Japan cabinet approves bill to regulate digital assets as financial instruments

The proposed enactment also mandates annual virtual asset disclosure requirements for cryptocurrency issuers to create a healthy market environment, the media house reported on Friday. If passed in the current Diet session, it is expected to be implemented in fiscal year 2027.

A Diet session in Japan is a formal meeting period of the National Diet, the Asian country’s bicameral legislature, to enact laws.

The Financial Services Agency (FSA) in December revealed recommendations made by a working group on crypto assets, which suggested regulatory improvements to address the increasing use of crypto assets as investment tools and the associated risks.

The FSA, which previously regulated cryptocurrencies under the Payment Services Act, will now regulate the asset category under the Financial Instruments and Exchange Act due to the recent increase in the use of crypto assets for investment purposes.

The name of registered businesses will also be changed from "crypto asset exchange business" to "crypto asset trading business".

The enactment reportedly proposes strengthened penalties for investor protection, and the prison sentence for unregistered sellers will be increased from up to three years to up to 10 years. At the same time, fines will be reportedly raised from the current up to 3 million yen (£14,013) to up to 10 million yen.

Japan finance minister Satsuki Katayama at a press conference following the cabinet meeting last week said: "We will expand the supply of growth capital in response to changes in financial and capital markets and ensure fairness and transparency in the market and investor protection."

A panel of industry experts at the Futures Industry Association (FIA) Asia Conference in Singapore emphasised in December the need for global regulatory cooperation for digital assets and AI as they increasingly influence financial markets.

CME Group last month reported increased trading activity in Nikkei 225 futures in March, fuelled by rising oil prices and growing uncertainty ahead of the upcoming policy meeting of the Bank of Japan.

A five-year Japanese Government Bond auction in February, issuing ¥2.7 trillion, showed steady demand despite Japanese prime minister Sanae Takaichi’s ‘expansionary’ fiscal policy.