Japan is on a mission to redefine its digital asset regulations in a bid to reclassify cryptocurrencies and create a path to exchange-traded funds (ETFs) and tax reliefs. The Liberal Democratic Party (LDP) has been at the forefront in campaigning for the reclassification of crypto. Consequently, it would not be categorized as a miscellaneous asset but more of an investment-oriented asset.
Lighter taxes and ETF access
Currently, the government taxes crypto as miscellaneous income, with rates reaching up to 55%. In the proposal, lawmakers suggest taxing long-term gains at a flat 20% rate, similar to equities. The decision is likely to attract retail and institutional investors to hold them over the long term and to spur growth.
June 25, 2025
Importantly, the reclassification will be the gate to spot crypto ETFs. Licensed institutions may soon introduce such products, which have been prohibited on the basis of classification in the past. This would be a copy of the U.S. accepting Bitcoin ETFs and boosting liquidity and validity in Japanese markets.
Corporate gains and startup growth
The proposal will explain how the government will tax unrealized crypto gains in corporations. This burden has driven away start-ups in Japan. Eliminating this tax may reverse the brain drain and place Tokyo as a potential hub of Web3 innovation.
The reforms by Japan follow a worldwide race in regulations. Competitors such as Singapore, Hong Kong, and the EU are developing more straightforward crypto policies. Japan is keeping up with the rest by following the AML, Travel Rule, and FATF requirements dictated by the Financial Services Agency (FSA).
Public support and institutional readiness
Domestic companies such as Rakuten and SBI Holdings approve of the plan. More than 70 percent of retail investors interviewed supported the tax cut and access to ETFs. Crypto exchanges have already started preparing by updating their systems and compliance tools. Meanwhile, institutional demand is building in anticipation.
Lawmakers will likely fully approve the legislation in the first half of 2026. However, they may implement some minor tax changes earlier to encourage end-of-year investing. The rollout should take place in phases. Relaxed taxation, legalized ETFs, and increased start-up funding are positioning Japan as a global role model in crypto regulation.
