Overview of Regulations over Crypto in Japan

Masayuki Tani
10 min readNov 16, 2022


Japan was once one of the centers of Bitcoin communities and then experienced in February 2014 bankruptcy of Mt. Gox which was one of the biggest incident then, and in January 2018 hacking of NEM coins which amounts to around USD 523 million. To prevent from such incidents happening again, the Japanese government and industry have tighten regulations and oversight over cryptocurrency.

I would like to write here a brief summary of Japanese law & regulations over cryptocurrency and its related business activities. Please note that the purpose of this writing is not to explain in detail but to provide a regulatory overview in a nutshell.


  • Japanese government stated in its Basic Policy on Economic and Fiscal Management and Reform 2022, which is one of the most fundamental yearly national economic policy, that “We will also consider improving the environment for the implementation of Web3 such as the use of NFT and DAO based on blockchain technology” in Section 2 “Efforts to solve social issues” of Chapter 2 “Reforms for the New Form of Capitalism” in the paper.
  • The Liberal Democratic Party, the Japanese ruling party, published “NFT White Paper (Japan’s NFT Strategy for the Web 3.0 Era)” in April 2022. The paper discusses measures to create an ecosystem to help NFT businesses develop in a healthy and legally compliant way.



  • Purpose

“The purpose of this Act is to enforce registration and provide other necessary measures with respect to the issuance of prepaid payment instruments, or exchange transactions carried out by persons other than deposit-taking institutions, exchange of crypto-assets, etc., and the clearing of exchange transactions between deposit-taking institutions, in order to ensure the appropriate provision of payment services, and protection of the users, etc. thereof, and to promote the provision of those services, thereby contributing to the improvement of the safety, efficiency, and convenience of the payment and settlement system.”

  • Crypto-assets exchange services shall be registered.

No person may provide a crypto-asset exchange service unless the person is registered by the prime minister.

  • Definition of crypto-asset exchange services:

crypto-asset exchange services” means carrying out any of the following acts in the course of trade,

(i) purchase and sale of a crypto-asset or exchange with another crypto-asset;

(ii) intermediary, brokerage or agency services for the act set forth in the preceding item

(iii) management of users’ money, carried out by persons in connection with their acts set forth in the preceding two items; and

(iv) management of crypto-assets on behalf of another person (excluding cases where the relevant management in the course of trade is governed by special provisions of other Acts).

  • Definition of crypto-assets

Please see the below explanation of categorization as crypto-assets.

Financial Instruments and Exchange Act

  • Generally speaking, this act provides regulations over securities. Therefore, this act will apply if certain digital tokens are regarded having nature of securities. Also, this Act applies to derivative trading of crypto-assets.



Definition in Payment Service Act:

crypto-assets” are defined as:

i) property value (limited to that which is recorded on an electronic device or any other object by electronic means, and excluding the Japanese currency, foreign currencies, and currency-denominated assets; the same applies in the following item) which can be used in relation to unspecified persons for the purpose of paying consideration for the purchase or leasing of goods or the receipt of provision of services and can also be purchased from and sold to unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system; and ⇒“Type 1 crypto-assets

ii) property value which can be mutually exchanged with what is set forth in the preceding item with unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system.

  • All fungible digital tokens exchangeable in markets are basically categorized as “crypto-assets” regardless of the degree of decentralization or utilities associated with tokens. For example, the tokens below are listed on a registered exchange as “crypto-assets” :


ex) BTC is not categorized as commodity like in the U.S. and categorized as crypto-assets / “Utility Tokens” are categorized as crypto-assets as long as such tokens are bought and sold in the market even if such tokens have real utilities.

  • Are NFTs also “crypto-assets”?: Japanese FSA publicly commented that Trading cards, items in games etc. are basically not regarded as having economic functions such as payment and therefore not categorized (Type 2) crypto-assets (Type 2 crypto-assets are tokens fall under (ii) of the above definition. In this context, NFTs above can be reasonably interpreted that NFTs are not categorized as Type 1 crypto-assets as well.)


  • Transferable digital tokens with the nature of shares, bonds, ETF, REIT etc. can be categorized as “rights that must be indicated on securities”, and ones with the nature of units of collective investment schemes etc. are categorized as “electronically recorded transferable rights” under the Financial Instruments and Exchange Act. Both “rights that must be indicated on securities” and “electronically recorded transferable rights” fall into the definition of securities, and in essence are regulated under the same framework as are normal types of securities (i.e. obtaining licenses and disclosure may be required.).
  • Tokens of which holders can receive distribution calculated based on sales or profits of protocols associated with the tokens are likely to be categorized as securities.


