2025.05

Can a 'Sake Special Zone' Become Reality? — Tracing the Origins and Future of Japan’s Strict Licensing Barriers

Kohei Nito | New Trends in the Sake Industry

The issuance of sake brewing licenses has been restricted for more than half a century under a regulatory framework inherited from prewar Japan. Unlike wine or beer, where obtaining a license generally allows one to set up a brewery through a straightforward application process, entering the world of sake brewing remains a significant challenge due to high regulatory barriers.

In response to this long-standing situation, new developments have emerged in recent years. Several regions have submitted applications to establish what are being called “Sake Special Zones.” This series, "Can a 'Sake Special Zone' Become Reality?", explores the aims behind these initiatives, reactions from existing industry players, and the prospects for future change.

In this introductory article, we begin by asking a fundamental question: Why do such regulations exist in the first place? We also examine the government’s past policies and provide context for the recent efforts now taking shape.

Note: A “special zone” (tokku) refers to a framework in which specific regulations are relaxed in designated regions or sectors as a form of policy exception.

Index

Why Do These Regulations Exist? What Has Been the Government’s Stance?
New Movements After the COVID-19 Pandemic
1. Applications for Deregulation Through Special Zones Emerge Across Multiple Regions
References

Why Do These Regulations Exist? What Has Been the Government’s Stance?

The Purpose and Content of the “Supply-Demand Adjustment Requirement” That Regulates the Issuance of Brewing Licenses

Why are brewing licenses to produce sake so strictly regulated in the first place? The answer lies in Japan’s Liquor Tax Law, specifically Article 10, which outlines the requirements for obtaining a manufacturing license. Among these is a stipulation concerning the balance of supply and demand—commonly referred to as the supply-demand adjustment requirement.

This provision effectively restricts the issuance of new licenses in order to prevent excess production capacity and protect existing producers. As a result, the criteria for entering the sake industry remain tightly controlled, and the number of newly granted licenses has been extremely limited for decades.

(Requirements for Manufacturing and Sales Licenses)
Article 10
In cases where an application is submitted under Article 7, Paragraph 1; Article 8; or Article 9, Paragraph 1 for a license to manufacture alcoholic beverages, a license to manufacture yeast starter (shubo) or fermentation mash (moromi), or a license to sell alcoholic beverages, the Director of the Tax Office may deny the license if any of the following conditions apply:

(…)

Item 11: When it is deemed inappropriate to issue a manufacturing or sales license for alcoholic beverages due to the necessity of maintaining a balance between supply and demand in order to secure the collection of liquor taxes.

This principle is further clarified in the Interpretive Guidelines on the Liquor Tax Law and Related Alcohol Administration Regulations, specifically in relation to Article 10, Item 11 of the Liquor Tax Law.

2. Handling of Licenses for the Manufacture of Alcoholic Beverages
Licenses for the manufacture of alcoholic beverages shall be granted only in cases that fall under the following criteria, based on the necessity of maintaining a balance between supply and demand in order to ensure the proper collection of liquor taxes.

(1) Sake (Seishu)
A manufacturing license for sake shall be granted only in one of the following cases:

(i) When an existing sake producer establishes a new production facility as part of a corporate streamlining or rationalization effort.

(ii) When two or more existing sake producers jointly establish a new corporation and a new production facility to produce sake collaboratively, as part of a corporate rationalization plan.

(iii) When an existing sake producer splits or restructures its operations and establishes a new production facility to manufacture sake as part of a corporate rationalization effort.

(iv) When a corporation organized primarily by sake producers—formed for the purpose of jointly bottling sake—produces sparkling sake by adding carbon dioxide or carbonated water to tax-suspended sake transferred to their bonded storage facility.

(v) When sake is produced specifically for the purpose of export.

In other words, the system allows authorities to restrict the issuance of manufacturing licenses in cases where the supply-demand balance may be disrupted, in order to maintain a stable environment for the collection of liquor taxes.

For sake (seishu) in particular, this restriction applies in most cases. Exceptions are limited to very specific scenarios: when an existing producer establishes a new facility (corresponding to items (i) through (iv) of the administrative notification), or when a new brewery is established exclusively for export purposes (item (v)).

