Is cryptocurrency legal in Japan?

Japan and Cryptocurrency

Japan Cryptocurrency Laws
Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology

The Financial Instruments and Exchange Act (FIEA)

Passed in 1948, the Financial Instruments and Exchange Act (FIEA) is the Japanese legislation that regulates securities within Japan. The statute applies to any financial institution that facilitates security trading, including banks. Most crypto-assets are not subject to the FIEA because they are not technically “securities.” Since cryptocurrencies are generally outside the FIEA’s jurisdiction, virtual currencies are probably governed by the Payment Services Act (PSA). However, there are some exceptions. Specifically, cryptocurrencies that are classified as securities fall under the statutory authority of the FIEA. Regardless, cryptocurrencies in Japan are largely regulated because they probably fall under either the PSA or the FIEA.

Even though most cryptocurrencies are not securities, ICOs are subject to the FIEA because the new FIEA amendments legally define ICO tokens as type 2 securities. Type 2 securities tend to “represent interests in collective investment schemes.” Therefore, ICOs tokens are type two securities because the digital tokens represent interests in a collective investment scheme issued by a cryptocurrency provider. Presumably, ICOs are collective investment schemes because investors collectively invest in an issuer’s public offering. Conversely, type 1 securities are transferable financial instruments that are publicly available and broadly distributed. Classic examples of type 1 securities include stocks and bonds.

Comparatively, ICOs are burdened with relatively less strict regulations than type 1 securities, such as stocks and bonds. Type 1 securities are subject to more strict reporting and disclosure requirements because they are publicly traded and widely distributed. By contrast, type 2 securities are not burdened by strict regulations because they are often narrowly distributed. Nevertheless, Japanese authorities authorized an SRO named the Japan Security Token Offering Association (JSTOA) to oversee businesses that intend to raise capital through digital coin offerings. Consequently, ICOs are heavily regulated in Japan since they are subject to general securities regulations and the JSTOA’s authority. Nevertheless, ICOs are still subject to less burdensome regulations than typical IPOs because ICOs are type 2 securities that are narrowly distributed, while IPOs are type 1 securities that are publicly traded and widely distributed.

In addition to distinguishing between type 1 and type 2 securities, the FIEA provides a specific cryptocurrency definition under the statute amendments. Under the FIEA, “electronically recorded transferable rights” (ERTRs) are cryptocurrency tokens issued with the expectation of profit, such as security tokens. Crucially, ERTRs are not considered “crypto-assets” under the FIEA and therefore are not subject to the statutory authority of the PSA. According to the Japanese law, cryptocurrencies are considered ERTRs if they satisfy three elements: (1) Investors invest cash or assets in a business; (2) The investors’ cash or assets are invested in the business; and (3) Investors are entitled to dividends of profits or assets created by these investments. Presumably, STOs that fail to satisfy all three elements are exempt from FIEA regulations. Nevertheless, crypto-assets that do not classify as ERTRs are presumably subject to the statutory authority of the PSA.

In conclusion, cryptocurrency is largely regulated in Japan since a digital token presumably falls under the PSA or the FIEA depending on the token’s particular characteristics. While most cryptocurrencies are regulated as crypto-assets under the PSA, ICO tokens are explicitly defined as type 2 securities and therefore subject to the FIEA. Even if a cryptocurrency is not an ICO token, it may nevertheless fall under the FIEA if it is classified as an ERTR. Determining whether a specific token falls under the FIEA or the PSA is a question of fact. Therefore, cryptocurrency investors must evaluate their digital tokens on a case-by-case basis to determine whether their cryptocurrencies are subject to the statutory authority of the PSA or the FIEA.


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  2. Crypto Regulations in Japan. (2021, March 25). ComplyAdvantage.
  3. Sachin Dutta. (2021). Japan Crypto Asset Regulations | 日本の暗号資産規制. com.,any%20transaction%20(including%20derivatives)
  4. Guide: Japan Crypto Asset Regulation – Sygna. (2020, May 14). Sygna.
  5. Japan Implements Significant Changes to Cryptocurrency Regulation Today – Regulation Bitcoin News. (2020, May). Bitcoin News.

The Payment Services Act (PSA)

In 2012, Japan implemented the Payment Services Act (PSA) to make Japan’s financial market safer and more efficient for investors. The PSA intends to protect investors by requiring companies that offer financial payment services to register with the appropriate Japanese officials. In 2020, the Japanese House of Representatives amended the PSA to govern cryptocurrency exchanges and traditional financial exchanges to cover the regulation of “crypto-assets.” By specifically regulating cryptocurrency as crypto-assets, Japan incorporated cryptocurrency into the regulations of its broader financial system.