In June 2022, new regulations over stablecoins have been enacted and will be enforced within 1 year after the enactment. In essence,

  • Stablecoins backed by fiat currency (JPY or foreign currency) are categorized as “electric payment instruments”. Only banks, fund transfer business operators or trust corporations all of which shall be licensed under regulations in each category can be an issuer of electric payment instruments.
  • Intermediary services of electric payment instruments must be registered under the Payment Service Act.
  • Algorithmic stable coins are categorized and regulated as “crypto-assets” under the Payment Service Act, not as electric payment instrument (i.e. stablecoins).


  • If certain tokens have a utility as cash-denominated prepaid cards (like Amazon gift cards) which can be used in a specified or limited numbers of operators, such tokens may be regulated as Prepaid Payment instrument under the Payment Service Act.


Centralized Exchange

  • In order to operate spot exchange of crypto-assets, a registration of Crypto-Asset Exchange Service Provider (”CAESP”) under the Payment Service Act is required. As of 14 October 2022, 31 companies are registered as CAESP.
  • In order to operate derivative exchange related to crypto-assets, a license of “financial instruments business” under the Financial Instruments and Exchange Act is required.
  • Management of Customer’s Assets: A CAESP must, in connection with its crypto-asset exchange services, manage the money of the users of crypto-asset exchange services separately from its own money and entrust the users’ money with a trust company, etc., pursuant to the provisions of Cabinet Office Order.
  • Less than 5% (based on the value denominated by JPY) can be stored in hot wallets.
  • The rest (i.e. more than 95%) shall be stored in cold wallets which shall never be connected to the Internet or wallets fulfilling similar level of safety requirements.
  • A CAESP shall store crypto-assets as own assets of which the amount is same as the amount of user’s crypto-assets stored in hot wallets (i.e. the part of less than 5% mentioned above) (”Performance-Guarantee Crypto-Assets”). Performance-Guarantee Crypto-Assets shall be stored in cold wallets.
  • Users’ cash shall be separated by a trust arrangement whose beneficiary shall be users. Such trust scheme shall be provided by a licensed trust bank or trust corporation (i.e holding cash of users as bank deposit in the CAESP account is not sufficient.). The detail requirements for such trust arrangement are stipulated in a Cabinet Order.
  • CAESPs are required to conduct a periodic audit by a certified public accountant.
  • User’s right to get their deposit returned in preference: A user of CAESP has the right to receive, in preference over other creditors, payments with regard to a claim for the transfer of crypto-assets that the person holds against the crypto-asset exchange service provider as long as such crypto-assets have not been to delivered to third parties.
  • Restrictions on advertisement by CAESPs and CAESP’s obligations to provide information to users are stipulated in the Payment Service Act.
  • On-ramps and off-ramps: Only CAESPs can conduct on-ramps and off-ramps services.
  • KYC/AML requirements are imposed on CAESPs.
  • A CAESP must join an association whose members are CAESPs and follow the association’s rules or prepare and implement similar internal rules as articles of incorporation of such associations. Practically, all registered exchanges are required to join Japan Virtual and Crypto assets Exchange Association (JVCEA) and follow its rules.
  • Provisions prohibiting wrongful acts hurting market integrity (i.e. market manipulation, spreading of rumors etc.) under Financial Instruments and Exchange Act apply to crypto-asset spot/derivative trading .
  • Leverage of derivative / margin trading: For individuals, max leverage is 2x. For corporations, max leverage must be decided based on historical volatility or otherwise 2x.

ICO (crypto-assets public sale not through CAESP)

  • As no one can sell crypto-assets in the course of trade (i.e. “business” basically) without registration as a CAESP, ICO without involvement of a CAESP is prohibited in Japan or for Japanese residents.

IEO (crypto-assets public sale through CAESP)

  • If a CAESP is involved, an IEO can possibly be conducted (depending on various other requirements). In May 2021, a licensed crypto exchange, Coincheck conducted first IEO in Japan. In April and May, a licensed crypto exchange, GMO Coin conducted another IEO. Under the JVCEA rules, detail requirements for IEO are stipulated.


