Japan is taking decisive steps to move cryptocurrency out of the regulatory fringes and into the country's mainstream 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 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 within 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 argue that this framework no longer reflects market realities, particularly as crypto trading increasingly resembles investment activity rather than everyday payments.
By shifting oversight to securities law, Japan aims to introduce stricter disclosure requirements, clearer governance standards, and enhanced investor protection. The proposed changes would also align crypto regulation more closely with how equities and other financial instruments are supervised.
Crackdown on Market Abuse
A central pillar of the reform is the application of insider trading and market manipulation rules to cryptocurrency markets. Under the existing system, authorities have limited tools to address unfair trading practices involving digital assets.
Once included under securities regulations, crypto transactions would fall under the jurisdiction of the Securities and Exchange Surveillance Commission, enabling investigations into suspicious trades and the enforcement of penalties where misconduct is identified. Officials say this is essential to maintaining market integrity and protecting retail investors.
Tax Changes Under Discussion
Japan is also reviewing how crypto gains are taxed. At present, profits from digital asset trading are classified as miscellaneous income, which can result in high progressive tax rates. Policymakers are considering a shift to a flat capital gains tax structure, similar to that applied to shares and mutual funds.
Supporters of the change argue that tax reform is necessary to encourage long-term investment and prevent capital and talent from moving overseas. Any revisions would be subject to parliamentary approval and are expected to be debated alongside broader financial reforms.
Opening the Door to Institutions
The regulatory overhaul is also designed to encourage participation from 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 for Regulated Innovation
Japan has long been seen as one of the more cautious yet structured jurisdictions for 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 introduced during upcoming parliamentary sessions, with implementation likely to follow in stages. Industry groups have broadly welcomed the direction of travel, while calling for clear timelines and guidance.
As global regulators grapple with how to manage the rapid growth of digital assets, Japan's approach may offer a blueprint for bringing crypto firmly under the umbrella of regulated finance, without stifling innovation.
