Introduction

In 2024, Japan remains a key player in the global cryptocurrency market. Following its landmark decision to recognize Bitcoin as a legal payment method in 2017, the country has focused on balancing innovation with effective risk management. This includes addressing anti-money laundering (AML), stablecoin regulation, and blockchain innovation. South Korea, another major East Asian economy, provides a useful comparison of policy approach and regulatory direction.

As of February 2024, data from the Nikkei reveals that over 15% of Japanese individuals aged 20 to 40 are engaged in cryptocurrency investments, a figure similar to South Korea’s participation rate of approximately 20%. However, significant differences exist between the two countries’ policies, in terms of execution, focus areas, and market reactions.

Source: CCN

This article seeks to ‘thoroughly analyze Japan’s cryptocurrency policy in 2024, examining its distinctiveness and far-reaching influence on the global market. It also compares Japan’s approach with South Korea’s experiences and the lessons learned, providing a clearer understanding of East Asia’s role in shaping global cryptocurrency regulation.

Policy Background

Japan’s Position in the Global Cryptocurrency Market

Japan was the first country in the world to recognize Bitcoin as a legal payment method. Its policies have played a pioneering role in promoting technological innovation and regulating market development. By the end of 2024, Japan has over 30 registered Virtual Asset Service Providers (VASPs), with BitFlyer and Coincheck being major players in the Asian market. According to Japan’s Financial Services Agency (FSA), in January 2024, BitFlyer’s Bitcoin trading volume accounted for 9.2% of the Asian market, highlighting Japan’s international market influence.

Despite this, compared to South Korea, Japanese cryptocurrency investors tend to exhibit more conservative trading behavior. The South Korean market is known for its “Korean premium” and high-frequency trading. After Ripple’s victory over the U.S. Securities and Exchange Commission (SEC), XRP’s price surged by 15% in South Korea, while the price in Japan increased by 12%, with a relatively slower response.

Source: RegulationAsia

Historical Policy Developments

2017: Bitcoin Recognized as a Legal Payment Method
Japan became the first country in the world to officially recognize Bitcoin as a legal means of payment under the Payment Services Act. This policy laid the foundation for the compliance framework in Japan’s cryptocurrency market.

2018: Strengthening Exchange Regulations
Following the Coincheck hack, Japan introduced stricter exchange regulations, requiring all platforms to register with the FSA and comply with anti-money laundering (AML) and Know Your Customer (KYC) requirements. In contrast, South Korea completely banned Initial Coin Offerings (ICOs) to mitigate risks, which led many domestic projects (e.g., ICON) to relocate their fundraising activities to Singapore.

2021: Amendments to the Financial Instruments and Exchange Act
Japan refined its cryptocurrency regulations by classifying digital assets as financial instruments, strengthening investor protection and market transparency. South Korea, in parallel, gradually introduced tax policies to increase the tax burden on investors, thus regulating market behavior.

Policy Trends and Analysis in 2024

Anti-Money Laundering and DeFi Regulation

In 2024, Japan’s Financial Services Agency (FSA) implemented strengthened anti-money laundering policies for virtual assets, with the guidelines first published in September 2023 and coming into effect on June 1, 2024. The Virtual Asset Anti-Money Laundering Guidelines introduced a new focus on decentralized finance (DeFi) platforms, requiring operators to complete compliance registration and submit regular reports to the FSA.

The guidelines emphasize transparent smart contract management and specify strict identity verification measures for high-risk transactions to improve market transparency and security.

Source: (SanctionScanner）

例如，Aave在日本的分支机构率先通过了FSA的认证，成为在日合规的DeFi平台之一。Aave通过改进智能合约的透明度和KYC措施，在政策生效后吸引了更多机构投资者。For example, Aave’s Japanese branch was the first DeFi platform to receive FSA certification, becoming one of the compliant DeFi platforms in Japan. Aave has attracted more institutional investors after improving the transparency of its smart contracts and enhancing KYC measures following the policy’s implementation.

Source: SanctionScanner

Stablecoin Issuance and Regulation

Meanwhile, Japanese authorities officially passed and issued the Stablecoin Issuance Act to comprehensively regulate the stablecoin market. The Act mandates that stablecoin issuers maintain a 1:1 reserve ratio backed by fiat currency. These reserve assets must be held in regulated financial institutions and undergo regular audits by independent third parties to ensure asset security and transparency. This move further strengthens Japan’s leading position in global stablecoin regulation.

Source: Academy.Shrimpy

MUFG Coin, launched by Mitsubishi UFJ Trust Bank, stands as a successful example of this policy. It strictly adheres to reserve and auditing requirements, earning high trust from the market. After the policy’s implementation, MUFG Coin performed strongly in the domestic Japanese market and successfully attracted investors from Southeast Asia and Europe.

