Hong Kong and Singapore Are Attractive, but Japan Is Also a Strong Contender
In conversations with industry participants, lawyers at Mankun Law Firm have observed that Japan is one of the countries with a vibrant blockchain entrepreneurship ecosystem. Many prominent former executives from major Web2 companies are launching blockchain ventures in Japan, such as Guo Yu. However, due to language barriers, Japan is often overlooked by Chinese-speaking entrepreneurs. As the world’s third-largest economy, Japan’s sense of crisis has, to some extent, shaped the authorities’ regulatory approach to the blockchain industry. The authorities seek to leverage new technologies such as blockchain to maintain Japan’s position as the world’s third-largest economy, while also protecting domestic investors and preventing Japan from becoming a regulatory low-ground prone to disorderly practices.
Against this backdrop of ambivalence, Japan’s regulatory policies for the blockchain industry have instead exhibited characteristics of maturity and stability, fostering a highly favorable environment for blockchain entrepreneurship.
This article willthe development of Japan’s blockchain industry,digital currenciestheir legal status and tax policies, the licensing regime and self-regulatory organizations for digital currency exchanges, the rules and guidelines for digital currency offerings and fundraising (ICO/IEO), the Japanese government’sblockchain technologysupport and outlook,severalsectionsto introduce Japan’s regulatory policies for the blockchain industry.，to enable Mankun’s readers to gain an overview and obtain relatively comprehensive and accurate information.
Development of Japan’s Blockchain Industry
Japan’s regulatory policies for the blockchain industry have evolved and been refined over time. From an early focus on the security of digital currency (Japanese: crypto assets) transactions to later efforts to promote the application of blockchain technology across various industries, Japan has demonstrated foresight and innovation in this field. The following are major events in the development of Japan’s blockchain industry.
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2014: Lessons from the Mt. Gox Incident
In 2014, Japan experienced the well-known collapse of the Mt. Gox bitcoin exchange, which resulted in substantial losses of bitcoin. This incident drew heightened government attention to the security of digital currency transactions and became a significant turning point in the development of Japan’s digital currency regulatory framework.
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2016: Legalization of Digital Currencies
As previously noted, in 2016, the Japanese Cabinet approved amendments to the Act on Payment Services (Japanese:Act on Settlement of Funds), formally bringing digital currencies within the legal regulatory framework. The amendments took effect in April 2017, marking the legalization of digital currencies in Japan.
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2017: Introduction of the Licensing Regime
With the entry into force of the Act on Payment Services, the Financial Services Agency of Japan began requiring digital currency exchanges to apply for licenses and submit to its oversight to ensure transaction security and protect investor interests.
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2018: Establishment of JVCEA as a Self-Regulatory Organization
To further strengthen industry self-regulation and raise industry standards, Japanese cryptocurrency exchanges established the Japan Virtual Currency Exchange Association (JVCEA), which is dedicated to enhancing industry transparency and consumer protection.
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2019: Regulatory Framework for ICOs and IEOs
The Japan Virtual Currency Exchange Association issued the Rules Concerning Initial Coin Offerings and the accompanying Guidelines on the Rules Concerning Initial Coin Offerings, providing a clear regulatory framework for fundraising activities involving the issuance of digital currencies.
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2021: Establishment of the STO Association
The Financial Services Agency of Japan formally approved the Japan Security Token Offering (STO) Association as a self-regulatory organization responsible for formulating and enforcing rules and standards related to STOs.
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2022: Bank of Japan Launches Pilot Program for Digital Yen
The Bank of Japan announced the launch of the pilot phase for its central bank digital currency (CBDC). Testing is currently ongoing, and the Governor of the Bank of Japan plans to make a determination on whether to issue it by 2026.
In 2016, the Cabinet of Japan passed amendments to the Payment Services Act, which came into effect in April 2017. These amendments provided a legal definition for digital currencies and recognized their legality. Under the Payment Services Act, an asset qualifies as a digital currency if it meets all of the following criteria:
(1) Property value recorded electronically on electronic devices or other items;
(2) Transferable through electronic information processing systems;
(3) assets not denominated in domestic currency, foreign currency, or other currencies;
(4) may be used to pay an unspecified number of persons in connection with the purchase or lease of goods or the receipt of services;
(5) may be purchased from or sold to an unspecified number of persons.
In other words,Japan recognizesdigital currenciesas lawful means of payment.The Payment Services Actis the first statute worldwide to bring digital currencies within a legal regulatory framework, which is of significant importance to the digital currency market.。
Japan imposes tax only onincome derived from transactions in digital currencies,classified as “miscellaneous income,” and applies a progressive tax rate ranging from 5% to 45%.When combined with the inhabitant tax and the Special Income Tax for Reconstruction, the maximum effective tax rate is approximately 55%.。Furthermore, effective July 1, 2017, digital currencies are exempt from the 8% consumption tax.
