Japan's Financial Services Agency is preparing to submit legislation to the ordinary Diet session in 2026 that would reclassify 105 cryptocurrencies — including Bitcoin and Ethereum — as financial products under the Financial Instruments and Exchange Act (FIEA). The bill, if passed, would move cr...
"While crypto assets carry the risk of high volatility, by establishing a proper investment environment, they can become an option for diversified investment." — Katsunobu Kato, Japan Finance Minister, WebX 2025
Japan's Financial Services Agency is preparing to submit legislation to the ordinary Diet session in 2026 that would reclassify 105 cryptocurrencies — including Bitcoin and Ethereum — as financial products under the Financial Instruments and Exchange Act (FIEA). The bill, if passed, would move crypto oversight from the Payment Services Act to the same legal framework governing equities, impose insider-trading prohibitions and disclosure mandates on exchanges for the first time, and cut the maximum tax rate on crypto gains from 55% to a flat 20%.
The reform package follows a December 10, 2025 report by the Financial System Council's Working Group that recommended the regulatory shift. According to the Nomura Research Institute, Japan's crypto market now encompasses 28 registered exchange operators, over 13 million cumulative user accounts, and deposit balances exceeding ¥5 trillion ($33 billion). The FSA receives more than 350 consumer inquiries monthly regarding crypto-asset scams, according to Baker McKenzie's analysis. If enacted, the new rules are expected to take effect in spring 2027.
The package represents the most comprehensive overhaul of Japan's crypto regulations since the country became the first major economy to regulate crypto exchanges in 2017, following the Mt. Gox collapse. It simultaneously tightens market conduct rules while lowering the tax burden — a combination designed to attract institutional capital while curbing fraud.
The centerpiece of the reform is the migration of crypto-asset regulation from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA). Under the current PSA framework, crypto exchanges operate under rules designed for payment processing, not securities trading. The FSA's proposal repositions 105 approved cryptocurrencies as "financial products" — a regulatory category distinct from securities but subject to the same disclosure, reporting, and market-surveillance infrastructure.
According to Baker McKenzie's Connect On Tech analysis, the new framework establishes seven pillars of reform: shifting the legal framework to FIEA, introducing disclosure regulations, establishing business conduct regulations, strengthening financial literacy and cybersecurity requirements, reviewing market establishment regulations, addressing unfair trading regulations, and adding insider trading protections.
The scope is broad. Affected entities include centralized crypto exchanges, investment management and advisory businesses, staking and lending service providers, bank and insurance company subsidiaries, system providers to exchanges, and unregistered domestic and overseas operators targeting Japanese users. Banks and insurance companies would be prohibited from engaging in crypto-asset investment management — a restriction that mirrors existing limits on speculative activity by deposit-taking institutions.
The FSA also plans to expand enforcement tools, including cease-and-desist orders, harsher penalties, and greater investigative powers for unauthorized crypto activity.
Under current Japanese tax law, crypto gains are classified as "miscellaneous income" and taxed at the individual's marginal rate — up to 55% when local residence taxes are included. The proposed reform would apply a flat 20% rate to gains from the 105 designated crypto assets, matching the tax treatment of equities and other capital investments.
The reform adds a three-year loss carryforward provision. Losses from crypto trades can be carried forward to offset future crypto gains, a mechanism standard for stocks and foreign exchange in Japan but previously unavailable to crypto holders. However, losses remain ring-fenced: they cannot offset gains from other asset classes.
The carve-outs matter. Staking yields, lending income, and NFT-related gains remain classified as miscellaneous income, taxed at rates up to 55%. Only realized capital gains from buying and selling the 105 specified crypto assets qualify for the reduced rate.
Approximately 70% of Japan's crypto holders earn below ¥7 million ($46,000) annually, and more than 80% of individual accounts hold less than ¥100,000 ($660), according to the Nomura Research Institute. For these retail holders, the practical tax impact may be limited. The primary beneficiaries are high-net-worth individuals and institutions facing the 55% marginal rate.
Japan will become one of the first major jurisdictions to apply formal insider-trading law to crypto assets. Under the proposed FIEA framework, transactions conducted before the occurrence or public announcement of "material facts" would be prohibited.
Material facts include: issuer insolvency, large-holder disposals, new listings or delistings, and other events that could materially influence trading decisions. According to Baker McKenzie, the scope covers both on-exchange and off-exchange transactions, including decentralized exchange (DEX) and over-the-counter (OTC) trades.
Penalties align with existing securities enforcement. Fines can reach ¥10 million ($65,000), with possible prison terms and criminal liability. An administrative monetary penalty (surcharge) framework is also planned.
The practical challenge is enforcement on DEXs. While the regulation's scope extends to decentralized platforms, monitoring wallet-to-wallet transactions across permissionless protocols remains technically difficult. The FSA has not published detailed guidance on how it intends to enforce insider-trading rules on DEX trades.
Following the $305 million DMM Bitcoin hack in 2024 — where North Korean attackers compromised a third-party wallet provider — and the still-ongoing Mt. Gox repayment process (scheduled through October 2026), the FSA will mandate that exchanges maintain liability reserves.
