Japan is about to undergo a major transformation in its crypto regulations. The ruling party has proposed a new framework under the Financial Instruments and Exchange Act.
If approved, this could plead to cryptocurrency exchange-traded funds (ETFs) and a significant tax cut on crypto-related earnings, reducing the rate from 55% to 20%.
Sota Watanabe, CEO of Startale, announced on X that Japan is moving towards regulating crypto as a distinct asset class rather than a security.
If enacted, this shift will mark a significant milestone in the government’s approach to digital assets..
Japan Could Be The Next Crypto-Friendly Country
Japan’s regulatory evolution is already bearing fruit. SBI VC Trade, the crypto subsidiary of financial giant SBI Holdings, announced its entry into the stablecoin market.
On March 4, the firm disclosed that it had completed the necessary registration to process USDC transactions. A trial phase for select users will begin on March 12, and a full-scale rollout is anticipated soon after.
This move marks a change in Japan’s stance on stablecoins, following the government’s decision in 2023 to lift the ban on foreign crypto stablecoins.
In February 2024, the Financial Services Agency (FSA) further relaxed regulations, approving new policies to support stablecoin integration.
Beyond USDC, SBI VC Trade and its parent company have been expanding their footprint in the crypto space through partnerships with major U.S. firms, including Ripple.
The platform already supports Bitcoin (BTC), Ethereum (ETH), and XRP, and the latest regulatory shifts could enable it to expand its offerings further.
Tax Cuts, Crypto Brokerage Adjustments, and Stablecoin Rules
The proposed regulatory changes extend beyond ETFs and stablecoins. They include tax reforms and adjustments to crypto brokerage regulations.
In 2023, Japan’s National Tax Agency revised its tax code, exempting crypto firms from a 30% corporate tax on unrealized gains.
Despite this progress, crypto investors are still subject to steep taxation, with a maximum rate of 55% on earnings exceeding JPY 200,000 ($1,797).
However, the new proposed bill could change this, bringing the rate down to 20%.
Another critical aspect of the proposed reforms is reclassifying crypto brokerage businesses.
Currently, brokerages must undergo the rigorous Virtual Asset Service Provider (VASP) licensing process, which many firms struggle to complete.
The FSA’s working group has recommended creating a new category of intermediary businesses with more streamlined regulatory requirements.
This would lower the entry barriers for gaming firms and wallet providers, allowing them to engage in crypto transactions without the extensive compliance burdens faced by full-scale exchanges.
The working group has also proposed adjustments to stablecoin collateral requirements, suggesting that issuers be allowed to use short-term government bonds and fixed-term deposits alongside fiat deposits.
However, a 50% cap on non-fiat collateral has been recommended to balance safety and flexibility.
To further safeguard investors, regulators have proposed mechanisms to prevent the transfer of domestic users’ crypto assets overseas in case of an exchange’s bankruptcy.
This recommendation is a direct response to the collapse of FTX in 2022, which prevented Japanese users from withdrawing funds for nearly two years.
The new measures seek to prevent such scenarios from recurring, ensuring a more secure crypto environment for Japanese investors.
For now, the coming months will be crucial as the proposed amendments undergo parliamentary review. If passed, the law could facilitate retail adoption and make Japan a crypto-friendly nation.
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