General Risk Disclosure

It is important to read and understand the risks associated with the use of digital tokens, which overview we explain in the following section. Always do your own research and due diligence before investing in cryptocurrency.
Akuma, our team and community are not financial advisors.

Government Attitude and Definition

Government attitude

In Japan, regulations for Crypto Asset Exchange Services (“CAES”, and CAES providers, “CAESPs”) were introduced with the revised Payment Services Act (the “PSA”), which came into effect in 2017. At that time, regulations in respect of CAESPs could be described as minimal from the perspective of user protection, anti-money laundering and counter-terrorist financing (“AML/CFT”). However, due to Crypto Asset (as defined below) leakage incidents in Japan resulting from hacking that targeted CAESPs, as well as revisions to the Financial Action Task Force (“FATF”) standards in respect of Crypto Assets, Japanese regulatory authorities have been taking steps to strengthen the regulatory framework surrounding CAESPs. At the same time, measures were also introduced to tighten the taxation regime, resulting in Japan having a more robust tax environment for Crypto Assets as compared to other countries.

On the other hand, in early 2022, the Japanese government established the Web3 Project Team (formerly the NFT Policy Review Project Team), recommending Web3 (a decentralised internet using blockchain) as a national strategy. By the summer of the same year, the government had positioned the development of a Web3 environment as one of the pillars of its economic growth strategy. Under this policy, regulatory reforms in various areas, such as financial regulations and tax, were undertaken. The introduction of regulations concerning stablecoins and the clarification of whether non-fungible tokens (“NFTs”) qualify as Crypto Assets (discussed in further detail below) are part of this policy.

Definitions

Under Japanese law, “Crypto Assets” do not constitute “securities” as defined in the Financial Instruments and Exchange Act (the “FIEA”). The PSA defines “Crypto Asset” and requires a person who provides CAES to be registered with the Financial Services Agency (the “FSA”). A person who provides CAES without registration is punishable by criminal sanctions.
Accordingly, proper understanding of the definitions of Crypto Asset and CAES is of crucial importance.
Definition of Crypto Asset
The term “Crypto Asset” is defined in the PSA as:

proprietary value that may be used to pay an unspecified person the price of any goods, etc. purchased or borrowed or any services provided and that may be sold to or purchased from an unspecified person (limited to that recorded on electronic devices or other objects by electronic means and excluding Japanese and other foreign currencies, Currency Denominated Assets (as defined below), and Electronic Payment Instruments (as defined below); the same applies in the following item) and that is transferrable through an electronic data processing system (“Type I Crypto Asset”); or
proprietary value that may be exchanged reciprocally for proprietary value specified in the preceding item with an unspecified person and that is transferrable through an electronic data processing system (“Type II Crypto Asset”).

In simple terms, a “Crypto Asset” is a cryptocurrency, not denominated in any fiat currency, that is usable as a means of payment to an unspecified person.

“Currency Denominated Assets” means assets that are denominated in Japanese or any foreign currency and do not fall within the definition of Crypto Asset. For example, prepaid e-money cards would typically constitute Currency Denominated Assets.
Definition of Crypto Asset Exchange Services

Under the PSA, the term “Crypto Asset Exchange Services” (or CAES) means any of the following acts carried out as a business:

sale or purchase of Crypto Assets, or the exchange of a Crypto Asset for another Crypto Asset;
intermediating, brokering or acting as an agent in respect of the activities listed in item (a);
management of customers’ money in connection with the activities listed in items (a) and (b); or
management of customers’ Crypto Assets for the benefit of another person.

