The Forex Market in Japan With FSA Regulation

Japan is the very first financial market to open during a trading day and is considered to be a significant contributor to the Asian trading session. Japan is a Forex hotspot that witnesses at least $1 trillion in Forex transactions per day, which makes it one of the most important markets for both retail as well as institutional Forex trading. Japan has an illustrious history in the Forex markets and several Japanese investors routinely trade the different currency pairs to enjoy a significant amount of market exposure.

Forex brokers in Japan are regulated by the Financial Services Agency, which is a Government controlled authority that regulates and supervises all types of financial firms operating in the Japanese financial markets. The FSA of Japan is responsible for maintaining the integrity of the Japanese economy by actively monitoring the day to day performance of financial companies from the banking, insurance, securities, and investments sectors.

FSA was formed in early 2000 with its headquarters in Tokyo and is run by Ministry of Finance that reports directly to the Japanese Government. Therefore, the regulatory policies of financial companies in Japan are determined directly by the Government, which has caused a huge concern for Forex traders and investors in the country.

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The Effect Of Government Intervention On Forex Trading In Japan

The Japanese Government has an extensive regulatory framework that requires all FSA Japan regulated brokers to conform to the regulatory guidelines that are amended and tweaked periodically. The Japanese FSA is highly proactive in changing the terms and conditions of regulations to ensure that the country can tackle the volatility and inherent risks of the global financial markets. Japan had faced economic turmoil during the 1990s, which saw a failure of some of the largest high-profile banks due to the financial instability and lack of any serious regulation.

The economic turmoil of the past is one of the primary reasons behind the Japanese Government’s ardent antics of regulating the financial markets through direct means without the help of any external or independent agency. The FSA keeps a close watch on the major financial news and global events that move the Forex markets. Due to the numerous market events of the past that had led to significant swings in the market, the Japanese Government started modifying the Forex trading conditions in a bid to prevent its investors from losing money in the Forex markets. One of the key moves initiated by the Japanese FSA was to ban overseas brokers from operating in the country.

Due to the immense popularity of Forex trading in Japan, several established mainstream brokers offered Forex trading services through offshore accounts, which were tremendously popular in the Japanese retail Forex trading market. However, the FSA has explicitly banned any Japanese investor from trading with any broker that is not regulated by the FSA. The FSA seems to have adopted the US model of restricting any external companies from operating in the country without setting up a representative branch and being regulated by the country’s internal regulatory organization. While the move has helped investors to enjoy better security and trust among FSA Forex brokers, some industry experts believe the move to be orchestrated by the various homegrown brokers that were unable to compete with the services provided by international Forex brokers.

To eradicate this issue, the Japanese Government allows all international brokers to set up their brokerage in Japan by conforming to the various regulatory guidelines set forward by the FSA. The FSA has also further modified the terms and conditions of Forex trading, which radically reduced the amount of freedom that was initially enjoyed by Japanese Forex traders. The FSA has put a limit on the maximum leverage offered by Forex brokers in Japan, which prevents traders from using any significant amount of leverage while trading the markets. Such a move prevents small retail traders from entering the market due to higher margin requirements, which involved trading with a higher amount of trading capital. Since trading with overseas brokers is considered to be illegal, traders from Japan are reeling from the effects of lower leverage, which requires them to invest more money in the markets than they can afford.

The FSA has started collaborating with other major regulatory agencies in the world to prevent brokers from offering overseas brokerage services to traders from Japan. Most traders and investors believe the move to be agenda driven, so as to facilitate a favorable business environment for FSA Japan regulated brokers. The FSA has successfully collaborated with the ASIC of Australia to prevent all Australian Forex brokers from offering their services to a Japanese clientele. The FSA is also considered to be organizing talks with the CFTC, the NFA, the CySEC and the FCA for preventing brokers regulated in these regions from operating in Japan without a valid FSA license.

Are There Any Benefits Offered by the FSA To Japanese Traders?

FSA Forex brokers offer several levels of protection to Forex traders from Japan, and all traders are protected against broker insolvency and other broker issues through the Japanese Investor Protection Fund. The JIPF was instrumental in compensating investors in different financial sectors and is considered as one of the most effective compensation programs offered by any country in the world. FSA Japan regulated brokers have to follow a predetermined process while setting up a brokerage in the country.

FSA follows the highly successful regulation protocols that are adopted by some of the most popular regulatory agencies in the world, including the US and the European regulatory laws. Therefore, all FSA Forex brokers are designed to withstand all market eventualities by ensuring that they hold their client funds in segregated accounts. Therefore, in the event of broker liquidation or insolvency, clients will have access to their funds and will receive compensation even if the broker is unable to generate sufficient funds to reimburse its clients. Forex brokers in Japan are only offered a valid FSA license after a through screening is done by the authorities to ensure that the companies can satisfy the prerequisites of operating in the Japanese financial markets. The process of acquiring a valid FSA license is highly tedious and complicated, which virtually guarantees that only high-quality brokers can operate in the country.

The strict regulatory procedures and constant supervision from the FSA authorities and other Government agencies ensure that all brokers adhere to the existing rules, or face serious consequences if they indulge in any financial malpractices. A majority of FSA regulated Forex brokers typically cater to customer complaints effectively and rarely do any cases go beyond the broker or any arbitration service. However, the FSA of Japan provides an opportunity for both the broker as well as the investor to challenge a verdict in court and has the right to contact higher authorities to inform them of any wrongdoings from either party.

The Future Of Forex Trading In Japan

Japan continues to be one of the major Forex markets in the world, and regardless of the various guidelines imposed by the FSA on Forex trading; retail FX trading continues to be hugely popular among Japanese investors. Although the FSA of Japan is working tirelessly to prevent overseas brokers from operating in the country, several international brokers are setting up dedicated brokerages in Japan to offer different products and services through their local subsidiaries. Japanese traders might feel limited due to the various trading restrictions, but it is guaranteed that the retail trading market will customize their strategies to incorporate the new rules put forward by the Government.

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