Are Prediction Markets Legal in Japan? It Depends on What the Contract Is About

Introduction

On 25 September 2026 the US Court of Appeals for the Sixth Circuit held in KalshiEX LLC v. Schuler that Kalshi had not shown its sports event contracts satisfy the statutory definition of a swap so as to fall within the CFTC's exclusive jurisdiction, and that the Commodity Exchange Act does not preempt Ohio's or Tennessee's gambling laws. The Third Circuit had reached the opposite result on 6 April 2026 in KalshiEX LLC v. Flaherty, a case against New Jersey. On 28 August 2026 the Ninth Circuit, in KalshiEX, LLC v. Assad, affirmed, as to Kalshi's sports event contracts, the dissolution of its preliminary injunction against Nevada's gaming regulators, describing their substance as sports gambling, and remanded the question of election contracts. Those cases turn on which regulator has jurisdiction. In Japan, many of the same contracts raise an earlier question: whether any regulatory statute applies to them.

On 21 April 2026 the Director-General of the Financial Services Agency's (FSA) Policy and Markets Bureau told the House of Councillors' Committee on Financial Affairs that "for prediction markets of the kind that are the object of betting, there is currently no regulatory law under the FSA's jurisdiction", and that the FSA needs to approach them "with extreme caution" because of the view that betting on them is no different from gambling.

The answer opened by saying that it depends on what the market is, and it was limited to markets "of the kind that are the object of betting", which leaves room for contracts that fall within a financial statute.

The short answer

The analysis does not begin with any rule on prediction markets. It starts from the gambling offences in the Penal Code (刑法, Keihō) and asks whether a financial statute takes the contract out of them.
A contract that settles on official statistics, weather, the price of a financial instrument such as a security or crypto-asset, or a natural disaster or war can fall within the derivative definitions of the Financial Instruments and Exchange Act (金融商品取引法, Kin'yū Shōhin Torihiki-hō, FIEA). There is a regulated route for them, and on the Government's 2017 explanation, conducting them properly within that framework keeps them out of the gambling offences.
Contracts on elections, sports and entertainment fall outside those definitions, so if users stake money or crypto-assets on them, the gambling offences are the relevant framework.
A free-to-play format with no stake is not gambling, but prizes offered to users of a product or service are capped under the Premiums and Representations Act, and paid points that can be cashed out bring the stake back.
Offshore operators are not outside Japanese law merely because they are licensed elsewhere. Betting from Japan on an offshore gambling site is itself a Penal Code offence, and the police have stepped up enforcement. A 2025 amendment added a separate prohibition on presenting illegal online gambling sites to unspecified persons in Japan or steering them to one.

The starting point: gambling under the Penal Code

Article 185 of the Penal Code punishes gambling with a fine of up to JPY 500,000 or a petty fine, unless the stake is "something provided for momentary entertainment". Article 186 raises the penalty for habitual gambling to up to three years' imprisonment, and punishes anyone who opens a gambling venue or organises gamblers for profit with imprisonment of three months to five years. Article 187 separately punishes selling lotteries.

Gambling in the case law means contesting the gain or loss of property on an outcome that depends on chance. The courts have held that an outcome can be governed by chance even where skill or ability partly determines it, so a contract does not escape because research improves a trader's odds. As a rule, the courts have held that money is not "something provided for momentary entertainment", however small the amount. Crypto-assets and stablecoins carry property value and are best assumed to be treated the same way.

Measured against this definition, a typical prediction market contract looks like gambling, since traders put up value and the outcome of a future event they do not control decides who keeps it. The argument raised in the April 2026 Committee session, that users trade with each other with no house taking a large cut, so the market is close to zero-sum, leaves these elements in place.

When a prediction contract is a derivative

Japan's answer to "why is a derivative not gambling?" was given in a 2017 Cabinet written answer to a Diet question (Cabinet House of Representatives Answer No. 10, 193rd Diet). The Government explained that the FIEA and the Commodity Derivatives Act treat derivatives business as regulated business, and impose rules on exchange operation, risk management, solicitation and fairness. Those rules, it said, dispel the concern that the gambling offences apply to derivative transactions conducted properly. The answer does not cite a Penal Code provision. One common explanation is the justification for acts performed under laws or in the course of legitimate business (Penal Code, Art. 35).

