Japan’s approach to crypto regulation is entering a more structured phase, shaped by tax reform, asset reclassification, and early planning for regulated investment products rather than abrupt policy shifts.
Sanae Takaichi’s decisive election victory has reduced legislative uncertainty, giving regulators and financial institutions clearer room to execute reforms already under discussion.
The impact is unfolding across several years, with key milestones expected between 2026 and 2028.
Political stability clears the legislative path
Takaichi’s landslide win delivered the ruling Liberal Democratic Party a strong majority in the lower house, limiting the risk of stalled financial legislation. For crypto policy, that stability matters more than campaign rhetoric.
Japan’s regulatory posture toward digital assets has remained cautious since the introduction of formal exchange licensing after the Mt. Gox collapse. Progress has often slowed due to coordination between ministries rather than political resistance.
The new mandate reduces that friction.
Government messaging has emphasized consistency, institutional participation, and investor safeguards, aligning with Japan’s long-standing preference for incremental financial reform.
Tax reform becomes the foundation
The most concrete shift is tax treatment.
Under current rules, crypto gains in Japan can face combined national and local taxes of up to 55%. The Financial Services Agency plans to change that framework in 2026 by reclassifying approximately 105 major cryptocurrencies, including Bitcoin and Ethereum, as financial products under the Financial Instruments and Exchange Act.
Once implemented, gains on those assets would be taxed at a flat 20%, matching the rate applied to stocks and investment trusts. Investors would also be allowed to carry losses forward for up to three years, a provision that does not exist under current crypto rules.
The reclassification introduces additional obligations. Insider trading restrictions would apply, and disclosure standards would more closely resemble those governing securities markets. Banks would be permitted to offer crypto exposure through securities subsidiaries, though not directly.
Japanese brokerage firms and industry groups have argued that the tax change alone could materially increase domestic trading activity.
Projections cited in local financial media estimate hundreds of millions of dollars in potential inflows by 2027, though outcomes remain dependent on market conditions.
ETF discussions point to a 2028 horizon
Beyond taxation, attention has turned to exchange-traded funds.
Nikkei reported in January that Japan may allow its first spot cryptocurrency ETFs to list as early as 2028. According to the report, the FSA is preparing amendments that would add cryptocurrencies to the list of assets eligible for ETF structures.
If approved, crypto ETFs could trade on the Tokyo Stock Exchange, subject to exchange authorization. Nomura Holdings and SBI Holdings have been identified in reporting as early candidates for product development.
Under current rules, cryptocurrencies do not qualify as specified ETF assets, leaving domestic investors without direct exchange-traded exposure. The proposed change would align crypto ETFs with existing frameworks used for commodities such as gold.
Lowering access while tightening controls
Regulators have framed ETFs as a way to lower operational barriers without weakening oversight.
Direct crypto ownership requires wallet management and private key custody, hurdles that deter many retail investors. ETFs would allow exposure through brokerage accounts operating under existing securities infrastructure.
At the same time, the FSA plans to impose strict custody and security standards on trust banks managing ETF assets, learning a lessons from previous incidents, including the 2024 DMM Bitcoin hack that resulted in losses of approximately ¥48.2 billion.
Yen pressure adds a macro dimension
While regulatory and tax reforms outline Japan’s domestic crypto trajectory, currency dynamics add another layer of influence from outside the policy process.
Former BitMEX CEO Arthur Hayes has argued that stress in the Japanese yen could act as a catalyst for Bitcoin and broader crypto markets. In a January 28 essay titled "Woomph," Hayes linked yen depreciation and rising Japanese Government Bond yields to potential intervention by U.S. authorities.
"Bitcoin and quality shitcoins will mechanically levitate in fiat terms as the quantity of paper money rises," Hayes wrote.
He outlined a scenario in which the U.S. Treasury and Federal Reserve coordinate to stabilize yen and bond markets by expanding dollar liquidity. Hayes pointed to a January 23 "rate check" on USD/JPY conducted by the New York Fed, which analysts at QCP Capital described as a signal of official sensitivity.
Hayes said confirmation of intervention would appear in increases to the "Foreign Currency Denominated Assets" line on the Federal Reserve’s balance sheet.
Hayes pointed to several risks facing Japan’s financial system.
A weaker yen raises import costs in an energy-dependent economy. Rising JGB yields increase government borrowing costs, while the Bank of Japan faces large unrealized losses as the dominant bondholder. If domestic yields remain attractive, Japanese investors could reduce U.S. Treasury holdings, potentially pushing U.S. borrowing costs higher.
Oleksii Shumak
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