In contrast, South Korea’s Stablecoin Regulatory Framework has imposed more restrictions on cross-border transactions. While it effectively protects the domestic financial system, it has somewhat hindered the country’s competitiveness in the international market.

Innovation Support Policies and Blockchain Ecosystem Development

In addition to strengthening regulation, Japan also promotes blockchain technology innovation and its application. In the past year, the Japanese government launched the “Blockchain Research and Application Advancement Plan,” a policy framework to facilitate the comprehensive application of blockchain technology. The specific measures are as follows:

Government Funding: The government allocated 15 billion yen to support blockchain technology development, covering areas such as supply chain management, medical data sharing, and green energy trading.

Public-Private Collaboration: Through partnerships with domestic tech giants like SoftBank and NTT, Japan is developing more advanced blockchain applications.

Startup Support: The government supports blockchain startups with low-interest loans and tax incentives to help them enter the blockchain market.

For example, a blockchain-based supply chain management system developed in collaboration with SoftBank and the government was officially launched in 2024. Through blockchain technology, businesses can track logistics data in real-time, reducing information asymmetry and lowering supply chain management costs. It is estimated that implementing this system has reduced logistics costs by 15% while improving delivery efficiency.

Source: ARAB

Meanwhile, South Korea also focuses on developing blockchain applications but concentrates on specific areas. In 2024, South Korea established the “National Blockchain Innovation Center,” which primarily promotes blockchain projects related to green energy. For instance, the K-Energy carbon emission trading platform uses blockchain technology to enable efficient carbon credit trading, attracting partners from several Southeast Asian countries.

Japan has adopted a “comprehensive promotion” strategy, covering blockchain applications across various fields, while South Korea focuses its resources on a few high-potential projects. Japan’s policies have sparked broader industry participation, but South Korea’s projects are more deeply developed and have greater international competitiveness.

Tax Policy Adjustments

Japan also made significant adjustments to its cryptocurrency tax policies in 2024, aiming to optimize the investor structure and enhance market vitality. The main measures include:

Raising the Threshold: The tax exemption threshold for virtual asset income has been increased from 2 million yen to 4 million yen, reducing the tax burden on small and medium investors.

Tiered Tax Rates: A 20% tax rate applies to income below 50 million yen, while income above 50 million yen is subject to a 25% tax rate.

Crackdown on Tax Evasion: Japan collaborates with blockchain analytics companies to monitor transaction data in real-time, identify unreported income, and recover unpaid taxes.

For example, according to Japan’s Ministry of Finance, following the tax reform in 2024, the tax burden on small and medium investors decreased by 12%, while market transaction activity increased by 8%. Additionally, enhanced monitoring recovered over 5 billion yen in unreported taxes during the year.

Source: ATV

South Korea, on the other hand, takes a stricter approach to taxation. For instance, its exemption threshold is lower (about half of Japan’s), and it levies a tax rate of up to 30% on large gains. Additionally, South Korea has partnered with Chainalysis to enforce stricter data-tracking mechanisms to combat tax evasion. In the first half of the year alone, over 1,200 tax evasion cases were investigated, and 3 billion Korean won (approximately 2.3 million USD) in back taxes were recovered.

Source: CoinPasar

Japan’s tax policies focus more on alleviating the burden on small and medium investors to stimulate market activity, while South Korea emphasizes strengthening tax revenue through high tax rates and stringent monitoring. The two countries clearly reflect different policy orientations: “supportive flexibility” versus “strict control.”

Cryptocurrency and Carbon Neutrality: A Green Policy Shift

Reducing carbon emissions seems the dominant theme in the current global economic landscape, and Japan is no exception. In 2024, the Japanese government launched the “Green Blockchain Initiative,” which uses blockchain technology to support carbon neutrality goals. The specific policies include:

Carbon Emission Monitoring: All cryptocurrency mining businesses are required to submit quarterly carbon emission reports and prioritize the use of renewable energy to qualify for government subsidies.

Green Energy Priority Policy: The government provides a 30% electricity fee subsidy to companies using green energy, supporting the industry’s transition to sustainability.

Carbon Credit Trading: A blockchain-based carbon credit trading platform has been launched to make carbon reduction projects more transparent and efficient.

Japan vs. South Korea: Policy Comparison, Case Studies, and Insights

Differences in Cryptocurrency Tax Policies

As discussed above, the differences between Japan and South Korea in tax policies mainly lie in their goals and implementation methods:

Japan: Aims to stimulate market activity by raising tax thresholds and implementing tiered tax rates to reduce the burden on small and medium investors. For example, starting in 2024, Japan has increased the tax exemption threshold from 2 million yen to 4 million yen.

