Deputy Director of the Japanese Ministry of Economy, Trade and Industry: Web3 innovation and regulation, how does Japan consider it from an economic perspective?

Interview: Fiona, Foresight News

Organized by: Kean, Foresight News

Compilation: Peng SUN, Foresight News

TL;DR：

• 1. The mission of METI is to increase the country's GDP and the overall economy. In the field of Web3.0, the primary goal of METI is to strike a balance between regulation and promotion of innovation. If the regulation is too strict, it will discuss with the Financial Services Agency to create an environment that encourages innovation and advocate tax reform;
• 2. Web3.0 changes too fast, and the regulations that have been formulated may soon become outdated or inapplicable, and need to be constantly updated to adapt to the continuously changing environment;
• 3. Japan has stipulated that start-up companies can issue tokens tax-free, and the government is considering amendments to solve the current tax issues regarding investors holding tokens and VCs are restricted by regulations and cannot hold tokens;
• 4. The digital yen pilot program is still under discussion and has not yet been implemented. Japan has lifted the ban on stablecoins, and large trust companies are trying to issue yen-based stablecoins that support Ethereum, but are still applying for stablecoin issuance and intermediary licenses, and are expected to enter the market next year;
• 5. NFT is most suitable for the Japanese market, and Japanese companies and overseas start-ups can carry out new cooperation in issuing NFT or building GameFi services;
• 6. Not all companies holding IP are interested in Web3, and Nintendo and others remain cautious. The popularity of existing IP in the Web3 field may be greatly reduced;
• 7. Adoption of Web3 by mainstream consumers in Japan is still limited, only about 5% of people use Web3 wallets; Japanese companies such as Toyota, Sony and NTT Docomo are very interested in Web3, if Japanese companies, Japanese and overseas start-ups The prospect of entering Southeast Asia or the entire Asian market through cooperation will be very good.
• 8. The Japanese government implemented tax reforms, regulatory reforms, and issued new guidelines to create a better business environment for Web3.0. At the same time, the government is also trying to attract overseas start-ups through the support of organizations such as the Japan Blockchain Association, hosting international conferences, and promoting Japan as a DAO hub;
• 9. The Japanese government is addressing issues such as opening bank accounts and obtaining visas for overseas start-ups. It plans to launch a digital nomad visa and has provided a start-up visa that allows companies to set up institutions in Japan for up to six months.
• 10. It is recommended that overseas Web3.0 projects cooperate with start-up-supporting local government organizations such as Shibuya Ward, which provide various measures that can help open bank accounts, start a business, and adapt to life in Japan;
• 11. The government is working hard to build a talent pool in the Web3.0 field, paying special attention to the establishment of the developer community, and will encourage developers to participate in the construction of Web3 on a part-time basis to promote the cultivation of their community awareness;
• 12. The Japanese government aims to revitalize the national economy through Web3.0, extend the advantages of blockchain technology to areas such as supply chain management and trade finance, to improve efficiency, and create new data sharing platforms for traditional industries.

In Kyoto at the end of June, IVS Crypto 2023 drew our attention to Japan; and in Tokyo a week later, the WebX International Forum will also be held soon. This long-neglected neighbor came to the stage with a relatively mature set of encryption regulations, trying to bridge the gap between the local Web3.0 and the entire encryption industry through policy-driven, and promote the development of the Japanese Web3.0 industry. develop.

With so much pressure on global encryption regulation, Japan is one of the few countries that clearly supports the development of Web3. In fact, Japan planted the seeds of encryption as early as 10 years ago. The encryption exchange Mt.Gox was established in Shibuya District, Kyoto in 2010. In 2017, Japan has supported Bitcoin payments. But if it weren’t for the hacking of Mt.Gox (2014) and Coincheck (2018), which resulted in the two largest cryptocurrency exchange attacks in history, Japan may not fade out of our sight for long. Since the "Payment Service Law" in April 2017, Japan has officially entered the era of encryption regulation, and it can even be said to have opened the harbinger of global encryption regulation. At the same time, virtual assets were included in the Fund Settlement Law. After the Coincheck incident, in 2019, Japan revised the relevant regulations in the "Payment Services Law", "Financial Instruments Exchange Law" and "Financial Instruments Sales Law" and other bills, and in order to protect users, it required cryptocurrency exchanges to implement asset Separate management, that is, to separate user funds from exchange funds. Since then, the Financial Services Agency has more or less revised the cryptocurrency regulations.

