In a decisive move to strengthen its cryptocurrency ecosystem, Japan has enacted comprehensive new legislation aimed at enhancing security, transparency, and consumer protection. This regulatory overhaul follows a major $305 million crypto exchange breach and growing concerns over the instability of global digital asset platforms. By mandating stricter custody rules, expanding anti-money laundering (AML) frameworks, and enabling direct crypto use in digital applications, Japan is positioning itself as a leader in responsible crypto innovation.
Strengthening Exchange Security and Customer Asset Protection
One of the most impactful provisions of the new law requires cryptocurrency exchanges to store customer assets within Japan. This measure is designed to prevent catastrophic losses in the event that an overseas exchange collapses or becomes insolvent. By ensuring that digital assets remain under domestic jurisdiction, regulators can enforce accountability and streamline recovery efforts if breaches occur.
This rule comes in direct response to the May 2024 hack of DMM Bitcoin, a prominent Japanese exchange, where approximately 4,502.9 bitcoins—valued at around $305 million at the time—were stolen. Investigations by Japan’s National Police Agency and the FBI attributed the cyberattack to TraderTraitor, a hacking group believed to be based in North Korea. The incident shook investor confidence and exposed critical vulnerabilities in cross-border digital asset management.
👉 Discover how secure crypto platforms are adapting to new regulations.
Enhanced Anti-Money Laundering and Fraud Prevention Measures
To combat illicit financial activity, the updated legislation strengthens Japan’s anti-money laundering (AML) framework for crypto transactions. Exchanges must now implement more rigorous Know Your Customer (KYC) protocols and transaction monitoring systems. These changes are intended to deter criminal exploitation of digital currencies for money laundering, fraud, and terrorist financing.
The law also mandates real-time reporting of suspicious activities to Japan’s Financial Services Agency (FSA), enabling faster intervention. Regulatory authorities will have expanded oversight powers, including the ability to conduct unannounced audits and impose penalties for non-compliance. These measures align Japan with global AML standards set by the Financial Action Task Force (FATF), reinforcing its reputation as a compliant and trustworthy financial hub.
Enabling Crypto for Real-World Use: In-App Purchases Now Legal
A groundbreaking aspect of the new law is the formal recognition of cryptocurrency as a valid payment method within digital applications. For the first time, users can legally make in-app purchases and pay for digital services using crypto assets. This paves the way for broader adoption across gaming, entertainment, and subscription-based platforms.
Developers and fintech companies are expected to integrate crypto payment gateways more widely, increasing usability and convenience for consumers. The move reflects Japan’s long-term strategy to blend technological innovation with regulatory clarity, encouraging responsible experimentation while minimizing risks.
Overhauling Stablecoin Regulations for Safety and Stability
The legislation also introduces significant reforms to Japan’s stablecoin framework. Previously, only licensed banks and trust companies could issue yen-pegged stablecoins. Now, registered crypto exchanges that meet strict capital and audit requirements may also issue and manage fiat-backed digital currencies.
These revised rules ensure that stablecoins are fully backed by reserves and subject to regular third-party audits. Transparency reports must be published quarterly, giving users greater confidence in the value and reliability of these digital assets. This development supports financial innovation while safeguarding against systemic risks associated with undercollateralized or poorly managed stablecoins.
Industry Response and Transition After the DMM Bitcoin Collapse
Following the massive security breach, DMM Bitcoin initially pledged to reimburse affected users. However, due to the scale of the loss and operational challenges, the company ultimately decided to cease operations. Its user base and remaining assets are being transferred to SBI VC Trade, a regulated and well-capitalized exchange, with full migration expected by March 2025.
This transition underscores the importance of regulatory oversight and institutional resilience in the crypto space. The government’s swift legislative response aims to prevent similar collapses in the future by enforcing stronger capital requirements, mandatory insurance funds, and improved cybersecurity standards across all licensed platforms.
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FAQ: Understanding Japan’s New Crypto Law
Q: Why did Japan introduce this new crypto law?
A: The law was introduced primarily in response to the $305 million DMM Bitcoin hack and rising concerns about international exchange failures. It aims to protect investors, enhance security, and promote responsible innovation in the digital asset sector.
Q: Can I now use cryptocurrency for everyday purchases in Japan?
A: While general retail adoption varies, the new law officially permits crypto use for in-app purchases and digital services. Wider merchant acceptance will depend on platform integration and consumer demand.
Q: How does the law protect my crypto assets?
A: Customer funds must be stored domestically, reducing exposure to foreign exchange failures. Exchanges must also adhere to strict AML/KYC rules, maintain adequate reserves for stablecoins, and undergo regular audits.
Q: Are all stablecoins legal under the new rules?
A: Only regulated, fiat-backed stablecoins issued by authorized institutions are permitted. These must be fully collateralized and subject to transparency requirements.
Q: What happens if a crypto exchange gets hacked under the new law?
A: Exchanges are required to have contingency plans, including insurance mechanisms and incident response protocols. Regulators can intervene swiftly to protect users and ensure orderly resolution.
Q: Will this law affect foreign investors using Japanese exchanges?
A: Yes—foreign users on Japanese platforms will benefit from enhanced security and compliance measures. However, they must also comply with KYC requirements and may face restrictions based on their jurisdiction.
Building Trust Through Regulation
Japan’s proactive approach demonstrates a balanced vision: fostering innovation while prioritizing safety and transparency. By addressing key pain points such as asset custody, fraud prevention, and real-world utility, the country is setting a benchmark for responsible crypto regulation.
As global markets evolve, regulatory clarity will be crucial for mainstream adoption. Japan’s latest reforms not only respond to recent crises but also lay the groundwork for a more resilient and inclusive digital economy.
👉 See how compliant platforms are shaping the future of crypto.
With these measures in place, Japan is sending a clear message: innovation thrives best within a framework of trust, accountability, and user protection. For investors, developers, and consumers alike, the future of crypto in Japan looks more secure than ever.