South Korea: Focuses on strengthening market regulation and tax compliance. South Korea has set a lower tax exemption threshold (about half of Japan’s) and higher tax rates (up to 30%) while introducing real-time monitoring systems to crack down on tax evasion.

After the tax reform in Japan, market transaction volume increased by 8%, with more small investors willing to engage in trading. In contrast, high tax burdens in South Korea led some retail investors to withdraw from the market while the country strengthened tax collection for large earners. This difference reflects each country’s focus: Japan aims to stimulate market vitality, while South Korea focuses on increasing fiscal revenue and managing risks.

Stablecoin Regulation: Similarities and Differences

Stablecoin compliance is a shared focus in both Japanese and South Korean policies, but their approaches differ:

Japan: Through its open Stablecoin Issuance Bill, Japan allows more international projects to enter the market while emphasizing transparency and security. Projects like MUFG Coin have risen rapidly due to policy support.

South Korea: The Stablecoin Regulatory Framework imposes strict limitations on cross-border transactions, prioritizing the protection of the domestic financial system’s stability. For example, KSD’s domestic trading volume grew by 18% after the policy implementation, but its international market development was somewhat hindered due to cross-border restrictions.

International Cooperation and Regional Influence

Japan’s Multilateral Cooperation Strategy

In 2024, Japan further deepened its cooperation with international organizations and other countries. For example, it collaborated with Switzerland and Singapore to develop a cross-border payment blockchain pilot project, which achieved real-time settlement and significantly reduced banking fees. According to the Bank of Japan, the pilot project completed over $1.5 billion in cross-border payment transactions within six months.

Source: IG

South Korea’s Regional Strategy

In contrast, South Korea focuses more on regional cooperation. For example, in partnership with the G20, South Korea is advocating for creating global regulatory standards for virtual assets and leading pilot projects on cross-border carbon emission trading using blockchain technology across Asia. While these pilot projects have seen some success in reducing regional transaction costs and enhancing transparency in 2024, they have not yet achieved significant scalability.

Source: G20

Japan’s international cooperation emphasizes openness and technological exports, while South Korea’s regional strategy focuses on establishing regional advantages. These choices are closely related to their economic strategies: Japan seeks global influence, while South Korea focuses on East Asian regional cooperation.

Trends in Japan’s Future Cryptocurrency Policies

Japan’s cryptocurrency policies are set to evolve and mature within the existing framework. Japanese policymakers are likely to emphasize more precise and adaptive regulation to keep pace with the rapidly changing market dynamics and technological advancements. The inclusion of DeFi under regulatory oversight in 2024 marks just the beginning. Moving forward, the Financial Services Agency (FSA) is expected to release more detailed guidelines for DeFi, addressing areas such as smart contract security and DAO governance. Compliance registration requirements will become more specific, and innovative mechanisms like regulatory sandboxes may be introduced to foster DeFi innovation while ensuring regulatory compliance.

At the same time, as NFTs and the metaverse gain increasing popularity, the Japanese government is proactively preparing for the emergence of new digital asset paradigms. Efforts are underway to develop regulatory frameworks for both NFTs and the metaverse. These policies will aim to define the legal status of NFTs, regulate trading platforms, safeguard virtual asset ownership, and promote the use of NFT technology within the cultural, creative industries, and digital economy. Meanwhile, the government will seek to mitigate potential financial risks and curb market speculation.

Globally, Japan will continue to bolster international collaboration and work towards taking a more prominent role in shaping global cryptocurrency regulatory standards. By partnering closely with organizations like the G20 and FSB, as well as key global economies, Japan seeks to expand its influence in the governance of the digital economy worldwide.

Given all these factors, Japan’s regulatory approach is set to become more diverse and adaptive. In addition to traditional measures, innovations such as RegTech, behavioral regulation, and stress testing are expected to be integrated into the policy framework. Policies will be adjusted in response to market dynamics, aiming to balance stability and innovation. Japan’s cryptocurrency regulations are anticipated to become more refined and globally aligned. By continuously enhancing the policy framework, Japanese authorities aim to maintain financial stability, protect investor interests, and unlock the full potential of blockchain and cryptocurrency innovation, positioning Japan favorably in the global digital economy.

Conclusion

Japan’s cryptocurrency policy will undergo further optimization and refinement in the future. Key challenges will include striking a balance between ensuring market transparency and reducing the compliance burden on small and medium-sized businesses, as well as expanding Japan’s policy influence through international collaboration. By fostering technological innovation and adopting an open regulatory approach, Japan has the potential to strengthen its leadership in the global cryptocurrency ecosystem, providing valuable insights and models to support the growth of the global digital economy.