1. What is the current legal landscape in this area?

Japan is entering a new phase of digital asset regulation. Recent developments include the following.

(a) Reclassification of Crypto-Assets

In July 2026, the Japanese Diet enacted amendments to the Financial Instruments and Exchange Act (“FIEA”) and the Payment Services Act (“PSA”).

The reforms include the following (see Question 3 below for further details):

• the reclassification of crypto-assets as financial instruments;
• the enhancement of investor protection and disclosure requirements;
• the introduction of insider trading regulations applicable to crypto-assets; and
• potential tax reforms, including the standardization of the tax treatment of crypto-assets.

(b) Stablecoins

Stablecoins are regulated as “Electronic Payment Instruments” under the PSA and are subject to the following regulatory requirements:

• issuance is limited to licensed entities, such as banks, trust companies, and licensed fund transfer service providers;
• stablecoins must be denominated in fiat currency, be redeemable at face value, and be backed by eligible reserve assets. These reserve assets may be managed with a certain degree of flexibility and may include bank deposits and short-term Japanese government securities with a remaining maturity of three months or less.

(c) Entry of the Banking Sector

The Japanese government is currently considering policy measures that would permit banking groups to engage in:

• crypto-asset trading; and
• crypto-asset custody services.

Accordingly, while Japan remains one of the world’s most highly regulated digital asset markets, it is increasingly becoming an attractive and commercially viable jurisdiction for:

• crypto-asset services for institutional investors;
• stablecoin issuance structures; and
• tokenization projects supported by robust compliance frameworks.

At the same time, preparations are underway for Japan’s fifth mutual evaluation by the Financial Action Task Force (FATF), scheduled for 2028. Particular emphasis is being placed on enhancing the effectiveness of Japan’s AML/CFT/CPF framework.

Meanwhile, financial crimes—including bank transfer fraud, investment fraud, and romance scams conducted through social media platforms—have increased significantly and have become serious social issues in Japan. Consequently, combating such financial crimes has become one of the highest regulatory and compliance priorities for financial institutions.

 2. What are the three most important pieces of advice for clients operating in this area?

(i) Engage with regulators at an early stage and in a substantive manner

Japan’s financial regulatory framework is a rules-based system grounded in statutes, including the Banking Act and the FIEA. In practice, however, it relies heavily on the supervisory guidelines issued by the Financial Services Agency (“FSA”) and on ongoing regulatory dialogue with the authorities. Although the supervisory guidelines do not have the force of law, they exert significant practical influence and are frequently revised in response to evolving policy objectives and emerging risks.

Accordingly, licensing decisions and supervisory determinations depend to a considerable extent on whether a proposed business is consistent with the relevant regulatory policy objectives—such as financial stability and customer protection—as well as on the quality and timing of the applicant’s engagement with the regulatory authorities. Moreover, innovative and cross-border business models, including those involving fintech, digital assets and investment funds, are often assessed on a case-by-case basis.

Against this background, it is critically important to initiate pre-application consultations with the FSA or the competent Local Finance Bureau at an early stage. Such consultations can significantly improve regulatory certainty and facilitate implementation planning. Equally important is maintaining consistent, transparent and constructive communication with the regulatory authorities throughout the entire regulatory lifecycle.

(ii) Providing financial services from outside Japan

As a general rule, a person seeking to provide financial services to customers in Japan is required either to establish a business presence in Japan or to appoint a representative in Japan. Apart from this requirement, however, there is generally no significant difference in market entry barriers between domestic and foreign financial service providers.

In principle, foreign financial institutions are prohibited from soliciting business from Japanese residents without obtaining the relevant financial licenses in Japan.

Nevertheless, the various Japanese financial regulatory statutes provide a number of statutory exceptions. For example, in relation to securities transactions, transactions conducted through licensed Japanese securities firms are permitted. In addition, the so-called reverse solicitation exception is expressly recognized under Japanese law. Accordingly, provided that a foreign securities firm does not actively solicit business in Japan, it may accept orders from Japanese residents outside Japan and execute securities transactions or act as an intermediary on their behalf.

(iii) Regulation of financial intermediaries

In Japan, a licence is generally required to engage in the business of acting as an intermediary in the provision of financial services. Separate licensing regimes apply to each financial sector, including banking, securities and insurance. Consequently, where an intermediary intends to distribute products across multiple sectors, it is generally necessary to obtain the relevant licences under each applicable regulatory regime and to operate under the supervision of the relevant principal financial institutions, such as banks, securities companies or insurance companies.

As an exception, an entity that obtains registration as a Financial Service Intermediary under the Act on Provision of Financial Services and Improvement of the Environment for Their Use may act as an intermediary for deposits, insurance products, securities and loans under a single registration. However, because the regime restricts the handling of certain high-risk financial products, its practical use has remained relatively limited.

