Cryptocurrency Regulations World Map - Japan

Japan's regulators have been addressing the cryptocurrencies since 2017, and were the first to develop a legal definition of "virtual money" in the country (in the Payment Services Act). The Financial Services Agency, Japan's primary financial regulator, recognizes and collaborates with two self-regulatory organizations that support the development of a regulatory framework for the crypto industry: the Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA). Virtual assets service providers, or VASPs, in Japan are expected to start thinking about how to apply the Travel Rule properly right away. Even yet, the JVCEA's self-regulatory guidelines on the matter aren't slated to take effect until April 2022.

Legal status of cryptocurrencies

Japan boasts the world's most progressive regulatory climate for cryptocurrencies with the Payment Services Act (PSA) recognizing Bitcoin and other coins as legal property. Crypto exchanges in Japan are required to register and comply with traditional AML/CFT duties as a result of these rules.

Japan is the world's largest Bitcoin market, and the National Tax Agency determined in December 2017 that gains on the Japanese cryptocurrency should be classified as "miscellaneous income" and investors should be taxed accordingly.

Recent noteworthy regulatory changes

There are amendments made to the PSA and the Financial Instruments and Exchange Act (FIEA), which took effect in May 2020 recently. The modifications change the term "virtual currency" to "crypto-asset," impose stricter limits on managing users' virtual money, and tighten regulations on crypto derivatives trading. According to the new guidelines, cryptocurrency custody service providers in Japan (that do not sell or buy crypto assets) are covered by the PSA, while cryptocurrency derivatives enterprises are covered by the FIEA.

Crypto exchanges regulations and trading volumes

According to Nikkei.com, there were 1.18 trillion yen, or 9.8 billion USD worth of cryptocurrency held by users at Japanese exchanges as of January. The Japanese exchange with the largest number of listings currently is GMO Coin, which handles 20 cryptocurrencies, opposed to U.S.-based exchange Coinbase, where 139 coins are listed for trading at the end of 2021.

Japan's bitcoin trading regulations are forward-thinking. Only businesses with a competent local Financial Bureau are allowed to operate as cryptocurrency exchanges under the PSA, but foreign cryptocurrency exchanges are allowed to register if they can demonstrate an equivalent registration standard in their host country, in keeping with Japan's progressive stance.

While exchanges are allowed in Japan, crypto rules have become a national concern following a succession of high-profile thefts, including the legendary Coincheck heist of $530 million in digital currency. The Financial Services Agency (FSA) of Japan has stepped up efforts to regulate cryptocurrency trading and exchanges in the country. Amendments to the PSA now require cryptocurrency exchanges to register with the FSA in order to operate – a process that can take up to six months and imposes stricter cybersecurity and anti-money laundering/counter-terrorist financing requirements.

Exchange-based laws in Japan are primarily intended at maintaining market integrity, and users, investors, and exchanges must adhere to particular record-keeping requirements and submit an annual report to the Financial Services Agency (FSA). Following modifications in 2016 and 2019, this requirement was updated to incorporate client identification checks and to include custodian services providers.

Future regulatory trends

Japan continues to be a welcoming environment for cryptocurrencies, and it was the first country to self-regulate. The JVCEA includes all Japanese cryptocurrency exchanges, while the Japan STO Association was founded by a group of five significant Japanese financial institutions. Both the JVCEA and the STO Association seek to advise as-yet unregistered exchanges and promote regulatory compliance; both promise to play an important role in defining best practices for cryptocurrencies in Japan, as well as assuring compliance with the recently implemented rules.