- The mission of METI is to enhance the country’s GDP and overall economy. In the Web3.0 field, METI’s primary goal is to strike a balance between regulation and fostering innovation. If the regulations were too strict, they will discuss with the Financial Services Agency to make adjustments to the polisy, creating an an environment that encourages innovation.
- The evolution of Web3.0 is constant. Regulations that have been established may quickly become outdated. It is necessary to continuously update them to adapt to the ever-changing environment.
- For startups, Japan has already established tax exemptions for their token issuance. What’s more, considering the existing tax issues related to token holders and VC’s difficulty (legally restricted from holding virtual currencies）, the government is considering amendments.
- The digital yen pilot program is still under discussion and has not been implemented yet. Japan has lifted the ban on stablecoins, and major trust companies are currently exploring the issuance of Ethereum-backed yen stablecoins. However, they are still in the process of applying for stablecoin issuance and intermediary licenses, with market entry expected next year.
- NFTs are well-suited for the Japanese market, and Japanese companies can collaborate with overseas startups in issuing NFTs or GameFi services.
- Not all companies that hold intellectual property (IP) are interested in Web3. Companies like Nintendo remain cautious. The popularity of existing IP may be significantly discounted in Web3.
- The adoption of Web3 by mainstream consumers in Japan is still limited, with only about 5% of people using Web3 wallets. Japanese companies like Toyota, Sony, and NTT Docomo are highly interested in Web3. If Japanese companies and individuals collaborate with overseas startups, such as those in Southeast Asia and even the whole Asia, it appears to be more promising.
- The Japanese government has implemented tax and regulatory reforms as well as issuing new guidelines to create a better business environment for Web3.0. Meanwhile, they are also trying to attract overseas startups by getting support from the JBA( Japan Blockchain Association) , hosting international blockchain conference and so on.
- To welcome more startups, the Japanese government is trying to create a Web3 entrepreneur-friendly environment. To addres issues faced by overseas startups such as opening bank accounts and obtaining visas, they have already provided startup visas, allowing companies to establish a presence in Japan for up to six months. In the recent future, they also plan to introduce the digital nomad visa.
- It is recommended that overseas Web3.0 projects collaborate with local government organizations that support startups, such as the Shibuya Ward. These organizations offer assistance like opening bank accounts, conducting business, and help the newcomers to quickly adapt to life in Japan.
- The government is actively building a talent pool in Web3.0, with a particular focus on establishing developer communities. They encourage developers to participate in Web3 development on a part-time basis, promoting the cultivation of their community awareness.
- The Japanese government aims to revitalize the national economy through Web3.0. By adding blockchain technology to supply chain management, trade finance, and other areas, they are trying to improve efficiency and create new data sharing platforms for traditional industries.
At the end of June, IVS Crypto 2023 was hosted in Kyoto. One week later, the WebX International Forum is also set to take place there, showing the country’s enthusiasm for Web3 and Blockchain. With a relatively mature set of crypto regulations, the Japanese goverment is trying to promote the development local Web3, bridging the gap between the domestic market and the global market..
Faced with great regulatory pressures on crypto, Japan stands out as one of the few countries explicitly supporting Web3 development. In fact, Japan sowed the seeds of crypto a decade ago when the Mt.Gox crypto exchange was established in the Shibuya Ward of Kyoto in 2010, and in 2017, Japan became one of the earlist countries to embrace Bitcoin payments.
However, it was the Mt.Gox hack in 2014 and the Coincheck incident in 2018, which were two of the largest cryptocurrency exchange hacks in history, that caused Japan to fade from our view. Since the introduction of the Payment Services Act in April 2017, Japan officially entered the era of crypto regulation，setting the tone for global crypto regulation. Virtual assets were also included in the Fund Settlement Act. After the Coincheck incident, Japan made amendments to relevant regulations in acts such as the Payment Services Act, the Financial Instruments and Exchange Act, and the Financial Instruments Sales Act in 2019. To protect users, cryptocurrency exchanges were required to implement asset segregation management, separating user funds from exchange funds. Subsequently, the Financial Services Agency made further modifications to the crypto regulations.