Regulatory pressure has also caused the Japanese encryption market to stagnate. Compared with the global encryption ecosystem, it can be said that Japan has missed a whole cycle of development. At the same time, since the end of the Japanese bubble economy in the 1990s, the Japanese economy has been sluggish for a long time. The Japanese Ministry of Economy, Trade and Industry (METI, Ministry of Economy, Trade and Industry), established in 2001, has taken on the mission of promoting Japan's economic development and industrial innovation. However, the Japanese economy has not improved significantly in the past 20 years. Coupled with the impact of COVID-19, the revitalization of the Japanese economy and regional economy has become the main topic in the post-COVID-19 era, and METI is the main promoter of this process:

• In the spring of 2022, Japan released the NFT white paper;
• In July 2022, METI began to explore the "creator economy" (NFT, Metaverse), and established the "Web3.0 Policy Office" to discuss how to build a friendly business environment for the development of Web3.0;
• In April 2023, the Web3 project team of the Liberal Democratic Party's Digital Society Promotion Headquarters published the "Web3 White Paper: Towards an Era where Everyone Can Use Digital Assets", which was approved by the House of Representatives. Japanese Prime Minister Fumio Kishida personally promoted it, announcing to the world that "Japan is Back ".

Therefore, Foresight News exclusively invited Waka Itagaki, deputy director of the Ministry of Economy, Trade and Industry of Japan. From her, we can learn about the basic appearance and development plan of Web3.0 in Japan.

**Foresight News: In the past six months, Web3 has ushered in great changes, such as the tightening of US regulations, the green light of China's Hong Kong policy, and so on. What do you think of this change in the global Web3 landscape? What do you think will be the future development trend? What are the main opportunities in the Japanese Web3 market and industry? **

Waka Itagaki (METI): In the past six months, the global Web3 landscape has undergone major changes, including increased regulatory scrutiny in the United States, and Hong Kong’s policies that favor the encryption industry. These changes indicate that countries/regions are struggling to find a balance between innovation, consumer protection and financial stability.

The U.S. sees consumer protection as the key to mass adoption, while governments in Hong Kong and elsewhere prioritize promoting innovation. Despite the challenges, these changes can have a positive impact on the crypto industry by encouraging innovative development rather than speculation.

Looking ahead, the development trend of Web3 shows that encrypted wallets, NFTs and DApps will be widely adopted, which will improve efficiency and provide potential solutions to social problems.

In Japan, rich IP resources and a booming game industry will provide opportunities for innovation in the Web3 field. We have many emerging use cases beyond speculation. For example, NFT-based projects can help revitalize rural areas. A village in Japan called Yamakoshi has created an NFT-based DAO, and digital citizens and community villagers share ownership of the NFT. The funds raised from these NFTs are used to promote the revitalization of rural areas. Cases of such innovations continue to emerge in Japan, contributing to the development of the country.

In the future, Japan is also expected to realize programmable payment and programmable currency, extend the advantages of blockchain technology to fields such as supply chain management and trade finance, to improve efficiency, and create new data for traditional industries (automotive, chemical, etc.) Sharing Platform.

**Foresight News: What role does METI play in the development of Web3.0 in Japan? Which other government departments are you mainly working with to promote the development of Web3.0? What work are they responsible for? **

Waka Itagaki (METI): The Japanese Ministry of Economy, Trade and Industry (METI) plays a vital role in the development of Web3.0 in Japan. As a government agency focused on economic growth, our mission is to improve the country's GDP and the overall economy. In the field of Web3.0, we work closely with the Digital Agency, the Financial Services Agency and other relevant government agencies to create a business environment conducive to innovation.

Our overarching goal is to strike a balance between regulation and the promotion of innovation. If the regulations are too strict, we will discuss with the Financial Services Agency to create an environment that encourages innovation. In addition, we advocate tax reform to better support the development of the encryption industry.

