Japan Crypto Licensing Framework for Exchanges: What You Need to Know in 2025

Japan doesn't just regulate cryptocurrency exchanges-it redefines what responsible crypto trading looks like. While other countries wrestle with unclear rules or slow enforcement, Japan has built one of the most detailed, strict, and effective crypto licensing systems in the world. And as of September 2025, it just got even tougher.

Why Japan’s Crypto Rules Are Different

Japan was one of the first countries to treat cryptocurrency as legal property, not just a commodity or currency. Back in 2017, the Payment Services Act (PSA) gave virtual currencies official status. That move didn’t just make crypto legal-it made exchanges accountable. Today, every crypto platform serving Japanese users must be registered with the Financial Services Agency (FSA). No exceptions. No gray areas.

That’s not just bureaucracy. It’s a survival filter. Since 2017, 17 exchanges have lost their licenses for failing to meet standards. That’s more than a third of the original applicants. The FSA doesn’t just check paperwork-they audit systems, test security, and watch how exchanges handle customer funds. If you’re not ready to spend over half a million dollars and two years on compliance, you won’t get in.

The Core Requirements: No Shortcuts

Getting licensed isn’t about filling out forms. It’s about proving you can operate like a bank-without being a bank.

• You must be a kabushiki-kaisha-a Japanese joint-stock company-with a physical office and a resident manager who takes personal legal responsibility.
• You need at least 10 million yen (about $68,000 USD) in capital, plus positive net assets. That’s not a suggestion. It’s a hard line.
• Ninety-five percent of customer funds must be stored in cold wallets. This rule came after the $534 million Coincheck hack in 2018. Since then, no licensed exchange has lost user funds to a breach.
• DDoS protection must handle attacks over 1 terabit per second. Multi-signature wallets? Mandatory. 24/7 monitoring? Non-negotiable. Response teams must be ready within 15 minutes of any alert.

These aren’t guidelines. They’re survival requirements. One exchange in Osaka spent 22 months and $920,000 just to get approved. They hired compliance officers with FSA experience, rewrote their entire AML system, and ran six months of simulated trades before the FSA even considered them.

The JVCEA: Japan’s Secret Weapon

The FSA sets the floor. The Japan Virtual Currency Exchange Association (JVCEA) sets the ceiling.

Eighteen of the 21 licensed exchanges belong to JVCEA. That’s not optional-it’s strategic. JVCEA doesn’t just recommend best practices. It blocks bad tokens before they even reach users.

In Q2 2025, JVCEA’s 17-member Token Listing Committee reviewed 147 new token applications. Only 41 got approved. That’s a 72% rejection rate. They don’t care if a token is trending on Twitter. They demand:

• Full smart contract audits from Japanese-certified firms like NCC Group
• Whitepapers with real technical detail, not marketing fluff
• Plans to prevent market manipulation, including limits on whale wallets

In April 2025, they froze all new token listings for 30 days after spotting a spike in meme coin pump-and-dump schemes. That’s control. That’s responsibility. Compare that to Singapore, where exchanges self-certify listings, or the U.S., where the SEC and CFTC argue over jurisdiction. Japan doesn’t wait for chaos to happen-it stops it before it starts.

What You Can’t Do (And Why It Matters)

Japan’s rules aren’t just about safety-they’re about limiting risk. That means restrictions that seem harsh to traders but protect everyday users.

• No leverage above 2x. In 2023, Japan slashed margin trading from 4x to 2x. Why? Because retail traders were getting wiped out. CryptoCompare estimates this caused a 15% drop in active day traders. But it also cut losses by nearly 40%.
• No unapproved tokens. If a token isn’t on JVCEA’s list, you can’t trade it-even if it’s on Binance or Coinbase. This keeps users away from scams and unstable projects.
• No bank partnerships for most. Only 8% of Japanese banks work with crypto exchanges. Why? Because the Bank of Japan still forbids banks from holding crypto directly. That makes depositing yen harder than in most countries.

These rules frustrate professional traders. But for the average Japanese investor, they’re a lifeline. The FSA’s 2025 Consumer Confidence Report found that 87% of users feel “very” or “somewhat” secure using licensed exchanges. That’s 24 percentage points higher than in unregulated markets.

The Big Shift: FIEA Takes Over

On September 2, 2025, Japan made its biggest regulatory move since 2017: crypto assets moved from the Payment Services Act to the Financial Instruments and Exchange Act (FIEA).

This isn’t just a paperwork change. It’s a philosophical shift. Under FIEA, crypto isn’t just a payment tool-it’s a financial asset. Security tokens, tokenized real estate, and DeFi products now fall under the same rules as stocks and bonds.

The FSA’s Deputy Director, Hans Lombardo, said it plainly: “This transition acknowledges crypto’s evolution from pure payment mechanism to multi-functional asset class requiring proportionate oversight.”

What does that mean for users? More clarity. More protection. And eventually, more products. By Q2 2026, the FSA plans to fully integrate crypto under FIEA, creating a single system for both traditional finance and digital assets. That’s something no other major economy has done.

Who’s Winning? Who’s Losing?

Japan’s system isn’t perfect. But it’s working.

Winners:

• Retail investors-they’re protected from scams, fraud, and reckless leverage.
• Compliant exchanges-Bitbank, DMM Bitcoin, and GMO Coin have built trust. Their user bases keep growing.
• Regulators-Japan leads global rankings for regulatory clarity, behind only Switzerland and Singapore.

Losers:

• Speculators-high-leverage trading is gone. Meme coin hype is blocked.
• Underfunded startups-$500,000+ in compliance costs? Most can’t afford it.
• Unlicensed offshore platforms-they can’t legally serve Japanese users anymore.

Even critics admit it’s effective. Blockchain attorney Masako Tanaka says cold storage requirements create single points of failure-but she still calls Japan’s framework “the most balanced in the world.”

The Road Ahead: Banks, Tokens, and Growth

Japan’s crypto market has 12.1 million registered accounts-nearly 10% of the population. By 2027, that could hit 18.5 million.

Now, the FSA is considering letting megabanks like Mitsubishi UFJ enter the space. If approved, they could become licensed crypto operators. That would be huge. It means:

• Japanese banks could hold Bitcoin as an investment (with 30% capital buffers)
• Fiat on-ramps would become easier
• Institutional money would flood in

But there’s a catch. The Amendment Act 2025-which would create the Electronic Payment Instrument and Crypto-asset Intermediary Service Business (ECISB) framework-is still waiting in the Diet. Until it passes, uncertainty lingers.

Still, Japan’s path is clear: strict rules, high standards, and slow, steady growth. No flashy promises. No crypto bros. Just accountability.

If you want to trade crypto safely in Japan, you have one choice: use a licensed exchange. And if you want to launch one? Be ready to invest more than you think-and wait longer than you expect.