A Nation’s Drive Towards a Data-first Digital Society Future

November 2022

In 2018, the Government of Japan formulated the Digital Government Implementation Plan to promote efforts that link data and ICT services throughout central and local government as well as in the private sector. A year or so later, with the Covid-19 pandemic spreading and the country’s healthcare management systems stretched, the need for such a plan had become clear. Thus, as Japan moves into a post-Covid-19 era, the country is speeding up plans to upgrade legacy systems via a digital transformation—or DX—strategy.

In June 2022, the government approved a policy document, titled Priority Policy Program for Realizing Digital Society. The document outlines a roadmap for the country’s DX journey, and includes the basic policies of the recently created national Digital Agency. Importantly, entities in the private sector—including foreign-affiliated firms, technologies and skilled individuals—will be key players in the process to realize a future society based on digital tools.

As noted in the prologue of this series, this article falls under one of the themes under our consideration—in this case, articles sharing key government strategies in the digital sector. Such content has three goals: 1) to introduce key initiatives by the government to promote DX; 2) to share insights into areas of collaborative innovation to realize a DX-based future society; and, 3) to highlight initiatives that are underway—or are planned—to use DX to change the business and living environment, making it attractive not just for citizens, but also for foreign direct investment and talent from overseas.

To that end, we will spotlight DX initiatives emanating from the Government of Japan, as well as their adoption and implementation across society: from central to local government; in urban and regional areas; in universities and research institutes; and, across business—in corporations, SMEs, and startups. In this article, we will consider the progress that the Digital Agency has made since its launch, highlighting how the agency is helping to deploy DX solutions across government—and, as we will see, working directly with the private sector, including foreign-affiliated companies.

As has been widely reported, Covid-19 has not been the only challenge that Japan is facing. Like many developed nations, the country is beset by societal issues such as low birth rates, depopulation of rural areas and labor shortages. And that’s not to mention challenges caused by climate change or natural disasters, such as earthquakes; indeed, both challenges have increased the need to reinforce the country’s infrastructure.

To accelerate initiatives to mitigate these issues while exploring opportunities and solutions that DX offers, in 2021 the Government of Japan created the nation's first Digital Agency. Then-Prime Minister Suga Yoshihide made digitalization of Japan a top priority of the government. Prime Minister Kishida Fumio has taken up that cause, announcing that DX will be an important pillar of his vision of a “new form of capitalism.” The aforementioned priority strategy document takes that vision further, outlining the basic policies that will guide the Digital Agency. The agency has a mission to create human-friendly DX that ensures “no one is left behind.” To this end, the agency has defined three pillars to drive its vision forward: “delivering citizen-centric public services,” “modernizing digital infrastructure for inclusive growth,” and “strengthening digital resilience.”

An important part of that strategy is to work closely with the private sector, including foreign-affiliated firms, technology and skilled individuals. That is how, in 2021, shortly after the Digital Agency was established, two companies from abroad—Amazon.com Inc. and Google LLC—won contracts to deliver government-as-a-service—or Government Cloud—platforms for the public sector in Japan. Government Cloud services facilitate cloud-based computing technology, allowing digital connectivity—and the transfer of open data, data linkages, systems integration and commonality—between the various arms of government.

In the autumn of 2021, the Digital Agency announced that it would use Amazon Web Services, a subsidiary of Amazon.com, and Google Could Platform, a service by Google, to deliver its Government Cloud services across central and regional government. This was followed by an announcement in October 2022 that Government Cloud services by Microsoft Corporation and Oracle Corporation, providers of the Microsoft Azure and Oracle Cloud platforms, would join the list of providers. Amazon.com, Google, Microsoft and Oracle are among the first foreign-affiliated firms that have seized the opportunity to explore DX solutions in collaboration with the Digital Agency.