As item (d) (management of customers’ Crypto Assets for the benefit of another person) constitutes CAES, management of Crypto Assets without the sale and purchase thereof (“Crypto Asset Custody Services”) would also constitute CAES. Accordingly, a person engaging in Crypto Asset Custody Services is required to undergo registration as a CAESP. In this context, the FSA Administration Guidelines on Crypto Assets (“Crypto Asset Guidelines”) describe the “management of customers’ Crypto Assets for the benefit of another person” as follows: “[A]lthough whether or not each service constitutes the management of Crypto Assets should be determined based on the actual circumstances, a service constitutes the management of Crypto Assets if a service provider is in a position to transfer its users’ Crypto Assets (such as, for example, if such service provider owns a private key with which it may transfer users’ Crypto Assets solely or jointly with its related parties, without the users’ involvement).” Based on this, it is generally understood that mere provision to users of a Crypto Asset wallet application (i.e., a non-custodial wallet), with private keys being managed by the users themselves, would not constitute a Crypto Asset Custody Service.

Cryptocurrency Regulation

In Japan, there is no omnibus regulation governing blockchain-based tokens. The legal status of tokens under Japanese law is determined based on their functions and uses.

For example, cryptocurrencies and utility tokens such as BTC, ETH, etc. are regulated as “Crypto Assets” under the PSA. Business operators who engage in the business of buying, selling or exchanging Crypto Assets (as well as in the intermediation of such activities), or in the management of Crypto Assets for the benefit of others, are required to undergo registration as a CAESP. Currency denominated stablecoins such as USDC and USDT are regulated as “Electronic Payment Instruments” (“EPIs”) under the PSA. Business operators who engage in the business of buying, selling or exchanging EPIs (as well as in the intermediation of such activities), or in the management of EPIs for the benefit of others, are required to undergo registration as an Electronic Payment Instruments Exchange Service Provider (“EPIESP”). However, so-called algorithmic stablecoins that are not collateralised by fiat currency, but whose values are linked to fiat currency through algorithms, do not constitute EPIs. This is because they do not qualify as Currency Denominated Assets. Instead, such algorithmic stablecoins will constitute Crypto Assets if they are transferable or tradeable vis-à-vis unspecified parties on a blockchain.

So-called “security tokens”, which represent shares, bonds or fund interests in tokens, are regulated under the FIEA as electronically recorded transferable rights (“ERTRs”) to be indicated on securities, etc. (“ERTRIS, etc.”). A business operator who engages in the business of offering (including the handling of such offers), buying, selling or exchanging ERTRIS, etc. (as well as in the intermediation of such activities) is required to undergo registration as Type I Financial Instruments Business Operators (“Type I FIBOs”) under the FIEA.

Tokens other than those mentioned above, such as NFTs, which have no economic function as a means of payment due to their unique characteristics, will not be regulated in principle under the current regulatory framework.

Regulatory framework for stablecoins

On March 4, 2022, the “Bill for Partial Amendment to the Act on Payment Services Act, etc. for the Purpose of Establishing a Stable and Efficient Funds Settlement System” (the “Amendment Act”), which aims to introduce new regulations in respect of stablecoins, was submitted to the Diet. The Amendment Act was approved on June 3, 2022 and came into effect on June 1, 2023.

Under the Amendment Act:

EPIs (i.e., currency denominated stablecoins) are distinguished from other Currency Denominated Assets by the following factors: (i) whether they may be used as payment for consideration to unspecified persons; and (ii) whether they may be purchased from or sold to unspecified persons. Prepaid payment instruments and electronic currencies that are issued by fund transfer service providers do not satisfy condition (i), as their issuers would centrally manage the balance of each user and the scope of stores (that is, member stores) that accept the relevant prepaid payment instruments and electronic money. Additionally, digital currencies, notwithstanding that they are issued on blockchains, will not satisfy condition (ii) if their issuers have taken technical measures that restrict the transfer of such digital currencies only to persons who have been verified as unproblematic under know-your-customer (“KYC”) checks at the time of transaction, and if the issuers’ consent or other involvement is required for every transfer of the digital currencies. Consequently, stablecoins issued on a permissionless blockchain would typically be deemed EPIs, as new holders of such stablecoins generally are not required to undergo KYC checks and transfers of such stablecoins do not require the involvement of their issuers.
Those who are permitted to issue EPIs directly to Japanese residents are limited to banks, fund transfer service providers, trust banks or trust companies that are licensed in Japan. This is because the issuance and redemption of EPIs constitute “fund remittance transactions” (kawase-torihiki).
It is not possible for a CAESP to list EPIs on any exchange or manage EPIs for its users without being registered as an EPIESP.
An EPIESP is subject to AML/CFT regulations, including a “travel” rule. More specifically, an EPIESP, when transferring EPIs to any other EPIESP, is required to provide a customer’s identification information to such other EPIESP. Moreover, an EPIESP who sends or receives EPIs to or from overseas virtual asset service providers (“VASPs”) on a regular basis is required to check whether such VASPs are conducting appropriate due diligence on its users for AML/CFT purposes.

