Japan was the first country to establish a regulatory framework for “crypto-assets”. Because of this head start, blockchain technology is now increasingly being adopted in the Japanese financial industry. For example as of 31 March 2024, there were 29 licensed crypto-asset exchange service providers in Japan (“exchange providers”).

As part of this increasing popularity, the Bill for Partial Amendment to the Act on Payment Services Act, Etc. for the Purpose of Establishing a Stable and Efficient Funds Settlement System (the “Amendment Act 2022”) was submitted to the Diet and approved in 2022. The Amendment Act 2022 subsequently came into effect in June 2023.

The Amendment Act 2022 was promulgated in response to the increasing issuance and circulation of so-called stablecoins overseas. The Amendment Act 2022 introduced the concept of “electronic payment instruments” or “EPIs”, which corresponds to the concept of stablecoins (Article 2(5) of the amended Payment Services Act (the “Amended PSA”)).

The Amendment Act 2022 also provides a new definition of “intermediary activities” in respect of the transfer and management of stablecoins that constitute EPIs. Under the Amendment Act 2022, “intermediary activities” are defined as “electronic payment instruments exchange services” and “electronic payment-handling services”. Furthermore, the Amendment Act 2022 introduces a registration system in respect of businesses engaged in these activities.

For details of the stablecoin regulations in Japan please see 2.4 Stablecoins.

In 2025, a further amendment to the Amended PSA was proposed by the Japanese Financial Services Agency (the “JFSA”) and the Bill for Partial Amendment to the Payment Services Act (the “Amendment Act 2025”) was submitted to the Diet in March 2025. The Amendment Act 2025 includes the introduction of new licences for business operators who only engage in intermediary services for crypto-asset exchanges and/or electronic payment instruments (ie, stablecoin) exchanges. Please see 4.1.7 Other Regulatory Requirements for details.

Since 2020, security tokens, sometimes referred to as digital securities, have been in the spotlight. As a result of recent amendments to the relevant laws and regulations, an increasing number of financial institutions are entering this new market, focusing mainly on digital corporate notes and tokenised equity interests in real estate funds. In addition, on 25 December 2023, Osaka Digital Exchange Co, Ltd announced it was starting trading of security tokens on START (a private trading system for security token transactions).

Furthermore, since late-2020, non-fungible token (NFT)-related businesses have been gaining traction, particularly in the online gaming and art sectors. A number of platforms for the issuing and trading of tokenised digital artworks have also recently emerged.

As a result, several crypto-asset exchange service provider operators in Japan have launched NFT marketplaces, and major game developers have released numerous blockchain games utilising NFTs.

More recently, in April 2024 the Liberal Democratic Party (the “LDP”), the ruling party in Japan, released a Web3 White Paper 2024. The Paper included a summary of issues needing immediate resolution for Web3 to be promoted as well as proposals for accompanying legislative revisions.

These developments demonstrate that Japan has adopted the promotion of Web3, including NFTs and decentralised autonomous organisations (DAOs) as a national strategy.

In light of this, compared to when the amendment to the Financial Instruments and Exchange Act (the “FIEA”) was issued in 2019, investment in “crypto-assets” has progressed. “Crypto-assets” are now being positioned as investment targets by a significant number of domestic and foreign investors. On the other hand, taking the prevalence of fraudulent investment solicitations into account, when considering the protection of users, it is important to take actions for information disclosure related to “crypto-assets” transactions and to implement measures against investment fraud. It is also important to ensure the fairness of price formation and balance these factors against the promotion of innovation at the same time. Accordingly, the JFSA issued a discussion paper on 10 April 2025, which considers the possibility of regulating “crypto-assets” transactions under the FIEA, which governs the trading of securities.

The legal nature of “crypto-assets” under Japanese civil law statutes is still unclear. According to a judgment issued by the Tokyo District Court on 5 August 2015, legal ownership or title does not apply to “crypto-assets” as they are intangible assets. The transfer of a “crypto-asset” does not therefore equate to the transfer of legal ownership or title in that “crypto-asset” under the Civil Code.

Furthermore, from the perspective of the Civil Code, it is unclear when transfers of “crypto-assets” via a blockchain network will be considered final as the legal characteristics of “crypto-assets” have not yet been firmed up.

Digital assets generated and traded on a blockchain are not necessarily classified as “crypto-assets”. Their legal statuses instead vary depending on the function of the digital asset in question as well as other factors.

For example, if a digital asset is prepaid and can only be used for settlement with specified persons (ie, at member stores) to the extent of the amount prepaid and if it is prohibited (in principle) from being replenished, the digital asset may be classified as a prepaid payment instrument (PPI). Those which can be replenished in value may be classified as electronic money issued by fund transfer service providers.

