Japan wants reforms to broaden appeal of digital asset investments

Japan continues to explore reforms that would make the country more competitive in the global digital asset industry. This week, its national financial regulator, the Financial Services Agency (FSA), created a working group to explore proposals related to taxation and classification of digital assets to mirror those of other investments.

A reclassification, which the ruling Liberal Democratic Party (LDP) is also exploring, would see digital assets have the same flat 20% tax rate as shares. Other issues of concern are additional sales taxes on digital assets that hit non-JPY trades between assets on exchanges and limits on how Japanese customers can acquire digital assets.

In Japan, digital assets are classified as “payment methods” rather than “investments,” which results in additional taxes and tends to lump blockchain in with game tokens and retail points. Changing this would reflect a gradual shift in perception of blockchain assets/tokens over the years, from currencies intended for daily purchases to assets their users hold in the hope of future profits. While this was never the (stated) intention for inventions like Bitcoin when it first emerged, volatile market values and the resulting media attention have de facto created a new investment class instead.

The latest moves result from years of lobbying from Japanese digital asset industry groups, like the Japan Crypto-Asset Business Association (JCBA) and the Japan Crypto-Asset Exchange Association (JVCEA). Specifically, they have called for reduced taxes for digital asset investments and reforms that would make Japan a more attractive location for Web3 and other technology startups.

Digital assets becoming a major investment sector in Japan and internationally

In another survey from Nomura Holdings and Laser Digital Holdings AG, 62% of investment managers said they view digital assets as an opportunity, while 54% said they intended to invest in digital assets in the next three years—80% of those also plan to hold their assets for more than one year.

Investors abroad (particularly in the USA) are interested in exchange-traded funds (ETFs), including BTC and other digital assets. Even more conservative institutional investors like pension funds are joining in, and there are signs fund managers are starting to see digital assets as “inflation-resistant” investments, similar to precious metals. The relatively new Trump Administration in the U.S. is seen as particularly friendly to digital asset investments, and this, coupled with fears of inflation in national fiat currencies, has led investors to discover alternative means to protect existing value.

Investment opportunities for everyone could spur innovation

Reforms to digital asset investment rules are part of the Japanese government’s “New Capitalism Strategy.” This is an ongoing initiative started by former Prime Minister Fumio Kishida in 2021 and aims to reconfigure Japan’s economy around sustainable growth and innovation. The terms “Web3,” “Green Transformation/Clean Energy,” and “inclusion” frequently appear alongside blockchain, stablecoins, and DAOs as key drivers.

The strategy also aims to create a more equitable share of wealth in general, focusing on human capital and opening up new investment opportunities outside the traditional sphere of stock exchanges and stagnant investment funds. The government views Japan’s reputation as an early adopter of new technologies, with a population always keen to build and protect wealth through investments, as an advantage.

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