1. Background

Japan faces various challenges such as climate change, the aging population, and geopolitical risks, and has been undergoing in the transformation of industrial structures due to digitalization. The R&D and Innovation Subcommittee, a body established in the Committee on Industrial Science and Technology Policy and Environment under the Industrial Structure Council, held discussions on approaches to enable Japan to achieve innovation-oriented growth and solve grand challenges as a mission amid these environmental changes.

The subcommittee considered innovation not as a "linear process" but as a circular process" in which innovators and various resources including human capitals, skills and funds seek opportunities and create new businesses and markets with dynamic turnover from old to new. From this standpoint, the subcommittee held discussions on elements that facilitate the virtuous cycle of innovations and challenges therein, , and future policy directions.

The materials attached below are compilation of policy recommendations as well as reference documents containing levant data, recent studies and summary of discussion in the subcommittee.

2. Key points

(1) Three issues involving innovation circulation and challenges therein

The subcommittee focused on the following three issues to discuss "innovation circulation."

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[i] Leading players of innovation

Startups, in particular, "deep-tech" startups—transforming research and development into solutions to social challenges—have been increasing their presence around the world as leading players of innovation. In Japan , there are few successful cases of deep-tech startups in Japan so far and numbers have been increasing, and strong ecosystem stimulating the growth of such startups has yet to be built due to several key factors, including shortages of human resources and funds. Given that human capital acts as a dynamo for creating innovations, Japan is facing some challenges, such as a smaller increase in the number of researchers and postdoctoral personnel compared with other countries, and the steady but slow progress in collaboration between researchers and company/management personnel. It is also necessary for Japan to build environments in which a variety of human resources are able to take on challenges, play leading roles, and enjoy smooth mobility.

[ii] Challenges in innovation processes

Creating innovations requires solutions to challenges involved in the respective phases of the processes. For example, in the research and development phase, R&D investment by startups plays a minor role in Japan, which would have a significant potential to increase. Besides, large companies have not expanded the proportion of the R&D investment to sales, rather fixed it. In the commercialization or growth phase, companies, especially startups, need to implement business development strategies and capital policies to make use of novel technologies to create new markets and establish competitive advantage in the markets. In addition, they need to develop strategies for standardization and rule-making for penetrating in the markets.

[iii] Innovations for providing solutions to challenges in the economy and society, i.e., "mission"

A policy shift is necessary to promote sustainable innovations in dramatically-changing environments. For example, to encourage innovations aiming at contributing to solving the mission of achieving a "carbon-neutral society", carefully articulated policy mix, namely "mission-oriented innovation policies", is required. Setting goal such as "2050 carbon neutrality" together with clear objectives and roadmaps, policies aiming to achieve the goal based on system thinking will be needed.

(2) Policy recommendations for promoting innovation circulation

Based on this recognition, the subcommittee presented six policy recommendations. The Ministry of Economy, Trade and Industry (METI) will put these recommendations into concrete policies and implement them to encourage innovation circulation for Japan’s sustainable growth.

[i] Startups first!

Aiming to form an ecosystem of startups as leading players in innovation circulation, METI will expand the coverage of support measures for deep-tech startups from the phase of research and development to the phase of business development and growth. Moreover, it will also encourage the startups to advance R&D and commercialization looking toward their carve-outs from large companies.

[ii] Development of human resources and creation of intellectual capital

METI will provide support measures for business matching between researchers and companies and for postdoctoral personnel as an effort to empower a variety of human resources. Moreover, it will also examine possible introduction of "innovation box scheme" in which a preferential tax rate is applied to R&D outcomes (profits).

[iii] More challenges and more failures

Aiming to encourage companies to take on ambitious goals without fear of failure, METI will introduce a new system and key performance indicators (KPIs) in which a "failure" is encouraged and positively evaluated in relation to "moonshot research and development projects" and other policies.

[iv] Intensive support for market creation

Intensive investment of public-private resources to risk-taking efforts is needed for creating markets. METI will further facilitate: support measures introduced under the Green Innovation Fund, such as collaboration with management strategies, and incorporation of standard development and rule-making. It will also encourage the broad dissemination of these measures to other national R&D projects, thereby encouraging commercialization and social implementation of innovations.

[v] Shifting to "mission-oriented innovation policies"

To promote innovations contributing to solving social and economic challenges, i.e., missions, METI will systematically discuss "mission-oriented innovation policies" that would bring about the achievement of solutions to challenges, including green transformation, resource circulation and economic security. Reviewing national R&D projects from this perspective is proposed.

[vi] Strengthening computing infrastructures and general-purpose technologies

METI will enhance investment in general-purpose technologies and strengthen computational resources as basis for a variety of innovations. Specifically, it will strive to develop AI infrastructures, promote industrialization of quantum technology and place priority on the development of advanced technology.

Related Materials

• Summary of Future Policy Directions for Promoting Innovation Circulation (in Japanese)(PDF:2,117KB)PDF
• Future Policy Directions for Promoting Innovation Circulation (in Japanese)(PDF:7,063KB)PDF
• Summary of Discussions on Challenges in and Approaches to R&D and Innovation Policies (Supplementary Reading Material) (in Japanese)(PDF:1,854KB)PDF
• Collection of related data (in Japanese)(PDF:15,229KB)PDF

Division in Charge

Policy Planning and Coordination Division, Industrial Science, Technology and Environment Policy Bureau