July 04, 2024

How global companies can approach data sovereignty in Japan

How global companies can approach data sovereignty in Japan

Japan was a pioneer in recognizing the need for comprehensive personal information protection legislation with its 2003 Act on the Protection of Personal Information (APPI). To put Japan’s initiative into perspective, the European Union implemented its data privacy law, the General Data Protection Regulation (GDPR) fifteen years later in 2018.

The APPI underwent significant revisions in 2017 and 2022 to address emerging trends and changes in the data privacy space. One such trend is the increased focus on data sovereignty. Factors like geopolitical tensions, cloud computing, and heightened awareness of data privacy have driven many countries to adopt data sovereignty laws.

In this article, we will review Japan’s APPI and data sovereignty requirements and show you how InCountry can help your global company maintain compliance with these regulations.

Introduction to data sovereignty in Japan

Data sovereignty is the principle that data generated within a specific country or region should adhere to the laws and regulations of that location. In essence, it ensures that a country controls the data collected from its residents and businesses within its territory.

Several factors have heightened the focus on data sovereignty in Japan, including rising geopolitical tensions, cloud computing growth, and increased data privacy awareness. To gain a deeper understanding of data sovereignty in Japan, we will examine the following areas:

The legal framework 

The Legal Framework for Japanese data sovereignty is based on the provisions of the APPI (Act on the Protection of Personal Information) and the Japanese Telecommunications Business Act (TBA). As hinted earlier, the APPI was initially enforced in 2003 and has been reviewed twice to reflect the changes in the data privacy/sovereignty space. This act will be discussed in detail in the following paragraphs.

The TBA, on the other hand, was first established in 1984 and subsequently reviewed in 2022. Its primary goal was to ensure smooth service delivery to Japanese residents, fair competition in that industry, and adequate protection of user information. In its later revision in 2022, telecommunication companies were required to provide clearer explanations about data collection and usage practices. It also introduced stricter regulations on how telecommunication service providers can use cookies and other user information. These laws form the legal framework for discussing data sovereignty in Japan.

Regulatory agencies

Some regulatory bodies play critical roles in enforcing data sovereignty in Japan. We shall highlight a few below:

  • Personal Information Protection Commission (PPC): It oversees the enforcement of the APPI, issues guidelines, and ensures compliance through investigations and sanctions.
  • Ministry of Internal Affairs and Communications (MIC): The MIC regulates the telecommunications industry, including data protection issues.

The activities of these agencies in enforcing data sovereignty principles also contribute to what should be studied as we navigate the concept of data sovereignty in Japan.

Cross-border data flows

Although the Japanese data privacy laws do not rule out cross-border data transfers, they provide requirements that must be followed when transferring data outside Japan. Japan participates in international frameworks like the APEC Cross-Border Privacy Rules (CBPR) system, facilitating secure data flows while protecting privacy.

Data sovereignty requirements in Japan

Generally, data sovereignty compliance requirements refer to the regulations and laws governing how data is managed, stored, and processed within specific geographical boundaries. These requirements are designed to ensure that data handling practices comply with the legal and regulatory standards of the country or region where the data is located. 

This section will review some of the factors required for data sovereignty in Japan.

Act on the Protection of Personal Information (APPI)

This has to be the right place to start, as it lays the foundations for data privacy and sovereignty in Japan. It lists the requirements for collecting, using, and transferring personal data. Here are a few provisions of the APPI:

  • Receiving consent: Businesses must obtain consent from individuals to collect and use their personal data. They must also inform individuals about the purposes for which their data will be used.
  • Data security: Organizations must implement appropriate security measures to protect personal data from unauthorized access, loss, destruction, falsification, and leakage.
  • Data breach notification: Businesses are required to notify the Personal Information Protection Commission (PPC) and affected individuals in the event of a data breach.
  • Rights of data subjects: Individuals have the right to access, correct, and delete their data held by businesses.

