Japan doesn’t just regulate cryptocurrency exchanges-it redefines what it means to operate one. If you think crypto rules are strict in the U.S. or Europe, Japan’s system will make you rethink that. Since 2017, the country has built one of the world’s most detailed, costly, and secure licensing frameworks for crypto platforms. And in September 2025, it made its biggest change yet: moving crypto oversight from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA). This isn’t a tweak. It’s a full overhaul designed to treat crypto not as a payment tool, but as a financial asset-just like stocks or bonds.

Who Needs a License, and Why It’s Not Easy to Get One

If you want to run a crypto exchange that serves Japanese customers, you must register with the Financial Services Agency (FSA). No exceptions. As of June 2025, only 21 exchanges hold active licenses. That’s down from over 30 a few years ago. Seventeen have been shut down for failing compliance checks. The bar isn’t high-it’s a wall.

First, you can’t just be any company. You must be a kabushiki-kaisha-a Japanese joint-stock corporation-with a physical office in Japan and a resident manager who takes personal legal responsibility for everything the exchange does. That means if something goes wrong, the manager can be fined, banned, or even jailed. No offshore shell companies. No anonymous owners. No shortcuts.

Then there’s money. You need at least 10 million yen (about $68,000 USD) in capital, plus positive net assets. Most serious applicants spend $500,000 to $1 million just to meet the requirements before they even apply. That’s not a startup budget-it’s a corporate finance department’s checklist.

The process takes 18 to 24 months. During that time, the FSA runs background checks on every executive, audits your code, tests your security systems, and watches how you handle simulated trades. You can’t skip this. There’s no fast track. Even companies with global experience-like those from the U.S. or South Korea-have failed because they underestimated how deep Japan’s rules go.

Security: Cold Storage, DDoS Shields, and 15-Minute Response Rules

After the $534 million Coincheck hack in 2018, Japan changed everything. Now, every licensed exchange must keep at least 95% of user funds in cold wallets-offline, disconnected from the internet. That’s stricter than any other major market. Coinbase, Kraken, and Binance don’t have to do this. Japan does.

But it’s not just about storage. Your systems must handle DDoS attacks of over 1 terabit per second. That’s more traffic than most banks see in a week. You need multi-signature wallets, 24/7 monitoring, and a response team that can act within 15 minutes of any security alert. The FSA doesn’t just ask for this-they test it. In 2024, they ran simulated cyberattacks on all 21 licensed exchanges. Three failed. Two lost their licenses within weeks.

And you can’t outsource this. Even if you use a third-party custody provider, the FSA still holds your company accountable. That’s why most Japanese exchanges build their own security infrastructure from the ground up. It’s expensive. It’s slow. But it works. In March 2025, Bitbank faced a major breach attempt. Because of its cold storage and real-time monitoring, no user funds were lost. Users praised the exchange. Competitors in less regulated markets weren’t so lucky.

The JVCEA: Japan’s Secret Weapon Against Scams

Beyond the FSA, there’s another layer: the Japan Virtual Currency Exchange Association (JVCEA). Eighteen of the 21 licensed exchanges belong to it. And while the FSA sets the minimum rules, the JVCEA sets the real ones.

Every time an exchange wants to list a new token-whether it’s Solana, Chainlink, or some new meme coin-it must submit it to the JVCEA’s Token Listing Committee. This group of 17 experts reviews whitepapers, audits smart contracts, checks for market manipulation risks, and even interviews the development team. In Q2 2025, they rejected 72% of the 147 applications they received.

That’s why Japanese users don’t see the latest trending coins right away. If a token launches on Binance in January, it might not appear on Bitbank until July. That’s frustrating for day traders, but it’s working. Japan has one of the lowest rates of crypto fraud in the world. In 2024, there were fewer than 20 reported cases of exchange-related scams involving licensed platforms. In the U.S., that number was over 500.

The JVCEA also has emergency powers. In April 2025, after a surge in meme coin pump-and-dumps, they froze all new token listings for 30 days. No exceptions. That kind of control doesn’t exist anywhere else.

What You Can’t Do: Leverage, Banking, and the FIEA Shift

Japan’s rules don’t just protect users-they limit what exchanges can offer. Leverage trading? Max 2x. That’s half of what’s allowed in Singapore and a fraction of Dubai’s 100x. Since the 2023 cap, active day traders on Japanese platforms dropped by 15%. Many moved to offshore exchanges. But retail investors? They’re happier. In the FSA’s 2025 Consumer Confidence Report, 87% said they felt “very” or “somewhat” secure using licensed exchanges. Only 63% felt that way in unregulated markets.

Banking is another headache. Only 8% of Japanese banks will work with crypto exchanges. The Bank of Japan banned direct crypto holdings in 2020. That means exchanges struggle to get yen on-ramps. Many rely on fintech partners or offshore banking corridors, which adds cost and delay. But that might change. In September 2025, the FSA proposed letting megabanks like Mitsubishi UFJ register as crypto operators. If approved, it could unlock billions in institutional capital.

The FIEA transition is the biggest change. Before, crypto was treated like digital cash. Now, it’s treated like a security. Tokens that act like investments-like tokenized real estate or profit-sharing coins-are now under the same rules as stocks. That means exchanges must provide full disclosures, prevent insider trading, and report suspicious activity to the FSA like a brokerage would. It’s complex. But it’s also the first time a major economy has fully merged crypto into its traditional financial legal system.

Who Benefits? Who Loses?

Japan’s system isn’t perfect. Critics say it’s too slow. Too expensive. Too rigid. Blockchain attorney Masako Tanaka argues that forcing cold storage creates single points of failure. Why not let exchanges use institutional custodians like Coinbase Custody, which offer similar security with better capital efficiency? She has a point. But so do the users.

For everyday Japanese investors, the trade-off is clear: fewer coins, no leverage, slower listings-but your money stays safe. Reddit user TokyoTrader88 summed it up after the Bitbank incident: “My 2.3 BTC stayed safe while exchanges in less regulated markets lost user funds.” That’s the value Japan sells: trust.

For exchanges? It’s brutal. The cost of compliance eats up 25% of revenue, compared to 15% in Singapore. Startups can’t compete. Only deep-pocketed players-like GMO Coin, DMM Bitcoin, and Bitbank-can survive. But those that do? They’re among the most secure in the world.

For global crypto projects? Japan is a gatekeeper. If you want to reach 12 million Japanese users, you need JVCEA approval. That means rewriting your whitepaper, paying for Japanese-certified audits, and waiting months. But once you’re listed? You’re seen as legitimate. That’s worth something.

The Road Ahead: What’s Coming in 2026

The FSA plans to complete the full FIEA transition by March 2026. That means crypto assets will be fully integrated into Japan’s securities laws. The new ECISB framework will require exchanges to notify regulators before launching any new service-not just new coins. Think staking, lending, yield products. All of it will need approval.

Banks may soon be allowed to hold Bitcoin as an investment. That’s huge. If Mitsubishi UFJ starts buying BTC, it could trigger a wave of institutional adoption. But they’ll need to hold 30% capital buffers against crypto (vs. 8% for stocks) and pass stress tests for 80% price drops. That’s not a gamble-it’s a fortress.

Japan isn’t trying to be the fastest crypto market. It’s trying to be the safest. And for a country that still remembers the dot-com crash and the 2008 financial crisis, that’s not a weakness. It’s a principle.