Regulatory Changes on the Horizon

Under the proposed reforms by LDP lawmaker Akira Shiizaki, cryptocurrencies will be recognized as a unique asset class, distinct from securities as defined by Japan’s Financial Instruments and Exchange Act. This reclassification is part of a broader initiative to enhance the regulatory framework surrounding digital assets in Japan.

In addition to reclassifying digital assets, the LDP’s proposal includes favorable tax treatment for cryptocurrency derivatives trading, aligning it with the tax regulations governing spot investments. One of the notable adjustments is the postponement of tax obligations on crypto-to-crypto exchanges, where taxes would only apply at the point of conversion to fiat currency, streamlining the tax process for investors.

These proposed reforms mark a substantial shift in Japan’s approach to cryptocurrencies, indicating a willingness to embrace digital assets more openly. Historically, Japan took a conservative stance on crypto investments, often favoring traditional investment avenues, such as U.S. government debt.

Innovation Meets Caution in Japan’s Crypto Landscape

While Japan’s government has maintained a cautious attitude toward cryptocurrencies, it has not positioned itself against them. Instead, it has sought to balance innovation with necessary consumer protections. This balance was evident when Japan passed an economic stimulus bill in November 2024, which included commitments to crypto tax reforms that are underway. The LDP has invited feedback on these proposed reforms until March 31, 2025, encouraging stakeholder participation in shaping the regulatory landscape.

Amid these regulatory progressions, Japanese lawmaker Satoshi Hamada proposed a strategic approach to Bitcoin (BTC) reserve management, suggesting the government consider converting part of its foreign currency reserves into BTC to enhance its competitive edge against the United States. However, Prime Minister Shigeru Ishiba expressed caution, indicating that Japan currently lacks sufficient understanding of the U.S. stance on Bitcoin to make a decisive maneuver.

Recent Developments in Crypto Regulation

In February 2025, the Financial Services Agency of Japan (FSA) took further steps to regulate the sector by requesting major tech companies like Google and Apple to halt unregistered cryptocurrency exchange applications in the country. This move aims to tighten control over cryptocurrency trading and ensure that all exchanges are compliant with Japan’s regulatory requirements.

Japan’s evolving stance comes at a time when many nations are grappling with how to integrate cryptocurrencies into their financial systems safely. The LDP’s proposals could significantly influence how cryptocurrencies are perceived and regulated in Japan, possibly serving as a model for other countries looking to navigate the complexities of digital asset legislation.

FAQs

What is the capital gains tax on cryptocurrencies in Japan after the proposed changes?

The Liberal Democratic Party (LDP) aims to reduce the capital gains tax on cryptocurrencies to 20% as part of their regulatory reforms.

How will the classification of cryptocurrencies change under the new regulations?

Cryptocurrencies will be recognized as a distinct asset class, separate from securities, which will help tailor specific regulations that are more suited to their nature.

What recent actions have been taken by Japan’s Financial Services Agency regarding cryptocurrency exchanges?

In February 2025, the FSA requested major tech companies to suspend unregistered crypto exchange applications in Japan to ensure compliance with regulatory standards.