Introduction
In April 2024, Prime Minister Fumio Kishida announced Japan’s intention to take on a larger global leadership role. In this context, economic security is important for Japan, as reflected in the country’s Economic Security Promotion Act of 2022. Further demonstrating its determination, Tokyo authored the Group of Seven’s “Leaders’ Statement on Economic Resilience and Economic Security” during Japan’s 2023 G7 presidency. Additionally, Japan reorganized the Ministry of Economics, Trade, and Industry (METI)’s new Trade and Economic Security Bureau, which came into effect on July 1, 2024.
Keitaro Ohno is a Japanese Diet member who also currently serves as the state minister for cabinet affairs on economic security and disaster management, and the deputy secretary-general of the Liberal Democratic Party (LDP). Trained as a mechanical engineer and with experience in Fujitsu’s space development, he has had a second career in government for the past 20 years.
As a member of the government and the ruling party, Dr. Ohno has been instrumental in working with LDP Economic Security Promotion Headquarters Director Akira Amari on key economic security initiatives concerning Japan’s economic security clearance system, its cybersecurity capabilities, issues of foreign economic coercion, economic intelligence sharing, and anti-disinformation efforts.
Japan is the United States’ most important economic security partner, and this interview is an opportunity to gain significant insight into Japanese leadership’s economic security priorities and strategies, as well as opportunities for greater cooperation.
William Chou: Thank you for taking the time to participate in this interview on Japan’s economic security. Given Japan’s economy, technology, and central position in crucial supply chains, its economic security policies deserve special attention. I appreciate the opportunity to have this conversation with you and to learn more about Japan’s perspective on this issue.
So, to start, what is Japan’s perception of economic security? What are its priorities?
Keitaro Ohno: With economic power in the background, there are nations that are looking to weaponize interdependence. The premise of interdependence has collapsed, and the world has entered an era of balance of power that uses power in all its forms, including economic. As such, we must ensure security in a comprehensive manner, including economic security.
There is an obvious need to increase diplomatic efforts, defense capabilities, economic power, technological abilities, and intelligence skills. In order to ensure economic security, Japan’s top priority is (1) the use of market power and restrictions on the import/export of goods to target chokepoints in the supply chain. Yet other priorities include (2) restrictions on the physical movement of people through visa issuance restrictions and detentions of executives; (3) restrictions on business activities through boycotts and suspension of businesses; and (4) restrictions on the movement of capital, such as the suspension of developmental assistance and procurement. Addressing these challenges requires concrete steps through working with the international community and the private sector.
In addition, those nations that are looking to weaponize economic interdependence are using the pretext of quarantine and security, demonstrating their sophistication at disguising such aggressive acts as legitimate measures under international law. Some point out that they also exert opaque influence through means such as disinformation and the unofficial mobilization of non-state actors. As such, Japan recognizes the need for initiatives in a wide range of fields.
To do so, Japan intends to take the lead in international rulemaking and actively contribute to the creation of the international order by enhancing Japan’s strategic autonomy and strategic indispensability.
Chou: Yes, gray-zone or disinformation efforts at economic coercion, such as China’s claims of contaminated seafood arising from the release of treated water from Fukushima, will only be more likely in the future.
These are ambitious goals for Japan. What are the policy instruments that Japan will use to enhance its “strategic autonomy and strategic indispensability”?
Ohno: There are a wide range of policy measures for addressing economic security, but we have focused on strengthening economic intelligence capabilities, preventing technology outflows, strengthening the development of human capital, and building a foundation for private-public policies. They are the foundation for enhancing the effectiveness of economic security policies. It is particularly important to note that economic security activity is borne not just by the government, but also by the private sector as well.
In addition to cooperation with like-minded countries, the key to economic security policy is to reduce risks and to improve business sustainability as a whole in Japan through sufficient and appropriate information sharing between the public and private sectors. The Economic Security Clearance Law, which was passed during the previous Diet session, can be seen as supporting the aims of public-private partnerships and improving the business environment. Currently, we are urgently working to establish a framework for government-industry cooperation based on three policy pillars: promotion, protection, and partnership.
