Japan passes key bill recognizing crypto as financial product, lowering tax rate

Japan's parliament passed and enacted key amendments to the Financial Instruments and Exchange Act, formally classifying cryptocurrencies as financial products.

The amendments were approved in the plenary session of the House of Councillors on Wednesday, completing their passage through both houses of the Diet, according to NHK.

The bill redefines crypto assets as a distinct category of financial products that is similar to stocks and bonds. Previously, cryptocurrency was regulated under the Payment Services Act as a form of payment method.

New changes include stricter insider trading prohibitions, mandatory annual disclosures by issuers of certain crypto assets, and tougher penalties for unregistered operations — raising the maximum prison term from three to ten years and fines from 3 million yen to 10 million yen ($18,500 to $61,600), according to a report from Coinpost.

Lower taxes for crypto

The amendments establish the basis for separate crypto taxation at an effective rate of approximately 20%, along with three-year loss carry-forward deductions. Japan currently taxes crypto gains as miscellaneous income, with rates reaching up to 55%. The tax reforms are expected to take effect in January 2028, given that enforcement begins in the fiscal year of 2027.

Furthermore, the bill also lays the groundwork for the domestic issuance of spot cryptocurrency exchange-traded funds. Coinpost reported that the Japan Exchange Group (JPX) is eyeing the first listings of crypto ETFs as early as 2027, with traditional institutions expected to serve as issuers. However, domestic approval of bitcoin ETFs is not yet confirmed, the report stated.

The law is set to be promulgated in the near future and is scheduled to take effect within one year of promulgation, with detailed implementation rules to be finalized through cabinet ordinances and supervisory guidelines.