Japan is preparing for a landmark transformation in cryptocurrency regulation, with the Financial Services Agency set to permit domestic banks to acquire and hold digital assets including Bitcoin for the first time — a move that could position the world's third-largest economy as a global leader in institutional crypto adoption.
The Financial Services Agency (FSA) is reviewing regulations that currently prohibit banks from holding cryptocurrencies due to volatility concerns, according to multiple reports from Japanese media outlets including Yomiuri Shimbun and Nikkei.
The proposed reforms would enable banks to trade digital assets using the same framework that governs stocks and government bonds, subject to strict risk management protocols.
The FSA plans to present the proposal at an upcoming meeting of the Financial Services Council, an advisory body to Japan's Prime Minister, signaling that the initiative has reached advanced stages of policy consideration.
From Prohibition to Integration
The proposed changes represent a dramatic reversal of supervisory guidelines introduced in 2020, which effectively barred banks from holding crypto assets due to concerns about price volatility and financial stability risks.
Under the new framework, banks would be required to implement comprehensive risk management systems before acquiring cryptocurrencies. Regulators are expected to establish capital adequacy requirements, liquidity coverage ratios, and exposure limits designed to prevent over-leverage in highly volatile digital assets.
The FSA is also weighing whether to allow banking groups to register directly as licensed "cryptocurrency exchange operators," enabling them to offer trading and custody services to retail and institutional clients without establishing separate subsidiaries — a requirement under current law.
"By allowing trustworthy banking groups to join the cryptocurrency ecosystem, the FSA aims to create a safer and more conducive crypto environment," according to regulatory analysis from industry observers.
Regulatory Framework Overhaul
Central to Japan's evolving approach is the proposed transfer of cryptocurrency regulation from the Payment Services Act to the Financial Instruments and Exchange Act (FIEA) — the same legal framework that governs securities trading.
This reclassification would subject cryptocurrencies to substantially enhanced oversight, including:
- Enhanced disclosure requirements for token issuers regarding public offerings and secondary distributions
- Insider trading prohibitions explicitly covering digital assets, with enforcement authority granted to the Securities and Exchange Surveillance Commission
- Stricter conduct standards for crypto intermediaries, equivalent to Type 1 Financial Instruments Business operators
The FSA has indicated that many problems within crypto investment — including unclear white papers, inaccurate disclosures, unregistered operations, and security vulnerabilities — resemble issues traditionally addressed under securities law. By applying FIEA mechanisms, regulators aim to "eliminate the information asymmetry between issuers and investors" while providing stronger enforcement tools.
Japan's Securities and Exchange Surveillance Commission is developing rules to penalize crypto insider trading, extending equity market practices to digital assets. The commission will have authority to investigate suspicious transactions, impose fines tied to illicit gains, and pursue criminal charges for severe violations.
Market Momentum Drives Policy Evolution
Japan's pivot toward institutional crypto integration comes amid explosive growth in the domestic digital asset market. According to FSA data, the country recorded more than 12 million registered crypto accounts as of February 2025 — approximately 3.5 times the number from five years earlier.
Spot trading volume reached approximately ¥1.9 trillion ($13.1 billion) in February 2025, with margin trading adding another ¥1.5 trillion. Customer deposits held by registered crypto exchange providers have surpassed ¥5 trillion, underscoring the scale of retail participation.
Research firm Chainalysis reported that Japan topped the 2025 cryptocurrency adoption list with 120% user growth, making it the fastest-growing market in the Asia-Pacific region. This surge followed regulatory improvements that boosted user protections while reducing compliance burdens.
The growth occurs against a backdrop of significant macroeconomic challenges. Japan's national debt stands at approximately 240% of GDP — among the highest debt-to-GDP ratios globally — potentially driving investors to explore alternatives to traditional financial instruments.
Banking Giants Launch Stablecoin Initiative
Parallel to the regulatory evolution, Japan's three largest financial institutions are collaborating on an ambitious stablecoin project that could reshape corporate payments infrastructure.
Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corp. (SMBC), and Mizuho Bank — which collectively serve more than 300,000 corporate clients — are jointly developing a stablecoin pegged to both the Japanese yen and U.S. dollar.
The initiative will leverage MUFG's Progmat blockchain platform, designed specifically to meet Japan's strict financial regulations. Progmat enables banks to issue tokenized financial instruments on multiple public blockchains including Ethereum, Polygon, Avalanche, and Cosmos, with plans to expand to additional networks.