  • There are no specific regulations applied to decentralized finance. However, it should be noted that regulations generally over finance activities may apply to Defi as well. In the author’s opinion, discussions about regulations are far from reaching consensus in Japan. A case-by-case analysis is required especially in the field of Defi. Regulations over exchange, intermediary and custody shall be awared.


  • NFTs such as art / music NFTs are not specifically regulated under Japanese regulations. As explained above in the section of Categorization of Digital Tokens, NFTs may not categorized as “crypto-assets”, however, it depends on the nature of NFTs and business model etc. A case-by-case analysis is strongly recommended.
  • Gambling prohibition is discussed in relation to initial sales of NFT where an NFT with a randomly-selected rarity is delivered in consideration of payment of the purchase price, especially if the issuer or seller in the primary sales of NFTs is involved in the market for secondary distribution.
  • If NFTs are airdropped as bonuses (for login, registration etc.), it is necessary to be aware of restrictions of excessive or otherwise prohibited bonuses under Act against Unjustifiable Premiums and Misleading Representations.


  • There are no specific regulations applied to mining activities of crypto-assets alone. However, mining pools may be regulated under the Financial Instruments and Exchange Act as a collective investment scheme. Also, please be aware that income tax applied to profits generated from mining activities.


  • A business model of staking can be varied. If a private key for customers’ crypto-assets are held by an operator and such operator can move such crypto-assets at its own decision, such status may be regarded as “management of crypto-assets on behalf of another person”. In such a case, the operator shall be registered as a CAESP. Also, generally speaking, regulations over a collective investment scheme under the Financial Installment and Exchange Act may apply to a staking-pool business, but it depends on various factors.

LENDING (by customer to operator)

  • A business where a customer lends their crypto-assets to an operator is basically not regulated. However, it should be noted that if a customer can withdraw at any time upon their request, such business is regarded substantially accepting deposit and conduct “management of crypto-assets on behalf of another person”. In such a case, the operator shall be registered as a CAESP.

BORROWING (by customer from operator)

  • In principle, a business where a customer borrows crypto-assets from an operator is not regulated by the Payment Service Act nor the Money Lending Business Act. (In contrast, if a operator lends fiat currency to a customer in the course of their business, such operator is required to obtain a license under the Money Lending Business Act.)


  • Only CAESPs or trust corporations licensed under the Trust Business Act can manage crypto-assets owned by other parties. To simply put, “management of crypto-assets” in this context means to hold private keys and obtain status which enables to move the crypto-assets at the operator’s decision, but it depends on details of the business model in reality.
  • Only entities registered as a CAESP can provide custody services or custodial wallets of crypto-assets, or a business in which such custodial functions are embedded.


  • There are no prohibition of payment by crypto-assets. However, if someone pays by crypto-assets, a profit / loss associated with such crypto-assets is realized at the timing of the payment from a perspective of taxation.


Corporate Income Tax

  • The effective rate of corporate income tax is about 30%.
  • If a corporation in Japan has crypto-assets, corporate income tax is imposed based on the fair market value of the crypto-assets at the end of each business year. It means that the corporation must pay corporate income tax based on its unrealized profit. This is especially critical for a startup when the startup sell their own tokens in the market, because it is possible that the unrealized value of the tokens which are vested and cannot be sold will be taken into account when calculating corporate income tax. The Japanese Financial Services Agency and Ministry of Economy, Trade and Industry submitted a request to correct the corporate tax rule described above for crypto-assets held by the startup company itself, and the discussions are ongoing.

Individual Income Tax

  • The worldwide income of residents, regardless of the location of the source of income, is subject to income tax.
  • Graduated tax rates apply. The maximum tax rate for the part above JPY 40 million (around USD 288K) per year is 55% including resident tax.
  • In the context of taxation, a profit is regarded being realized not only when crypto-assets are exchanged with fiat currency but also when the crypto-assets are exchanged with another typeof crypto-assets.
  • Income from trading of crypto-assets are regarded as “miscellaneous income” and the normal rates depending on the amount of income in total apply. (although 20% of the fix rate applies to capital gain from trade of listed stocks.).

Consumption Tax (VAT)

  • Consumption Tax is not imposed on assignment of crypto-assets conducted on in a CAESP.

REFERENCES written in English

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Author: Masayuki Tani

Lawyer at AsiaWise Legal

Email: masayuki.tani@asiawise.legal

Telegram: @masa_ttt

Twitter: @masat_jp