Japan’s digital asset market continues to grow and is gradually becoming part of the country’s traditional financial system. According to official data from Japan’s Financial Services Agency (FSA), about 7.3% of Japanese individual investors with investment experience held crypto assets in 2025. By mid-2026, 31 Japanese crypto asset operators had opened more than 14.4 million accounts.
Against this backdrop, Japanese authorities continue to reform crypto market regulation, develop a separate regulatory framework for stablecoins and the tokenization of financial assets, and test infrastructure for the launch of a digital yen, or central bank digital currency (CBDC).
Key Laws and Rules Governing Crypto Assets in Japan
Crypto assets in Japan are subject to a dedicated regulatory framework. The law governs companies that provide crypto asset purchase, sale, exchange, and custody services, as well as certain aspects of crypto asset issuance, circulation, and use as investment instruments. The framework is based on 3 main pieces of legislation, supplemented by self-regulatory rules. Together, they establish requirements for crypto asset operators, certain categories of issuers and market participants, and measures to protect crypto asset holders and users.
Payment Services Act (PSA)
The Payment Services Act (PSA) is the primary legislation that established Japan’s dedicated regulatory framework for crypto assets. The relevant amendments were adopted in 2016 and took effect on April 1, 2017. A 2020 reform replaced the term “virtual currency” with “crypto asset” in Japanese law and tightened requirements for regulated operators.
Among other provisions, the PSA establishes:
- Legal criteria for distinguishing crypto assets from other regulated financial products and payment instruments
- Mandatory registration with the Financial Services Agency (FSA) as a crypto asset exchange service provider (CAESP)
- Regulation of the purchase, sale, and exchange of crypto assets, as well as intermediation in such transactions
- Regulation of crypto asset custody services
- Protection of client assets, including requirements to segregate client funds and crypto assets from an operator’s own assets
- Operational risk management requirements, including the security of systems used to handle clients’ crypto assets
- User protection and disclosure requirements, including disclosure of risks associated with crypto assets
Effective June 1, 2026, Japanese authorities also introduced a separate registration category for intermediaries handling crypto asset purchases, sales, and exchanges on behalf of registered operators.
Financial Instruments and Exchange Act (FIEA)
The Financial Instruments and Exchange Act (FIEA) governs financial instruments and capital markets, and its application to the crypto market was expanded in 2020. Unlike the PSA, which focuses on the circulation and custody of crypto assets, the FIEA primarily applies to investment products and market activities involving crypto assets.
As part of its 2026 crypto regulatory reform, the Japanese government adopted amendments that will shift the primary regulatory framework for crypto assets from the PSA to the FIEA. Once the new regime takes effect, crypto assets will be regulated under the FIEA as a separate category of financial instruments distinct from securities. The reform also introduces specific disclosure requirements for crypto asset issuers and operators, tighter regulation of crypto companies, and an insider trading regime.
In particular, the FIEA provides for:
- Regulation of crypto asset derivatives, including transactions whose value is determined by the price of the underlying digital asset
- Regulation of certain tokens representing investment rights, particularly tokens that entitle investors to receive profits or distributions of income
- Registration and other requirements for companies engaged in regulated activities involving such financial instruments
- Prohibition on market manipulation, including certain activities intended to artificially influence crypto asset prices
Act on Prevention of Transfer of Criminal Proceeds (APTCP)
The Act on Prevention of Transfer of Criminal Proceeds (APTCP) is Japan’s AML/CFT legislation requiring CAESPs to conduct customer and transaction controls similar to those applied by other regulated financial institutions in the country. The law was further amended in 2022 to implement the Travel Rule, which took effect on June 1, 2023. In 2026, the FSA and the National Police Agency (NPA) also required stronger protections for crypto platform users and a comprehensive set of additional measures to combat fraud.
Under the APTCP, VASPs are required to:
- Identify and verify customers (KYC)
- Maintain and retain records of customers and their transactions
- Identify and report suspicious transactions in accordance with AML/CFT requirements
- Transmit information about the originator and beneficiary to the receiving provider when transferring crypto assets
- Retain information transmitted and received under the Travel Rule
Japan Virtual and Crypto Assets Exchange Association (JVCEA) Rules
The Japan Virtual and Crypto Assets Exchange Association (JVCEA) is an FSA-recognized self-regulatory organization for Japan’s crypto industry. Its rules don’t replace the requirements of the PSA, FIEA, or AML legislation. Instead, they supplement them with more detailed industry standards that are binding on relevant association members.
