Japan's 6–12-month crypto approval delays stifle innovation push startups offshore

Japan’s regulatory framework for cryptocurrency is increasingly criticized for stifling innovation due to its slow and risk-averse approval processes, according to Maksym Sakharov, co-founder and CEO of Web3 firm WeFi. Sakharov highlighted that Japan’s prescriptive regulatory culture, rather than proposed tax policies, is the primary driver of crypto startups and liquidity moving offshore [1]. He emphasized that even if a proposed 20% flat tax on crypto gains is implemented, Japan’s bureaucratic delays will continue to hinder the sector’s growth.

The current approval process for token listings or initial exchange offerings (IEOs) in Japan requires two stages: first, a self-regulatory review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA), followed by oversight from the Financial Services Agency (FSA). This multi-step process often extends market entry timelines to 6–12 months or longer [1]. Sakharov noted that repeated delays in areas like JVCEA token screening, IEO white paper vetting, and product change notifications to the FSA create significant inefficiencies. “The process is designed to avoid downside, not to accelerate innovation,” he stated, underscoring the lack of a dynamic regulatory sandbox to support experimentation.

Comparing Japan to other jurisdictions, Sakharov pointed out that countries like Singapore, the UAE, and South Korea have more streamlined frameworks. While Singapore maintains strict oversight, it offers clearer pathways for innovation. The UAE’s faster average approval times and South Korea’s regulatory focus on ongoing compliance rather than external pre-approvals further differentiate these markets [1]. Japan’s current system, by contrast, forces many teams to list internationally first, as prolonged approval timelines burn operational capital and delay market entry.

The expert argued that Japan’s proposed 20% tax and reclassification of crypto as a financial product will not address the core issue of regulatory inertia. “Culture eats tax cuts for breakfast,” Sakharov said, stressing that cultural shifts in regulatory approaches are critical to reversing the trend. He proposed reforms such as time-boxed, risk-based approvals, functional sandboxes for staking and governance experiments, and proportional disclosure requirements. Without these changes, he warned, domestic projects will likely continue scaling abroad, driven by uncertainty and delays rather than tax burdens [1].

The critique aligns with broader global trends, as other Asian markets demonstrate agility in crypto regulation. For instance, the UAE has introduced progressive frameworks to encourage tokenized securities, while Hong Kong’s Ensemble Sandbox aims to fast-track innovation [2]. These developments highlight Japan’s growing risk of ceding its fintech leadership to jurisdictions with more adaptive policies.

Sources:

[1] [Japan’s 'slow' approval culture stifles crypto adoption: Expert] [https://coinmarketcap.com/community/articles/6884cef47bcc423cceef7492/]

[2] [Japan’s 'slow' approval culture stifles crypto adoption: Expert] [https://www.coingecko.com/en/coins/yield-optimizer-eth]