Digital Technology
Government Initiatives

The Japanese government is advocating for further digitalization to tackle Japan's aging population, as well as to enhance the country's competitiveness and economic security. Aiming to realize a Society 5.0, the government is launching significant initiatives, such as the implementation of the Ouranos Ecosystem (described below) and is adopting various measures to attract foreign companies.

Japan has the world's highest rate of elderly population aged 65 and over¹⁰, and the working population rate is declining in response to the increase in the elderly population rate. As the need for improving productivity through the adoption of new technologies increases, Japan's shortage of human resources needed to carry out fundamental reforms and the various barriers to achieving company-wide data utilization are becoming serious challenges. The government estimates that Japan as a country could incur economic losses of up to 79.27 billion* USD (12 trillion JPY) per year from 2025 onwards, if the various challenges with existing systems (company-wide data utilization and the necessary management reforms to achieve it) are not addressed, resulting in the government treating the digitalization and digital transformation of all industries as a priority issue.¹¹

The effects of the COVID-19 pandemic have also contributed towards digitalization. As in other countries, online consumption and communication has become commonplace, and the associated services (online payment services, online conference platforms etc.) have been digitized and are being used widely.¹²

The Japanese government, seemingly anticipating this transition, announced Society 5.0 in 2016 as the ideal form of Japanese society. Society 5.0 follows the hunting society (1.0), the agricultural society (2.0), the industrial society (3.0), and the information society (4.0). It refers to a society that attempts to develop its economy and solve its social issues through a system that integrates cyberspace and physical space at the highest levels.¹³ While the information society (Society 4.0) focuses on network formation and access to information through the Internet, Society 5.0 aims to create new value, including flexible production planning and inventory management through AI analysis, utilization of robots, production efficiency improvement through collaboration between factories, labor-saving, succession of skilled techniques, and high-mix low-volume manufacturing, through the connection of different systems, physical space and cyber space.¹⁴

The Japanese government considers digital infrastructure, digital technology and industry, and personnel with experience in digital processes as the three pillars of Society 5.0.¹⁵ Accordingly, the government is working on initiatives such as strategic innovation that ensures smooth cooperation between ministries, development of smart cities and R&D that could contribute to the solution of social issues, and accumulation of knowledge in multiple fields along with education and personnel training.¹⁶ The government is engaged in several focus areas and policies for realizing Society 5.0 (Figure 4).

As an example of a large-scale measure led by the government, consideration is under way for implementing the Ouranos Ecosystem, which aims to build a digital platform through public-private partnership. Under the guidance of the Information-technology Promotion Agency, Japan (IPA, Japan), which is under the Ministry of Economy, Trade and Industry (METI), the initiative attempts to implement a platform to achieve cross-ministry and international data linkage.¹⁷

The government is also involved in the creation of international regulatory frameworks for advanced technologies. Following the G7 Hiroshima Summit in May 2023, the Hiroshima AI Process was established. Under the Process, the Hiroshima AI Process Comprehensive Policy Framework was formulated, with international guidelines and a code of conduct for all AI stakeholders, through which issues such as ensuring transparency and risk disclosure in the use of advanced AI systems were discussed. Following this, the Tokyo Expert Support Center of the Global Partnership on AI (GPAI) was established, which is expected to strengthen collaboration with international organizations with regards to AI safety assessment methods.^18,19

Various support measures have been implemented for the use and adoption of digital technologies. The main support measures are the following: Firstly, the government is deregulating new technologies to accelerate innovation. In cases where the current system is a barrier to the practical application of new technologies (such as blockchain) or the implementation of new business models (such as platformer-type businesses, which provide a platform that connects providers of products and services with consumers), demonstrations are conducted based on requests from business operators and based on the results of the demonstration, the need for a regulatory review will be considered (Regulatory Sandbox).²¹ Secondly, the government provides support for the expansion of communication infrastructure, which includes providing tax credits and breaks for capital investment in national and local 5G networks and financially supporting the social implementation and R&D for Beyond 5G/6G (Tax Measure to Promote 5G Network Technology²² and Beyond 5G (6G) Fund Project²³).

The government is also making efforts to promote digitalization throughout Japan. Under the Vision for a Digital Garden City Nation, which aims to revitalize local regions through digital technology, the government provides a total of 660 million USD* (100 billion JPY) in grants to local governments to promote digitalization throughout Japan (the grants for the Vision for a Digital Garden City Nation²⁴). For financial assistance to small and medium-sized enterprises (SMEs), the government subsidizes the costs of using cloud services and building the necessary equipment and systems, along with supporting the introduction of IT tools for operational efficiency and digital transformation (Business restructuring subsidy²⁵ and IT introduction subsidy²⁶). In addition to the above, a tax credit of up to 5% or a special depreciation of 30% is provided to companies that undergo digitalization to secure personnel with experience in digital processes and increase profits (the new taxation system for promoting digital transformation investment²⁷).

Under the Action Plan for Attracting Human and Financial Resources from Overseas, support is also being provided specifically to foreign companies in important sectors, including digital transformation. In FY 2023, the government approved 8 projects involving 15 foreign companies [worth a combined 1.32 billion USD* (200 billion JPY)], to promote investment in important sectors (semiconductors, digital transformation, green transformation, bio-healthcare, etc.). Business matching opportunities with Japanese companies and universities are also being organized. In FY 2023, 141 foreign companies (including 81 companies related to the digital sector) and 131 Japanese companies/universities participated in these business matching events. Additionally, the government is making efforts to create an environment that facilitates foreign companies' entry by considering granting residency status to international remote workers for securing overseas human resources, developing fiber optics, 5G, data centers, and super cities to facilitate the business activities for digital companies.²⁸

In addition to the national efforts towards digital transformation, cross-institution and international cooperation measures are also being implemented. The momentum towards a society that incorporates digital technology into various aspects of daily life (Society 5.0) is expected to continue growing.

To realize Society 5.0, there is a need for businesses that can develop and implement (convey the benefits of the technology in an easy-to-understand manner, customize it to make it easy to use, and popularize it to individuals and businesses with different backgrounds and challenges) such technologies. Several foreign companies have entered the market and are playing a vital role in moving Japan closer to its social vision by developing their own services and cooperating with Japanese companies (as detailed in 3. Attractive Markets).