Q: Administrative Discretion in Japan: How Much Freedom Do Agencies Have and How Is It Controlled?

Japanese Attorney at Law - Bengoshi L.L.

• 10 min read

When Japanese administrative agencies make decisions—granting licenses, issuing permits, enforcing regulations, or allocating public resources—they are often vested with a degree of "administrative discretion" (gyōsei sairyō - 行政裁量). This refers to the lawful freedom or leeway granted to an administrative organ by law to choose among several legally permissible courses of action, or to decide whether or how to act, based on its expert judgment and consideration of the specific circumstances of a case. While discretion is essential for flexible and effective governance, it also raises crucial questions for businesses: How much freedom do agencies truly have, and what legal mechanisms exist to control its exercise and prevent arbitrariness? This article explores the concept of administrative discretion in Japan and the ways in which it is legally constrained and judicially reviewed.

What is Administrative Discretion (Gyōsei Sairyō)?

Administrative discretion arises when a statute or ordinance does not precisely dictate every aspect of an agency's decision but instead allows the agency to exercise judgment. This can relate to:

  • Fact-finding and assessment: Evaluating complex technical or specialized information.
  • Choice of action: Deciding which of several authorized measures to take.
  • Timing of action: Determining when to act.
  • Content of action: Setting specific conditions or terms for a permit or order.

This contrasts with "bound acts" (kisoku kōi - 羈束行為), where the law clearly prescribes the agency's action once certain factual conditions are met, leaving little or no room for agency judgment.

Rationale for Granting Discretion:

Administrative discretion is generally considered necessary for several reasons:

  1. Legislative Limitations: It is impossible for the Diet (parliament) or local assemblies to foresee every conceivable situation and regulate all matters in minute detail. Laws often provide a framework, leaving specific application to administrative expertise.
  2. Technical Complexity: Many administrative decisions involve specialized technical, scientific, or economic knowledge that agencies are better equipped to handle than legislatures or courts.
  3. Flexibility and Adaptability: Discretion allows agencies to tailor their responses to the unique circumstances of individual cases and to adapt to changing societal needs or emerging problems more effectively than rigid, universally applicable rules might allow.

The Evolution of Judicial Control over Discretion in Japan

The extent to which courts can review discretionary administrative decisions has evolved significantly.

  • Historical Approach: Historically, a distinction was sometimes drawn between:
    • Legally-bound discretion (法規裁量 - hōki sairyō, or 羈束裁量 - kisoku sairyō): Where the law, while granting some choice, still provided relatively clear standards or criteria that the agency had to follow. Such decisions were generally considered reviewable by courts for their legality (i.e., conformity with those standards).
    • Free discretion (自由裁量 - jiyū sairyō, or 便宜裁量 - bengi sairyō): Where the law granted broader leeway, often tied to assessments of public interest or expediency. These decisions were traditionally seen as being largely outside the scope of judicial review for legality, with courts only intervening in very extreme cases. The focus was more on whether the decision was "appropriate" or "expedient" (futō - 不当), a matter typically left to administrative self-correction or political accountability.
  • The Modern Standard: Deviation and Abuse of Discretion (逸脱・濫用 - Itsudatsu / Ranyō)
    The enactment of Article 30 of the Administrative Case Litigation Act (ACLA - 行政事件訴訟法 Gyōsei Jiken Soshō Hō) marked a pivotal shift. This article explicitly provides that:
    "An action for the revocation of an original administrative disposition or administrative disposition on appeal that was made at the discretion of an administrative agency may be filed only in cases where the discretionary disposition was made going beyond the bounds of the agency's discretionary power or through an abuse of such power."This provision established that no administrative discretion is entirely "free" from judicial review for its legality. Courts are empowered to examine whether an agency exercised its discretion lawfully and reasonably, within the confines and purposes of the enabling statute and general legal principles. The focus of judicial review thus shifted from a rigid categorization of discretion as "bound" or "free" to a more nuanced assessment of how the discretion was actually exercised in a particular case. The question became not simply whether discretion existed, but whether it was properly exercised.