Historical Background of the Regulation and Subsequent Review and Relaxation

Police officers and MPs confiscating black market goods (Source: The Record of Defeated Japan, Archives Publishing. Original photo owned by the U.S. Department of Defense)

The origins of Japan’s strict sake licensing regulations are rooted in the socio-economic conditions spanning the wartime and postwar periods. Prior to World War II, liquor tax was the single largest source of national tax revenue in Japan. Although its share gradually declined with the rise of income and other taxes, liquor tax still accounted for nearly 20% of national tax revenue in 1950—down from prewar levels but still significant (compared to around 2% today).

In such an environment, maintaining a stable supply-demand balance and preventing an oversaturation of producers was seen as essential for safeguarding this vital source of public revenue. Protecting existing brewers was thus considered necessary to preserve the government's ability to collect liquor tax effectively.

Rice, the primary ingredient in sake and a staple food in Japan, became increasingly scarce due to military demand and droughts. With unstable rice markets and supply shortages, the government implemented price controls and rationing systems, and began regulating sake production volumes.

As Japan gradually recovered in the postwar years, rice shortages eased. In 1969, the Jishu Ryutsu Mai (voluntary rice distribution) system was introduced, liberalizing rice distribution. In 1974, sake breweries were finally permitted to determine their own production volumes—ending government-imposed production quotas that had been managed through brewery cooperatives. This followed the 1963 abolition of official pricing for sake.

These changes reflected a shifting context: the rationale for supply-demand control began to fade. As Japan’s economy grew and the country became more globally integrated, regulatory frameworks began to evolve. In 1989, the government abolished the grading system for sake, which had categorized sake by quality levels tied to tax rates—thereby eliminating tax disparities based on those official grades.

During the era of free trade liberalization influenced by the Thatcher administration in the UK, Japan began reconsidering broader regulatory frameworks, including those surrounding alcohol. From 1998 to 2003, licensing restrictions on alcohol retail were gradually relaxed and are now almost fully liberalized. While this deregulation affected retail, it also sparked discussions about revisiting the supply-demand adjustment requirement for sake manufacturing.

Recent Debates on the System: Is the Government’s Position “Abolition in Principle”?

A key source that examines the historical and legal background of these regulations in detail is a 2022 article published in Zeidai Ronso (Journal of the National Tax College), the academic journal of the National Tax College, an official training institution of Japan’s National Tax Agency. The article, authored by Yasuhiro Mori and titled “On the Supply-Demand Adjustment Requirement in Alcohol Manufacturing and Retail Licensing” (Zeidai Ronso, No. 107, June 2022), offers a comprehensive analysis of the topic.

In this paper, Mori highlights that, during policy discussions held between 1992 and 1998, successive Japanese administrations had expressed a clear intention to abolish the supply-demand adjustment requirement. He supports this point by citing several government statements that reflect this policy direction.

With regard to entry and facility regulations based on supply-demand adjustment in competitive industries, we will examine their abolition, in principle, within 10 years and as early as possible. The operational standards for liquor manufacturing licenses shall also be reviewed from the same perspective.

(Third Administrative Reform Council Report, June 19, 1992 – Miyazawa Cabinet)

In general, supply-demand adjustment regulations grant broad discretionary power to the administration, leading to many negative side effects. The efficiency of such methods, which function through the protection of existing businesses, is also questionable. Furthermore, in order to secure liquor tax revenue, it would be more appropriate to encourage new market entry and revitalize the industry as a whole.

(Final Opinion of the Administrative Reform Committee, December 12, 1997 – Hashimoto Cabinet)

Under the principle of “economic regulation should be liberalized in principle, and social regulation should be kept to a minimum,” regulatory measures will be reviewed with a view toward abolition.

