The legislation, approved on July 15, introduces simultaneous amendments to the Financial Instruments and Exchange Act (FIEA) and the Payment Services Act (PSA).
Under the new framework, cryptocurrencies will be placed in the same category as stocks, bonds and other investment products within Japan’s financial system. The law is expected to take effect in 2027, while the Financial Services Agency (FSA) will continue developing detailed regulations and supervisory guidelines.
For the first time, Japan will apply insider trading restrictions to cryptocurrencies similar to those governing the stock market. Digital asset issuers will be required to publish information annually, while crypto exchanges will face stricter requirements covering investor protection, reporting transparency and risk management.
Penalties for companies providing crypto services without a licence will also increase significantly. The maximum prison sentence will rise from three years to ten years, while the maximum fine will increase from 3 million yen to 10 million yen, equivalent to approximately 61,600 USD.
Japanese lawmakers said the cryptocurrency market has expanded far beyond its original role as a payment instrument. As a result, digital assets now require a dedicated investment framework rather than continued regulation solely as electronic payment services.
Reform Opens the Way for Bitcoin ETFs and Major Tax Changes
The legislation also removes a major regulatory barrier to spot cryptocurrency ETFs. Parliament has not yet approved any individual fund, but recognising crypto as a financial asset gives the FSA a legal foundation for developing rules covering spot Bitcoin ETFs and similar investment products.
Japan Exchange Group (JPX) is reportedly considering the listing of the country’s first cryptocurrency ETFs from 2027, once the necessary regulatory guidance has been completed. A number of traditional financial institutions are also expected to enter the market.
However, the reform does not mean that spot Bitcoin ETFs will receive automatic approval. The Japanese government must still issue additional regulations, determine which digital assets are eligible, amend investment fund rules and conduct a separate review of every ETF application.
Another major element of the reform is the planned change to cryptocurrency taxation. Crypto profits in Japan are currently classified as miscellaneous income and are subject to progressive tax rates of up to 55%, among the highest in the world.
Under the new framework, cryptocurrency gains will be taxed separately at approximately 20%, bringing their treatment closer to that of stocks. Investors will also be allowed to carry losses forward for three years and offset them against future taxable gains.
The new tax regime is expected to apply from 2028, after the legislation takes effect during the 2027 fiscal year. The tax will be divided between the national government at 15% and local authorities at 5%.
Сonclusion: The sharp reduction in the tax burden is expected to make Japan’s cryptocurrency market considerably more attractive to both retail investors and financial institutions. Japan’s reform moves crypto from payment-focused regulation into the traditional investment framework. Lower taxes and clearer rules could attract more retail and institutional capital, although spot Bitcoin ETFs will still require separate regulatory approval.
