How Free are You to Do Business in Japan? The Constitutional Right to Choose an Occupation

The freedom to choose one's occupation and engage in business activities is a cornerstone of a market economy and a fundamental aspect of individual liberty. In Japan, this freedom is constitutionally guaranteed by Article 22, Paragraph 1, which states: "Every person shall have freedom to choose and change his residence and to choose his occupation to the extent that it does not interfere with the public welfare." While this right is robustly affirmed, it is not absolute and can be subject to various regulations deemed necessary for the "public welfare." The manner in which Japanese courts scrutinize these regulations, particularly the analytical frameworks they employ, is crucial for understanding the scope of economic freedom in the country.

The Constitutional Guarantee: Freedom of Occupation

Article 22(1) safeguards not only the initial choice of an occupation or business but also the freedom to carry out activities associated with that chosen field. It forms the constitutional bedrock for entrepreneurial activity, professional practice, and general participation in economic life. However, the caveat "to the extent that it does not interfere with the public welfare" signals that this freedom can be restricted. The central constitutional inquiry then becomes: when are such restrictions permissible?

The Dominant Judicial Framework: The "Purpose-Bifurcation Theory" (Mokuteki Nibun Ron)

For decades, the primary analytical tool used by Japanese courts to review restrictions on the freedom of occupation has been the "purpose-bifurcation theory" (目的二分論 - mokuteki nibun ron). This theory distinguishes between two broad categories of legislative purposes behind occupational regulations and applies a correspondingly different standard of judicial review to each.

1. Negative Purpose Regulations (消極目的規制 - Shōkyoku Mokuteki Kisei):
   These regulations are aimed at preventing harm to public safety, health, and morals – essentially, the exercise of the state's police powers. Examples include licensing requirements for medical practitioners, safety standards for manufacturing, or regulations to prevent fraud.
   • Standard of Review: Restrictions based on such "negative" or "police" purposes are subjected to a relatively stricter standard of review, often termed the "strict rationality test" (厳格な合理性の基準 - genkaku na gōrisei no kijun). Under this test, the regulation must be a necessary and reasonable measure to achieve the intended protective purpose. Crucially, courts will also consider whether less restrictive alternative means could suffice to achieve the same objective.
   • Key Case: The landmark Pharmaceutical Affairs Law Distance Limitation Case (Yakujihō Kyori Seigen Jiken), decided by the Supreme Court's Grand Bench on April 30, 1975 (Shōwa 50), exemplifies this approach. The Court invalidated provisions of the Pharmaceutical Affairs Law that imposed geographical distance restrictions on the establishment of new pharmacies. It found that while the aim of ensuring a safe supply of pharmaceuticals was legitimate, the distance restrictions were not a necessary and rational means to achieve it, and less intrusive measures could be employed.
2. Positive Purpose Regulations (積極目的規制 - Sekkyoku Mokuteki Kisei):
   These regulations are designed to actively promote broader socio-economic policy goals. This can include protecting or fostering specific industries, supporting economically weaker groups, ensuring balanced regional development, or managing the overall economy.
   • Standard of Review: Restrictions justified by such "positive" or "socio-economic policy" purposes are reviewed under a significantly more lenient standard, often referred to as the "manifestly unreasonable test" (明白性の原則 - meihakusei no gensoku). Under this highly deferential standard, courts will generally uphold the regulation unless it is proven to be clearly and strikingly irrational or arbitrary, with no discernible reasonable basis. The legislature is accorded very broad discretion in these matters.
   • Key Case: The leading precedent for this standard is the Retail Market Distance Limitation Case (Kouri Shijō Kyori Seigen Jiken), decided by the Supreme Court's Grand Bench on November 22, 1972 (Shōwa 47). The Court upheld provisions of the Retail Business Adjustment Special Measures Law that restricted the opening of new retail markets near existing ones. The purpose was deemed to be the protection of small and medium-sized retailers from excessive competition, a "positive" socio-economic policy goal. The Court deferred to the Diet's judgment, finding the measure not to be manifestly unreasonable.

This bifurcated approach has its theoretical roots in the broader "dual standards" theory (nijū no kijun ron), which generally accords greater constitutional protection (and thus stricter judicial scrutiny) to spiritual and political liberties compared to economic liberties. It also reflects an understanding, influenced by the concept of the "social state" or "welfare state," that economic freedoms may be subject to broader limitations to achieve societal goals.

Challenges and Criticisms of the Purpose-Bifurcation Theory

While the purpose-bifurcation theory has long been the established framework, it has faced several criticisms and has shown signs of strain in application:

