Monthly Archives: March 2019

1. Upper Limit on Overtime Working Hours (Article 36 of the Labor Standards Act (as amended, the “New Act”)

Currently, employment laws remain silent as to the upper limit of overtime working hours that can be set forth in the Article 36 Agreement (one of the employer-employee agreements entered into between the employer and a representative of its employees, 36 kyotei) leaving it up to the Notification under the Standards on the Limit of Overtime Work (Ministry of Labor Notification No. 154 of 1998) that is not legally binding. However, the New Act specifies the upper limit on the overtime working hours that can be provided in the Article 36 Agreement as 45 hours per month and 360 hours per year (Article 36(4) of the amended Labor Standards Act).

The New Act also imposes that the overtime working hours must not be more than 720 hours per year and 100 hours per month (including working hours on statutory holidays), where the average overtime working hours (including working hours on statutory holidays) for each period of two (2), three (3), four (4), five (5) and six (6) months must be less than eighty (80) hours, even in the cases where the special clauses in the Article 36 Agreement require employees to work under special circumstances (e.g. peak season) in excess of the upper limits agreed. Furthermore, the overtime working hours of 45 hours per month may be exceeded in not more than six (6) months during one year (Article 36 (4)).

The New Act will be effective on 1st April 2019, but it will not apply to all employees from that date. Small and medium-sized business operators will be granted a moratorium until 31st March, 2020. Small and medium-sized business operators are defined as the owners of the business with the capital or investment in the amount of JPY 300 million or less (JPY 50 million for retail or service businesses, JPY 100 million for wholesale businesses) and whose number of regularly working personnel is not more than 300 (not more than 50 for retail businesses, not more than 100 for wholesale or service businesses).

In addition, an exemption from the application of the above rules is granted for business related to research and development of new technology, goods, or services (Article 36 (11) of the New Act), and a moratorium as long as up to 31st March, 2024 is set for the business of constructing structures, etc., the business of operating automobiles, and doctors engaged in medical practice (Article 139 of the New Act).

Lastly, please note that the Article 36 Agreement covering the period including the day before the date of enforcement (for small and medium-sized business operators, 1st April, 2020 due to the above one year moratorium), will remain in force even after the enforcement of the New Act until the date that is one year from the effective date stipulated in the Article 36 Agreement (Article 2 in the Supplementary Provisions of the New Act).

Employers who have violated the above regulations may be subject to inspection, correction recommendations, and guidance for improvement by the Labor Standards Inspector, and fines of not more than JPY 300,000 per employee who has violated the regulations (Article 120 of the New Act).

2. Extension of the Settlement Period under the Flexible time System (Article 32-3 of the said law)

Under the current Labor Standards Act, when setting up a flexible time system, an employer is required to set in advance the total working hours for a period of up to one month as the settlement period, and in the event the actual working hours during the period exceed the above fixed total working hours, an employer must pay extra overtime wages for such exceeding hours.

In this amendment, the upper limit of the settlement period will be extended from one month to three months (Article 32-3 (1) (ii) of the New Act). Such amendment may be favorable to employers whose working hours vary within the period longer than one month. On the other hand, it may be possible for employees rearing children to shorten their working hours in their children’s school holidays and increase and adjust their working hours in the preceding and following periods.

In principle, an employer-employee agreement on the introduction of a flexible time system is not required to be filed with the Labor Standards Inspection Office or any government authority. However, if a settlement period exceeding one month is being provided in an employer-employee agreement, such notification of the agreement becomes mandatory. Furthermore, the Company shall set the upper limit for monthly working hours (within the limit of 50 hours per week on average for each one-month period divided) and pay extra wages for overtime work exceeding the upper limit before termination of the settlement period(Article 32-3 (4)).

We hereby illustrate how the working hours may be adjusted as follows (in order to keep calculation simple enough, the statutory working hours are assumed as 160 hours for every month on 28 days of 4 weeks and the settlement period is three months).

