Japan

## Retail Trading Status of Cryptocurrencies in Japan

**Report Date:** 2025-06-26

**Topic:** Retail_Trading_Status

**Description:** Assess whether individual citizens and residents in the country are legally permitted to buy, sell, and hold cryptocurrencies. Detail the regulatory environment surrounding this activity (e.g., KYC/AML requirements imposed on platforms, general warnings issued).

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### **Retail_Trading_Status: Allowed-Regulated**

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**Narrative Explanation:**

Japan has been a forerunner in the regulation of cryptocurrencies, establishing a specific legal framework for their trading and holding by retail investors. Cryptocurrencies, or "crypto assets" as they are legally termed in Japan, are recognized and regulated under the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). This regulatory approach aims to foster innovation while ensuring consumer protection, anti-money laundering (AML), and combating the financing of terrorism (CFT).

Historically, Japan was one of the first countries to legally recognize Bitcoin and other digital currencies as a form of payment in April 2017 with amendments to the PSA. This early move was, in part, a response to the collapse of the Mt. Gox exchange in 2014, which highlighted the need for regulatory oversight. The PSA defined "crypto assets" (formerly "virtual currencies") and mandated that crypto asset exchange service providers register with the Financial Services Agency (FSA), Japan's primary financial regulator. These registered exchanges are subject to various obligations, including robust KYC/AML/CFT procedures, segregation of customer and proprietary assets, cybersecurity measures, and regular reporting to the FSA.

Further amendments to the PSA and FIEA, which came into effect in May 2020, strengthened the regulatory framework. These changes introduced stricter rules for crypto asset custody, addressed crypto derivatives trading, and enhanced measures to protect users. For instance, if a crypto asset exchange service provider manages users' crypto assets in a "hot wallet" (a wallet connected to the internet), it must hold the same kind and an equivalent or greater amount of crypto assets in a "cold wallet" (an offline wallet) as those managed in the hot wallet for its users. Additionally, the FIEA now covers crypto asset derivatives trading, subjecting it to similar regulations as traditional financial derivatives.

The FSA actively supervises crypto asset exchange service providers, conducts on-site inspections, and can issue business improvement orders or even revoke licenses if an operator fails to comply with the regulations. The Japan Virtual and Crypto assets Exchange Association (JVCEA), a self-regulatory organization recognized by the FSA, also plays a crucial role in setting industry standards and rules for its member exchanges, further bolstering the regulatory environment.

Retail investors in Japan are therefore legally permitted to buy, sell, and hold cryptocurrencies, provided they do so through FSA-registered exchanges or licensed entities. These platforms are required to implement strict identity verification processes (KYC) for all users, monitor transactions for suspicious activity, and report such activities to the authorities, aligning with international AML/CFT standards. Warnings are periodically issued by the FSA and the National Police Agency to raise public awareness about the risks associated with crypto asset investments, including price volatility and the potential for fraud and cyberattacks.

**Relevant Text Excerpts and Sources:**

1.  **Financial Services Agency (FSA) - "The regulatory framework for crypto-assets and crypto-asset trading services"**:
    *   **Excerpt/Summary:** The FSA outlines that crypto-asset exchange service providers must be registered and are subject to various regulations under the Payment Services Act, including AML/CFT obligations, protection of users' assets, and system risk management. The FIEA applies to certain crypto-asset related derivatives.
    *   **Source:** While a direct quote from a single, static page is difficult due to the dynamic nature of regulatory websites, the FSA's stance and regulatory framework are consistently described across its publications and guidelines related to crypto assets. Information is typically found within sections detailing laws and regulations for financial institutions or specific guidance on crypto assets.
    *   **URL (General FSA Crypto Asset Information Page - users may need to navigate to specific acts or guidelines):** `https://www.fsa.go.jp/en/policy/virtual_currency/index.html` (This page often serves as a portal to more detailed documents and press releases).

2.  **Payment Services Act (Act No. 59 of June 24, 2009 - as amended)**:
    *   **Excerpt/Summary:** The Act defines "Crypto Asset" and stipulates that a person may not engage in Crypto Asset Exchange Services without registration from the Prime Minister (delegated to the Commissioner of the FSA). It lays down requirements for registration, including capital requirements, organizational structure, and systems for ensuring proper and secure operations, such as user protection and AML/CFT measures.
    *   **Source:** Official Japanese legislative databases or reputable legal information websites provide access to the text of the PSA. For example, the Japanese Law Translation Database System.
    *   **URL (Japanese Law Translation Database System - search for "Payment Services Act"):** `http://www.japaneselawtranslation.go.jp/`

3.  **Financial Instruments and Exchange Act (Act No. 25 of 1948 - as amended)**:
    *   **Excerpt/Summary:** Amendments to the FIEA incorporated regulations for derivatives transactions involving crypto assets. This means that entities offering such services must comply with the FIEA's licensing and conduct of business rules, similar to those for traditional securities and derivatives.
    *   **Source:** Official Japanese legislative databases or reputable legal information websites.
    *   **URL (Japanese Law Translation Database System - search for "Financial Instruments and Exchange Act"):** `http://www.japaneselawtranslation.go.jp/`

4.  **Japan Virtual and Crypto assets Exchange Association (JVCEA) - Self-Regulatory Rules**:
    *   **Excerpt/Summary:** The JVCEA, as an FSA-certified self-regulatory organization, establishes detailed rules for its member crypto asset exchanges. These rules cover areas such as the listing of new crypto assets, trading practices, information disclosure to users, handling of customer complaints, and cybersecurity measures, often going beyond the minimum legal requirements.
    *   **Source:** The official website of the JVCEA.
    *   **URL (JVCEA Website - often in Japanese, English information may be limited):** `https://jvcea.or.jp/` (Users may need to use translation tools or look for English sections if available).

5.  **International Monetary Fund (IMF) - "JAPAN Financial Sector Assessment Program TECHNICAL NOTE—REGULATION AND SUPERVISION OF FINTECH AND CRYPTO ASSETS" (May 2024)**:
    *   **Excerpt/Summary:** "Japan has been a pioneer in developing a regulatory framework for crypto-assets and their service providers... The PSA defines crypto-assets and regulates crypto-asset exchange services (CAESs), including requirements for registration, AML/CFT, user protection (e.g., segregation of assets, disclosure), and cybersecurity. The FIEA regulates crypto-asset derivatives." This report confirms the established and regulated nature of crypto trading in Japan.
    *   **URL:** `https://www.imf.org/en/Publications/CR/Issues/2024/05/22/Japan-Financial-Sector-Assessment-Program-Technical-Note-Regulation-and-Supervision-of-549303` (The specific PDF can be accessed from this page).

This comprehensive regulatory framework, spearheaded by the FSA and supported by self-regulatory bodies like the JVCEA, firmly places Japan in the "Allowed-Regulated" category for retail cryptocurrency trading. Individuals can participate in the market, but only through platforms that adhere to stringent operational, security, and consumer protection standards.