Recent developments in respect of NFTs

Recently, digital art and digital trading cards represented by NFTs, which are non-replaceable digital tokens issued on a blockchain, have been traded for considerable amounts. As a result, NFTs have been rapidly gaining attention in Japan. While digital data is inherently free and easy to copy, NFTs are considered innovative because they involve creation of unique, one-of-a-kind data based on blockchain technology.

From the regulatory standpoint, NFTs would not constitute securities or ERTRIS, etc. under the FIEA if their holders do not share in profits or receive dividends. In addition, NFTs that are non-fungible, non-substitutable, and not usable as a means of payment would not constitute Crypto Assets under the PSA.

According to the Crypto Asset Guidelines, one of the factors for determining whether a token constitutes a Type I Crypto Asset is whether it is “an asset capable of being purchased or sold with legal fiat currency or crypto assets under socially accepted norms”. Specifically, a token that satisfies conditions (i) and (ii) below generally will not constitute a Type I Crypto Asset. The same applies to the determination of whether a token constitutes a Type II Crypto Asset:

The issuer has made it clear that the token is not intended to be used as payment for goods, etc. to unspecified parties. This can be achieved by, for example, stating clearly in the terms and conditions of the issuer or its business-handling service provider, or in the product description, that use of the token as a means of payment to unspecified parties is prohibited, or that the token or related system is designed in a way that does not enable it to be used as a means of payment to unspecified parties.
In situations where use of the token as a means of payment for goods, etc. to unspecified parties is permitted, certain requirements on the price and quantity of the relevant goods, etc., and on the technical characteristics and specifications of the token, must be met. For example, at least one of the following characteristics must be present:
1. the minimum value per transaction must be sufficiently high (i.e., JPY1,000 or more); or
2. the number of tokens issuable, in proportion to the aforementioned minimum value of a transaction, is limited (i.e., not exceeding 1 million).

Technology-Related Risks

Distributed ledger technologies are still at an early stage of maturity, and many networks have only been created recently, which means they may not be fully tested, and there could be significant operational or security flaws.

Transaction recording in networks based on distributed ledger technologies works through consensus protocols, which could be vulnerable to attacks attempting to modify this ledger. In the event of a successful attack, there would be no alternative record to restore the transactions, which could result in the loss of all digital tokens.

Security risks associated with the anonymity features of digital tokens can make them a target for cybercriminals. If credentials or private keys are stolen, digital tokens could be transferred to addresses that make recovery difficult or impossible.

The safekeeping of digital tokens is the responsibility of the user. If private keys are lost or stolen, the entire balance of tokens may be lost. Users are responsible for the security of their electronic wallets and private keys.

Legal and Market Risks

The acceptance of digital tokens as a medium of exchange is still limited, and there is no legal obligation for parties to accept them as payment. $AKUMA token is not intended to be used as payment for goods, etc. to unspecified parties.

Disclaimer

This article contains a high-level overview and is prepared for general information of our investors and other interested persons. The content has not been confirmed by the relevant authorities, but merely contains information and interpretations that may be reasonably considered in accordance with the applicable laws and regulations. The opinions expressed in this article are our current views and may be subject to change in the future. This article is provided for your convenience only and does not constitute legal advice. Credits: Blockchain & Cryptocurrency Laws and Regulations 2025 – Japan by GLI.