As for strategic autonomy, or the defensive component of economic security policy, Japan has never changed its stance toward promoting free trade. But it has selectively and strategically strengthened supply chains for those goods and services related to the survival of the nation. In addition to encouraging onshoring, Japan is also collaborating with like-minded countries in diversification and the development of alternative materials. In terms of supply chain resilience, we have started to strengthen our supply chains not only in industrial products, but also in areas such as pharmaceuticals and food. In addition, we are taking action to ensure a stable supply of critical infrastructural services, and we are considering extending such efforts to data governance.
For strategic indispensability, the offensive counterpart to strategic autonomy in economic security, Japan has developed a program to promote critical technologies that are strategically important to economic security. Despite the Science Council of Japan’s ongoing issues over dual-use technologies—on which it demonstrates unrealistically and unproductively extreme military aversion—I believe there will be reasonable calls in the future for rational and bold research and development (R&D) work in the future.
Of course, this program is not the only one that plays a role in strategic indispensability. The importance of economic security is clearly stated in Japan’s Integrated Innovation Strategy, and progressive development of essential technologies that may be potentially strategically indispensable is in place in areas such as space, artificial intelligence (AI), quantum, nuclear fusion, semiconductors, and material sciences.
Chou: You bring up several interesting points. Certainly, I think it is very obvious now that it is impossible to address economic security challenges with government, industry, and research in isolation from each other.
But what is the response of the Japanese private sector to these ideas? While economic security in terms of reshoring and diversification creates new opportunities for Japanese businesses, it can also disrupt existing business operations in markets they have been in for decades. Moreover, the benefits may be distributed unevenly.
How does the Japanese private sector think about these issues, and what is your response?
Ohno: Certainly, there will be times when companies will have no choice but to change their business strategy. However, doing nothing while worrying about geopolitical risks cannot be a wise decision for business executives. Since the inauguration of the Kishida administration, Japan has been implementing economic policies based on the concept of “new capitalism.” From an economic point of view, risks and social issues should be included in the calculations of business management and used in new investment and business opportunities. One can describe it as internalization of external inefficiencies.
Economic security can also be considered as one of these social issues. Tesla has incorporated the social issue of global warming into its business model. Solving such problems should be seen and utilized as a business opportunity. Governments should work with the international community to create an environment suitable for it.
Some may claim that it is unfair that certain industrial sectors will not be eligible for government support. However, if one considers that those eligible sectors are involved in critical goods and technologies that have broad impact and supply chains, one will see how they would benefit industry as a whole. Bearing this in mind, international partnerships and public-private partnerships should minimize the burden on companies and provide opportunities for growth.
As for the protection of trade secrets, yes, that is an important point for companies. Information sharing between the public and private sectors requires mutual trust as well as institutional assurance of information security. A security clearance system has been established in Japan, and as I pointed out earlier, it is a system that was designed to ensure that the information that the private sector provides to the government will be firmly protected within the government. It’s important to note that the provision of information by the private sector is voluntary, based on mutual give and take, but it is a necessary measure to build a relationship of trust.
Chou: I’m glad we talked about the promotions and protection aspects of the 3Ps (the three principles: promotion, protection, and partnership), and I’d like to return to them later. But I would like to discuss the partnership aspect a little more deeply, because some companies I’ve spoken to say they still have trouble getting their views across to government officials.
What are the formal or informal mechanisms for government-industry communication? How can companies best express their views on economic security opportunities and challenges? How can the government make policy choices given that different companies may have different views and preferences?
Ohno: As is the case for the general policymaking process, the government is also collecting information on economic security regularly or as needed, using various channels to gather information voluntarily from companies. However, it is not always structured and has not yet become the optimal mechanism for responding to evolving risks.
What should be shared between the public and private sectors is risk information. The supply chain, including the degree of dependence on a specific country, will be the main focus, but government and industry should also share important information related to the outflow of human resources and technology should also be shared. The government can conceivably mash up individual pieces of information to highlight new vulnerabilities and share them with companies again. It is conceivable that opinions can be aggregated through quantitative analysis. In any case, it will be an issue for the future.
