Japan's regulatory environment is facing increased scrutiny as experts suggest that its "slow, prescriptive, and risk-averse" approval culture is stifling cryptocurrency adoption. This is happening despite the government's efforts to introduce a flat 20% tax on crypto gains.
Maksym Sakharov, co-founder and CEO of Web3 firm WeFi, argues that the sluggish approval processes, rather than the previously high tax policies, are the primary reason why crypto startups and liquidity providers are relocating to other markets. He points out that the current two-step regulatory framework, which involves initial review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA) and final oversight by the Financial Services Agency (FSA), can extend the time it takes to launch a product to six to twelve months or even longer. This bureaucratic bottleneck is pushing many Japanese teams to list their tokens overseas first, thereby diminishing the country's competitive advantage.
Sakharov contrasts Japan's regulatory approach with those in Singapore, the United Arab Emirates (UAE), and South Korea. While Singapore maintains strict standards, it provides clearer pathways for innovation. The UAE, on the other hand, prioritizes speed in approvals. South Korea's Virtual Asset User Protection Act (VAUPA) focuses on ongoing obligations rather than pre-approval requirements, enabling faster listings.
Japan's reliance on pre-approval mechanisms and the lack of a dynamic regulatory sandbox are hindering experimentation, particularly in areas like staking and governance, which are critical for modern crypto ecosystems. Sakharov warns that the proposed 20% flat tax on crypto gains and the reclassification of digital assets as financial products are unlikely to resolve these issues without cultural reforms in the regulatory processes. He emphasizes that Japan's system is designed to mitigate risks rather than accelerate innovation, with delays in token screening, IEO white paper vetting, and product change notifications often requiring multiple revisions.
The approval process for token listings or initial exchange offerings (IEOs) in Japan involves a two-step regulatory pathway: initial self-regulatory review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA), followed by final oversight by the Financial Services Agency (FSA). This process can extend go-to-market timelines to 6–12 months, delaying product launches and draining startup resources. Sakharov emphasized that repeated bottlenecks in JVCEA's token screening, IEO white paper vetting, and product change notifications to the FSA often require multiple revisions, creating a system “designed to avoid downside, not to accelerate innovation”.
Comparisons with other jurisdictions reveal Japan's shortcomings. While Singapore and the United Arab Emirates have introduced more agile frameworks, Japan's pre-approval model contrasts with South Korea's VAUPA, which focuses on ongoing exchange obligations rather than rigid external approvals. These differences enable faster listings in competing markets, further incentivizing Japanese crypto firms to scale overseas.
Sakharov asserts that regulatory efficiency—not tax policy—will determine Japan's competitive edge. According to Cointelegraph, he stated that even if the proposed 20% flat tax on crypto gains is implemented, Japan's “slow, prescriptive, and risk‑averse” approval culture will continue to push startups and liquidity offshore. He added that the FSA/JVCEA pre‑approval model and the absence of a truly dynamic sandbox are what keep builders and liquidity offshore.