(Three-Year Program for Promoting Deregulation, March 31, 1998 – Hashimoto Cabinet)

Regarding the remaining issues, including liquor manufacturing licenses among 17 areas, we strongly urge that the necessary measures be taken in accordance with the Cabinet decision and the Three-Year Deregulation Promotion Program. Considering the future of the alcoholic beverage industry as a whole, there is a concern that continued inaction will lead to further decline. Whenever an improvement in supply-demand conditions can be recognized, the relevant supply-demand adjustment regulations should be promptly reviewed with a view toward abolition. Furthermore, for any alcoholic beverages not currently subject to such regulations, new supply-demand adjustment controls must be strictly avoided.
(First Opinion on Deregulation, December 15, 1998 – Obuchi Cabinet)

Based on these developments, the paper concludes that the Japanese government maintains a fundamental stance in favor of abolishing the regulation in principle, and argues—after examining the current sake market and the structure of the regulatory framework—that a phased abolition of the supply-demand adjustment requirement should be considered.

The rationale for this conclusion includes the following points (summarized here by the author of this article):

The regulation lacks specific facts or objective grounds typically required for entry restrictions, and remains vague and abstract in its wording.
Demand forecasting is inherently difficult, and many experts are skeptical about the feasibility of administrative forecasting as a basis for regulation.
In a market environment characterized by declining overall demand, a shift toward high-value-added products and higher price points, and increased exports, dynamic renewal through both entry and exit is essential.
Given the current market conditions, the risk of “market oversaturation” due to excessive new license applications is minimal.
Inappropriate or non-compliant operators can be filtered out through preliminary screening, post-entry enforcement measures, or food safety frameworks such as HACCP.

However, the paper also notes in its conclusion that in light of the severe impact of the COVID-19 pandemic on many alcohol producers, it is not an appropriate time to implement deregulation. The author emphasizes the need for careful consideration of the timing when reassessing the policy.

New Movements After the COVID-19 Pandemic

Applications for Deregulation Through Special Zones Emerge Across Multiple Regions

With the economic impact of COVID-19 now subsiding, calls from the private sector to reconsider Japan’s strict sake licensing regulations are once again gaining momentum. According to materials from the 64th meeting of the Council on National Strategic Special Zones, several regions have submitted proposals seeking the establishment of “tokku (special zones)” that would allow for the issuance of sake manufacturing licenses:

Daikonshima Research Institute LLC (Shimane Prefecture)
Fukumitsu Sake Brewery Co., Ltd. (Hiroshima Prefecture)
Necca LLC / Tadami Town (Fukushima Prefecture)
(Unnamed applicant) – listed as such in official materials, with no further details
Ine to Agave (Akita Prefecture) – noted separately in the documents as a proposal submitted over a year prior

In response to these developments, members of the council from the private sector have issued statements urging the government to actively move forward with discussions on this matter. The government has, in turn, begun considering how to address these requests.

For example, Professor Masayuki Nakagawa (Nihon University, College of Economics), stated:

“On matters such as sake manufacturing licenses under the Liquor Tax Law—which have been proposed by multiple regions—and other longstanding issues that have not progressed significantly in past discussions, I believe it is essential to deliberate carefully on both the need for regulatory reform and how to address concerns that may arise following such reform. Working group hearings should be conducted promptly and sequentially, and the voices of the proposers and stakeholders should be actively considered in pursuing concrete policy reviews.”

Professor Nana Otsuki (Nagoya University of Commerce and Business Graduate School of Management, Senior Fellow at Pictet Japan Ltd.) added:

“When considering reforms to the licensing system for sake production and related areas of technological innovation, I hope the discussions will be inclusive and fair, and will prioritize outcomes that most effectively support the core mission of special zones—regional revitalization.”

Against this backdrop, this series—“Can a ‘Sake Special Zone’ Become Reality?”—seeks to uncover what prospective entrants are aiming to achieve through their special zone applications, and how existing sake breweries perceive these developments. Through interviews and survey research, we will explore the motivations, expectations, and concerns on both sides.

In addition, we will examine case studies of other special zones that have successfully gained nationwide traction—or, even if not officially adopted nationwide, have had significant societal impact—to understand the conditions under which such ideas take root and flourish. By doing so, we aim to reflect on the future shape of Japan’s sake regulatory framework and consider how the diverse hopes and visions of stakeholders might be incorporated into its evolution.