 3. What are the biggest risks and opportunities over the next 12 months?

(i) Reform of the Regulatory Framework for Crypto-Assets

(a) Overview of the Reform

As outlined above, significant reforms to Japan’s legal framework for crypto-assets are forthcoming. The relevant legislation was enacted on July 15, 2026, and promulgated on July 23, 2026. The amendments relating to the regulation of crypto-assets are expected to take effect within one year of promulgation.

The reforms consist principally of the following three elements:

1. the establishment of a disclosure regime for crypto-assets;
2. the introduction of a new regulatory framework governing crypto-asset businesses; and
3. the introduction of insider trading and other market misconduct regulations applicable to crypto-assets.

Under the current legal framework, crypto-assets are defined and regulated under the Payment Services Act (“PSA”). Any person carrying on the business of dealing in crypto-assets is required to obtain registration as a Crypto-Asset Exchange Service Provider under the PSA.

Crypto-Asset Exchange Service includes any of the following activities conducted in the course of business:

• the purchase and sale of crypto-assets or the exchange of one crypto-asset for another;
• intermediation, brokerage or agency services relating to such transactions;
• the management of customers’ money in connection with such activities; and
• the custody of crypto-assets on behalf of others.

Under the current regime, registered Crypto-Asset Exchange Service Providers are subject to various prudential and customer protection requirements, including the segregation of customer assets and the maintenance of reserve crypto-assets as security for performance. By contrast, issuers of crypto-assets are generally not subject to any comprehensive disclosure or continuing regulatory obligations.

Under the amendments, however, crypto-assets will no longer be regulated primarily under the PSA. Instead, they will become subject to the Financial Instruments and Exchange Act (“FIEA”) and will be classified as a category of “financial instruments” under that Act.

Furthermore, crypto-assets that have identifiable issuers—such as Initial Exchange Offering (“IEO”) tokens—will be designated as Specified Crypto-Assets.

(ii) Establishment of a Disclosure Regime for Crypto-Assets

(a) Disclosure Regime for Specified Crypto-Assets

Issuers of Specified Crypto-Assets will be required to publish Specified Crypto-Asset Information before conducting any public offering or sale of such assets.

This disclosure requirement will not apply to limited private placements, offerings directed solely at professional investors, or crypto-assets distributed without consideration, such as mining rewards.

In addition, issuers of Specified Crypto-Assets will generally be required to obtain an audit opinion from an independent audit firm or certified public accountant with respect to financial information included in the Specified Crypto-Asset Information, including the balance sheet and profit and loss statement.

Following issuance, issuers will also become subject to continuing disclosure obligations. These include:

• the publication of prescribed information for each fiscal year;
• the prompt disclosure of material events upon their occurrence; and
• the publication of corrections where previously disclosed information requires amendment.

Where a Crypto-Asset Trading Business Operator handles the offering or sale of a Specified Crypto-Asset, the operator will also be required to publish the relevant Specified Crypto-Asset Information.

Likewise, where such an operator commences handling a new category of Specified Crypto-Asset, it must publish the corresponding Specified Crypto-Asset Information before commencing such business.

Crypto-Asset Trading Business Operators must continue to make such information publicly available for a period of five years.

(b) Disclosure Regime for Crypto-Assets without an Identifiable Issuer

The proposed disclosure regime also applies to crypto-assets that do not have an identifiable issuer, such as Bitcoin.

Before a Crypto-Asset Trading Business Operator commences handling such a crypto-asset, it must publish prescribed Crypto-Asset Information concerning that asset.

In addition, where specified material events occur, the operator must promptly disclose the relevant information. If any previously disclosed information subsequently requires correction, corrected information must also be published.

The operator is required to continue making such information publicly available for as long as it continues to handle the relevant crypto-asset.

(c) Civil, Administrative and Criminal Liability for False Disclosure

Where Specified Crypto-Asset Information contains a material misstatement, omits a material fact required to be disclosed, or omits another material fact necessary to prevent the disclosed information from being misleading, the issuer of the Specified Crypto-Asset will be liable for damages suffered by persons who acquired the relevant crypto-assets in the offering or sale.

Similarly, where Crypto-Asset Information or other required disclosure documents contain a material misstatement, a Crypto-Asset Trading Business Operator that intentionally or negligently caused or failed to prevent the misstatement will be liable for losses suffered by persons who traded the relevant crypto-assets while the misleading information remained publicly available.

False disclosure will also be subject to administrative monetary penalties as well as criminal sanctions. The proposed amendments provide for imprisonment for up to ten years, a fine of up to JPY 10 million, or both.

