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This article outlines recent trends in Japan’s domestic crypto-asset and stablecoin markets, details significant amendments made to the Payment Services Act this year, discusses the ongoing evolution of the crypto-asset legal and tax framework, and covers recent legislative changes concerning tokenised real estate interests and investment fund regulations.

Crypto and stablecoin trends

Japan’s domestic crypto-asset market continues to show an expansionary trend. According to statistics from the Japan Virtual and Crypto Assets Exchange Association, registered crypto-asset exchange business providers reached 32 as of 30 April 2025. As of February 2025, the spot trading volume was about JPY1.9 trillion (USD13.1 billion), with margin trading volume at about JPY1.5 trillion.

The cumulative number of accounts held with these crypto-asset exchange business providers has exceeded 12 million, and the total balance of customer deposits has surpassed JPY5 trillion (both figures as of the end of January 2025). A survey on investor attitudes conducted by the Financial Services Agency (FSA) indicated that 7.3% of domestic individual investors with prior investment experience hold crypto-assets, a rate higher than those holding positions in FX trading or corporate bonds.

In the stablecoin sphere, SBI VC Trade commenced handling the US dollar-pegged stablecoin, USDC (USD coin), in April 2025. Several fund transfer service providers are exploring the issuance of Japanese yen-pegged stablecoins under their existing fund transfer service licences. The utilisation of DCJPY (digital currency JPY), a system for tokenising bank deposits, is also gaining traction, with issuance cases by GMO Aozora Net Bank and other ongoing projects involving multiple major banks and online banks.

Despite market growth, significant challenges persist. A major domestic crypto-asset exchange business provider experienced a large-scale hacking incident, resulting in the outflow of Bitcoin valued at about USD305 million, underscoring the continued importance of robust customer asset protection measures.

Concerns have also been raised regarding inappropriate investment management and advisory practices related to crypto-assets, alongside illicit solicitation activities by unregistered operators. There is also a recognised need to enhance user protection mechanisms and strengthen deterrence against unregistered businesses.

Amendments to PSA

The amendments to the Payment Services Act (PSA) concerning crypto-assets and stablecoins include:

1. Relaxation of reserve requirements for trust-type stablecoins (electronic payment instruments). Current regulations mandate that issuers of trust-type stablecoins (legally defined as “electronic payment instruments”) hold the full issuance value in demand deposits and/or similar highly liquid instruments. The amendment relaxes this requirement, permitting issuers to manage up to 50% of the issuance value in low-risk assets with minimal risk of principal impairment.

Eligible assets may include Japanese or US government bonds with a remaining maturity of three months or less, or time deposits that allow for early termination. This change is expected to improve the efficiency and global competitiveness of stablecoin issuers.

2. Establishment of a new “electronic payment instrument/crypto-asset service intermediary” category. Under the existing framework, entities acting solely as intermediaries between crypto-asset exchange service providers and users are subject to stringent registration requirements applicable to full-fledged exchange providers.

The amendment introduces a new, distinct category for intermediaries who do not take custody of customer assets. These intermediaries will focus exclusively on facilitating (brokering) transactions by connecting users seeking to buy, sell or exchange crypto-assets or electronic payment instruments with registered crypto-asset exchange service providers or electronic payment instrument transaction service providers.

As these new intermediaries will not hold customer assets, they will be exempt from capital adequacy requirements. As the anti-money laundering/countering the financing of terrorism (AML/CFT) obligations are imposed on the principal affiliated firms, these new intermediaries will not be directly subject to the AML/CFT regulations.

3. Introduction of domestic asset holding orders. To prevent the cross-border outflow of customer assets in the event of insolvency of a crypto-asset exchange business provider or electronic payment instruments service provider dealing only in spot transactions (meaning, not derivatives), a new legal mechanism is being introduced. This allows regulatory authorities to issue an order mandating that the provider’s assets be held within Japan. This measure codifies the approach taken during the bankruptcy proceedings of FTX Japan in 2022, where ensuring assets remained onshore proved effective in protecting customer interests, establishing it as a clear statutory tool.

Crypto-asset legal updates

As of April 2025, Japan is actively developing its legal and tax regimes for crypto-assets. The ruling Liberal Democratic Party’s Web3 Project Team (Web3PT) has put forward proposals advocating for the classification of crypto-assets as a distinct asset class under the Financial Instruments and Exchange Act (FIEA).

A key component of this proposal is the transition from the current tax treatment – where crypto-asset gains are typically classified as miscellaneous income subject to progressive tax rates up to 55% – to a system of separate financial income taxation at a flat rate of 20%. The tax reform proposals also include subjecting profits from crypto-asset transactions to separate self-assessment taxation and a loss carry-forward provision allowing taxpayers to offset losses against future gains for up to three years.

The FSA’s April 2025 discussion paper titled “Review of Systems Related to Crypto-Assets” seeks to balance market innovation with user protection. Discussions are particularly focused on classifying crypto-assets based on their function and establishing a regulatory system that is balanced with the regulations for security tokens subject to the FIEA.

Regarding crypto-asset exchanges, the current perspective suggests a low necessity for imposing market infrastructure regulations similar to the licensing system for traditional financial instrument exchanges or the rules governing proprietary trading systems operated by financial instrument firms.

However, it is acknowledged that since these platforms provide a venue for collective trading involving numerous parties, appropriate trade management and system development are essential points that necessitate further examination in the future.

Momentum is also building towards the introduction of crypto-asset exchange-traded funds (ETFs). Reports from KPMG and QUICK have proposed the development of domestic yen-denominated crypto-asset benchmarks and the establishment of the necessary legal and regulatory framework for ETF creation. Future legislative amendments are expected to pave the way for the “financial productisation” of crypto-assets.

Real estate STs and LPS Act

Significant legal changes have also impacted tokenised assets and investment structures.

1. Real estate security tokens (STs) under the FIEA. Due to the act amending parts of the Financial Instruments and Exchange Act and others, which came into force on 1 November 2024, rights based on tokenised real estate specified joint enterprise agreements (real estate STs) became subject to the FIEA. These real estate STs are now classified as “rights representing electronically recorded transferable securities” and similar instruments, and are legally considered securities under the FIEA.
   This development means that the real estate specified joint enterprise operators (entities operating under the Real Estate Specified Joint Enterprise Act) handling these tokenised instruments must now comply not only with the Real Estate Specified Joint Enterprise Act but also with the FIEA and its associated regulations.
   Specifically, if such operators engage in self-offering or private placements of real estate STs, they generally require registration as a type II financial instruments business operator or must file a notification under the framework for specially permitted businesses for qualified institutional investors, etc.
2. Amendment to the Limited Partnership Act for Investment (LPS Act) permitting crypto-asset investment. Amendments to the LPS Act have made it possible for limited partnerships (LPSs) to acquire and hold crypto-assets. Previously, the LPA Act narrowly defined the permissible business purposes for LPSs, which now includes crypto-assets due to the amendment.
   This change facilitates venture capital investment via the established LPS structure into Web3-related startups and other emerging companies that utilise crypto-assets within their business models. It is important to note, however, that not all types of crypto-assets are necessarily eligible investment targets.

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