Japan is taking decisive steps to bring cryptocurrency out of regulatory margins and into the country’s traditional financial system, as authorities prepare to subject major digital assets to rules similar to those governing stocks, bonds and other securities.
The Financial Services Agency (FSA) is working on reforms that would reclassify widely traded cryptocurrencies under Japan’s Financial Instruments and Foreign Exchange Act, marking a significant departure from the current framework that treats crypto largely as a payment-related asset. The move would place digital assets under the same legal structure that governs traditional investment products.
From payments to investments
Since cryptocurrencies were first regulated in Japan, they have fallen under laws designed for payment services. Regulators now say this framework no longer reflects market realities, especially as cryptocurrency trading increasingly resembles an investment activity rather than everyday payments.
By shifting oversight to securities law, Japan aims to introduce stricter disclosure requirements, clearer governance standards and better investor protection. The proposed changes would also more closely align crypto regulation with how stocks and other financial instruments are supervised.
Repression of market abuse
One of the central pillars of the reform is the application of rules on insider trading and market manipulation to cryptocurrency markets. Under the existing system, authorities have limited tools to combat unfair trade practices involving digital assets.
Once included in securities regulations, crypto transactions would fall under the jurisdiction of the Securities and Exchange Surveillance Commission, allowing suspicious transactions to be investigated and sanctions for misconduct. Officials say this is essential to maintain market integrity and protect retail investors.
Tax changes under discussion
Japan is also looking into how crypto gains are taxed. Currently, profits from trading digital assets are classified as miscellaneous income, which can result in high progressive tax rates. Policymakers are considering moving to a uniform tax structure on capital gains, similar to that applied to stocks and mutual funds.
Proponents of change argue that tax reform is necessary to encourage long-term investment and prevent capital and talent from moving abroad. Any revision would be subject to parliamentary approval and would need to be debated alongside wider financial reforms.
Open the door to institutions
The regulatory overhaul also aims to encourage the participation of banks and other established financial institutions. Clearer legal definitions and compliance rules would make it easier for traditional players to offer crypto-related services, including custody and trading, under existing licensing regimes.
Regulators believe institutional involvement could improve market stability and transparency while accelerating the integration of digital assets into Japan’s broader financial ecosystem.
A model of regulated innovation
Japan has long been considered one of the most cautious, yet structured, jurisdictions when it comes to cryptocurrency oversight, particularly following high-profile exchange failures in the past. Officials say the latest reforms reflect lessons learned and aim to strike a balance between innovation and consumer protection.
If approved, the changes would place Japan among the leading economies attempting to fully integrate crypto into conventional finance rather than treating it as a separate or experimental sector.
What comes next
Legislative proposals are expected to be presented in upcoming parliamentary sessions, and their implementation will likely follow in stages. Industrial groups generally welcomed the direction taken, while calling for clear deadlines and directions.
As global regulators grapple with how to manage the rapid growth of digital assets, the Japanese approach could offer a model for bringing crypto under the umbrella of regulated finance, without stifling innovation.
