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 up its mind. The Financial Services Agency (FSA) runs one of the strictest, most detailed crypto regulatory systems in the world. If you’re thinking about operating a crypto exchange here-or even just trading-understanding these rules isn’t optional. It’s survival.

How Japan’s Crypto Rules Work

Japan’s crypto regulations aren’t built on guesswork. They’re built on law. Two main pieces of legislation govern everything: the Payment Services Act (PSA) is the core law that defines crypto-assets as a form of payment and requires all exchanges to register with the FSA and the Financial Instruments and Exchange Act (FIEA) which now applies to crypto tokens that behave like securities, bringing them under the same rules as stocks and bonds.

The PSA came into focus after the Mt. Gox collapse in 2014. That disaster exposed how easily user funds could vanish without oversight. So Japan didn’t just tighten rules-it rewrote them from the ground up. By 2017, any company handling crypto had to register with the FSA. No exceptions. No loopholes. And by 2025, the number of registered exchanges had stabilized at 21, down from over 30 after a wave of cleanups. The FSA doesn’t just approve licenses-it audits them. Repeatedly.

The Cold Wallet Rule: No Hot Wallets Without Backing

Here’s where Japan stands out from every other country: 95% of customer crypto must be stored in cold wallets. That means offline, air-gapped, physically disconnected from the internet. No exceptions. Even if you’re a giant exchange like BitFlyer or Zaif, you can’t keep more than 5% of user funds online.

And if you try to use hot wallets for the other 5%? You have to back every single yen of that exposure with your own money. So if a hacker breaks in and steals $10 million worth of Bitcoin from your hot wallet, you don’t just lose business-you lose your own capital. That’s not a risk-sharing model. It’s a risk-transfer model. The exchange eats the loss. The customer doesn’t.

This rule alone has blocked dozens of foreign platforms from entering Japan. Many U.S. and European exchanges thought they could just set up a branch office and start trading. They didn’t realize they’d need to build a dedicated cold storage facility with biometric access, backup generators, and military-grade encryption. And that’s just the start.

Registration Isn’t a Form-It’s a Project

To get licensed in Japan, you need to do more than file paperwork. You need to build a company from scratch. The FSA requires:

• A Kabushiki Kaisha a Japanese joint-stock company, not a foreign LLC or subsidiary
• A physical office in Japan with a local phone number and Japanese staff
• A Japanese bank account-no offshore banking allowed
• Minimum capital of 10 million yen (about $65,000 USD), though most firms carry far more
• A compliance officer who’s passed FSA background checks and has real experience in AML/CFT
• Proof of secure custody systems, including audit logs, multi-sig wallets, and hardware security modules

The application process takes 6 to 12 months. You’ll be interviewed. Your internal controls will be stress-tested. Your CEO might be asked to explain how you prevent insider trading. The FSA doesn’t care how big your marketing budget is. They care if your code can withstand a nation-state attack.

What’s Changing in 2026

In June 2025, the FSA announced a seismic shift: crypto assets with investment features will now fall under the FIEA. This isn’t a tweak-it’s a reclassification. Tokens that act like stocks, bonds, or profit-sharing agreements are now treated as securities. That means:

• Token issuers must file disclosure documents like public companies
• Insider trading rules now apply to crypto
• Market manipulation penalties are the same as for equities
• Crypto ETFs, including spot Bitcoin ETFs, can be legally launched

The formal bill is expected to pass in early 2026. This move brings Japan in line with the SEC’s approach in the U.S. but with more clarity. No more gray areas. If a token gives you voting rights or a share of profits, it’s a security. Period.

The FSA also launched a DeFi Study Group a formal working group with industry and academic experts to study how decentralized finance protocols can be regulated without killing innovation. They meet every two months. They’re not just watching-they’re designing.

Taxation: The Hidden Cost

Japan’s crypto tax system is brutal. Profits from trading are taxed as miscellaneous income with rates up to 55%, depending on total annual income. That’s higher than corporate tax in many countries. Compare that to the U.S., where crypto gains are taxed at capital gains rates, or the UK, where they’re capped at 20% for most investors.

But here’s the twist: the FSA is pushing for reform. In late 2025, they recommended aligning crypto taxes with stock trading rules-meaning a flat 20% rate. If passed in 2026, this could be the biggest incentive for retail investors in years. Right now, many Japanese traders avoid crypto because of the tax cliff. If the change happens, adoption could jump from 14.7% to over 16% by the end of 2026.

Why Japan’s Model Matters

Japan doesn’t just regulate crypto-it sets the global standard. The FSA’s approach has been studied by the EU, Singapore, and even the U.S. Treasury. Why? Because it works.

Since 2017, Japan has shut down over 15 unlicensed exchanges. Zero major hacks of registered platforms. No customer fund losses from exchange failures. That’s unheard of elsewhere. The cost? High barriers to entry. Only 21 exchanges operate legally. New startups rarely survive the process.

But for users? It’s peace of mind. You know your Bitcoin is locked in a vault, not sitting on some server in a data center with a broken firewall. You know the exchange has real auditors, real compliance officers, and real legal liability. You know if something goes wrong, they can’t just vanish.

Who’s Winning and Who’s Losing

The big winners are the established players: BitFlyer Japan’s largest exchange, with over 5 million users and full FSA licensing, Zaif a long-standing platform that rebuilt itself after the 2018 hack, and Coincheck which was acquired by a major bank after its 2018 breach and now operates under strict oversight.

The losers? Anyone who thought crypto could be a quick money-making scheme. Foreign exchanges that tried to slip in without registration. Startups that thought they could skip the cold wallet requirement. The FSA doesn’t punish failure. It prevents it.

Even public companies like Metaplanet a Japanese firm that holds over 10,000 BTC as part of its corporate treasury strategy operate under the same rules. No special treatment. No exemptions.

What’s Next for Japan’s Crypto Scene

By 2026, Japan will have:

• 18.69 million crypto users (up from 17.1 million in 2025)
• A crypto market valued at $2.0 billion
• Legally recognized crypto ETFs
• Clearer rules for DeFi and NFTs
• Potential tax reform to 20% capital gains rate

The FSA isn’t trying to stop innovation. It’s trying to make sure innovation doesn’t come at the cost of trust. And that’s why Japan’s model is the one other countries are watching.