Japan's Regulatory Hurdles Hinder Crypto Innovation, Experts Say
According to Cointelegraph, Japan's regulatory environment, rather than its tax policies, is the primary factor driving crypto innovation out of the country. Maksym Sakharov, co-founder and CEO of Web3 firm WeFi, highlighted that even if a proposed 20% flat tax on crypto gains is enacted, Japan's slow and risk-averse regulatory culture will continue to push startups and liquidity offshore. Sakharov emphasized that the 55% progressive tax is a significant burden, but it is no longer the main obstacle. Instead, the pre-approval model enforced by the Financial Services Agency (FSA) and the Japan Virtual and Crypto Assets Exchange Association (JVCEA), along with the lack of a dynamic sandbox, are the key issues.
The process of listing a token or launching an initial exchange offering (IEO) in Japan is cumbersome, involving a two-step regulatory process. This includes a self-regulatory review by the JVCEA followed by final oversight by the FSA. This lengthy process can extend go-to-market timelines to six to twelve months or more, which Sakharov noted "burns runway and forces many Japanese teams to list first overseas." He pointed out that repeated delays in areas such as JVCEA token screening and IEO white paper vetting often require several rounds of revision, hindering innovation rather than accelerating it.
Sakharov compared Japan's regulatory pace unfavorably with other jurisdictions, noting that Japan lags behind countries like the UAE, South Korea, and Singapore. He explained that while Singapore is strict, it offers clearer pathways, and the UAE and South Korea process listings more swiftly due to different regulatory focuses. He warned that the proposed tax changes and reclassification of crypto as a financial product will not alter the status quo unless the approval culture changes. Sakharov suggested that regulators adopt "time-boxed, risk-based approvals," implement a functional sandbox, and introduce proportional disclosure requirements to foster innovation.
Without these changes, domestic crypto projects are likely to continue scaling abroad due to uncertainty around approvals and long wait times. Sakharov stressed that the issue is not about tax burdens but about the lengthy process that can result in projects being unable to launch. Meanwhile, Asia's leadership in crypto is drawing global attention. Maarten Henskens from Startale Group noted that Asia's regulatory clarity is attracting global investors. Hong Kong, for instance, has launched the Ensemble Sandbox as a fast-track regulatory innovation hub, demonstrating how agility can foster experimentation. Similarly, the United Arab Emirates has introduced progressive frameworks that encourage tokenization, attracting global investors and fintech firms.
