On July 21, 2026, the Japanese government approved a new “Regulatory Reform Implementation Plan” at a cabinet meeting. Behind this lies the urgent challenge of responding to the rapid advancement of AI technology and overcoming the worsening labor shortage from a systemic perspective.

57 implementation items and two major pillars

The “Regulatory Reform Implementation Plan,” approved by the Cabinet on July 21, 2026, is a grand action plan consisting of 57 implementation items. This plan centers on two major pillars: “Realizing a strong economy” and “Growing rural areas to protect livelihoods.” The former focuses on growth investment and strengthening industrial competitiveness, while the latter focuses on maintaining the foundation of local living and securing a workforce. This plan is closely linked to key policies such as the “Regional Future Strategy” decided on the same day, serving as regulatory support for achieving these goals. The specific implementation schedule is set in multiple stages depending on the content, ranging from measures taken immediately after the Cabinet decision to those aiming for completion by fiscal year 2027 or 2028.

The low notes of technological innovation and addressing labor shortages

At the core of this plan are two urgent concerns: “social implementation of new technologies” and “overcoming labor shortages.” The rapid regulatory review is underpinned by the emergence of new technologies such as AI and the emergence of use cases that traditional regulations did not anticipate. Furthermore, as the population declines, maintaining workplaces such as nursing care, transportation, medical care, and agriculture with a limited number of people has become an urgent issue. Analyzing the 57 items listed in the plan, you can see that these two concerns run like a baseline throughout the entire plan. By de-deregulation and clarification, promoting private investment and technological innovation, and creating an environment where companies can take on challenges into the future, is positioned as a key role for the government.

Economic Growth Strategies Driven by Digital and AI

Introduction of AI-Driven Development into Government Information Systems

The most prominent aspect of this plan is the reform in the AI and digital fields. Notably, it is explicitly stated that “AI-driven development” will be introduced in the procurement and development of government information systems. This is a new development approach that moves away from the traditional method where people predefine all specifications and implement based on them, and instead uses AI to assist with requirements definition, code generation, and testing. This reform aims to solve the long-standing structural issue of “vendor lock-in,” which is overly dependent on specific operators. By organizing and sharing system specifications and context in a format that AI can easily read, information asymmetry is eliminated, creating an environment where small and medium-sized enterprises and startups can bid on equal footing. The Digital Agency itself will establish the usage environment for AI agents and deploy them to ministries and agencies as a common platform.

Public Road Demonstration of Physical AI and Walking Robots

The social implementation of “physical AI,” which enables AI technology to physically function in the real world, is also an important theme. Walking robots with bipedal or quadrupedal legs can handle stairs and steps, moving along the same path as humans, making them promising applications in logistics, inspection, and caregiving. However, until now, the interpretation of the Road Traffic Act and the Road Transport Vehicle Act has been unclear, making it difficult to conduct demonstration experiments on public roads. This plan stipulates that the criteria for road use permit review will be promptly clarified to promote demonstration experiments of “mixed walker-vehicle” systems where pedestrians and robots are not separated. The policy is to allow flexible operations tailored to the characteristics of the technology, such as acquiring actual driving data and having it trained by AI to enhance safety. Please refer to the diagram below.

Clarification of Legal Tech and Article 72 of the Attorney-at-Law Act

To reduce the workload on corporate legal departments, the program also includes efforts to promote the adoption of legal tech using AI. With the globalization of business, legal services are becoming more advanced and complex, but at the same time, the shortage of specialized personnel is becoming more serious. Currently, the relationship between AI-based contract creation and review services and Article 72 of the Attorney-at-Law prohibits non-lawyer legal work is not always clear, which has been a reason for businesses to hesitate to develop such services. The plan aims to reorganize which services can be legally provided based on the latest technological standards such as LLMs (large language models), and to consider creating guidelines and enacting new laws. This will support the realization of advanced services, including AI-based automatic contract modifications, thereby enhancing the international competitiveness of Japanese companies.

Mobility and Healthcare Transformation Supporting Daily Life

Accelerating the social implementation of autonomous driving and drones

In the transportation and logistics sector, concrete measures are being introduced to address the shortage of mobility. Regarding autonomous driving, as the development method of “AI-based” where AI self-learns on the road becomes mainstream, efforts are underway to promote frameworks for exchanging opinions to clarify interpretations of the Road Traffic Act and to establish a “Superior L2++ Vehicle Certification System” where the government certifies excellent vehicles. In the drone field, to promote the spread of VTOL (Vertical Takeoff and Landing) equipment capable of long-range flights, reviews are being made based on actual conditions, such as eliminating the need for manual takeoff and landing in pilot skill certification tests. Furthermore, by expanding radio wave usage in the 5.8GHz band and considering direct communication with satellites, we plan to create an environment that can be stably used even in mountainous areas and during disasters, thereby enhancing the international competitiveness of domestically produced drones.

