Japan’s Financial Services Agency (FSA) is poised to reassess its crypto regulations, potentially cutting taxes on crypto gains and reclassifying digital assets in an effort to promote a more favorable investment environment by 2025, Bloomberg News reported on September 25.
The FSA’s upcoming review, which will continue throughout the winter, will determine whether the existing framework under the Payments Act adequately reflects the evolving role of cryptocurrencies.
Regulatory review
According to the report, the agency could shift the classification of digital assets to fall under the Financial Instruments and Exchange Act. This change could impose stricter investment rules while potentially reducing the tax burden on crypto-related gains.
Such a change by the FSA could lead to a significant reduction in the tax rate on crypto profits, which currently stands at 55%. If digital assets are reclassified as financial instruments, they could be taxed at around 20%, putting them on par with stocks and other financial assets.
The local industry has long argued that high taxes have hampered growth and believes relief in this area will lead to significant growth as it encourages investment.
In addition to tax cuts, the overhaul could also result in the approval of exchange-traded funds (ETFs) containing digital tokens, which would further integrate cryptocurrencies into Japan’s broader financial market.
For years, the FSA has tried to strike a balance between promoting innovation in digital assets and the need to protect investors. This latest review signals an ongoing effort to find a middle ground that promotes growth while ensuring that legal safeguards remain in place.
Balance between innovation and protection
Japan has been actively working to strengthen its digital asset sector, with several companies exploring the potential of blockchain technology and stablecoins. A regulatory overhaul in 2022 required crypto exchanges to obtain licenses, which attracted interest from prominent companies like Bitget and Bybit.
However, future policies may be influenced by the expected leadership transition from Prime Minister Fumio Kishida to Shigeru Ishiba. Kishida is a proponent of Web3 and blockchain technologies, and any shift in leadership could change the course of crypto regulation in Japan.
In addition to the FSA’s ongoing review, Japan has recently taken steps to support the local blockchain ecosystem, including allowing investment firms to invest in crypto.
Despite the uncertainties, Japan’s digital asset market has seen a notable increase in trading volumes. According to CCData, monthly trading volumes rose to nearly $10 billion in 2024, compared to $6.2 billion in 2023, driven by a rally in Bitcoin and other cryptocurrencies.