Japan’s self-regulatory body, JVCEA, has struggled with enforcement due to limited powers, prompting the government to strengthen regulatory authority and oversight.

This move involves transitioning from the Payment Services Act to the more comprehensive Financial Instruments and Exchange Act, fostering a transparent and competitive crypto environment.

The potential appointment of Sanae Takaichi as Japan’s next prime minister could bring a more progressive stance toward technological innovation, including blockchain and crypto industries, and support clearer token classifications.

Political support for digital infrastructure is strengthening, with Takaichi advocating for innovation within a regulated framework, which could boost investor confidence.

The reform involves updating the Financial Instruments and Exchange Act by 2026, with oversight from the Securities and Exchange Surveillance Commission and the Financial Services Agency, and the establishment of a new Crypto Bureau.

Once enacted, the new legislation will enable authorities to monitor crypto protocols, exchanges, and decentralized networks, including mandating automated monitoring systems.

Recent insider trading incidents, such as a whale profiting $190 million during market volatility, have heightened concerns about criminal activities in crypto trading, emphasizing the need for stricter oversight.

These regulatory reforms are driven by incidents like a whale exploiting unannounced tariff policy information, highlighting the urgency for tighter controls.

Japan's efforts aim to enhance investor protection, prevent scams, and foster a safer, transparent digital asset market, potentially serving as a model for other countries.

Japan's financial authorities are planning to introduce regulations that explicitly prohibit insider trading in cryptocurrencies, addressing a legal gap under the current Financial Instruments and Exchange Act.

These amendments will empower the Securities and Exchange Surveillance Commission to investigate suspected insider trading cases and recommend penalties, with violators facing fines or criminal charges based on the severity.

The Financial Services Agency (FSA) aims to finalize these regulatory details by the end of 2025 and submit them to parliament during the next year's regular session.

Despite the challenges, authorities are working to establish clear definitions and investigation procedures to ensure fair enforcement across various tokens and platforms.