Japan's STO Regulation and Outlook

Tomohiro Iida · Published April 7, 2026

An STO is a way to issue and distribute securities on a blockchain. This article sets out Japan's regulatory framework and the outlook ahead. In 2020, an amendment to Japan's Financial Instruments and Exchange Act (FIEA) created a new category called Electronically Recorded Transferable Rights, giving STOs a clear legal footing. This article covers the overall shape of the regulation, a comparison with other jurisdictions, and the outlook going forward.

What an STO is: defining the security token

An STO (security token offering) represents traditional securities — shares, corporate bonds, real-estate interests, and the like — as tokens on a blockchain, and issues and distributes them in that form. The resulting tokens are called security tokens (STs).

The difference from an ICO (initial coin offering) lies in legal status. An ICO issues tokens as a crypto-asset under comparatively ambiguous regulation, whereas an STO is carried out in compliance with existing securities regulation.

Security token: A blockchain-based token that is legally recognized as a security, carrying rights such as dividends, interest, or voting.
Utility token: A token representing the right to use a service or platform. Often does not qualify as a security, though this depends on the specifics of each case.
Stablecoin: A token whose value is pegged to a fiat currency or similar reference. In Japan, it is treated under the 2025-amended Payment Services Act.

Real-estate ST — tokenizing beneficiary interests in real estate, enabling smaller-denomination investment
Corporate-bond ST — issuing and distributing corporate bonds electronically as tokens
Fund ST — tokenizing interests in an investment fund
Infrastructure ST — tokenizing revenue rights from renewable-energy or infrastructure assets

Japan's regulatory framework

The core of Japan's STO regulation is the Financial Instruments and Exchange Act (FIEA). Electronically Recorded Transferable Rights, created by the 2020 amendment, form the legal basis for STOs.

Financial Instruments and Exchange Act (FIEA): Security tokens fall under the FIEA definition of a 'security.' Specifically, they are classified either as a collective investment scheme interest (a Type II security) or as a corporate bond, share, or similar instrument (a Type I security); issuing or distributing them generally requires registration as a Type I or Type II Financial Instruments Business Operator.
Electronically Recorded Transferable Rights: Electronically Recorded Transferable Rights, newly created in the 2020 FIEA amendment, clarified the legal basis for STOs. They are defined as a property value transferable via an electronic data-processing system such as a blockchain, and are regulated as a form of security.
Qualified Institutional Investor Special Business: Where the issuance amount is small and investors meet certain requirements, an STO can be carried out under the 'Qualified Institutional Investor Special Business' framework by filing a notification, without registering as a Type I Financial Instruments Business Operator. This is increasingly used by startups and small businesses for token issuance.

In practice, the three main compliance requirements for issuing a security token are dealer registration under the FIEA, investor-protection measures, and disclosure obligations. Working with legal counsel and a Type I Financial Instruments Business Operator is a precondition, and legal review needs to be built in from the early stages of scheme design.

Comparison with other jurisdictions

This section compares US SEC regulation and the EU's MiCA framework with Japan's approach. Each jurisdiction takes a different approach, and a cross-border STO requires understanding more than one regulatory framework.

United States (SEC): Securities regulation (the Securities Act) applies strictly. STOs mainly rely on registration exemptions such as Reg D, Reg S, and Reg A+, and KYC/AML infrastructure is a precondition. Enforcement has also been active, with many ICOs subsequently found to have been securities. Strength: the depth of the ecosystem and the level of institutional-investor participation.
EU (MiCA): The Markets in Crypto-Assets (MiCA) regulation, which came into full effect in 2024, established a unified crypto-asset and STO framework across the EU. A distinctive feature is passporting: once an issuer is authorized, it can operate across the entire EU. Strength: the ease of cross-border service under a single set of regional rules.
Japan: Japan positions STOs within its existing FIEA framework through the Electronically Recorded Transferable Rights structure. Investor-protection regulation is strict, with clear application of disclosure obligations and suitability principles; on the other hand, the clarity of the system also lowers the barrier to entry for institutional investors. Strength: the clarity of the system and the resulting trust among institutional investors.

Comparative advantage of running an STO in Japan — clarity of the system: The Electronically Recorded Transferable Rights provisions leave little legal gray area, making it easier for institutional investors to decide to participate.
Comparative advantage — investor base: A framework already exists for securities firms to offer security tokens to their existing customers, so distribution channels are in place.
Remaining challenge: Secondary-market liquidity remains low, which is a challenge for investors in terms of being able to cash out. Building secondary-market infrastructure is a key theme for 2026-2027.

Outlook

As the regulatory framework continues to develop, the STO market is expected to enter a growth phase between 2026 and 2028. Three main directions stand out.

Integration of RWA and STO: Cases combining tokenization of real estate, infrastructure, and bonds (RWA) with the STO framework are expected to increase sharply from 2026 onward. In particular, the private-placement STO market for institutional investors is expanding, and improvements in liquidity are gradually being verified.
Building out the secondary market: Secondary-market infrastructure for security tokens remains a challenge. Domestically, Osaka Digital Exchange (ODX) and others are building STO trading platforms, and improved liquidity is expected from 2026 onward.
Small-scale STOs and crowdfunding: Small STOs using the Qualified Institutional Investor Special Business framework are drawing attention as a fundraising method for small and midsize businesses and startups. Their liquidity advantage compared with traditional equity crowdfunding is increasingly recognized.

Step 1 — Scheme design: select the target asset, define investor categories and issuance scale, and identify the applicable regulatory framework.
Step 2 — Legal review: work with a Type I Financial Instruments Business Operator and legal counsel to confirm FIEA procedural requirements and disclosure obligations.
Step 3 — Technical implementation: build the smart-contract design, KYC/AML functionality, and investor-management system. A security audit is essential.

RWA and tokenization basics

Summary

Japan's STO regulation is organized under the FIEA through the Electronically Recorded Transferable Rights framework, giving it a clear legal basis.

Compared with the US SEC and the EU's MiCA, Japan's framework is notably transparent and well suited to institutional-investor participation, though secondary-market liquidity remains a continuing challenge.

Between 2026 and 2028, the market is expected to expand along three lines — RWA integration, secondary-market development, and growth in small-scale STOs — making it important to align legal and technical preparation from the earliest stage of scheme design.