Law firms have faced an increasingly competitive market for more than a decade due to a government policy to boost the number of lawyers and Japan’s shrinking population.

“It started some 30 years ago as the government raised the number of those who passed the annual bar exam to roughly 2,000 from about 500 until then,” recalls Hiroshi Morimoto, partner of Kitahama Partners.

The Justice Ministry increased the number partly hoping to serve better in remote places where lawyers per capita is unproportionately small and partly on expectations that Japan would see a surge in lawsuits as it becomes more like the U.S.

But lawsuits have not increased at all since then while the country’s population have been shrinking. Now, the number of lawyers is 43,104 as of September 2021 compared with 22,021 in 2006, according to the Japan Federation of Bar Associations. Thanks to the federation’s lobbying, the number of bar exam passers has fallen to about 1,500 a year, but JFBA says it’s not enough.

This trend has induced many law firms to specialize themselves to a respective specific area, going overseas to expand their client base and set up a new law firm for new industries such as fintech.

“There are two new spaces for lawyers,” notes Morimoto. “One is overseas, where Japanese companies are finding new markets after decades of shifting production bases. The other is cyberspace, which was almost non-existent in a business sense before a couple of decades ago. Where people go, there comes a few troubles, which we are willing to help solve.”

In the case of Kitahama, it decided to focus on specialties such as IP rights and stock-related issues like IPOs.

To make it happen, Morimoto says that the firm decided to train lawyers by seconding them to entities such as the Japan Patent Office and the Tokyo Stock Exchange, and sending them overseas to study law. “During that time, we hire novices just out of the bar exam in order to develop further new expertise,” Morimoto notes.

Seconding lawyers has yielded benefits, says Morimoto, but also comes at a cost. “To help those who work for outside organisations and study abroad concentrate on their tasks, we pay a significant amount of benefit before they go. Some of them never come back, but overall, this strategy works well for us,” he says.

NEW FIRMS

While some established firms have looked to build niche practices, there are now also a number of new firms in the market, specializing in areas such as data security and startup support.

“As the number of lawyers is rising amid Japan’s stagnant economic growth, lawyers have seen a more competitive market. The business environment has been encouraging some law firms look to new business areas and overseas markets,” says Yoshikazu Tagami, lawyer and an executive of Bengoshi dot Com, a business support service for law firms.

One example is the seven-year-old Storia Law Office, which specialises in IT, AI, data and online businesses. “We targeted from the beginning to focus on specific areas of services,” says Kenji Sugiura, partner and co-founder.

Another co-founder, Taichi Kakinuma, sits on a government committee on data and online contract guidelines, and that has resulted in some inquiries from potential clients, says Sugiura, but the firm also helps its cause with frequent blog posts by its lawyers. “The purpose of blog posting is to connect to people and companies that would find our advice helpful, not to merely increase the number of clients. Therefore, we strive to convey not only our expertise but also the character of each lawyer,” he notes.

Another firm, Tokyo Startup Law was set up in 2018 with the goal to “Update Japan,” according to founder Hirohide Nakagawa. “Japan has very few unicorn companies compared with the U.S. and emerging economies. We want to change the stagnation by helping startups,” he notes. As one of its important communication tools, Tokyo Startup also regularly posts law-related information and insights on its blog.

Given that there is a wider market for legal services outside Japan, Startup Law is looking to tap into those opportunities. “As more and more people of different culture and nationality work, shop, travel and eat side by side, there’s no reason for limiting our client base within Japan or Japanese,” Nakagawa observes, adding that some of the firm’s lawyers are capable of native-level English or Chinese.

 

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