The main reason for this was the attack and subsequent bankruptcy of the Japanese exchange MtGox in 2014, during which about 800,000 BTC were stolen.
The result of the hack was fairly strict legislation aimed at protecting investors. For a long time, this approach was criticized. Nevertheless, it was this that allowed the return of funds to Japanese investors after the FTX crash.
In Japan, cryptocurrencies are a non-fiat payment method for unspecified payments (Payment Services Act, PSA).
Thus, it is not considered property, but a means of payment, a monetary surrogate.
Under current legislation, cryptocurrency issuers are required to have licenses, undergo audits, store client funds in cold wallets separately from their own funds, and pay taxes.
Until December last year, holders of crypto assets were required to pay a tax on unrealized income at the end of the year at a rate of 30%. This did not allow Japanese crypto startups to develop within their own country, many of them registered companies in Europe and the USA.
However, the situation is changing. Today, this tax no longer exists, and more so, legislators are a step away from allowing venture companies to invest in crypto projects in Japan.
All this could potentially lead to an increase in the number of Japanese projects developing in a healthy, mature, regulated environment.