The Financial Services Agency of Japan, the country’s top financial watchdog, is reportedly taking a friendlier stand in regards to cryptocurrencies as indicated by their updated policy assessments for this year.

A report from Coinpost indicated that, based on the agency’s materials released in late August, the agency commented that it will be fostering an environment in which cryptocurrencies and other digital assets could flow freely to promote the development of the so-called Web 3.0.

For this purpose, the agency is actively reviewing how taxation would work for crypto assets considering that there are many different types of digital tokens including governance tokens, whose value is not dependent on the rendering of a good or service but only on the possibility of participating in the decentralized management of a certain blockchain-powered protocol.

In addition, the agency stated that it will be establishing clearer rules for the issuance of stablecoins that start by classifying these assets into two groups. The first group would be for assets that are issued, managed, and backed by financial institutions while the second would probably refer to algorithmic stablecoins, which are fully decentralized.

Cryptos Are Considered a Payment Method in Japan, Nothing Else

These latest positive comments come amid growing concerns about how the country’s economy is being drained of top talent in the crypto ecosystem due to the strict regulations that the government has imposed on these initiatives thus far.

Cryptocurrencies are legal in Japan and residents of the country are permitted to make payments and invest in these digital assets.

The most traditional tokens such as Bitcoin (BTC) and Ethereum (ETH) are considered utility cryptocurrencies that can be used as a mean of payment. Hence, they are regulated under the Payment Services Act.

In June this year, the upper house of the country’s parliament passed a new law that seeks to regulate the issuance of stablecoins in the country and that will demand registration for all entities that seek to offer these instruments to the public.

Meanwhile, there is no specific regulation that deals with non-fungible tokens (NFT) as they are not considered a feasible mean of payment. They are, however, considered a form of property.

When it comes to exchanges and crypto firms, all of the companies that provide access to the crypto market must be registered as a Crypto Asset Exchange Service with the Financial Services Agency.

The Bank of Japan, the country’s central bank, does not recognize digital currencies as money. However, the institution has been exploring the pros, cons, and practical applications of central bank digital currencies (CBDCs) as these tokens could be used to further foster a cashless economy.

The Implosion of Terra Prompts Regulators to Take Action

Countries have been rushing to create appropriate regulations for cryptocurrencies this year following the debacle of the Terra ecosystem – an event that inflicted losses of over $60 billion to both individual and institutional investors from different corners of the world.

In addition, there have been several incidents related to stablecoins whose value has drifted off their intended peg while multiple crypto exchanges and lending protocols have succumbed to bankruptcy due to poor risk management practices.

Legislators in both the United States and the United Kingdom have been drafting proposals and bills that seek to establish clear definitions for the terms digital asset, stablecoin, crypto exchange, and other similar concepts.

In addition, regulatory agencies have been entrusted with the task of consulting the public to enrich their knowledge and shape their policies accordingly.

Cryptocurrencies can hardly be treated as traditional assets such as stocks or bonds as their practical applications typically go beyond entitling their holders to receive some sort of compensation in return for the risk assumed.

With this in mind, countries including Japan have designated task forces such as the Digital and Decentralized Financial Planning Office to analyze and propose constructive policy responses that help regulate the up-and-coming blockchain and crypto space.

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