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Abenomics tries regulatory sandbox to boost 'third arrow'

New law lets government suspend regulations easier to unleash new tech

A Toyota Mirai hydrogen fuel cell vehicle. Regulatory sandboxes may allow automakers to skip inspections before using newly developed technology in driving tests.

TOKYO -- Businesses should soon see Japan suspend regulations that hinder experimentation with next-generation technologies, after lawmakers approved a government plan to stoke productivity and private investment.

A special measure the Diet passed Wednesday lets the government suspend regulations at companies' request on a project-by-project basis. Businesses will submit plans for experiments that require deregulation to a new office at the Cabinet Secretariat, where a panel of experts will evaluate proposals for potential legal conflicts and other concerns.

The heads of government offices overseeing the relevant regulations will sign off on plans they deem worthy. When data from companies' tests comes in, these offices will consider relaxing regulations for everyone. If agencies drag their feet on regulatory suspensions, the expert panel can appeal to the prime minister to speed the process along.

Prime Minister Shinzo Abe's government counts deregulation, intended to stoke private investment, as the "third arrow" of Abenomics, after inflationary monetary policy and robust fiscal stimulus. Suspending regulations for select projects is seen spurring new developments in fields such as financial technology and ride hailing, which in turn could increase Japan's economic productivity.

This is essential to boosting the country's economic expansion from the potential growth rate of 1% or so to the 2% target underpinning the government's fiscal consolidation plans. Bringing more seniors and women into the workforce will also help power growth as Japan's overall population declines.

But in practice, these regulatory sandboxes could face opposition from competing business interests. There is concern that the taxi industry, for example, could stand in the way of regulatory experimentation involving ride hailing, limiting the power of the sandbox mechanism.

Moreover, lawmakers have not yet authorized place-based regulatory sandboxes, which the government also seeks to implement. These would enable regulatory freezes in Japan's national strategic special zones, which already serve as laboratories for deregulation, and so require changes to the law governing those areas -- something the Diet has not even started to debate.

Abe's government wants such a revision passed during the current legislative session, set to end on June 20. But allegations that the prime minister's influence helped a friend's business secure permission to build a veterinary school in one such special zone have rattled the government in recent months, and opposition lawmakers are only growing louder in their calls for clarity on how the project was awarded.

The government itself is stepping back from projects in strategic special zones, fearful of further criticism. Even if the Diet does give its stamp of approval to place-based regulatory sandboxes, that powerful mechanism could sit largely unused unless ministers are willing to act.

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