The push for revised margin trading caps aims to attract diverse traders, including institutional investors, while enhancing market liquidity.

Japan’s cryptocurrency exchanges are urging regulators to relax margin trading restrictions on popular cryptocurrencies such as bitcoin (BTC).

Exchanges in the country once offered leverage of up to 25 times principal capital, and trading volumes reached as high as $500 billion annually in 2020 and 2021, according to Bloomberg.

In early 2022, however, Japanese regulators limited crypto exchanges to offering leverage of only twice the principal capital, which led to trading volumes dropping drastically last year.

The Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulated body of local exchanges, is now arguing that these restrictions hinder market growth and discourage new participants.

Among the body’s demands is a request for higher leverage limits of at least 10 times the principal.

JVCEA Vice Chairman Genki Oda told Bloomberg in an interview that reforming the leverage rule could make Japan “more attractive for crypto and blockchain companies” and encourage more trading.

The regulators are expected to evaluate the proposals, taking into account market risks and investor protection. Any revisions to margin trading caps will undergo thorough reviews and consultations with industry participants.

The push for revised margin trading caps aims to attract diverse traders, including institutional investors, while enhancing market liquidity. Allowing higher leverage would also enable traders to manage their positions more effectively, JVCEA said.

Japanese crypto exchanges processed just over $110 million worth of trading volumes in the past 24 hours, data shows. Most volume was generated on bitcoin (BTC), ether (ETH) and xrp (XRP) trading, the data shows.

JVCEA’s comments come as Japan warms up to crypto regulation and stablecoin usage. Lawmakers are said to be exploring Web3 regulations to support the growth of NFT and virtual lands-related businesses in the country, while local banks are working on plans to issue their own stablecoins – tokens pegged to a fiat currency such as the Japanese yen – in the coming months.

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The move comes after more than two years of proof-of-concept experiments by the BoJ.

Japan will launch a pilot programme in April to test the use of its version of the central bank digital currency (CBDC) known as the digital yen, its central bank said on Friday.

“We plan to develop a system for experiments,” Bank of Japan (BoJ) Executive Director Shinichi Uchida said in remarks during the fifth meeting of the BoJ Liaison and Coordination Committee on Central Bank Digital Currency.

“The aim of the pilot program is twofold: first, to test the technical feasibility…and second, to utilize the skills and insights of private businesses in terms of technology and operation for designing a CBDC ecosystem in the possible event of social implementation,” Uchida said.

The move comes after more than two years of proof-of-concept experiments by the BoJ around the digital yen, even as China’s digital yuan continues to lead the CBDC race globally, which has extended to more than 105 countries representing over 95% of global GDP.

The move also comes at a time when the BoJ is set for leadership transition with Kazuo Ueda expected to take over the top job from Haruhiko Kuroda, whose second five-year term ends in April.

In November 2022, Nikkei reported that starting in the spring of 2023, the BoJ would work on experiments on a digital yen with three megabanks and regional banks in the country.

“At present, the pilot is not expected to see any actual transactions between retailers and consumers, the bank said, while adding that it will establish a CBDC Forum and invite private businesses engaged in retail payments or in related technologies to participate.

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The country’s crypto self-regulatory body JVCEA has received an “extremely stern warning” from financial regulators over delays in anti-money laundering rules and poor governance.

Japan’s “self-regulation experiment” for its digital asset space is unraveling as disagreements between financial regulators the industry advocacy body deepen, according to a Financial Times (FT) report.

The FT conducted “extensive interviews” with industry executives, lawyers and financial regulators who “sounded the alarm over a spiraling regulatory crisis in Japan’s multibillion-dollar virtual asset business,” according to the report.

The Financial Services Agency (FSA), the country’s financial watchdog, has “repeatedly criticized” the Japan Virtual Currency Exchange Association (JVCEA), an advocacy group set up in 2018 to promote self-regulation in the crypto space, the report said.

Meeting minutes obtained by the FT showed the JVCEA receiving an “extremely stern warning” from the FSA in two meetings last year. The regulator was concerned about delays in anti-money laundering (AML) regulation was not privy to deliberations and decision-making processes of the association, according to the report.

The minutes also showed the FSA saw a lack of communication between JVCEA leadership and members, resulting in “poor management.” The association is made up of around 40 digital asset firms representing the industry.

According to the report, the secretariat of the JVCEA formed a union for protection in what the report calls “a stunning act of defiance for Japan.”

JVCEA board member Masao Yanaga told the FT that the JVCEA lacked resources, and that AML regulations were hard to implement because of a lack of international agreements on sharing data.

The JVCEA also said it was making improvements in response to the regulator’s concerns.

Regulators around the world are scrambling to ensure sturdy rules are in place after the recent market downturn saw a number of high-profile crypto companies collapse and $2 trillion wiped out of crypto markets in a matter of weeks.

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The new legal framework will take effect in a year.

In a historic move, Japan’s parliament passed a legal framework around stablecoins on Friday, providing a safety net for investors in the wake of last month’s TerraUSD collapse that resulted in multi-billion losses

Japan is one of the first major economies to pass a law specific to stablecoins even if the legislation comes into effect in a year, the report added.

The bill provides clarity around the definition of stablecoins which will now be considered as digital money and must be linked to the yen or another legal tender, guaranteeing holders the right to redeem them at face value.

Stablecoins can now only be issued by licensed banks, registered money transfer agents and trust companies. The bill does not address existing asset-backed or algorithmic stablecoins. However, exchanges in Japan do not list stablecoins.

Prepared by Japan’s Financial Services Agency (FSA), the bill was planned in late 2021, accepted by the House in mid-March this year and has now been passed by a majority in the House of Councilors plenary session.

In the wake of the TerraUSD (UST) collapse, this swift action by Japan could help against the crisis of confidence in crypto.

A stablecoin is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price.

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Reuters reports a number of top government officials as promising an imminent change to the country’s Foreign Exchange and Foreign Trade Act.

The government of Prime Minister Fumio Kishida will soon submit to parliament a revision to its foreign exchange law aimed at blocking Russia from skirting Western sanctions via crypto.

Following last week’s Group of Seven summit in Belgium, Prime Minister Fumio Kishida in parliament on Monday called for amendments to Japan’s Foreign Exchange and Foreign Trade Act, and Chief Cabinet Secretary Hirokazu Matsuno – speaking at a press conference – promised revisions would soon be submitted to lawmakers.

Speaking with Reuters, a finance ministry official said discussions had already begun on the proposed changes.

The revisions are aimed at strengthening protections against Russia trying to evade sanctions with digital assets.

Earlier this month, Japan’s Financial Services Agency and the Ministry of Finance demanded that about 30 crypto exchanges not conduct asset transactions with sanction targets. At the time, the body representing crypto-asset exchange companies announced it “will take guidance and other necessary measures for members who are engaged in the crypto asset exchange business so that they can appropriately and smoothly respond to the response required by this request.”

Exchanges today said they had started confirmation of the screening status of each member for reliable screening, and examined the possibility of efficient screening using a blockchain analyst.

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