Crypto In Japan

Cryptocurrencies have been around for a while now – and they aren’t going away anytime soon. More and more retail investors are becoming familiarized with the idea of buying digital currencies as part of their asset portfolios.

However, in the Land of the Rising Sun – Japan – it’s almost unfathomable how a country known for its technological excellence is lagging behind its Asian neighbors in cryptocurrency adoption. Based on a 2020 Statista survey, only 4% of residents in Japan held or used crypto; contrast that with China, which recorded 21% of its population doing so.

But it’s not all doom and gloom for crypto in Japan as the tides seem to be turning for its adoption in 2022 and beyond. Let’s see what’s going on!

Is crypto legal in Japan?

Cryptocurrencies aren’t unified under a single administrative regime based on Japanese law. Rather, their legal status is based on their primary function. For instance, conventional cryptocurrencies are categorized as “crypto assets” under the Japanese Payment Services Act (PSA).

Meanwhile, stablecoins backed by fiat are governed as electronic payment instruments and the regulations that govern them under legislation; on the other hand, stablecoins backed by digital assets, which are governed under the regulatory framework as stipulated for crypto assets.

Lastly, non-fungible assets like NFTs are, in effect, not regulated because of their differentiation between conventional cryptos and their non-existent economic function as a payment option.

Tokenized securities that represent stocks and bonds, as well as crypto derivatives, such as contracts for difference (CFDs), futures, crypto options, and swaps, are regulated under the Financial Instruments and Exchange Act (FIEA) of Japan. 

Japan’s crypto taxation regime

One of the main sticking points for resident crypto investors is the way their taxation is handled. The Japanese government taxes cryptocurrencies in Japan under “miscellaneous income.” Effectively, you could be taxed by as much as 55% on your trades involving crypto, where you shoulder the majority of the risk, while the government takes the majority of your earnings.

Therefore, you can just imagine how paying your taxes on crypto gains can be an issue in Japan – especially if you are an active crypto trader. You would need to keep track of transaction values on every trade you make on an ongoing basis. 

However, long-term crypto holders may take solace in the fact that no taxes will be levied on their crypto regardless of how it appreciates in value as long as you don’t sell. 

Do take note that as soon as you exchange your crypto for fiat, buy other cryptocurrencies with it, or spend it on goods and services, any profits you made will be added to your overall annual income.  

Crypto use cases

Japan is still largely a cash-based society. You might be surprised to find out that many companies in Japan don’t accept credit or debit cards, much less cryptocurrencies.

Granted, despite cashless payments rising over the past couple of years as a result of the pandemic – including an overall increase in places that accept cryptocurrency and the state’s official recognition of the latter, the options for spending remain quite limited.

Times are changing, though. In Tokyo, for instance, electronics retail powerhouse Bic Camera allows customers to spend up to 100,000 JPY in crypto. Online store ZenMarket is another retailer that accepts cryptocurrencies as a mode of payment. Luxury watch retailer Yukizaki accepts Bitcoin Cash at 13 of its locations across the country. Restaurants and bars like Hackers Bar, Gluten-Free T’s Kitchen, Jinanbou Ramen, and Mezzo Tokyo are just examples of firms that accept crypto in the country. As of this writing, approximately 120 retail stores in the Tokyo metropolitan area accept crypto – which is a number we can expect to rise in the near future.

Future of crypto in Japan

Despite the stumbling blocks to adoption, the future for crypto in Japan is looking promising thanks to the increasing investment in the crypto space for massive conglomerates like Rakuten, as well as leading crypto exchanges like Binance. 

Japan has laid down its intentions to open up the cryptocurrency industry by loosening up the lengthy screening processes on listing digital tokens, which will undoubtedly whet the appetite of major digital asset exchanges and financial institutions who want a piece of the action. This will allow the former to list existing coins without having to go through scrutiny, unless the tokens they list are completely new to the Japanese market.

Regulatory reform is arriving at the right time. Without it, Japan’s crypto industry would be primed for a terminal decline over the long run. The raw numbers suggest that crypto can be on the rise and gain a foothold in the country moving forward. But besides the cash-first society and the existing obstacles to crypto adoption, the country’s shrinking population of young people is another factor that can threaten the growth of crypto in Japan.

Crypto Update 2023

When it comes to the newest policy updates, the Japanese government's Web3 team released a document on April 6, 2023, presenting suggestions to enhance the crypto industry in the country. The project, named "Cool Japan," endeavors to establish a more accommodating atmosphere for various crypto initiatives, ranging from NFTs to DAOs.

The document notes the necessity to update the existing tax regulations because currently, they are too high and drive companies away. For example, they proposed tax exclusions for those entities that have tokens of other companies if they are not going to trade those.

Furthermore, the team suggests the implementation of a legal structure to govern DAOs, considering the Japanese notion of Godo Kaisha, which is somewhat akin to a limited liability company. Additionally, they propose streamlining and enhancing of the review process for new tokens issued by foreign companies, ensuring greater speed and transparency.

Finally, there is also a proposal to start issuing crypto visas to talented workers. How many (if any) of these ideas are adopted is not clear, however, the overall change of attitude toward being more crypto-friendly is promising.

Conclusion

We can definitively say that adoption of cryptocurrencies in Japan is on the verge of coming to fruition in the short-term. The government is looking to relax the stringent regulations hindering innovation in the country’s financial ecosystem, especially when it comes to startup firms. The country’s slow pace of liberalization in the crypto space, its shrinking population of young individuals (a good number of them use crypto), and its existing aging population will need to be addressed if Japan is to become a hotbed of innovation for cryptocurrencies.

Want to learn more about crypto regulation in other countries? Check out our articles about Germany, South Korea, Brazil, UAE, Australia, Nigeria, Mexico, India, Russia, Vietnam, USA, Switzerland, Portugal and Finland!