Before You Start Forex Trading in Japan, Read our Helpful Guide to FSA Japan Forex Brokers.
Picking the best Forex broker with which to do business may be one of the most difficult decisions you’ll have to make; and there are so many other factors to take into consideration that it is rarely given the attention it deserves. Many think it is a simple case of picking a few names out of a hat, but it is actually more complex than that. The financial services industry is regulated by individual country-specific agencies, and in Japan it is the Financial Services Agency, Japan. This regulatory agency oversees all financial services providers, including Forex brokers, in Japan.
What is the role of the FSA Japan?
There are a number of Financial Services Agencies located around the world, and all have very similar roles. As you’re wondering about the opportunities for Forex trading in Japan we’ll be a little more specific here.
The FSA Japan’s ultimate aim is to maintain the country’s financial system and ensure its stability. It is also responsible for protecting security investors, insurance policyholders, and depositors. It achieves its aims in a number of different ways including planning and policy making, supervising financial services providers, overseeing securities transactions, and inspecting financial institutions in the private sector. Believe it or not, the Authority has even more responsibilities than the above, vincluding the following:
- Developing rules for market trading and monitoring compliance
- Establishing proper standards of business accounting
- Auditing firms and supervising certified public accountants
- Taking part in the work of international organisations with the aim of making the global financial markets much more robust and user-friendly.
When the FSA was first created it was merely an administrative body. However, its responsibilities were widened in 2001 when it became the external representative of the Cabinet Office of Japan. It took over the responsibilities of the Financial Reconstruction Committee, and also took over responsibility for failed financial institutions.
Today, the FSA Japan is held accountable to the Japanese Minister of Finance and enjoys a wide scope of responsibility. It was first established almost 20 years ago, and was initially created to focus on inspection and supervision of all private financial entities in Japan. Its responsibilities have been added to over the years, and it now acts as a watchdog for the financial services industry.
The rules that FSA Japan-regulated brokers have to contend with
The current rules have been very much influenced by recent events, particularly the upset that occurred in 2015 with the Swiss National Bank and its pegging of the Swiss Franc to the euro. For many years the Swiss National Bank had been pegging the Swiss Franc against the euro. It did this in order to keep it at the level of 1.2000. A number of traders decided to take advantage of the situation and chose to set long orders on the EUR/CHF at 1.2000. Needless to say, the Swiss National Bank wasn’t able to maintain the level, and it became increasingly expensive and ultimately ended with its abandonment. Immediately following on from this, almost 3,000 pips were wiped off the price, leading to high levels of slippage. Many traders, and indeed brokers, were caught out and had to take out stops to prevent the loss of too much money. Some brokers were offering leverage of 500:1, so there was little hope for such investors.
As a result of this event, a number of regulators are now in the process of rethinking margin and leverage requirements. It possibly won’t be long before more regulators are forced to limit leverage and margin, like a number of other countries already do. Forex brokers regulated by the FSA in Japan were able to weather the storm better than many others, because rules had already been put in place to limit the leverage on FSA Japan-regulated Forex broker is able to offer clients.
A number of other new rules were also brought in following the Swiss Franc crisis, the first of which was one that prevented offshore brokerage firms from offering financial services to Japanese customers. This is along the same lines as in the USA. The FSA Japan hasn’t found this the easiest of rules to police, as it seems that an increasing number of Japanese investors are looking at offshore brokers with whom to trade. It’s kind of understandable that so many are looking elsewhere for regulated Forex brokers, as there are far higher leverage and lower margin requirements from brokers outside of Japan. The Japan FSA is currently seeking help from other regulatory bodies to try and combat the problem.
Moving on from the previous rule is the fact that the FSA are trying very hard to get offshore brokerage firms to open local offices. By doing this and obtaining an FSA Japan licence they will be able to offer services to Japanese investors.
Does the future look rosy for FSA Japan Forex brokers and their clients?
There are many other regulatory bodies apart from the FSA Japan who are working hard and cooperating to ensure that financial services providers are following the rules and respecting those of other countries. For example ASIC, the Australian regulatory body, has already made a ruling to prohibit regulated brokers from targeting Japanese clients; and CySEC is currently in negotiation with the FSA Japan, and should soon make a decision.
Needless to say, Japanese investors aren’t over the moon about such cooperation, because it means there will be far fewer choices. What will happen in the future is still very uncertain. While Forex trading may have taken the world by storm, regulation is still very much in the development stage. But rest assured, we will endeavor to keep you updated.
We’ll finish up by advising you to look for an FSA Japan-regulated broker, but ultimately the decision is yours. Just remember that you and your investment will have much better protection when you choose an FSA Japan-regulated FX broker.