Cross-border data transfers

Japan’s open stand regarding cross-border data transfer provides several avenues that global companies can leverage for cross-border data transfer. They are as follows:

  • Adequacy decisions: Personal data can be transferred to countries that the Personal Information Protection Commission has recognized as having adequate levels of data protection. The European Union is an example, as Japan and the EU have mutual adequacy arrangements.
  • Standard Contractual Clauses (SCCs): In the absence of an adequacy decision, businesses can use SCCs to ensure that personal data transferred overseas is protected at a level equivalent to Japanese standards. A standard Contractual Clause (SCC) is a pre-defined agreement that establishes obligations and rights between two parties involved in the transfer of sensitive information. These clauses are essentially templates that provide a framework for ensuring the data is handled according to a specific standard.
  • Binding Corporate Rules (BCRs): Global companies can adopt BCRs to govern international data transfers within the same corporate group, subject to approval by the Personal Information Protection Commission. Simply put, Binding Corporate Rules (BCRs) are a set of internal policies and procedures a global company adopts. These rules function like a self-regulatory framework that governs how the group handles the transfer of personal data outside Japan.

Leveraging any of these avenues, any global company can perform cross-border data transfers outside without facing challenges from law enforcement agencies.

Data localization requirements

Japan generally does not enforce strict data localization laws that require all data to be stored domestically. However, there are specific instances where localization or enhanced protection measures are necessary:

  • Critical infrastructure: Sectors such as energy and transportation, which are considered critical infrastructure, may have additional data storage and processing requirements to safeguard national security and public safety.
  • Government data: Data on government operations may be subject to localization requirements or strict access controls to protect national interests.

Sector-specific regulations

In Japan, specific sectors face additional data sovereignty requirements because of the sensitive nature of the data they manage. They include:

  • Financial sector: The Financial Services Agency (FSA) enforces rigorous data protection regulations on financial institutions, mandating data encryption and secure transmission.
  • Healthcare sector: The Ministry of Health, Labor, and Welfare (MHLW) establishes strict data protection standards for medical institutions and companies handling health-related data.

Regulatory agency

The primary regulatory authority for data protection in Japan is the Personal Information Protection Commission (PPC). They have the power to conduct investigations, provide guidance, and enforce compliance with the APPI. Additionally, the PPC issues guidelines and standards to assist businesses in meeting data protection requirements.

What is Japan’s Act on the Protection of Personal Information (APPI)?

The Act on the Protection of Personal Information (APPI) serves as the main data protection law in Japan. Initially enacted in 2003, the APPI has undergone significant amendments most recently in 2022 to meet current realities in the data privacy space. The primary goal of the APPI is to ensure that businesses and other entities handle personal information appropriately. Key aspects and provisions of the APPI include:

Scope & objective

The APPI aims to protect the rights and interests of individuals by ensuring the proper handling of personal information while also promoting its appropriate use in business and other activities. It applies to both private sector organizations and certain public sector entities that handle personal information. The law encompasses all personal data, defined as any information related to an identified or identifiable individual.

Definition of terms

The APPI provided definitions for key terms that continue to appear throughout the policy, and they are as follows:

  • Personal information: Information about a living individual that can identify the specific individual by name, date of birth, or other description contained in such information.
  • Personal data: Personal information that constitutes a personal information database, such as systematic collections of information.
  • Anonymously processed information: Information that has been processed to prevent the identification of specific individuals.

Consent & notification

Businesses are required to obtain an individual’s consent before collecting, using, or sharing their personal data unless legally permitted otherwise. Additionally, entities must inform individuals about the purpose of data collection and provide specific details when the data is shared with third parties.

Data handling & security

Personal data must be used solely for the purposes explicitly stated at the time of its collection. Entities must maintain the accuracy and relevance of personal data for its intended use. Additionally, businesses must implement appropriate measures to prevent data breaches, unauthorized access, and other risks to personal information.

Data subject rights

Simply put, it refers to the rights of the individuals whose data is collected by companies for business processes. Under the APPI, individuals have the right to access their personal data held by a business and request corrections if the data is inaccurate or incomplete. They can also request the deletion or cessation of use of their personal data if it has been handled inappropriately or is no longer necessary for the stated purposes.

Cross-border data transfers

Personal data may be transferred to countries that are recognized for providing adequate data protection. For countries without such recognition, transfers must rely on appropriate safeguards, such as standard contractual clauses. Additionally, entities must inform individuals and obtain their consent for international data transfers unless specific exceptions apply.

Regulatory & enforcement agency

The Personal Information Protection Commission (PPC) is the independent regulatory authority that oversees and enforces the APPI. To assist businesses in complying with the APPI, the PPC issues guidelines and can make recommendations or orders in cases of non-compliance. Violations of the APPI can lead to administrative fines, and grave breaches may result in criminal penalties.

