Weekly Japanese Industry and Policy News (December 22-December 28, 2023)

The EU-Japan Centre is pleased to start a new weekly service by publishing brief summary of the latest information from the Japanese governmental organizations & private companies/organizations. A couple of minutes reading to be informed about what is happening in Japan's policy, economy, EU-Japan relations, and innovation.

*Information is deemed correct at the time of release. 

WTO releases co-chairman's statement on e-commerce negotiations
On December 20, Japan, Australia, and Singapore, which are co-chairs of the WTO e-commerce negotiations, issued a co-chairman's statement declaring the substantive conclusion of negotiations on Article 13 of digital trade rules. The key points of the co-chairman's statement are as follows.

- Substantively concluded negotiations on Article 13 of digital trade rules.
- Continue efforts to converge remaining provisions, such as those related to information and communication technologies that use cryptography.
- Encouraging participating countries to join the consensus on the commercial impact of the agreement on tariff provisions for electronic transmissions.
- All negotiating participants supported the development provisions.
- Difficult proposals such as cross-border data flows, data localization, and source code are important to many participating countries and regions, but will require more time to discuss.
- Participating countries and regions will make efforts to conclude negotiations at an appropriate time in 2024.

METI website:
https://www.meti.go.jp/press/2023/12/20231220004/202312004-1.pdf

Global digital industry market hits record high in 2024 due to spread of generative AI
The Japan Electronics and Information Technology Industries Association (JEITA) announced on December 21 that the global market size of digital-related industries such as IT (information technology) services and semiconductors will increase by 9% from the 2023 estimate to $3.6868 trillion. This is the first increase in two years and a new record high. The spread of advanced technologies such as generative AI (artificial intelligence) will provide a tailwind.

Looking at the breakdown of the software and hardware market size, IT services increased by 12% from the previous year to $1.474 trillion, setting a new record. Generative AI will become widespread, and the development of systems to support its introduction by companies will expand. Software development for electric vehicles (EVs) will also raise the overall standard. Sales of hardware such as electronic parts and communication equipment are expected to increase by 7%. Due to the expansion of the AI and EV markets, semiconductors that support data processing will increase by 13% to $588.4 billion, a new record high.

The market size of the digital industry provided by Japanese companies is expected to increase by 5% to JP¥ 41,563.8 billion. Semiconductors increased by 8% to JP¥ 6,512.8 billion, and electronic components increased by 7% to JP￥10,358.9 billion, both turning positive for the first time in two years. However, the growth rate of Japanese companies pales in comparison to the global growth rate of 9%.

JEITA website:
https://www.jeita.or.jp/english/press/2023/1221.pdf

METI compiles sector-specific investment strategies to realize green transformation
On December 22, the Ministry of Economy, Trade and Industry (METI) compiled and announced investment strategies in priority areas for the next 10 years, with the aim of realizing Green Transformation, which aims for three areas: decarbonization, economic growth, and stable energy supply. This was compiled by the GX Executive Committee based on the "Basic Policy for Realizing GX" approved by the Cabinet in February 2023. It shows the basic principles, specific policies, and commitments required of businesses eligible for support measures for each of the 16 industrial sectors. The 16 sectors are as follows.

Steel, chemicals, pulp and paper, cement, automobiles, storage batteries, aircraft, SAF, ships, daily life, resource circulation, semiconductors, hydrogen, next-generation renewable energy (perovskite solar cells, floating wind power, etc.), nuclear power, CCS.

The government has earmarked JP￥663.3 billion in FY 2024 (April to March) budget proposal as support measures for these areas. The main source of funds will be GX Economic Transition Bonds, which will focus the use of funds on decarbonization projects. Over the next 10 years, it will raise funds on the scale of JP￥20 trillion, leading to over JP￥150 trillion in decarbonization investment in the public and private sectors. Issuance will begin in February 2024, and is expected to amount to JP￥1.6 trillion in FY 2023, and JP￥1.4 trillion in FY 2024, when it will be in full swing.

METI website (in Japanese):
https://www.meti.go.jp/press/2023/12/20231222005/20231222005.html

Government revises rules to increase exports of defense equipment
On December 22, the government revised the three principles and operational guidelines for defense equipment transfer at a cabinet meeting. One area where progress has been made is the handling of licensed products. Instead of being able to send only parts, it has now made it possible to send finished products to countries that hold patents. If requested by the patent-holding country, Japan can send the patent to a third country after deliberation. The first step was to export the Patriot air defense missile interceptor to the United States. This is the first time that a finished product with lethal force has been exported under the Three Principles.

