Japan is taking a bold step toward modernizing its cryptocurrency regulatory framework. The Financial Services Agency (FSA) has recently submitted a new legislative proposal to the National Diet aimed at amending the Payment Services Act—the primary law governing digital assets in the country. This update signals Japan’s intent to strengthen investor protection, expand stablecoin infrastructure, and adapt to the evolving global crypto landscape.
The proposed changes focus on three core areas: diversifying stablecoin reserve assets, enhancing domestic custody requirements for crypto exchanges, and introducing a new class of regulated intermediaries. These developments reflect Japan’s proactive approach to balancing innovation with financial stability.
Diversified Reserves for Trust-Based Stablecoins
Under Japan’s current Payment Services Act, only banks, money transfer businesses, and trust companies are authorized to issue stablecoins. While stablecoin adoption in Japan is still in its early stages, trust companies—such as Mitsubishi UFJ Trust—are expected to play a leading role due to their ability to issue stablecoins on behalf of third parties using familiar financial structures.
Currently, trust companies must hold 100% of their stablecoin reserves in bank demand deposits. This strict requirement ensures liquidity but limits yield potential and flexibility. The proposed amendment would allow up to 50% of reserves to be held in time deposits or Japanese government bonds, provided full one-to-one backing is maintained.
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This shift could significantly improve the economic viability of stablecoin issuance by generating modest returns on reserve assets without compromising safety. It also aligns Japan more closely with international standards, where diversified reserves are already common—such as with USD Coin (USDC), which holds a mix of cash and short-term U.S. Treasuries.
Critically, the FSA emphasizes that reserve diversification will not come at the expense of transparency or risk management. Regulators will retain oversight authority to ensure that all reserve assets remain highly liquid and low-risk.
Strengthening Domestic Custody for Crypto Exchanges
Japan’s regulatory caution stems from past experiences, most notably the 2014 collapse of Mt. Gox, once the world’s largest Bitcoin exchange. That incident exposed critical vulnerabilities in customer asset protection and led to sweeping reforms.
Fast forward to 2022, when FTX collapsed globally. Notably, FTX’s Japanese subsidiary did not impact domestic customers because Japanese regulators had previously mandated that all client assets be held onshore. However, this protection applied only to derivatives trading platforms—not spot exchanges.
The new bill aims to close this gap by granting the FSA authority to require all spot cryptocurrency exchanges to hold customer assets within Japan. This applies to both cryptocurrencies and stablecoins, ensuring that even purely spot-based platforms comply with domestic custody rules.
This measure enhances investor protection by:
- Preventing offshore asset commingling
- Reducing exposure to foreign insolvency proceedings
- Improving regulatory access during audits or crises
By mandating onshore custody, Japan reinforces its reputation as a jurisdiction that prioritizes user security—a crucial factor in building public trust in digital assets.
Introducing a New Class of Crypto Intermediaries
Another key component of the proposal is the creation of a new intermediary category for entities that refer clients to cryptocurrency exchanges without operating an exchange themselves.
Currently, any individual or firm introducing clients to crypto platforms must register as a full-fledged exchange—a high barrier due to capital, compliance, and operational requirements. The revised law would allow these referral-based actors to operate under a lighter regulatory framework.
While these intermediaries will be required to:
- Disclose risks and asset details to clients
- Comply with advertising restrictions
- Avoid misleading promotional practices
They will not be responsible for holding customer funds or conducting anti-money laundering (AML) checks—responsibilities that remain with the licensed exchanges themselves.
This innovation could democratize access to crypto services by enabling financial advisors, fintech apps, and traditional wealth managers to guide clients toward regulated platforms without bearing the full burden of exchange licensing.
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The model may also apply to stablecoin introducers, allowing trusted institutions to promote compliant digital currencies without becoming issuers.
A Milestone for Japan’s Stablecoin Development
Recent developments underscore the momentum behind Japan’s stablecoin ambitions. SBI VC Trade recently became the first company to receive an “Electronic Payment Instrument Exchange Service Provider” license—a prerequisite for trading foreign-issued stablecoins like USDT or USDC.
With this license, SBI VC Trade can now facilitate USD-to-Bitcoin transactions, paving the way for broader integration of digital assets into mainstream finance. This milestone highlights Japan’s commitment to building a compliant, interoperable crypto ecosystem rather than resisting innovation.
Frequently Asked Questions (FAQ)
Q: What types of institutions can issue stablecoins in Japan?
A: Under current law, only banks, money transfer operators, and trust companies are permitted to issue stablecoins. Trust companies are expected to lead due to their existing financial infrastructure and third-party issuance capabilities.
Q: Can stablecoin reserves include government bonds under the new law?
A: Yes—the proposed amendment allows up to 50% of reserves to be held in time deposits or Japanese government bonds, as long as full one-to-one backing is maintained and liquidity is preserved.
Q: Why is onshore custody important for crypto exchanges?
A: Onshore custody protects Japanese investors by ensuring assets remain within domestic jurisdiction during insolvency or regulatory investigations. It prevents foreign courts from controlling local customer funds.
Q: What is the role of the new crypto intermediary category?
A: These intermediaries can refer clients to licensed exchanges without operating one themselves. They must disclose risks and follow advertising rules but are not required to hold funds or perform AML checks.
Q: How does this compare to global stablecoin regulations?
A: Japan’s approach mirrors trends seen in the EU’s MiCA regulation and U.S. proposals—emphasizing reserve transparency, issuer accountability, and consumer protection—while adapting to local financial structures.
Q: When will these changes take effect?
A: The bill has been submitted to the Diet; enactment timing depends on legislative review. If passed in 2025, implementation could begin within 12–18 months.
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Japan’s proposed updates to the Payment Services Act mark a strategic evolution in its digital asset policy. By enabling diversified reserves, enforcing onshore custody, and creating new pathways for market participation, the FSA is laying the groundwork for a safer, more inclusive crypto economy.
As other nations grapple with regulatory uncertainty, Japan is positioning itself as a model for balanced innovation—one where financial integrity and technological progress go hand in hand. For investors, developers, and financial institutions alike, these changes signal a maturing ecosystem ready for broader adoption.
The world will be watching closely as Japan navigates this next phase of its digital finance journey.