Japan is a high-tech country, right? It is, after all, the home of bullet trains, robots, computer games and all sorts of gadgets.

But there is another side of the story: low-tech Japan. Most of the world now communicates by email, but our Japanese friends are still hooked on fax machines. While the rest of us use electronic signatures, the ancient tradition of personal red seal stamps (“hanko”) persists in Japan. And cash still dominates consumer purchases, to the great surprise of foreign visitors, especially from China whose large cities are increasingly cashless.

While there have long been murmurings among Japan-watchers about the country’s penchant for low-tech, “the pandemic revealed weaknesses as households, firms and government struggled to make use of digital technologies”, according to a recent report from the Organisation for Economic Cooperation and Development (OECD). Indeed, throughout the Covid-19 waves, colleagues of mine in Tokyo have been rushing to the office, in crowded trains, to pick up faxes or to stamp documents.

There are many efficiencies for Japan to reap by boosting digitalisation of public service provision.

In a country where the government has played a leading role in economic development, government use of digital tools is astonishingly low. The OECD reports that less than 10 per cent of individuals use the internet to submit filled forms to public authorities’ websites, compared with 30 per cent on average for the G7 countries. I am always amazed to see walls upon walls of paper filing systems in my university’s offices on the occasions of my teaching missions.

One can only hope that the recent initiative to establish Japan’s public sector Digital Agency will help create impetus for other parts of government. After all, the machinery of government plays an important and growing role in citizens’ lives. Seniors, in this ageing society, are in regular contact with public agencies for their social security and medical and long-term care. And in this natural disaster plagued country, citizens need to be hooked into government information and assistance services, especially in the current context of Covid-19.  

There are many efficiencies for Japan to reap by boosting digitalisation of public service provision. For a start, digitalisation could help bring under control Japan’s enormous public debt, currently representing 240 per cent of GDP, the highest of all the OECD countries. Without corrective action, government debt could rise to 260 per cent of GDP by 2050, according to the latest OECD survey.

The 2021 Lowy Institute Asia Power Index shows that Japan continues its downward trend in relation to China

Somewhat surprisingly, digitalisation in Japan’s private sector is a mixed bag. The use of digital techologies in large manufacturing enterprises is among the most advanced worldwide. But in smaller enterprises and the services sector, it is quite a different story. Investments in IT resources are often lacking, while weak business dynamism hinders the diffusion of new technologies and management methods.

Lagging digital capabilties are also an issue for the education sector and the country’s young. In Japan, 15-year-old students scored particularly well for science, mathematics and, to a lesser extent, reading in the OECD’s Program for International Student Assessment (PISA). But the organisation also reports that students' digital skills are weak because of insufficient focus on new technology in school curricula, and that relatively few students study STEM (science, technology, engineering and maths) disciplines, particularly women and girls. Overall, skills being developed in the education sector are not well aligned to the economy’s needs.

In recent years, Japan has been attracting a growing number of migrants, including from India, to fill skill gaps, notably in the IT sector, with approximately 40,000 Indians currently living in Japan. But the capacity of Japan to profit from this development is hindered by lingering anti-migrant sentiments and poor English language skills – Japan’s population is judged to have “low proficiency” in English, ranking 78 out of the 112 countries in the EF English Proficiency Index, conducted by Education First, a global education company founded in 1965.

A concerted digital transformation could also help compensate for Japan’s rapidly declining working-age population, driven by the country’s ageing population.

Japan’s slow move to digitalisation is also affecting the retraining of workers, especially as a growing number of seniors are remaining in the workforce and women are returning to paid employment after raising a family. Too many Japanese are missing out on retraining opportunities in light of the rise in “nonstandard employment” (such as casual or short-term work), which offers insufficient opportunities for in-house retraining.

However, it is not all bad news. Online learning, once a rarity in Japan, is now sweeping through its education sector. Conferences are frequently held by Zoom, exposing Japan’s traditionally insular academic sector to the world. Electronic commerce is up, with consumers buying more online. And Japan’s “salarymen” (and increasingly “salarywomen”) are working part of the week from home, which could signal the beginning of a performance-based work culture and a welcome end to Japan’s hidebound corporate and bureaucratic ideologies.

Japan’s digital transformation is one of the most important challenges facing the country. Digitalisation is one means to lift Japan’s flagging output – the OECD ranked Japan's labour productivity in 2018 as 21st out of the 38 OECD countries, and 20 per cent below the OECD average. A concerted digital transformation could also help compensate for Japan’s rapidly declining working-age population, driven by the country’s ageing population.

There are also strategic reasons for Japan to take its digital transformation imperative more seriously. As the Lowy Institute Asia Power Index highlights, Japan has been losing ground relative to China and now falls just short of the major power threshold of the Index. Digitalisation provides a pathway to improving both Japan’s economic and military capabilities, and thus strengthening its comprehensive power.