The United States has provided its homegrown Patriots to countries such as Ukraine. Filling up the inventory shortage with Japan's supplies would lead to indirect support for Ukraine. However, there are some measures for which no conclusions could be drawn this time. A typical example is whether or not equipment jointly developed with other countries can be sent from Japan to a third country. The release of finished products has been postponed until after the new year. The handling of the finished product is important because it could affect plans for the next fighter jet, which will be jointly developed by Japan, Britain, and Italy. The government is looking at the outcome of the trilateral talks and is asking the ruling parties to reach a conclusion by February 2024, but the future remains uncertain.

METI website (in Japanese):
https://www.meti.go.jp/press/2023/12/20231222011/20231222011-aa.pdf

IHI begins hydrogen production experiment using natural gas pyrolysis
IHI announced on December 25 that it will begin experiments on a prototype hydrogen production device that uses natural gas pyrolysis, which is currently being developed as a new hydrogen production technology. The hydrogen production technology using natural gas pyrolysis that it has recently started developing is a technology that heats natural gas and decomposes it into hydrogen and solid carbon. Compared to conventional hydrogen production technology using steam reforming, this technology is characterized by the fact that the energy required to produce hydrogen per unit can be reduced by approximately 40%. Additionally, as more than 90% of the carbon produced by pyrolysis is recovered as solid, a significant reduction in CO2 emissions is expected.

Iron ore will be used as a catalyst, and the aim is to produce up to 100 tons of hydrogen per day. Based on these specifications, it aims to establish a hydrogen production technology that is cheaper and emits less CO2 than conventional hydrogen production technologies. In addition to assuming that solidified carbon will be stored, it will also consider its effective use, such as for soil reform and water quality improvement. This technology uses electricity derived from renewable energy as a heat source, and aims to be put into practical use in the United States and Australia, which are iron ore and natural gas producing countries, in the late 2020s.

IHI website (in Japanese):
https://www.ihi.co.jp/all_news/2023/technology/1200517_3546.html

Flying base stations (HAPS) will be put into practical use in 2025
At the International Telecommunication Union (ITU) World Radiocommunication Conference (WRC) held in Dubai in November and December, Japan proposed making four frequency bands used by flying base stations (High Altitude Platform Station=HAPS) international standards and all countries agreed. The Ministry of Internal Affairs and Communications announced this on December 27. HAPS are expected to be put into practical use as early as 2025. 

The 1.7 GHz, 2GHz, and 2.6GHz bands, which are the core frequencies used internationally for mobile phones, will be adopted as global standards. The platinum band 700-900 MHz band, where radio waves are easily connected, is used in Europe, Africa, North and South America, and parts of Asia. HAPS flies an unmanned aircraft into the stratosphere, 18 to 25 kilometers above the Earth's surface, and uses it as a base station for mobile phone communications. It is expected to be the next generation of communications that will extend the communication area of smartphones and other devices to the sea and sky.

In October, Japanese SoftBank used HAPS to enable video calls between Rwanda, Africa and Japan using 5G-enabled smartphones. SoftBank will work with the Rwandan government to conduct research toward its introduction in Africa. Next-generation communication technologies such as HAPS are likely to contribute to closing the digital divide. This agreement increases the possibility that Japan will be able to export unmanned aerial vehicles, communication systems, and operations in one package.

Ministry of Internal Affairs and Communications website (in Japanese):
https://www.soumu.go.jp/menu_news/s-news/01kiban10_02000045.html

Japan and Saudi Arabia agree to jointly invest in important minerals
On December 24, METI Minister Saito met with Minister of Industry and Mineral Resources Khoreifu in Riyadh, Saudi Arabia, and they exchanged a memorandum of understanding toward securing important minerals such as rare earths. They will strengthen economic security and create a framework for cooperation that includes joint investments such as resource development in third countries. The Japan Energy, Metals and Minerals Corporation (JOGMEC) and Saudi investment company Manara Minerals also signed a memorandum of understanding. Manara is funded by the Saudi state fund and was established for international mineral investment. The aim is to start concrete projects within two years.

METI website (in Japanese)::
https://www.meti.go.jp/press/2023/12/20231226004/20231226004.html