Few of us will associate Japan with a vibrant crypto scent – but Japan is one of the many countries that took a proactive approach towards fostering Web3 after realizing its potential worldwide.

In order to retain its talent at home and create a better infrastructure for adoption of virtual digital assets, Japan has undertaken a number of regulatory steps. Amid the global turmoil caused by the volatile crypto ecosystem and its consequential effects on users, Japan has proactively introduced preemptive measures to tackle these challenges and maintain a competitive edge.

From the very beginning, it supported builders and creators in Web3 suggesting that the country is enthusiastic about the growing ecosystem and it was not just due to a vast user base. It has been tweaking regulations on a rolling basis to address challenges faced by users or other stakeholders and working towards the best interest for all parties with a dedicated ‘resolution team’. Its progressive attitude towards integration of blockchain is what has made it stand apart.

From government backed Metaverse offices, to corporates like Mitsubishi, Fujitsu, Rakuten foraying in the space, Japan’s efforts reflect the concentrated approach at winning the Web3 revolution after the missed opportunity in Web2.

Here are some broad takeaways from Japan’s Web3 regulatory approach:
After some subsequent security issues in crypto such as fund hacks from crypto exchanges, Japan tightened its policy towards Virtual Digital Assets and increased its regulatory scrutiny. However, without proper guidelines, this move also stifled innovation. The country was quickly rebounded by ensuring such mishaps were minimised while encouraging the domestic Web3 industry to aspire for greatness

Even before nations started actively recognizing and supporting the development of CBDCs, Japan introduced a stablecoin pegged to its Yen, which has high liquidity. Banks in Japan are encouraged to work with crypto with all necessary regulations in place. Japan’s largest bank Mitsubishi UFJ Financial Group also announced the launch of Yen-pegged stablecoins for settlement of securities, taking wholesale digital asset payments to a new paradigm. Last year, it released a legal framework for stable ..

Under the “Basic policy on Economic and Fiscal Management and Reforms”, Japan is aiming to democratize data ownership and management for users. It has established working groups to develop NFTs and Metaverse in several key industries as a way to improve and scale its economy.

Japan makes crypto platforms work a little hard in order to operate in the region because it prioritizes user safety above everything else. With policies such as separate holding of customer and company funds, more than 90% of funds no matter where it’s been bought, to be stored in cold wallets, and regular audits of accounts, it was able to find a path for returning most of the funds that customers lost in the FTX fiasco.

In its efforts to support initiatives by global regulatory bodies, Japan has announced imposition of AML laws for Crypto transactions. This will enable a unified approach towards regulating VDAs by FATF(Financial Action Task Force)

Japan had already been imposing taxes on crypto incomes since 2017 in order to bring some method to the industry and also give it the recognition and adoption it needed to go ahead with rapid innovation.

Overall, Japan has made it a priority to make Web3 a pivotal part of its economic growth. So far, it has been on an upward trajectory but experts recommend reducing tax slabs and cap on foreign investment in Web3 as key factors of fuelling further growth. The country is also working towards strengthening its infrastructure capacity to let domestic Web3 players or Web2 players offering Web3 services to grow and attract users in an environment of trust and security.