Crypto Exchange Regulations in Japan by FSA: What You Need to Know in 2026

Japan doesn’t just tolerate cryptocurrency - it controls it. While many countries struggle to decide whether crypto is a currency, a commodity, or a security, Japan has already made its choice: it’s a financial instrument, and it’s being treated like one. Since 2017, the Financial Services Agency (FSA) has built one of the world’s strictest, most detailed frameworks for crypto exchanges. If you’re thinking of operating a crypto platform in Japan, or even just trading there, you need to understand how deep this system goes.

How Japan’s Crypto Rules Are Built

Japan’s crypto rules aren’t made in a vacuum. They’re rooted in two major laws: the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). The PSA, updated in 2017 after the Mt. Gox collapse, was the first real attempt to bring order to the wild west of crypto trading. It defined what a crypto-asset is - not money, not property, but a digital value that can be exchanged. And it said: if you want to trade them, you need a license. Simple. No gray areas.

But in June 2025, the FSA took a major step forward. They moved certain crypto assets - the ones that act like investments - from the PSA into the FIEA. That’s a big deal. The FIEA is the same law that governs stocks, bonds, and mutual funds. This means tokens with voting rights, profit-sharing features, or clear investment intent are now treated like securities. Issuers must disclose financials. Insider trading is illegal. Market manipulation gets real penalties. This isn’t a tweak - it’s a paradigm shift.

The Licensing Process: No Shortcuts

You can’t just register online and start trading. To get licensed by the FSA, a crypto exchange must:

• Be a registered Japanese company (Kabushiki Kaisha)
• Have a physical office in Japan
• Hold a minimum of 10 million yen in capital (about $65,000 USD)
• Open a local Japanese bank account
• Appoint qualified compliance officers
• Pass a full background check on all directors and major shareholders

The FSA doesn’t just review paperwork. They send inspectors to your office. They check your server logs. They interview your staff. They test your KYC system. If your team can’t explain how they verify a user’s identity in real time, you don’t get approved. This isn’t bureaucracy for the sake of it - it’s designed to stop shell companies, money launderers, and fraudsters before they even open their doors.

The Cold Wallet Rule: 95% Offline, No Exceptions

This is where Japan stands out from every other country. By law, at least 95% of customer crypto must be stored in cold wallets - offline, air-gapped, physically disconnected from the internet. The remaining 5% can be kept in hot wallets for trading, but here’s the catch: if you use hot wallets, you must back every single yen of it with your own money. That means if a hacker steals $1 million in Bitcoin from your hot wallet, you pay the users back out of your own pocket. Not insurance. Not reserves. Your personal capital.

No other country enforces this. Not the U.S., not the EU, not Singapore. Japan’s rule is simple: if you want to handle other people’s money, you take the risk. Not them. This has forced exchanges to invest heavily in security infrastructure. Many now use multi-signature hardware wallets stored in underground vaults with biometric access. Some even rotate keys weekly. The cost is high, but the result? Japan’s exchanges have had virtually zero major hacks since 2020.

AML and KYC: More Than Just Forms

Every user must go through strict identity verification. But Japan doesn’t stop at asking for a passport. Exchanges must:

• Track transaction patterns for signs of layering or structuring
• Report suspicious activity within 24 hours
• Keep records for at least five years
• Use AI-driven monitoring tools approved by the FSA

The FSA has even created a shared database among licensed exchanges to flag repeat offenders. If you’re banned from one platform, you’re flagged across all of them. This isn’t just compliance - it’s a national anti-fraud system.

Taxation: Still a Pain Point

While the rules on trading are sharp and clear, taxes are still messy. Right now, profits from crypto sales are taxed as “miscellaneous income” - up to 55% depending on your total earnings. That’s higher than corporate tax rates in Japan. Compare that to stocks, which are taxed at a flat 20%. The FSA has publicly acknowledged this is unfair and is pushing for reform. A draft bill expected in early 2026 proposes aligning crypto taxes with those on stocks and bonds. If it passes, it could trigger a surge in retail participation.

DeFi and the Future

Japan isn’t ignoring decentralized finance. The FSA launched a DeFi Study Group in 2024, bringing together regulators, developers, and academics to figure out how to regulate smart contracts without killing innovation. They’re watching projects like lending protocols, automated market makers, and tokenized real estate. Their stance? “We don’t ban, we observe.” But they’re preparing. If a DeFi platform starts offering loans with interest rates, it will likely fall under the FIEA. If it’s purely peer-to-peer with no intermediaries, it might stay under the PSA - but only if it meets strict transparency standards.

Who’s Winning in Japan?

As of 2025, Japan has 18.69 million crypto users - nearly 15% of the population. The market is worth $2 billion and growing. The biggest players? BitFlyer, Coincheck, and Zaif - all FSA-licensed. These aren’t startups. They’re regulated institutions with compliance teams, legal departments, and audit trails. International exchanges like Binance and Kraken are either shut down or operating through Japanese subsidiaries. There’s no room for offshore operators.

Why This Matters Outside Japan

Japan isn’t just setting rules - it’s setting a global standard. Countries like South Korea, Australia, and even the U.S. are watching how Japan handles custody, taxation, and securities classification. The cold wallet rule? It’s being studied by the EU’s MiCA framework. The FIEA reclassification? It’s being referenced in U.S. congressional hearings. Japan proves you can regulate crypto without crushing innovation - if you’re willing to invest in enforcement, transparency, and accountability.

For traders, Japan offers one of the safest environments in the world. For operators, it’s one of the hardest. But if you can pass the FSA’s bar, you earn something rare: trust.