Grounds for Finding an Unlawful Exercise of Discretion: Judicial Review Standards

When a court reviews a discretionary administrative decision, it looks for specific flaws that would indicate a "deviation from" or an "abuse of" discretionary power. Several key grounds have been developed through extensive case law:

  1. Serious Factual Misrecognition (事実誤認 - Jijitsu Gonin)
    If an agency's discretionary decision is based on a significant misunderstanding or misrecognition of the fundamental facts relevant to the case, it can be deemed an unlawful exercise of discretion. The decision must have a rational factual basis.
    • The McLean case (Supreme Court, October 4, 1978), concerning a foreigner's application for an extension of their period of stay (an area recognized as involving broad discretion for the Minister of Justice), stated that the Minister's decision would be illegal only if it "completely lacked a factual basis" or was "markedly lacking in reasonableness when viewed in the light of socially accepted ideas or norms." While setting a high threshold for intervention in immigration matters, this acknowledges that discretionary decisions must still be grounded in some factual reality.
  2. Violation of General Legal Principles
    Even if a statute grants discretion, its exercise must conform to fundamental legal principles, including constitutional ones:
    • Equality Principle (平等原則 - Byōdō Gensoku): Based on Article 14 of the Constitution, discretionary decisions must not be arbitrary or discriminatory. Treating similar cases differently without a reasonable and justifiable basis can constitute an abuse of discretion. (For instance, the Supreme Court, in a judgment on October 26, 2006, discussed how an irrational preference for local contractors in public works bidding could potentially be an abuse of discretion).
    • Proportionality Principle (比例原則 - Hirei Gensoku): The administrative measure chosen must be suitable for achieving the intended public purpose, necessary (i.e., no less intrusive means are available), and balanced in the narrow sense (i.e., the burden imposed on the individual or business must not be excessive in relation to the public benefit sought). A grossly disproportionate exercise of discretion, such as imposing an overly harsh sanction for a minor infraction, can be deemed an abuse.
    • Protection of Legitimate Expectations / Principle of Good Faith (信頼保護原則・信義則 - Shinrai Hogo Gensoku / Shingi Soku): If an administrative agency, through its consistent past practice, official statements, or specific assurances, has created a clear and legitimate expectation upon which a business has reasonably relied to its detriment, a subsequent discretionary decision that arbitrarily defeats that expectation without compelling justification may be found unlawful. The Supreme Court, in a tax case on October 30, 1987, acknowledged that the principle of good faith and trust (shingisoku) could, under exceptional circumstances, be applied in tax administration to protect a taxpayer who had demonstrably relied on a consistent course of conduct by the tax authorities, particularly if the agency's subsequent change in position would lead to an unjust outcome for the blameless taxpayer.
  3. Consideration of Irrelevant Factors or Failure to Consider Relevant Factors (他事考慮・考慮不尽 - Taji Kōryo / Kōryo Fujin)
    An agency must base its discretionary decision only on factors that are relevant under the terms and purpose of the enabling statute.
    • Consideration of Irrelevant Factors (Taji Kōryo): If an agency takes into account considerations that are entirely unrelated to the statutory purpose for which the discretionary power was granted, this can render the decision illegal. A classic lower court example is the Nikko Taro Sugi case (Tokyo High Court, July 13, 1973), where an approval for land expropriation (a discretionary act) was found to have been improperly influenced by considerations related to managing traffic for the then-upcoming Sapporo Winter Olympics, an objective unrelated to the specific public work for which the land was being expropriated.
    • Failure to Consider Relevant Factors (Kōryo Fujin): Conversely, if an agency fails to consider factors that the enabling statute (either explicitly or implicitly) requires it to take into account when making its decision, this can also be a ground for finding an abuse of discretion.
  4. Violation of the Purpose of the Law (目的違反 - Mokuteki Ihan)
    If an agency exercises its discretionary power for a purpose that is clearly contrary to, or outside the scope of, the objectives intended by the legislature when it granted that discretionary power, the decision may be illegal.
  5. Marked Unreasonableness / Lack of Rationality (著しい不合理性 - Ichijirushii Fugōrisei)
    Even if specific flaws like a clear factual error or the use of an irrelevant factor cannot be precisely pinpointed, a discretionary decision may be found to be an abuse of discretion if its outcome is so unreasonable, arbitrary, or lacking in rational justification that it cannot be reconciled with any plausible interpretation of the facts and the law. This is often assessed by reference to whether the decision is "markedly lacking in reasonableness when viewed in the light of socially accepted ideas or norms" (shakai tsūnen - 社会通念). The Kobe Customs case (Supreme Court, December 20, 1977), which concerned the disciplinary dismissal of a public servant, illustrates this standard. The Court indicated that such a discretionary disciplinary action would only be overturned if it was found to be so disproportionate or unjust as to be "markedly lacking in appropriateness when viewed in the light of socially accepted ideas."

