Key takeaways
- Japan legally recognized cryptocurrencies as payment methods in 2017, pioneering crypto regulation through the Payment Services Act (PSA) and Financial Instruments and Exchange Act (FIEA).
- Crypto exchanges must register with the Financial Services Agency (FSA), meet rigorous compliance standards and follow strict AML/CFT protocols.
- From mid-2025, Japan began reclassifying certain tokens as securities under FIEA, introducing tighter disclosure, insider trading rules and enabling crypto ETFs.
- Japan plans to replace its high progressive crypto tax with a flat 20% capital gains tax in 2026.
Is crypto legal in Japan?
Yes, and it has been for years. Japan is one of the earliest and most proactive countries legally recognizing digital assets.
In 2017, Japan became the first major economy to formally classify cryptocurrencies as legal payment methods. This milestone came through amendments to the Payment Services Act (PSA), a foundational law that sparked an explosion in crypto adoption and forced regulators to think seriously about balancing innovation with investor protection.
Still, the road hasn’t been smooth. Major incidents like the Mt. Gox collapse, the $530 million Coincheck hack and Bybit’s February 2025 hack exposed the risks of insufficient oversight.
In response, Japan has moved to craft a comprehensive regulatory regime that would eventually become a benchmark for other jurisdictions navigating the same questions.
As of July 2025, crypto regulations in Japan are once again evolving. From tightening Anti-Money Laundering laws to new tax reporting obligations and rethinking how tokens are legally classified, Japan is redefining the rules of engagement for crypto platforms, investors and builders.
This guide breaks down the latest updates to Japan cryptocurrency law 2025, what’s changing and why it matters for anyone operating in or entering the Japanese market.
Japan’s legal foundation, regulators and core crypto legislation
Japan’s regulatory clarity is primarily thanks to the Financial Services Agency (FSA), the country’s primary financial watchdog. The Japan FSA crypto policy governs the sector through two main legal frameworks:
- The Payment Services Act (PSA).
- The Financial Instruments and Exchange Act (FIEA).
The PSA, first revised in 2017 and then updated in 2020 and 2023, provides the core definitions for “crypto-assets,” distinguishing them from fiat currency and assigning licensing requirements to any business dealing with digital assets. Under the PSA, all crypto-asset exchange service providers (CAESPs) must:
- Register with the FSA.
- Maintain physical operations within Japan.
- Implement robust AML and KYC procedures.
- Segregate customer funds.
- Maintain adequate capital reserves.
If you’re asking how Japan regulates crypto, this is the legal entry point, a clearly defined system built on transparency, stability and investor protection.
As of July 2025, the FIEA, which traditionally governs securities and investment products, plays a larger role. In June 2025, the FSA formally moved to reclassify certain digital assets under the FIEA, specifically, those with investment-like or governance features. This shift brings tokens with financial characteristics into the same legal category as securities, introducing:
- Mandatory disclosures for token issuers.
- Insider trading and market conduct regulations.
- Clearer legal paths for regulated crypto ETFs, including spot Bitcoin products.
The reclassification was officially proposed at the FSA’s June 25 council meeting and will be followed by a formal bill expected in early 2026. If passed, this will establish one of the world’s most advanced frameworks for token regulation and investor protection.
Did you know? Japan has established a formal DeFi Study Group, meeting every two to three months with representatives from the FSA, industry and academia to explore regulatory approaches for decentralized platforms and smart-contract-based financial services.
Licensing and crypto business landscape in Japan
Under the current framework, any company offering crypto services must navigate the Japan crypto licensing framework, and it’s not a light process.
The FSA requires all CAESPs to meet stringent conditions, including:
- A local bank account.
- A compliance team based in Japan.
- A minimum capital of 10 million Japanese yen (about $70,000).
- Strict operational security standards.
Beyond CAESPs, Japan has introduced formal classifications for other service providers under its updated digital asset laws:
- Electronic Payment Instrument Exchange Service Providers (EPIESPs) handle stablecoins or tokenized payment instruments;
- Electronic Crypto-Asset Intermediary Service Businesses (ECISBs) function like brokers, facilitating trades without holding customer assets.
In March 2025, a new license type was introduced, Crypto-Asset Intermediary Service Providers (CAISPs). This category targets non-custodial platforms like DeFi interfaces, giving them legal recognition and operational guidelines without requiring complete exchange registration.
Did you know? Cryptocurrency mining in Japan isn’t regulated; it’s legal unless linked to institutional investment or token sales under FIEA scrutiny.
