Crypto Assets Under Japan's Financial Instruments Act: Panel Discussion Summary

Crypto Assets Under Japan's Financial Instruments Act: A Comprehensive Legal Analysis
Date: August 25, 2025
Venue: The Prince Park Tower, Tokyo, Japan
Panelists:
Satsuki Katayama

• House of Councillors, Liberal Democratic Party (LDP)

• Chair, Budget Committee (Kessan Iincho)

• Chair, Research Commission on Finance and Banking Systems (Kinyu Chosa-kai Cho)

• Deputy Secretary-General, Liberal Democratic Party (2022-)

• Former Minister of State for Regional Revitalization, Regulatory Reform, and Gender Equality (2018-2019)

• Educational Background: Faculty of Law, University of Tokyo (1982); CSE of ENA, France (1985)

• Career includes senior positions at Ministry of Finance and extensive parliamentary experience

Noriyuki Hirosue

• Founder & CEO, bitbank, inc (2014-)

• CEO, Japan Digital Asset Trust Establishment Preparatory Corporation (JADAT) (2022-)

• Former executive roles at GMO Internet, Inc., GaLa, Inc., and Commuca, Inc.

• Started career at Nomura Securities Co., Ltd.

• Recognized as a pioneer in Japan's crypto asset industry

Masakazu Masujima

• Partner, Mori Hamada & Matsumoto

• Specializes in fintech, M&A, and corporate finance

• Over 10 years dedicated to Japan's crypto industry since 2012

• Legal advisor to Japan Cryptocurrency Business Association, Japan Blockchain Association, and Blockchain Collaborative Consortium

• Ambassador, Global Blockchain Business Council

Moderator
Yosuke Shiraishi

• Vice Chairman, Japan Crypto Asset Business Association (JCBA)

• CEO, ARIGATOBANK and MZ Cryptos

• Former head of payment products at Yahoo (launched PayPay)

• Chairman, stablecoin department of JCBA

• Multiple roles in Web3Fund, HashPort, and LDP Web3 Project Team

Key Discussion Topics and Insights

1. U.S.-Japan Cooperation on Stablecoin Recognition

Background Context
The discussion opened with insights into international cooperation on digital asset regulation, particularly between the United States and Japan. Participants highlighted the evolution of U.S. policy under different administrations and its impact on global regulatory frameworks.

Key Points Discussed

• Historical context of Japan's Securities and Exchange Act structure, originally derived from U.S. post-war influence

• Changes in U.S. crypto policy during the Biden administration

• Importance of harmonizing rules between markets through proper capital controls, KYC, and anti-money laundering measures

• Potential for win-win situations through aligned domestic democratic support and public opinion

2. Japan's Financial Instruments and Exchange Act (FIEA) Framework

Current Regulatory Structure
Participants explained the fundamental shift from treating crypto assets under the Payment Services Act to potentially including them under the Financial Instruments and Exchange Act.

Legal Implications

• Dual Classification System: Division of crypto assets into two categories:

  1. Traditional crypto assets (like Bitcoin)

  2. Crypto assets used for fundraising (similar to securities)

• Information Provision vs. Disclosure: Deliberate terminology shift to "information provision" rather than traditional "disclosure" requirements

• Whitepaper Requirements: Strict penalties for false information in whitepapers

• Progressive Disclosure: Requirements for ongoing disclosure until issuers lose network control

Regulatory Oversight Concerns

• Securities professionals traditionally handling conventional investment products will oversee fundamentally different crypto assets

• Need for specialized understanding of blockchain and crypto asset characteristics

• Risk assessment of applying traditional securities oversight to innovative digital assets

3. Market Integrity and Unfair Trading Practices

Insider Trading and Market Manipulation
The panel addressed the absence of clear insider trading regulations in Japan's current crypto framework and proposed solutions under FIEA.

Prohibited Practices to be Regulated

• Insider Trading: Traditional definition applied to crypto markets

• Market Manipulation: Including pump and dump schemes

• Front-running: Exploiting advance knowledge of transactions

• Wash Trading: Creating artificial trading volume

Regulatory Approach

• Comprehensive "basket clause" covering various unfair trading practices

• Learning from established U.S. regulatory practices

• Creation of supervisory tools and penalty frameworks

• Licensing requirements for investment managers and advisors in crypto space

4. Investment Advisory and Management Services

New Licensing Requirements
Extension of Financial Instruments and Exchange Act licenses to cryptocurrency investment advisors and managers to prevent unlicensed parties from:

• Making price manipulation claims

• Providing investment advice without proper authorization

• Conducting investment seminars without regulatory oversight

• Using social media for unauthorized investment promotion

5. Tax Reform Implications

Current Tax Structure

• Crypto assets currently taxed as "miscellaneous income" under progressive tax rates

• Maximum tax rate can reach 55% (including local taxes)

• This high taxation significantly hampers trading volume and industry growth

Proposed Tax Reform

• Target Rate: 20% flat tax rate, aligning with stock taxation

• Separate Taxation System: Moving away from progressive "miscellaneous income" classification

• Timeline: Implementation expected within 1-2 years with Cabinet-level commitment

• Political Challenges: LDP's loss of parliamentary majority requires coalition building

Industry Impact

• Expected significant increase in trading volume

• Enhanced competitiveness with other jurisdictions

• Improved environment for domestic and institutional investment

• Foundation for broader Web3 ecosystem development

6. Stablecoin Development and Regulatory Framework

JPYC Launch
Discussion of Japan's first regulated yen-denominated stablecoin approval and its significance for the domestic market.

