Japan VCs may be allowed to hold digital assets under new bill

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Japan is edging closer to allowing investment firms to hold digital assets, opening new fundraising avenues for local Web3 startups.

The Ministry of Trade, Economy, and Industry (METI) approved a new bill that seeks to expand strategic domestic investment and stimulate the growth and expansion of startups and medium-sized companies.

The bill partially revises four existing laws to expand investment limits in Japanese companies. This includes revising the law on limited partnership contracts, which will now “add crypto assets to the list of assets that can be acquired and held by investment limited partnerships (LPs).”

LPs in Japan encompass venture capital firms, private equity companies, real estate investment vehicles, and related entities.

Nikkei first reported the amendments in September, with the local daily revealing that digital assets would be included under the umbrella of security tokens for fundraising purposes.

The bill has been forwarded to the National Assembly, whose current session runs until June.

With the amendments, Japan expects a funding boost for its tech sector, which has lagged behind its peers for years. In 2022, Japanese startups attracted $6.2 billion, half the amount raised by German startups. The United Kingdom attracted over $30 billion while neighboring China raised over $60 billion.

Japan aims to attract JPY10 trillion (US$72 billion) in startup funding by 2027. Digital assets will play a major role, with Prime Minister Fumio Kishida describing Web3 as “part of the new capitalism” last year. New capitalism is an economic model by the Kishida administration focused on investing in people, innovation, and emerging technology to kickstart Japan’s economy at a time when Germany has eclipsed it as the world’s third-largest economy.

As the government pushes digital asset adoption, the Financial Services Agency (FSA) aims to strengthen its regulatory measures. The watchdog recently warned banks to ramp up their AML and KYC measures as fraud involving digital assets remains high.

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