Crypto No Longer a Free Pass: Japan to Bring Harsh Penalties for Insider Trading Under New National Law

Japan Moves To Outlaw Insider Trading In Crypto Markets Amid Rising Retail Participation

Japan is preparing to introduce its first-ever laws against insider trading in cryptocurrencies, marking a new chapter in the country’s evolving digital asset framework.

The initiative, led by the Financial Services Agency (FSA) and its market watchdog, the Securities and Exchange Surveillance Commission (SESC), aims to bring the crypto industry under the same level of scrutiny as traditional securities.

Japan’s Financial Watchdogs Prepare For A Legal Overhaul

According to The Nikkei, the SESC will soon be empowered to investigate suspicious trading activities involving digital assets and issue penalties or criminal referrals for traders using undisclosed information.

These reforms would give the commission the authority to impose fines proportional to the profits gained through insider trading, similar to existing measures under Japan’s securities laws.

Currently, Japan’s Financial Instruments and Exchange Act (FIEA) does not classify crypto as a financial product, meaning insider trading rules do not apply.

The self-regulated Japan Virtual and Crypto Assets Exchange Association also lacks tools to detect such violations, highlighting the regulatory gap that authorities now seek to close.

New Laws Could Redefine Crypto’s Legal Standing

The FSA intends to propose an amendment to the FIEA in 2026 that would reclassify cryptocurrencies from “means of settlement” to “financial products.”

This change would allow crypto assets—from Bitcoin to smaller tokens—to be governed by the same legal standards as securities.

The agency is also planning to establish a dedicated Crypto Bureau that year to handle oversight and enforcement.

By the end of 2025, a government working group is expected to finalise the legislative framework.

If approved, the new laws will give regulators broader powers to act against manipulation and insider activity across Japan’s rapidly expanding crypto sector.

Why Insider Trading Became A Global Concern

Insider trading occurs when traders use non-public information to gain an advantage in buying or selling assets.

In traditional markets, this practice is heavily penalised, but crypto has long operated in a grey area.

The issue drew international attention in 2022 when former Coinbase product manager Ishan Wahi leaked details of upcoming token listings to his brother and a friend.

The pair bought tokens ahead of public announcements and sold them for profit, an incident that became the first insider trading prosecution involving crypto in the United States.

Crypto Use Surges As Japan Tightens Oversight

Japan’s push for clearer rules comes as the number of local crypto users has grown fourfold in five years, reaching about 7.88 million — roughly 6.3% of the population.

The country has a long history with digital assets, once hosting the world’s largest Bitcoin exchange, Mt. Gox, before its 2014 collapse following a massive hack.

Although Japan has since rebuilt its reputation with one of the world’s strictest crypto frameworks, recent trends have exposed weaknesses in self-regulation.

Regulators have also struggled with defining who counts as an “insider” in decentralised markets where tokens often lack identifiable issuers.

Pro-Tech Leadership May Shape Japan’s Next Crypto Chapter

Political shifts could further influence Japan’s regulatory trajectory.

Sanae Takaichi, widely expected to become the next prime minister, is known for supporting “technological sovereignty” and a stronger digital infrastructure.

Her stance on maintaining low interest rates and easing tax burdens may attract more capital into Japan’s crypto economy — even as oversight tightens.

Japan’s Balancing Act Between Innovation And Enforcement

While Japan has been working to ease restrictions around Web3 projects, its latest move signals a desire to draw a clear line between innovation and abuse.

By integrating crypto into the FIEA, regulators hope to align the sector with existing investor protection standards without stifling growth.

Can Regulation Truly Outpace Market Exploitation?

Coinlive believes Japan’s move to ban insider trading in crypto is both overdue and ambitious.

The framework, if enacted, could serve as a benchmark for responsible governance — but the challenge lies in enforcement.

Crypto’s decentralised nature and global reach make it difficult to define insiders or trace information leaks.

Japan may succeed in setting a precedent, yet the real test will be whether such laws can evolve quickly enough to keep pace with the next generation of digital finance.