This would be a drastic move away from the conservative stance established in 2020, when local banks were barred from holding crypto due to concerns over volatility and financial stability.

Under the proposed framework, banks could trade digital assets similarly to stocks and government bonds, with specific safeguards designed to ensure their financial soundness. The FSA plans to develop risk management protocols to mitigate the potential impact of sudden price swings on banks' balance sheets.

The reforms are expected to be discussed soon at a working group meeting of the Financial System Council, an advisory body to the Prime Minister. 

Officials are reportedly examining mechanisms that would allow banking groups to register as licensed cryptocurrency exchange operators. 

Back in 2020, Japan enforced strict crypto rules through amendments to the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). These laws established a comprehensive framework governing crypto asset service providers, custodial businesses, and derivatives trading. 

Japan as a safe crypto environment

By involving established banks, regulators hope to create a safer environment for crypto investment while expanding access to digital assets across Japan.

The timing of the proposed reforms comes as Japan faces significant economic challenges.

The country carries a debt-to-GDP ratio of approximately 240%, among the highest in the world, which has prompted policymakers to explore tools to manage financial pressures, including low interest rates and targeted regulation.

In this context, digital assets may offer investors alternative avenues for returns outside traditional financial systems, potentially boosting adoption.