The protection therefore depends on the contract being a derivative within the FIEA, and on its being offered within the regulatory framework. The over-the-counter derivative definition in Article 2(22) is built from listed categories, most of which also cover similar transactions, plus transactions of the same economic nature that are designated by Cabinet Order where needed to protect the public interest or investors (Art. 2(22)(vii)).

What the lists cover

An over-the-counter derivative under Article 2(22) of the FIEA is built on a "financial instrument" or a "financial index".

Financial instruments (Art. 2(24)) include securities, currencies and crypto-assets. A contract on whether Bitcoin will close above a given price references a crypto-asset, and the price of a crypto-asset is itself a financial index (Art. 2(25)(i)).
Financial indices (Art. 2(25)) include prices of financial instruments, interest rates and similar measures of financial instruments other than currencies and commodities, weather observations published by the Japan Meteorological Agency and others, and the indices designated by Cabinet Order. The FIEA Enforcement Order designates, among others, seismic and hydrological observations, Japan's official statistics under the Statistics Act and comparable foreign statistics, and real estate price indices published regularly by government bodies or by real estate industry bodies for investors (Enforcement Order, Art. 1-18). A contract on rainfall or on the number of extremely hot days sits here.

A third limb, in Article 2(22)(vi), covers contracts under which one party pays money and the other pays if a pre-agreed event occurs. Apart from credit events, item (vi)(b) covers events the parties cannot influence, or can influence only with great difficulty, that seriously affect business activity and are designated by Cabinet Order. The Enforcement Order designates storms, heavy rain and snow, floods, storm surges, earthquakes, tsunamis, volcanic eruptions and other abnormal natural phenomena, and war, revolution, civil war, riots and disturbances (Art. 1-14).

In the same Committee session the questioner, who had introduced prediction markets by reference to Polymarket and other markets in the United States, went on to argue that prediction markets make collective intelligence visible and that blockchain-based markets, with all transaction histories public, are hard to manipulate. The FSA replied that it was unclear whether third parties verify what goes on at such self-styled exchanges, and referred to press reports of suspected insider trading using such exchanges in connection with the recent invasion of Iran. Read against these lists, markets on war and conflict come closer to the FIEA's definitions than an election market does, although the payout terms of each contract still need to be checked.

Harder cases

The Enforcement Order designates statistics produced under the Statistics Act, which is narrower than every number a government body announces. The CPI, for example, does not appear on the Ministry of Internal Affairs and Communications' list of fundamental statistics, and e-Stat classifies it as a re-edited statistic, so a CPI contract has to be checked against the other categories in Article 1-18(ii), including numbers designated by Cabinet Office Order. A contract on whether the Bank of Japan announces a rate change at a given meeting is harder still, because it references a decision rather than a published rate or statistic.

What the regulated route requires

Being within the definitions means the contract is regulated, and offering it as a business generally requires the right registration or licence.

Dealing in over-the-counter derivatives, or acting as intermediary for them, as a business is generally Type I Financial Instruments Business (FIEA, Art. 28(1)(ii)), which requires registration (Art. 29). Certain activities of banks and others are carved out of the definition. Japan has regulated binary options on currencies in this way for years, and a price-threshold event contract is economically close to a binary option.
Running an order book on which users trade contracts with each other looks like opening a financial instruments market, which requires a licence from the Prime Minister subject to narrow exceptions (Art. 80).
Settlement in crypto-assets or stablecoins and custody of users' assets need separate analysis under the crypto-asset and stablecoin rules. See our earlier piece on the FIEA migration and our article on stablecoin issuer routes.

For a Kalshi-style operator, the practical route for contracts on statistics, weather, prices and crypto-assets is likely to be Type I registration in Japan or a partnership with a registered firm. The FSA said in its April answer that it would need to look carefully at whether the trading actually taking place has recognised social and economic usefulness.

When it is not

Contracts on who wins an election, which team wins a match, whether a celebrity marries or what a politician says in a speech are not mentioned in Article 2(24) and (25) of the FIEA or in Articles 1-14 and 1-18 of the Enforcement Order. The Cabinet Office Order provision that adds to the list of events in Article 1-14 covers measures by foreign governments, such as restrictions on foreign exchange, payment moratoria and declarations of default (Definitions Order, Art. 21). None of these contracts fits any of the listed categories.

