Gambling is illegal in Japan and the pachinko market operates in a gray area. Section 23 of the Act to Streamline Entertainment and Entertainment Trades expressly prohibits pachinko salons from providing cash or negotiable securities as commodities or from redeeming property offered to them. This includes steel balls and prices.
The law is circumvented by winning players cashing bullets / 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 money in a nearby exchange store. There is an exchange shop for each pachinko parlor. Many retired police officers, called "old boys", operate these trading shops.
The third store is wholesalers, which are much smaller and cover a number of trade shows and exchanges. Wholesalers act as intermediaries between the pachinko salons and the exchange shops.
Due to the gray status of the pachinko, the government has not put in place a gambling tax on the amounts spent. Gaming taxes in other regions range from 15% to 39% and account for a large share of total tax revenue.
Police play an active role in the pachinko industry and curbs problems such as locking children in cars while parents play pachinko and increasing consumer loans to finance the pachinko players. The current status is that the police seek to retain control of the sector rather than having it fall within the jurisdiction of another department. Currently, pachinko salons are banned from listing on the capital markets, but if that changes, it is expected that the police will no longer retain control.
The government has been concerned about the increase in popularity of pachislot, which has a larger element of play, and the reduction in the number of casual players. The overall effect is that the pachinko / pachislot industry has become associated with a more serious game. This led to new regulations on pachinko machines .