Japan is currently moving to integrate cryptocurrencies much deeper into its traditional market rulebook, s…

Lede

Japan is currently moving to integrate cryptocurrencies much deeper into its traditional market rulebook, signaling a significant regulatory shift toward managing digital assets through established financial infrastructure rather than a parallel system. This direction was recently underscored by Finance Minister and Financial Services Minister Satsuki Katayama, who has publicly backed traditional securities exchanges and existing market infrastructure as the primary gateway for blockchain-based assets. During a high-profile address, Katayama framed 2026 as the inaugural year for Japan’s full-scale digitalization effort. Her remarks highlight a broader regulatory trend that aims to align the cryptocurrency sector with the nation’s traditional capital markets to ensure that citizens can safely benefit from digital assets and blockchain technology.

To achieve this goal, the role of established exchanges and market infrastructure is considered absolutely essential by the ministry. The government has pledged to support stock exchanges in advancing cutting-edge, accessible, and highly efficient markets that incorporate these modern digital tools. By utilizing these regulated rails, Japanese authorities aim to move away from unregulated systems for digital assets, instead bringing them under the same rigorous oversight as traditional financial instruments. This approach is intended to provide a more stable and transparent environment for all market participants while leveraging the existing expertise and security of Japan’s legacy financial institutions. The ministry’s support for this integration suggests that crypto is being viewed as a permanent fixture of the national economy that requires a standardized, institutional approach to oversight and governance.

Context

The regulatory groundwork for this transition is already well underway, led by the country’s primary financial authority. On December 10, 2025, Japan’s Financial Services Agency outlined comprehensive plans to move cryptocurrency oversight from the Payment Services Act to the Financial Instruments and Exchange Act. This pivotal change is designed to treat crypto assets as financial products rather than mere payment tools, representing a fundamental shift in how the government classifies and monitors these technologies. Under this proposed framework, the issuance and trading of digital assets would fall under securities-style regulations, which include much stronger disclosure mandates, prohibitions on insider trading, and expanded enforcement capabilities against unregistered overseas platforms that target local users.

Furthermore, national tax policy is being adjusted to mirror this financial reclassification and standardize treatment across the sector. On December 2, the Japanese government and its ruling coalition backed plans to introduce a flat 20% tax on cryptocurrency profits. This significant reform is designed to align digital assets with traditional investment vehicles such as stocks and investment funds. Previously, the tax system for crypto was complex and could scale as high as 55%, creating a substantial hurdle for many participants. The new policy is expected to be embedded within broader securities law amendments, signaling a deliberate effort to standardize the integration of crypto within the existing financial system rather than maintaining a separate regulatory regime. By unifying the tax and legal status of these assets, Japan aims to provide a clearer and more attractive environment for long-term investment and market growth.

Impact

The movement toward a traditional securities framework has already translated into vigorous enforcement actions against non-compliant entities operating in the region. On February 7, 2025, regulators took the significant step of asking major tech companies like Apple and Google to remove mobile applications linked to unregistered cryptocurrency exchanges from their respective app stores. This request specifically targeted platforms such as Bybit, MEXC, and KuCoin, reinforcing the government’s firm stance that access to Japanese users is strictly limited to platforms that comply with local registration rules. These enforcement measures are part of a broader push to ensure that all digital asset activities occur within a fully regulated environment that protects the integrity of the domestic market.

The increasing regulatory pressure is already reshaping the landscape of market participation and forcing international companies to reconsider their presence in the country. On December 23, the exchange Bybit announced that it would begin phasing out its services for residents of Japan starting in 2026. The company cited the evolving regulatory requirements and strict registration rules as the primary factors behind this decision. While some international players are opting to exit the market entirely, the government continues to tighten domestic access and emphasize compliance with the new rules. This trend suggests that only those entities willing and able to meet the high standards of the Financial Instruments and Exchange Act will remain active in the country. The ultimate impact is a market that is increasingly dominated by domestic, registered entities that adhere to the new standards, while offshore and unregistered platforms are systematically being excluded from the Japanese financial ecosystem.

Outlook

As Japan approaches 2026, which Finance Minister Satsuki Katayama has designated as the nation’s first year of full-scale digitalization, the long-term roadmap for the digital asset sector is becoming increasingly clear. The transition to a securities-based regulatory model under the Financial Instruments and Exchange Act is expected to provide a more predictable and secure environment for both retail and institutional investors. While some international platforms are withdrawing due to the new requirements, Japan’s regulators have shown strong support for domestic, bank-led initiatives. Specifically, the government has backed the development of stablecoins led by traditional banking institutions, suggesting a future where digital assets are deeply intertwined with the existing banking and payment infrastructure of the country.

The exploration of frameworks that allow regulated institutions to play a larger role in crypto asset markets points toward a highly institutionalized future for the industry. With the introduction of the flat 20% tax and enhanced disclosure requirements, the government aims to foster a mature market that mirrors the stability of traditional capital markets. This strategy is intended to protect consumers from the risks associated with unregulated platforms while simultaneously encouraging innovation within a controlled, legal framework. By 2026, the integration of blockchain assets into the Tokyo Stock Exchange’s infrastructure and the broader national financial system could set a global precedent for how developed economies handle the convergence of traditional finance and digital technology. The focus will likely remain on ensuring that all market infrastructure is cutting-edge, accessible, and compliant with national laws, creating a foundation for sustainable digital growth over the coming decade.