The Digital Agency has wide powers to set the mid-and long-term strategy for DX in Japan. The agency can, for example, make recommendations to other ministries and agencies and guide their DX strategy. Indeed, the agency has a mandate to promote digital reform, regulatory reform, and administrative reform in an integrated manner, and that includes a goal—by mid-2025—to reform thousands of laws and regulations from the analog era that require amendment to conform with digital principles.

One area that the Digital Agency has thus far played a visible role has been to roll out the My Number System and My Number Card—both are important elements of Japan’s digital identification system for citizens and residents. The My Number Card, for instance, can be used to authenticate an identity or to gain access to services such as healthcare. In the year since its launch, the Digital Agency increased adoption of the My Number Card to over 45 percent of the population, almost 10 percent up from the previous year.

Going forward, the agency aims for the My Number Cards to be adopted by most of the population, and to start distribution on cell phone applications, by the end of FY2022. What’s more, the agency has a goal for the ID system to be integrated with the driving license network by FY2024, and, shortly thereafter, to expand to the public-private sector for use in an ever-growing range of services.

But there is more that the Digital Agency is pushing forward. Shortly after the June policy document towards the realization of a future society based on digital tools was announced, the Government of Japan approved the “Vision for a Digital Garden City Nation,” a nationwide plan set forward by the Cabinet Office. The plan acknowledged that now is the time to rapidly deploy digital infrastructure and actively promote DX across sectors and regions—but especially in rural areas. Thus, a key goal of the Digital Garden City Nation concept is to promote the creation of new, DX-enabled services that improve work and life outside of metropolitan areas and large cities.

Japan’s rural areas are facing unprecedented challenges. One issue is the over-concentration of populations in large metropolitan areas as people move from rural to urban locations. The promotion and deployment of DX infrastructure in rural and local areas can reverse those trends. Indeed, the aforementioned policy document envisions 1000 local governments working on DX implementation by FY2024; the document outlines plans to create jobs in the regions; facilitate family life and childbirth; and to develop the digital infrastructure in rural locations to make them more attractive and convenient.

One way to create jobs outside of metropolitan areas is to encourage the growth of startup ecosystems in rural regions. Seeking to solve local challenges, ventures can deploy DX in industries such as agriculture (AgriTech), the sharing economy, transit (mobility-as-a-services or MaaS) and more. In addition, the rural economy and society can be made more attractive in a variety of ways. Families, for instance, can benefit from the realization of the Global and Innovation Gateway for All (GIGA) initiative. Launched in 2018 and subsequently expanded, the GIGA School Program aims to create an educational ICT (or e-learning) environment for schoolchildren that is optimized for each child’s education.

But that is just the beginning. As noted above, Prime Minister Kishida announced that DX is to be a key pillar of Japan’s growth strategy. Suffice to say that DX markets in Japan, given the challenges mentioned above, are ripe for new entrants in areas such as digitalization of administrative procedures; DX in industrial sectors, including in operations management fields; promotion of regulatory reform (RegTech); and, promotion of Web 3.0, a fast-growing, cloud-based industry that takes advantage of technology such as augmented reality, virtual reality and artificial intelligence.

At the heart of all DX is the question of data and how it’s secured and managed, and that includes a variety of industries and technologies: undersea optical cables, 5G, semiconductors and data centers, to name only a few. That is why the Digital Agency is tasked with ensuring DX markets develop in line with global standards on “open data.” A pillar of the agency’s mission is to promote data free flow with trust (DFFT) concepts. These are principles based on international standards for governing cross-border data flows. By leading on DFFT, which touches on data security and data linkages, Japan seeks to speed up DX.

Data plays a crucial role in the provision of public services to transform people’s lives, including the lives of residents from abroad. Via the aforementioned My Number Card system, for instance, a wealth of one-stop digital services will eventually become available at the user’s fingertips: company establishment, banking, health insurance, drivers licenses, and verification of residence status. Other services that can benefit from data-first DX include tax procedures, childcare, nursing care, relocation and funeral services. Each of these areas create opportunities for innovation between Japanese and foreign-affiliated entities.