Breaking News: Japan’s New Crypto Regulatory Framework Set to Take Effect

 

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In March 2025, Japan’s Cabinet approved an amendment to the Payment Service Act (PSA) submitted by the Financial Services Agency (FSA). The amendment will now be submitted to the National Diet for discussion and voting. Historically, no crypto-related legal change that was approved by the Cabinet has ever been rejected by the National Diet. Similarly, the Cabinet has never rejected any legal amendment proposed by the FSA regarding crypto regulations. Since the FSA holds significant authority over Japan’s crypto regulatory affairs, this amendment is highly likely to be passed.

 

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FinTax Commentary:

The key amendments in this revision of the Payment Service Act include three major changes.

First, the introduction of the Domestic Asset Retention Order to enhance investor asset security. The revised law grants the Japanese government the authority to issue a domestic asset retention order for companies operating crypto derivatives. This order requires businesses to keep their assets within Japan to prevent capital outflows during bankruptcy and protect creditors’ interests. Previously, crypto firms dealing only in spot trading were not subject to such orders, exposing investors to potential asset loss risks. With the new amendment, the FSA now has the power to issue domestic asset retention orders for crypto spot trading firms when they pose an outflow risk.

Second, the amendment introduces a more flexible framework for managing trust-based stablecoins, enhancing asset growth potential. Under current regulations, trust-based stablecoin issuers are required to maintain 100% cash reserves. While this ensures security, it significantly limits capital efficiency. In contrast, regulatory frameworks in the U.S., EU, UK, and Singapore allow stablecoins to be backed by short-term government bonds and other safe assets. The new amendment permits stablecoin issuers to allocate up to 50% of their reserves into short-term government bonds and time deposits, increasing annualized returns by 1.5% to 2% while maintaining liquidity.

Third, the amendment establishes a “Crypto Brokerage Business” framework to optimize market entry barriers. Currently, even intermediary businesses that only connect crypto exchanges and users are subject to the same regulatory requirements as full-fledged crypto trading platforms. The new law will introduce a separate registration category for crypto brokerages. While these intermediaries will still be required to comply with disclosure and advertising regulations, they will not be subject to the same stringent oversight as exchanges, as they do not hold custody of user assets.

This Payment Service Act amendment reflects three major trends in Japan’s crypto regulatory strategy. First, Japan is increasingly integrating crypto assets into its national strategy. The Domestic Asset Retention Order shows the government’s intent to prevent capital outflows and promote the stability of the domestic crypto market. Second, Japan is aligning itself with international regulatory standards. The new stablecoin regulations incorporate best practices from the U.S., EU, UK, and other leading jurisdictions, allowing short-term government bonds and time deposits as part of stablecoin reserves. This aims to enhance Japan’s competitiveness in the global crypto industry. Third, Japan is adopting a differentiated regulatory approach for different types of crypto businesses. The introduction of a Crypto Brokerage Business category distinguishes between crypto trading platforms and intermediaries, reducing unnecessary regulatory burdens on businesses that do not hold user funds directly.

For investors, this regulatory update brings several key benefits. First, improved asset security. The Domestic Asset Retention Order ensures that, even in extreme cases such as company bankruptcy, investor funds remain within Japan under the supervision of financial regulators, reducing the risk of capital loss. Second, better investment opportunities with stablecoins. The revised stablecoin management rules allow investors to enjoy both the security of cash reserves and higher returns from government bonds and time deposits, balancing safety with yield potential. Third, a more competitive crypto market. The introduction of a separate crypto brokerage category lowers market entry barriers, attracting more innovative companies and accelerating the growth and diversification of Japan’s crypto industry.

The FSA’s amendment to the Payment Service Act demonstrates Japan’s commitment to building a safer, more efficient, and flexible crypto investment environment. These regulatory updates reflect the country’s focus on investor protection, market stability, and global competitiveness. For Japanese crypto investors, these changes will provide a safer and more profitable market, fostering long-term growth in Japan’s crypto industry.

 

References

[1] Blockchain News Flash. “Japan’s Financial Services Agency Submits Crypto Asset Regulatory Amendment – Blockchain Network.” Qklw.com, 2015. www.qklw.com/lives/20250308/609771.html. Accessed 20 Mar. 2025.

[2] Web3 News Updates. “Japan’s Payment Service Act Amendment Likely to Pass, These Crypto Sectors Could Benefit – BiJieNet.” 528btc.com, 2025. www.528btc.com/column/article/419961.html. Accessed 20 Mar. 2025.

[3] Crowdworker. “Lessons from FTX Japan’s Regulatory Penalties – The Importance of ‘User Protection’ in Crypto Exchanges.” Monolith Law Office | Tokyo, Japan, 10 May 2024. monolith.law/zh-cn/it/cryptoassets-administrative-actions. Accessed 20 Mar. 2025.

[4] PA First Line. “Japan’s Financial Services Agency Submits Crypto and Stablecoin Regulatory Amendment, Introducing a New ‘Brokerage Business’ Framework.” PANews, 2025. www.panewslab.com/zh/sqarticledetails/0ed9a7oo.html. Accessed 20 Mar. 2025.