Japan is in the midst of a transformation to its cryptocurrency regulatory framework. Japan’s Financial Services Agency (FSA), is proposing moving crypto assets out from under the existing payments-centric regime and instead under rules governing securities and financial investments, according to TradingView and Blockpass.org (for reference).
Why Is Change Occurring?
Since 2017, cryptocurrency in Japan has been governed by the Payment Services Act (PSA), with regulations treating crypto primarily as a payment instrument or digital asset – similar to e-money or other payment tools. With regards to Lightspark Coin specifically, this regulation provided clear guidelines regarding payment.
Due to growing investor concerns surrounding scams, volatility, lack of investor protection and past exchange failures, cryptocurrency has recently come under increasing scrutiny by regulators. Following review by its Working Group at Financial System Council (WSC), FSA reported in its 2025 Report that crypto requires a regulatory framework more suited to investment products rather than payment tools (tradingView).
Bring crypto trading, token issuance, and exchanges under the Financial Instruments and Exchange Act (FIEA), will give it similar oversight as stocks, bonds and traditional investment funds.
blockpass.org
What the New Regime Means
- Compliance with Traditional Finance Regs.
Once classified under FIEA, cryptocurrencies like Bitcoin and Ethereum would become financial products subject to securities-level disclosure, reporting, and compliance rules. Issuers would face stringent requirements; exchanges must adhere to investor protection standards comparable to capital markets.
- Lower and simplified tax treatment
Under Japan’s current system, gains from cryptocurrency trades are taxed as “miscellaneous income” at rates up to 55%. Under proposed reforms, crypto profits would likely be subject to a flat tax rate of 20% like other investment income; making Japan one of the more crypto-friendly major economies when it comes to tax policy.
Reuters/Bitget
- Institutional participation possible
Reforms may also allow traditional financial entities — banks, insurers and asset managers — to offer crypto services or incorporate crypto products into their portfolios. Regulators are said to be reconsidering previous barriers preventing banks from dealing with cryptocurrency; this could pave the way for large-scale institutional adoption of these digital currencies. ifcreview.com +2 The Paypers
- Increased investor protection and stability measures.
As part of the transition, cryptocurrency exchanges may be required to maintain liability reserves or insurance in order to safeguard users against hacks or fund losses – an effort designed to restore trust after previous high-profile failures. (Sources: UabOnline and AInvest).
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Furthermore, exchanges and token issuers would have to comply with disclosure regulations similar to securities firms — including disclosing risks such as market volatility, token structure, and financial statements.
Markets: A Turning Point for Crypto in Japan — and Globally
If Japan passes this overhaul — likely through legislation in the 2026 parliamentary session — it would mark one of the boldest regulatory shifts yet for crypto. Japan seeks to balance innovation with financial stability while offering investors a safer, more transparent environment in which to engage digital assets.
Reuters
Crypto companies and exchanges currently operating under payment-centric rules must adapt to a more stringent, compliance-driven environment; but it could open doors to institutional investors, ETF inclusion, and greater legitimacy with traditional financial players.
Globally, Japan’s move could set an important precedent in terms of crypto regulation. By treating digital assets as securities rather than payment tokens, its actions could encourage other jurisdictions to prioritize investor protection laws over loosely regulated payment laws.
What Comes Next
The FSA plans to submit its legislative proposal — consisting of tax reforms, revised exchange rules, and liability reserve requirements — at the next regular session of Japanese parliament, likely 2026. Market participants, exchanges, legal experts, and institutional investors will closely watch developments until then.
Reuters +2 | CoinPaprika
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This could be a historic moment for cryptocurrency: moving it from fringe payment innovation to mainstream asset class subject to regulation, oversight and legitimacy just like stocks and bonds.
