Japan stands as a global leader in establishing a comprehensive and evolving regulatory landscape for cryptocurrencies and blockchain technology. The nation's approach balances robust consumer protection with a forward-looking strategy to foster innovation, particularly in the Web3 space. This guide provides a detailed overview of the laws, regulations, and compliance requirements for crypto assets in Japan as we look towards 2025.
Government Stance and Core Definitions
Official Policy and Direction
Japan's formal regulatory journey began with the amended Payment Services Act (PSA), which took effect in 2017. Initially focused on minimal user protection and Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) frameworks for Crypto Asset Exchange Services (CAES), the approach has significantly tightened. This shift was prompted by several high-profile hacking incidents targeting exchange service providers and updates to international Financial Action Task Force (FATF) standards.
Concurrently, a proactive strategy emerged. In early 2022, the government established the Web3 Project Team, later elevating the development of a Web3 environment—a decentralized internet built on blockchain—to a pillar of its national economic growth strategy. This policy drives ongoing reforms in financial and tax regulations, including the introduction of stablecoin rules and clarifications on the status of Non-Fungible Tokens (NFTs).
Legal Definitions: Crypto Assets and Services
A precise understanding of Japanese law is crucial, as "Crypto Assets" are distinct from "securities" as defined under the Financial Instruments and Exchange Act (FIEA).
What is a Crypto Asset?
The PSA defines a "Crypto Asset" as proprietary value that is:
- Transferable through an electronic data processing system.
- Usable as payment for goods or services to an unspecified person.
- Capable of being bought from or sold to an unspecified person.
This definition explicitly excludes Japanese yen, other fiat currencies, and Currency Denominated Assets (like prepaid e-money).
What are Crypto Asset Exchange Services (CAES)?
CAES encompasses several business activities:
- The sale, purchase, or exchange of Crypto Assets.
- Intermediating or brokering the above activities.
- Managing customer funds related to these activities.
- Managing customers' Crypto Assets for their benefit (custody services).
Crucially, custody services require registration as a Crypto Asset Exchange Service Provider (CAESP). The Financial Services Agency (FSA) guidelines state that management occurs if the service provider can transfer user assets, such as by holding a private key. Therefore, providing a non-custodial wallet where users control their keys does not constitute a regulated CAES activity.
The Cryptocurrency Regulatory Landscape
Classifying Different Token Types
Japan lacks a single, omnibus law for blockchain tokens. Instead, a token's legal status is determined by its function and use.
- Crypto Assets (e.g., BTC, ETH): Regulated under the PSA. Handling them requires CAESP registration.
- Electronic Payment Instruments (EPIs - e.g., USDC, USDT): Fiat-denominated stablecoins are regulated as EPIs under the PSA. Handling them requires registration as an Electronic Payment Instruments Exchange Service Provider (EPIESP). Algorithmic stablecoins not backed by fiat typically fall under the Crypto Asset definition.
- Securities Tokens/ERTRs: Tokens representing shares, bonds, or fund interests are regulated as Electronically Recorded Transferable Rights (ERTRs) under the FIEA. Dealing with them requires registration as a Type I Financial Instruments Business Operator (Type I FIBO).
- NFTs: Generally fall outside current regulations if they are non-fungible, non-payment-oriented, and do not provide profit-sharing rights to holders.
The Stablecoin Regulatory Framework
A significant amendment to the PSA, effective June 2023, established a new regime for stablecoins (EPIs). Key elements include:
- Issuer Restrictions: Only licensed Japanese banks, fund transfer service providers, and trust companies can issue EPIs directly to residents, as issuance is considered a fund remittance transaction.
- Exchange Handling: A standard CAESP cannot list or custody EPIs without also obtaining EPIESP registration.
- Enhanced AML/CFT: EPIESPs are subject to strict regulations, including Japan's version of the "Travel Rule," requiring the sharing of sender/receiver information with other providers, including overseas Virtual Asset Service Providers (VASPs).
NFT Regulatory Clarity
The FSA's guidelines provide factors to determine if a token is a Crypto Asset. An NFT will generally not be considered a Crypto Asset if:
- The issuer clearly prohibits its use as a payment method to unspecified parties.
- If permitted, the use is constrained by high minimum transaction values (e.g., ≥JPY 1,000) or a strictly limited issuance quantity.
User Asset Protection Rules
Following past exchange hacks, Japan implemented strict user property protection rules mandating the segregation of user and corporate assets.
- Fiat Currency: Must be held in trust with a licensed trust bank for bankruptcy protection.
Crypto Assets: Must be managed in separate wallets from the CAESP's own assets.
- ≥95% of user crypto assets must be held in offline "cold wallets."
- The ≤5% held in online "hot wallets" must be backed by the same type and amount of the CAESP's own crypto assets held in cold storage ("Redemption Guarantee Crypto Assets").
- Users have statutory preferential rights over these segregated assets.
- Annual Audits: CAESPs must undergo yearly audits by a certified accountant to verify compliance with these segregation rules.
