Lawmakers said cryptocurrencies have moved beyond their original use as payment tools and now need regulations aligned with investment products.
Japan has reclassified crypto assets as financial instruments, marking a significant policy shift that creates a legal basis for separate taxation and sets the stage for future crypto exchange-traded funds (ETFs).
The bill, passed by Parliament on Wednesday, amends both the Financial Instruments and Exchange Act and the Payment Services Act (PSA). It shifts crypto out of a payment-focused framework and into one that treats it as an investment class alongside traditional financial assets. The new rules are expected to come into effect in 2027.
The updated framework also removes a major legal barrier to spot bitcoin ETFs, though none have been approved yet. Officials at the Financial Services Agency said the country will now explore creating regulations for such products.
The legislation significantly toughens penalties for unregistered crypto operators, raising the maximum prison sentence from three to 10 years and increasing fines from 3 million yen ($18,500) to 10 million yen. It also introduces stricter insider trading rules and expands disclosure requirements for crypto issuers and exchanges.
Lawmakers also backed a plan to lower the current crypto tax rate—from as high as 55% to 20%—although the reduced rate is not expected to take effect until 2028.
The tax reform proposal, introduced late last year with support from the government and ruling coalition, splits the 20% rate between national and local governments, allocating 15% to the central government and 5% to regional authorities.
Under the new framework, crypto issuers will be required to provide regular disclosures, while exchanges will face stricter investor protection standards and enhanced reporting requirements.
