Key facts
- Japan reclassified cryptocurrencies as financial instruments under amended financial and payments laws.
- New regulations introduce insider trading prohibitions and enhanced disclosure requirements for crypto issuers and exchanges.
- Penalties for unregistered crypto operators have been significantly increased.
- A proposed 20% flat tax rate for individual crypto investors is set to take effect in 2028.
- The legislation removes a key legal hurdle for future spot bitcoin ETFs.
Japan is significantly reshaping its cryptocurrency market by enacting stricter trading rules and enhancing user protections, bringing digital assets closer to the framework of traditional finance. The country's parliament approved revisions to the Financial Instruments and Exchange Act (FIEA), which now classifies crypto assets as financial instruments, moving away from the previous Payment Services Act (PSA) that primarily viewed them as payment tools. The law classifies cryptocurrencies more as an investment product than a payment product and places them under the FIEA. The new rules are expected to take effect in 2027. The new framework also removes a key legal hurdle for future spot bitcoin exchange-traded funds (ETFs), although lawmakers did not approve any ETF products. Financial Services Agency officials said Japan will now consider developing a regulatory framework for crypto ETFs. The legislation raises the maximum prison term for unregistered crypto operators from three years to 10 years and increases the maximum fine 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 approved the framework for reducing the current crypto tax burden from as much as 55% to 20%, although the lower rate is not expected to take effect until 2028. The tax-cutting proposal was introduced late last year with the support of the government and the ruling coalition. That new structure splits the 20% tax between the national government and regional authorities at 15% and 5%, respectively. The crypto rules will require cryptocurrency issuers to provide regular disclosures, while exchanges will face stricter investor protection and reporting requirements. There are already over 12 million verified crypto users in Japan with approximately $34 billion in crypto assets held under domestic custody.