Crypto Gains Financial Asset Status in Japan, Boosting Tax Reform Hopes

Lawmakers said cryptocurrencies have evolved beyond simple payment use cases and now require oversight tailored to investment assets.

Japan has redefined crypto assets as financial instruments, signaling a major regulatory shift that lays the groundwork for separate taxation and the potential introduction of crypto exchange-traded funds (ETFs).

The legislation, approved by Parliament on Wednesday, revises the Financial Instruments and Exchange Act along with the Payment Services Act (PSA). It transitions crypto from a payment-focused category to one aligned with investment products similar to traditional financial assets. The new framework is expected to come into force in 2027.

The updated rules also remove a significant legal barrier to launching spot bitcoin ETFs, although none have been approved so far. Officials from the Financial Services Agency said Japan will now explore creating a regulatory structure for such products.

Penalties for unregistered crypto operators have been substantially increased, with the maximum prison term rising from three years to 10 years and fines increasing from 3 million yen ($18,500) to 10 million yen. The law also introduces tougher insider trading restrictions and expands disclosure requirements for crypto issuers and exchanges.

Lawmakers also endorsed a plan to lower the crypto tax rate—from as high as 55% to 20%—though the reduced rate is not expected to be implemented until 2028.

The tax reform proposal, introduced late last year with support from the government and ruling coalition, divides the 20% rate between national and regional authorities, allocating 15% to the central government and 5% to local governments.

Under the new framework, crypto issuers will need to provide regular disclosures, while exchanges will face stricter investor protection rules and enhanced reporting obligations.