(iii) Establishment of a Regulatory Framework for Crypto-Asset Trading Businesses

(a) Overview of the New Regulatory Regime

Under the amendments, the existing registration regime for Crypto-Asset Exchange Service Providers under the Payment Services Act (“PSA”) will be abolished. In its place, businesses engaging in crypto-asset-related activities will be regulated under the Financial Instruments and Exchange Act (“FIEA”) as Financial Instruments Business Operators.

To this end, a new category of regulated business, referred to as the Crypto-Asset Trading Business, will be established under the FIEA.

A Crypto-Asset Trading Business is defined as the conduct, in the course of business, of any of the following activities:

1. the purchase and sale of crypto-assets;
2. intermediation, brokerage or agency services relating to the purchase and sale of crypto-assets;
3. the underwriting of Specified Crypto-Assets;
4. the offering or sale of Specified Crypto-Assets;
5. the handling of solicitations for the acquisition of Specified Crypto-Assets;
6. the receipt of customers’ funds in connection with any of the activities described in items (1) through (5);
7. the custody of crypto-assets on behalf of others; and
8. the borrowing of crypto-assets.

Accordingly, crypto-asset businesses will be incorporated into Japan’s broader financial regulatory framework and will become subject to a regulatory regime closely aligned with that applicable to securities companies.

(b) Principal Conduct Regulations

A person conducting a Crypto-Asset Trading Business will be subject to regulatory requirements comparable to those imposed on a Type I Financial Instruments Business Operator under the FIEA.

For example, the permissible scope of business activities of crypto-asset trading operators will be restricted to certain specified areas. In addition to the disclosure obligations mentioned above, these operators will be subject to obligations to explain the characteristics of crypto-assets and to publish daily market information for each crypto-asset, including trading volume, high and low prices, and closing prices.

Furthermore, Crypto-Asset Trading Business Operators will be prohibited from handling crypto-assets that fail to satisfy the eligibility standards prescribed by the competent authorities. The detailed standards are expected to be set forth in a forthcoming Cabinet Office Ordinance and are anticipated to address matters such as market liquidity, regulatory compliance and the maintenance of reliable transfer records.

Where the issuer of a Specified Crypto-Asset violates the FIEA or any order issued thereunder, the competent authority may order a Crypto-Asset Trading Business Operator to cease handling that Specified Crypto-Asset.

The legislation also introduces a requirement to maintain policy reserves assource of funds for compensating customers in the event of a loss of crypto-assets under management due to security incidents or other asset leakage. Although the detailed calculation methodology will be prescribed by Cabinet Office Ordinance, the required reserve ratio is expected to be determined by reference to the amount of crypto-assets under management while taking into account the operator’s security measures and risk management framework.

In addition, Crypto-Asset Trading Business Operators will become subject to a number of prudential and conduct regulations that currently apply to securities companies. These include restrictions on the scope of permitted business activities, capital adequacy requirements, obligations to prepare and submit annual business reports, and prohibitions on the compensation of customer losses.

Furthermore, with respect to their crypto-asset custody operations, Crypto-Asset Trading Business Operators will be prohibited from outsourcing Crypto-Asset Custody-Related Services to any person other than a duly notified Crypto-Asset Custody-Related Service Provider, as discussed below.

(c) Regulation of Foreign Business Operators

A person conducting a Crypto-Asset Trading Business under the laws of a foreign jurisdiction will, as a general rule, be prohibited from providing such services to persons located in Japan.

However, this prohibition will not apply where the counterparty is a registered Japanese Crypto-Asset Trading Business Operator or in other circumstances to be specified by Cabinet Order.

Although the relevant Cabinet Order has not yet been published, it is expected that, consistent with the existing regulatory framework applicable to Financial Instruments Business under the FIEA, certain exceptions—such as the reverse solicitation exception—will be recognized.

(d) Crypto-Asset Custody-Related Service Providers

The amendments also introduce a regulatory framework applicable to providers of critical systems and services used for crypto-asset custody.

These services are collectively referred to as Crypto-Asset Custody-Related Services and include:

1. the on-going provision to Financial Instruments Business Operators of information systems necessary for the custody of customers’ crypto-assets;
2. the maintenance or administration of such information systems on behalf of Financial Instruments Business Operators; and
3. other services performed on behalf of Financial Instruments Business Operators that constitute part of the custody of crypto-assets for customers.

Any person intending to engage in such business will be required to submit a prior notification to the competent authority.

Crypto-Asset Custody-Related Service Providers will also be required to establish appropriate operational and governance frameworks, including measures to ensure the security and reliability of their information systems, and will be subject to the supervision of the competent authority.

(iv) Introduction of Insider Trading and Other Market Misconduct Regulations for Crypto-Assets

(a) Introduction of Insider Trading Regulations

The amendments introduce a comprehensive market misconduct regime for crypto-assets, including insider trading regulations.

