Japan’s Crypto Reform: Flat Tax, ETFs, and a New Investment Era

For years, Japan has taken a cautious approach to crypto, shaped largely by past exchange scandals and strict regulation. But now, things are changing fast.

In June 2025, Japan’s Financial Services Agency (FSA) proposed a major overhaul that would redefine how the country treats digital assets. The idea is to classify cryptocurrencies as financial products, just like stocks and bonds, and allow for the creation of crypto ETFs.

Most notably, the reform includes a shift to a flat 20% capital gains tax, replacing the old system that could go as high as 55%. This could make Japan one of the most attractive crypto hubs in Asia, or even globally.

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Key Takeaways

1. Crypto reclassified as financial products under Japan’s Financial Instruments and Exchange Act, opening the door to ETFs.

2. New tax regime proposes a flat 20% rate on crypto gains, aligning with stock taxation and replacing the 55% cap.

3. Japan aims to keep capital local and attract global investors amid rising competition from the US and other crypto hubs.

Japan’s Regulatory Shift: From Payment Tool to Investment Asset

Japan’s current crypto law treats digital assets mainly as a form of digital payment, regulated under the Payment Services Act. But the FSA believes this framework is outdated.

Their June 2025 proposal calls for reclassifying cryptocurrencies as financial products under the Financial Instruments and Exchange Act (FIEA).

What does this mean in practice? For starters, crypto will now be subject to the same rules that apply to stocks, including investor protection, disclosure requirements, and custody regulations.

That’s a big step toward legitimacy, and it sets the foundation for something investors have been asking for: spot-based crypto ETFs.

This shift reflects how the crypto market has matured. Japan now has over 12 million active crypto accounts, and retail interest in crypto has surpassed other traditional investment avenues like corporate bonds and foreign exchange. That’s why regulators want to make crypto safer and more accessible, not push it away.

It’s also a strategic move. With the US already offering spot Bitcoin ETFs and attracting institutional inflows, Japan wants to compete.

The FSA noted that over 1,200 financial institutions already participate in the US ETF market. By allowing domestic crypto ETFs, Japan can tap into that momentum and keep investment capital within its borders.

Read more: What is YGG Japan Crypto (JPGG)?

Crypto Tax Overhaul: A Simpler and Fairer Approach

Under the current rules, Japanese crypto investors face a progressive tax system that can reach 55% on capital gains. 

That makes crypto much less attractive compared to traditional assets, which are taxed at a flat 20%. The new proposal aims to fix that by applying a uniform 20% tax rate to crypto profits, just like stocks.

This change could be a game-changer for retail and institutional investors alike. A simpler tax regime makes it easier to report crypto gains, reduces the burden of compliance, and encourages more participation from average users. It also levels the playing field, removing the bias against digital assets in the current tax system.

Investors will also benefit from the ability to carry forward losses to offset future gains, another feature borrowed from the stock market. That’s especially useful in crypto, where price swings are more frequent and unpredictable.

The FSA says this tax reform is part of a broader plan to encourage long-term investment and innovation. It’s aligned with Prime Minister Kishida’s “New Capitalism” strategy, which promotes a shift toward investment-led economic growth. Making crypto more tax-friendly is a practical way to support that vision.

The reform would not only keep more Japanese crypto capital at home but also attract global interest. Cities like Singapore and Dubai have already drawn crypto firms with favorable rules. If Japan wants to stay in the game, a tax system that doesn’t punish crypto is a crucial step.

Read more: Ripple’s $200K Bet on Japan's Crypto Startups

Stablecoins, Tokenization, and Japan’s Bigger Digital Plan

The proposed crypto reform doesn’t stop at ETFs and taxes. Japan is also laying the groundwork for broader digital-asset adoption.

In 2025, SBI VC Trade became the first licensed firm in Japan to handle stablecoins backed by Circle’s USDC. That was followed by a major partnership in April between SMBC, Ava Labs, Fireblocks, and TIS Inc. to develop stablecoins tied to the yen and the US dollar.

These moves show Japan’s commitment to using digital assets in real-world finance. The goal isn’t just to create coins. It’s to use them for settling tokenized stocks, real estate, and bonds.

In other words, Japan wants to build a fully digital investment infrastructure, where everything from payments to asset management can be done on-chain.

The FSA proposal also touches on this bigger picture. By giving crypto the same legal status as traditional securities, it opens the door to more complex financial products, such as tokenized funds and decentralized investment tools. The key is doing it within a regulated, transparent system.

This is especially important for younger investors. Data shows that crypto participation in Japan is higher among people under 40 than it is in traditional markets.

These investors value freedom, transparency, and liquidity. Giving them access to tokenized financial tools within a safe environment meets that demand.

The roadmap isn’t finalized yet. The proposal must be reviewed by the Financial System Council and the Cabinet Office before it becomes law, possibly in early 2026. But if it goes through, it would mark the most significant change to Japan’s crypto laws since the 2018 Coincheck hack.

Read more: XRP Japan News Update: Ripple Injects $200K to Boost Web3 Startups

Conclusion

Japan’s bold plan to reclassify crypto, introduce a flat 20% tax, and open the door to crypto ETFs signals a serious shift in its financial strategy. It shows that the country no longer sees crypto as a fringe asset but as a core part of its investment future.

For users and investors, it means better access, clearer rules, and fairer tax treatment. For the market, it could mean a more competitive Japan, ready to stand beside the US and other global hubs.

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FAQ

What is Japan’s proposed crypto tax change?

Japan plans to replace the current progressive tax on crypto gains (up to 55%) with a flat 20% capital gains tax, similar to stocks.

Will Japan allow crypto ETFs?

Yes, the new proposal reclassifies crypto as financial products, paving the way for spot-based crypto ETFs under traditional investment laws.

Why is Japan reforming its crypto rules now?

Japan wants to remain competitive globally, attract investment, and support younger investors. These changes align with its broader economic goals under the “New Capitalism” strategy.

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