Breaking news! Japan’s House of Councillors has passed a decision: crypto assets are financial instruments! The tax rate has been cut to 20%, paving the way for a Bitcoin ETF substitute.

Japan’s House of Councillors’ Finance and Financial Affairs Committee on July 14 approved, by majority vote, amendments such as the Financial Instruments and Exchange Act and the Act on Settlement of Funds. The committee session is expected to formally pass the amendments on July 15, officially reclassifying crypto assets from “means of payment” to “financial instruments.” Criminal liability for unlicensed sales will be raised from less than 3 years to less than 10 years, and for the first time, insider trading will be brought under regulation. As for taxation, the regime will change from comprehensive taxation at up to 55% to separate taxation of about 20%.
(Backgrounder: Japan upgrades financial laws to classify crypto assets as financial instruments; insider trading is criminalized; ETFs will launch in 2028.)
(Background addition: Japan plans to introduce a crypto “separate taxation” system, with a unified tax rate of 20%.)

Table of Contents

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• Heavier penalties without a license, insider trading criminalized
• Tax rate cut from 55% to 20%
• Laying the groundwork for Bitcoin ETFs

Key takeaways

• On July 15, Japan’s House of Councillors voted to pass amendments to the Financial Instruments and Exchange Act (金商法) and the Act on Settlement of Funds (資金決済法), officially reclassifying crypto assets from “means of payment” to “financial instruments.”
• The criminal liability for unlicensed sales will be increased from under 3 years to under 10 years; the fine cap will rise from 3 million yen to 10 million yen; and insider trading will be regulated for the first time.
• The tax regime will change from comprehensive taxation at up to 55% to separate taxation of about 20%; losses can be carried forward for 3 years; implementation is expected in 2028; and there will be a path for spot Bitcoin ETFs.

Japan’s Parliament opens a new chapter for crypto asset regulation. According to Nikkei Asia, Japan’s House of Councillors’ Finance and Financial Affairs Committee approved, by majority vote, a package of amendments on July 14, including the Financial Instruments and Exchange Act and the Act on Settlement of Funds. The current session is expected to formally vote on July 15 to finalize the legislation, with the fastest timeline to complete the law before the current session ends on July 17. The House of Representatives already passed the bill on June 11; with the House of Councillors now clearing this hurdle, the bill is essentially set in stone.

In the past, Japan placed crypto assets under the Act on Settlement of Funds, treating them as a “means of payment.” After the amendments, they are moved under the Financial Instruments and Exchange Act, the law that governs stocks and bonds, and officially become “financial instruments.” With the classification changed, the entire framework for investor protection and rules against unfair trading will be applied accordingly.

Heavier penalties without a license, insider trading criminalized

First comes harsher punishment. For operators that sell crypto assets without registration, the maximum term of imprisonment will be raised from less than 3 years to less than 10 years, and the maximum fine will also increase from 3 million yen to 10 million yen.

Issuers, exchange operators, and anyone who possesses material non-public information—such as information about listing, delisting, or major technical incidents—are prohibited from trading before the information is publicly released. This means the space for exchange insiders to know in advance which coin to list or delist, and then front-run the market, will be officially shut down.

The amendments also require IEOs (Initial Exchange Offerings, first-time exchange offerings) to disclose basic information, and set investment limits for individual investors. Certain crypto asset issuers must also regularly fulfill information disclosure obligations, moving much closer to retail investors.

Tax rate cut from 55% to 20%

What matters most to retail investors is taxes. Under the current system, profits from crypto assets are classified as “miscellaneous income,” and are taxed progressively together with other income, with the top rate able to approach 55%. After the amendments, it will switch to “file-and-separate taxation,” reducing the rate to about 20% (including local taxes of about 20.315%), and—like stocks—losses can be carried forward and deducted within 3 years.

With this cut, crypto assets are effectively put onto the same tax table as stocks. However, the tax system will not take effect immediately; it is expected to roll out in 2028. Related provisions under the Financial Instruments and Exchange Act will be implemented first in the 2027 fiscal year.

Laying the groundwork for Bitcoin ETFs

By bringing crypto assets under the Financial Instruments and Exchange Act, Japan has also opened another door: spot crypto ETFs. Once crypto assets become legally recognized financial instruments, the legal obstacles to issuing and listing spot ETFs are cleared. The Tokyo Stock Exchange has already indicated its position, saying trading could begin as early as 2027.

Japan’s Finance Minister Shunichi Koyama commented just last week, saying crypto ETFs should be unblocked and that Japan can no longer afford to be absent. From the Financial Services Agency floating the idea at the end of 2024, to the House of Representatives and the House of Councillors giving their approvals one after another, Japan spent about half a year pushing this reform to the finish line. Next, it remains to be seen whether the policy upside can be realized when the two milestones of 2027 and 2028 truly arrive.

Frequently Asked Questions

What impact does it have to reclassify crypto assets as financial instruments in Japan?

Crypto asset regulation moves from the Act on Settlement of Funds to the Financial Instruments and Exchange Act, applying the same investor protection and unfair trading rules as stocks and bonds. This includes insider trading, which will be brought under regulation for the first time, and a prohibition on trading ahead of time when issuers and exchanges hold material non-public information.

When will Japan’s crypto asset tax rate drop from 55% to 20%?

The amendments will change crypto asset income taxation from comprehensive taxation at a top rate of about 55% to file-and-separate taxation at about 20%. Losses can be carried forward for deduction within 3 years. Implementation is expected in 2028, while related Financial Instruments and Exchange Act provisions will take effect first in the 2027 fiscal year.