Chou: You mentioned Prime Minister Kishida’s new capitalism, which is centered on the development of human capital. I think you can agree that human capital is closely related to economic security in many ways (for example, technology, manufacturing, and skills for the knowledge economy).
With special regard to the 3Ps, what do you think Japan’s human capital should be in relation to economic security? How will Japan’s declining population affect the development of human capital?
Ohno: Human capital is a serious and major issue, especially in Japan. This is because the population is declining ahead of other countries. In the National Security Strategy from 2022, developing talent was positioned as one of the most important issues. It is also one of the most important issues in economic security. It is human beings who promote technological innovation and the outflow of technology.
First of all, in terms of technological innovation, Japan’s basic technological capabilities are still among the best in the world. The problem is that talent is not being used effectively. Until now, Japan’s science and technology policy has been based on bottom-up policies. Going forward, it is necessary to consolidate information on Japanese human capital sectors with high technical skills and utilize it strategically as a human strategy.
In addition, even if advanced technologies are developed, there are many cases where they are not able to be introduced into society or markets. This is often due to the challenges of evaluating the future market values of these technologies; as such, it is not able to attract investment.
Therefore, one of the main pillars of the Kishida administration’s new capitalism is a policy that seeks to create an environment in which private investment can take place, thus increasing human capital and leading to the implementation of new technological innovations in society. That is why the Japanese government spends so much money on supporting startups.
On the other hand, there is also the serious concern about technology outflows. There have been many cases where high-level human resources and their technological skills and knowledge flow out of the country. The main reason is because those who possess such skills and knowledge do not feel that their talents are valued by society. To remedy this, we must create a system in which society uses salaries to evaluate, attract, and retain talent. But to raise salaries, Japan’s economic power must be increased.
The main macroeconomic problem facing Japan is that the deflationary environment of the past 30 years has stymied both prices and salaries. However, because of the depreciation of the yen due to cost-driven inflation that started two years ago, prices are finally increasing. By the end of this year, we expect that the deflationary mindset will be dispelled in Japan. Wages, on a macro level, should rise as a result. Stock prices have already reached record highs due to the expectation that Japan is shifting to a full-fledged, virtuous economic cycle. There is no doubt that in the coming year, Japan’s human capital will increase in depth as there are more ways to demonstrate its social value.
Finally, in the field of economic security, the concept of ITT (intangible technology transfer), which includes the outflow of valuable technological skills and knowledge, is starting to be discussed. South Korea has created a law that will restrict the international movement of highly skilled personnel, but this is not likely to be an effective policy in Japan. That is because the two countries have completely different industrial structures.
Rather, in the future, Japan may limit the outflow of human talent in areas that receive R&D subsidies from the government. More realistically, Japan should also work to show that it is an appealing country where talent is valued, more so than other countries, in order to ensure that it is able to attract, retain, and develop talent.
Chou: Certainly, human capital is a very important issue that deserves greater discussion in the future.
I want to go back to the issue of partnership. Cooperation between government and business is important for economic security, and so is cooperation between countries.
What is the role of cooperation with foreign countries in Japan’s economic security, especially with regard to strategic autonomy and strategic indispensability? Who are Japan’s key partners on economic security? Where do America’s and Japan’s priorities and activities coincide, and where do we need to work more closely?
Ohno: It is difficult to give a specific answer because this part also includes strategy, but I think I can convey the image
In terms of strategic autonomy, it is necessary to reduce supply chain risks for essentially all critical commodities, but we need to consider balancing it against economic rationality. Together with like-minded countries, we need to create a new global industrial structure that optimizes the balance between these two requirements despite the different industrial structures in each country.
Creating an industrial structure that is advantageous exclusively to Japan among like-minded countries is difficult. Japan is good at honing and refining technology. Therefore, Japan should focus on developing alternative materials, improving production efficiency, and advancing environmentally friendly production technologies. Of course, in coordination with like-minded countries, production infrastructure development or stockpile coordination are additional possibilities.