Utilization of medical data and expansion of online consultations

In the health and medical fields, data utilization and improved convenience are two pillars. To further utilize national cancer registry information and electronic medical record data, we will consider establishing a comprehensive legal system for the scope of data that does not require consent and the target users of data, with reference to the European EHDS (European Health Data Space) regulations. Additionally, we will promote the use of AI in image reading during cancer screenings and other procedures, and review the approach so that the current need for two or more doctors can be read with AI assistance from a single physician. Regarding online medical consultations, we aim to establish guidelines so that nurses and others can appropriately assist with medical care such as IV drips and blood draws when using dedicated vehicles or booths, aiming to eliminate mismatches in consultation opportunities.

Structural Reforms in Labor and Corporate Activities

Flexibility of labor time legislation and review of discretionary labor systems

As part of the deepening of work style reform, the establishment of labor laws to accommodate diverse work styles has been included. In industries such as construction and transportation, where there are significant seasonal fluctuations, we will consider flexibly implementing a yearly variable working hours system. We will review the rules so that pre-specified working days can be flexibly changed in case of sudden bad weather or delivery delays. Regarding the discretionary labor system, while maintaining the original intent of entrusting the means of performing work to workers, we will reorganize the nature of target work based on measures to prevent abuse such as preventing long working hours and ensuring appropriate treatment. Furthermore, by facilitating the clarification of working conditions online and reviewing the current requirements that always require workers’ consent for notifications via email and other means, we will promote administrative efficiency in line with the spread of telework and other methods.

Supporting startups through revisions to the Antimonopoly Act

To support startup growth financially, structural reviews of financial regulations will also be carried out. Specifically, exceptions to the voting rights limits of other domestic companies (5% and 10% rules) by banks and insurance companies will be expanded to ensure they do not hinder long-term funding for startups. We are considering relaxing or abolishing the authorization procedures currently required for holding voting rights for more than 10 years in investments through investment limited partnerships (LPS). Additionally, the policy is to expand the scope of restrictions to facilitate the grace of holding periods when shares are distributed in kind, and to facilitate investments in advanced banking companies such as fintech. This facilitates the supply of growth capital to strategic areas such as biotech and drug discovery, which require time and substantial capital for scale-up.

Future Developments and Highlights

Long-term strategy looking ahead from 2027 to 2040

This plan plays an important role in the “Medium- to Long-Term Economic and Fiscal Plan,” which not only covers a single year but also looks ahead to fiscal year 2040. In 17 strategic areas such as AI and GX (Green Transformation), we anticipate cumulative public and private investments exceeding 370 trillion yen by fiscal year 2040, and regulatory reform will serve as an engine to maximize the effectiveness of these investments. The government has designated fiscal year 2027 as the ‘Year of Responsible and Proactive Fiscal Policy’ and plans to shift to budget formulations that reflect rising prices and wages. For many items involving legal amendments, a clear roadmap has been drawn out: to conduct interim consolidation by the end of 2025, reach conclusions in summer 2026, and aim to submit bills to the regular Diet in 2027. This consistent schedule management is key to enhancing the operator’s investment forecastability.

Elimination of local rules and realization of digital integration

A specific point of interest going forward is the thorough elimination of “local rules” that have been different by region. In areas where operational variability has been pointed out by local governments and relevant departments, such as bicycle security registration, staffing standards for care services, and plant factory installation procedures, nationwide unified standards and common digital specifications will be established. Furthermore, the government will further promote the “digital completeness” of administrative procedures, improve the convenience of automobile ownership procedures (OSS), and digitize applications for emergency passage vehicles, thereby eliminating old practices based on paper submission and seals. With these initiatives steadily implemented, it is expected that the administrative burden on businesses will be significantly reduced, creating an environment where resources can be concentrated on their original creative activities.

Reference Page

• [Regulatory Reform Implementation Plan (Cabinet Decision on July 21, 2026)https://www8.cao.go.jp/kisei-kaikaku/kisei/publication/program/260721/01_program.pdf

• [Report on Promoting Regulatory Reform (Decision of the Regulatory Reform Promotion Council on June 29, 2026)https://www8.cao.go.jp/kisei-kaikaku/kisei/publication/program/260721/03_initiatives.pdf

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