Bitcoin payment using cryptocurrency with Japan Yen money.

Japan strongly favors cryptocurrencies, especially bitcoin. Despite the collapses of exchanges in the past and several theft incidents, Japan does keep its eyes on blockchain technologies and incorporates its use in everyday operations more and more. For example, one can purchase a real estate using bitcoins and smart contracts. The most popular messaging application in Japan, LINE, has started its own exchange.

The blockchain technologies created the whole new pool of opportunities and possibilities. Nevertheless, as the fairly new instrument in finances, cryptocurrency exchanges do not fit the existing legislation. Thus, the whole new set of rules has been developed in Japan in order to regulate activities of businesses that provide services associated with the virtual currencies.

Japan is particularly strict about obtaining a license to perform any kinds of financial activities, including operations involving bitcoin or other cryptocurrencies and blockchain-based technologies. The legislation is fresh and we will probably see many amendments to it. Thus, in this guide, we gather and summarize the up-to-date key points regarding the virtual currency exchange license and how to obtain it.


The business can be considered a cryptocurrency (or virtual currency) exchange business if it:

  1. Sells, buys, or exchanges virtual currencies for other virtual currencies
  2. Performs intermediary, agency or brokerage activities stated in point 1.
  3. Manages users’ money or virtual currencies for activities stated in point 1 and 2.

Types of Virtual Currencies

Type I:

  • Can be used as a mean of payments to unspecified individuals for purchasing/borrowing of goods or receiving services, AND
  • Can be used for exchange with the fiat currency for an unspecified individual. This includes only transactions recorded on an electronic device or using other methods of electronic registration and excludes Japanese or foreign currencies or currency denominated assets, AND
  • Can be transferred through a computer network.

Type II:

  • Can be mutually exchanged with Type I currencies for an unspecified individual, AND
  • Can be transferred through a computer network.
A flowchart of defining the virtual currency type
Defining Virtual Currencies Type (by Mori Hamada & Matsumoto)

Are Virtual Currencies the Same as Money?

The most important thing to remember about cryptocurrencies, or virtual currencies, in Japan is that they are not covered by any financial license because technically they are not considered to be:

  • Currencies (neither Japanese, nor foreign), and do not require Banking License.
  • Securities, and do not require Securities Trading License under Financial Instruments and Exchange Act (FIEA).

Thus, mare transmission or lending of the virtual currencies is not the same as lending or transferring money assets. However, transmitting or lending money using virtual currencies falls under money remittance and lending business scopes. These activities require licensing.

It means that a company can give loans in only in cryptocurrencies without a license. But the same company cannot provide simultaneous exchange services allowing a client to convert their cryptocurrency loans into fiat loans within the same company. For the same reason, a lending company cannot form an alliance with a cryptocurrency exchange.

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Who Needs a License to Handle Cryptocurrencies?

Banks and Virtual Currency Exchanges

Since cryptocurrencies can be used for commerce as a mean of payment for goods and services, operators of the virtual currency exchanges and businesses must establish a separate institution that will operate under the Virtual Currency Exchange License in order to handle virtual currencies. In accordance with the Payment Services Act, they are considered to be payment institutions.

Banks are not allowed to handle any business that has to do with the cryptocurrencies. The only exception can be made for banks that handle cryptocurrencies as a side operation which cannot be viewed as a wholesome separate business within the bank’s scope of business. The cryptocurrency business should be peripheral as defined by the Banking Act in Section 10.1. If a bank wants to deal with cryptocurrencies without establishing a separate institution and obtaining a license, its virtual currency related operation will be assessed based on the 4 factors below:

  1. Whether cryptocurrency business is one of those listed in each subparagraph of Sections 10.1 and 10.2 of the Banking Act.
  2. The size of a cryptocurrency business compared to the main business.
  3. Similarities to the banking business in terms of functions and risk profile.
  4. Utilization of the surplus capacities generated by the bank.


Wallet providers are required to register if they are part of any activities stated in the definition section. Even if the wallet acts as a middleman for trading in cryptocurrencies, providers of such wallets must nevertheless be registered.

Only the services that provide mere wallets not associated with any activities stated in the definition can go without registration.


Assets in virtual currencies are not taxable as defined by the Consumption Tax Act revision of July 1, 2017. However, virtual currencies are subject to taxation when they constitute “other income” as defined by the National Tax Authority in the following cases:

  • If a person has earnings in virtual currencies as per Tax Code of Japan
  • If a company has earnings in virtual currencies as per Corporate Tax Code for Japan
  • As per Consumption Tax Code when purchasing virtual currencies

Application Requirements and Process

In Japan, unregistered entities are not allowed to engage in activities directed toward citizens or  residents of Japan.

In order to apply for a license in Japan, an institution that deals with virtual currencies must:

  • Have a physical office in Japan.
  • Have a local representative: a Japanese national or a resident.
  • Have full-time compliance, technology, and internal audit managers. One person can perform only one of three roles. Assigned people should be knowledgeable about financial regulations in Japan and be able to communicate with Japanese regulators.
  • Have an accounting firm as a contractor to perform accounting auditing and auditing of compliance with the assets separation principle (see below.)

How Long Does it Take to Get a Virtual Currency License?

Normally, the process takes about 6 months. However, currently, it takes more due to staff shortage.

Where to Apply?

The Tokyo Metropolitan Government and The Financial Services Agency have set up a helpdesk that provides advice and guidance for foreign companies entering Japanese market. There you can get all the necessary information regarding your type of financial business, whether it is a virtual currency exchange or other types of financial services.

