Japan and South Korea both saw steep market declines this week, but the news from Tokyo was more than just red numbers. On July 15, Japan's parliament passed sweeping amendments to the Financial Instruments and Exchange Act, reclassifying crypto as a financial product — not a payment tool — and introducing insider trading bans, issuer disclosures, and penalties of up to 10 years in prison. The move came as the Nikkei 225 entered a technical correction, falling more than 10% from its June all-time high, while South Korea's Kospi plunged into a bear market, down 20% from its own record set last month.
Japan's new crypto framework
The law change is a big deal. Crypto in Japan will now be treated like securities, meaning exchanges must follow stricter disclosure rules. Insider trading is explicitly banned. And from January 2028, a flat 20% tax kicks in, replacing the current variable income tax that could hit 55%. The amendments also make domestic spot crypto ETFs legally possible — though approval isn't guaranteed. Exchanges are eyeing first listings around 2027.
That timeline matters because household savings in Japan are approaching $13 trillion. Some of that money could flow into crypto if the regulatory environment stays friendly. But the immediate market reaction was brutal: Tokyo Electron, Advantest, and SoftBank Group all posted steep losses.
Seoul's bear market and the National Asset Basic Act
South Korea's Kospi had been on a tear — up 116% at its peak this year. Outstanding leveraged bets hit a record 29.2 trillion won (about $19.7 billion) in early July. Then the bubble deflated. The index fell 20% from its high, and analysts are drawing comparisons to China's 2015 margin debt meltdown. China's Star Market 50 Index has already dropped more than 10% in two weeks, adding to the nervousness.
In the middle of the sell-off, the government announced the National Asset Basic Act, which recognizes digital assets as part of state wealth — alongside real estate and intellectual property. The law governs about 1,400 trillion won in public holdings and includes tokenized government bonds and security tokens for state real estate. It's a signal that Seoul sees crypto as a permanent fixture, even as retail traders get burned.
Separately, the Bank of Korea raised its benchmark rate by 25 basis points to 2.75% — its first increase since January 2023. That's a tightening move amid a market rout, and it doesn't help sentiment.
Japan's tax cut won't hit until 2028, so no immediate relief for traders. The ETF question is still open — the law makes it possible, but regulators haven't signed off. South Korea's new asset act is more about long-term governance than short-term stimulus. The next concrete thing to watch is whether the Kospi finds a floor before the leveraged positions get fully liquidated, and whether Japan's Financial Services Agency starts accepting ETF applications sooner than 2027. Neither market is out of the woods yet.
