Japan is taking a significant step toward reshaping its approach to cryptocurrency regulation. By 2026, the Financial Services Agency (FSA) plans to reclassify crypto assets as financial products under the Financial Instruments and Exchange Act. This shift will bring cryptocurrencies under the same regulatory framework as stocks and bonds, subjecting them to insider trading rules and stricter oversight.
The decision reflects Japan’s shifting stance on digital assets. Initially recognized primarily as a payment method, cryptocurrencies have grown into an investment class with increasing market influence. As blockchain technology and cashless transactions gain momentum, integrating crypto into the broader financial system appears to be a logical progression. However, this reclassification also raises questions about market access, investor protection, and the long-term impact on innovation in the sector.
Japan has a history of regulating cryptocurrencies. In 2016, it recognized Bitcoin as a legal form of payment under the Payment Services Act. However, the regulatory framework treated crypto primarily as a payment method, not an investment vehicle.
Over time, as the market grew, challenges such as fraud, manipulation, and unclear regulations emerged. By the end of 2024, Japan had around 11.8 million crypto accounts, an increase of about three million from the previous year. The country ranked 23rd globally in crypto adoption, alongside South Korea and Hong Kong.
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— SpotSpreads (@SpotSpreads) May 28, 2023
Stronger Rules Aim to Reduce Risks
The FSA’s decision reflects an effort to address market risks. Reclassifying crypto assets as financial products will bring them under stricter regulations, including bans on insider trading. This move follows similar trends in other regions.
In the US, the Securities and Exchange Commission (SEC) has pursued legal action against companies for offering tokens it classifies as securities. The European Union’s Markets in Crypto-Assets (MiCA) framework has also introduced comprehensive regulations for digital assets.
Pushing for a Cashless Economy
Japan has been promoting a cashless economy for over a decade. In 2019, cashless transactions accounted for 26.8% of total payments.
By 2023, this figure had risen to 39.3%, amounting to 126.7 trillion yen ($885 billion), according to the Ministry of Economy, Trade, and Industry. The government aims to increase this to 40% by 2025. Blockchain technology is expected to play a role in achieving this goal.
Visit FinanceMagnates.com to read: Ripple’s XRP Ledger Integration Could Boost Market Cap by $64 Billion in Japan.
Potential for ETFs and Lower Taxes
One expected impact of the new regulations is the potential approval of spot crypto exchange-traded funds (ETFs). These are currently prohibited in Japan. Lawmakers are also discussing reducing the tax on crypto gains from 55% to 20%, aligning it with stock investments.
Currently, crypto profits are taxed as miscellaneous income, resulting in high tax rates. A reduction could attract more investors and increase liquidity in the Japanese market.
JUST ANNOUNCED Japan to Allow Start-Ups to Raise Funds With Crypto: The Japanese government will allow companies to raise equity financing by issuing crypto tokens instead of stocks.
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— Rewards Farm (@Rewards_Farm) September 15, 2023
Institutional Investment Could Increase
The introduction of crypto ETFs could also encourage institutional investment. In the US, spot Bitcoin ETFs approved in early 2024 saw rapid adoption, accumulating over $10 billion in assets within six months.
If Japan follows a similar path, its market could experience significant growth. The FSA has been holding closed-door discussions with legal and financial experts since October 2024. The agency plans to finalize its policy direction by June 2025, with legislative changes expected in 2026.
Retail Investors May Face Restrictions
The new classification raises concerns about restrictions on retail investors. The FSA has already taken steps to limit access to unregistered foreign exchanges. In 2024, it requested that Apple and Google remove five platforms—Bybit, KuCoin, MEXC Global, LBank, and Bitget—from their app stores in Japan.
While this measure aims to protect investors, it may also reduce choices for those seeking tokens not listed on local exchanges. Some investors could turn to unregulated platforms, increasing exposure to risks.
Japan Implements Stricter Anti-Money Laundering Rules to Crack Down on Crypto Crime: After G7 discussions, Japan plans to bring tighter anti-money laundering (AML) regulations to bring down crypto crimes.
… #Markets #CryptoAML #JapanCryptoRegulations https://t.co/HFiVh9WAtJ pic.twitter.com/a4jyx0AxzN— Rewards Farm (@Rewards_Farm) May 23, 2023
Aligning with Global Crypto Regulations
The reclassification aligns with Japan’s broader financial and economic policies. In 2022, the FSA introduced regulations for fiat-backed stablecoins.
In April 2024, corporate tax exemptions on unrealized crypto gains were introduced, encouraging corporate involvement in the sector. These developments indicate a structured approach to integrating digital assets into the economy.
Globally, other regions are also tightening crypto regulations. The US, EU, and Singapore have introduced frameworks to manage risks while fostering innovation. Japan’s approach could influence other Asian markets, shaping regional regulatory trends.
Public Reactions Remain Divided
Public reactions to the FSA’s decision are mixed. Some see it as a necessary step toward stability and institutional adoption. Others worry about excessive regulation restricting market growth.
The balance between oversight and innovation will be critical in determining the impact of these changes. Japan’s approach in the coming years will be closely watched as a model for future crypto regulation.
