Japan approves Web3 White Paper to promote industrial growth in the country

Japan’s ruling Liberal Democratic Party’s Web3 project team has published a white paper with recommendations to grow the country’s industry, which has become part of national strategy under Prime Minister Fumio Kishida’s administration.

The Web3 project team has bypassed the usual bureaucratic processes to formulate regulatory proposals for everything from non-fungible tokens (NFTs) to decentralized autonomous organizations (DAOs).

“The cryptocurrency industry has been driven by early adopters, but it will shift to mass adoption from now on,” said secretary general of the party’s Web3 project team Akihisa Shiozaki in an interview with CoinDesk Japan.

Shiozaki pointed out that major players in Japan have started to enter the market. Japanese mobile operator NTT Docomo pledged to invest up to 600 billion yen ($4 billion) in Web3 infrastructure and major financial institutions are looking to issue stablecoins.

The white paper notes that Japan should show leadership at the Group of Seven (G7) summit this year, where crypto will be discussed. It suggests that the country should look ahead to the future potential of Web3 and clarify its leading position on technology-neutral and responsible innovation.

It also proposes further changes to the tax regulation, noting that one significant exemption for token issuers has already been approved. Among these is having tax exemptions for companies that have tokens issued by other companies that are not to be traded in the short term. It recommends allowing self-assessments so that investors can carry forward losses for three years, and that crypto should only be taxed when the assets are exchanged for fiat currency.

The document identifies a lack of accounting standards as a pressing issue as Web3 companies have had trouble finding auditors. It says ministries and agencies should support the Japan Institute of Certified Public Accountants in formulating guidelines.

It also recommends setting up a DAO law based on Japan’s godo kaisha (a type of business similar to a limited company) and make changes to regulations under the Companies Act and the Act on Financial Instruments and the Stock Exchange.

Japan adopted a framework for the regulation of stablecoins last year. The new white paper emphasizes the importance of preparing the environment for stablecoin registration and establishing a self-regulatory organization. It also mentions development of proposals for yen-backed stablecoins.

Large companies in Japan have shown interest in the Web3 industry. But the message says approvals for banks and insurance companies entering the industry are still unclear and advises to post guidelines.

On NFTs, the White Paper proposes public-private partnerships to formulate guidelines for legal business models for fantasy sports services. It also recommends that the public and private sectors work together to sort out data and NFT rights, and consider ways in which content holders can legally license NFTs.

A Web3 minister should take responsibility for promoting policy and cooperation with other countries, according to the document. It says Japan’s digital agency will set up a related consultation desk for local governments and business operators.

It also proposes issuing crypto visas to skilled workers, and expanding the start-up visa system.

Update (6 April 2023 10:28 UTC): Adds link to published white paper in first paragraph.