Lawmakers noted that digital assets have expanded beyond their original function as a means of payment and now require regulations tailored to investment products.
Japan has reclassified cryptocurrencies as financial instruments, marking a major structural shift that creates a legal foundation for separate taxation and paves the way for potential crypto exchange-traded funds (ETFs).
Approved by Parliament on Wednesday, the legislation updates both the Financial Instruments and Exchange Act and the Payment Services Act (PSA). It transitions crypto from being primarily treated as a payment method to being recognized as an investment asset alongside traditional financial instruments. The new rules are expected to take effect in 2027.
The revised framework also eliminates a significant legal barrier to launching spot bitcoin ETFs, though no such products have been approved yet. Officials from the Financial Services Agency said Japan will now explore establishing regulations for crypto ETFs.
Penalties for unregistered crypto operators have been sharply increased under the new law, with maximum prison sentences rising from three to 10 years and fines increasing from 3 million yen ($18,500) to 10 million yen. The legislation also introduces stricter insider trading rules and expands disclosure requirements for crypto issuers and exchanges.
Lawmakers also approved a plan to cut the current crypto tax rate—from as high as 55% to 20%—although the lower rate is not expected to be implemented until 2028.
The tax reform proposal, introduced late last year with backing from the government and ruling coalition, splits the 20% tax between national and local authorities, allocating 15% to the central government and 5% to regional governments.
Under the new framework, crypto issuers will be required to provide regular disclosures, while exchanges will face tighter investor protection standards and more rigorous reporting obligations.
