Japan’s Financial Services Agency (FSA) has unveiled a landmark proposal to move digital assets out of the country’s payments framework and into its securities regime, marking one of the most comprehensive updates to the nation’s crypto policy since the Payment Services Act (PSA) was enacted.
🚩金融審議会「暗号資産制度に関するワーキング・グループ」報告書を公表しました。#金融庁
— 金融庁 (@fsa_JAPAN) December 10, 2025
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The proposal would reclassify cryptocurrencies as financial investment assets under the Financial Instruments and Exchange Act (FIEA), which governs traditional securities such as equities and derivatives. The shift aims to address how Japanese investors now use crypto primarily for investment purposes rather than as digital money.
“Crypto assets are increasingly being used as investment targets both domestically and internationally,” the FSA said in its report on the proposal. The agency added that this move seeks to “protect users by providing regulation that treats crypto as a financial product.”
Why Japan is changing its approach
Japan was an early adopter of crypto regulation after the Mt. Gox collapse in 2014. The PSA defined cryptocurrencies as a digital means of payment and exchange. At the time, the focus was on preventing another major exchange failure.
However, the FSA and Japan’s Financial System Council concluded in late 2025 that this classification no longer reflects real market behavior. Bitcoin, Ether, and most other digital assets are now held as speculative or long-term investment instruments, not for daily transactions.
Exchange records and institutional data show that payment use has become marginal. The FSA argued that aligning digital assets with securities law would better manage risks, improve disclosures, and strengthen investor protection.
Changes under the Financial Instruments and Exchange Act
If adopted, the new framework would place crypto token issuers and exchanges under stricter financial supervision. The most significant change targets disclosure and investor transparency.
One focal point is regulating Initial Exchange Offerings (IEOs) — token sales managed by exchanges. The FSA proposal mandates that exchanges disclose detailed information about issuers before an IEO, including the teams involved, token supply structures, and results from third-party code audits.
“Crypto transactions conducted by users are similar to securities transactions, and may involve the sale of new crypto assets or the buying and selling already in circulation,” the report stated.
Issuers must identify the key parties behind each project and clarify how tokens are distributed, regardless of whether the initiative operates as a decentralized autonomous organization. This requirement aims to curb anonymous fundraising and bolster accountability.
Stronger enforcement and insider trading controls
The FIEA framework would grant the FSA broader enforcement powers. Regulators could take direct action against unregistered exchanges, including those operating from abroad but serving Japanese users.
The proposed rules also ban insider trading in crypto markets and introduce strict limitations on the use of non-public information by exchange employees or token issuers. This aligns Japan closer to the European Union’s Markets in Crypto-Assets (MiCA) rulebook and South Korea’s evolving digital asset regulations.
The FSA has pointed out that its goal is to ensure that digital assets trade under standards equivalent to stocks or bonds. The shift would make crypto fraud, price manipulation, and undisclosed conflicts of interest prosecutable under the same guidelines as traditional financial crimes.
Tax reform and investor confidence
Alongside the legal change, the Japanese government is advancing a tax reform that would simplify crypto gains reporting and reduce the top rate. Under the current regime, profits are treated as miscellaneous income with rates up to 55 percent. The plan would apply a flat 20 percent tax on all crypto trading gains and permit loss carryforwards, bringing parity with the taxation of equities.
Industry groups argue that the combination of legal clarity and tax cuts will make Japan one of the most appealing crypto jurisdictions for institutions. Financial institutions, such as banks and brokers, have largely stayed out of the market due to uncertainty about compliance obligations.
Impact on investors and businesses
Exchanges and startups may face higher compliance costs because the Type 1 Financial Instruments Business license under FIEA demands audited statements, capital buffers, and detailed reporting systems. Smaller firms may struggle with these new standards, possibly leading to consolidation.
Despite those hurdles, the broader industry expects the reforms to encourage the development of regulated investment products, exchange-traded funds (ETFs), and custody services. Analysts quoted by the Nikkei said the move signals Japan’s intention to position itself as a trusted digital-asset investment market in Asia.
Restrictions on derivatives linked to foreign ETFs
In a related decision, the FSA said derivatives tied to overseas crypto exchange-traded funds (ETFs) are “not desirable.” The regulator explained that, because Japan has not yet approved spot crypto ETFs, products like contracts for difference (CFDs) linked to foreign-listed ETFs carry excessive risk for local investors.
This stance led IG Securities to suspend its ETF-linked crypto CFDs. The FSA cited weak disclosure practices and heightened volatility as reasons for additional caution.
What comes next
Cabinet reviews and Financial System Council deliberations will precede formal legislation. The bill is expected to reach the National Diet in early 2026. Lawmakers across major parties reportedly support the shift, seeing it as a necessary modernization of Japan’s crypto oversight.
If implemented, Japan’s reforms would combine strict investor protection with fairer taxation, reshaping the country into a leading destination for regulated digital finance.
Roman Zaika
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