The proposed reserves mirror requirements for traditional securities firms, which hold between ¥2 billion ($12.7 million) and ¥40 billion ($255 million) depending on trading volume. The current exemption that allows exchanges to avoid reserve requirements by storing funds in cold wallets would be scrapped.
The bill also creates formal procedures for returning customer assets in bankruptcy, including allowing court-appointed administrators to handle payouts. To ease the financial burden on smaller operators, the FSA is considering allowing exchanges to meet part of the requirement through insurance, following models in the EU and Hong Kong.
Additionally, the FSA is weighing registration requirements for companies providing crypto-management systems — firms like Ginco, the wallet software provider compromised in the DMM Bitcoin breach.
For centralized crypto assets whose value is controlled by a particular business operator, both the issuer and the exchange must disclose: the asset's nature and functions, total supply, technical foundations, and key risks. When events occur that could materially influence trading decisions, the issuer must make timely public disclosures. Issuers are required to submit periodic reports at least annually.
This represents a structural shift. Currently, Japanese exchanges list tokens with minimal standardized disclosure. Under the new framework, each of the 105 approved tokens would require documentation comparable to what listed equities provide.
Exchanges themselves must report asset reserves in near real-time, disclose cybersecurity practices, and maintain stricter separation between customer funds and corporate accounts.
Japan's crypto market, while smaller than the United States, is significant in per-capita terms. Over 13 million accounts — approximately one in ten Japanese residents — hold crypto assets. Deposit balances exceed ¥5 trillion ($33 billion).
The Japan Cryptocurrency Exchange Market was valued at $3.66 billion in 2025, according to IMARC Group, with a projected CAGR of 25.4% through 2034. Twenty-eight operators are registered with the FSA and participate in the Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulatory body recognized under both the PSA and FIEA.
The market's retail concentration is notable. With over 80% of accounts holding less than ¥100,000, Japan's crypto user base skews toward small retail positions. This demographic profile drove the FSA's emphasis on consumer protection — the agency processes more than 350 scam-related inquiries per month.
The reform has drawn mixed responses. Industry representatives have warned that the regulatory burden may be excessive. According to Finance Magnates, some advisory committee members described the proposals as "too heavy-handed." Local and global blockchain associations have expressed concern that higher compliance costs could threaten the viability of smaller exchanges.
The reserve requirements alone could force consolidation. If applied at the same scale as securities firms, reserves of ¥2 billion to ¥40 billion would represent a material capital requirement for the 28 registered operators, many of which are small to mid-size businesses.
The counterargument, advanced by the FSA and consumer advocacy groups, is that Japan's history of exchange failures — Mt. Gox in 2014, Coincheck in 2018, DMM Bitcoin in 2024 — demonstrates that the current framework is insufficient. The total losses from these three incidents alone exceeded $1 billion.
The regulatory reform coincides with broader institutional infrastructure development in Japan.
ETFs: SBI Holdings and Franklin Templeton have formed a joint venture to prepare spot Bitcoin and XRP ETF products. SBI filed applications in August 2025. However, the FSA's timeline for approving crypto ETFs extends to 2028, according to Ledger Insights and multiple reports — well beyond the current legislative package.
Corporate Treasuries: Metaplanet (Tokyo Stock Exchange: 3350) holds approximately 35,102 BTC ($2.47 billion) and has raised $255 million from global institutional investors in 2026. The company established two subsidiaries in March 2026 for infrastructure and asset management.
Stablecoins: JPYC, the largest yen-denominated stablecoin, has an on-chain supply of approximately $26.4 million. SBI Shinsei Trust Bank is developing a trust-backed yen stablecoin (JPYSC) targeting Q2 2026, and Sony Bank has partnered with JPYC Inc. for yen stablecoin payments with pilot programs also targeting Q2 2026.
These developments proceed on parallel but separate tracks. The FIEA reclassification creates the legal scaffolding; ETF approval, corporate treasury adoption, and stablecoin infrastructure represent downstream applications that depend on the legislation passing.
Japan's FIEA migration is a calculated exchange: stricter rules for lower taxes. The FSA is betting that institutional capital unlocked by the 20% tax rate and securities-grade disclosure rules will more than offset the compliance burden imposed on exchanges.
The economic logic is straightforward. At a 55% marginal rate, high-net-worth and institutional allocators have limited incentive to hold crypto in Japan. At 20%, the rate matches equities and becomes competitive with jurisdictions like Singapore (0%) and Hong Kong (0%), while adding a regulatory framework that institutional compliance departments require.
Whether this works depends on execution. The 2028 ETF timeline introduces a multi-year lag between regulatory reform and product availability. The reserve requirements could thin the field of 28 registered exchanges before institutional products arrive. And the extension of insider-trading rules to DEX transactions raises enforcement questions the FSA has not yet answered.
What is clear is the direction. Japan, the country that pioneered crypto exchange regulation after Mt. Gox, is now attempting to build the full securities-market infrastructure around digital assets — one bill at a time.