Japan’s heavy hand with Naver: Uneasy sign for market economy

Recent actions by the Japanese government and chief executives of LY Corp. and SoftBank Corp. are raising eyebrows, leading many to question whether Japan is truly a market economy.

As the government gets involved in demanding South Korea’s Naver Corp. reduce its capital control in LY Corp., jointly run by Naver and Softbank, the situation starts to resemble state interference rather than a market-based approach.

Some industry officials even suspect that the move may have been pre-planned for Tokyo to seize control of the Korean-Japanese JV.

At the center of the red-hot issue of late between the two neighboring countries is LY Corp., which came into being in 2021 through a merger of Naver’s Line, the most popular mobile messenger app in Japan, and SoftBank's Yahoo Japan.

Naver and SoftBank each hold a 50% stake in A Holdings, a company controlling 64.5% of LY. If SoftBank acquires just one more share in A Holdings, it would thus control LY, or Line-Yahoo.

Since its inception, LY has seen remarkable growth, with revenue increasing from 1.57 trillion yen ($10.1 billion) in 2021 to 1.81 trillion yen last year. It has expanded its reach beyond messaging and portal services into administrative functions and other areas.

TURNING POINT: DATA LEAK

The turning point came last November when Naver Cloud Corp., a unit of the Korean tech giant, suffered a cyberattack, resulting in the breach of Line users’ personal data.

The Japanese government responded not just with a call for tighter cybersecurity but also administrative guidance suggesting a complete severance of ties between Naver and LY’s IT infrastructure.

The situation escalated to the point where Japan's Ministry of Internal Affairs and Communications was pushing for Naver to sell its stake in A Holdings.

This culminated in LY CEO Takeshi Idezawa's firm request on Wednesday that Naver divest of its shares, citing the ministry's guidance. On the same day, LY’s board announced that Jungho Shin, LY’s chief product officer and its only Korean board member, would step down from the board.

On Thursday, SoftBank CEO Junichi Miyakawa said it is in talks with Naver over the fate of their joint management of LY, and that the two parties are working to reach an agreement by July.

NOT AKIN TO US CRACKDOWN ON TIKTOK

To put things into perspective, this situation is distinct from the US government's crackdown on the Chinese-owned TikTok, where national security concerns provided a clear basis for legislative action.

Japan's approach, however, lacks a defined legal framework, relying instead on ambiguous administrative guidance.

Moreover, what Line-Yahoo has achieved so far is the result of significant investment and effort from Naver, which successfully established the company in a competitive market.

For the Japanese government to now demand Naver's exit, after all the hard work and investment, seems at odds with the principles of a civilized nation.

These developments warrant concern and call for a return to rationality. If the Japanese government continues to disregard market principles and exert undue influence over business decisions, it risks undermining its reputation as a country with a robust, free-market economy.

Japan's policymakers must reconsider their approach to ensure businesses operate within a framework that values autonomy and respects international partnerships. The world will be watching to see how this situation unfolds.

The Korea Economic Daily Editorial


In-Soo Nam edited this article.