Japan’s lower house passed a bill on Thursday that reclassifies cryptocurrencies as financial instruments under the Financial Instruments and Exchange Act, according to Bloomberg, a shift that would cut investor taxes, impose stock-style trading rules and clear a path for crypto exchange-traded funds. The legislation pulls digital assets out of the Payment Services Act, the framework that has governed them as a means of settlement, and places them alongside equities and bonds. It now moves to the upper house and is expected to take effect next year, recasting one of the world’s largest crypto markets around investment rather than payments.
By treating crypto as a financial instrument, the bill subjects it to the disclosure and conduct standards that apply to listed securities. Issuers would face tougher disclosure requirements, and exchanges would operate under stricter trading rules. The measure introduces stock-style insider trading bans, investment caps on unaudited token offerings and sharply higher penalties for running unregistered crypto businesses. The vote builds directly on amendments Japan approved earlier this year, which first recognized crypto as a financial instrument and pulled it into the same regulatory structure governing equities rather than carving out a separate regime. Stablecoins fall outside the new framework and remain regulated as payment services.
Japan’s Crypto Tax Overhaul
The reform would replace Japan’s progressive crypto tax, which tops out at 55%, with a flat 20% rate that matches the treatment of stocks and bonds. The Financial Services Agency (FSA) has tied the change to crypto’s move into the mainstream as an investment asset, a position the regulator first set out in 2025 when it proposed pairing the lower rate with an ETF pathway.
Japan now counts more than 14 million open crypto accounts, according to FSA data, with people earning under 7 million yen, roughly $43,600, a year making up about 70% of them. The flat individual rate is expected to apply from 2028, leaving traders under the existing system in the interim.
The Crypto ETF Pathway
Reclassifying crypto under the securities law opens the market to products that have not been available to Japanese investors, chief among them exchange-traded funds. Japan Exchange Group expects crypto-linked ETFs could begin listing as early as next year if the legal framework advances through the upper house. A regulated ETF would give retail and institutional investors exposure to assets such as Bitcoin and Ether without holding the tokens directly, the structure that has drawn fresh capital into crypto markets elsewhere.
The push carries broad political backing with the ruling Liberal Democratic Party having pressed the government to advance a legal framework for crypto ETFs and promote yen-backed stablecoins across Asia, arguing the products belong inside Japan’s financial markets as recognized investment instruments rather than on its fringes.
