Interviewer: Fiona, Foresight News
Editor: Kean, Foresight News
Translator: Peng SUN, Foresight News
TL;DR:
- 1. The mission of METI is to improve the national GDP and overall economy. In the field of Web3.0, METI’s primary goal is to strike a balance between regulation and promoting innovation. If the regulations are too strict, discussions will be held with the Financial Services Agency to establish an environment that encourages innovation and advocate for tax reform;
- 2. The development of Web3.0 is changing rapidly, and the existing regulations may quickly become outdated or not applicable. It is necessary to continuously update them to adapt to the constantly changing environment;
- 3. Japan has stipulated that startups can issue tokens tax-free. At the same time, the government is considering amendments to address the current tax issues related to token holders and the regulatory restrictions that prevent venture capitalists from holding tokens;
- 4. The pilot program for a digital yen is still under discussion and has not been implemented. Japan has lifted the ban on stablecoins, and major trust companies are attempting to issue yen stablecoins based on Ethereum. However, they are still in the process of applying for stablecoin issuance and intermediary licenses, and are expected to enter the market next year;
- 5. NFTs are most suitable for the Japanese market, and Japanese companies can collaborate with overseas startups in issuing NFTs or building GameFi services;
- 6. Not all companies that hold intellectual property are interested in Web3. Companies like Nintendo are cautious. The popularity of existing intellectual property in the Web3 field may be greatly reduced;
- 7. The adoption of Web3 by mainstream consumers in Japan is still limited, with only about 5% of people using Web3 wallets. Japanese companies such as Toyota, Sony, and NTT Docomo are very interested in Web3. There is great potential if Japanese companies and people collaborate with overseas startups to enter the Southeast Asian or Asian markets;
- 8. The Japanese government has implemented tax and regulatory reforms and issued new guidelines to create a better business environment for Web3.0. At the same time, the government is also making efforts to attract overseas startups through the support of organizations such as the Japan Blockchain Association, hosting international conferences, and promoting Japan as a center for DAOs;
- 9. The Japanese government is addressing issues such as overseas startups opening bank accounts and obtaining visas. They plan to introduce a digital nomad visa and have already provided startup visas, allowing companies to establish institutions in Japan for up to six months;
- 10. It is recommended for overseas Web3.0 projects to collaborate with local government organizations that support startups, such as Shibuya Ward. These organizations provide various measures to help open bank accounts, conduct business, and adapt to life in Japan;
- 11. The government is actively building a talent pool in the Web3.0 field, with a particular focus on establishing a developer community. They will encourage developers to participate in Web3 development part-time, promoting the cultivation of their community awareness;
- 12. The Japanese government aims to revitalize the national economy through Web3.0 and extend the advantages of blockchain technology to supply chain management, trade finance, and other fields to improve efficiency and create new data sharing platforms for traditional industries.
In late June, IVS Crypto 2023 turned our attention to Japan in Kyoto, while a week later in Tokyo, the WebX International Forum is also about to be held. This long-neglected neighbor is now stepping onto the stage with a relatively mature set of cryptocurrency regulations, attempting to bridge the gap between the local Web3.0 and the entire cryptocurrency industry through policy-driven measures, and promote the development of Japan’s Web3.0 industry.
In the face of such great global cryptocurrency regulatory pressure, Japan is one of the few countries that explicitly supports the development of Web3. In fact, as early as 10 years ago, Japan planted the seeds of cryptocurrencies. The cryptocurrency exchange Mt.Gox was established in the Shibuya district of Kyoto in 2010, and in 2017, Japan already supported Bitcoin payments. However, if it weren’t for the Mt.Gox (2014) and Coincheck (2018) hacks, which resulted in two of the largest cryptocurrency exchange attacks in history, Japan might not have faded from our view for such a long time. Since the “Payment Services Act” in April 2017, Japan officially entered the era of cryptocurrency regulation and even set the tone for global cryptocurrency regulation. At the same time, virtual assets were included in the “Act on Settlement of Funds”. After the Coincheck incident, Japan amended relevant regulations in the “Payment Services Act,” “Financial Instruments and Exchange Act,” and “Financial Instruments Sales Act” in 2019, and required cryptocurrency exchanges to implement asset segregation management to protect users by separating user funds from exchange funds. Since then, the Financial Services Agency has made more or less modifications to cryptocurrency regulations.