With the development of blockchain technology, so-called security tokens, or digital assets that represent shares, corporate bonds, fund interests, etc, have also emerged and these are treated as securities based on their nature and functions.

More specifically, if profit is distributed to the digital asset holder from the business income of the digital asset issuer, the digital asset will be classified as a security under the FIEA. If no profit is distributed, the next factor to consider is whether the digital asset is issued for consideration. Digital assets that are issued for consideration will likely be considered unregulated service points. Where a digital asset is issued for consideration, its legal status will depend on whether the digital asset constitutes a currency-denominated asset.

If a digital asset constitutes a currency-denominated asset, it will constitute either a PPI, electronic money issued by fund transfer service providers or an EPI (see 2.4 Stablecoins).

Conversely, a digital asset that does not constitute a currency-denominated asset and that is usable vis-à-vis unspecified persons and can be bought, sold or exchanged vis-à-vis unspecified persons, will (in principle) likely be considered a crypto-asset.

The FIEA has conventionally classified securities into:

• traditional securities, such as shares and bonds (Paragraph 1 Securities); and
• contractual rights, such as trust beneficiary interests and interests in collective investment schemes (Paragraph 2 Securities).

While Paragraph 1 Securities are subject to relatively stricter requirements in terms of disclosures and licensing/registration as they are highly liquid, Paragraph 2 Securities are subject to relatively looser requirements as they are less liquid.

However, if securities are issued using an electronic data processing system such as blockchain, it is expected that these securities may have higher liquidity than securities issued using conventional methods, regardless of whether they are Paragraph 1 Securities or Paragraph 2 Securities. For this reason, a new regulatory framework exists through the FIEA for securities that are transferable via electronic data processing systems. Under the FIEA, these securities are classified into the following three categories:

• Paragraph 1 Securities, such as shares and bonds, which are transferable using electronic data processing systems (“Tokenised Paragraph 1 Securities”);
• contractual rights such as trust beneficiary interests and interests in collective investment schemes, which are conventionally categorised as Paragraph 2 Securities and are transferable using electronic data processing systems (“electronically recorded transferable rights” or “ERTRs”); and
• contractual rights such as trust beneficiary interests and interests in collective investment schemes, which are conventionally categorised as Paragraph 2 Securities and are transferable using electronic data processing systems, but which have their negotiability restricted to a certain extent (“Non-ERTR Tokenised Paragraph 2 Securities”).

An issuer of Tokenised Paragraph 1 Securities or ERTRs is, in principle, required to file a securities registration statement (as with traditional Paragraph 1 Securities) before making a public offering or secondary distribution, unless the offering or distribution falls under any category of private placements. Any person who engages in the business of the sale, purchase or handling of the offering of Tokenised Paragraph 1 Securities or ERTRs is required to undergo registration as a Type 1 Financial Instruments Business Operator (“Type 1 FIBO”).

In light of the higher degree of freedom in designing Tokenised Paragraph 1 Securities or ERTRs and the higher liquidity of these securities, a Type 1 FIBO that handles these digital securities will be required to control risks associated with digital networks, such as the blockchain used for digital securities.

As noted in 1.1 Evolution of the Blockchain Market, in response to the increasing issuance and circulation of so-called stablecoins overseas, the Amendment Act 2022 introduced the concept of EPIs, which corresponds to the concept of stablecoins.

The Amendment Act 2022 stipulates four categories of EPIs, as follows under Article 2(5) of the Amended PSA:

• currency-denominated assets that are recorded and transferred electronically, that are usable for paying consideration to unspecified persons and that may be purchased from or sold to unspecified persons (“Type I EPI”);
• a property value exchangeable with a Type I EPI with an unspecified counterparty, and transferable by means of an electronic information processing system (“Type II EPI”);
• specified trust beneficiary rights (“Type III EPI”); and
• such instruments as may be specified by Cabinet Order as being equivalent to those listed in the preceding three items (“Type IV EPI”).

Regarding the definition of a Type I EPI, “currency-denominated assets” are defined as assets denominated in Japanese yen or in a foreign currency or whose performance, repayment or any other equivalent activity will be carried out in Japanese yen or a foreign currency. Based on this definition, a digital coin whose value is pegged to the Japanese yen, US dollar or any other fiat currency (such as, for example, where the price of a digital coin is always fixed at one yen or dollar or where a digital coin is redeemable at one yen or dollar) may fall within the definition of a Type I EPI, but will not fall within the definition of crypto-assets.

