Although countries like El Salvador are being praised for their adoption of Bitcoin as legal tender, Japan was already on this path from 2016. In the latter half of 2016, amendments to Japan’s PSA (Payment Services Act) identified virtual currencies as assets that can be utilized for purchasing goods, rental fees, or services, and most importantly, that is transferable via electronic data processing system.
This also led to the beginning of Exchanges having to register to the FSA (Financial Services Agency), which looks over the stability of Japan’s financial system by monitoring institutions and also formulating new financial legislations. The PSA was again revised in May of 2017 to register the Exchanges that offered services related to virtual currencies in Japan. Nonetheless, they were given permission to continue to operate during the screening process of their applications. From the 21 Exchanges that were operating pre-amendment, 16 made the cut and were permitted to work by the end of the year.
This did not last for long as Coincheck and Zaif were hacked in 2018 and ended up losing $500 million and $60 million. This not only made the people lose faith in Exchanges but also the regulating authorities in Japan, which called for the launch of the JVCEA (Japanese Virtual Currency Exchange Association) to mend the damage. The FSA also clamped down on all these Exchanges and made sure they met the regulations set in place.
By 2019 the FSA started giving the greenlight to Exchanges that had entered the market along with updating the PSA and FIEA(Financial Instruments and Exchanges Act). In addition to establishing the JSTOA(Japan Security Token Offering Association) to regulate and manage ICOs(initial Coin Offerings) and STOs(Security Token Offerings) which have earned quite a bad reputation in the past few years.