The Fintech industry is growing in Japan. The country’s relationship with Fintech started to blossom in 2016. In 2014, fintech investments amounted to about 0.4%. This figure doubled in 2015 but the total amount was a mere $142 million. Part of the reason for this slow growth is the fact that Japan is a bank-centric country. It is estimated that there are about 103 banks per every 1,000 square kilometers. This means that a majority of Japanese citizens are banked and are satisfied with their banks.
The other reason for slow fintech and cryptocurrency adoption is related to the Mt. Gox saga. A lot of people lost money, which shifted their trust back to traditional banking services. Furthermore, Japan is heavily a cash-based economy which explains the overall slow adoption of fintech. However, with the arrival of blockchain technology, interest in the sector is fast emerging. Japanese banks are well-aware that blockchain has the capability to disrupt the entire sector and are therefore conducting blockchain research. The Bank of Japan, Japan’s central bank, is conducting a joint research with ECB to gather insight into how blockchain works. The country is finally embracing fintech.
Blockchain in Japan
Japan has always maintained a friendly attitude towards cryptocurrency and blockchain. In fact, back when Tokyo-based Mt. Gox was in operation, 70% of global Bitcoin transactions took place on it. However, the hacking of MT. Gox back in 2014, where about 850,000 Bitcoins were allegedly stolen, exposed the need to protect investors. This prompted the Japanese government to develop new regulations for cryptocurrencies. Driven by the desire to protect its citizens, along with recommendations from the FATF (Financial Action Task Force), Japan revised its Payments Services Act which later went into effect in April 2017. It should be noted that Japan is the only nation that has a proper and well-defined legal system regulating cryptocurrency exchanges.
Blockchain technology is actually doing quite well in the country, with an estimated 56% of corporations in Japan considering blockchain pilot projects. Companies like Sony, who is considering using blockchain tech for Digital Rights Management (DRM), and have apparently already filed a related patent on April 26th, 2018. The Japanese government is even aiming to create a system for smooth copyrights handling for content creators (games, etc), the validation phase of which is reportedly planned for 2019.
The Payments Service Act recognizes cryptocurrency as a property value that has the capability to purchase goods or services and can be sold or traded electronically. With that said, Japan doesn’t recognize cryptocurrency as legal tender. But, it acknowledges the fact that you can make purchases, sell, or trade with cryptocurrency. Under the new law, any exchange platform that wishes to do business in Japan, foreign or local, needs to be registered with the nation’s Financial Services Agency (FSA). It’s also required to keep its assets separate from those of its customers and comply with strict AML (Anti-Money Laundering) and KYC (Know Your Customer) guidelines. Exchanges are encouraged to maintain proper account books, file business reports, and undergo financial audits annually.
Acceptance and Adoption Levels
Japan’s government has adopted an open approach towards cryptocurrencies. This has allowed Japan to achieve an astounding explosion in Bitcoin trading volumes. It’s still believed this is associated with the fact that the original creator of Bitcoin, Satoshi Nakamoto, is believed to be Japanese. However, this remains debatable. Around April 2017, Japan declared Bitcoin as a legal payment method. This saw around 4,500 stores start accepting cryptocurrency payments. It’s also estimated that Japan has numerous Bitcoin ATMs. This has allowed further increased transaction volumes with few frictions. There is even news that one Japanese business offered to pay its employees in Bitcoin if they so wished.
Gold in Japan
Gold reserves in Japan have remained unchanged this year at 765.20 tonnes in both Q1 and Q2. Throughout 2000 until 2018, gold reserves averaged 764.82 tonnes reaching highs of about 765.22 tonnes in Q1 2017 and lows of about 753.54 tonnes in Q2 2000. The overall demand for gold jewelry and gold bullion totaled about 32.8 tonnes with 16.2 tonnes representing demand for gold bullion and 16.6 tonnes representing demand for gold jewelry. There are a large number of precious metal refineries in Japan. To be more specific, there are about 11 gold refineries listed on the LMBA good delivery list for gold. Such a high number of gold refineries represents the nation’s well-developed refinery sector.
Japan was previously known for being a massive importer of gold globally before gold reservoirs were discovered within its borders. Currently, it’s a net exporter of gold, being ranked 9th in the global gold export league table. Its gold exports account for 2.3% of all the world’s gold exports. Japan exports about $7.11 billion annually in gold. The UK is Japan’s biggest gold export destination with about $2.58 billion (36%) of their gold output being imported there.
There are many outlets in Japan that offer investment gold. Some Japanese citizens use physical gold as a store of value or a currency hedge. They also tap into gold banking products and accumulation plans. These Gold Accumulation Plans (GAPs) have been common in Japan since the 1980s and they account for about 300 tonnes of gold holdings. Bank account holders utilize GAPs by buying small quantities of gold over time until they eventually build up a sufficient gold balance. Thereafter, they can withdraw the gold balance in the form of gold jewelry, gold bars, or gold coins.
Japan continues to be a dominant player in the fintech and blockchain sector. The nation’s pro-active approach towards blockchain and cryptocurrency is allowing for exponential growth of fintech in the nation. Due to this, it has attracted a multitude of businesses to its borders, part of its approach to becoming a blockchain center. Not to mention that its regulatory standards are providing a template for other countries to follow. There is a definite future for the fintech industry within Japan’s borders.
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