In light of this, so-called algorithmic stablecoins that are not collateralised by fiat currency but whose values are linked to fiat currency through an algorithm are unlikely to qualify as “currency-denominated assets”. These algorithmic stablecoins will likely fall within the category of “crypto-assets” if they are transferable or tradeable with unspecified parties on the blockchain.

Type I EPIs and other “currency-denominated assets” are distinguished by whether they may be:

• used as payment for consideration to unspecified persons; and
• purchased from or sold to unspecified persons.

More specifically, PPI and electronic money that are issued by fund transfer service providers do not satisfy the payment for consideration to unspecified persons use, as their issuers will centrally manage the balance of each user and the scope of accepting stores (“member stores”).

Additionally, even though digital money is issued on a blockchain, it will not be purchased from or sold to unspecified persons condition if its issuer has taken technical measures to allow the digital money to only be transferred to persons who have passed confirmation at the time of transaction (ie, know-your-customer (KYC)) and if the issuer’s consent or other involvement is required for each transfer of the digital money. Consequently, only permissionless stablecoins (eg, USDT and USDC) will typically be considered to fall within the definition of Type I EPIs, as permissionless stablecoins do not generally require KYC of new stablecoin holders or any other involvement of the issuer when transferred.

As EPIs must be property value-denominated in a legal currency and issuing and redeeming EPIs enables parties across long distances to pay and receive funds without directly delivering cash, the issuance and redemption of EPIs therefore constitute “fund remittance transactions” (kawase-torihiki). Consequently, a banking licence or fund transfer business registration will, in principle, be required in order to issue and redeem EPIs. In addition, trust companies and foreign trust companies are also permitted to issue EPIs, although they are only permitted to issue Type III EPIs (specified trust beneficiary rights).

It is also worth noting that it is not possible for a crypto-asset exchange service provider (CAESP) to list EPIs on its exchange without being registered as an electronic payment instruments exchange service provider (EPIESP). More specifically, a person who engages in activities including but not limited to the following electronic payment instruments exchange services is required to be registered as an EPIESP:

• sale and purchase of EPIs, or exchange of EPIs for other EPIs;
• intermediary, brokerage or delegation activities in respect of the sale, purchase or exchange; and
• management of EPIs for the benefit of another person.

NFTs are generally non-substitutable tokens that are issued on a blockchain, with values and attributes unique to the token itself. The issue here is whether NFTs constitute “crypto-assets” (as defined in 4.1.1 Regulatory Overview) under the Amended PSA, as NFTs, like “crypto-assets”, are tokens issued on the blockchain.

In this regard and according to the Crypto-Asset Guidelines dated 24 March 2023 and issued by the JFSA, one of the factors for determining whether a token constitutes a Type I crypto-asset (as defined in 4.1.1 Regulatory Overview) is whether it is an asset that can be purchased or sold using legal fiat currency or “crypto-assets” under socially accepted norms. A token that specifically satisfies both listed items below will generally not constitute a Type I crypto-asset. This also applies to determining whether a token constitutes a Type II crypto-asset (as defined in 4.1.1 Regulatory Overview).

• Where the issuer, etc, has made it clear that the token is not intended to be used as payment for goods, etc, to unspecified parties. For example, this can be achieved by stating clearly in the terms and conditions of the issuer or its business handling service provider or in the product description that the use of the token as a means of payment to unspecified parties is prohibited or that the token or related system is designed in a way that does not enable it to be used as a means of payment to unspecified parties.
• Where use of the token as a means of payment for goods, etc, to unspecified parties is permitted, certain requirements on the price and quantity of the relevant goods, etc and on the technical characteristics and specifications of the token must be met. For example, at least one of the following characteristics must be present:
1. the minimum value per transaction must be sufficiently high (ie, JPY1,000 or more); or
2. the number of tokens issuable as a proportion of a minimum value transaction must be limited (ie, not exceeding one million).

There is generally no limitation on the use of “crypto-assets” for payments. Payments are therefore allowed to be made with “crypto-assets” in Japan. However, it should be noted that under the Foreign Exchange and Foreign Trade Act, the Minister of Finance must be notified when a payment is made or received between Japan and a foreign country or between a resident and a non-resident exceeding the equivalent of JPY30 million. This notification requirement applies both where payment in “crypto-assets” is made or where payment in “crypto-assets” is received.

Under Japanese law, ownership rights do not generally apply to “crypto-assets” that do not have a physical form. As a result, a security interest cannot be created over “crypto-assets” themselves. However, if “crypto-assets” are deposited with a custodian, it is possible to create a pledge or similar rights over the claim to recover the “crypto-assets” from the custodian. It is therefore possible to provide financial services, such as loans, using the right to demand the return of “crypto-assets” as collateral.