(1) When each upper limit of working hours per month and working hours per three months is not exceeded

Actual total working
200 hours80 hours200 hours

If the flexible time period is set at three months, the total working hours for the three months are 480 hours, which does not exceed the statutory working hours, and therefore, there is no need to pay extra wages for overtime.

(2) When the upper limit of working hours per month is exceeded

Actual total working
210 hours210 hours80 hours

Since overtime in excess of 50 hours per week is worked in January and February, an employer is required to pay extra wages for 10 hours in January and in February.

(3) When the upper limit of working hours per three months is exceeded

Actual total working
200 hours200 hours150 hours

In the above example, an employer is not required to pay overtime wages in January and February because the overtime hours are within the 50 hours of limit per week. However, the total working hours in the settlement period are 550 hours, so the employer is required to pay extra wages for 70 hours in excess of 480 hours.

3. Obligation to Allow Employees to Take Annual Leave (Article 39 of the New Act)

Under the New Act, an employer must allow employees who are entitled to annual paid leave of not less than 10 days per year to take such annual leave of five days or more per year by designating the period of time (Article 39 (7)). Provided, however, that the number of days taken as such paid leave (i) by the employee’s designation and (ii) by an employer-employee management agreement as planned paid leave (for example, when the employer and the employees agree that a day between consecutive holidays will be a holiday) may be deducted from the five days (Article 39(4) of the New Act).

Under the current act, it is not illegal not to grant annual leave unless the employee asks for the leave. Once the New Act is put into effect, employers are obliged to have employees take annual leave. Employers who fail to have the employees take annual paid leave of five days or more per year may be subject to a fine of not more than JPY 300,000 per employee in addition to inspection, corrective recommendation and guidance for reform by the Labor Standards Inspector (Article 120 of the New Act).

4. Establishment of the High-level Professional System (Article 41-2 of the said law)

The New Act introduces a high-level professional system with the aim of evaluating an employee based upon an achievement rather than working hours. The high-level professional system means a system that excludes employees who engage in a specified high-level professional work requiring advanced vocational abilities from the scope of regulations on working hours. These employees will not be subject to the regulations relating to working hours, and they will not be paid allowances for hours worked as overtime, holiday work, or late-night work.

In the scope of work covered by the high-level professional systems are: (1) development of financial products, (2) dealings such as those engaged in by the dealers in securities companies, (3) analyst services in respect of markets and stocks, (4) consulting services, and (5) research and development of pharmaceuticals. It should be noted, however, that not all those who engaged in the above-mentioned work are subject to this system. The work that requires a high degree of expertise, etc., and the co-relation between the hours worked and the results achieved is not generally deemed high due to its nature (Draft Guidelines for Securing Appropriate Working Conditions for Employees Engaged in the Work Set Forth in Article 41-2 (1), item 1 of the Labor Standards Act (see

The annual salary of a person subject to this system shall be JPY 10.75 million or more. The annual salary includes fixed salary as well as fixed allowances, but does not include performance based remuneration or bonuses that vary according to performance.

In order to introduce high-level professional systems, employer has to take the following procedures.

1. Establishment of a Labor-Management Committee (comprising half of committee members appointed by a majority labor union or, if no such union exists, a representative determined by the majority vote of employees for a prescribed term of office);

2. Resolution of the following items by a majority of four-fifths or more of the members of the Labor-Management Committee;

3. Notification of resolutions to the Labor Standards Inspection Office; and

4. Obtaining the consent of the employee in writing or by Electromagnetic Means

5. Obligation to Make Efforts to impose Interval periods between Working time (Article 2 of the Act on Special Measures for Improvement of Working Hours Arrangements)

In view of the health damage caused by long working hours, employers are obliged to make efforts to ensure a certain period of interval between the ending time of the previous work day and the starting time of the next work day. For example, in a company with the working hours from 9:00 p.m. to 18:00 p.m., if overtime is worked up till 0:00 a.m. on the previous work day, the start time of the next work day for the employee is deferred to 11:00 a.m. However, the introduction of this system is only an obligation to make efforts, and thus employers are not obliged to introduce this system.