The Rise of Procedural and Process-Oriented Review of Discretion

Recognizing the inherent difficulties for generalist courts in directly second-guessing complex technical, scientific, or policy judgments made by specialized administrative agencies, judicial review of administrative discretion in Japan has increasingly incorporated a focus on the process by which a discretionary decision was reached, in addition to reviewing its substantive outcome.

  1. Ensuring Procedural Fairness:
    Courts will examine whether the administrative agency adhered to all legally mandated procedures when making its discretionary decision. These procedures might be stipulated in the Administrative Procedure Act (APA), the specific enabling statute for the administrative action, or derive from general principles of due process. Serious procedural defects, such as failing to provide a required notice, denying a party a meaningful opportunity to be heard, or failing to provide legally required reasons for a decision, can lead to the discretionary act being found illegal, irrespective of its substantive merits.
  2. Review of the Decision-Making Process (Handan Katei no Tōsei - 判断過程の統制):
    This approach involves a more in-depth scrutiny of how the agency arrived at its discretionary decision. The court examines whether the agency's reasoning process was rational and legally sound. Key aspects include:The landmark Ikata Nuclear Power Plant case (Supreme Court, October 29, 1992) is a pivotal example of this process-oriented review. In assessing the legality of the government's approval for the construction of a nuclear reactor (a decision involving immense technical complexity and discretion), the Supreme Court stated that its review would focus on whether the safety assessments conducted by expert bodies (like the Atomic Energy Commission and the Nuclear Safety Commission), and the Prime Minister's discretionary decision based on those assessments, contained any "irrational points" (fugōri na ten - 不合理な点). Furthermore, the Court would examine if there were "errors or omissions that cannot be overlooked" (kanka shigatai kago, ketsuraku - 看過し難い過誤・欠落) in the deliberation process of these expert bodies. If such flaws in the underlying expert judgment process were found, and the agency's final decision relied upon that flawed process, the discretionary approval itself could be deemed illegal. This "process review" methodology has since been applied by courts in various other contexts involving complex discretionary decisions, such as textbook approvals, school disciplinary actions, approvals for public facility use, and urban planning project authorizations. This approach often involves an implicit application of substantive review criteria (like proportionality or rationality) to the steps in the decision-making chain.It is important to note that while this process review respects agency expertise, it is not a complete abdication of judicial scrutiny. For instance, in a Minamata disease certification case (Supreme Court, April 16, 2013), where the issue was a factual medical determination, the Court indicated that it should make its own assessment of the medical evidence based on prevailing scientific knowledge, rather than simply deferring to the conclusions of the agency's expert panel, especially if the panel's standards themselves were contentious.
    • Did the agency properly investigate and ascertain the relevant facts?
    • Did it correctly identify and apply the relevant legal standards?
    • Did it consider all legally relevant factors and exclude irrelevant ones (as discussed above)?
    • Did it rationally evaluate available alternatives, where appropriate?
    • Was its reasoning process logical, consistent, and adequately explained?
  3. Control of Failure to Exercise Discretion (Omissions - 不作為の違法統制 - Fusakui no Ihō Tōsei):
    An agency's abuse of discretion can also manifest as an unlawful failure to act when it has a legal power (and potentially a duty) to do so.
    • "Shrinking Discretion" Theory (Sairyō Shūshuku Ron - 裁量収縮論): This theory posits that in certain specific factual circumstances, an agency's initially broad discretion as to whether or how to act may "shrink" or be reduced, sometimes to the point where only one course of action (or a duty to act in a particular way) becomes legally permissible. This often arises in situations where inaction would lead to grave public harm or a clear violation of protected rights.
    • "Negative Abuse of Discretion" (Sairyōken Shōkyokuteki Ranyō Ron - 裁量権消極的濫用論): This is the formula frequently employed by the Supreme Court, particularly in state compensation lawsuits filed due to an agency's failure to exercise its regulatory or supervisory powers (e.g., failure to prevent widespread pollution or ensure product safety). Under this approach, an agency's failure to exercise its powers is deemed illegal if, considering the purpose of the enabling statute, the nature of the power, and the specific factual circumstances, the non-exercise of the power is found to be "markedly lacking in rationality." The Kansai Minamata Disease case (Supreme Court, October 15, 2004) is a leading example, where the national and prefectural governments' prolonged failure to use their regulatory powers to stop mercury pollution, despite growing evidence of its devastating health effects, was found to be an illegal omission markedly lacking in rationality.
    • Discretion of Timing (Toki no Sairyō - 時の裁量): Even if an agency has a duty to take some action, it may still retain some discretion as to when precisely to act, provided that any delay is not unreasonable in the circumstances. The Shinagawa Ward Building Confirmation case (Supreme Court, July 16, 1985) recognized that an administrative agency could, for a reasonable period, withhold a decision on a building confirmation application while it engaged in administrative guidance with the applicant to resolve disputes with local residents, but this discretion of timing was not unlimited.