AML, CFT and cross-border compliance
One of the key pillars of Japanese crypto compliance rules is Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT).
Since June 2023, Japan has enforced the Travel Rule, which requires service providers to share customer identity details with every crypto transfer, mirroring traditional wire transfer rules.
Onboarding a user in Japan now means verifying their identity, screening them against sanctions lists and keeping detailed transaction records. Anonymous wallets are out.
Compliance is governed by the Act on Prevention of Transfer of Criminal Proceeds (APTCP) and further reinforced through FSA guidance. These requirements are mandatory for companies that want to operate legally under Japan crypto exchange rules.
Japan is also actively aligning with the OECD’s Crypto-Asset Reporting Framework (CARF), a global tax transparency initiative. If implemented, this would require exchanges and wallet providers to share information on customer activity and asset holdings, extending Japan’s crypto tax obligations to cross-border flows.
Crypto tax in Japan: rules, reforms and what’s next
Crypto tax in Japan has long been a source of frustration for both individual traders and institutional investors.
Until now, profits from trading, staking or earning crypto have been treated as “miscellaneous income,” subject to a progressive tax rate that can climb as high as 55% when national and local taxes are combined. That rate places Japan among the world’s most heavily taxed crypto jurisdictions.
Change is finally on the way.
In late June 2025, Japan’s Financial Services Agency (FSA) confirmed its decision to move forward with a major tax reform, introducing a flat 20% capital gains tax on crypto profits.
This long-awaited update, part of broader efforts to modernize Japan cryptocurrency law in 2025, brings digital assets in line with how stocks and other financial instruments are taxed, and could make Japan far more attractive to both long-term investors and global firms.
The reform will be codified into law in early 2026, with implementation expected later that year.
Until the new rules take effect, crypto earnings must still be reported under the existing framework. That includes profits from staking, yield farming, NFT flips and airdrops, all of which remain fully taxable under current crypto trading laws in Japan that are enforced with increasing precision by the tax authorities.
Cryptocurrency regulation updates: Japan redefines tokens as securities
From April to June 2025, Japan’s Financial Services Agency (FSA) held a series of public consultations about reclassifying certain digital assets under the Financial Instruments and Exchange Act (FIEA).
This may change how select tokens, especially those with investment or governance features, are treated under law. Instead of falling under the PSA’s definition of “crypto-assets,” they may be recognized as financial instruments under stricter Japanese crypto compliance rules.
In practice, this would mean:
- Enhanced disclosure obligations for token issuers.
- Insider trading laws and market abuse rules.
- Clear frameworks for investor protection and risk disclosures.
It’s a move designed to support transparency as the digital asset market matures. If passed, the reclassification would finally open the door to crypto ETFs in Japan, including spot Bitcoin and Ethereum products. Until now, Japan has held back from approving such instruments due to the legal gray area around token classification.
This brings Japan closer to moves already seen in the US, Hong Kong and the UAE, where tokenized financial products are gaining mainstream regulatory approval.
Did you know? As of April 2025, Japan’s updated stablecoin policy allows issuers to hold up to 50% of their reserves in low-risk assets like Japanese government bonds. Major financial players like SMBC and Ava Labs are already piloting these stablecoins for real-world asset settlements.
Japanese government on crypto road to “New Capitalism 2025”
Japan is integrating Web3 innovation into its national growth strategy, and crypto is at the heart of that vision.
By mid-2025, Japan had over 12 million verified crypto users and more than $34 billion in digital assets under local custody. That number is forecast to reach 18.7 million users by 2026, with annual industry revenue surpassing $2 billion.
The government’s broader economic blueprint, “New Capitalism 2025,” frames digital assets, tokenization and blockchain infrastructure as key enablers of financial modernization.
If current proposals pass, we could see the following by early 2026:
- The FIEA amended to cover more tokens.
- Legal greenlighting of crypto ETFs.
- A flat 20% capital gains tax replacing the current progressive model.
- Greater global alignment via CARF and OECD frameworks.
That said, tighter laws mean higher barriers to entry. Small startups may find it harder to navigate Japan’s crypto licensing framework, which requires extensive documentation, local presence and capital buffers. The challenge will be balancing innovation with investor protection, without choking out smaller players.
Still, Japan offers a rare regulatory clarity for serious builders and institutions.
Where many countries still treat crypto as a gray zone, Japan’s playbook is increasingly viewed as a model for digital asset governance