There is no clear definition of “smart contracts” under Japanese law. There is also no specific regulation for “smart contracts” in Japan.

“Smart contracts” are generally understood to mean self-executing contracts containing terms that are predetermined according to specific programming codes on blockchain. The use of “smart contracts” may raise issues in terms of their validity and enforceability as legal contracts. However, these issues may be offset by the fact that smart contracts are effectively enforceable regardless of their legal validity.

For instance, a “smart contract” will be automatically enforced and irrevocable even if the contract is invalid and unenforceable for violating the applicable law. There is currently no judicial precedent in Japan addressing the legal enforceability of these “smart contracts”.

In light of the risks posed by “crypto-assets”, the JFSA, through dialogue with financial institutions, has requested the institutions minimise their acquisition of “crypto-assets”. In addition, under the subordinate regulations of the Banking Act and the supervisory guidelines, banks are:

• required to establish measures for ensuring sound and appropriate business management in respect of their handling of “crypto-assets”; and
• prohibited from holding “crypto-assets” for the purpose of investment.

“Crypto-asset” funds are substantially prohibited and only funds in the form of certain partnership structures are permitted to invest in “crypto-assets”.

To encourage fintech innovation, including the development and usage of blockchain technology, the Japan Economic Revitalisation Bureau established a cross-governmental one-stop desk for a regulatory sandbox scheme in 2018.

This scheme is available to foreign and Japanese companies and enables applicants (once approved) to carry out, under certain conditions, a demonstration of their projects even if the activities are not yet covered under existing laws and regulations. Blockchain technology, together with AI, internet of things (IoT) and big data, is explicitly mentioned in the basic policy of the regulatory sandbox scheme as a prospective and suitable area for exploration and development.

Following suggestions from the FATF that virtual currencies could be used for money laundering, the APTCP was amended in 2017 to include CAESPs as “specified business operators” and impose an obligation on CAESPs to verify the identity of their customers.

Under the APTCP, “specified business operators” must verify the identity of their customers and comply with the APTCP and related rules.

The JFSA has supervisory powers over CAESPs and EPIESPs based on the delegation of the powers to it from the Prime Minister.

As a result, where it is necessary for the proper and secure provision/performance of CAES by a CAESP or electronic payment instruments exchange services (EPIES) by an EPISP, the JFSA has the power to:

• order the CAESP or EPIESP to submit additional reports or materials;
• enter the office or other facilities of the CAESP or EPIESP to conduct inspections; and
• enquire about the status of the CAESP’s or EPIESP’s business or properties or inspect its books and documents.

The JFSA can also delegate its supervisory powers over CAESPs and EPIESPs to the relevant Local Finance Bureau. These are organs of the Ministry of Finance which are directed and supervised by the JFSA Commissioner.

For the purposes of ensuring proper provision of CAES and EPIES and to protect the users of those services, the JVCEA was appointed as an approved self-regulatory organisation to regulate CAESPs and EPIESPs. The primary objectives of the JVCEA are to:

• formulate self-governance rules;
• inspect its members to ensure they are complying with the relevant self-governance rules; and
• handle user complaints.

The Japanese government generally views the use of blockchain technology in various kinds of businesses positively.

For example, in June 2019 the Japanese government published a Growth Strategy Action Plan discussing the importance of the use of blockchain technology. It stated that: “AI, IoT, robots, big data, blockchain... are general purpose technologies (GPT) that broadly affect all industries, similar to the adoption of electric power from the 19th to 20th century and the inroads made by IT through the end of the 20th century”.

In addition, as stated in 1.2 Business Models, the LDP released a Web3 White Paper 2024 in April 2024. This contained a summary of issues needing immediate resolution for the promotion of Web3 as well as proposals for accompanying legislative revisions.

The Tokyo District Court issued an important judgment on 5 August 2015 that states legal ownership or title does not apply to “crypto-assets” as they are intangible assets. As a consequence, the transfer of a “crypto-asset” does not equate to the transfer of legal ownership or title in the “crypto-asset” under the Civil Code of Japan.

In 2018, following the leakage of users’ “crypto-assets” worth approximately USD530 million from a cyber-attack on one of the biggest CAESPs, the JFSA conducted sweeping on-site inspections of registered and provisional CAESPs. This was followed by the JFSA’s announcement on 8 March 2018 that it was imposing business suspension orders on two provisional CAESPs and business improvement orders on two registered CAESPs and three provisional CAESPs. After further review the JFSA also imposed business improvement orders on six additional major registered CAESPs on 22 June 2018.

In addition, the JFSA imposed a business improvement order on a CAESP for the inadequacy of its business management, AML/CTF and risk management systems, among other things on 21 June 2019.