Under the PSA amendments, cryptocurrency exchanges must provide the following information to be licensed in Japan: (1) company name and headquarters address; (2) name and address of the office that mainly handles cryptocurrency business operations; (3) names of all company board members; (4) name of the company’s accounting advisor; (5) names of all cryptocurrencies the exchange supports; (6) the amount of capital held by the company (a cryptocurrency exchange must hold at least 10 million yen to be licensed); and (7) details about the company’s business model and all cryptocurrency businesses the company conducts.

Under the PSA, crypto-assets are defined as “any property value that:” (1) is recorded on an electronic device or any other object by electronic means; (2) can be transferred through an electronic data processing system; (3) is not the Japanese currency, a foreign currency, or a currency-denominated asset; (4) can be used by any person for the purchase or lease of goods and services; and (5) can be purchased from or sold to any persons. Furthermore, cryptocurrency exchanges are defined as “any business that provides any of the following services:” (1) services that allow users to purchase, sell, or exchange cryptocurrency; (2) intermediary or broker services for (1); or (3) services that holds user’s funds and cryptocurrency for (1) and/or (2).

The PSA amendments serve three purposes: (1) to better protect cryptocurrency users against exchange hacks, (2) to create a more transparent regulatory framework, and (3) to limit the trading of crypto derivatives by putting limits on margin trading. To serve these purposes, the PSA amendments require cryptocurrency exchanges to register with the Japan Financial Services Agency (JFSA) for an operating license. Additionally, cryptocurrency exchanges are required to implement customer due diligence procedures, keep detailed records, periodically improve security, and perform other duties that ensure that customer assets are safe and secure.

The JFSA is Japan’s primary economic regulator and is obligated to safeguard the stability of Japanese markets. The JFSA regulates the Securities and Exchange Surveillance Commission and the Certified Public Accountants and Auditing Oversight Board. The JFSA aids the Japanese government in creating new financial regulations and ensures that Japan’s financial institutions are compliant. If a financial institution does not comply with Japanese regulations, then the JFSA can limit a company’s business operations and prosecute individual offenders.

Additionally, the JFSA is responsible for protecting Japan’s financial institutions and investors by combating money laundering and terrorism funding. Likewise, the JFSA is also responsible for contributing to the national welfare of Japan by encouraging sustainable growth of the national economy. Since cryptocurrency may potentially be used for money laundering and financing terrorism, cryptocurrencies fall under the statutory oversight of the JFSA.

The JFSA prompts financial institutions to take three measures to ensure they are compliant with Japan’s regulations: (1) take risk-based approaches, when necessary, (2) implement rigorous Know-Your-Customer (KYC) procedures, and (3) appoint a compliance officer to manage AML compliance systems. Furthermore, all exchanges operating within Japan are required to segregate customers’ funds separately from their own. To reliably manage customers’ funds, crypto-asset exchanges are required to hold “the same kind and the same quantities of crypto-assets” as its customers’ crypto-assets. The purpose of this requirement is to ensure that customers are reimbursed if crypto-assets are stolen from the exchange.

In addition to facilitating compliance, the PSA also designated the Japan Virtual and Crypto Assets Exchange Association (JVCEA) as an official self-regulatory organization (SRO) to help connect government regulators with exchanges. In doing so, the JFSA formally recognized the JVCEA to help Japan’s regulators protect cryptocurrency investors and infuse trust into the cryptocurrency market. The JVCEA has broad power and is authorized to enforce crypto-related regulations for Japanese virtual asset service providers (VASPs). To ensure compliance, all cryptocurrency exchanges, whether registered or not, are expected to follow JVCEA’s guidelines. One guideline exchange is expected to follow the JVCEA’s guideline to restrict margin rates by 4x or less. The purpose of restricting margin trading is to limit the maximum amount that investors can lose on risky cryptocurrency trades.

To prevent future hack attacks on cryptocurrency exchanges, the JFSA formally recognized the JVCEA to connect the Japanese government with cryptocurrency exchanges and encourage the crypto industry to contribute to how cryptocurrency is regulated. The rationale behind appointing the JVCEA as a SOR is that it is “better for experts to make rules promptly than bureaucrats in fast-moving industries like the cryptocurrency market.” Therefore, the JVCEA is designed to help the Japanese government pass legislation that is not outdated by technological innovations.

In conclusion, the PSA amendments provide specific definitions for cryptocurrency by defining crypto-assets and crypto-asset exchanges. To better protect Japanese investors, the PSA require firms to register with governmental authorities to obtain proper authorization. Specifically, cryptocurrency regulations are under the authority of the JFSA and the JVCEA. Additionally, firms exchanging cryptocurrency must adhere to strict AML and KYC requirements. Overall, the purposes of the PSA amendments are to protect investors by: (1) preventing future hacks on cryptocurrency exchanges, (2) providing a transparent legal framework for cryptocurrency, and (3) limiting the ability of investors to trade cryptocurrency on margin. To protect cryptocurrency investors in particular, the PSA amendments provide cryptocurrency-specific definitions to incorporate crypto-assets into Japan’s broader financial regulations. Therefore, cryptocurrencies are explicitly regulated under the laws of Japan.


