Japan Passes Bill Reclassifying Crypto as Financial Instruments

The Government of Japan has passed a bill to reclassify cryptocurrencies from payment methods to financial instruments under the Financial Instruments and Exchange Act. The reforms, expected to take effect in 2027, shift digital assets away from the Payment Services Act to align them with equities and stocks.

Central to the legislation is a significant tax overhaul, replacing a progressive income tax rate of up to 55% with a flat 20% rate. Investors will also be permitted to carry over trading losses for up to three years. To increase security, the framework introduces insider trading bans, strict public disclosure requirements for developers, and investment caps of 2 million yen for unaudited token offerings. Penalties for operating unregistered crypto businesses will increase, with maximum prison sentences rising from three to 10 years and fines increasing to 10 million yen.

The regulatory shift enables the launch of spot crypto ETFs, with total approval targeted by 2028. The Financial Services Agency has already approved the nation's first XRP ETF, prompting firms such as Nomura Holdings and SBI Holdings to develop similar products. The Japan Exchange Group indicated that some crypto ETFs could list as early as next year if law revisions allow.