TOKYO--Japan is likely to stop short of regulating bitcoin after a ruling party panel looking into issues surrounding the virtual currency decided that no legislation is needed for now.
Prime Minister Shinzo Abe's Liberal Democratic Party also said Thursday that no single government agency should be appointed to oversee the digital currency, instead calling for self-regulation by those involved in trading in bitcoin, as the party seeks to nurture the fledgling industry.
"While we may need to be flexible in reviewing legislation in the future, we also have to have to stand back and allow this new sprout of industry to grow," said Takuya Hirai, the chair of the LDP panel on information-technology strategy.
In the panel's statement of proposals for how the government should handle bitcoin, it defined the virtual currency as an "electronic record with value," meaning it is neither a currency nor a commodity. The panel also recommended that specific bitcoin transactions and capital gains are taxed.
Given the current vacuum in regulation, some law experts and bitcoin users in Japan have said bitcoin and its exchange platforms warrant government regulation to protect users, with many of them pointing to the Financial Services Agency as the most appropriate watchdog under existing law.
The debate intensified after Japan-based exchange Mt. Gox collapsed in February, losing 850,000 bitcoins worth half a billion dollars at that time. Mt. Gox's demise amplified public concern about the stability of bitcoin, which isn't backed by any central bank.
But the FSA says it has no responsibility to monitor bitcoin since it is not recognized as a currency.
The panel recommends that bitcoin users themselves take full responsibility for their usage of the digital currency, and that no government agencies are assigned to monitor the market.
"Japan should become the world's easiest place to run bitcoin businesses and for this reason we must avoid tying down the industry with regulation," the panel said in its statement.
Once the local bitcoin community has set up its own industry group, it will be able to consult with the economy and trade ministry, the FSA, the Consumer Affairs Agency and the National Police Agency, among others. This setup will be subject to review depending on changes in how other major nations choose to deal with the digital currency, the report said.
The industry group, expected to launch soon, will set up guidelines for the industry, especially on the self-governance of exchange platforms. The panel said some of the ideas under consideration by those looking to establish the group include reporting of new exchange openings, implementing more thorough identity verification procedures of customers and conducting peer-to-peer checkups to prevent criminal activity. The group will also offer full cooperation with Japanese authorities when necessary.
The panel said that bitcoin transactions for bitcoin, goods, and currency should be subject to Japan's 8% sales tax, though taxes paid when purchasing goods to sell will be deductible. Capital gains from changes in bitcoin value in the market should also be subject to appropriate taxes, the report said.
Write to Takashi Mochizuki at takashi.mochizuki@wsj.com
June 19, 2014 at 04:05AM
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