Implications for Businesses

Understanding the framework of administrative discretion and its controls is vital for businesses in Japan:

  • Predictability and Planning: While discretion inherently involves a degree of uncertainty, knowledge of the legal limits, relevant case law, and published agency discretionary standards (sairyō kijun - 裁量基準, if available) can help businesses better anticipate potential agency decisions and plan accordingly.
  • Grounds for Engagement and Challenge: If a business believes a discretionary decision is flawed, it can frame its arguments not just by disagreeing with the substantive outcome, but by pointing to specific abuses of discretion, such as factual errors, consideration of irrelevant factors, procedural unfairness, or a decision-making process that lacked rationality.
  • Importance of Procedural Participation and Record-Keeping: Since courts may review the decision-making process, it is crucial for businesses to actively participate in any available procedural opportunities (e.g., hearings, submitting evidence and arguments, responding to agency queries) and to maintain thorough records of all interactions with administrative agencies. This documentation can be vital if a discretionary decision is later challenged.

Conclusion: Discretion Guided by Law

Administrative discretion is an unavoidable and often necessary component of modern governance, allowing for tailored and expert responses to complex societal issues. In Japan, while agencies are granted considerable leeway in many areas, this discretion is not absolute. It is bounded by the purposes of the empowering legislation, fundamental constitutional principles, general tenets of administrative law such as proportionality and good faith, and increasingly, by judicial scrutiny of the fairness and rationality of the decision-making process itself. For businesses, navigating this landscape requires an appreciation of both the scope of agency freedom and the robust legal mechanisms in place to ensure that such discretion is exercised lawfully and reasonably.