6. Equal Wages for Equal Work (Article 9 of the Act on Improvement, etc. of Employment Management for Part-Time Workers, Article 30-3 of the Act on Securing Proper Operation of Worker Dispatching Undertakings and Protection of Dispatched Workers)

Under the revised labor laws, the same salary and wages must be paid if the same contribution is made by employees regardless of the employment status. The revised law will be enforced for large enterprises on April 1, 2020 and for small and medium-sized business operators on April 1, 2021 (Act on the Arrangement of Related Acts to Promote Work Style Reform, Article 1, item 2 and Article 11).

Under this system, for example, the following items will be taken into account (see notification of the Ministry of Health, Labor, and Welfare No. 430).

7. Premium Wages for Overtime Work Exceeding 60 Hours Per Month (abolishment of Article 138 of the Labor Standards Act)

Under the current act, the premium wages for overtime work is, in principle, 25%, but the premium wages for overtime work in excess of 60 hours per month is set at 50%, whereas small and medium business owners have been exempted from paying such extra wages.

Article 138 of the Labor Standards Act, which stipulates the moratorium for the New Act, is repealed, and from April 1, 2023, the rate of extra wages for small and medium-sized businesses will be applied.


This article has not been confirmed by the relevant authorities, but merely describes information and interpretation that may be reasonably considered in accordance with applicable laws and regulations.

The opinions expressed in this article are our current views only, and they may be subject to changes in the future.

This article is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons.

Japan’s Financial Services Agency (the “FSA”) imminently contemplates reforming the crypto regulations to address the problems that arose after Phase 1 of the virtual currency legislation, effected in April 2017. The FSA published a draft bill for the amendment of the virtual currency regulation on March 15, 2019. Stated below is our current understanding of the amendment. Please note that as the national diets will discuss the draft from now and the FSA will draft subordinated provisions of the laws from now, there is still some uncertainty on the amendment, and our analysis is expressly subject to changes in the future.

I Background Information about Japanese Crypto Regulation

1 Existing crypto legislation and regulations

The Payment Services Act (the “PSA”) and the Act on Prevention of Transfer of Criminal Proceeds (the “AML Act”), as amended together in April 2017, are the base of the Phase 1 virtual currency legislation, as supplemented by the related ordinances, orders, and guidelines (most notably the Guidelines for Administrative processes concerning virtual currency exchange service providers (FSA Guidelines)).

2 The Payment Service Act

The PSA (so amended in 2017) is an act which currently regulates a virtual currency exchange. The PSA stipulates “Virtual Currency,” “Virtual Currency Exchange Service,” and “Virtual Currency Exchange Service Provider” therein. It requires registration of Virtual Currency Exchange Service Providers, and the FSA regulates and supervises them.

The PSA will be amended and involve more detailed regulation on crypto exchanges and new regulation on crypto custody business.

3 The Financial Instruments Exchange Acts (the “FIEA”)

The FIEA regulates financial instruments, which typically include
securities/derivatives, financial instruments, exchange business and operators thereof.

Currently, virtual currency does not fall under securities, in principle. Some STO tokens fall under collective investment schemes (funds) that are securities (see item 7 below).

Margin trading of virtual currencies (NDF, leveraged trades, physically settledtrades by loans in virtual currency) are currently non-regulated through FIEA.

4 The AML Act

The Act on Prevention of Transfer of Criminal Proceeds (so amended in 2017) has subjected VC exchanges to the AML/CTF regulations and imposed such duties as customer identity verification at the time of the transaction, etc.

5 Self-Regulatory Organization

In April 2018, sixteen (16) registered VC exchanges joined to establish a selfregulatory organization, the Japan Virtual Currency Exchange Association (the “JVCEA”). In October 2018, the JVCEA got certified by FSA as a Certified Association for Payment Service Providers under PSA.

JVCEA established the self-regulation rules in furtherance of the existing regulations that are based on, amongst others, PSA, AML Law and FSA Guidelines with a view to better protect users. Examples of self-regulation are as follows.

