Japan's Crypto Push: Retail Investors in the Regulatory Crosshairs

Japan is poised to redefine its regulatory approach to cryptocurrencies, as the Financial Services Agency (FSA) prepares to bring digital assets under the Financial Instruments and Exchange Act (FIEA). This move marks one of the most significant regulatory shifts in the country since it became an early adopter of crypto trading. The FSA has argued that the investment characteristics of crypto assets align closely with securities, necessitating stricter disclosure, enforcement, and investor protection measures.

According to a recent FSA discussion paper, more than 12 million accounts are now active on domestic crypto exchanges, with total client deposits exceeding ¥5 trillion ($34 billion). Over 80% of these accounts hold less than ¥100,000, underscoring the prevalence of small-scale, retail investors in the Japanese crypto market. Approximately 7.3% of Japanese investors hold cryptocurrencies, a higher rate than for foreign exchange or corporate bonds. A notable portion—around 70%—earns less than ¥7 million annually, and 86% of these investors are driven by the expectation of long-term price appreciation, highlighting the market’s susceptibility to misinformation and fraud.

The current regulatory framework for crypto exchanges in Japan is governed by the Payment Services Act, which lacks the enforcement tools and disclosure mandates of securities law. As a result, white papers and project documentation are often vague or misleading. By reclassifying digital assets under the FIEA, the FSA aims to impose standardized disclosure requirements, enhance penalties for misconduct, and extend existing securities enforcement mechanisms to crypto trading. The new framework will differentiate between centralized fundraising tokens and decentralized assets like Bitcoin and Ethereum, placing distinct obligations on their issuers and exchanges.

Unregistered solicitation has surged in recent months, with fraudulent activities including investment seminars and social media promotions luring investors into unregulated platforms. The FSA now receives over 300 crypto-related complaints monthly, with cases frequently involving frozen withdrawals and demands for “guarantee fees.” Under the proposed changes, courts would gain the authority to issue emergency injunctions against unregistered operators, while corporations could face fines of up to ¥500 million and individuals may face prison sentences of up to five years for violations.

Japan’s approach aligns with global regulatory trends, as markets like the U.S., EU, and Middle East strengthen oversight of digital assets. The European Union is implementing its Markets in Crypto-Assets (MiCA) regulation, while the U.S. Commodity Futures Trading Commission (CFTC) has launched a “crypto sprint” to enhance federal oversight. Meanwhile, Japan is also preparing to launch its first yen-backed stablecoin, with fintech firm JPYC expected to debut the product later this year. These developments indicate a broader global effort to integrate crypto under traditional financial frameworks.

The FSA plans to submit a legislative bill as early as 2026, extending insider trading restrictions and disclosure requirements to crypto. If enacted, the reform would prohibit the use of non-public information in trading and impose stricter oversight on exchanges. Finance Minister Katsunobu Kato has expressed support for crypto as a component of diversified portfolios, provided adequate safeguards are in place. Together, these measures represent a substantial shift in Japan’s regulatory strategy, aligning it more closely with international efforts to ensure transparency, fairness, and accountability in the crypto market.

Source: [1] Japan Moves Crypto Into Securities Law Amid Crackdown (https://cryptonews.com/news/japan-moves-crypto-under-securities-law-massive-crackdown-imminent/)