Challenges of data sovereignty in Japan

Like most countries, Japan has had its fair share of challenges with the implementation of data sovereignty. From balancing privacy, security, and international cooperation to managing the ever-changing technological landscape, there is always something to grapple with. In this section, we will review a few of the common challenges associated with data sovereignty in Japan.

  • Balancing privacy & innovation

Stringent data protection regulations are essential for ensuring robust privacy, but they can also hinder technological innovation and business efficiency. Maintaining consumer trust requires strict adherence to privacy standards, which is particularly challenging in the always-evolving tech space. Advancing fields like AI, IoT, and big data analytics necessitate flexible data policies, often at odds with stringent privacy requirements. This tension poses a significant challenge to Japan’s data sovereignty. To remain competitive on a global scale, Japanese businesses must find a balance between data protection and innovation, leveraging data-driven technologies while upholding privacy standards.

  • Cross-border data transfer

Complying with various international data protection laws, such as GDPR and CCPA, poses significant challenges for Japanese companies operating globally. Ensuring that other countries meet Japan’s adequacy standards for data protection can also be complex and time-consuming. Implementing standard contractual clauses for international data transfers requires substantial legal and administrative resources. Additionally, developing and maintaining binding corporate rules for multinational companies involves rigorous approval processes and ongoing compliance efforts.

  • Data localization & security

Certain sectors in Japan may require data to be stored domestically to safeguard national security and public safety, which can be costly and operationally challenging. Implementing data localization increases compliance costs, particularly for global companies with complex data storage needs. Protecting data from increasingly sophisticated cyber threats necessitates continuous investment in security technologies and practices. Ensuring timely and effective responses to data breaches and security incidents is crucial but challenging, especially for smaller businesses with limited resources.

  • Complex regulations & enforcement

Keeping up with frequent updates and amendments to data protection laws, like the APPI, demands continuous monitoring and adaptation. Businesses often struggle with interpreting and implementing detailed guidelines issued by regulatory bodies such as the PPC. Ensuring compliance with these regulations can be resource-intensive, particularly for small and medium-sized enterprises. The threat of significant penalties for non-compliance adds pressure on businesses to adhere to data protection standards rigorously.

  • Emerging technologies

Ensuring that AI systems respect data privacy and security is challenging, particularly concerning data minimization and anonymization. Managing the vast amounts of data generated by IoT devices while maintaining privacy and security adds to this complexity. Balancing the benefits of big data analytics with the need to protect individual privacy and prevent data misuse necessitates sophisticated regulatory frameworks.

  • Ensuring public awareness & trust

Raising consumer awareness about their data protection rights and how their data is used is challenging but crucial for maintaining trust. Additionally, businesses must strive for transparency in their data practices, which can be difficult to present clearly and understandably.

These are critical challenges facing the implementation of data sovereignty in Japan. The next section will show you how InCountry can help your global company scale through this challenge without breaking a sweat.

How InCountry helps companies stay compliant with Japanese data sovereignty requirements

For global companies operating in several countries, staying compliant with all data sovereignty requirements across all locations may become a hassle. At InCountry, we have made it our business objective to help our clients fix their data sovereignty compliance issues across all countries they operate. With our strong presence in Japan, you can rest assured that we can help your business maintain compliance with all applicable data sovereignty laws. Here are a few other reasons why InCountry remains an intelligent choice for your business:

  • Our Data Residency-as-a-Service platform allows your client data to be hosted in Japan while giving you access to them from anywhere. This automatically reduces the need for cross-border data transfer.
  • We provide local data storage and processing facilities within Japan, ensuring that personal data remains within the country as data sovereignty laws require.
  • By storing data locally, InCountry helps businesses comply with the Act on the Protection of Personal Information (APPI), which mandates specific conditions for the handling and transfer of personal data.
  • We assist companies in aligning with APPI’s requirements for international data transfers, ensuring that data protection standards are maintained when data is transferred out of Japan.
  • InCountry uses advanced encryption methods and access controls to protect personal data stored and processed in its facilities. This helps businesses meet APPI’s stringent security requirements.
  • InCountry supports data anonymization techniques, which are crucial for handling data in compliance with privacy regulations while minimizing the risk of unauthorized access or data breaches.

Schedule a meeting with us today; let’s discuss your needs and demonstrate the value we can bring to your business by helping you fix all data compliance issues.