Wanted: Japanese firms’ policy advice on AI, trade and crypto

A new breed of lawyer has emerged in Japan over the past decade: part lobbyist, part advocate, they sit between companies and governments, helping to shape policy and regulation in some of the world’s fastest-growing and most geopolitically sensitive sectors.

As concerns grow about generative artificial intelligence and the free flow of data across borders, and as sanctions spread because of war and the creation of rival trading blocks, lawyers in Tokyo have found a new niche to occupy. 

Drawn from industry or government backgrounds — and mirroring the work done by US lawyers for decades — both companies and regulatory bodies court them to help craft rules that allow the former to thrive but afford the latter sufficient control.

“The scope of the companies and the products and technologies captured under the many kinds of national security-related regulations — such as export control, economic sanctions and foreign direct investment screening — have dramatically expanded in the past three to four years,” says Kojiro Fujii, partner at Tokyo law firm Nishimura & Asahi. “And . . . the legislation has been changed to react to this situation.”

We are not pushing only free trade, but we are also mindful about national security concerns

The simple fact, as he lays it out, is that more companies are being dragged into geopolitical tussles by governments due to concerns over civilian exports that may be put to military use.

Fujii’s career path illustrates the changes under way in his profession. A former senior civil servant in Japan’s powerful Ministry of Economy, Trade and Industry, Fujii was part of a key World Trade Organization case against China and its control of rare earths, won in 2014. After jumping to the private sector, he now helps run a team of 50 international trade and competition lawyers. They helped defend the country’s interests, again in front of the WTO, in a landmark case concerning Chinese steel exports and anti-dumping duties, which was won in 2023. 

He has also helped companies navigate the increasingly complicated web of restrictions around semiconductors, stemming from the US administration’s insistence on curbing trade with China, while advising clients on how to access state subsidies. 

Japan, like many nations, is trying to increase its domestic chipmaking capacity and is willing to provide large amounts of state support for the effort, which includes attracting foreign companies. Since 2021, the country has offered billions of dollars to Taiwan Semiconductor Manufacturing Company, the world’s biggest contract chipmaker, to build plants in Kumamoto on the southern island of Kyushu.

While the WTO cases, says Fujii, were clearly delineated to promote free trade, the semiconductor work is more complicated and underlines the delicate job lawyers are increasingly engaged to do.

“We are not pushing only free trade, but we are also mindful about national security concerns,” he says. And these lead, in effect, to the creation of export controls.

Government cannot control regulatory activity by themselves . . . even in Japan

For Takafumi Ochiai, senior partner at Japanese law firm Atsumi & Sakai, there is a simple but important change taking place in Japan. Businesses, before the Covid-19 pandemic, were typically rule takers that tended to comply with what regulators decided, he explains. Now, they are moving towards a US system where the interaction between industry and government shapes regulations and policies.

“Information technologies and the rapid change of the policy environment due to the use of data and AI across business mean government cannot control regulatory activity by themselves,” says Ochiai. So, they need to ask for contributions from the private sector — “even in Japan”.

In 2022, he formed the firm’s policy research institute, comprising a broad range of experts from public and private organisations, with the aim of advising the government on policymaking. Its lawyers work with more than 20 external experts — from local government, universities, business and others — to help develop regulations and policies.

One focus is how the state should regulate generative AI. “This is a growing area not only for lawyers, but also for the private sector,” observes Ochiai.

The largely unregulated cross-border development of cryptocurrencies and other digital assets is another area where lawyers in Japan can provide a bridging function between an industry and the state. After a series of high-profile failures and scams, governments are trying to balance innovation with safeguarding consumers and the financial system.

Ken Kawai, a partner at Anderson Mori & Tomotsune in Tokyo, has been central to developing regulations in Japan for the fast-moving and often controversial sector. A former expert in derivatives trading at Japanese bank MUFG, he is working for crypto trade bodies and leading financial institutions to try to shape policy in Japan concerning so-called stablecoins. These digital assets are a form of cryptocurrency nominally pegged to underlying assets, to limit price fluctuations.

We need a bridge between this industry and the regulators

Their relative stability — compared with other highly volatile cryptocurrencies — has made them attractive to investors seeking a similarly portable yet more predictable store of value. But they have also suffered high-profile blow-ups, such as the collapse of TerraUSD in 2022, and there are concerns that their current incarnation makes them convenient for money laundering or illicit flows.

“We need a bridge between this industry and the regulators — so I act as a bridge,” says Kawai. One of a five-strong team working on stablecoin regulations, he concedes that his work is a “form of lobbying”.

Kawai is a true believer in crypto’s potential to change finance by enabling more efficient payments, particularly across borders. So far, no big financial institution has launched a stablecoin in Japan as they await regulatory approval. But he believes that time will come soon — thanks, at least in part, to his work.