The JVCEA rules cover, among other areas:
- Procedures and standards for listing crypto assets on Japanese trading platforms
- Requirements for disclosing information about crypto assets and associated risks
- Rules governing operators’ conduct in their interactions with customers
- Risk management and security standards
- Additional user protection measures
- Monitoring of transactions and members’ compliance with applicable requirements
Crypto Asset Taxation
As of September 2026, income earned by individuals from crypto asset transactions in Japan continues to be taxed primarily under the country’s aggregate taxation system. Profits from crypto asset trading are combined with a taxpayer’s other income. With the progressive national income tax rate reaching 45% and a local tax rate of 10%, the combined marginal rate can reach 55%.
As part of its 2026 tax reform, Japan provided for a transition to a separate tax regime for certain crypto asset transactions, intended to bring the taxation of regulated crypto investments closer to the treatment of traditional financial instruments.
The new regime provides for:
- Separate 20% tax rate, consisting of a 15% national income tax and a 5% local tax
- Application of the special regime to transactions involving regulated crypto assets that meet criteria established by law
- Ability to carry losses forward for 3 years
- Inclusion of certain derivatives transactions in the special tax regime
- Possibility of extending the regime to certain investment products linked to crypto assets
- Additional requirements for VASPs to provide tax authorities with information on crypto asset transactions
Stablecoin Regulatory Framework in Japan
Japanese law establishes a separate regulatory framework for stablecoins and distinguishes them from other crypto assets. The main regulated category is electronic payment instruments (EPIs), which includes certain fiat-denominated stablecoins redeemable at par. The special framework was introduced through amendments to the PSA and took effect on June 1, 2023.
Japanese law makes the following distinctions:
- BTC, ETH, and similar assets are classified as crypto assets
- Fiat-denominated stablecoins redeemable at par are classified as EPIs and regulated under payment services legislation
- Algorithmic stablecoins and other tokens that don’t provide for mandatory redemption at par are classified as crypto assets and regulated accordingly
Japanese law distinguishes between stablecoin issuance and services related to their distribution, exchange, and custody. Regulated fiat stablecoins can’t be issued by just any company. Issuance is limited to financial institutions that are already subject to regulation.
Depending on the legal structure, issuers may include:
- Banks
- Funds transfer service providers
- Trust companies and trust banks
Effective June 1, 2026, Japan changed reserve asset requirements for certain trust-based stablecoins. Previously, assets issued through a trust structure had to be held primarily in the most liquid forms, particularly demand deposits. This approach ensured high reserve liquidity but limited options for managing the assets backing the stablecoins.
Another change that took effect on June 1, 2026, applies to companies that intermediate stablecoin transactions without taking custody of client assets. Japan introduced the Electronic Payment Instruments/Cryptoassets Service Intermediary Business category for these companies. The framework allows a company acting as an intermediary on behalf of a fully registered operator to intermediate the purchase, sale, or exchange of stablecoins under a separate registration.
Effective June 1, 2026, Japan also expanded the scope for recognizing certain foreign trust instruments as EPIs. In determining whether such an instrument may circulate in Japan, regulators consider, among other factors, whether the foreign regulatory framework is comparable to Japanese requirements. Recognition that a foreign instrument meets the applicable criteria doesn’t automatically allow its unrestricted distribution in Japan. Regulated services involving such a stablecoin must still be provided through properly registered infrastructure.
Stablecoin transactions are also covered by Japan’s anti-money laundering and countering the financing of terrorism framework. Electronic Payment Instrument Exchange Service Providers are subject to applicable AML/CFT requirements, including customer identification, retention of information required by law, and reporting of suspicious transactions.
The Travel Rule also applies to stablecoin transfers. In cases specified by law, regulated providers must transmit information about the originator and beneficiary of a stablecoin transfer to another provider involved in the transaction. Effective August 3, 2026, Japan expanded the list of foreign jurisdictions with comparable Travel Rule requirements to which the relevant rules apply for cross-border transfers.
Tokenization of Financial Instruments in Japan
Japanese law doesn’t establish a single legal framework for all tokenized assets. Representing an asset or right as a blockchain token doesn’t change its legal nature. The applicable regulatory framework depends primarily on the type of asset being tokenized, such as a stock, bond, investment fund interest, other investment right, payment claim, or another asset.
