This Act is the basis for capital controls.
There is an English translation available at the Japanese government's official translation website93. Japan had strict capital controls after losing the war, but liberalized these restrictions gradually94. The present system does not require permissions for foreign exchange and foreign trade any more, but the Cabinet could introduce such capital controls under this Act.
Obviously, it is very difficult to enforce capital controls once you have a serious amount of money in the Internet cloud. The Bitcoin network adds the ability of making peer-to-peer payments to the
93 k-lenz.de/btc039.
94 See the article "Capital flows in Japan" at Wikipedia, k-lenz.de/btc040..
Internet. There is no need to have any intermediary institutions, like banks or credit card payment processors involved in a Bitcoin transaction. That in turn means that even if Japan or some other state decides they want to impose capital controls, they can't just turn to the institutions for enforcing them.
That is mostly a theoretical observation as far as Japan is concerned at this particular time. But it is still an important point worth noting.
In contrast, a regulation of practical importance right now in the Foreign Exchange and Foreign Trade Act is Article 55, which requires residents of Japan to report any payments they make or receive in relation to a party non-resident in Japan.
Note that this reporting requirement also applies for receiving payments directly without an intermediary financial institution involved. The only practical way to do this before the Bitcoin network was to put some banknotes in a letter or a parcel and send that over the postal service or some private company offering similar services.
That becomes clear when looking at Paragraph 2 of Article 55. It says that if the payment in question was made through exchange transactions made by banks, the banks would be filing the reports.
That means that otherwise the person who made or
received the payment would be required to file the report themselves.
There is a criminal sanction for people who don't report in Article 71 No. 2 (imprisonment with work of up to six months or a fine of up to two hundred thousand yen).
The Bitcoin network is especially useful for international payments. It beats competing payment system like bank wire transfers or credit cards by large margins on cost.
That would change dramatically if people were required to report any such payment to the Japanese government.
Fortunately, if one looks at the Cabinet Order and the Finance Ministry Ordinance95 implementing this reporting requirement, there is an exception for small amount payments. These are set in the Ministry Order as 3 million yen in relation to North Korea and 30 million yen for payments in relations to all other countries.
But that still leaves a requirement for payments exceeding that threshold to report. Any resident of Japan involved in such a payment needs to file a report with the Japanese government.
k-lenz.de/btc041.
This may have consequences for how an exchange in Japan needs to handle bitcoin withdrawals. If it allows, like the MtGox exchange did, for withdrawals to any address the customer specifies, customers could use the exchange for payments. They only need to fill in a Bitcoin address of whomever they want to pay. And if the exchange does not require proof from the customer that they complied with the reporting requirement in Article 55, this may be a problem.
It is a good idea for security reasons anyway to restrict Bitcoin addresses for withdrawals of bitcoins from an exchange to one address belonging to the customer. That way, anyone hacking into a customer's account will be unable to withdraw bitcoins to an address that customer does not control.
But this policy would have the added merit that this makes it impossible to use the exchange as a payment service provider. That would seem to remove any possible problems for the exchange from Article 55.
It will be the sole responsibility of the customer to follow - or not follow - the report requirement.
On the other hand, if the bitcoins deposited on an exchange are legally property of that exchange, as opposed to property of the customer, one could see the withdrawal as a payment from the exchange to the customer. That may trigger a reporting
requirement if such a withdrawal exceeds the threshold noted above.