Japan to reclassify crypto assets as financial products and lower taxes

Regulators in Japan are planning to classify cryptocurrencies as “financial products” under the Financial Instruments and Exchange Act and introduce a tax overhaul for the sector.

Summary

• Japan’s FSA plans to classify 105 cryptocurrencies as financial products.
• The agency wants to tax approved tokens at a flat 20% capital gains rate.

Per local media, Japan’s Financial Services Agency wants to reclassify 105 cryptocurrencies under the same legal umbrella as stocks and bonds, which would bring them under investor protection rules and open the door to fairer taxation and stricter market conduct standards.

Under this framework, digital assets like Bitcoin, Ethereum, and others approved for domestic exchange listings would be subject to mandatory disclosures, and therefore, exchanges would be required to clearly outline information such as the token’s issuer, the underlying blockchain infrastructure, and its historical volatility.

Japan to overhaul crypto tax

Japan is one of the earliest adopters of crypto regulation, but the country has maintained a rigid framework with high tax burdens and strict oversight measures that have at times stifled retail and institutional participation.

Under the current framework, cryptocurrencies in Japan are taxed as “miscellaneous income,” so high-income traders are often subject to tax rates of up to 55%, which makes it one of the most punitive regimes for crypto investors in the world.

However, the FSA is pushing for a legislative proposal that would implement a flat 20% capital gains rate, which would bring cryptocurrencies in line with the tax treatment for traditional financial instruments. Reports that the FSA was preparing for policy change first surfaced in June this year, when the agency published a policy document calling for discussions on moving the sector under the Financial Instruments and Exchange Act.

Oversight, in the meantime, is also a key agenda for the regulator, and preventing insider trading is another area that the agency wants to tighten control over. The FSA hopes to ban trading activity based on non-public information and formally introduce penalties for violators under the bill.

The proposal is expected to be discussed during the regular parliamentary session in 2026.

Japan’s pro-crypto approach

Much of the current effort began under former Japanese Prime Minister Shigeru Ishiba, who flagged cryptocurrencies as extremely important in addressing Japan’s long-standing social and economic challenges.

Current Japanese Prime Minister Sanae Takaichi is also viewed as supportive of emerging technology, and her government is expected to continue the country’s pro-tech direction.

Japanese regulators are also weighing whether banks should be allowed to acquire and hold cryptocurrencies. Back in 2020, the FSA imposed guidelines that effectively barred banks from taking crypto onto their balance sheets due to volatility concerns, but the agency is now reviewing those restrictions and could open the door for banks to participate in the market under strict risk management conditions.

Another area Japan has been focusing on is stablecoins. The country is running the FSA’s Payment Innovation Project, a trial that supports the joint initiative by major banks to issue yen-based stablecoins and test blockchain-powered settlement systems for institutional payments.