The forms of betting Japanese law permits, such as the public sports (horse racing, bicycle racing, motorboat racing and motorcycle racing), public lotteries, sports lotteries and casinos within integrated resorts, each rest on a statute written for it.

The April answer's reference to markets "of the kind that are the object of betting" fits this group most closely. With money or crypto-assets at stake, an operator of such a market that acts for profit risks the offence of opening a gambling venue for profit (Art. 186(2)), and its users risk the gambling offence (Art. 185), or habitual gambling (Art. 186(1)) if they bet habitually.

Free-to-play and points models

A forecasting game in which users predict outcomes for free and the best forecasters win prizes should not be gambling, because users put nothing at stake, but other statutes still apply.

Prizes offered by chance or by competition to users of a product or service are sweepstakes premiums under the Premiums and Representations Act (景品表示法, Keihyō-hō). A prize draw announced widely that anyone can enter without buying anything or visiting a shop is an open sweepstakes, to which these rules do not apply. In a general sweepstakes, where prizes are awarded by chance or by competition, each prize is capped at 20 times the transaction value, or JPY 100,000 where the transaction is worth JPY 5,000 or more, and the total must not exceed 2% of expected sales. Joint sweepstakes run by several businesses have separate limits. For more on this regime, see our article on the premium giveaway caps.
If users buy points with money and stake the points, they are staking value again. Points that can be converted into cash, crypto-assets or goods of real value are likely to be treated as property for this purpose, and the model returns to the gambling analysis above. Prepaid points can also trigger notification or registration under the Payment Services Act (資金決済法, Shikin Kessai-hō).
A design that separates what users pay for from what they can win is safer. Points earned by playing, which cannot be bought or cashed out, are much easier to defend than points that can do both.

In practice, a game that is free in every sense is hard to build. Operators usually need to recover their costs somewhere, and participation often ends up linked to a paid service or subscription, which can work as an indirect entry fee. Prizes with no economic value do not attract players either, so operators tend to offer prizes that are worth something. Where an indirect fee meets a prize of real value, the line between a free game and a wager becomes fine, and where it falls depends on the specific facts. This is a point to take to counsel with the actual design in hand.

Offshore operators and users in Japan

The Penal Code applies to anyone who commits an offence in Japan (Art. 1). The National Police Agency states that using an online casino from Japan is a crime even if the operator is lawfully licensed abroad, and reports arrests both of users who gambled from home and of those who took bets from customers in Japan. The same reasoning would apply to an offshore prediction market.

According to the NPA, in 2024 the police cleared 62 cases of gambling conducted online, involving 279 people, up 172 on the previous year; 117 of them were operators or similar and 162 were bettors. A study commissioned by the NPA for fiscal 2024 estimated that about 1.97 million people aged 15 to 79 in Japan use online casinos, betting about JPY 1.24 trillion a year.

An amendment to the Basic Act on Measures against Gambling Addiction, in force from 25 September 2025, did not create the offence of betting from Japan, which already existed under the Penal Code. It targets the channels that bring users to these sites, prohibiting anyone who sends information to the public over the internet (other than those merely providing the opportunity for others' information to be shown) from presenting an illegal online gambling website or program to unspecified persons in Japan, and from sending information that steers unspecified persons in Japan to illegal online gambling (Art. 9-2). On its wording, the prohibition can reach affiliate marketers and advertisers as well as operators.

Polymarket's developer documentation now lists Japan as "close-only" on its website: users in Japan cannot open new positions through polymarket.com, though the documentation notes that its API is not restricted in the same way. The company was reported in May 2026 to have appointed a Japan representative and to be aiming for regulatory approval in Japan by 2030. Approval for the markets it is best known for would probably need new legislation rather than a licence under existing law.

South Korea's communications standards regulator voted in August 2026 to have access to Polymarket blocked as an illegal gambling site.

What a legislative path would look like

The 2017 Diet question that produced the Cabinet answer above asked how eight points had been weighed when the FIEA and the Commodity Derivatives Act removed the illegality of what would otherwise be gambling: public interest purpose, the nature of the operator, the use of proceeds, the degree of speculation, the probity of the operator, public supervision, the operator's financial soundness, and the prevention of side effects. The Government replied that it had not assessed derivatives against those points, because derivatives differ from simple gambling and are not run as public sports either.