There are about 10 departments related to Web3.0, and METI needs to cooperate with these departments. For example, where regulatory issues are involved, we will work with the Financial Services Agency to develop a new policy agenda and drive its development. (It's worth noting that not all of these departments are focused on Web 3.0.)

**Foresight News: Compared with other countries or regions, we have noticed that Japan has established a relatively mature regulatory system, and vigorously promotes the development of Web3.0 and Crypto in the regulatory process. So, what resistance did you encounter during this process, and how did you overcome it? **

Waka Itagaki (METI): Affected by events such as the Coincheck hack in 2018, Japan has successively formulated regulations for cryptocurrency exchanges and stablecoins, and the Financial Services Agency has played an important role in formulating these regulations. However, one of the difficulties that we at METI face is that Web 3.0 changes are moving so fast that regulations already in place may quickly become obsolete or inapplicable.

For example, back in 2015, Bitcoin was the most dominant cryptocurrency. But now that there are so many cryptocurrencies and apps, regulations like the Payment Services Act, enacted in 2016, are somewhat outdated. In addition, Japan's tax system is closely related to the definition of accounting and taxation, relying heavily on the concept of taxable assets. As a result, tax and accounting systems can develop problems and need to be constantly updated to adapt to the constantly changing environment.

Regarding the motivation to overcome these challenges, I can answer from two aspects. Personally, I believe in the transformative power of new technology, and in the long run, I believe it will create a better society. I love creating an innovative environment, and I'm intrigued by the concept of Web3.0, where tokens can incentivize behavioral change, where individuals can contribute to projects based on their ability, while being financially incentivized and rewarded. Therefore, the new economic model brought by Web3.0 is very attractive to me.

On the other hand, as government officials, we recognize that Web3.0 and blockchain technology are expected to boost the Japanese economy. In the past few years, the development of the Japanese market in the digital field has been unsatisfactory. By building a good Web3.0 ecosystem, we aim to attract overseas start-ups and revitalize the economy. That's what we're working towards.

**Foresight News: What is the status and progress of the implementation of the proposals and guidelines outlined in the "Web 3.0 White Paper" (Cool Japan) released in April this year? What are the implementation plans of the Japanese government in terms of DAO, NFT, taxation, and accounting systems? **

Waka Itagaki (METI): The Japanese government has made many efforts to implement these proposals. We can see that the government has promulgated new legislation, and the policy is more stable and clear. The Japan Institute of Certified Public Accountants has formed a study group to develop auditing and accounting standards related to crypto assets.

In terms of taxation, a new tax regime has been introduced, and tokens issued by start-ups are tax-free. However, challenges remain. For example, the government is considering amendments to address the current tax issues regarding investors holding tokens and VCs being restricted by regulations not being able to hold tokens.

The goal outlined in the white paper is to foster innovation by Japanese start-ups and large corporations, with a focus on creating a business environment conducive to their success, including access to funding from VCs. Currently, Japan is working hard to build the necessary infrastructure and support the ecosystem to drive innovation in the region.

**Foresight News: Japan has begun piloting the digital yen and lifting the ban on stablecoins. What opportunities will this bring to the Japanese economy? **

Waka Itagaki (METI): Japan has lifted its ban on stablecoins, although a digital yen pilot program is still under discussion and has not yet been implemented. Large trust companies like Japan’s Mitsubishi UFJ Trust and Banking Corporation (MUTB) are trying to issue yen stablecoins that support public chains such as Ethereum. These stablecoins are expected to facilitate digital transformation, such as improving the efficiency of supply chain management and building a data sharing platform between companies. While the new regulations come into effect in June 2023, companies are still in the process of obtaining stablecoin issuance and intermediary licenses, with Japanese yen stablecoins expected to hit the market next year.