The pressure of regulation has also caused the Japanese cryptocurrency market to stagnate, and compared to the global cryptocurrency ecosystem, Japan can be said to have missed an entire cycle of development. At the same time, since the end of Japan’s bubble economy in the 1990s, the Japanese economy has been in a long period of stagnation. The Ministry of Economy, Trade and Industry (METI) established in 2001 is responsible for promoting Japan’s economic development and industrial innovation. However, in the past 20 years, Japan’s economy has not significantly improved, and coupled with the impact of COVID-19, revitalizing the Japanese economy and regional economy has become the main topic of the post-COVID-19 era, with METI being the main driver of this process:
- In spring 2022, Japan released an NFT whitepaper;
- In July 2022, METI began exploring the “creator economy” (NFT, metaverse) and established the “Web3.0 Policy Office” to discuss how to create a friendly business environment for the development of Web3.0;
- In April 2023, the Web3 project team of the Liberal Democratic Party’s Digital Society Promotion Headquarters released the “Web3 Whitepaper: Towards an Era where Everyone can Utilize Digital Assets,” which was passed by the House of Representatives, personally promoted by Japanese Prime Minister Fumio Kishida, and announced to the world that “JaLianGuain is Back”.
Therefore, Foresight News has exclusively invited Waka Itagaki, Deputy Director-General of the Ministry of Economy, Trade and Industry of Japan, to provide us with insights into the basic outlook and development plans of Japan’s Web3.0.
Foresight News: In the past six months, Web3 has undergone significant changes, such as increased regulatory scrutiny in the United States and favorable policies for the cryptocurrency industry in Hong Kong, China, and other countries. How do you view these changes in the global Web3 landscape? What development trends do you foresee in the future? What are the main opportunities for the Web3 market and industry in Japan?
Waka Itagaki (METI): In the past six months, there have been major changes in the global Web3 landscape, including increased regulatory scrutiny in the United States and favorable policies for the cryptocurrency industry in Hong Kong. These changes indicate that countries/regions are striving to find a balance between innovation, consumer protection, and financial stability.
The United States believes that consumer protection is key to achieving mass adoption, while the governments of Hong Kong, China, and other countries prioritize promoting innovation. Despite the challenges, these changes can encourage innovative development rather than speculative trading, which has a positive impact on the cryptocurrency industry.
Looking ahead, the development trends of Web3 indicate that cryptocurrency wallets, NFTs, and DApps will be widely adopted, as they will improve efficiency and provide potential solutions to social issues.
In Japan, the abundant IP resources and booming gaming industry will provide opportunities for innovation in the Web3 field. In addition to speculation, we have many emerging use cases. For example, NFT-based projects contribute to the revitalization of rural areas. A village called Yamakoshi in Japan has created an NFT-based DAO, where digital citizens and community villagers share ownership of the NFT. The funds raised from these NFTs are used to promote the revitalization of rural areas. Such innovative cases continue to emerge in Japan, promoting the country’s development.
In the future, Japan is also expected to realize programmable payments and programmable currencies, extending the advantages of blockchain technology to supply chain management and trade finance to improve efficiency and create new data sharing platforms for traditional industries such as automotive and chemicals.
Foresight News: What role does METI play in the development of Web3.0 in Japan? Which government departments does it primarily collaborate with to promote the development of Web3.0? What are their respective responsibilities?
Waka Itagaki (METI): The Ministry of Economy, Trade and Industry (METI) plays a crucial role in the development of Web3.0 in Japan. As a government agency focused on economic growth, our mission is to increase the country’s GDP and overall economy. In the Web3.0 field, we work closely with the Digital Agency, the Financial Services Agency, and other relevant government agencies to create a business environment conducive to innovation.
