Japan Considers Allowing Banks to Invest Directly in Crypto Assets

Executive Summary

Japanese regulatory authorities are reportedly evaluating a policy shift that would permit domestic banks to directly invest in crypto assets. This potential change, reported by Nikkei, signifies a strategic move to integrate digital assets further into the traditional financial system. The Financial Services Agency (FSA) is spearheading this initiative, building on Japan's established regulatory framework for cryptocurrencies.

The Event in Detail

Recent reports indicate that Japan is considering allowing its domestic banks to acquire and hold crypto assets for investment purposes. Currently, banks and insurance companies are prohibited from investing directly in crypto assets or indirectly through derivatives or funds. This potential policy reversal by Japanese authorities, including the Financial Services Agency (FSA), would mark a significant departure from existing restrictions. Japan has a history of pioneering crypto regulation, having regulated crypto exchanges under its Payment Services Act (PSA) in 2017. More recently, in 2025, the FSA reclassified cryptocurrencies as financial products under the Financial Instruments and Exchange Act (FIEA), setting the stage for increased institutional engagement.

Financial Mechanics and Regulatory Framework

The proposed policy change would deconstruct existing financial prohibitions, specifically allowing banks to engage with digital assets as investment vehicles. The prior reclassification of crypto assets as financial instruments under the FIEA in 2025 included the introduction of a 20% flat capital gains tax, a reduction from the previous progressive rate of up to 55%. This regulatory adjustment was designed to attract institutional capital. Furthermore, this reclassification facilitates market access for regulated crypto Exchange Traded Funds (ETFs), including spot Bitcoin products, which were previously prohibited in Japan. The current prohibition on banks acquiring crypto assets for investment would be lifted under the new considerations, enabling direct financial exposure.

Business Strategy and Market Positioning

Japan's strategic move aligns with its ambition to become a global leader in the regulated digital asset space. By classifying crypto assets as financial instruments and potentially allowing direct bank investment, the country aims to unlock several benefits. This approach would boost institutional adoption, as institutions such as banks and hedge funds could invest in crypto within a regulated framework. Crypto assets could then be integrated into traditional financial products like ETFs and mutual funds. This strategy builds on the introduction of yen-backed stablecoins by major Japanese banking institutions such as Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group, which operate under Japan's stringent stablecoin regulations. These regulations mandate stablecoins to be fiat-pegged, fully redeemable, and issued only by licensed entities, thereby bringing a level of trust and legitimacy that encourages corporate and institutional engagement. This also strengthens Japan's financial sovereignty by fostering a domestic stablecoin ecosystem and reducing reliance on foreign-denominated stablecoins.

Market Implications

The potential policy shift has significant market implications. It is expected to facilitate substantial institutional capital flows into the Japanese crypto market, providing a more stable demand base for major cryptocurrencies. Increased institutional participation is likely to enhance market infrastructure and accelerate the development of innovative financial products. Furthermore, stronger consumer protection measures are anticipated, as crypto exchanges and custodians would be required to meet higher security and transparency standards. This regulatory clarity is also expected to foster the growth of regulated crypto derivatives, such as futures, options, and ETFs. The overall sentiment from traditional financial circles and the crypto community regarding these developments has been largely optimistic, viewing them as a substantial step towards integrating digital assets into mainstream finance and positioning Japan's Web3 ecosystem for significant growth in DeFi, NFTs, and GameFi.

Broader Context

Japan's consideration of allowing banks to invest in crypto assets is part of a broader global trend towards integrating digital assets into traditional financial systems. This includes developments such as the UK's Financial Conduct Authority (FCA) lifting its ban on cryptoasset exchange traded notes (cETNs) for retail investors and the US approving spot crypto asset exchange-traded funds (ETFs). These actions by various jurisdictions signal a worldwide acknowledgment of digital assets and an effort to establish clear regulatory frameworks to accommodate their growing presence in global finance. Japan's proactive framework, including the establishment of a new Crypto Bureau to align oversight with global standards like the EU's MiCA, aims to bolster market confidence and position it competitively against other regions like Hong Kong and the UK.