Japan Eyes Stricter Rules as Crypto Complaints Rise

• Japan considers shifting crypto from payment tools to financial products.
• Regulators cite rising complaints and volatility as reasons for stricter oversight.
• Proposed reforms include unified tax rules and enhanced disclosure requirements.

Japan is preparing for what could become its change of digital-asset oversight in more than a decade, with regulators warning that the country’s existing framework no longer reflects how crypto markets function.

The Financial Services Agency (FSA) is weighing a legal overhaul that would reclassify many cryptoassets as financial products rather than payment instruments, following steep growth in domestic accounts and a sustained rise in consumer complaints. Officials state that the possible shift is intended to bring crypto closer to standards used in securities markets as the industry’s complexity and economic relevance expand.

Regulators Question Whether Crypto Still Functions as a Payment Tool

Discussions at a November 26 meeting, the sixth session of the FSA’s crypto working group, highlighted persistent gaps in investor protection and the difficulty of supervising a sector developing faster than the law.

Data reviewed by the group showed that crypto-related grievances averaged roughly 350 cases per month, with an increasing exposure to overseas fraud schemes. Members noted that price volatility in assets such as Bitcoin and Ethereum raises doubts about their usefulness in everyday payments.

Emeritus Professor Yoshikazu Yamaoki of Shinshu University noted that the behavior of crypto buyers resembles securities trading, with most participants primarily targeting capital gains. He argued that this economic function aligns more closely with financial-product treatment under the Financial Instruments and Exchange Act (FIEA) than with the Payment Services Act (PSA), where crypto currently sits.

Proposal Would Impose Stricter Disclosures and Potential Penalties

Reclassifying tokens under FIEA would subject exchanges and issuers to more rigorous disclosure obligations, insider-trading rules, and possible criminal penalties. The working group is also studying whether tokens should be divided based on the presence of an identifiable issuer.

According to Rintaro Kawai of ANAP Holdings, failure to differentiate Bitcoin, which has no issuer, from other tokens risks creating an uneven environment that favors institutions capable of handling higher compliance burdens.

Tax Reform and Industry Consolidation Also Under Review

The deliberations extend to taxation, with the group proposing a unified 20% rate on crypto gains. Current rules categorize profits as miscellaneous income, taxed between 15% and 55%. Tatsuo Oku of the Blockchain Promotion Association said Japan’s 13 million crypto accounts indicate growing interest that could expand further under clearer, investment-aligned tax treatment.

Japan’s existing legal structure has evolved through several amendments since 2010, creating what Yamaoki described as a patchwork that struggles to manage today’s market. He noted that whitepapers face no accuracy requirements, and self-regulation has limited capacity.

The Japan Virtual and Crypto Assets Exchange Association currently operates with far fewer staff than the country’s securities counterpart, the JSDA. Regulators are therefore considering positioning the crypto body within the FIEA system to strengthen oversight and improve market integrity.