**Foresight News: Japan has a well-developed game and animation industry, and its IP is at the leading level in the world. These are unique resources in Japan. How will you use these advantages to promote your global development in the fields of NFT, games and metaverse? **

Waka Itagaki (METI): The whole world is curious how Japan will use the game industry and IP to develop Web3. We believe that there is a feasible path, that is, Japanese companies and overseas start-ups can carry out new cooperation in issuing NFT or building GameFi services. There is already a trend that overseas start-ups are interested in entering the Japanese market and have established entities in Japan. However, not all companies holding IP are interested in Web3. While some companies (such as Sanrio or Toei Animation) are actively integrating Web3 development, companies such as Nintendo remain cautious due to the concerns of existing users and doubts about the history of cryptocurrencies. In addition, the popularity of existing IPs in the Web3 space may be significantly reduced, thereby affecting their participation. In short, each company's attitude towards Web3 is different.

**Foresight News: Based on the current Japanese regulatory environment and the preferences of Japanese market participants, which type or types of on-chain applications do you think are most suitable for the Japanese market? **

Waka Itagaki (METI): When comparing DeFi, NFT and DAO, I think NFT is the most suitable for the Japanese market. Even people who are not interested in cryptocurrencies generally have a favorable opinion of NFTs, because Japan has unique use cases such as Yamakoshi NFTs and emerging social applications. However, adoption of Web3 among mainstream consumers in Japan remains limited, with only about 5% using a Web3 wallet. In contrast, Web3 is more popular in developing countries in Southeast Asia and Latin America. However, Japanese companies such as Toyota, Sony, and NTT Docomo are very interested in Web3. If Japanese companies interested in Web3, Japanese cooperate with overseas start-ups to enter Southeast Asia or the entire Asian market, the prospects will be very good.

**Foresight News: What measures will the Japanese government take to improve the business environment of Web3.0, retain local Web3.0 companies, and attract overseas Web3.0 companies? And, how should overseas Web3.0 projects land in Japan? **

Waka Itagaki (METI): The Japanese government implemented tax reforms, regulatory reforms, and issued new guidelines to create a better business environment for Web3.0. Meanwhile, the government is also trying to attract overseas start-ups through support from organizations such as the Japan Blockchain Association, hosting international conferences and promoting Japan as a DAO hub.

However, there is room for further improvement. Issues such as opening bank accounts and obtaining visas for overseas start-ups are being addressed. The Japanese government plans to introduce a visa for digital nomads and has already offered a start-up visa, allowing companies to set up establishments in Japan for up to six months.

In order to start a business in Japan, it is recommended that overseas Web3.0 projects cooperate with local government organizations that support start-ups such as Shibuya Ward. These agencies offer a variety of measures to help businesses and employees open bank accounts, conduct business and adapt to life in Japan. Connecting with these resources can be of great benefit to overseas start-ups looking to enter the Japanese market.

**Foresight News: Furthermore, what layout does the Japanese government have in terms of Web3.0 talent pool? What are the preferential conditions for attracting overseas talents? **

Waka Itagaki (METI): At present, the government is working hard to build a talent pool in the Web3.0 field, paying special attention to the establishment of a developer community. However, there are certain challenges in connecting the Web2 and Web3 developers, and the Japanese and international developer communities. Some developers believe that due to the volatility and speculation in the cryptocurrency market, the Web3 project is too risky and unsustainable. To solve this problem, it is necessary to create sustainable businesses that contribute to socio-economic value. Through the popularization of emerging Web3 applications, developers can be encouraged to participate in the construction of Web3 on a part-time basis, and promote the cultivation of their community awareness.

Japan's safety and quality of life can attract people who have a good impression of the country. While it is not easy to formulate specific policies to attract overseas developers, creating projects that promote collaboration between Japanese and international developers or between Japanese projects and overseas developers can pave the way for partnerships and global collaborations.

**Foresight News: What changes does the Japanese government hope to bring to Japan's social economy through Web3.0 and Metaverse? Do you have any expectations? **

Waka Itagaki (METI): The Japanese government aims to revitalize the country's economy by embracing new innovations and attracting overseas start-ups and international talent. We believe that Web3.0 can bring economic and social benefits to society. By combining Web3.0, we expect that social issues will be solved and industry data sharing platforms will be created. For example, start-ups are using tokens to incentivize users to contribute data such as photos of electrical equipment. This approach can solve costly maintenance problems while creating new economic value for society. The government hopes to facilitate such a shift through the Web 3.0 initiative.