4 Minutes
Japan moves to reclassify crypto under financial law
Japan’s Financial Services Agency (FSA) is preparing a major regulatory shift that would bring selected cryptocurrencies into the same legal framework that governs stocks and bonds. Under the proposed change to the Financial Instruments and Exchange Act (FIEA), around 105 tokens approved for domestic exchange listings would be treated as financial products. The move aims to enhance investor protection, improve market conduct, and create a clearer tax regime for crypto investors and institutions.
What the reclassification means for exchanges and tokens
If adopted, the FSA’s plan would require exchanges to adopt stronger disclosure rules for approved digital assets. That includes publishing issuer information, details about the underlying blockchain infrastructure, and historical volatility data. These disclosure obligations are intended to increase transparency for retail and institutional traders alike and to bring crypto listings closer to the regulatory standards applied to equities and fixed-income instruments.
Mandatory safeguards and market conduct
Beyond disclosure, Japan’s proposal targets market abuse. The FSA is seeking to impose explicit prohibitions on trading based on non-public information and to introduce defined penalties for insider trading and other misconduct. These measures are designed to bolster market integrity as trading volumes and institutional interest in crypto grow.
Tax overhaul: from miscellaneous income to a flat capital gains rate
One of the most consequential elements of the reform is the proposed tax change. Currently, cryptocurrencies in Japan are taxed as “miscellaneous income,” a classification that can push high-earning traders into tax brackets with rates up to 55%. The FSA is advocating a shift to a flat 20% capital gains tax for approved tokens, aligning crypto taxation with traditional financial instruments and potentially making Japan a more attractive market for investors.
Why the tax change matters
A move to a 20% flat rate could meaningfully reduce the tax burden on active traders and long-term holders, encouraging both retail participation and institutional adoption. It also simplifies tax reporting for investors who would otherwise navigate complex miscellaneous income rules. The change follows policy discussions that surfaced earlier in the year and could be formalized in legislation considered during the regular parliamentary session in 2026.
Banks, stablecoins, and broader market implications
The FSA is also reviewing previous guidance that limited banks from holding crypto assets on their balance sheets. In 2020, banks were effectively barred from acquiring crypto due to volatility concerns; the new review could permit banks to custody and hold approved tokens under strict risk-management frameworks. Allowing banks to participate would expand institutional infrastructure for custody, lending, and settlement services in Japan’s crypto ecosystem.
Stablecoins and the Payment Innovation Project
Japan is simultaneously prioritizing stablecoin experimentation. The FSA’s Payment Innovation Project supports a consortium of major banks testing yen-pegged stablecoins and blockchain-based settlement systems for institutional payments. These trials are part of a broader push to modernize payment rails and use blockchain technology for large-value and cross-institution settlement.
Political support and next steps
The regulatory momentum began under former Prime Minister Shigeru Ishiba and continues under Prime Minister Sanae Takaichi, both of whom have signaled support for technology-driven economic reforms. The FSA’s legislative proposal will likely be debated in parliament during 2026. If enacted, the changes could reshape Japan’s crypto landscape—strengthening investor protections, lowering taxes for many traders, and enabling clearer participation paths for banks and institutional players.
For crypto market participants, the proposed reforms indicate Japan’s intention to combine robust oversight with policies that encourage innovation. Investors should watch forthcoming draft legislation and exchange guidance to understand which tokens will qualify under the FIEA, and how the new disclosure and tax rules will affect trading strategies and institutional adoption.
Source: crypto
Leave a Comment