1. Difficulty in Classifying Purposes: Legislative purposes are rarely monolithic and can often be characterized in multiple ways. A regulation might have both "negative" (harm-preventing) and "positive" (policy-promoting) aspects. For example, the Supreme Court has offered varying classifications over time for regulations imposing distance requirements for public bathhouses, sometimes emphasizing public health (negative) and at other times local economic order (positive). Furthermore, the Liquor Sales Licensing Case (Saka-rui Hanbai Menkyosei Jiken), decided by the Supreme Court's Third Petty Bench on December 15, 1992 (Heisei 4), implicitly introduced "taxation purpose" as a distinct category for reviewing liquor licensing schemes, which doesn't neatly fit the binary model and led the Court to apply a very lenient standard. This ambiguity can make the choice of standard appear outcome-determinative.
2. Normative Underpinnings and Value Judgments: Critics have questioned the implicit hierarchy of values. For instance, if "positive purpose" regulations protecting existing businesses receive lenient review, it might be seen as prioritizing established economic interests over consumer benefits from increased competition or the innovative potential of new market entrants. Similarly, the notion that preventing direct harm (a "negative purpose") warrants stricter scrutiny than pursuing broader social policies (a "positive purpose") is itself a value judgment.
3. Theoretical Justification for Differential Scrutiny: The primary justification for the deferential review of "positive purpose" regulations often lies in arguments about judicial competence and the separation of powers. Courts are generally considered less equipped than the legislature to make complex socio-economic policy judgments, which involve balancing multifaceted interests, predicting economic consequences, and allocating resources. Conversely, assessing whether a measure is reasonably tailored to prevent a specific, identifiable harm (a "negative purpose") is seen as more within the traditional judicial ken. Professor Yasuo Hasebe has also offered a process-oriented justification, suggesting that when the legislature openly aims to benefit specific groups (a "positive purpose," often the result of political bargaining), the fairness of that political process itself provides a degree of legitimacy, warranting judicial deference unless the outcome is patently arbitrary.

A Deeper Look at the Pharmaceutical Affairs Law Case: Beyond Simple Bifurcation

The Pharmaceutical Affairs Law case, while often cited as the archetype for stricter review of "negative purpose" regulations, has also been subject to more nuanced interpretations that challenge a simplistic application of the purpose-bifurcation theory. Professor Kenji Ishikawa, for example, has argued that this judgment can be better understood through a lens influenced by German constitutional theory, particularly the "three-stage review" (san-dankai shinsa ron) and the "stage theory" (dankai riron) of occupational freedom.

This perspective suggests that the Yakujihō case recognized occupational freedom as possessing an element of personal value linked to individual dignity (akin to spiritual freedoms), though it also acknowledged a greater inherent need for regulation due to its significant social and economic externalities. Professor Ishikawa's analysis highlights a hierarchy of scrutiny based more on the type and intensity of the restriction itself, rather than solely on the legislative purpose:

• Regulations concerning the conduct or performance of an already chosen occupation (e.g., operational rules) would generally be subject to the least stringent review.
• Restrictions on the choice of occupation itself (e.g., entry barriers like licensing) would warrant stricter scrutiny because they affect the fundamental decision to pursue a livelihood.
• Within these "choice" restrictions, those based on objective criteria unrelated to personal competence (such as the geographical distance limits in the Yakujihō case) would be the most strictly scrutinized, as they can arbitrarily exclude qualified individuals. Restrictions based on subjective qualifications or skills might receive a slightly less, though still significant, level of review.

From this viewpoint, the lenient review accorded to "positive purpose" regulations (as in the Retail Market case) might be seen partly as a pragmatic judicial response to avoid the wholesale invalidation of numerous existing licensing and regulatory schemes in Japan that serve broad policy objectives.

Towards a More Comprehensive Assessment: Integrating Method and Purpose

The Pharmaceutical Affairs Law judgment itself, prior to articulating the specific test for "negative purpose" regulations, laid out a more general principle for reviewing restrictions on occupational freedom. It stated that constitutionality should be determined by "examining the purpose, necessity, and content of the specific regulatory measure, as well as the nature, content, and degree of restriction on the freedom of occupation thereby imposed, and then by comparatively considering these factors."

This suggests a more holistic approach where the analysis should arguably begin by evaluating the method and intensity of the restriction:

• Is it a restriction on the "choice" of occupation (e.g., a licensing scheme, a prior approval system, a complete prohibition), which is generally a more severe intrusion? Or is it a restriction on the "conduct/performance" of an occupation (e.g., rules on business hours, advertising, safety standards), which is typically less intrusive?
• If it's a restriction on choice, does it involve objective criteria (like geographical limits or quotas) that might operate arbitrarily, or subjective criteria related to an individual's competence, qualifications, or character?

Only after this initial assessment of the nature and severity of the restriction should the legislative purpose(s) be fully examined. It is the synthesis of these elements—the intensity of the restriction and the nature and legitimacy of the purpose—that should ultimately determine the appropriate level of judicial scrutiny or the rigor of the proportionality review to be applied.

It has been observed that in some recent Supreme Court cases dealing with regulations that might appear to have "negative purposes" (e.g., harm prevention), the Court has nonetheless cited the Retail Market case (traditionally associated with "positive purposes" and lenient review) as the guiding precedent. This often occurs when the restriction in question is not as severe as a comprehensive licensing scheme or when the legislative purpose is perceived as mixed. This trend might indicate a judicial inclination to use the more deferential Retail Market framework as a default, reserving the stricter Yakujihō-style review for particularly stringent, police-power-type restrictions on occupational entry.

Conclusion

The constitutional guarantee of freedom to choose an occupation under Article 22(1) is a vital component of Japan's economic and legal order. While the "purpose-bifurcation theory" has provided the dominant framework for judicial review of restrictions on this freedom, its application is not always straightforward and has been subject to scholarly critique and evolving judicial interpretation.

A nuanced understanding suggests that Japanese courts, while often starting with a classification of legislative purpose, also implicitly or explicitly consider the nature, method, and severity of the restriction itself. The level of judicial deference to legislative judgment remains a significant factor, particularly in areas involving broad economic and social policy. For businesses, this means that while their freedom to operate is constitutionally protected, this protection is weighed against a spectrum of public welfare considerations, and the intensity of judicial oversight will depend on a careful, context-specific analysis of both the aims and the impact of any given regulation.