Japan’s cryptocurrency market: Set to bloom or wither?

Japan’s cryptocurrency market: Set to bloom or wither?

The popularisation of cryptocurrency and blockchain technology continues to grow worldwide. In Japan, engagement with cryptocurrency has blossomed among investors and major firms. Though that trend is likely to continue over the longer term, it may be tempered by regulation and an aging population.

Increased transactions

Statistics from the Japan Virtual and Crypto Assets Exchange Association (JVCEA) illuminate a large upward trend in the number of cryptocurrency spot transactions by JVCEA members—including some of the country’s biggest exchanges like bitFlyer and Rakuten—between October 2020 and February 2021. In October 2020, the equivalent of almost 73 million yen was traded, jumping to over 417 million yen by the end of February 2021. In terms of cryptocurrency units traded, this explosion of transactions peaked in January 2021 at nearly 28.5 billion units. Though the latest figures from March indicate a lower level of trading at 11 billion units, trading in 2021 thus far greatly exceeds 2020 levels, which averaged approximately 6 billion units per month. Japanese cryptocurrency transactions will likely remain at this elevated level in the short to medium term due to favourable cryptocurrency-related business developments.

Favourable headwinds

Auspicious signs for cryptocurrency market growth in Japan emerged this year with e-commerce giant Rakuten’s announcement that, as of February, cryptocurrency assets purchased on the Rakuten Wallet may be used to top up customers’ Rakuten Cash balance without incurring fees. Rakuten’s decision enables the use of cryptocurrencies for day-to-day transactions in Japan, albeit indirectly.

Another propitious event occurred 28 April when Nexon, a video game publisher listed on the Nikkei 225, purchased 1,717 bitcoins for approximately US$100 million, the first publicly traded firm in Japan to invest in cryptocurrency. Though bitcoin occupies less than 2% of Nexon’s balance sheet as of December 2020, it nevertheless places Nexon among an expanding list of major public companies utilising cryptocurrency. Nexon’s decision might encourage other Japanese firms to follow suit, boosting the viability of bitcoin and other cryptocurrencies as stores of value.

In addition, efforts to secure cryptocurrency exchanges and develop a common settlement framework are likely to benefit from Japanese exchange DeCurret’s announcement of former Financial Services Agency (FSA) chief Endo Toshihide joining as a special advisor. Given DeCurret’s prominent position in the Japanese cryptocurrency space, Endo’s involvement could promote good practice in the cryptocurrency sphere and the development of effective regulatory frameworks. After all, Endo headed the FSA when US$500 million in cryptocurrency was stolen during the 2018 Coincheck exchange hack, overseeing strengthened crypto regulations in response. 

Obstacles to growth

Japan’s cryptocurrency ecosystem still faces obstacles over the medium to long term. The closure of blockchain-based social networking start-up VALU last year in anticipation of tougher regulations on cryptocurrency managers suggests the proliferation of Japanese companies offering cryptocurrency-related services could be hindered over the longer term without necessary reforms.

Japan still trails its neighbours in cryptocurrency adoption. A 2020 Statista survey found only 4% of Japanese residents used or owned cryptocurrencies, whereas China, India and Vietnam reported 7%, 9%, and 21%, respectively. While these numbers suggest room for growth, the country’s shrinking proportion of young people could restrict adoption since Japanese crypto users tend to be under 30 years old. Cryptocurrency may also stall in the medium term due to the persistence of cash payments in Japan, especially among the elderly. According to Japan’s Ministry of Economy, Trade and Industry (METI), cashless payments accounted for only 26.8% of payments in 2019. The tide may be turning, however, as the pandemic has encouraged a shift away from cash.

The stability of the yen is also likely to restrain cryptocurrency growth. Countries like Turkey have seen rising cryptocurrency use in part to inflationary pressures. By contrast, the yen’s stability provides little incentive for firms or individuals to hedge currency risk with highly volatile cryptocurrencies. Nonetheless, the popularisation of stablecoins, which are pegged to a fiat currency or a commodity, could be more attractive. The release of JPYCoin in January 2021, a stablecoin pegged to the yen which can be used to shop on Amazon, suggests these types of digital currency could be on the rise in Japan.


Overall, cryptocurrency growth in Japan will continue its upward trajectory in the short term. In the medium term, however, stringent regulations threaten to stymie innovation within the Japanese crypto ecosystem, particularly among start-ups. In the longer term, Japan’s shrinking, aging population will likely limit crypto adoption and the development of that ecosystem given the demographics of crypto ownership in Japan.

Nevertheless, Japan’s cryptocurrency market looks promising due to vibrant competition among diverse crypto exchanges and increasing investment from established firms like Rakuten. For the market to achieve its potential over the long term, regulatory reform and—more importantly—solutions to cryptocurrency volatility will be critical. Without these changes, Japan’s crypto ecosystem will decline over the long run. Given the general scepticism of Japanese financial authorities towards cryptocurrencies and the history of incidents like the Coincheck hack, though, reform does not seem to be on the horizon.

Consequently, the ascent of stablecoins will determine the direction of the market. There is cause for bullishness given recent comments by Bank of Japan Governor Kuroda Haruhiko about the viability of stablecoins for financial settlement, despite his scepticism of fluctuating cryptocurrencies like bitcoin. The bank’s development of a digital yen may raise public awareness of stablecoins, facilitate purchases and support financial service innovation. Cryptocurrency investors should watch how Japan’s ecosystem develops over the coming years.

Categories: Asia Pacific, Economics

About Author

Samuel Arnold-Parra

Samuel graduated from LSE in 2020 with a degree in International Relations and History. Since graduating, he has been building up experience in research and analysis. Currently, he is conducting voluntary research on Japanese national and sub-national responses to COVID-19. He is eager to use his skills in Spanish and Japanese to contribute valuable insights focusing on Japan and Latin America.