The pressure of regulation also led to stagnation in the Japanese crypto market. Compared to the global crypto ecosystem, Japan missed an entire cycle of development. Moreover, since the end of the Japanese bubble economy in the 1990s, its economy has been in a prolonged slump. METI (the Ministry of Economy, Trade and Industry ) was established in 2001, it has been tasked with promoting economic development and industrial innovation in Japan. However, the Japanese economy has not shown significant improvement in the past 20 years, and with the impact of COVID-19, revitalizing the Japanese economy and regional economies has become a key topic in the post-COVID-19 era, with METI playing a major role in this process.
In spring 2022, Japan released the NFT whitepaper (Cool Japan).In July 2022, METI began exploring the “creator economy” (NFTs, metaverse) and established the “Web3.0 Policy Office” to discuss how to create a favorable business environment for Web3.0 development.
In April 2023, the Web3 project group of the Liberal Democratic Party’s Digital Society Promotion Headquarters published the “Web3 Whitepaper: Towards an Era of Universal Utilization of Digital Assets,” which was approved by the House of Representatives. Japanese Prime Minister Fumio Kishida personally promoted it, declaring to the world that “Japan is Back.”
Foresight News has invited Waka Itagaki, Deputy Director of METI, to provide insights into the landscape and the future plans of the Japanese Web3.0.
Foresight News：Over the past six months, Web3 has undergone significant changes, such as increased regulatory scrutiny in the United States and favorable policies regarding Hong Kong. How do you perceive these global shifts in the Web3 landscape? What trends do you anticipate for the future? In what aspects do you see opportunities for the Japanese Web3 market and industry?
Waka Itagaki（METI）：The global Web3 landscape has witnessed significant changes in the past six months, including increased regulatory scrutiny in the United States and favorable policies in Hong Kong. These shifts reflect countries’ efforts to balance innovation and consumer protection and financial stability.
The United States emphasizes consumer protection as a crucial step towards mass adoption, while Hong Kong and other governments prioritize fostering innovation. Despite the challenges, these changes can bring positive effects by encouraging innovative developments beyond speculation.
Looking ahead, the trends in Web3 indicate widespread adoption of crypto wallets, NFTs, and then towards decentralized applications (DApps), leading to increased efficiency and potential solutions to social issues.
In Japan, the abundance of intellectual property resources and a thriving gaming industry presents opportunities for innovation in the Web3 space. Beyond speculation, there are many emerging use cases, such as NFT-based projects in rural areas, that contribute to the revitalization of communities. in Yamakoshi, a rural area in Japan, a DAO based on NFTs was created, and the ownership of this NFT was distributed among digital citizens and residents of the rural community. The money raised from these NFTs was then invested in projects that contributed to the revitalization of rural areas. These kinds of innovative use cases are emerging in Japan and bring various benefits to the country.
The future of Web3 in Japan also holds promise for programmable payments and money, extending the benefits of blockchain technology to sectors like supply chain management and trade finance. This could foster efficiency and create new data sharing platforms for traditional industries (Motor Vehicles, Chemistries, etc.).
Foresight News：What role does METI (Ministry of Economy, Trade, and Industry) play in the development of Web3 in Japan? And which other government departments are collaborating to promote the development of Web3? What are their respective responsibilities in this endeavor?
Waka Itagaki（METI）：METI plays a crucial role in Japan’s Web3.0 development. As a governmental body focused on economic growth, our mission is to enhance the country’s GDP and overall economy. In the Web3.0 space, we collaborate closely with the Digital Agency and the Financial Services Agency, as well as other related government agencies. Together, we strive to create a favorable business environment that fosters innovation.
Our primary objective is to strike a balance between regulation and promoting innovation. If regulations are perceived as too stringent, we engage in discussions with the Financial Services Agency to establish an environment that encourages innovation. Additionally, we work on advocating for tax reforms that better support the growth of the industry.