On 10 November 2022, FTX Japan received an administrative disposition from the JFSA, including a business suspension order and a business improvement order, amid the financial difficulties experienced by its parent company, FTX Trading Limited. On 11 November 2022, FTX Trading and its group companies filed for Chapter 11 proceedings under the US Federal Bankruptcy Code. The filing included FTX Japan and its parent company, FTX Japan Holdings.

More recently, on 26 September 2024, the JFSA issued a business improvement order to a registered CAESP in response to the unauthorised outflow of approximately 4,500 BTC. It cited serious deficiencies in system risk and information security controls and measures to prevent these incidents (eg, centralised key management and insufficient wallet diversification).

Additionally, the JFSA has been issuing warnings to CAESPs (including offshore entities) that offer services to residents of Japan without registering with the JFSA, instructing them to cease these activities immediately. In 2023, the JFSA announced that it had issued four of these warnings and in 2024, it announced that it had issued six of these warnings.

Furthermore, according to media reports, in early February 2025, the JFSA requested that Apple and Google remove the mobile applications of the five exchanges that had been the subject of the 2024 warnings from their Japan-facing app stores and both platforms complied.

One of the most important issues in Japanese taxation of “crypto-assets” was the treatment of consumption tax. Before June 2017, the sale of “crypto-assets” was subject to consumption tax if the office of the transferor was located in Japan. However, following tax reforms in 2017, transfers of “crypto-assets” conducted in Japan from July of that year onwards are no longer subject to consumption tax. However, it is important to note that consumption tax is still applicable to compensation received in relation to the lending of “crypto-assets”.

With respect to individual income tax, the National Tax Agency of Japan treats gains realised from the sale or use of “crypto-assets” as “miscellaneous income” (zatsu-shotoku) and considers that taxpayers will not be permitted to utilise losses elsewhere to offset gains realised from the sale or use of “crypto-assets”. Furthermore, inheritance tax will be imposed on “crypto-assets” in the estate of a deceased person.

In terms of corporate tax, corporations must perform market value assessments for the “crypto-assets” they possess that have an active market at the end of each fiscal year and must record any difference between the book value and the market value as profit or loss. This end-of-period market valuation taxation poses a significant barrier for Japanese companies looking to enter the Web3 space.

However, the tax reform in 2023 stipulated that end-of-period market valuation taxation does not apply if certain conditions are met, such as continuous ownership since issuance and compliance with transfer restrictions, for “crypto-assets” issued by the corporation itself at the end of the fiscal year.

Additionally, the 2024 tax reform allows for exemption from end-of-period market valuation taxation for non-self-issued “crypto-assets” held by a corporation at the end of the fiscal year, provided they meet certain conditions, such as compliance with certain transfer restrictions.

There do not seem to be any ESG/sustainable finance requirements that specifically apply to digital assets in Japan.

Business operators using blockchain technology may be subject to the Act on the Protection of Personal Information (the “APPI”) if they handle personal information.

The APPI regulates "personal information handling business operators" or “PIHBOs”. A PIHBO is defined as an entity that uses a personal information database, etc, for business purposes. In practice, most business operators handling personal information are categorised as PIHBOs.

The APPI imposes comprehensive regulations on PIHBOs, such as regulations that:

• require PIHBOs to specify the purposes of use of the collected personal information and to notify the individual accordingly;
• prohibit inappropriate use of personal information;
• require PHIBOs to implement safety management measures for personal information; and
• restrict third-party provision of personal information.

Additionally, the regulations under the APPI are also designed to promote harmonisation with foreign personal information protection systems. For example, the European Commission adopted an adequacy decision on Japan in 2019.

The administrative body responsible for enforcing the APPI is the Personal Information Protection Commission, which formulates and publishes rules, guidelines, Q&A, etc, regarding the interpretation of the APPI. Furthermore, the JFSA has formulated and published the Guidelines on Personal Information Protection in the Financial Sector, which apply to financial institutions, including CAESPs and EPIESPs. Financial institutions are required to maintain a more stringent personal information protection system and should therefore take care to familiarise themselves with the contents of these Guidelines.

Considering that a public blockchain involves the sharing of a database among unspecified participants, where information on the blockchain will not (in principle) be deleted or retracted once uploaded on the blockchain, the use of blockchain technology may contravene the rule under the APPI. For example, Article 19 of the APPI requires business operators who handle personal information to delete unnecessary personal information once the purpose for which the personal information was required has been achieved. However, a business operator that records the personal information of its users on a blockchain may have difficulty deleting this information and this could result in a violation of the APPI.