Japan’s cryptocurrency regulations center on two statutes: the Payment Services Act, which licenses exchanges and defines crypto assets, and the Financial Instruments and Exchange Act, which covers tokens that behave like securities. The Financial Services Agency (FSA) runs the system, enforcing some of the world’s strictest custody and anti-money laundering rules. Individual profits are taxed as miscellaneous income at rates up to 55%, while corporations now escape year-end mark-to-market taxation on most long-term holdings. A cabinet-approved amendment moving through parliament in 2026 would reclassify crypto as a financial product, ban insider trading, and sharply raise penalties for unregistered operators.
The Two Laws That Govern Crypto
The Payment Services Act (PSA) handles the day-to-day. Article 2(5) defines a crypto asset as electronically recorded property value that can be used to pay unspecified persons for goods or services and transferred through an electronic data-processing system. The yen, foreign currencies, and currency-denominated assets are explicitly excluded.1Japanese Law Translation. Payment Services Act
The Financial Instruments and Exchange Act (FIEA) covers the investment side. When a token behaves like a stock or bond, or when a platform offers crypto derivatives or security token offerings, the FIEA applies. Historically the FSA has treated most crypto as a payment tool under the PSA, but that balance is shifting under the pending 2026 amendment described below.
What Exchanges Must Do to Operate
Any platform offering crypto trading to Japanese residents must register with the FSA as a Crypto Asset Exchange Service Provider (CAESP). Operating without registration is illegal.2Financial Services Agency. List of Registered Crypto-asset Exchange Service Providers in Japan Registration requires documentation on governance, operational risk, cybersecurity, and director qualifications. A CAESP must hold at least ¥10 million in capital, maintain a positive net asset balance, and keep a physical office in Japan.
Registered exchanges also answer to the Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulatory body certified by the FSA. The JVCEA sets rules that often exceed government minimums and can reprimand, fine, suspend, or expel members for violations.3Financial Services Agency. Examination of the Regulatory Systems Related to Cryptoassets4International Monetary Fund. Japan Financial Sector Assessment Program – Technical Note on Regulation and Supervision of Fintech
Token Listing
Before a registered exchange can offer a new token, the JVCEA must screen and approve it. Well-established tokens sit on a “Green List” of pre-approved assets that any member exchange can list without full screening. Bitcoin and Ether are on this list. Newer or more obscure tokens require individual review, which is why the menu of tokens available on Japanese exchanges is narrower than on many foreign platforms.
Custody and Cold Storage
Japan’s custody rules were written in response to exchange hacks that cost customers billions of yen. Customer assets must be fully segregated from the exchange’s corporate funds, so a bankrupt exchange cannot hand those holdings to its creditors. At least 95% of customer crypto must sit in cold wallets disconnected from the internet. Whatever stays in hot wallets for liquidity must be matched by the exchange’s own crypto reserves in equivalent amount, held as “repayment assets” to make customers whole if a breach occurs. Third-party audits verify compliance on an ongoing basis.
Stablecoins and NFTs
A 2023 PSA amendment created a category called “electronic payment instruments” for stablecoins. Only licensed financial institutions, meaning banks, trust companies, and registered fund-transfer businesses, can issue stablecoins in Japan. The point is to ensure anything pegged to the yen or another fiat currency is backed by an entity subject to prudential regulation.
NFTs generally fall outside the crypto asset rules when they function as collectibles or art. A one-of-a-kind digital artwork is not treated as a crypto asset. But if an NFT’s design lets it function as a payment token to unspecified parties, or as an investment vehicle, it can be reclassified and pulled under the full regulatory framework.
AML and the Travel Rule
Every registered exchange must comply with the Act on Prevention of Transfer of Criminal Proceeds (APTCP). That means full Know Your Customer verification, including government-issued ID and address confirmation, before any user is onboarded.5Ministry of Finance Japan. AML/CFT/CPF in Japan Exchanges must appoint a compliance officer and report suspicious transactions.
Japan’s Travel Rule requires exchanges to share identifying information, including names, addresses, and account numbers, about both the sender and receiver of crypto transfers. Under the current APTCP framework no minimum threshold applies, so Travel Rule data must accompany transfers regardless of amount. When a customer sends crypto to a private wallet not managed by an exchange, the sending exchange still has to collect the wallet owner’s information and assess money-laundering risk tied to the destination.6Financial Services Agency. FSA Newsletter No. 540
How Individuals Are Taxed
The National Tax Agency classifies individual crypto profits as miscellaneous income. Combined with the local inhabitant tax, this subjects gains to progressive rates reaching up to 55%.7International Monetary Fund. Taxation to Crypto Assets in Japan Four events trigger tax:
- Selling crypto for yen. The gain is sale price minus acquisition cost.
- Trading one token for another. Swapping Bitcoin for Ether counts as disposing of the Bitcoin at its market value at the time of the trade.
- Spending crypto on goods or services. Market value at the moment of the transaction sets the taxable amount.
- Receiving crypto as income. Mining rewards, staking income, airdrops, and referral bonuses are taxed on receipt at fair market value.
The miscellaneous-income classification stings beyond the rate. Crypto losses cannot be offset against salary or other investment gains, and unused losses cannot be carried forward.7International Monetary Fund. Taxation to Crypto Assets in Japan You can only offset them against other miscellaneous income earned the same year. Annual returns are due March 15 of the year following the tax year, and detailed records of every transaction are essential to calculate gains accurately.
How Corporations Are Taxed
Companies holding crypto used to face a harsher regime. Under the Corporate Tax Law, “market crypto assets” had to be valued at market price at year-end, with unrealized gains taxed as income. Businesses owed tax on paper profits they had not realized.
Two reforms fixed much of this. A 2022 change exempted self-issued tokens from mark-to-market valuation when the issuer continued to hold them with transfer restrictions. A 2023 change, effective for the 2024 tax year, extended the exemption to third-party-issued tokens held with certain transfer restrictions, including Bitcoin and Ether. Short-term trading positions still face year-end mark-to-market valuation.
Penalties
Under current law, operating a crypto exchange without FSA registration carries up to three years in prison and a fine of up to ¥3 million. The FSA can also issue business improvement orders, suspend operations, or revoke registration for violations of custody, disclosure, or AML rules. The JVCEA runs a parallel enforcement track, with the power to reprimand, fine, restrict, or expel member exchanges. Because operating in good standing effectively requires JVCEA membership, expulsion is a serious sanction on its own.4International Monetary Fund. Japan Financial Sector Assessment Program – Technical Note on Regulation and Supervision of Fintech
What’s Changing in 2026 and 2027
In April 2026, Japan’s cabinet approved a draft bill reclassifying crypto assets as financial products under the FIEA, placing them under the same framework as stocks. If parliament passes the amendment in the current session, the rules could take effect as early as fiscal year 2027. The amendment introduces three major changes. Insider trading in crypto would be explicitly prohibited. Token issuers would be required to publish annual disclosures similar to those of listed companies. Penalties for operating without registration would rise sharply, with maximum prison terms going from three years to ten and maximum fines going from ¥3 million to ¥10 million.3Financial Services Agency. Examination of the Regulatory Systems Related to Cryptoassets
A separate but related effort is pushing to replace the up-to-55% miscellaneous-income rate on individual gains with a flat 20% rate matching stocks and investment trusts. The FIEA reclassification would reinforce the legal basis for that shift, since the current treatment flows from crypto being a payment instrument rather than a financial asset. No legislation enacting the 20% rate has been finalized as of mid-2026, but the direction is clear enough that anyone with meaningful holdings should watch the 2027 session closely.