Japan’s financial regulators appear ready to modernize the country’s approach to digital assets.

The Financial Services Agency (FSA) is reportedly preparing a proposal that could allow traditional banks to invest directly in cryptocurrencies such as Bitcoin – a radical shift for one of Asia’s most tightly regulated financial systems.

Sources cited by Livedoor News say the topic will be brought before the Financial Services Council, which advises the Prime Minister on financial strategy. The idea is to bring crypto under the same regulatory umbrella as traditional securities and bonds, treating it less as a fringe asset and more as a component of diversified portfolios.

For now, Japanese banks are almost completely shut out of crypto markets. Rules updated in 2020 prohibit them from holding digital assets due to volatility concerns. The FSA’s latest move would reverse that stance – but only if banks meet strict risk-management and capital-reserve conditions once the framework is finalized.

A New Era for Japan’s Financial Industry

If the proposal advances, Japan could become the first major economy to formally integrate cryptocurrencies into its banking system. Regulators reportedly aim to build safeguards similar to those used for foreign exchange and derivatives markets, ensuring that sudden price drops don’t spill over into the broader economy.

This effort follows Japan’s growing interest in digital assets as a tool for innovation. Earlier this year, the FSA moved to shift oversight of crypto from the Payments Services Act to the Financial Instruments and Exchange Act (FIEA) – a change that would bring exchanges and token issuers under tighter securities-style supervision.

Banks Eye the Crypto Business

The reforms could also allow major bank groups to operate their own licensed crypto exchanges, enabling them to handle trading and custody directly for clients. The shift would open the door for mainstream financial institutions to compete with existing crypto platforms, positioning Japan as a hub for regulated digital finance in Asia.

The industry has already seen explosive growth: more than 12 million crypto accounts were registered in Japan by February 2025 – roughly triple the figure from five years earlier, according to FSA statistics.

Meanwhile, three of the country’s biggest lenders – MUFG, SMBC, and Mizuho Bank – are already working together on a yen-backed stablecoin to streamline business settlements. If approved, it would become Japan’s first large-scale digital currency issued by its top banking institutions.

A Gradual But Defining Shift

While the FSA has yet to confirm a timeline, officials have signaled growing openness toward treating crypto as a legitimate financial asset class rather than a speculative threat. Analysts say the move reflects Japan’s effort to stay competitive as tokenization and blockchain finance gain momentum globally.

For a country once known for its conservative monetary policy, allowing banks to hold Bitcoin could mark the start of Japan’s most ambitious experiment in digital finance yet.