Cryptocurrency regulation

Crypto Regulations in Japan

Written by: Qadir AK

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Apr 5, 2022

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Japan is one of the world leaders in the development of the blockchain industry and currently the world’s most crypto-friendly country. Cryptocurrency in Japan is considered as a legal tender and accepted widely as a mode of payment. Japan is the world’s biggest market for Bitcoin and one of the first countries to regulate cryptocurrencies, exchanges, institutions, and the funds involved in the business.

Nomura, a Japanese Analyst claims that Bitcoin adds 0.3% to Japan’s G.D.P and About 3.5 million individuals actively use and trade cryptocurrencies in Japan.

Crypto regulations of 2022

11-04-2022: SEC releases emails related to XRP lawsuit showing corrupt behavior.

SEC releases emails related to XRP lawsuit after Empower Oversight filed a lawsuit against them. They were however requested to show emails but the SEC declined the request. revealing these emails is a big win for XRP as it shows the corrupt nature of SEC, the case may get shifted entirely in favor of ripple XRP. 

14-03-2022: Japan Urges crypto firms to comply with sanctions against Russia.

Japanese authorities command crypto exchanges not to process transactions involving crypto assets subject to asset – freeze sanctions against Russia and Belarus over the Ukraine war. The U.S government also issued new guidelines for U.S based crypto firms not to engage in transactions with sanction targets.

07-04-2022: Janet Yellen calls for a new crypto regulation.

SEC announces new crypto regulation initiatives, In landmark speech U.S. Treasury Secretary Janet Yellen said the crypto industry must follow the same rules and federal regulatory oversight as the traditional financial system. Joe Biden signed an executive order which directed federal agencies to implement a strategy for policies and regulations on digital assets like crypto.

10-04-2022: PM’s comments raise hopes for nuclear power use.

Prime Minister Fumio Kishida said that the government plans to maximize the use of nuclear power to secure stable power supply. Mr. Kishida released a list of new sanctions against Russia on Friday including a phase-out of Russian coal imports. 

22-03-2022: Nasdaq via over $1 Billion SPAC Merger.

Japanese cryptocurrency exchange Coincheck Inc said on Tuesday it would go public in the UNited States by merging with blank-check firm Thunder Bridge Capital Partners IV INc in a $1.25 billion deal.

Cryptocurrency Taxation

Japan terms the income from the cryptocurrency as ‘Miscellaneous Income’. The Japanese National Tax Agency which looks after the taxations in Japan have released some guidelines on the Tax treatment of Cryptocurrencies. Interestingly not all people are subjected to tax on their cryptocurrency investments as per the guidelines.

The people with more than 200,000 Yen ($1,700)  remuneration are subjected to tax and the income less than the mentioned amount is exempted. However, they too need to declare their income.  

In the case of gains incurred from cryptocurrencies, the tax varies from 5% – to 45%, and an additional 10% is added to every level as ‘Municipal taxes’. Hence the cryptocurrency owners in Japan pay the highest tax rate of about 55% on their profits.

A loss from crypto-assets can not be deducted from income or other assets, only losses from real estate, business, and only asset transfer, and forestry income can be deducted from income whereas crypto does not fall under any of these categories.

Cryptocurrency mining

As said above, Japanese citizens were among the first to start mining. Japan has attracted more of crypto miners by its cheap electricity from geothermal, winds, and hydropower. Many companies have set up mining businesses with more than 500 servers in Japan. However, The mining business is still under the process of regulation.

Historical events on cryptocurrency 

19-05-2020:- ATMs in Japan would be integrated with Ripple-powered Money tap to standardize the banks with new bills and passbooks.

18-05-2020:- Japan’s JCB joined hands with local venture capital firm TECH FUND to develop a sustainable blockchain-based transaction system.

24-04-2020:- Japan regulators approve the first international exchange Huobi token to operate in the country.

08-09-2019:- Yuriko Koike, Governor of Tokyo announced the issue of digital currency to residents who have made social contributions in environmental conservation and eradicating poverty. However, the name of the currency is not yet announced.

17-07-2019:- FATF approved the plan for establishing the new international network for cryptocurrency payments, similar to the SWIFT network used by banks, in an effort to fight money laundering. A FATF team would monitor its development and Japan will cooperate with other countries.

19-04-2019:- Japan’s Financial Service Agency (FSA) now requires the crypto exchanges to strengthen the internal oversight of ‘Cold Wallets’ used to store user’s money. FSA also restricted the use of less secure hot wallets.

18-03-2019:- The Japanese Government has approved the draft of the amendments to govern the margin of the trading of cryptocurrencies. The exchanges that allow the margin of trading cryptocurrencies are required to register with the government, failing to which the exchanges would be closed.

12-02-2019:- Japan’s largest bank Mitsubishi UFJ Financial Group (MUFG) is collaborating with American internet start-up Akamai, to build and deploy the world’s fastest payment network on blockchain technology. Japan would experiment with this payment system to handle millions of transactions per second in time for the Tokyo Olympics 2020.

24-10-2018:- Japan’s Financial Service Agency announced the official operation of the Japanese Virtual Currency Exchange Association (JVCEA). It would be operating as a self-regulatory body, responsible to set rules for the exchanges.

13-08-2018:- Japan’s FSA announced the results of the inspections held on 23 cryptocurrency exchanges after the Coincheck exchange hack in January 2018. The FSA found 7 out of 23 exchanges are fully regulated while others are deemed dealers, whose application is in process. 

07-08-2018:- The Japanese Virtual Currency Exchange Association (JVCEA) applied to FAS to become a self-regulatory body. It comprises 16 licensed Japanese Exchanges.

30-04-2018:- Japan’s FSA discourages the exchanges for the usage of certain cryptocurrencies like Monero, Zcash, and Dash. FSA believes these currencies are used by bad actors for illegal activities.

30-09-2017:- The Financial Service Agency of Japan, has issued a license for 11 companies to operate as a cryptocurrency exchange. To obtain a license, companies must meet several strict requirements.

01-04-2017:- After months of debate, Japan’s Financial Service Agency approved cryptocurrencies as a mode of payment granting the same status as other currencies. The law will put in place capital requirements for exchanges as well as cybersecurity and operational stipulations.

25-05-2016:- Japan passed a bill that includes amendments to the Payment Service Act (PSA) and the Criminal Procedure Transfer Act, both intended to regulate cryptocurrency and its exchanges.

04-03-2016:- Japan’s first bill on cryptocurrencies was submitted. The bill provides,

  • Definitions of virtual currency and its exchange.
  • Registrations of virtual currency exchange services.
  • Regulations on the business of the exchanges.
  • Imposes certain obligations like customer identification obligations by designating virtual exchange service providers as ‘Specified Business Operators’.

24-02-2016:- The Financial Service Agency (FSA) has proposed legislation to recognize virtual currencies as equal to conventional currencies. If passed, virtual currencies would require the companies to register with FSA.

19-06-2014:- Japan’s Liberal Democratic Party reportedly stated that cryptocurrency regulation is not required for now. But we will look into it in the future.

Conclusion

There have been different stabs at crypto regulations across the globe. Japan is an interesting case study of crypto regulations, in the History of the country, Japan has suffered from two biggest exchange hacks, which are Mt.Gox and Coincheck. Due to this the Japanese government inverted and started cracking down heavily on exchanges surprisingly.   

Business improvement orders were doled out across the Japanese exchange ecosystem to conduct companies’ safe offerings and secure and effective services of crypto. Some shut down while others banded together to form a self-regulatory committee.

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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