Japan Proposes 20% Capital Gains Tax for Crypto to Boost Market

Japan's Financial Services Agency (FSA) has proposed a significant regulatory overhaul that could reclassify cryptocurrencies under the Financial Instruments and Exchange Act (FIEA), the same statute that governs stocks, bonds, and traditional exchange-traded funds. This move aims to formally recognize crypto as "financial products," which would pave the way for spot-based crypto ETFs and simplify the tax regime for digital assets. Currently, crypto assets are primarily treated as digital payment methods under the Payment Services Act, a framework that the FSA argues is no longer sufficient for the growing market.

The proposed changes would introduce a uniform 20% capital-gains tax rate, replacing the current sliding scale that can reach up to 55% after local levies. This tax overhaul is intended to attract retail investors who have been deterred by high marginal rates and to encourage domestic institutions to launch on-shore crypto products. The FSA believes that aligning digital-asset taxation with equities will make crypto investments more appealing and competitive.

This event marks Japan's effort to align with major financial markets by enhancing regulatory clarity and reducing tax burdens to boost digital asset investments. The plan, part of "New Capitalism 2025," reflects Japan's stride towards economic digitalization. The reform proposes a shift from a progressive tax rate to a flat 20%, aligning crypto gains with other securities like stocks. The classification change intends to provide legal backing for Bitcoin ETFs. This initiative is anticipated to increase both institutional and individual participation in Japan's crypto market.

The reclassification of cryptocurrencies aims to lead to increased trading volumes and potentially bolstered market liquidity. The move could also spur higher institutional investments in Bitcoin and possibly other digital assets. Adoption of the Financial Instruments and Exchange Act framework highlights Japan's strategic intent to compete with global financial hubs. It presents a notable opportunity for market expansion, especially as it targets key crypto assets such as BTC and potentially ETH. Japanese exchanges might witness heightened trading activities, drawing parallels to the US market's response post-ETF approval, marked by institutional inflows and market upticks.

Financial, regulatory, and technological outcomes are expected as the initiative progresses. The anticipated legal security could attract international stakeholders, influencing policy trends worldwide. Bitcoin's central role within the ETF proposal signals possible price ramifications, accentuating its relevance. Japan’s strategic realignment underscores its intention to foster innovation within the digital finance sector. By following suit with other nations, Japan showcases its commitment to establishing a leading role in the crypto economy, predicting a dynamic investment environment by 2026.

The proposal comes at a time when Japan has seen significant growth in crypto participation. As of January 2025, the country counted more than 12 million active crypto trading accounts, holding assets worth over ¥5 trillion. This level of participation outstrips retail interest in foreign-exchange margin trading and corporate bonds, two markets traditionally dominated by individual investors in Japan. The FSA's proposal is also part of a broader effort to position Japan as a regional hub for regulated digital assets, aligning with Prime Minister Fumio Kishida’s “New Capitalism” agenda, which aims to transform Japan into an investment-driven economy.

Institutional momentum for crypto is also on the rise. The FSA cites data showing that over 1,200 global financial institutions, including U.S. pension funds and major banks, now hold U.S.-listed spot-Bitcoin ETFs. The agency hopes to replicate this trend domestically once a Japanese wrapper for crypto ETFs is available. This move is expected to plug capital flight to other regions and position Tokyo as a leading center for regulated digital assets.

The proposal will be debated at the Financial System Council meeting scheduled for June 25. If endorsed, the FSA will draft detailed listing and custody guidelines while coordinating with the Tokyo Stock Exchange. Market participants expect the first spot-crypto ETFs to list in fiscal-year 2026 at the earliest, once rule-making and exchange testing are complete. This regulatory overhaul marks the most significant update to Japan’s digital-asset rules since the 2018 Coincheck hack, aiming to enhance the investment landscape and integrate stablecoins into the country’s payments and capital-markets infrastructure.