Japan is moving closer to easing its cryptocurrency leverage trading rules after ruling party lawmaker Seiji Kihara called the current 2x leverage cap too restrictive for market liquidity and price discovery. According to Nikkei, Kihara, who heads the Liberal Democratic Party's Next Generation AI and On-Chain Finance Project Team, argued during a financial conference on July 14 that the existing two-times leverage cap is "too strict" and should be relaxed as part of the country's ongoing digital asset reforms. The proposal aims to encourage more capital to return to Japan's domestic crypto market by improving trading activity and liquidity, with Kihara's project team working on policy changes that would adjust existing regulations governing cryptocurrency trading.
Japan's parliament has approved amendments recognizing cryptocurrencies as financial assets, marking a significant shift in digital asset regulation. According to reports from CNBC TV18, this move brings cryptocurrencies closer to the regulatory framework governing traditional financial instruments such as stocks and bonds. The legislation introduces insider trading rules for crypto transactions, requires annual disclosures from issuers of certain crypto assets and increases penalties for businesses operating without registration. The maximum prison sentence for operating an unregistered crypto business will increase from three years to 10 years, while the maximum fine will rise from 3 million yen to 10 million yen. The amended law also establishes the legal basis for separate taxation of crypto gains at an effective rate of about 20%, together with a three-year loss carry-forward deduction, which are expected to take effect in January 2028.
The same legislative changes have advanced Japan's plans for domestic cryptocurrency exchange-traded funds, with the first domestic Bitcoin ETF potentially launching as early as 2028. According to Nikkei, the Financial Services Agency is preparing revisions to investment trust rules that would allow ETFs and investment trusts to hold crypto assets directly. Japan Exchange Group Chief Executive Hiroki Yamamichi previously indicated that a crypto ETF could be introduced once the legal framework and tax treatment are completed. Several large financial institutions including SBI Securities, Rakuten Securities, Nomura, Daiwa, Asset Management One and firms affiliated with SMBC are studying crypto investment products that could enter the market after regulators complete the framework. Beyond spot Bitcoin ETFs, SBI Global Asset Management has explored funds focused on highly liquid cryptocurrencies, including Bitcoin and Ethereum, while Osaka Exchange has discussed launching Bitcoin futures if spot ETFs become legal.
Recognizing crypto as financial assets could improve regulatory clarity and encourage wider participation from institutional investors. Vikaas M Sachdeva, CEO of BitDelta India, noted that crypto in Japan will be governed by the same law that governs stocks and bonds, changing the conversation about participation at scale. He emphasized that Japan's framework includes measures such as insider trading restrictions, issuer disclosures and oversight by the country's Financial Services Agency, providing clear rules, proper disclosures, and accountability for market participants. The regulatory overhaul also lays the groundwork for lower crypto taxes and domestic Bitcoin ETFs in the coming years, with the changes representing a natural step if Japan wants to strengthen its cryptocurrency market.
Industry participants indicated that Japan's regulatory move could influence how other Asian markets approach digital asset regulation. Edul Patel, founder and CEO of Mudrex, stated that Japan bringing crypto under its securities law, on par with stocks and bonds, is a clear signal that major economies are moving past treating digital assets as speculative instruments. He noted that the impact on Indian investors would likely be indirect, with developments in regulated markets potentially supporting deeper liquidity and improved price discovery for major crypto assets. The discussion over leverage follows major legislative changes approved earlier this month, with the regulatory framework representing a significant evolution in Japan's approach to digital asset regulation.
