Japan Proposes 20% Tax on Crypto Gains, Reclassifies as Financial Products

Japan’s Financial Services Agency (FSA) has proposed a significant shift in the regulatory framework for cryptocurrencies, aiming to reclassify them as financial products instead of digital payment methods. This proposed change, under the Financial Instruments and Exchange Act (FIEA), would bring cryptocurrencies under the same regulatory umbrella as traditional securities. The move is part of a broader effort to enhance investor confidence and drive adoption of digital assets in Japan.

The FSA also recommends lowering the tax rate on crypto gains to a flat 20%, down from the current maximum of 55%. This reduction in tax rates is intended to make crypto investing more accessible for both retail and institutional investors. The reclassification could also open the door to launching crypto exchange-traded funds (ETFs) in Japan, signaling the country’s growing openness to digital assets.

Japan has already taken progressive steps in crypto regulation, with strict licensing and compliance standards. As of January 2025, there were more than 12 million domestic crypto accounts holding assets worth more than 5 trillion Japanese yen, or $34 billion. This level of participation exceeds that seen in traditional financial products such as foreign exchange and corporate bonds, highlighting the growing interest in cryptocurrencies as a legitimate investment asset.

The increased crypto ownership is particularly prominent among tech-savvy investors, who are increasingly viewing cryptocurrencies as a viable investment option. Globally, institutional involvement in cryptocurrencies is also on the rise, with more than 1,200 institutions, including U.S. pension funds, holding U.S.-listed Bitcoin spot ETFs.

The proposed FSA reforms are set for discussion at the June 25 Financial System Council meeting. If approved, this shift would introduce enhanced investor protections and clearer regulations, potentially paving the way for crypto ETFs in Japan. This move aligns with a broader national strategy to integrate digital assets into the traditional financial system.

Major financial institutions are also capitalizing on the stablecoin opportunity. In April, Sumitomo Mitsui Financial Group (SMBC), TIS Inc., Ava Labs (Avalanche), and Fireblocks signed a memorandum to support the launch of stablecoins pegged to both the Japanese yen and the U.S. dollar. This initiative complements the FSA’s proposed reclassification of cryptocurrencies as financial products, further signaling Japan’s commitment to integrating digital assets into its financial ecosystem.