As for partners, it is important to stabilize the international order by strengthening relations with countries in the Global South. Ideally, the aim is to support the Global South’s development, creating diverse and stable interdependencies and diversifying the sources of critical minerals to reduce the supply chain risks for like-minded countries. This requires the private sector’s technology and capital. Cooperation with Western countries, such as the United States and European nations, is indispensable.
Concerning specific countries, India and Indonesia are attractive markets. Pakistan and Bangladesh are also attractive, though they have their challenges. The Philippines is important in the energy sector, including for critical minerals and natural gas. Turkmenistan and Kazakhstan are also attractive for their mineral and natural resources. Singapore has become a business hub for the wider region. Other important regions include the Pacific Islands, the Middle East, Africa, and Latin America, and we’d like to deepen our cooperation with these areas.
On the other hand, as for strategic indispensability, I believe that the fields of quantum, AI, nuclear fusion, and semiconductors are particularly important. These are areas where we need to work closely with the United States and European countries. In this context, to promote broader social implementation after technological advancements have been established, we would need international rules on technological standards and trade. Rulemaking efforts that are not limited to technological development are needed.
Chou: It’s great that you emphasize how Japan should accentuate its own capabilities so it can work more closely and effectively with the US and other like-minded countries.
However, with the upcoming leadership election in Japan and the presidential election in the US, how might these events impact Japan’s economic security strategy and Japan-US economic security cooperation?
Ohno: Japan and the United States are democracies, so it is not surprising that elections are significant. And if you look at public opinion polls in various countries, the people of every country are aware of who is responsible for the degradation of the international order.
Therefore, in the grand scheme of things, it is unlikely to matter who wins the election in both countries. However, there is a possibility of intense debate when it comes to policy specifics on trade issues. We must also keep in mind the differences in direction between the United States and Europe, such as in the field of digitalization. We need leaders who are willing to overcome differences and build a new international order.
In Japan, there is a management concept called sanpo yoshi. It believes that the company’s profits can be maximized only by considering the interests of not only one’s own firm, but also those of customers and society. Lord Palmerston, the great nineteenth-century British foreign secretary, once said, “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and these interests it is our duty to follow.”
This is an era in which national interests can only be achieved through the cooperation of like-minded countries. Every leader has to overcome differences.
Chou: Thanks for your thoughts, and I largely agree. Our countries may have differences in some policy areas, but we share the same interests and perspectives, and we will continue to find ways to work with each other.
The final issue I want to raise is, How do you define success in economic security? How should political leaders explain and gain support from voters and businesses for the long-term policies we need to ensure success in economic security?
Ohno: Economic security, like traditional security, is a dynamic issue. Success in such matters begins when there is a perfectly shared consciousness and intentions to work, which can be secured by frameworks and action. As such, mechanisms should be established for government and society to operate on a give-and-take basis, focusing on win-win initiatives such as personnel exchanges between institutions and information sharing. In addition, both regulation and incentives are necessary, but regulations should be limited to the extent necessary, with an emphasis instead on incentives.
However, consciousness and intention are human challenges that frameworks and actions might not necessarily be able to guarantee. It is therefore essential for political leaders to remind and emphasize to companies that they should take the initiative themselves on economic security. That said, economic security is not an issue on which any country can achieve self-sufficiency, so it is important to constantly search for better methods in response to changing dynamics.
Chou: Terrific, thank you for sharing your thoughts in this interview. Japan is taking many innovative approaches to economic security, so this has been a wonderful opportunity to see the issue from the perspective of Japanese political leaders.
Ohno: Yes, I think we have been able to discuss comprehensively the fundamental concepts behind Japan’s economic security strategy. However, it is only a partial picture, as it is difficult to deal comprehensively with specific measures for a specific concept in just one interview. I hope we will be able to discuss them at another time when we get a chance.
Chou: Thank you and I agree. This is just an initial step, but it was a good, comprehensive introduction for US policymakers on how Japanese leaders think about economic security. It advances our economic security work at Hudson and offers avenues for greater US-Japan cooperation.
Thanks again, and I look forward to more opportunities to talk again in the future.
Ohno: Yes, thank you.
Special thanks goes to Michiko Sueyoshi for her assistance with this interview.
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