Japan moves crypto assets under the Financial Instruments Act: a new stage for DeFi
Japan is entering a new era of digital asset regulation. The country's government is advancing a major reform that will move cryptocurrencies from under the Payment Services Act to the jurisdiction of the Financial Instruments and Exchange Act (FIEA). This is a fundamental change in status—from a means of payment to a full-fledged investment asset.
This step reflects the market reality I have observed for several years: cryptocurrency is increasingly less used for everyday transactions and is more often perceived as a tool for long-term capital preservation and speculation. This trend became especially pronounced after the approval of spot Bitcoin ETFs in the United States, which triggered a powerful influx of institutional capital and ultimately integrated Bitcoin into the traditional asset management system.
What Will Change in Practice
Under the new system, crypto assets will be designated as a separate category of financial products. The reform will cover key aspects: disclosure requirements, combating market manipulation, insider trading, and enhanced oversight of service providers. These measures are expected to dramatically increase transparency and investor protection.
However, many open questions remain for the decentralized finance (DeFi) sector. Instead of total regulation of the entire ecosystem, lawmakers have focused on entities that actually control users or exert influence over them. This means that protocol developers, interface operators, wallet providers, DAOs, and token issuers may face different levels of obligations. Future regulation, in my view, should be built around actual functions and degrees of control, rather than formal labels.
Stricter disclosure standards, Know Your Transaction (KYT)-based monitoring, and the introduction of DeFi models with identity verification could provide the balance needed to preserve the industry's innovative potential without sacrificing investor safety.
Timeline and Prospects
The bill was approved by the Cabinet on April 10, and the House of Representatives adopted it on June 11. The document is currently under review by the House of Councilors, and it is expected to come into force in 2027. It is important to note that self-custody of assets and many aspects of DeFi are not directly regulated in the current text—these issues will be addressed by subsequent regulatory acts.
My analysis: This event is not just a change of regulatory framework, but the beginning of a new stage in which digital assets become a full-fledged part of Japan's financial system. For institutions, it is a signal to enter the market with clear rules of the game. For DeFi, it is a challenge requiring adaptation, but also opening a path to legitimacy and mass adoption. The reform establishes for cryptocurrencies the same level of requirements applied to traditional securities, which will inevitably lead to market consolidation and the elimination of gray schemes.