Approximately ten departments inside the METI are involved in Web3 and we established Web3 Policy Office together. For instance, If the issue is about regulation, the industrial finance division works with the financial service agency. This joint work allows us to shape new policy agendas and facilitate progress. (It’s important to note that not all of these departments are exclusively focused on Web3.0.).
Foresight News：Compared to other countries or regions, we have noticed that Japan has established a relatively mature regulatory framework, actively promoting the development of Web3.0 and crypto. In this process, what obstacles have you encountered and what motivate you to overcome them?
Waka Itagaki（METI）：Japan has already established regulations for crypto asset exchanges and stablecoins, prompted by incidents like the Coincheck hack in 2018. The Financial Services Agency (FSA) has played a significant role in formulating these regulations. However, from the perspective of METI, one of the difficulties we face is that regulations can quickly become outdated or ill-suited due to the rapid changes in the Web3.0 space.
For example, back in 2015, Bitcoin was the dominant cryptocurrency. But now, we have numerous tokens and applications, rendering regulations created in 2016, such as the Payment Services Act, somewhat outdated. Furthermore, Japan’s tax system is closely intertwined with accounting and taxation definitions, relying heavily on the concept of taxable assets. Consequently, issues arise in tax and accounting systems, necessitating updates to adapt to the evolving landscape.
Regarding the motivation to overcome these challenges, it stems from both personal and collective perspectives. Personally, I am driven by a belief in the transformative power of new technologies and their potential to create a better society in the long run. I am passionate about fostering an environment of innovation and intrigued by the concept of Web3.0, where tokens can incentivize behavioral change and enable individuals to contribute to projects based on their skills, while receiving financial benefits in return. These aspects of the new economy are captivating to me.
On the other hand, as a government official, we recognize that Web3.0 and blockchain technology have the potential to invigorate the Japanese economy. Traditionally, the Japanese market has struggled to thrive in the digital realm. By creating a conducive ecosystem, we aim to attract overseas startups and invigorate the economy. This broader perspective also serves as motivation for our efforts.
Foresight News：What is the current status and progress of implementing the proposals and guidelines outlined in the “Web3.0 White Paper” (Cool Japan), released in April this year? What are the implementation plans of the Japanese government concerning areas such as DAOs, NFTs, taxation, and accounting systems?
Waka Itagaki（METI）：Many efforts have been made in the Japanese government to implement the proposals. New legislation has been enacted, providing stability and clarity. The Japan Certified Public Accountants Association has established a study group to create guidelines for auditing and accounting related to crypto assets.
In terms of taxation, a new tax system has been introduced, exempting tokens issued and held by startups from taxation. However, challenges remain, such as addressing the taxation of tokens held by investors and limitations for venture capitalists (VCs cannot hold tokens under regulation). Amendments are being considered to address these issues.
The goal outlined in the white paper is to foster innovation from startups and large corporations in Japan. The focus is on creating an environment conducive to their success, including access to funding from venture capital. Efforts are underway to establish the necessary foundation and support ecosystem for regional innovation.
Foresight News：What opportunities will the pilot program for digital yen and the lifting of stablecoin bans bring to the Japanese economy?
Waka Itagaki（METI）：While the pilot program for digital yen is still under discussion and yet to be implemented, Japan has already lifted the ban on stablecoins. Major trust companies, like MUTB, are trying to issue the yen-based stablecoins connected to public chains like Ethereum. These stablecoins are expected to bring benefits to digital transformation, such as improved efficiency in supply chain management and data sharing platforms between companies. Although the new regulations came into effect in June 2023, companies are still in the process of obtaining licenses for stablecoin issuance and intermediation. It is anticipated that yen-based stablecoins will emerge within the next year.
Foresight News：Japan has a thriving gaming and anime industry, boasting world-leading intellectual properties (IPs). These unique resources provide a significant advantage. How do you plan to leverage these strengths to drive global expansion in the realms of NFTs, gaming, and the metaverse?
