Japan Weighs Relaxing Crypto Leverage Limits Amid Market Liquidity Concerns

Japan is considering easing its cryptocurrency leverage trading rules to improve market liquidity and price discovery. Seiji Kihara, who heads the Liberal Democratic Party's Next Generation AI and On-Chain Finance Project Team, argued that the current two-times leverage cap is too restrictive.

Kihara said that active markets rely on sufficient liquidity and efficient price discovery, adding that relaxing leverage restrictions would help support those functions. His project team is working on policy changes that would adjust existing regulations governing cryptocurrency trading.

The proposal aims 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.