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  2. Crypto Regulations in Japan. (2021, March 25). ComplyAdvantage.
  3. Guide: Japan Crypto Asset Regulation – Sygna. (2020, May 14). Sygna.
  4. Blockchain Laws and Regulations | Japan | GLI|Blockchain Laws and Regulations | Japan | GLI|Blockchain Laws and Regulations | Japan | GLI. (2021). GLI – Global Legal Insights – International Legal Business Solutions.
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In Japan, one prominent issue is whether consumption taxes apply to cryptocurrency transactions. Consumption taxes refer to the taxes on purchases of goods or services, such as sale taxes. Following Japan’s PSA tax law amendments in 2017, cryptocurrency transactions are not burdened by consumption taxes. In other words, cryptocurrency transactions are exempt from consumption taxes in Japan. So, if a Japanese resident uses cryptocurrency as a means of payment at a brick-and-mortar store, then the transaction will not be required to pay sales taxes. Accordingly, the transfer of Bitcoins is exempt from consumption taxes under Japanese law.

However, Japan’s National Tax Agency (NTA) proclaimed that gains resulting from the sale or use of “crypto assets” are taxed as miscellaneous income. Essentially, the miscellaneous income tax is similar to capital gain taxes in other jurisdictions. Since cryptocurrency is classified as miscellaneous income, individuals engaging in cryptocurrency activities are subject to a progressive tax rate that can amount to up to 55% on cryptocurrency gains. The tax rate varies based on income from the previous year. According to the tax bracket, individuals who make less than 1.95 million yen are subject to a tax rate of 5%, while individuals who earn more than 40 million yen the previous year are subject to a 45% tax rate. Additionally, Japanese residents must pay a 10% local inhabitant tax rate. Including the local inhabitant’s flat tax rate of 10%, Japanese residents are subject to tax rates between 15% and 55% depending on the previous year’s income. In contrast, non-residents are subject to a flat tax rate of 20% on income that they must pay upon leaving Japan. For non-residents, the flat tax rate and the progressive income tax rate suggest that non-residents are subject to income tax rates varying between 25% to 65%. In contrast, stock profits are taxed at a flat rate of 20% under Japanese law.

Comparatively, cryptocurrency gains are highly taxed in Japan compared to other traditional financial instruments. Despite this discrepancy, Japan’s finance minister, Taro Aso, stated that he opposed taxing cryptocurrency in the same manner as traditional stocks. Therefore, Aso emphasized that the Japanese government does not intend to reduce income taxes from bitcoin to 20%. Another reason cryptocurrency taxes are high in Japan is that Japanese taxpayers cannot deduct their losses from elsewhere to offset their gains realized in cryptocurrency transactions. Accordingly, Japanese taxpayers cannot reduce their income taxes by offsetting their losses. Finally, estates that hold crypto assets of a deceased person must pay inheritance taxes. Consequently, cryptocurrency is highly taxed in Japan because taxpayers must pay inheritance taxes, income taxes, and cannot offset their losses as tax deductions.

Presumably, the high tax rates that residents and non-residents must pay in Japan incentivizes some individuals and companies to understate their capital gains from cryptocurrency transactions on their tax returns. Consequently, the NTA prioritized investigating individuals and companies that under-report their cryptocurrency trading gains. For example, an office worker named Hideji Matsuda was fined approximately 22 million yen ($200,000) and sentenced to one year in prison for failing to disclose his cryptocurrency trades between 2017 and 2018 on his tax returns. This case indicates that the NTA has begun to prioritize bringing criminal charges against cryptocurrency tax evaders. Furthermore, Matsuda’s case demonstrates that the Japanese government will imprison individuals that fail to disclose their cryptocurrency trades. Therefore, it is imperative that Japanese taxpayers properly report their cryptocurrency transactions on their tax returns to avoid criminal liability for tax evasion.

In conclusion, cryptocurrencies are highly taxed in Japan compared to traditional financial instruments. Despite not having to pay consumptions taxes, cryptocurrency is subject to both income taxes and inheritance taxes. Furthermore, individuals cannot deduct their cryptocurrency losses from their taxable income. Since the Japanese government has demonstrated a willingness to imprison tax evaders, it is crucial that Japanese taxpayers disclose their cryptocurrency assets to governmental authorities.

P.S. Insights on Cryptocurrency Legal Issues

Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.

Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.

However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.

Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency.  The globe below provides links to country-by-country summaries:


The Freeman Law Project – Cryptocurrency Regulation and Taxation: A Brief Primer

Do you have questions about cryptocurrency, digital currency, or blockchain technology?

Freeman Law can help with digital currencies, tax planning, and tax compliance.   Contact us now or Schedule a consultation or call (214) 984-3410 to discuss your cryptocurrency and blockchain technology concerns.



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