Japan Passes Bill Recognizing Crypto as Products.

• Japan classifies crypto as financial products under revised financial legislation.
• New law introduces insider trading rules and stronger penalties for violations.
• Reform supports future crypto ETFs and a proposed 20% separate tax framework.

Japan has passed a landmark bill that officially recognizes cryptocurrencies as financial products under the Financial Instruments and Exchange Act. 

The legislation introduces stronger investor protections, tighter oversight for crypto businesses, and creates the legal foundation for future tax reforms and domestic crypto exchange-traded funds (ETFs).

Japan Strengthens Crypto Regulation and Investor Protection

Japan’s parliament has approved amendments to the Financial Instruments and Exchange Act, formally recognizing cryptocurrencies as financial products instead of payment instruments. The House of Councillors passed the bill on July 15, completing its approval through both chambers of the National Diet.

According to Japan’s public broadcaster NHK, the legal change reflects the country’s growing cryptocurrency market and expanding investor participation. Crypto accounts in Japan have now exceeded 14 million, highlighting increasing adoption across retail investors.

The revised law moves crypto regulation away from the Payment Services Act. Instead, digital assets will now fall under the country’s primary financial market legislation alongside traditional investment products.

The amendment introduces insider trading rules for cryptocurrency markets for the first time. Individuals with undisclosed information about listings, delistings, or other material events will face restrictions similar to those applied in securities markets.

Moreover, issuers seeking to raise funds through new crypto assets must provide regular disclosures explaining how investor funds will be used. Certain crypto asset issuers will also be required to publish annual reports to improve market transparency.

The legislation significantly increases penalties for businesses operating without registration. The maximum prison sentence rises from three years to ten years, while the maximum fine increases from 3 million yen to 10 million yen.

Additionally, cryptocurrency exchanges will be required to maintain financial reserves to compensate customers if unauthorized access or cybersecurity incidents result in losses.

Tax Reform and Crypto ETF Framework Move Closer

The legislation also creates the legal foundation for major tax reforms affecting cryptocurrency investors. Current crypto profits are treated as miscellaneous income and may face combined tax rates reaching 55%.

Under the new framework, lawmakers plan to introduce separate taxation of approximately 20% alongside a three-year loss carryforward system. However, these tax measures will require further implementation rules before taking effect.

According to a CoinPost report, the tax changes are expected to take effect from January 2028 if the revised law enters into force during fiscal year 2027.

The amendments also establish the legal framework necessary for domestic spot cryptocurrency ETFs. Although Bitcoin ETF approval remains uncertain, the Japan Exchange Group is reportedly considering local crypto ETF listings as early as 2027.

Traditional financial institutions, including banks, securities firms, and trust companies, could participate once detailed regulations are finalized. Meanwhile, government agencies will spend the next year preparing cabinet ordinances and supervisory guidelines before the law becomes fully effective.