Blog / Crypto in Japan - how does the Land of Cherry Blossom see digital currencies?

Crypto in Japan - how does the Land of Cherry Blossom see digital currencies?

Combining Japan with digital currencies is a natural process, because the creator of cryptocurrencies hides under the pseudonym Satoshi Nakamoto. Despite the passion for tradition, the Japanese are extremely open to technological innovations. For this reason, the Land of the Rising Sun played an elementary role in the development and adoption of blockchain technology.

Japan was one of the first countries to recognize the potential of cryptocurrencies. Suffice it to say that it is the Japanese Mt. Gox at the beginning of the last decade handled over 70% of bitcoin transactions worldwide. Despite the company’s bankruptcy in February 2014, the local government not only did not penalize crypto, but also started actions to protect consumers. Two years later, in 2016, bitcoin was recognized as legal tender in Japan.

According to the 2019 report of the Japanese Ministry of Economy, Trade and Industry, only 26.8% of all payments in the country were non-cash payments. The key factor behind the increase in the popularity of non-cash transactions (especially those related to crypto) was 1) the introduction in January 2021 of the digital equivalent of the Japanese yen, i.e. the JPY Coin stablecoin, and 2) the entry of a new generation to the market. Young people more interested in investing their capital in crypto assets.

Cryptocurrency adoption in Japan

The digital currency market in Japan is regulated by the Japan Financial Services Agency (JSFA).

The Japanese Financial Services Agency (FSA) has control over the regulation of cryptocurrencies in Japan. It works with the Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offer Association (JSTOA) for regulation. JVCEA sets the rules for cryptocurrency exchange service providers, while JSTOA oversees token offerings and crowdfunding projects (e.g. IEOs). In recent years, Japanese legislators have introduced stricter rules for trading derivatives based on digital assets.

In October 2022, Japanese Prime Minister Fumio Kishida announced that the government plans to digitize national ID cards by leveraging digital solutions and issuing NFTs to local authorities. The government is also encouraging the use of Web3 and augmented reality metaverses.

Ultimately, citizens are not restricted by law from owning and investing in cryptocurrencies.

The ratio of Japanese banks to digital currencies

In Japan, the government does not recognize cryptocurrency as legal tender due to the lack of issuance by the central bank. Nevertheless, banks that were initially reluctant to digital currencies gradually began to introduce their own tokens and use decentralized ledger technology in their ecosystems.

Banks will cooperate with entities dealing with cryptocurrencies when they undertake to perform strict customer identity checks (e.g. through the Know Your Customer – KYC procedure) and monitor suspicious transactions. All cryptocurrency entities must verify customer identification data by analyzing the nature of the transactions carried out. In addition, the verification documentation may reside in the entity’s database for at least seven years.

Due to the laws governing cryptocurrencies in Japan, any person or organization can report suspicious non-cash transfers to the authorities. First of all, this applies to transactions exceeding 30 million Japanese yen (JPY), both in crypto and in fiat currency.

Is cryptocurrency trading legal in Japan?

The PSA allows only companies with properly qualified employees of the financial department to function as a cryptocurrency exchange. This condition also applies to entities with foreign capital.

Cryptocurrency trading requires registration with the Financial Services Agency. Consequently, the reporting entity must meet certain criteria regarding cyber security and anti-money laundering. AML standards for crypto assets in Japan are introduced by the Financial Intelligence Unit (FIU) and the Japan Financial Intelligence Center (JAFIC). We are talking about, among others:

It should also be noted that Japanese law limits the emission of advertisements dealing with investing in cryptocurrencies. The emphasis is primarily on education related to the safe use of digital currencies by users.

Summary

Now, based on this stable (if sometimes considered too restrictive) strategy, Japan seems to be aiming to become a leader in decentralized blockchain-based technologies. Yes, the US was probably more open to cryptocurrencies originally, but the lack of consensus among state regulatory agencies has created loopholes in oversight and regulatory culture that has slowed the adoption of digital currencies there.

Thank you for reading! For people who have arrived here, we have prepared the code “JAPONIA” reducing the transaction in exchange offices by 0.25% (valid until June 15!).