Fax machines and cash-only stores: Japan struggles to go digital

Japan’s economy is, in many ways, stuck in the past despite the country’s futuristic image abroad.

Ryuichi Ueki, like many Japanese small business owners, only accepts cash at his ramen restaurant [John Power/Al Jazeera]

Tokyo, Japan – Ryuichi Ueki, like most restaurant owners he knows, only accepts cash.

The fifth-generation owner of Asahi, a ramen restaurant in Tokyo’s historic Asakusa district, Ueki does not want to pay credit card fees or bother getting to grips with digital payment platforms such as Apple Pay and LINE Pay.

“I do have some customers who ask to pay with a credit card, saying they don’t have cash. I tell them to go to the convenience store to get out money from the ATM,” Ueki, whose restaurant first opened its doors in 1914, told Al Jazeera.

Despite the growing popularity of cashless payment worldwide, Ueki has no plans to change anytime soon.

“It’s not necessary because we are comfortable with what we have,” Ueki said, explaining that things have been done the same way at his family-run business since “old times”.

“If I think about it, it’s kind of weird but I never thought about it,” he added.

Ueki’s preference is typical among his countrymen.

Ryuichi Ueki is the fifth generation of his family to run the ramen restaurant, Asahi [John Power/Al Jazeera]

While cashless payments in Japan more than doubled over the last decade – hitting 36 percent in 2022, according to the Ministry of Economy, Trade and Industry – the proportion lags far behind regional peers such as South Korea and Singapore, where most transactions are cash-free.

Japan’s enduring love of cash is just one example of the East Asian giant’s sluggishness when it comes to the digital economy.

Japan, immortalised in the Western imagination as a futuristic society due to sci-fi classics such as Blade Runner and Akira, continues to be a world leader in high-tech fields such as robotics.

Yet the world’s third-largest economy, in many other ways, remains firmly stuck in the past.

Many Japanese government services are not still accessible online and rely on paper forms or a visit to a local government office. Fax machines are often used at workplaces instead of email, while physical seals known as “hanko” are preferred over digital signatures.

Japan’s Digital Agency, the government body responsible for leading the country’s digital transformation, has estimated that 1,900 intergovernmental procedures rely on antiquated storage technology such as CDs, mini-disks and floppy disks.

During the COVID-19 pandemic, a local official in Yamaguchi Prefecture made news after he sent a floppy disk containing citizens’ information to a local bank to distribute relief payments, resulting in a mix-up that saw one resident incorrectly receive a lump sum of 46.3 million yen ($331,000).

In the latest World Digital Competitiveness Ranking published by the Institute for Management Development, Japan ranked 29th out of 63 economies, trailing Singapore, South Korea, Hong Kong, Taiwan and China.

Japan ranks poorly for digital competitiveness compared with peers such as South Korea and Singapore [John Power/Al Jazeera]

Martin Schulz, chief policy economist at IT services firm Fujitsu, said Japan’s dependence on ageing systems was in part due to its success at achieving world-class efficiency using analogue technology.

“When your train systems work like clockwork on the second, to replace them with a digital system that would achieve that, but would have enormous transfer costs without significant additional gains – the calculation is very different than when you have a rather messy system where you say now I need to clean it up,” Schulz, who is also an adviser to the Japanese government, told Al Jazeera.

Japan’s government has long recognised the need to tackle the country’s digital laggard status, which threatens to undermine efforts to boost productivity and revive the $4.9 trillion economy, which is smaller today than it was after the bursting of a large asset bubble in the early 1990s.

In a 2018 report, the Ministry of Economy, Trade and Industry warned that Japan faced a “digital cliff” due to the failure of businesses to adopt digital systems, setting up firms to incur losses of up to 12 trillion yen ($86.1bn) each year after 2025.

Japanese Prime Minister Fumio Kishida has pledged to accelerate the country’s digital transition, including by spending 5.7 trillion yen ($42bn) to improve digital infrastructure in regional areas, where workforce shortages due to the country’s ageing population are most keenly felt.

Retaining a position established by his predecessor Yoshihide Suga, Kishida also appointed a dedicated digital minister, Taro Kono, who has declared “war” on floppy disks and quipped sarcastically about his fax machine jamming despite living in a “remarkably advanced society”.

Taro Kono is responsible for leading Japan’s digital transformation [File: Toru Hanai/Reuters]

For Japan, the pandemic was a wake-up call.

While other countries further down the path of digitisation had been able to use the crisis to explore new ways of doing business, Japan discovered that it had only been “laying the groundwork” for the digital era, according to Schulz.

“People are happy to meet, prefer face-to-face meetings. All that changed with the pandemic and the idea was, ‘Oh wow, we know we have been rather backward but now we have this big jump in terms of digitisation so this will be a major gain and a game changer in a way,'” Schulz said.

“[But ] the result was that, relative to other countries, Japan’s digitalisation was actually much slower,” Schulz said. “The overall digitalisation impact in terms of new services, new value added was more limited compared to other countries.”

Japan’s ageing society suggests its digital transformation may be an uphill battle.

After decades of low birth rates, the government is expecting a shortfall of 450,000 workers in information and communication technology by 2030.

Japan’s rigid bureaucracy is also seen as resistant to change.

In an article marking one year since the establishment of the Digital Agency last year, the Yomiuri Shimbun newspaper reported that its work had “stalled” due to pushback from other agencies. The uncooperative departments reportedly included the Ministry of Justice and local governments, which had objected to plans to adopt cloud-based admin systems by 2025.

Ueki, the ramen restaurant owner, said many Japanese share his ambivalence about striving to get ahead or shaking up the status quo.

“Because we were educated in school to keep the rules, I guess we are still carrying that mentality that we shouldn’t do anything wrong,” Ueki said.

“I guess I am a lucky person because this is the attitude I have,” he added. “I am OK with my business and my daily life, which is comfortable as it is.”

Source: Al Jazeera