Regulatory Structure

• Licensing under revised Payment Services Act

• 1:1 backing with Japanese yen through bank deposits and government bonds

• 101% reserve requirement within three business days of issuance

• Target issuance of ¥1 trillion over three years

Strategic Importance

• Reduction of reliance on dollar-denominated stablecoins (USDT, USDC)

• Enhanced efficiency in international remittances and cross-border transactions

• Foundation for broader blockchain-based financial services

• Potential influence on Japanese government bond markets

7. Industry Compliance and Business Operations

Exchange Business Impacts
Hirosue provided industry perspective on regulatory transition challenges and opportunities:

Positive Aspects

• Potential increase in trading volume through tax reform

• Enhanced legitimacy and institutional acceptance

• Clearer regulatory framework reducing uncertainty

• Foundation for domestic industry growth

Challenges

• Increased compliance obligations and costs

• Higher regulatory standards compared to Payment Services Act

• Need for enhanced security measures and risk management

• Preparation for potential asset leakage risks

Implementation Strategy

• Industry commitment to proper acknowledgment and response to new framework

• Need for ongoing discussions between industry and regulators

• Phased approach to implementation allowing for adjustment period

8. Cryptocurrency Asset Definition and Scope

Payment Services Act Definition
Current definition encompasses digital assets that can be:

• Used for payment to unspecified persons

• Used to buy or sell specific items with counterparties

• Recorded electronically and transferred using electronic information processing systems

• Excluded categories: domestic currency, foreign currency, currency-denominated assets, electronic payment methods, securities under FIEA

Scope of Reform
Discussion of which cryptocurrency types might be included in tax reform:

• Highly liquid assets like Bitcoin

• Payment-focused stablecoins

• Investment-oriented cryptocurrencies

• Exclusion of clearly suspicious or non-compliant tokens

9. International Regulatory Alignment

Comparison with U.S. GENIUS Act
Strong alignment noted between Japan's proposed framework and U.S. regulatory developments:

• Similar positioning of crypto assets as digital commodities

• Comparable disclosure obligations and market oversight

• Aligned approach to broker and advisor qualification requirements

• Coordinated regulatory philosophy despite different legal structures

European MiCA Regulation

• Recognition of Europe's more detailed and strict regulatory approach

• Japan's balanced approach between innovation and oversight

• Learning from global regulatory experiences while maintaining domestic priorities

10. Future Industry Outlook and Business Opportunities

Traditional Finance Integration
Participants emphasized the potential for fusion between traditional financial services and crypto industry:

• Tokenization Opportunities: SBI Holdings' stock tokenization initiatives

• On-chain Efficiency: Enhanced efficiency of existing financial systems through blockchain technology

• New Financial Innovations: Combining strengths of traditional institutions with crypto capabilities

Ecosystem Development

• Stablecoin Foundation: Building comprehensive ecosystem with stablecoins, cryptocurrencies, and security tokens operating at scale

• Permissionless Blockchain Integration: Creating environment for security tokens on permissionless blockchains

• Cross-border Payment Solutions: Enhanced international payment capabilities

Generational and Technological Shifts
Katayama's observations on industry evolution:

• Recognition of diverse professional backgrounds in crypto industry absent from traditional Japanese financial institutions

• Compatibility with Internet and SNS generations for investment approaches

• Lower barrier to entry and instant transaction capabilities

• Alignment with national asset management strategy

Technical and Regulatory Implementation Details

Reserve Requirements and Asset Backing

• JPYC Structure: 80% government bonds, 20% deposits initially

• Comparison with Global Standards: Higher reserve requirements than some international stablecoins

• Risk Management: Addressing depegging risks and liquidity shortage concerns

Cross-border Payment Innovation

• Institutional Applications: Hedge funds and family offices interest

• Carry Trade Opportunities: Exploiting interest rate differentials

• Corporate Treasury Management: Enhanced efficiency in global fund management

• Credit Card Integration: Stablecoin-based payment systems with major providers

Blockchain Infrastructure Considerations

• Multi-chain Deployment: Support for Ethereum, Avalanche, Polygon platforms

• Interoperability: Integration with existing financial networks

• Security Protocols: Comprehensive KYC/AML compliance frameworks

• Scalability Planning: Preparation for significant volume increases

Political and Economic Context

Prime Minister Ishiba's Position

Reference to Prime Minister Shigeru Ishiba's statements on crypto assets being "extremely important" for Japan's economic future, though challenges noted regarding his general fiscal policy stance.

LDP Policy Framework

• Web3 Project Team initiatives within ruling party

• Coordination with multiple political parties following LDP's loss of parliamentary majority

• Integration with broader economic policy including NISA investment programs

International Competitiveness

Recognition of need to maintain Japan's position in global Web3 and digital asset development while other jurisdictions advance their regulatory frameworks.

Conclusion and Next Steps

The panel concluded with strong optimism about Japan's crypto regulatory future, emphasizing the transformative potential of the proposed changes. Key takeaways include:

1. Regulatory Leadership: Japan positioned as a global leader in comprehensive crypto regulation

2. Industry Maturation: Movement toward institutional-grade infrastructure and compliance

3. Economic Integration: Crypto assets becoming integral to national wealth formation strategy

4. Innovation Balance: Maintaining innovation while ensuring consumer protection and market integrity

5. International Cooperation: Continued alignment with global regulatory best practices

The discussion represented a watershed moment in Japan's crypto regulatory evolution, signaling government commitment to creating a competitive, well-regulated digital asset ecosystem that could position Japan as a regional leader in Web3 innovation and institutional crypto adoption.