Japan Passes Crypto Law That Reshapes Market Oversight

Japan’s parliament has passed legislation that will move crypto trading into the country’s financial-markets framework. Exchanges, issuers and other market participants will face rules that look more like those used in traditional financial markets, including disclosure requirements and insider-trading controls.

Technically, Japan’s crypto regulation isn’t in effect yet. The Financial Services Agency still needs to finish the implementing rules and the transition process. Reuters, citing NHK, reported that the government will set an effective date within one year of the law’s promulgation.

The reform comes as crypto use in Japan has grown to more than 13–14 million accounts, bringing retail participation closer to traditional financial markets. It also reflects lessons from past exchange hacks and security incidents. In scale, this marks the most significant overhaul of Japan’s crypto framework since the 2017 Payment Services Act, which itself followed the Mt. Gox collapse.

Crypto moves into Japan’s investment rulebook with new law

The House of Councillors approved the legislation on July 15, completing its passage through parliament after the House of Representatives had approved it on June 11. Passage through both chambers is required to enact legislation in Japan’s Diet system. Japan’s FSA records the measure as enacted on July 15.

Until now, Japan has regulated crypto mainly under the Payment Services Act, reflecting its use in payments and transfers. The new framework moves crypto oversight into the Financial Instruments and Exchange Act, which governs investment markets and financial businesses.

Under the new framework, the FSA will define crypto assets such as Bitcoin and other tokens as a distinct category of financial product, separate from shares and bonds. This allows regulators to apply rules tailored to crypto while using the stronger conduct and enforcement structure of financial-markets law.

The reclassification also clears a legal obstacle that had prevented investment funds from holding crypto, though further rule changes would still be needed before any ETF could launch.

Existing securities firms will need an amended registration before offering regulated crypto services. Current crypto exchanges will also have to adapt to the new registration and compliance framework once the transition details are set.

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Insider trading and disclosure rules become central

With crypto now treated more like an investment market, the law introduces a direct ban on insider trading. The rules target people who trade before material non-public information becomes available to the wider market.

For crypto markets, this could include information about a token issuer or an exchange’s decision to list or remove an asset. It may also involve a large planned transaction. The framework also covers people who receive inside information from someone in a privileged position.

Japan’s new law regulating crypto also expands public disclosure duties. If the issuer of a token is identifiable, disclosures may cover the asset’s functions, supply and underlying technology. The regulation will also require certain issuers to publish updates after important events and provide annual information in defined circumstances.

The disclosure process for Bitcoin and similar assets without a conventional issuer will differ from those of a company or centrally issued token. The FSA materials must account for those differences as it can not impose a single model across all assets.

Penalties and customer protections get stronger

Alongside trading rules, the law also tightens enforcement and increases the maximum punishment for operating an unregistered crypto trading business in Japan. The prison term rises from three years to ten years. The maximum fine for an individual increases from 3 million yen to 10 million yen.

Regulators will also gain stronger tools against unfair trading. Crypto-related insider dealing, market manipulation and misleading conduct can fall within surveillance, financial-penalty and investigative processes used for investment markets.

Customer protection is another focus. Trading businesses will need compensation reserves for certain losses caused by unauthorized outflows of customer assets. This requirement specifically follows experiences from past exchange hacks and security breaches. The detailed method for calculating those reserves remains unresolved and will depend on implementing standards.

Together, these measures shift the emphasis from treating exchanges mainly as payment-service operators to supervising them as investment-market businesses. Yet the law does not eliminate crypto’s technical risks or guarantee compensation after every loss.

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The overhaul isn’t finished yet

Japan’s new law reclassifies crypto, but key pieces are still unresolved.

A companion tax proposal would cut Japan’s crypto tax rate from as high as 55% to a flat 20%, likely starting around 2028, but the Diet has not passed it. Regulators are also weighing whether investment funds should be allowed to hold crypto directly, a step the Tokyo Stock Exchange operator says could open the door to ETF listings as early as 2027.

Those developments are moving on separate tracks. Their timing will depend in part on how quickly this law is implemented.

The FSA still needs to publish secondary rules, define registration and disclosure standards, and set the start date for the new regime. Exchanges, issuers and investors are waiting for that timetable before the next phase can begin.