6 The status and prospect of pending Registration of Exchanges

Currently, to earn a VC exchange license is perceived to be staggeringly
burdensome for leanly staffed startups. The screening standard now imposes a heightened level of internal control and security, so that no applicant may escape hiring compliance officers, AML officers and internal auditors who are versed with the industry and drafting of internal rules that are extensive and voluminous.

It is said that 190 companies have approached the FSA to take an exchange license, but no new exchanges were eventually approved through 2018. In January 2019, Coincheck Inc. finally got registered, and it is rumored several others will get the license in 2019.

7 Current ICO /STO (Security Token Offering) regulation

Currently, the ICO is subject to the regulation of the PSA. For certain STOs, the regulation of the PSA and the regulations of the FIEA are superimposed.

In December 2017, the FSA interpreted that ICO tokens may broadly be listed as corresponding to “virtual currency. ” As a result, registering a “virtual currency exchange business” and “notification of coin” has become required for the sale of ICOs in Japan. It is difficult to comply with these regulations, and no lawful ICOs have come out in Japan since December 2017.

An STO is deemed to be a kind of ICO, and the same regulation applies. In addition to the PSA regulation, FIEA regulations are applied to tokens that are paid in cash and pay dividends or principal redemption of 100% or more as collective investment schemes.

II Proposed Amendments to the Law

1 General Information

1.1 Which laws will be amended?

The PSA and FIEA will be amended.

1.2 Why crypto regulations are being reformed

Japan had massive cryptocurrency hacking incidents against two major Japanese crypto exchanges in 2018—Coincheck in January and Zaif in September.

After the Coincheck hack, the FSA tightened its oversight of crypto exchanges, including imposing stricter registration requirements and on-site inspections. It handed out many business improvement orders and suspended a few exchanges.

In light of highly volatile cryptocurrency prices and explosive trading volumes in 2017, a surge of ICOs in 2017, and hacking incidents in 2018, FSA created a Study Group on Virtual Currency Exchange Services in March 2018 to discuss appropriate crypto regulations. After eleven (11) sessions of discussion, the group published a final report last December. The FSA drafted bills based on this report and the national government submitted the draft to the national diets in March 15, 2019.

1.3 When will the amendments be enacted?

The timeline still remains uncertain. Quite a few people seem empirically to infer the schedule as follows.

  1. The national government submitted the amended bill to the national diets in March 15, 2019, and the national diets will discuss them.
  2. The national diets will approve the bill around this May.
  3. The FSA will draft government ordinances and guidelines which are subordinated rules of the amended law around the end of 2019. They will be on public comment procedure and be finalized around March 2020.
  4. The amended law will be valid within one year after the enactment of the acts (i.e.around April or May 2020).
  5. Some of the new regulations, such as regulation on custody and derivative, might have a six (6)-month transition period after the enactment.

1.4 Way of Calling of Virtual Currency will be changed to Crypto Asset

The way of calling of Virtual Currency will be altered to Crypto Asset with the PSA amendment. In this memorandum, we will call virtual currency crypto assets hereafter.

2 Exchange Business

2.1 Additional Duty Imposed on Exchanges

Exchanges will have the following requirements in addition to the current requirements:

We believe that one of the most onerous burdens is the second one. The definitions of “hot wallet” and “cold wallet” are not stipulated in the law, and we believe that SRO will discuss it.

If an exchange holds 5% of users’ BTC in a hot wallet, such exchange needs to have the same amount of BTC as its own asset. As there is little hedge market, an exchange should owe a volatility risk of crypto. An exchange shall consider how much it holds in a hot wallet and how to manage the volatility risk of its own crypto in order to do a healthy business.

2.2 Preferential Right of Customer

The amended PSA stipulates a new right of customers. Customers will have the right to receive a preferential return of crypt assets they deposited with an exchange and the exchange segregated upon its insolvency.

2.3 Regulation on Unfair Trading

The amended FIEA will regulate unfair trading. The regulation applies not only exchanges but every person, including customers.

Prohibition of unfair trading includes following but does not include prohibition of insider trading:

3 Custody Business

3.1 Currently, custody business is not regulated.

The current PSA regulates virtual currency exchange businesses and does not include businesses that just provide a custody service. The definition of a virtual currency exchange business is as follows, and does not include mere custody business.