Waka Itagaki（METI）：The global interest in how Japan can utilize its gaming industry and IPs is evident. One approach is connecting Japanese companies with overseas startups to explore new collaborations in issuing NFTs or creating gamefi services. This trend has already started, with overseas startups showing interest in Japan and establishing entities there. However, not all IP-holding companies are equally interested in Web3. While some IPs holders are making strides in utilizing the Web3 space, others remain cautious due to concerns from existing users and a historical skepticism toward crypto. Additionally, existing IPs’ popularity in the Web3 space may fluctuate, impacting their engagement. Each company’s approach toward Web3 varies.
Foresight News：Considering the current regulatory environment in Japan and the preferences of market participants, which types of blockchain-based applications do you believe are best suited for the Japanese market?
Waka Itagaki（METI）：When comparing DeFi, NFT, and DAO, I believe NFTs are the most suitable for the Japanese market. Even individuals who may not be interested in cryptocurrencies generally have a favorable view of NFTs due to unique use cases like the Yamakoshi NFT and emerging social applications in Japan. However, mainstream consumer adoption of Web3 is still limited in Japan, with only around 5% of the population using (decentralized) wallets. In contrast, developing countries in Southeast Asia and Latin America show more interest. Nonetheless, Japanese large corporations are highly interested in Web3. Collaboration between these corporations and overseas startups to enter other markets, such as Southeast Asia or Asia as a whole, could be a promising step.
Foresight News：What measures will the Japanese government take to improve the business environment for Web3.0, retain local Web3.0 companies, and attract overseas Web3.0 companies? Additionally, how should overseas Web3.0 projects establish a presence in Japan?
Waka Itagaki（METI）：The Japanese government has implemented tax system reforms, regulation reforms, and issued new guidelines to create an improved business environment for Web3.0. Efforts have been made to attract overseas startups through international conferences such as Japan Blockchain Week and WebX.
However, there is room for further improvement. Issues such as opening bank accounts and obtaining visas for overseas startups are being addressed. The Japanese government plans to introduce a digital nomad visa and already offers a startup visa, allowing companies to establish a presence in Japan for up to six months. Some municipalities like Shibuya district are supporting overseas startups to open bank accounts as well.
To establish a presence in Japan, overseas Web3.0 projects are advised to engage with organizations like local municipalities (such as Shibuya District) that support startups. These entities offer various measures to assist with opening bank accounts, setting up operations, and navigating life in Japan. Connecting with these resources can greatly benefit overseas startups looking to enter the Japanese market.
Foresight News：Furthermore, what is the Japanese government doing to cultivate talent reserves in the Web3.0 field? What favorable conditions are being offered to attract overseas talent?
Waka Itagaki（METI）：Efforts are ongoing to build a talent pool in the Web3.0 field, particularly focusing on creating a community of engineers. There is a challenge in bridging the divide between web2 and web3 engineers, as well as between Japanese and international engineer communities. Some engineers perceive web3 projects as risky and unsustainable due to crypto market volatility and speculation. To address this, creating sustainable businesses that contribute economic value to society is essential. By fostering understanding and sympathy towards new web3 applications, engineers may be encouraged to engage part-time in the web3 space, promoting a sense of community.
Japan’s appealing aspects, such as safety and quality of life, can attract individuals with an affinity for the country. While it’s not easy to establish specific policies to attract overseas engineers, creating projects that facilitate collaboration between Japanese and international engineers or between Japanese projects and overseas engineers can pave the way for fruitful partnerships and global cooperation.
Foresight News：What changes does the Japanese government hope to bring to the country’s socio-economic landscape through Web3.0 and the metaverse?
Waka Itagaki（METI）：The Japanese government aims to revitalize the country’s economy by embracing new innovations and attracting overseas startups and international talent. We believe that Web3.0 can bring about economic and social benefits to society. By leveraging Web3.0, we anticipate solutions to social issues and the creation of data-sharing platforms for industrial use. For instance, startups are using tokens to incentivize users to contribute data, such as photos of electrical equipment. This innovative approach can address costly maintenance issues while creating new economic value for society. The government hopes to witness such positive transformations through Web3.0 initiatives.