Japan Proposes Reclassifying Crypto as Financial Products, Opening Path for ETFs and Lower Taxes
Summary:
Japan’s top financial regulator has proposed a major shift in how cryptocurrencies are treated under law — a move that could unlock crypto ETFs, attract institutional investors, and slash capital gains taxes on digital assets from 55% to 20%.
FSA Proposal Aims to Modernize Crypto Regulation
On Tuesday, Japan’s Financial Services Agency (FSA) unveiled a proposal to reclassify cryptocurrencies as “financial products” under the Financial Instruments and Exchange Act (FIEA) — the same framework governing stocks, bonds, and derivatives.
If approved, the new classification would:
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Enable the launch of crypto exchange-traded funds (ETFs) in Japan.
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Shift crypto taxation from the current progressive income tax system (up to 55%) to a flat 20% capital gains tax, aligning it with other financial instruments.
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Enhance investor protections by applying FIEA-level disclosure and oversight requirements.
The change is part of Prime Minister Fumio Kishida’s “New Capitalism” strategy, aimed at transforming Japan into a more investment-driven economy.
Japan’s Crypto Adoption Surging
The proposal comes at a time of growing domestic crypto adoption:
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Japan now has over 12 million active crypto accounts, according to FSA data as of January 2025.
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Crypto asset holdings on Japanese platforms exceed ¥5 trillion JPY (~$34 billion USD).
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Crypto participation has overtaken FX and corporate bonds among retail investors, particularly younger and tech-savvy users.
The FSA noted the reclassification would create a “more level playing field” with traditional financial markets and encourage broader participation from both institutional and retail investors.
A Response to Global Institutional Momentum
Japan’s regulatory rethink follows explosive institutional interest in crypto globally. The FSA cited data showing over 1,200 institutions, including Goldman Sachs and U.S. pension funds, now hold positions in U.S.-listed spot Bitcoin ETFs.
To remain globally competitive, Japanese regulators are signaling readiness to support:
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Domestically listed spot crypto ETFs
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Tokenized securities
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Digital asset settlement infrastructure
Stablecoin Expansion Underway in Japan
Japan’s crypto infrastructure is also rapidly expanding:
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In April, SMBC, TIS Inc., Ava Labs, and Fireblocks signed an MoU to explore stablecoins pegged to the USD and JPY, including their use for settling tokenized real-world assets (RWAs) such as stocks, bonds, and real estate.
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In March, Japan issued its first-ever stablecoin license to SBI VC Trade, which is preparing to support USDC, Circle’s dollar-pegged stablecoin.
Investor Takeaways
If implemented, Japan’s proposed crypto reclassification would be a game-changer:
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ETFs could bring massive liquidity to local markets.
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A flat 20% tax would remove major barriers for retail and institutional participation.
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Japan would become one of the most crypto-progressive jurisdictions among developed economies.
Investors should monitor the FSA’s next steps, especially any formal guidance on ETF timelines or tax reform proposals in the Diet.
Bottom line: Japan is positioning itself to become a global leader in digital asset finance — with regulatory clarity, institutional support, and tax incentives now potentially aligned.
