Japan Eyes Crypto ETFs And Lower Taxes With Digital Assets Reclassification Proposal

Japan’s Financial Services Agency (FSA) has proposed a reform that could pave the way for crypto-based investment products and significantly lower the capital gains tax on digital assets in the country.

FSA Proposes Crypto Assets Reclassification

On Tuesday, local news outlet CoinPost reported that Japan’s Financial Services Agency announced it is considering reclassifying crypto assets as financial products under the Financial Instruments and Exchange Act (FIEA) and establishing a working group on digital asset systems.

In a document titled “Review of the Regulatory Framework for Cryptocurrencies (Virtual Currencies),” the FSA proposed transitioning crypto assets, which are regulated under the Payment Services Act, into the FIEA’s framework.

This transition would formally categorize cryptocurrencies as “financial instruments” and address the current limits of digital assets in Japan. The proposal is scheduled to be discussed at the FSA’s General Council meeting on Wednesday, June 25.

Notably, the reform would lead to a change from the current progressive tax system, where digital asset gains can be taxed at up to 55%, to a system like the one used for stocks, with a flat 20% tax on crypto income.

Moreover, it would improve access for institutional and general investors through the domestic approval of Bitcoin Exchange-Traded Funds (ETFs) and other investment products, as well as strengthening investor protection under the FIEA.

Japan’s regulators have been cautious toward digital asset-based ETFs, with the FSA previously expressing reservations about the investment product, despite the success of US spot ETFs.

Earlier this year, Japan’s Parliamentary Vice-Minister of Justice Junichi Kanda discussed with JAN3’s founder, Samson Mow, the “government’s current initiatives to enable Japanese Bitcoin ETFs and reduce taxes on Bitcoin.”

Japan’s Regulatory Landscape

According to the report, Japan’s regulatory change is reportedly influenced by the “proactive stance (…) taken by the Trump administration (…) and other U.S. government agencies such as Texas,” which recently became the first US state to create a publicly funded BTC reserve.

This move is positioned as part of the government’s strategy to realize an investment-oriented nation, aiming to simultaneously create new value using digital assets and expand asset formation opportunities for the public through the comprehensive development of the Web3 and cryptocurrency fields.

As reported by Bitcoinist, Japanese authorities have been working on reviewing their regulatory system for nearly a year, developing new policies to offer customer fund safety, while establishing a more reliable industry.

In April, the FSA sought the public’s feedback on its framework draft, suggesting digital assets be divided into distinct categories to facilitate regulation and find a balance between user protection and promoting innovation.

The proposed framework reviewed multiple aspects of financial regulations, including business regulations, disclosing and providing information, and insider trading measures.  Its key proposal separated crypto assets into two categories to apply distinctly different regulatory approaches to each of these categories, depending on the assets’ nature.

The FSA has emphasized that developing a “well-balanced environment that protects users and promotes innovation” is required for the crypto industry’s expansion.