Under the new insider trading regime, a person who trades crypto-assets while in possession of material non-public information will be subject to criminal penalties or administrative monetary penalties. Criminal sanctions include imprisonment for up to five years, a fine of up to JPY 5 million, or both.

Examples of material non-public information include:

• changes to the technical specifications of a crypto-asset;
• the commencement of solicitations relating to a new issuance of crypto-assets;
• the formation, amendment or termination of a business alliance;
• the commencement, suspension or termination of services provided by the issuer.

The introduction of insider trading regulations represents a significant shift in Japan’s regulatory approach by extending market integrity rules that have traditionally applied to securities markets to the crypto-asset market.

(b) Other Market Misconduct Regulations

In addition to insider trading, the proposed amendments introduce prohibitions against other forms of market misconduct.

These include prohibitions on fraudulent conduct, the dissemination of false rumours, deceptive practices, and market manipulation. The overall objective is to establish a fair, transparent and orderly market for crypto-assets that is broadly comparable to the regulatory framework applicable to traditional financial instruments under the FIEA.

(v) Strengthening of Penalties for Unregistered Operators

The amendments significantly increase the criminal penalties applicable to persons conducting a crypto-asset business without the required registration.

Under the current PSA, engaging in a Crypto-Asset Exchange Service without registration is punishable by imprisonment for up to three years, a fine of up to JPY 3 million, or both.

Under the amendments, the maximum penalty will be increased to imprisonment for up to ten years, a fine of up to JPY 10 million, or both.

This substantial increase reflects the Japanese government’s policy of strengthening investor protection and enhancing the deterrent effect of enforcement against unlicensed crypto-asset businesses.

(ii) AML/CFT/CPF and Measures Against Financial Crime

As discussed above, AML/CFT/CPF measures to combat financial crime will remain key regulatory priorities as Japan prepares for the fifth Mutual Evaluation by the FATF in 2028.

For financial service providers, compliance with AML/CFT/CPF and other financial crime-related requirements creates significant operational burdens and regulatory risks. Accordingly, establishing and maintaining effective compliance systems continues to be one of the most important challenges facing the industry.

At the same time, financial institutions are increasingly seeking solutions that both reduce compliance costs and improve the effectiveness of risk management. Although technology is expected to play a central role in achieving these objectives, its adoption remains at a relatively early stage.

This creates significant business opportunities for technology vendors offering innovative compliance solutions, including AI-powered transaction monitoring, customer screening, sanctions filtering and other technologies designed to enhance the detection and prevention of money laundering and other financial crime.

 4. How Do You Maintain High Levels of Client Satisfaction?

Our firm, Iwata Godo, was established in 1902 and is the oldest corporate law firm in Japan. Since then, we have handled numerous sophisticated matters in the financial sector and have accumulated extensive experience advising a broad range of financial institutions and market participants.

We have established a dedicated team of lawyers specializing in financial regulation and financial transactions. Through continuous information sharing within the team and regular internal study sessions, we stay abreast of rapidly evolving regulatory developments and market trends while continuously enhancing our collective expertise and professional capabilities.

In addition, we are privileged to have Mr. Hideki Ito, the former Commissioner of the Financial Services Agency, serve as our Special Advisor. His guidance and practical insights further strengthen the quality of the advice we provide to our clients.

Rather than assigning a single lawyer to each client, we assemble a bespoke team for every engagement based on the nature, complexity, and scale of the matter. This approach enables us to deploy lawyers with the most appropriate expertise and experience for each assignment, allowing us to deliver tailored, practical, and commercially effective legal solutions and consistently maintain a high level of client satisfaction.

 5. How Is Technology Transforming This Area, and What Benefits Can Clients Expect?

Over the past decade, a wide variety of payment and funds transfer services—including QR code payments, contactless payments, and Buy Now, Pay Later (BNPL) services—have emerged and become widely adopted in Japan. These technological developments have reduced payment-related costs, including merchant fees for credit card transactions and bank remittance fees. At the same time, advances in technology have lowered development costs, facilitating the expansion of innovative financial services.

More recently, markets for stablecoins and tokenized assets has begun to develop, and these markets are expected to expand rapidly over the next several years.

In the stablecoin sector, JPYC, a Japanese yen-denominated stablecoin, was issued in 2025. While its use for retail consumer payments remains limited, adoption for corporate applications—such as global cash management and business-to-business payments—is steadily increasing. In addition, tokenized investment products backed by assets such as real estate, have begun to enter the market, improving liquidity while creating new investment opportunities.

Furthermore, several Japanese banks are currently conducting proof-of-concept (PoC) projects relating to the tokenization of bank deposits.

Against this backdrop, the continued development and wider adoption of distributed ledger technology (DLT) is expected to accelerate the utilization of tokenized assets and create significant new business opportunities across the financial sector.