Gambling is illegal in Japan, and thus the pachinko market operates within a grey area. Article 23 of the Entertainment and Amusement Trades Rationalisation Act specifically prohibits pachinko parlors from providing cash or marketable securities as merchandise or buying back goods that were offered to the customer. This includes steel balls and prizes.
The law is circumvented by winning players cashing in balls/tokens for prizes, which are often small plastic boxes, cards or nominal prizes of two sizes JPY1,000 and JPY2,500. These prizes are then exchanged for cash at a nearby exchange store. There is an exchange store for every pachinko parlour. Many retired police officers, called ‘old boys’, operate these exchange stores.
The third shop is that of the wholesalers, who are much fewer and cover a number of parlors and exchange stores. Wholesalers act as intermediaries between pachinko parlors and exchange stores.
Because of pachinko’s grey status the government has not implemented a gaming tax on the amounts wagered. Gaming taxes in other regions range between 15-39% and represent a significant share of total tax revenue.
The police take an active role in the pachinko industry, and curb issues such as children being locked inside cars while parents are playing pachinko, and rising consumer lending to fund pachinko players. The current status is that police seek to retain control of the sector rather than have it fall under the jurisdiction of another government department. Currently pachinko parlors are prohibited from listing on the capital markets, but if this changes it is expected that the police would no longer retain control.
The government has been concerned by the rise in popularity of pachislot, which has a greater gaming element, and the reduction in number of casual use players. The overall affect is that the pachinko/pachislot