Our primary goal is to strike a balance between regulation and promoting innovation. If regulations are too strict, we discuss with the Financial Services Agency to establish an environment that encourages innovation. Additionally, we advocate for tax reforms to better support the development of the cryptocurrency industry.
There are approximately 10 departments related to Web3.0, and METI needs to cooperate with these departments. For example, if there are regulatory issues, we will cooperate with the Financial Services Agency to formulate new policy agendas and promote their development. (It is worth noting that not all of these departments focus exclusively on Web3.0.)
Foresight News: Compared to other countries or regions, we have noticed that Japan has already established a relatively mature regulatory system and has been vigorously promoting the development of Web3.0 and Crypto through regulation. So, what obstacles have you encountered in this process and how did you overcome them?
Waka Itagaki (METI): Due to events such as the 2018 Coincheck hack, Japan has successively enacted regulations for cryptocurrency exchanges and stablecoins, and the Financial Services Agency has played an important role in formulating these regulations. However, one difficulty we face at METI is that the development of Web3.0 is changing too rapidly, and the regulations that have been formulated may quickly become outdated or not applicable.
For example, as early as 2015, Bitcoin was the primary cryptocurrency. But now there are countless cryptocurrencies and applications, which has led to some of the regulations enacted in 2016, such as the Payment Services Act, becoming outdated. In addition, Japan’s tax system is closely related to the definitions of accounting and taxation and relies to a large extent on the concept of taxable assets. Therefore, tax and accounting systems can encounter problems and need to be continuously updated to adapt to the constantly changing environment.
Regarding the motivation to overcome these challenges, I will answer from two aspects. Personally, I believe in the transformative power of new technologies, and in the long run, I believe it will create a better society. I enjoy creating an innovative environment, and I am very interested in the concept of Web3.0, where tokens can incentivize behavioral changes and individuals can contribute to projects based on their abilities while receiving economic incentives and rewards. So, the new economic model brought by Web3.0 is very attractive to me.
On the other hand, as government officials, we recognize that Web3.0 and blockchain technology have the potential to drive Japan’s economic development. In recent years, the development of the Japanese market in the digital field has been less than satisfactory. By building a sound Web3.0 ecosystem, we aim to attract overseas startups and revitalize the economy. This is the direction we are working towards.
Foresight News: How is the implementation and progress of the proposals and guidelines outlined in the “Web3.0 White Paper” (Cool JaLianGuain) released in April this year? What are the Japanese government’s implementation plans for DAOs, NFTs, taxation, and accounting systems?
Waka Itagaki (METI): The Japanese government has made many efforts to implement these proposals. We can see that the government has enacted new legislation, and policies are more stable and clear. The Japanese Institute of Certified Public Accountants has established a research group responsible for formulating audit and accounting standards related to crypto assets.
In terms of taxation, a new tax system has been introduced where tokens issued by startups are tax-exempt. However, challenges still exist. For example, the government is considering amendments to address the current tax issues related to token holders and the regulatory restrictions on VCs from holding tokens.
The goal outlined in the whitepaper is to promote innovation in Japanese startups and large enterprises, with a focus on creating a favorable business environment for their success, including access to funding from VCs. Currently, Japan is working to establish the necessary infrastructure and support the ecosystem to drive regional innovation.
Foresight News: Japan has started piloting digital yen and lifting the ban on stablecoins. What opportunities will this bring to the Japanese economy?
Waka Itagaki (METI): While the pilot program for digital yen is still under discussion and not yet implemented, Japan has already lifted the ban on stablecoins. Large trust companies like Mitsubishi UFJ Trust Banking Corporation (MUTB) are exploring the issuance of yen stablecoins supported by public chains such as Ethereum. These stablecoins are expected to promote digital transformation, such as improving supply chain management efficiency and building data sharing platforms between companies. Although the new regulations will take effect in June 2023, companies are still in the process of obtaining stablecoin issuance and intermediary licenses. It is expected that yen stablecoins will enter the market next year.
