Crypto Exchanges& Regulation in Japan

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5 min read
Top exchanges in Japan by Coincub criteria
Article review author
Jonathan Lea
Japan head image

Crypto Country Rating: 7.8/10

8/10
Institutional acceptance
Very positive and progressive attitude to crypto
9/10
Exchanges & Wallets availability
All leading names with high presence and access
8/10
Government regulation
Government taking the lead but with high taxes
6/10
Defi acceptance
Government looking into potential advantages
5/10
Financial services
Leading institutions open to some forms of crypto services
9/10
Transparency
Personal data collection, government tracking, high regulation
8/10
Spending crypto
Japan has well-established outlets and services
8/10
Banks activity in crypto
Leading banks actively looking to trial and promote crypto services

Bitcoin and cryptocurrency trading in Japan

Japan is taking a positive lead on crypto with regulation and guidance. There are plenty of opportunities to invest and spend, with institutions looking at tapping into crypto but trading carries high taxes and penalties for non-disclosure.

Law and crypto trading in Japan

Legal - existing crypto legislation

Bitcoin and other cryptocurrencies are recognised and accepted by the Japanese government as legitimate, but they are recognised as ‘legal property’. The name cryptocurrency may, therefore, be slightly confusing. 

Legal - forthcoming crypto legislation

New laws are in place to make exchanges less vulnerable to hacking. Whilst there is increased regulatory requirement, there is also much consolidation and reorganisation going on within the crypto industry as large global exchanges enter the marketplace.  Japan is seen as a growth area and paradoxically its tighter regulatory framework is seen as offering many attractions, especially to institutional investors.

Taxing cryptocurrencies in Japan

Income Tax

Japan is open to and advanced in crypto trading, but taxes are high and trading, gaining interest or lending them for gain is subject to a hefty tax. The gain from them is designated as miscellaneous income (which pretty much covers anything!) and is subject to the prevailing tax rates which can be up to 55%.  Filing your tax returns for crypto is incorporated into your ordinary income tax returns, which come round at the year ending 31st December and are due on the 15th March following year. 

Tax relief

Japan cracks down hard on tax evasion but the country is looking at making the tax on crypto trading income less prohibitive, and a little more in line with traditional investment income. It’s always advisable to check the latest tax bands for anything related to crypto as the activity is subject to changing laws and trends. However, for the most part how much tax you pay is related to your earnings from all your activities in the previous year – whether they are from crypto trading or not, so you may not hit that upper tax band of 55% if your overall earnings are low. 

Tax when moving residency

If you are a long-term resident of Japan you are probably deemed a permanent resident for tax purposes, if not for visa purposes. If you are not a permanent resident, and your holdings are outside of Japan you may be able to transfer your crypto holdings to a special type of insurance policy which allows you to reduce tax liability in the future. Whether you qualify to be able to do this very much depends on definitions and variables and you’ll need specialist advice.

Tax on mining

Japan’s designation for crypto profits as ‘miscellaneous income’ also covers mining for bitcoin as well, so you’ll have to pay tax on your hard-earned mined coins. You will, of course, be able to claim expenses of mining them if you are in the business of doing so.

Crypto financial services in Japan

Fin services - retirement planning

Most retirement and pension funds worldwide deem cryptocurrencies to be too volatile to become part of long-term retirement schemes. There is little certainty on this at present.

Fin services - banking

More than 30 major Japanese firms, including banks, have been trialing a private digital currency service to assess its viability. Three Japanese banks are associated with this trial, namely, MUFG, Sumitomo Mitsui, and Mizuho.

Fin Services - DeFi

In Japan, it has been publicized and explained by the Japanese financial community on the financial opportunities and services DeFi provides. The Bank of Japan (BoJ) recognizes that there could be some positive aspects to the adoption of DeFi. According to a recent report whilst there are risks, such as how to regulate and audit such services, DeFi could lead to increased competition in the financial sector.

Using crypto in Japan

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Spend

Spending cryptocurrency is beginning to grow in acceptance and a number of e-commerce organisations enable the transacting of crypto currencies through their apps and credit cards. You can spend your bitcoin and other cryptocurrencies at thousands of outlets in Japan that accept the cards and payment methods of any financial organization providing this transacting service. Outlets that accept crypto range from a major electronic consumer goods retailer to bars, restaurants, cafés, online shops and nightclubs.

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Gifting crypto

You won’t be able to reduce your tax by gifting your cryptocurrency. Whatever gain you have made on it will be taxable up to the point at which you gift it. 

Crypto regulation in Japan

Security

Improved security for your crypto assets inevitably means increased legislation and regulation. After a slow start, Japan is embracing crypto trading and passed the Payment Services Act and the Financial Instruments and Exchange Act to address concerns raised by the hacking of two leading exchanges back in 2018. Money laundering is another concern for regulators. While the new regulations attract institutional players, to some wallet service providers they appear to be regulatory overkill due to high compliance costs.

Transparency

As with many government bodies, the Tokyo Regional Taxation Bureau can request information from crypto exchanges and get it, so your dealings can be made transparent.

Helpful?
FAQ

New to crypto? Here’s our guide!

FAQ Image #1 01 Why Bitcoin? It seems like the buzz around Bitcoin just keeps growing. Bitcoin is a constantly evolving technology with a passionate community. What is it about the digital asset that makes it such a controversial topic and attractive investment?
FAQ Image #2 02 How to Get Started with Bitcoin It can be difficult to get past the technical jargon surrounding bitcoin (BTC) and other cryptocurrencies in order to figure out how you can buy and store them. Beginners can purchase Bitcoin, for example, on many exchanges using fiat currency like U.S. Dollar, Euro or British Pound.
FAQ Image #3 03 Blockchains 101 Blockchains are a type of database where data is stored in blocks that are chained together. As new data comes in, it is entered into a block, which is then chained to the previous block. The Bitcoin blockchain serves as a ledger that records every Bitcoin transaction in history.
FAQ Image #4 04 Bitcoin in the Real World Ok - you’ve found an exchange, bought your Bitcoin, and stored it safely. What’s next? By now you can buy just about anything with Bitcoin if you try hard enough, from Amazon gift cards to an old master painting. You can also convert your BTC to fiat with ATMs, an exchange, and more.