The CAESP Registration Process
Registering as a CAESP is a rigorous process akin to obtaining a license. Applicants must be a Japanese stock company (kabushiki-kaisha) or a registered foreign entity with a local office. In practice, foreign firms establish a Japanese subsidiary.
Requirements include:
- Financial Base: Minimum capital of JPY 10 million and positive net assets.
- Robust Systems: Detailed internal controls for secure service provision, AML/CFT, and compliance.
- Extensive Documentation: Submission of corporate documents, financial statements, internal rules, organizational charts, and client contract forms.
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Regulations Governing Token Sales
Sales and Offerings Overview
The sale of Crypto Assets, including through Initial Coin Offerings (ICOs), is not directly regulated by the FIEA unless the tokens qualify as securities (ERTRs).
Token Type Determines Regulation
- Crypto Asset ICOs: If tokens meet the Crypto Asset definition, the exchange (CAESP) handling the sale must comply with self-regulatory rules set by the Japan Virtual and Crypto Assets Exchange Association (JVCEA). These ICO Rules mandate business reviews, information disclosure, fund segregation, and safety assurances for the new tokens.
- Security Token Offerings (STOs): Tokens representing collective investment scheme interests (CISIs) are regulated as ERTRs under the FIEA. This triggers securities registration statement requirements, prospectus delivery obligations, and mandates that dealers register as Type I FIBOs.
- Prepaid Payment Instruments: Tokens usable only for an issuer's own goods/services may be classified as prepaid payment instruments under the PSA, subject to a different regulatory regime.
Taxation of Crypto Assets
- Individuals: Profits from crypto trading are classified as "miscellaneous income," subject to a progressive tax rate (5-45%) plus a 10% inhabitant tax. Losses can offset profits. No consumption tax applies to trading, though it does apply to lending fees.
- Inheritance Tax: Crypto Assets are part of a deceased's estate and subject to inheritance tax.
Corporations: A significant burden was the requirement to mark all "Market Crypto Assets" to market value at each fiscal year-end, taxing unrealized gains. Recent reforms (2023-2024) have relaxed this for:
- Self-issued crypto assets held continuously since issuance.
- Assets with specific, published transfer restrictions.
AML/CFT and Money Transmission Laws
- Money Transmission: Only licensed banks or fund transfer operators can provide "fund transfer services." While crypto itself isn't "funds," remitting it could be interpreted as part of a fund transfer system. Issuing fiat-pegged stablecoins (EPIs) is explicitly a regulated remittance activity.
- AML Requirements: CAESPs and EPIESPs must perform KYC checks, maintain records for seven years, and report suspicious transactions.
- The Travel Rule: Mandates that CAESPs/EPIESPs sending crypto/assets to another service provider must share customer identification information. Transfers to unhosted wallets or providers in countries without Travel Rules are exempt but still require risk-based analysis and record-keeping.
Other Key Regulatory Areas
- Mining: Not a regulated activity itself. However, if a mining operation is structured as a collective investment scheme (CISI), it would fall under FIEA securities regulations.
- Border Restrictions: Residents receiving or making cross-border payments in crypto/assets valued over JPY 30 million must report to the Ministry of Finance. There is no obligation to declare holdings when passing through customs.
- Estate Planning: Crypto Assets theoretically pass to heirs under the Civil Code. However, practical identification and recovery are impossible without private keys or passwords, creating unresolved challenges for inheritance tax enforcement.
Frequently Asked Questions
What is the key difference between a Crypto Asset and a security in Japan?
Crypto Assets are defined under the Payment Services Act as payment-oriented value, while securities are defined under the Financial Instruments and Exchange Act as investment-oriented rights like stocks and bonds. The key is intent: is the token primarily for buying goods/services or for sharing in profits and dividends?
Do I need a license to trade crypto for myself in Japan?
No. An individual or entity simply owning or trading crypto assets for investment purposes is not conducting a regulated business. The regulations only apply to entities operating as a business for others, such as running an exchange or custody service.
How does Japan's "Travel Rule" work for crypto transfers?
When a licensed exchange sends crypto or stablecoins to another licensed exchange (domestic or international), it must provide the recipient exchange with identifying information about the sender and receiver. This rule aims to prevent money laundering by ensuring transparency across the ecosystem.
Are NFTs illegal or regulated in Japan?
NFTs are generally legal and not directly regulated if they are truly non-fungible digital collectibles with no payment functionality. However, if an NFT project has characteristics of a security (profit-sharing) or a payment token (fungibility), it could fall under existing financial regulations.
What is the biggest tax challenge for crypto businesses in Japan?
For corporations, the major challenge was the year-end mark-to-market taxation on unrealized gains for all held crypto assets. While recent reforms have alleviated this burden for certain long-held or restricted assets, it remains a complex area requiring careful accounting and tax planning.
Can a foreign company easily obtain a license to operate a crypto exchange in Japan?
The process is rigorous for all applicants. Foreign companies typically must establish a Japanese subsidiary (kabushiki-kaisha) and navigate the FSA's extensive registration process, which demands robust internal systems, experienced local leadership, and significant financial commitment. It is not considered an easy or quick process. 👉 Get advanced methods for market entry