Japan has moved closer to easing its cryptocurrency leverage trading rules after a senior ruling party lawmaker said the current 2x cap is too restrictive for market liquidity and price discovery.
Summary
- Japan’s ruling party is considering easing the country’s 2x crypto leverage limit to improve market liquidity and price discovery.
- Lawmaker Seiji Kihara said the current restriction is too strict and backed regulatory changes for leveraged crypto trading.
- The proposal follows Japan’s recent decision to classify cryptocurrencies as financial products under updated financial laws.
- The regulatory overhaul also lays the groundwork for lower crypto taxes and domestic Bitcoin ETFs in the coming years.
According to Nikkei, Seiji Kihara, who heads the Liberal Democratic Party’s Next Generation AI and On-Chain Finance Project Team, said during a financial conference in Tokyo on July 14 that Japan’s current leverage limit on crypto trading is limiting market activity and should be relaxed as part of the country’s ongoing digital asset reforms.
Speaking at the event, Kihara said the existing two-times leverage cap is “too strict” and argued that a healthy market requires enough liquidity and an effective price discovery mechanism. He said easing the restriction is a natural step if Japan wants to strengthen its cryptocurrency market.
His comments add another piece to Japan’s wider regulatory overhaul, which has gathered pace in recent months as lawmakers move crypto regulation closer to the country’s traditional financial markets.
Japan considers higher crypto leverage limits
Kihara’s project team is working on policy changes that would adjust existing regulations governing cryptocurrency trading. According to Nikkei, the proposal is intended to encourage more capital to return to Japan’s domestic crypto market by improving trading activity and liquidity.
Leverage trading allows investors to borrow funds against collateral deposited in their trading accounts, enabling them to control positions larger than the capital they initially commit. Japan currently limits leverage to two times the value of posted margin, one of the strictest caps among major crypto markets.
Kihara argued during the conference that active markets rely on sufficient liquidity and efficient price discovery, adding that relaxing leverage restrictions would help support those functions. While he outlined the project’s direction, Nikkei did not report a specific timetable for introducing revised rules.
The comments also come as policymakers continue discussing how digital assets should fit within Japan’s broader financial system instead of remaining under a framework originally designed for payment services.
Financial reforms continue to reshape Japan’s crypto market
The discussion over leverage follows major legislative changes approved earlier this month.
As previously reported by crypto.news, Japan enacted amendments to the Financial Instruments and Exchange Act that reclassify cryptocurrencies as financial products instead of treating them primarily as payment instruments under the Payment Services Act.
The legislation introduces insider trading rules for crypto transactions, requires annual disclosures from issuers of certain crypto assets and increases penalties for businesses operating without registration.
According to CoinPost, the maximum prison sentence for operating an unregistered crypto business will increase from three years to 10 years, while the maximum fine will rise from 3 million yen to 10 million yen.
The amended law also establishes the legal basis for separate taxation of crypto gains at an effective rate of about 20%, together with a three-year loss carry-forward deduction. Those tax changes are expected to take effect in January 2028 because enforcement is scheduled during the 2027 fiscal year, according to CoinPost.
Although cabinet ordinances and supervisory guidelines are still required before the new framework is fully implemented, the legislation has laid the legal foundation for several additional market reforms.
Bitcoin ETF plans continue to gather momentum
The same legislative changes have also advanced Japan’s plans for domestic cryptocurrency exchange-traded funds.
Earlier this month, crypto.news reported that the Financial Services Agency is preparing revisions to investment trust rules that would allow ETFs and investment trusts to hold crypto assets directly. According to Nikkei, the first domestic Bitcoin ETF could launch as early as 2028 once the regulatory framework is completed.
The legal amendments themselves do not authorize immediate ETF listings. Instead, regulators still need to finalize detailed investment trust rules before asset managers can introduce products that directly invest in cryptocurrencies.
Japan Exchange Group Chief Executive Hiroki Yamamichi previously said a crypto ETF could be introduced once the legal framework and tax treatment are completed.
Several large financial institutions have already begun preparing products ahead of the rule changes. Previous reporting has shown that SBI Securities, Rakuten Securities, Nomura, Daiwa, Asset Management One and firms affiliated with SMBC are studying crypto investment products that could enter the market after regulators complete the framework.
Beyond spot Bitcoin ETFs, SBI Global Asset Management has also explored funds focused on highly liquid cryptocurrencies, including Bitcoin and Ethereum, while Osaka Exchange has discussed launching Bitcoin futures if spot ETFs become legal.
Government continues expanding its Web3 strategy
The leverage discussion also fits within Japan’s broader effort to develop its digital asset sector alongside startup and technology policies.
Earlier this month, Prime Minister Sanae Takaichi told attendees at WebX 2026 that Web3 forms part of Japan’s national innovation strategy rather than serving as a standalone cryptocurrency initiative. Her remarks focused on encouraging collaboration between startups, investors and technology companies, although they did not include new funding commitments or immediate regulatory announcements.
Separately, Japan’s Comprehensive Startup Support Package and the government’s five-year startup plan continue supporting investment into emerging technology companies while lawmakers advance crypto-specific reforms covering taxation, market conduct and investment products.
If leverage limits are eventually revised, the change would add another regulatory adjustment alongside the country’s new financial product classification for crypto assets, proposed tax reforms and the ongoing work to establish a domestic Bitcoin ETF framework.
For now, however, Nikkei reported that Kihara’s project team remains focused on preparing policy changes designed to improve market liquidity and attract cryptocurrency trading activity back to Japan without announcing when those proposals could be implemented.
