Japan advances bills to classify crypto as 'financial products,' lower tax rates

Japan’s cabinet has approved a bill to amend the Financial Instruments and Exchange Act to classify crypto as “financial products” to protect investors. The country has also introduced new tax rules for crypto to replace the previous progressive system, under which taxes reached 55%, and set a flat 20% rate on profits.

According to the new amendments, the recognition of crypto as a financial asset at a cabinet meeting on April 10 is only the tip of the iceberg. The new act also applies insider trading controls that already apply to stocks to crypto transactions.

Japan is looking to regulate crypto assets as financial instruments to prohibit insider trading based on non-public information.

The Japanese government will require crypto issuers to disclose information at least once a year to create a healthy market environment. The bill is expected to be implemented in fiscal year 2027 if it is passed during the current Diet session. 

Finance minister says bill will ensure fairness and protect investors

Satsuki Katayama, Japan’s Finance Minister, emphasized that the country will boost the supply of growth capital to counter the effects of ever-evolving financial and capital markets. The bill, which reclassifies nearly 105 crypto assets, is also set to ensure markets remain fair and transparent, protecting investors.

Meanwhile, investor protection will include increasing the prison sentence from 3 years to up to 10 years to strengthen penalties. More stringent penalties, such as raising fines from the current 3 million yen to up to 10 million yen, further demonstrate Japan’s strong commitment to protecting investors.

To achieve these objectives, the Financial Services Agency (FSA), which previously regulated crypto under the Payment Services Act, will shift regulation to the Financial Instruments and Exchange Act. Registered businesses will also be collectively renamed from the previous “crypto asset exchange businesses” to “crypto asset trading businesses.”

FSA shifts crypto policy to allow banks to hold digital assets

The FSA is shifting its crypto policy by submitting an amendment to the Financial Instruments and Exchange Act, allowing local banks and other institutions to hold crypto for investment purposes. The move will effectively integrate crypto into the country’s financial system.

Japan was already the first major economy to regulate crypto post-Mt. Gox, and this move takes it a step further. The bill will shift the legal framing of crypto assets from digital payment tools to investible financial instruments. 

Meanwhile, the use of crypto assets for investment purposes has increased in Japan, representing a significant strengthening of regulations. The country’s over 12 million verified crypto users and $34 billion in assets under local custody now have a real runway to grow with these institutional-grade rules in place.

On the other hand, Japan signaled in January that it was bringing crypto under the same umbrella as traditional finance, when Katayama said that the role of exchanges and market infrastructure will be essential to ensure that citizens benefit from crypto assets. The country also plans to legalize crypto ETFs by 2028, marking a significant shift toward mainstream crypto adoption.

Local media reported that major financial groups in Japan, including SBI Holdings and Nomura Holdings, are among the first companies to develop crypto-linked exchange-traded products (ETPs).

The country is moving crypto out of the experimental payments category and into the same league as its stock market by reclassifying crypto assets, marking a major step toward domestic mainstream institutional adoption. 

Additionally, Katayama highlights 2026 as a pivotal year for bringing crypto under traditional financial regulation. She adds that the framework under the proposed bill prioritizes the use of Japan’s established digital asset infrastructure. The bill fits into a wider overhaul, according to the Japanese finance minister.

Your bank is using your money. You’re getting the scraps. Watch our free video on becoming your own bank