The main issue driving crypto innovation away from Japan isn’t just high taxes; it’s the cumbersome regulatory environment. According to Sakharov from Cointelegraph, Japan’s “slow, normative, and risk-averse” approach to approvals is pushing startups to look elsewhere, even with a proposed flat tax rate of 20% on crypto gains.
While the current 55% progressive tax rate can be burdensome, Sakharov noted that it’s no longer the biggest barrier. What really holds back progress is the absence of a quick approval process and a dynamic regulatory sandbox that could encourage builders and investment to stay in Japan.
Launching a token or an initial exchange offering (IEO) in Japan entails a lengthy, two-step regulatory review. First, it must go through self-regulation by the Japan Virtual and Crypto Asset Exchange Association (JVCEA), followed by the Financial Services Agency (FSA). This drawn-out process can delay market entry by six to twelve months or even longer. Sakharov emphasized that this urgency forces many teams abroad to take action. He described the frequent notifications required by the FSA in various stages as cumbersome, stating that this process aims more at mitigating risks than promoting innovation.
Japan falls behind in regional crypto competitiveness
In comparison to other regions, Sakharov pointed out that Japan trails behind considerably. He described the timeline for a basic token approval as often taking over six months. Other countries, like Singapore, while strict, offer clearer guidelines, whereas the UAE tends to be quicker. South Korea’s Vopa prioritizes ongoing obligations over the static pre-approval process seen in Japan, leading to faster approvals.
He argued that taxes or a shift in classification wouldn’t change the landscape unless the approval culture itself evolves. “Culture eats tax cuts for breakfast,” he quipped.
To enhance the situation, Sakharov recommended that regulators consider a “timebox risk-based approval” system, functional sandboxes for staking and governance initiatives, and more manageable disclosure requirements. Without these changes, uncertainty surrounding approvals and lengthy processes—rather than tax issues—will likely remain impediments to local crypto projects.
Asia’s crypto leadership gains momentum
Recently, Maarten Henskens at Startale Group noted that Asia’s strong position in tokenization is capturing global interest, bolstered by clearer regulations in appealing regions that were once hesitant. Hong Kong, for example, has rapidly established itself as a regulatory hub with its innovative sandbox for testing high-speed initiatives. In contrast, Japan, focused on long-term stability, contrasts sharply with Hong Kong’s agility in facilitating experimentation.
The UAE is another key player making strides in tokenization, with local regulators implementing progressive frameworks aimed at boosting the issuance and trading of tokenized assets, thereby attracting international investors and fintech companies.
