Crypto Overview in Japan

Regulatory data is for informational purposes only and may not reflect the most current legal developments. Always consult qualified professionals before making decisions.

Legal Classification and Regulatory Framework

Cryptocurrency Status

Japan established a legal framework for digital assets earlier than most major economies. Under the Payment Services Act (PSA), cryptocurrencies are classified as “Crypto Assets” (formerly “virtual currencies”) and recognized as legal property, distinct from securities. Non-fungible tokens (NFTs) are generally not classified as crypto assets unless they carry characteristics of payment instruments or securities. Stablecoins backed by fiat currencies are separately regulated as “Electronic Payment Instruments” (EPIs) under a PSA amendment that entered into force on June 1, 2023.

A fundamental shift is underway. Following a review by the Financial System Council (FSC) Working Group from June to December 2025, the FSA published a report recommending that approximately 105 crypto assets including Bitcoin and Ethereum be reclassified as “specified crypto assets” under the Financial Instruments and Exchange Act (FIEA). The FSA concluded that the FIEA’s investor protection framework better reflects how most users engage with crypto assets today, primarily as investment products rather than payment instruments. A bill was approved by Cabinet and submitted to the National Diet; if enacted, the FIEA framework is expected to take effect in fiscal year 2027. NFTs and stablecoins are excluded from the reclassification.

The proposed FIEA migration introduces material new obligations: pre-sale disclosures including issuer identity and independent code audits; explicit insider trading prohibitions; and penalties for unregistered selling raised from up to three years’ imprisonment and 3 million yen to up to ten years and 10 million yen. Crypto ETFs are targeted for 2028.

Tax Treatment

The National Tax Agency (NTA) currently classifies crypto profits as “miscellaneous income” for individuals, subject to progressive national rates of 5% to 45% plus a flat 10% local inhabitant tax, producing a combined maximum of approximately 55%. Taxable events include selling crypto for yen or other currencies, crypto-to-crypto exchanges, using crypto to purchase goods or services, and receiving assets via mining, staking, or airdrops. Losses can only offset other miscellaneous income within the same tax year and cannot be carried forward.

The December 2025 Tax Reform Outline proposes a flat 20% separate self-assessment tax (15% national plus 5% local) on gains from “specified crypto assets” traded on FSA-registered exchanges, with a three-year loss carryforward. Implementation is projected from January 1, 2028, contingent on the FIEA amendments being enacted. For corporations, a prior reform already exempted self-issued crypto assets from year-end mark-to-market taxation.

Regulatory Oversight

The Financial Services Agency (FSA, 金融庁 Kinyucho) is the primary regulatory authority, responsible for registering and supervising Crypto-Asset Exchange Service Providers (CAESPs) and enforcing AML and counter-terrorist financing (CFT) requirements.

Two FSA-recognized self-regulatory organizations operate alongside the FSA. The Japan Virtual and Crypto Assets Exchange Association (JVCEA), established in 2018, sets industry rules and pre-approves new crypto assets before member exchanges may list them; its token listing committee rejected 72% of 147 applications in Q2 2025. A Green List system (March 2022) allows established tokens to bypass JVCEA pre-assessment on new exchanges. The Japan Security Token Offering Association (JSTOA) oversees security token offering businesses.

Japan’s Financial Intelligence Center (JAFIC, 犯罪収益移転防止対策室) is the national financial intelligence unit, receiving suspicious transaction reports from CAESPs and coordinating with international counterparts on AML matters.

Business Environment

Banking Relationships

Japan’s major financial institutions have integrated with the digital asset ecosystem. Mitsubishi UFJ Financial Group (MUFG), SMBC, and Mizuho are developing Project Pax, targeting one trillion yen in B2B stablecoin issuance by 2028. SBI Holdings operates SBI VC Trade, one of Japan’s registered crypto exchanges. Banks may not issue stablecoins on permissionless blockchains under current prudential rules, but may issue tokenized deposits among identified users and participate through subsidiaries. Licensed exchanges generally maintain banking relationships, supported by the FSA’s rigorous registration framework.

Innovation Support

Japan has positioned Web3 development as a national strategic priority. The government’s Web3 Project Team, active since 2022, recommended Web3 as part of Japan’s economic growth strategy, driving regulatory reforms across financial law, taxation, and corporate law. The ruling Liberal Democratic Party published Web3 White Papers in April 2023 and April 2024, each cataloging policy issues and proposing legislative remedies.

A 2024 amendment to the Limited Partnership Act (LPS Act) removed a longstanding restriction that had prevented domestic venture capital funds from holding crypto assets directly. This change allows Japanese VC funds to invest in crypto without restructuring through offshore entities, addressing a gap that had pushed Web3 startup capital abroad.

The FSA operates a regulatory sandbox program allowing companies to test innovative financial services, including blockchain applications, under controlled conditions. FinCity.Tokyo, a public-private initiative of Tokyo’s municipal government, assists foreign fintech companies with market entry, licensing navigation, and stakeholder networking, providing English-language support and connections to regulators.

Japan has also established pathways for tokenized securities (digital securities), including a dedicated alternative trading system enabling secondary market trading of tokenized assets such as digital corporate bonds and tokenized real estate investment products.

