Japan’s Venture Capital Firms Granted Access to Crypto Assets

Japan’s cabinet has given the green light to a bill that permits investment funds and venture capital firms in the country to hold cryptocurrency assets, according to an announcement from the Ministry of Economy, Trade and Industry on Friday.

The decision comes as Japan aims to ease restrictions on venture capital crypto investments, enabling these firms to support Web3 startups that exclusively deal in cryptocurrencies. The move follows the approval of revisions to the Act on Strengthening Industrial Competitiveness, signaling Japan’s intention to boost strategic investments in domestic Web3 startups by allowing limited partnership firms to possess and invest in crypto assets.

Renowned for its regulatory approach to stablecoins, Japan continues to pave the way for embracing Web3 technologies while upholding stringent user protection measures. In September 2023, Nikkei reported on Japan’s plans to relax regulations governing venture capital investments in crypto startups. With the cabinet’s recent approval, the amended bill will be deliberated in the ongoing parliamentary session.

The Ministry of Economy, Trade and Industry (METI) highlighted the importance of the approved revision, which includes amendments to the Act on Strengthening Industrial Competitiveness. 

These changes aim to facilitate strategic investments that support local startups and medium-sized enterprises, particularly in cryptocurrencies. According to reports, the revisions would enable venture capital firms to engage in projects exclusively dealing with cryptocurrency issuance.

The alteration explicitly includes crypto assets that investment limited partnerships (LPS) can acquire and hold. Limited partnerships in Japan typically function as investment vehicles for unlisted companies, a common avenue for venture capital investment in startups. 

Until now, Japanese regulations barred VCs from investing in crypto assets, restricting their involvement in traditional equity investments.

Kunimitsu emphasized in his X post that Japanese crypto projects previously faced challenges securing funding, often relying on foreign venture capital. He expressed optimism about the newfound opportunity for Japanese VCs to invest, foreseeing benefits for Web3 startups in the country. 

Under Prime Minister Fumio Kishida’s economic policy, Japan has actively pursued the development of its Web3 sector. In December, the cabinet approved revisions to the tax framework, potentially exempting companies from taxes on unrealized crypto profits.

The government intends to present a bill to parliament later this year to formalize changes to VC crypto investment regulations. While parliamentary approval is still pending, the Japanese parliament has rejected no government-proposed crypto legislation to date. This decision comes amid heightened scrutiny over illicit crypto transactions, with the Financial Services Agency (FSA) urging banks to enhance monitoring to combat fraudulent crypto activities.

Furthermore, Japan is actively addressing legal concerns regarding introducing a digital yen by spring 2024. According to a report released on January 26, neither the Bank of Japan (BoJ) nor the government has officially confirmed the launch of the digital yen. Any decision regarding its implementation will be made following a “national discussion,” slated to occur no earlier than 2026.

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