Japan remains cautious on approving cryptocurrency ETFs

The approval of spot cryptocurrency ETFs in the U.S., Hong Kong and other markets highlights the conservative, if not contrasting, approach taken by Japanese regulators in this space. Japan has long positioned itself as a digital asset-friendly country as part of its broader goal to become a greater asset management hub. But at a policy level, Japan is unwilling to risk removing the tax and regulatory restrictions needed for widespread adoption. Oki Shiozawa, investment director at Sumitomo Mitsui Trust Asset Management, said Japan’s Finance Ministry is known to be skeptical of cryptocurrencies in general. "I can't think of any way to successfully convince these authorities at the moment," he said. Shiozawa added: “I’m not saying that cryptocurrency-related ETFs are impossible, but Japan’s Financial Services Agency, which is responsible for approving financial products, is largely conservative.” Following the launch of Bitcoin and Ethereum ETFs in the United States and Hong Kong, Japanese digital asset advocacy groups called on authorities to approve the launch of such ETFs, with the core rationale being that cryptocurrency ETFs would bring significant tax advantages. In Japan, profits from general cryptocurrency investments are considered miscellaneous income and are therefore subject to a maximum tax rate of 55%. On the other hand, ETFs that can be traded on the securities market are considered capital gains. This allows the ETF to have a lower tax rate of around 20%, making it a more attractive option for investors looking to diversify their portfolios with digital assets. Spot cryptocurrency ETFs will also offer tax benefits such as loss carryforwards. But Keisuke Kimura, vice president of the Japan Crypto-Asset Business Association and a former financial adviser to Sumitomo Mitsui and Nikko Securities, said a lot of changes would be needed for regulators to take action to introduce these potential benefits. Kimura said: “The current situation in Japan is mainly due to regulatory restrictions, as our laws currently do not allow crypto assets to be included in investment trusts, including ETFs. To change this situation, society needs to have wider acceptance that crypto assets can be used by Japanese citizens. Make a positive contribution to asset formation” (FT).