While there is a growing trend towards approval of crypto ETFs globally, authorities in Japan take a more conservative stance in this area, differing from the more progressive stances of countries such as the US and Hong Kong.

While the US approval of the first spot Bitcoin ETFs in January 2024 and Ethereum ETFs in July 2024 has accelerated progress in this area, no similar development has been seen in Japan.

Oki Shiozawa, chief investment officer of Sumitomo Mitsui Trust Asset Management, stated in an interview with the Financial Times that Japanese authorities are not currently in a position to approve crypto ETFs.

Shiozawa emphasized that the Japan Financial Services Agency (FSA) is generally cautious about crypto-related financial products. Stating that FSA has a fundamentally conservative approach to approving such products, Shiozawa said that it is difficult to convince the authorities in this field in the current situation.

“I’m not saying crypto-related ETFs are impossible, but I can’t think of any way to convince the authorities right now,” Shiozawa said.

Japan aims to become a crypto-friendly country and is trying to grow itself as an asset management hub. However, high tax rates and tight regulatory restrictions pose obstacles to wider adoption of crypto assets.

Gains from crypto investments in Japan are classified as “other income” and are subject to tax rates of up to 55%. This is quite different from the 20% tax on gains from ETFs.

Keisuke Kimura, vice president of the Japan Crypto Asset Business Association, stated that these limitations are largely due to regulatory restrictions.

Also, Mt. He added that the negative traces left by past crypto scandals such as Gox and DMM on the Japanese people are still fresh. These scandals caused many investors to suffer huge losses, which created a general wariness towards crypto assets.

Kimura emphasized that regulations in Japan do not currently allow the inclusion of crypto assets in investment funds, including ETFs. Therefore, the biggest obstacle to crypto ETFs in Japan is regulatory limitations.

Despite these challenges, some companies are preparing for potential regulatory changes. For example, Franklin Templeton and SBI Holdings partnered in July 2024 to develop new products, including crypto ETFs. Japanese banking giant Nomura has also begun to pioneer innovations in this field by launching a Bitcoin investment fund for institutional investors.

On the other hand, the USA and some countries in the Asia-Pacific region are making rapid progress in this field. The US approved the first spot Bitcoin ETFs and later Ethereum ETFs in early 2024.

Markets such as Hong Kong and Australia have taken similar steps and opened their doors to crypto ETFs. These developments increase pressure on Japan to adopt a similar approach.

Japan’s cautious stance towards spot crypto ETFs is shaped by regulatory restrictions and negative perceptions created by past scandals.

However, some major financial institutions are hopeful that regulations in this area will be relaxed and continue to make preparations. Considering the developments in the USA and other Asian countries, Japan can be expected to take bolder steps in this field in the coming years.