Japan Eyes Crypto Reclassification to Enable ETFs, Cut Taxes

As the global race to regulate and embrace digital assets accelerates, Japan is taking a bold step forward. 

Overview

On June 24 2025, the proposal recommended classifying cryptocurrencies as financial products under the Financial Instruments and Exchange Act (FIEA), aligning them with the same regulatory framework that oversees securities and conventional financial instruments. 

The country is considering a proposal to reclassify cryptocurrencies as assets under its Financial Instruments and Exchange Act, which could significantly reshape the local crypto landscape. This reclassification would pave the way for introducing crypto-based exchange-traded funds (ETFs), broaden investment options, and lower tax burdens for retail investors and institutions.

Regulatory Shift Signals Growing Institutional Acceptance

Japan’s proposal, currently under review by the country’s Financial Services Agency (FSA), represents a significant regulatory evolution. By shifting cryptocurrencies from their current status as “miscellaneous assets” to financial instruments, the new framework would bring digital assets under the same legal category as traditional securities. 

This change could enable the launch of regulated ETFs backed by crypto assets such as Bitcoin (BTC) and Ethereum (ETH). Such a move would put Japan on par with the United States, which has already approved several Bitcoin ETFs, and potentially allow Japanese financial institutions to develop crypto investment products with more clarity and investor protections. 

Analysts believe the reclassification will encourage greater institutional participation and could ignite a wave of innovation in the country’s financial sector. The Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulatory body overseeing crypto exchanges, has supported the proposal.

“The current classification limits product development and investor access,”

said a JVCEA spokesperson.

“Reclassification will bring legitimacy, oversight, and growth opportunities.”

Lower Tax Burden Could Spur Retail Participation

Alongside regulatory changes, the proposal recommends reducing the tax burden on crypto gains. Currently, crypto profits are taxed as “miscellaneous income” at rates as high as 55% for high earners, depending on total income. Under the new framework, capital gains from crypto would likely be taxed similarly to equities, with a flat rate of around 20%, aligning Japan’s tax regime with global standards.

This adjustment could unlock wider retail adoption by reducing tax complexity and encouraging longer-term investment strategies. Crypto industry leaders in Japan have long argued that the current tax structure discourages retail and institutional investment in the sector. 

The Japan Crypto Asset Business Association (JCBA) has frequently lobbied for tax reforms, warning that excessive taxation risks pushing innovation offshore.

“Lowering the tax rate is a game-changer,”

said Tokyo-based blockchain entrepreneur Kenji Sasaki.

“It gives average investors a reason to stay in the market longer and participate in Japan’s digital economy rather than shifting assets abroad.”

The reclassification and tax revision are being seen as interconnected reforms that could jointly invigorate Japan’s crypto sector, which has remained relatively conservative despite the country being one of the earliest adopters of digital assets.

Positioning Japan as a Regional Crypto Leader

This proposed reform package comes as Asian countries reassess their stance on cryptocurrencies. While Hong Kong and Singapore have made significant regulatory strides to attract crypto firms, Japan has maintained a cautious approach to protecting consumers, especially in the aftermath of the Mt. Gox and Coincheck scandals. However, the recent moves suggest that Japan seeks to reclaim its leadership role in the regional crypto space. 

Policymakers increasingly recognise that innovation and consumer protection can coexist through precise and adaptive regulation. The FSA reportedly works closely with industry stakeholders and plans to present a final proposal to the Diet (Japan’s national legislature) later this year. If passed, the new rules could become effective as early as 2026. In anticipation, financial institutions and crypto startups are beginning to prepare for a new era of compliant and tax-efficient crypto investing.

With regulatory clarity, favourable tax conditions, and the potential for ETF products, Japan could emerge as a key player in the global digital asset market. The country’s shift signals a change in rules and a broader commitment to embracing the future of finance.