In Japan, tokenization is primarily viewed as a technological method for issuing, recording, and transferring existing property and financial rights, rather than as a basis for creating a new universal category of assets.
The most developed legal framework applies to the tokenization of financial instruments. If stocks, bonds, investment fund interests, or other securities are issued on a blockchain network, they remain subject to the requirements of the FIEA.
The 2020 reform adapted securities legislation to the use of distributed ledger technology (DLT) and, in particular, introduced the category of Electronically Recorded Transferable Rights (ERTR) for certain investment rights represented electronically and transferable through an electronic data processing system.
As a result, tokenization in Japan can take different legal forms:
- Tokenized stock remains a stock and is subject to the regulatory framework applicable to that security
- Tokenized bond remains a bond and is regulated as a debt security
- Tokenized interest in an investment fund or trust is regulated according to the legal nature of the underlying investment right
- Certain investment rights that become more transferable due to their electronic form may qualify as ERTR and be subject to a stricter regime under the FIEA
The use of blockchain technology doesn’t exempt an issuer or intermediary from requirements that would apply to the same financial instrument in its traditional form.
Depending on the type of tokenized asset and the method of offering, applicable requirements may include:
- Rules governing public offerings and private placements
- Investor disclosure requirements
- Requirements to file a securities registration statement
- Requirements for regulated firms engaged in sales or intermediation
- Rules governing the secondary trading of financial instruments
- Requirements for the protection and segregation of client assets
Japanese law also recognizes that tokenization creates an additional technological layer of regulation. In addition to requirements associated with the assets themselves, financial institutions must consider the risks of the infrastructure used to record and transfer the relevant rights.
Key areas include:
- Management of private keys and other means of controlling tokenized assets
- Protection of infrastructure against cyberattacks and unauthorized access
- Segregation and separate accounting of client and proprietary assets
- Mechanisms for restoring access to and returning client assets
- Internal controls over transactions involving tokenized rights
- Disclosure to investors of how the relevant rights are created, held, and transferred
In February 2026, the FSA added an experiment involving the use of blockchain technology in financial instrument transactions to its Payment Innovation Project (PIP). The project covers the potential transfer of rights to Japanese government bonds, corporate bonds, investment funds, and stocks through DLT systems. One of the experiment’s key areas is the possibility of linking the transfer of a tokenized financial instrument to payment using digital payment instruments, including stablecoins.
CBDC: The Digital Yen
Japan is developing a potential model for a central bank digital currency (CBDC). However, as of September 2026, no decision had been made to issue a digital yen, and there was no official launch date. The Bank of Japan’s (BOJ) experiments are exploratory and don’t mean that a CBDC will necessarily be introduced.
The BOJ formally began work on a CBDC in 2020. From 2021 to 2023, the central bank conducted 2 Proof of Concept phases. It first tested the system’s basic functions, including CBDC issuance, distribution, and redemption, and then examined additional technical features.
The project entered the pilot phase in April 2023. The BOJ is developing an experimental CBDC system and testing its performance, resilience, security, and ability to process transactions under conditions designed to closely resemble real-world use. In parallel, the government is developing an institutional and legal framework for a CBDC. Since 2024, an interagency Liaison and Coordination Committee on Central Bank Digital Currency has been examining the allocation of functions between the BOJ and private intermediaries, the interaction between a CBDC and bank deposits and other payment instruments, as well as issues related to privacy, AML/CFT, and financial stability.
If a decision is made to issue a CBDC, its development is also expected to proceed in stages. Instead of launching the system with the full range of possible functions from the outset, the digital yen could initially serve as a basic payment instrument, with additional services added later.
A separate area of the BOJ’s work focuses on wholesale CBDC. In 2026, the BOJ began exploring the possibility of using distributed ledger technology (DLT) to tokenize funds held by financial institutions in accounts at the central bank.
In 2026, Japan continues to reshape its digital asset regulations, gradually bringing the crypto market closer to the traditional financial sector. Legislative amendments adopted during the year laid the groundwork for a new tax regime, while stablecoins retained their separate status as payment instruments. At the same time, the tokenization of traditional financial assets and DLT-based settlement infrastructure continued to develop, while the Bank of Japan continued to explore both retail and wholesale CBDC models. As a result, Japan is developing several interconnected legal frameworks for digital assets, with the applicable regime depending on the economic function and legal nature of each instrument.