  1. Sale and purchase of VC (i.e., an exchange between VC and fiat currency) or exchange of a VC into another VC;
  2. An intermediary, brokerage, or agency service for the acts described above (i); and
  3. Management (custody) of a fiat currency or VC on behalf of the users/recipients in relation to the acts described above in (i) and (ii).

3.2 Custody businesses will be regulated

The amended PSA will regulate custody businesses. The definition of custody is “to manage crypto assets for others except for the case such business is allowed in other laws). ” Custody businesses will not be able to do business to Japanese residents without a license.

3.3 What kind of custody businesses will be regulated?

As the definition of “custody business” is unclear, the types of custody businesses that will be regulated are still uncertain.

Generally speaking, we believe that businesses that hold customers’ secret keys and sends crypto for customers will be regulated. However, whether or not multi-sig custody is regulated, a company that sets a node for the Lightning network and holds its customers’ crypto is uncertain.

3.4 Will a software wallet service that does not hold customers’ secret keys be regulated?

We believe no.

3.5 Regulations a custody business operator should obey.

It is believed that the custody business operator should abide by similar obligations to virtual currency exchange, such as those below.

4 Crypto Derivative

4.1 What is the current regulation on crypto derivatives?

As has been said in I. 3. above, there is no regulation by law on crypto
derivatives right now. The JVCEA, however, exerts control over crypto derivatives through the provisions in its self-regulation rules.

4.2 Does FIEA regulate crypto derivative transactions? Will the FIEA regulate crypto derivative transactions?

The FIEA regulates derivatives such as foreign exchange derivative
transactions (IR/FX-related derivatives), equity derivatives (securities-related derivative transactions), and credit derivative transactions. The regulations on derivatives only apply a stipulated derivative on FIEA, and the crypto derivative is not stipulated in FIEA. We believe the amended FIEA will add a crypto derivative in the enumeration.

4.3 What kind of regulation will a crypto derivative dealer be required to obey?

Currently, a forex derivative dealer should register as a Type I Financial Instruments Business Operator. This means registration as a full-fledged security company, and it is difficult to take the license.

4.4 What will be a maximum leverage ratio?

It is currently discussed that a maximum leverage ratio should be two (2) times.

4.5 Will there be any exemptions to a license?

Derivative dealers are currently exempted from taking a license if they only trade with institutional investors such as banks, security companies, and corporations that have more than JPY1 billion capital. We expect that a similar exemption applies to a crypto derivative dealer.

5 Regulation of ICO and STO

5.1 The regulation of ICOs

As for the regulation of ICOs, no major changes are being made by the
legislative reform at this time. To conduct/carry out ICOs, it is believed that the registration of crypto assets exchanges plus the filing of the coins with the FSA will be required. The registration requirement can be met by either the ICO issuer himself or by an ICO sales broker. The ICO coins that will be approved for sale in Japan are being discussed by the FSA and JVCEA, and it is believed that the JVCEA will publish the rules governing the self-regulation of ICOs in the near future.

5.2 The regulation of STOs

FIEA now defines STOs independently of ICOs under this amendment. Since an STO is clearly positioned as a Security, FIEA applies. A seller of an STO other than the issuer (such as an STO broker) must register as a Type I Financial Instrument Operator. If an issuer sells STOs directly, the issuer must register as a Type II Financial Instrument Operator, which is less complicated. FIEA regulations such as the duty to disclose information, the regulation of sales, and invitation will apply.

Currently, unlike ICOs, there are exemption provisions for the sale of securities, such as Regulation D and Regulation S in the U. S. The sale of securities only to qualified institutional investors or selling securities to a small number of people are exempt from some regulations. It seems that such exceptions will be applied to the sale of STOs, but the details of these exceptions will only be defined in future ordinances.

6 Other

6.1 ETF: I read an article that states that the Japanese government will allow crypto ETF. Is it true?

We do not have any information that the Japanese government will allow crypto ETF. The study group did not discuss crypto ETF, so we do not have any information.