation technologies for protection should be accomplished within the next nine months, while securing national infrastructure and revamping the patent system will likely take longer. Enhancing protection from cyber-attack will continue to be a priority.  Overall, the Japanese government expects this to take several years to implement.

Already, Japan has moved to secure the supply of semiconductors.  TSMC, the Taiwanese chip maker, will build a new manufacturing facility along with Sony in Kumamoto, a deal in which Sony is investing $500 million.  Other critical materials, such as rare earths and materials required for battery production, are likely to be on Japan’s priority list.  How much of the funding for ensuring supply chains will be borne by the state and how much by private sector remains to be seen.  Similarly, Japanese companies will be alert to the specific mechanisms the government crafts to oversee and if necessary, penalize technology transfer. 

Similarly, coordination between Japan, Europe and the United States on economic security measures will be a growing area of strategic alignment.  All industrial economies will be seeking to stabilize supply of critical technologies, either through foreign direct investment or diversifying sources of trade.  Aligning economic security approaches must also be an important priority for Japan-U.S. strategic coordination, and the most obvious venue for that would be in the new economic 2+2 meetings. 

Serena Waters assisted in research for this blog.