With a population just shy of 123 million people, Japan is brimming with potential to become one of the largest online casino markets in the world.
There’s just one problem – the online gaming market is not currently regulated. Those accessing gaming sites are doing so via offshore operators, a practice Prime Minister Fumio Kishida wants to crack down on.
The question on everyone’s mind is why the Japanese government is so adamant in its refusal to legalise online gambling and benefit from a significant new source of tax receipts?
SBC Leaders sat down with Andrea Belleza, VP of EU & Asia Pacific markets at KaFe Rocks, and Asami Tanaka, Country Manager at Acroud, to discuss the prospect of a regulated gambling industry in the country.
In Japan, Tanaka said, there is one main reason as to why the government has not yet chosen to regulate online gaming; namely, the long process between legislation being drafted and it being introduced into law.
So while the country’s national police agency and consumer affairs agency announced that online casinos are illegal in Japan, it has taken a considerable amount of time for that law to become ratified.
“It is possible that the Japanese government is simply taking a cautious approach and waiting to see how other countries regulate”Andrea Belleza, VP of EU & Asia Pacific markets at KaFe Rocks
For Belleza, he believes that the reason is much more complex than just the time taken to introduce new legislation. Instead, he drew attention to the perceived socioeconomic ramifications and entrenched conservative values within Japanese society.
He said: “Trying to avoid any speculation and bad faith, I would say that we could highlight three main reasons that are interconnected with one other.
“The first is that the Japanese government may be concerned about the potential negative impact of online gaming on Japanese society, particularly in terms of problem gambling, due to the country’s high rate of gambling addiction (according to a 2019 survey by Japan’s Ministry of Health, Labour and Welfare, 3.6 per cent of adults have experienced gambling addiction). Regulating and fully legalising online gaming might give more exposure and increase the numbers.
“The second reason is, ignoring the potential stream of revenues from taxation, the Japanese government may not view online gaming as a significant social or economic problem that requires regulation.
“Japan has a long history of gambling, and there are many forms of legal gambling in the country, including horse racing, bicycle racing and pachinko. The government may believe that the existing regulatory framework is sufficient to address any potential issues related to online gaming.
“It is possible that the Japanese government is simply taking a cautious approach and waiting to see how other countries regulate online gaming before deciding on a course of action. This is the third possible reason.
“It (PACHINKO) is still incredibly popular, however the sales are gradually becoming lower and lower each year”Asami Tanaka, Country Manager at Acroud
“Japan has historically been a conservative society, and the government may be reluctant to make any significant changes to the regulatory framework without first carefully considering all of the potential consequences.”
Online casinos may be banned, but there is one particular gambling product that is incredibly popular with Japanese bettors: Pachinko – a mixture of slots and pinball.
It has been estimated that gamblers in Japan spend close to $200bn on Pachinko machines each year. Tanaka believes that this vertical remains so popular with the Japanese population due to it being low stakes.
“When playing Pachinko, you can bet a small amount of money. This means that you don’t tend to lose much money when playing and ultimately means players can keep coming back to play without fear of losing too much,” said Tanaka.
“Pachinko machines can also be advertised officially in Japan, meaning that people are much more aware of these machines. It is still incredibly popular, however the sales are gradually becoming lower and lower each year.”
Pachinko initially emerged as a popular pastime in the 1930s and, said Belleza, longevity is one of the central reasons for its status in Japanese culture.
“There are many reasons that contribute to Pachinko’s popularity, some of them hard for us to understand – especially if you ever stepped inside a busy Pachinko parlour in Japan. Pachinko parlours often have a lively atmosphere, with players socialising, chatting and cheering each other on,” he explained.
“The development of IR casinos could potentially speed up the path to online regulation”Andrea Belleza, VP of EU & Asia Pacific markets at KaFe Rocks
“The game is also easy to learn and does not require a lot of skill or strategy to play, making it an attractive form of entertainment, especially after a day in the office.
“Pachinko offers the potential for large payouts, creating a sense of excitement among players. The game’s legal status as a game of skill has helped to ensure its continued popularity in Japan, allowing it to be regulated and controlled by the government while still offering players the chance to win big.”
Does this continued popularity mean that Pachinko will remain a staple in the Japanese entertainment industry? According to Belleza, current trends suggest that popularity may be waning.
He added: “All this said, while Pachinko remains a highly successful form of gambling and entertainment, there are signs that its popularity is declining among younger generations. According to a 2020 survey by the Japanese Productivity Center, 31.2 per cent of respondents aged 50-59 played it, while the number decreased to 5.5 per cent among those aged 20-29.
“For the time being we will hardly see any decrease in revenues generated, but I wouldn’t exclude long-term shifts.”
Both Tanaka and Belleza agreed that new verticals are beginning to emerge as potential replacements for Pachinko. However their views about which verticals will succeed differ hugely.
“Official gambling verticals such as horse racing and boat racing are growing across Japan”Asami Tanaka, Country Manager at Acroud
“Official gambling verticals such as horse racing and boat racing are growing across Japan. Pachinko, in fact, is not an official gambling product,” Tanaka said.
“Amusement poker is also gaining traction. However, bettors cannot wager money when playing these types of games. There are some tournaments that do exist that offer prizes though.”
Belezza, meanwhile, suggested that Pachinko’s hegemony is likely to fall victim to changing tastes among younger Japanese.
“When considering older generations as a reference, and taking into account that Pachislots – a form of flashy and entertaining slots – often go hand-in-hand with Pachinko, I would say that the competition is limited. While there is certainly space for casinos and betting, they are unlikely to overtake Pachinko’s popularity,” he said.
“However, with younger generations there’s much more room for competition. Online casinos and betting sites are expanding and improving their offers, which leads to a constant increase in popularity. Social casino games also have the potential to appeal to Japanese consumers, as they are doing in other markets.”
Changing player tastes alone are unlikely to move the dial on the regulation of online gaming. However, there is one indication that the Japanese government’s attitude to gambling may be softening – the plan to stimulate economic growth by the development of integrated resorts that feature casinos, hotels and convention centres.
Belleza concluded: “The development of IR casinos could potentially speed up the path to online regulation, as it would create a legal framework for gambling and provide the government with more experience in regulating the industry.
“However, it’s important to note that the Japanese government has been cautious in its approach to regulating gambling, and any decision would likely be made after careful consideration of the potential risks and benefits. To sum it up, I wouldn’t expect the online market to be regulated soon.”