What to Keep in Mind When Working With Cryptocurrencies?

Registered exchanges are under the surveillance of the Financial Bureau. The bureau should be informed on the cases of mismanagement. It also has the legal right to inspect and/or suspend businesses, issue corrective orders, or even revoke the license.

The legislation on the virtual currencies is relatively new and is constantly being developed and improved to take into account emerging practices and complicated processes of the international trade and exchange. While cryptocurrencies are gaining more and more popularity, they are still used by a very limited number of people. The vast majority has little to no experience with or understanding of the blockchain technology.

Some of the regulations are being kept flexible on purpose to foster the development of startups that work with virtual currencies. However, each virtual currency exchange business should comply with the minimum standards in the following areas.

Anti money laundering practices

Providers of the virtual currency services will be registered as a “designated service provider” in accordance with the requirements of the Act on Prevention of Transfer of Criminal Proceeds. This means that the service provider must:

  • Incorporate a KYS (Know Your Client) process when opening a new account: trading under false or other person’s ID is a crime for both individuals and businesses.
  • Prepare and maintain books and records.
  • Implement an internal control system: rules, training, control managers, etc.

Consumer Protection

Companies should follow conduct their business in an appropriate manner. A company must:

  • Have a minimum capitalization of JPY 10,000,000.
  • Submit annual auditing reports made by an external auditor.
  • Notify authorities about all the changes in the registered items.
  • Make sure that the third parties are not using the name of the registered entity to carry out virtual currencies exchange business.
  • Provide security management and internal control system.
  • Manage parties that perform tasks on behalf of the company (a so-called “outsorcees”)
  • Manage assets of the clients and assets of the business separately (the assets separation principle), which should be annually confirmed by the external auditor.
  • Prepare and maintain books and records
  • Submit an annual report to the authorities.

Transparency and Disclosure include:

  • Provision of sufficient explanations to the users about selling cryptocurrencies and risks they encounter during the trade. For example, the fact that the virtual currencies are not actual currencies. Thus, there is no guarantee that the cryptocurrency will be converted into fiat in the end.
  • Provision of a written document upon every transaction to the user
  • Access doe users to such information as, for example, charges of a transaction and other relevant details.
  • Implementation of an internal control system: rules, trainings, control managers, etc.
  • Implementation of the data protection measures.


At the beginning of a financial year (in Japan it starts in April), a virtual currency exchange should establish a self-regulatory organization that is certified by the FSA in order to maintain the compliance with the rules and prevent potential governmental restrictions. Self-regulation may become a soft-law to follow for providers of the virtual currency exchanges. They are also expected to handle dispute resolutions regarding the exchange of the virtual currencies.


Due to the novelty of the blockchain technologies and their recent incorporation into financial systems around the world, Japan as well as many other countries, is currently developing the legislative framework to regulate spheres and business dealing with the cryptocurrencies and their exchange.

In Japan, virtual currencies are not considered to be money. However, since cryptocurrencies can be exchanged with fiat money and/or used for payments of goods and services, such operations fall under the jurisdiction of the Banking Act and the Financial Service Agency. Thus,  businesses wishing to perform virtual currency exchange services need to obtain a relevant license in Japan when providing services to citizens or residence of Japan.

Such businesses need to comply with security standards, ensure consumer protection and anti money laundering measures, and transparency. Banks are generally not allowed to engage in activities related to virtual currencies when it is not their main line of business and must establish a separate entity to trade in cryptocurrencies after obtaining a license. Also, providers f wallet services should obtain a license unless they provide a mere storing space that is not connected to any activities mentioned in the definition section.

License for Virtual Currency Exchange Services FAQ

My business is registered in another country. Do I need registration in Japan, too.

Yes, if you are aiming to provide services to the citizens or residence of Japan. Remember, however, that in according to the Japanese Law, the maximum leverage is set at x25.

Are there a lot of foreign companies who got the license?

At the moment the FSA reports about the first successful case of the application for a financial services license through their newly presented helpdesk. As for the licenses for the virtual currency related businesses, there are about 100 applicants waiting for their permits. The FSA has no intent to limit the number of licenses it will provide. But due to the complexity of the application process, the number of checks the FSA needs to run, and the limited number of official handling them, the process is rather slow at the moment.


Currently, more than 100 applicants waiting in line to obtain license – FSA does not intend to limit the number of license, but all staff are taken up by on site monitoring (inspection) – Limited number of government officials is a bottleneck

Where can I find the list of all the registered business with the license?

The full list divided by the types of businesses can be found at the FSA website (in Japanese) here.

Can I apply in English?

The applications are handled in Japanese. Especially at the ground-level. Thus, make sure to arrange for a translator and interpreter should you need assistance with the Japanese language.

Can someone help me with the application process??

Only partially. The application process involves interviews with the regulators where the business owner needs to answer questions related to his company. Thus, while the lawyer can help with the preparation of documents and assist you during the interview, as the business owner one should be physically present at those interviews.

Is ICO possible in Japan?

At the moment all ICOs in Japan are suspended due to recent cases of thefts and frauds.

Currently, some licensed providers are negotiating with the FSA about obtaining permission to act as ICO brokers, but that may take some time. It is still possible under the current legislation to hire a licensed service provider to act as a seller on behalf of the token issuer. One can issue Japan version of Simple Agreement for Future Tokens (J-SAFT) after meeting the security regulations by hiring Type II Financial Instruments Service Provider.