The Japanese Financial Services Agency (FSA) initiated a new round of regulatory discussions at the Financial System Council, proposing to integrate crypto assets into the traditional financial system and considering tax-friendly adjustments. This transformation could potentially revive Japan's long-stagnant crypto trading volume and attract more domestic and international institutional investors.
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ToggleHigh Crypto Taxes Hinder Market Development
Japan has long been known for its clear and robust crypto asset regulatory system, with relatively comprehensive regulations for stablecoins and exchanges. However, innovation is often constrained by the current tax system, especially the high miscellaneous income tax of up to 55% on crypto asset trading profits, which deters many potential investors and leads to insufficient market liquidity.
FSA Proposes System Integration: Inclusion in Financial Instruments Trading Law
At the June 25th meeting, the Financial Services Agency proposed a potentially significant change: integrating crypto assets into the Financial Instruments and Exchange Act, treating them on par with traditional financial products like stocks. If implemented, crypto asset trading profits would no longer be considered miscellaneous income but would be subject to a separate taxation system of 20.3% similar to stocks, significantly reducing the tax burden, which is undoubtedly a major benefit for investors.
Scholars' Perspective: Balancing Innovation and Regulation
Professor Naoyuki Iwashita from Kobe University pointed out that applying traditional financial regulations to crypto transactions is not easy, especially with the increasing prevalence of decentralized and anonymous trading. He emphasized the need to establish effective mechanisms to prevent fraud and protect investors' rights in ICO and IEO token issuances.
Professor Yasushi Kawaguchi from Tongji University also believes that while referencing existing securities laws for crypto assets is reasonable, designing insider trading rules for tokens without clear issuers remains a significant challenge. He suggested learning from global regulatory experiences to establish more flexible regulations.
Institutional Investors' Attitude Shift: Crypto Assets Included in Asset Allocation
According to a joint survey by Numera Holdings and Laser Digital in June 2024, Japanese institutional investors' acceptance of crypto assets has significantly improved. The survey showed that 62% of respondents view crypto assets as a viable asset diversification tool, with over half expressing a clear investment intention within the next three years.
Most institutions hope to allocate 2% to 5% of their assets to crypto assets, with 80% planning to hold them for at least a year, indicating that they no longer view crypto investments as short-term speculation but as part of their regular asset management strategy.
New Capitalism Action Plan: Government Fully Promoting Digital Assets
On June 13th, the Japanese Cabinet approved a revised "New Capitalism Outline and Action Plan," explicitly supporting digital transformation and wealth innovation. The document specifically mentioned the importance of crypto assets and Non-Fungible Tokens in addressing social issues and improving productivity, emphasizing the need to create a trustworthy and safe investment environment. The plan also suggested reviewing the current tax system, considering a separate taxation approach similar to stocks for crypto assets, and integrating them into financial service regulations to establish a comprehensive investor protection framework.
Currently, Japan's monthly crypto trading volume is around 3 trillion yen (approximately $20 billion). If the new tax system and regulatory framework are implemented, it will undoubtedly attract more capital inflow, further boosting trading volume and market vitality.
The most anticipated development is the introduction of Bitcoin ETF products. If institutional participation is allowed, similar to the United States and Europe, Bitcoin ETFs will not only enhance liquidity but may also gain widespread acceptance from mainstream investors.
Despite the promising outlook, experts still caution against over-regulating innovation. Professor Saori Kato from the National Policy Research Institute emphasized the need to precisely design regulatory measures that protect consumers while avoiding stifling blockchain and Web3 innovation, lest Japan lose its competitive edge globally.
Risk Warning
Cryptocurrency investment carries high risks, and prices may fluctuate dramatically. You may lose all your principal. Please carefully assess the risks.
Since U.S. Commerce Secretary Howard Lutnick stated on 6/27 that he would launch a new round of negotiations with 10 major trading partners within two weeks, the talks seem to have gotten off to a rocky start. On 6/28, U.S. President Donald Trump announced the immediate termination of all negotiations with Canada, due to the country's plan to impose a Digital Services Tax (DST) on technology companies and refusal to delay the tax. In response, the U.S. Treasury Secretary stated on the same day that new tariff measures against Canada would be announced within a week, causing volatility in the Canadian stock market.
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