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Japan gets serious about the high-risk, high-reward data rush

New law designed to help tap the 'oil of the 21st century'

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  © Reuters

TOKYO -- Japan has brought into force a revised personal data protection law designed to both strengthen privacy safeguards and encourage businesses to mine information.

The revised legislation, which took effect on May 30, requires companies and other organizations to manage personal data with care. At the same time, it allows third parties to use information about individuals without their consent, provided the data has been "anonymized" to make identifying the individuals impossible.

Take it as a belated sign that Japan is getting serious about tapping big data to create new industries and boost the economy. Coincidentally, though, the law's implementation comes about two weeks after the world got a wake-up call about the risks of a digital, data-oriented society.

In a global cyberattack, hackers used malicious software known as ransomware to encrypt files, making them unusable until a payoff is made. The attack affected 150 countries and territories, including the U.K., where hospitals were paralyzed.

Japan was spared serious damage -- this time.

Experts predict the country will face an online onslaught ahead of the 2020 Tokyo Olympics. And with cyberattacks becoming more sophisticated by the day, it is difficult to completely defend against them.

Nevertheless, slamming the brakes on data usage is not an option. On the contrary, while the country must take steps to prepare for attacks, it needs to embrace data to a much greater extent.

There are risks involved, but they are risks worth taking.

Uberize me

Consider the opportunities in health care.

A national project is underway in Japan to create a database of medical records. The Cabinet Secretariat aims to cover 50 million people in two years' time. Companies, universities and other parties will be able to purchase data after it has been processed for anonymity.

This treasure-trove could help researchers spot correlations between diseases and hone treatment methods. It is also likely to sharpen the diagnostic abilities of artificial intelligence. If all this helps to keep people healthy later in life, it would stem the rise of social security costs.

Data has been dubbed the "oil of the 21st century," since it will be a "fuel" that drives economies. Information on individuals has immense potential, in particular -- potential that we have already glimpsed through Uber Technologies.

The U.S. ride-hailing service has spread worldwide, connecting passengers and drivers via smartphones -- and shaking up the auto and taxi industries. The startup has been valued at around $70 billion, more than 30% higher than the market capitalization of Honda Motor.

In January, Uber released anonymous data on the movements of its customers -- a move that promises to help cities improve their transport infrastructure.

There is no ceiling on the potential of the data-driven economy. Uber is now looking to get a "flying taxi" service up and running in Dubai, United Arab Emirates, and elsewhere.

Think big

By implementing the new law, Japan has taken a step toward fostering a data-driven economy of its own. But as Uber shows, the most important thing is the entrepreneurial drive to change the world.

That drive is beginning to take root in Japan, too.

Abeja, an AI startup in Tokyo, has developed technology for tracking customers in stores. Using cameras, the system estimates the gender and age of shoppers and keeps tabs on their movements.

This data, the company says, can help retailers place goods in optimal locations and deploy staff members more effectively. More than 300 stores, including department stores, have introduced the technology so far.

Japan's services industries have long struggled to boost productivity, and today they face a labor shortage. But Abeja CEO Yousuke Okada sees changes in store: "There are many things that can be done with technology," he said.

Nvidia, the U.S. chipmaker, clearly believes Okada is on to something. It acquired an equity stake in his company.

Another Tokyo startup, SmartDrive, collects data on when, where and how people drive cars. This can help businesses manage their fleets of vehicles, but SmartDrive envisions other uses as well, such as watching over elderly drivers and creating insurance policies that carry lower premiums if the holders drive safely.

Anyone looking to succeed in the data economy must take privacy concerns into account -- and both Abeja and SmartDrive say they have this covered. The former immediately disposes of the facial images its cameras pick up. SmartDrive obtained international certification for information security, and CEO Retsu Kitagawa said, "We don't gather personal information and data blindly."

Companies that do not adequately explain their data-handling policies are likely to take some flak. When East Japan Railway, the main railway operator in eastern Japan, supplied data from its Suica electronic commuter cards to Hitachi four years ago, it faced a backlash due to concerns that it had compromised customers' privacy.

Knowledge is power

In any case, there is another big reason why embracing data is critical for Japan.

During the explosion of the internet over the last couple of decades, U.S. companies have been the ones leading the way in information technology. Their data-analyzing capabilities are unrivaled.

On May 18, the European Commission, the executive arm of the European Union, fined Facebook 110 million euros ($123 million) for allegedly providing misleading information when it acquired messaging app WhatsApp. At the time of the deal, Facebook had said it could not automatically match user accounts between the two services, but the commission found that this possibility had existed.

The move can be interpreted as a reflection of global alarm over the social media giant and other U.S. tech companies dominating personal data. That data gives them tremendous clout in advertising and other fields. The advent of the internet of things -- the linking of just about everything to the net, including smart appliances and wearables -- is only expanding their collection capabilities.

Japan is playing catch-up. "I'm concerned about Japan's technology platform for utilizing data," said Naoya Bessho, Yahoo Japan's corporate officer.

This is not merely a business issue. Managing data on citizens' thoughts, habits and health conditions is a national security challenge. It is a race Japan cannot afford to quit, even when the going gets tough.

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