Mitsubishi Corporation, with operations spanning more than 240 subsidiaries globally, will be the first entity to implement the stablecoin for internal settlements. The company aims to streamline international transfers for dividends, acquisitions, and customer transactions — saving on fees and administrative overhead associated with traditional cross-border payments.
The consortium expects to roll out the stablecoin by the end of the fiscal year, with a target of issuing approximately ¥1 trillion ($6.64 billion) in stablecoins over three years.
"By creating a standardized digital token, they aim to cut transaction costs and speed up payments between companies," according to reports on the initiative.
Regulatory Clarity Enables Innovation
Japan's comprehensive approach to digital asset regulation — combining institutional banking integration, securities-level oversight, and bank-backed stablecoin infrastructure — contrasts with the more fragmented approaches in other major economies.
The country brought dedicated stablecoin regulations into enforcement in mid-2023, limiting issuance to licensed banks, regulated money transfer agents, and trust corporations while mandating full backing and par redemption. This regulatory clarity has enabled incumbents to experiment within defined guardrails.
In August 2025, the FSA approved Japan's first regulated yen-denominated stablecoin from fintech company JPYC, establishing a precedent for compliance pathways. Other firms including Monex Group have publicly disclosed plans to enter the stablecoin market, though executives acknowledge the significant infrastructure and capital requirements.
Looking ahead, Japan plans to introduce crypto exchange-traded funds (ETFs) following the FIEA reclassification. The regulatory framework for spot Bitcoin and Ethereum ETFs is being developed in consultation with industry stakeholders.
Tax reforms are also on the horizon. Japan plans to implement a flat 20% capital gains tax on cryptocurrency profits in 2026, replacing the current system that taxes crypto as "miscellaneous income" at rates up to 55%. This change would align digital asset taxation with traditional securities and could significantly boost institutional participation.
Global Context and Competitive Positioning
Japan's proactive stance on institutional crypto adoption comes as global financial centers compete to establish favorable regulatory environments for digital assets.
In the United States, major asset managers including BlackRock have accumulated more than $100 billion in cryptocurrency holdings, while banks like JPMorgan and Morgan Stanley now offer wealthy clients exposure to digital assets. In July 2025, Standard Chartered began offering Bitcoin and Ethereum services to U.K. customers, citing "growing interest in regulated digital asset solutions."
By contrast, China maintains restrictive policies on cryptocurrency trading and mining, while the European Union continues implementing its Markets in Crypto-Assets (MiCA) regulation framework.
Japan's approach of integrating cryptocurrencies into existing banking infrastructure while imposing securities-level oversight occupies middle ground between wholesale prohibition and minimal regulation.
"Japan is demonstrating that banks and blockchain can work together under appropriate regulation," according to market analysis. "For businesses frustrated by slow, expensive international payments, that represents a meaningful step forward."
Implementation Timeline and Challenges
While the FSA has signaled clear intent to proceed with banking reforms, the exact implementation timeline remains subject to deliberation by the Financial Services Council and subsequent parliamentary approval.
Industry analysts believe an official rollout could begin as early as the second quarter of 2026, assuming the council endorses the framework and legislators enact necessary statutory amendments.
Key challenges include:
- Risk calibration: Determining appropriate exposure limits and capital requirements for bank cryptocurrency holdings
- Custody standards: Establishing secure hot and cold wallet structures that meet banking-grade security expectations
- Volatility management: Creating frameworks to handle sharp price swings without triggering systemic stability concerns
- Consumer protection: Ensuring retail investors understand risks when banks offer crypto products
The FSA has emphasized that any approval will include stringent conditions on capital adequacy and risk management before banks can hold Bitcoin or other digital assets directly.
Final thoughts
Japan's comprehensive crypto banking reforms signal a fundamental shift in how one of the world's largest economies views digital assets — moving from caution to strategic integration.
By enabling banks to hold and trade cryptocurrencies under securities-level supervision, launching bank-backed stablecoin infrastructure, and implementing enhanced investor protections, Japan is constructing a regulatory framework that could serve as a model for other advanced economies seeking to balance innovation with financial stability.
The success of these initiatives will depend heavily on effective implementation and enforcement. If Japan can demonstrate that traditional financial institutions can safely participate in crypto markets while maintaining consumer protection and market integrity, it may establish a blueprint for institutional adoption globally.
For now, market participants, policymakers, and industry observers worldwide are watching closely as Japan charts a path toward integrating cryptocurrencies into its mainstream financial system.