Foresight News: Japan has a developed gaming and anime industry with world-leading intellectual properties. How will you leverage these advantages to drive global development in the NFT, gaming, and metaverse fields?
Waka Itagaki (METI): The whole world is curious about how Japan will leverage its gaming industry and intellectual properties to develop Web3. We believe that one feasible path is for Japanese companies to collaborate with overseas startups in issuing NFTs or building GameFi services. This trend is already emerging, with overseas startups showing interest in entering the Japanese market and establishing a presence in Japan. However, not all companies holding IP are interested in Web3. While some companies like Sanrio or Toei Animation are actively embracing Web3, companies like Nintendo remain cautious due to concerns from existing users and doubts about cryptocurrencies. Additionally, the popularity of existing IPs in the Web3 field may be discounted, affecting their level of participation. In short, each company has a different attitude towards Web3.
Foresight News: Based on the current regulatory environment in Japan and the preferences of market participants, which types of blockchain applications do you think are most suitable for the Japanese market?
Waka Itagaki (METI): When comparing DeFi, NFTs, and DAOs, I believe NFTs are most suitable for the Japanese market. Even people who are not interested in cryptocurrencies in general tend to have a positive view of NFTs because of unique use cases in Japan, such as Yamakoshi NFT and emerging social applications. However, the adoption of Web3 by mainstream consumers in Japan is still limited, with only about 5% of people using Web3 wallets. In contrast, Web3 is more popular in developing countries in Southeast Asia and Latin America. However, Japanese companies like Toyota, Sony, and NTT Docomo are very interested in Web3. If Japanese companies and individuals interested in Web3 collaborate with overseas startups to enter the Southeast Asian or wider Asian market, the prospects will be very promising.
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? Also, how should overseas Web3.0 projects land in Japan?
Waka Itagaki (METI): The Japanese government has implemented tax reforms, regulatory reforms, and issued new guidelines to create a better business environment for Web3.0. At the same time, the government is also making efforts to attract overseas startups through support from organizations such as the Japan Blockchain Association, hosting international conferences, and promoting Japan as a hub for DAOs.
However, there is still 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 has already provided startup visas, allowing companies to establish an entity in Japan for up to six months.
To conduct business in Japan, it is recommended that overseas Web3.0 projects collaborate with local government organizations that support startups, such as Shibuya Ward. These organizations provide various measures to help companies and employees open bank accounts, conduct business, and adapt to life in Japan. Establishing connections with these resources can greatly benefit overseas startups wishing to enter the Japanese market.
Foresight News: Going further, what are the Japanese government’s plans for talent reserve in the Web3.0 field? What preferential conditions are there to attract overseas talent?
Waka Itagaki (METI): Currently, the government is working on building a talent pool in the Web3.0 field, with a particular focus on establishing developer communities. However, there are challenges in connecting Web2 and Web3 developers, as well as Japanese and international developer communities. Some developers believe that Web3 projects are risky and unsustainable due to the volatility and speculation in the cryptocurrency market. To address this issue, sustainable businesses that contribute to socio-economic value must be created. By popularizing emerging Web3 applications, developers can be encouraged to participate in Web3 development on a part-time basis, promoting the cultivation of their community awareness.
Japan’s safety and quality of life can attract people who have a favorable view of the country. While it is not easy to formulate specific policies to attract overseas developers, creating projects that facilitate cooperation between Japan and international developers or Japanese projects and overseas developers can pave the way for partnerships and global collaboration.
Foresight News: What changes does the Japanese government hope to bring to the country’s socio-economic landscape through Web3.0 and the metaverse? What are the expectations?
Waka Itagaki (METI): The Japanese government aims to revitalize the national economy by embracing new innovations, attracting overseas startups, and international talent. We believe that Web3.0 can bring economic and social benefits to society. By combining Web3.0, we expect social issues to be resolved, and industry data sharing platforms to be created. For example, startups are using tokens to incentivize users to contribute data such as photos of electrical devices. This approach can solve expensive maintenance problems while creating new economic value for society. The government hopes to promote such a transformation through the Web3.0 initiative.
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