Crypto regulation in Japan is not drafted or entrenched into a single document, and the country does not consider crypto a legal tender. Instead, Japanese financial laws determine crypto’s legal status according to its function and usage – This places crypto regulations in Japan under existing financial laws in the country.

crypto regulation in Japan

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For instance, tokens like ETH and BTC are considered utility tokens hence PSA (Payment Service Act) regulates such tokens. Furthermore, its compulsory for business operators that engage in utility crypto activities like selling, buying, exchanging, and managing such tokens for the benefit of others to register as CAESP ( CryptoAsset Exchange Service Provider).

In contrast, some tokens are considered securities tokens ( which represent bonds, shares or fund interests in tokens). The Japanese FIEA (Financial Instruments and Exchange Act) regulates these types of tokens as ERTRISs (electronically recorded transferable rights to be indicated on securities). Businesses or entities that engage in buying, selling, or intermediating activities of ERTRISs are required to register as a Type I FIBO (Type I financial instruments business operator).

Stablecoins regulatory framework

On March 4, 2022, the regulatory framework on stablecoins, “the Bill for Partial Amendment to the Act on Payment Services Act, etc. to establish a Stable and Efficient Funds Settlement System,” was formally submitted to Diet (Japan national legislature). About two months later, on June 3 2022, Diet approved the bill as the Amendment Act.

The Amendment Act aims to construct an efficient and stable funds settlement system that is compatible with the digitalization of finance against a series of backdrops like :

  • Increasing circulations and insurance of stablecoins worldwide.
  • Growing need to improve the efficacy of transaction monitoring by traditional finance institutions like banks and others.
  • The popularization of prepayment instruments which allows payment by electronic means 

Crypto regulatory bodies in Japan and AML laws 

There are different regulatory bodies in japan, but the primary body overseeing the affairs and governing of cryptocurrency in the country is JVCEA (Japan Virtual and Crypto Assets Exchange Association).

To combat and prevent crypto-asset money laundering & terrorism financing, the APTCP (Act on Prevention of Transfer of Criminal Proceeds) demands exchange providers apply KYC (know-your-customer) and other efficient preventative measures. The APTCP rules apply to licensed exchange providers in Japan.

Crypto Atmosphere in Japan

The crypto atmosphere in Japan is evolving, although the country still needs to be more crypto conducive, as strict regulations are coming from the Japanese government. For instance, on October 14, 2022, the Japanese government passed a cabinet decision to review laws and regulations related to money laundering in the country. 

The review aims to oblige exchanges and businesses engaging in crypto activities to provide users information and notify the business operators – a kind of compulsory KYC for all licenced exchanges.

In contrast, the Japanese government is trying to loosen its tight grip on crypto through the Japan Virtual and Crypto Assets Exchange Association (JVCEA). In a recent Bloomberg report, the JVCEA wants to deploy a less strict screening process on how licensed crypto exchanges enlist coins on their platforms – This is to help Japanese crypto investors access more crypto coins.

Also, in August, the Japanese government said they are planning to implement tax reform to help encourage crypto startups to stay in the country – As a result of Japanese crypto groups calling on regulators to end taxing paper gains in the country.

Furthermore, in a speech on October 3, Fumio Kishida, Japanese Prime Minister, said the Japanese government would be making efforts to encourage the use of new Web3 technologies. He explicitly mentions Metaverse and non-fungible tokens (NFTs). Surprisingly, in September of this year, the government of Japan issued NFTs as rewards for good jobs to local authorities.

Crypto Tax in Japan

Unfortunately, the Japanese government taxes crypto in one of the worst possible ways – They tax crypto as miscellaneous income, hence, the Japanese government charges up to a 55% tax on investors’ crypto gains. 

However, regardless of the rise in asset value, investors are to pay taxes if they sell their crypto assets. That is, gains/profits will only add to annual income whenever investors trade their cryptocurrencies for stablecoins, fiat or use their crypto assets like BTC for goods and services.

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