Crypto License in Japan

Japan operates one of the most rigorous crypto licensing regimes globally. Any entity providing crypto-asset exchange services to Japanese residents must first register as a Crypto-Asset Exchange Service Provider (CAESP) with the FSA under the Payment Services Act. Operating without registration is a criminal offence. The May 2025 PSA amendment (Amendment Act 2025, enacted June 6, 2025, effective by June 2026) introduced a lighter registration pathway for entities that only intermediate crypto asset sales or exchanges under mandate from a licensed CAESP, without holding customer assets directly.

Licensing Requirements

To register as a CAESP, an applicant must be a Japanese kabushiki-kaisha (joint-stock company), or an overseas company that has established a physical office and resident representative in Japan and holds an official licence from its home jurisdiction. Minimum paid-in capital of at least 10 million yen is required. Applicants must demonstrate a sound organizational structure, qualified executives with practical experience in Japanese financial institutions, internal regulations equivalent to those of regulated financial firms, appropriate IT systems, and full AML and CFT protocols.

Registered CAESPs must maintain ongoing obligations: at least 95% of customer crypto assets held in cold (offline) storage; customer fiat currency held in trust with a licensed trust bank or trust corporation, segregated from proprietary assets; periodic audits by a certified public accountant; advance notification to the FSA before listing new crypto assets; and submission of regular supervisory reports.

For stablecoin activities, separate licensing applies. Only banks, fund transfer service providers, and trust banks may issue Electronic Payment Instruments (fiat-backed stablecoins) to Japanese residents, with 100% or greater reserve backing required in yen deposits and Japanese government bonds. Entities that trade or distribute stablecoins without issuing them must register as Electronic Payment Instruments Business Providers (EPIBPs).

Authorized Activities

A CAESP licence authorizes buying and selling crypto assets, exchanging one crypto asset for another, intermediating or brokering those activities, and holding customer crypto assets in custody. Security token offerings require separate registration or recognition under JSTOA oversight. Entities that only facilitate transactions as intermediaries under a CAESP’s mandate may use the lighter intermediary registration introduced by the Amendment Act 2025, without being subject to direct AML and CFT obligations (those obligations remain with the principal CAESP).

All CAESPs must comply with the Travel Rule under the Act on Prevention of Transfer of Criminal Proceeds (APTCP). Since June 1, 2023, the rule applies without threshold conditions: transfers at or above the JPY-equivalent of $3,000 require originator and beneficiary information to be collected, verified, and transmitted to the counterparty VASP. Customer identity verification is mandatory for all account holders.

Application Process and Timeline

The FSA reviews the applicant’s business plan, financial position, security architecture, internal controls, and AML and CFT procedures. The JVCEA conducts a parallel review for any CAESP wishing to list crypto assets; whitepaper review and an independent smart contract audit are required for each new token.

The realistic timeline from application to approval is 18 to 24 months, with estimated costs typically ranging from $500,000 to $1 million, covering legal fees, system buildout, compliance staffing, and ongoing audit obligations. Approved CAESPs are published on the FSA’s official register.

Market Characteristics

Adoption Patterns

Japan maintains one of the world’s most developed cryptocurrency markets, with millions of registered trading accounts across licensed exchanges. Japan’s mandatory fund segregation rules were validated in practice: when FTX collapsed globally in November 2022, FTX Japan returned customer funds beginning in February 2023 because Japanese law required strict client asset segregation. The entity was acquired by bitFlyer in July 2024 and rebranded as Custodiem. Institutional interest has grown following regulatory clarity around digital securities; the 2024 LPS Act amendment, which removed a prohibition on domestic VC funds holding crypto directly, is expected to channel additional institutional capital into the sector.

Industry Focus

Japan’s cryptocurrency industry demonstrates particular strength in several areas. The gaming sector and NFT marketplace benefit from Japan’s globally recognized intellectual property in animation, manga, and video games. Content creators and entertainment companies have adopted NFTs for digital collectibles and fan engagement programs.

Stablecoin development has become a key focus area. JPYC Inc. became the first issuer of a fully regulated yen-pegged stablecoin in October 2025, operating under a Type II funds transfer licence with reserves fully backed by bank deposits and Japanese government bonds. Project Pax, the MUFG, SMBC, and Mizuho consortium, is developing infrastructure for large-scale B2B yen stablecoin settlement.

Exchange services remain highly developed. Coincheck became the first Japanese crypto exchange to list on Nasdaq, receiving SEC approval in November 2024 and debuting on the exchange in December 2024 via a SPAC merger with Thunder Bridge Capital Partners IV under the ticker CNCK. Other major domestic registered exchanges include bitFlyer, bitbank, GMO Coin, and SBI VC Trade.

Regulatory Evolution

Japan’s regulatory approach continues to evolve at pace. The proposed PSA-to-FIEA migration would be the most significant structural change since virtual currencies were first regulated in 2017, introducing insider trading prohibitions, pre-sale disclosure requirements, and stronger penalties. Japan participated actively in Financial Action Task Force (FATF) standards development during its G7 presidency, emphasizing frameworks that address risks while supporting innovation. Regulatory frameworks for decentralized finance (DeFi) and decentralized autonomous organizations (DAOs) remain under active policy development through government-backed working groups.