A prediction market on elections or sports would not have that answer available. It would need a statute of its own, and the same eight questions would be the natural starting point for the Diet's scrutiny.

Decision framework

What the contract references	Example	FIEA derivative?	Route in Japan
Crypto-asset or security price	"BTC above USD 150,000 on 31 December?"	Likely (the price is a financial index)	Type I registration or registered partner
Official statistics	"Japan CPI above 3% in October?"	Depends on how the statistic is designated	Same, if it qualifies
Weather	"More than 20 extremely hot days in Tokyo in August?"	Likely (weather observations are a financial index)	Same
Natural disaster, war	"Magnitude 7 earthquake in Japan this year?"	Likely (designated event), depending on the payout terms	Same, but expect scrutiny of usefulness and manipulation
Central bank decision	"Will the BOJ raise rates in December?"	Unclear	Case-by-case analysis of the drafting
Election, sport, entertainment	"Who wins the next general election?"	Not listed	No registration or licensing route; gambling offences if value is staked
Any of the above, free to play	Leaderboard with prizes, no purchase	Not relevant	Not gambling if truly free, though an indirect entry fee can change that. Premiums Act caps if prizes are tied to a transaction

Routes forward

The hurdles in Japan are high, but there is some room for a prediction market product whose scope is limited to contracts that fall within the FIEA, run by an operator prepared to obtain the necessary registration or licence. For contracts outside the FIEA, a longer-term path is to show their social value and press for legislation.

In the April 2026 Committee session, a member of the Democratic Party for the People asked whether Japan would use prediction markets, not as gambling, but for economic forecasting, disaster hedging and price discovery, citing contracts on the CPI, Bank of Japan rate rises, rainfall, the number of extremely hot days and typhoon landfalls. The member argued that, with no house taking a large cut, such markets are close to zero-sum and closer in character to financial markets, and that they may have a degree of public character as a tool that makes collective intelligence visible. Each time, the FSA answered that it needed to proceed with extreme caution.

In September 2026 a Liberal Democratic Party caucus on digital and advanced finance was reported to be set to begin considering prediction markets, at an information-sharing stage before any full examination of a legal framework. Two days later, the caucus chair was reported to have said that it would hold a study session on prediction markets in late October, timed to a visit by Kalshi executives, that the participation of Polymarket executives was being arranged, and that it would also hear from Japanese businesses.

References

Penal Code (Act No. 45 of 1907), Articles 1, 35 and 185 to 187, English translation (unofficial).
Financial Instruments and Exchange Act (Act No. 25 of 1948), Articles 2(21), 2(22), 2(24), 2(25), 28, 29 and 80; Enforcement Order, Articles 1-14 and 1-18 (Japanese text on e-Gov).
Basic Act on Measures against Gambling Addiction (Act No. 74 of 2018), Article 9-2, as amended with effect from 25 September 2025 (Japanese).
Minutes of the House of Councillors Committee on Financial Affairs, 21 April 2026, answers by the Director-General of the FSA Policy and Markets Bureau (Japanese).
Cabinet written answer to a question on justification (Cabinet House of Representatives Answer No. 10, 193rd Diet, 31 January 2017) (Japanese).
National Police Agency, guidance on online casinos (Japanese).
Consumer Affairs Agency, guidance on sweepstakes under the Premiums and Representations Act (Japanese).
Polymarket developer documentation, geographic restrictions.
KalshiEX LLC v. Schuler, Nos. 26-3196/5235 (6th Cir. 25 September 2026); KalshiEX LLC v. Flaherty, No. 25-1922 (3d Cir. 6 April 2026); KalshiEX, LLC v. Assad, No. 25-7516 (9th Cir. 28 August 2026).
National Police Agency, 令和６年における風俗営業等の現状と風俗関係事犯等の取締り状況について (April 2025), and the NPA-commissioned survey report on online casinos for fiscal 2024 (Japanese).
Press reports on Polymarket's Japan plans (May 2026), South Korea's blocking decision (August 2026) and the Liberal Democratic Party caucus on digital and advanced finance (NADA NEWS, 15 and 17 September 2026).

This article is for general information only and is not legal advice.

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