Licensing Regime and Self-Regulatory Organizations for Digital Currency Exchanges
Pursuant to the amendments to the Payment Services Act, entities engaged in digital currency trading must apply for a license from the Japanese Financial Services Agency (FSA) and submit to its regulatory oversight. Generally, operating a digital currency exchange in Japan requires satisfying the following four basic conditions:
1. Entity Structure:A joint-stock company (kabushiki kaisha) or a foreign digital currency exchange entity (with a place of business and a representative in Japan)
2. Capital Requirements:Possession of a sufficient asset base, including registered capital of at least JPY 10 million and positive net assets
3. Corporate Governance and Internal Controls:Implementation of corporate governance and internal control systems capable of ensuring proper and reliable business operations (e.g., segregation of user assets from corporate assets, establishment of effective risk management frameworks to mitigate risks such as cyberattacks, system failures, money laundering, and terrorist financing)
4. Compliance:Adherence to applicable laws and regulations, protection of user privacy, fulfillment of anti-money laundering obligations, and cooperation with inspections and investigations conducted by the FSA
Currently, a total of 23 cryptocurrency exchanges in Japan have obtained licenses from the Financial Services Agency (FSA), including well-known platforms such as Huobi Japan, bitFlyer, and Coincheck.
In addition to regulation by the FSA, in order to enhance the industry’s credibility and transparency, protect investor interests, and promote the healthy development of the cryptocurrency market,with the approval and authorization of the FSA, 16 licensed exchanges initiated the establishment in April 2018 of theJapan Virtual Currency Exchange Association (JVCEA)to conduct self-regulation.。The Association has formulated a series of self-regulatory rules and guidelines, including:
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classifying and managing cryptocurrencies offered by exchanges, and determining listing conditions based on factors such as security, liquidity, and transparency;
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conducting risk assessments of exchanges, setting caps on leverage ratios, margin requirements, andforced liquidationmechanisms;
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requiring exchanges to make disclosures, including publicizing trading rules, fee schedules, and procedures for handling customer complaints; and
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providing consumer education through exchanges to enhance awareness and understanding of cryptocurrencies and associated risks.
Rules governing initial coin offerings (ICOs) and initial exchange offerings (IEOs)rulesand guidelines
Blockchain and crypto assets are innovative technologies in today’s world, offering new possibilities for financial services and transactions. As a neutral and stable jurisdiction with widespread adoption of crypto assets, Australia provides a favorable environment for crypto-asset businesses. However, at this stage, the regulatory landscape for crypto assets in Australia remains uncertain due to the absence of clear legislation, requiring businesses to closely monitor regulatory developments and enforcement actions to ensure the compliance and sustainability of their operations.
On April 6, 2023, the Web3 project team of Japan’s ruling party released a white paper that positions Web3 as a national strategy.。To this end, the Japanese government has invested substantial resources in promoting the research and application of blockchain technology. For example, the Cabinet Office of Japan has established multiple special-purpose funds to support innovation in blockchain technology and research into its practical applications. In addition, the Japanese government is actively advancing international cooperation, engaging in exchanges and collaboration with other countries on the formulation of blockchain standards and the development of regulatory frameworks. The Japanese government believes that international cooperation can promote the healthy development of blockchain technology while creating more opportunities for Japanese businesses and consumers.
According to forecasts by the Yano Research Institute, Japan’s blockchain market size was projected to reach JPY 123 billion (approximately RMB 8.1 billion) by 2022. Applications of blockchain in Japan span multiple sectors, including real estate registration, identity verification, interbank clearing, bitcoin insurance, and supply chain finance. The following are specific examples:
Real Estate Registration:The Japanese government plans to consolidate nationwide real estate data—covering approximately 230 million land parcels and 50 million buildings—into a single blockchain ledger to enhance data visibility, accuracy, and security. This project is currently in the testing phase and is expected to be completed within the next five years.
Identity Verification:The Financial Services Agency (FSA) of Japan has developed a blockchain platform that enables customers to share personal information across multiple banks and financial institutions and to use a shared ID for account opening. In addition,SoftBank Groupcollaborated with TBCASoft to launch a blockchain-based identity recognition and verification project, leveraging zero-knowledge proofs and distributed ledger technology to safeguard personally identifiable information against misappropriation.
Interbank Clearing：Fujitsu partnered with Mizuho Financial Group,Sumitomo Mitsui Financial Groupand Mitsubishi UFJ Financial Group to develop a peer-to-peer remittance service using blockchain, thereby enhancing the efficiency and security of remittances.
Bitcoin Insurance:In response to frequent hacker attacks on bitcoin exchanges resulting in customer asset losses, Sumitomo Mitsui Insurance Co. of Japan and bitFlyer launched a bitcoin insurance product that provides compensation for bitcoin assets and covers losses arising from internal incidents and improper employee conduct.
Supply Chain Finance:Mizuho Bank and IBM Japan jointly developed a blockchain-based trade finance platform that enables rapid and secure exchange of digital transaction documents and supply chain transaction data, thereby improving transparency and creditworthiness among transaction parties.
In summary, Japan maintains an open and proactive stance toward blockchain technology and digital currencies. It has established relatively comprehensive and clear regulations in areas such as law, taxation, licensing, and self-regulation, while continuing to explore and innovate to adapt to the rapid evolution of blockchain technology and its diverse application scenarios, seeking to secure a foothold in the global development of the blockchain industry. For blockchain entrepreneurs, this ambition on the part of the Japanese government may provide a favorable environment for startup ventures.
Recommended Reading
Does Registering a Singapore Foundation Legitimize the Issuance of Virtual Currencies?
Web3 Project Compliance: Why Choose a Cayman Islands Foundation for Token Issuance?
How to Mitigate Legal Risks When Launching a Crypto News Media Venture?
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