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Reports stated that Japan’s Financial Services Agency intends to reclassify 105 digital currencies as financial products and reduce the tax rate on earnings from digital currencies from a maximum of 55% to a flat 20%, to be consistent with the financial market’s tax policy. The proposed reform will be presented in the 2026 parliament session.
These radical regulatory changes in Japan seek to revitalize the cryptocurrency sector. It aims to resolve the accumulated complaints of investors regarding high rates, strengthening market surveillance and protecting consumers.
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Comprehensive tax reform targets investment flight
Currently, Japan imposes taxes on… Cryptocurrency earnings As a diversified income, with progressive rates up to 55% when collecting national and local taxes. This system discouraged local investment and drove traders abroad. The move to a flat tax of 20% would be in line with the equity and derivatives tax, which would provide parity between investors.
According to a report from The local mediaThe new policy includes 105 designated digital currencies, including Bitcoin and Ethereum, which will be reclassified below. Japanese Securities and Exchange Act. This amendment includes digital assets under the same laws as traditional securities, which require mandatory disclosure and prohibit insider trading.
The plan also provides procedures for carrying forward losses, allowing investors to deduct cryptocurrency losses from future earnings. This measure echoes the possibility of carrying losses for three years as available to equity investors, which provides greater flexibility in managing portfolios in Volatile markets.
Industry voices have said that this step is crucial for Global competitiveness. The former CEO of Binance, Changpeng Zhao, noted that the reform represents progress, although the tax is still higher than in some countries. He noted that many countries do not tax crypto earnings, but Japan is moving in this direction.
Strict market control and consumer protection procedures
Beyond taxes, the Financial Services Agency imposes strict disclosure rules on cryptocurrency issuers. They must disclose detailed information regarding blockchain technology, volatility and operational risks. These new obligations reflect what is in place for traditional securities, providing retail investors with more transparency.
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Insider trading rules will include 105 designated digital currencies for the first time. Anyone in possession of non-public information deemed material faces legal consequences if it is traded. This represents an important step, applying long-established standards in stocks to digital assets.
The reforms prohibit banks and insurance companies from selling digital currencies directly to consumers, to maintain consumer safety. However, its securities subsidiaries may distribute digital currencies. This agreement allows for regulated institutional participation while separating traditional banking from digital assets.
Discussions also include the possibility of allowing banking groups to obtain licenses for cryptocurrency exchanges, which would allow digital asset services to be more strongly integrated into the Japanese financial sector. The Financial Services Agency seeks to find a balance between encouraging innovation and managing systemic risks with the convergence of financial and digital currencies.
Infrastructure security after a major stock market hack
This regulatory step comes later Hack DMM Bitcoinwhich resulted in losses for 48.2 billion yen and was considered one of the biggest cryptocurrency hacks in Japan. This event exposed vulnerabilities in exchanges and third-party service providers. As a result, the Financial Services Agency will require the main infrastructure providers to be registered and supervised.
System providers handling custody, portfolio management and transaction processing must now register and operate under supervision. Monitoring thus extends beyond exchanges to include the entire ecosystem that supports cryptocurrency trading, while addressing loopholes that have allowed security issues to persist.
Japan’s radical reform could set a model for balanced cryptocurrency regulation. By combining favorable rates with strict market rules, the FSA aims to attract domestic and international investment while maintaining strong consumer protection.
The formal report will be submitted to the Financial System Council in December, with fiscal discussions continuing in parallel. The legislation could reach Parliament by 2026. If they pass, the reforms could come into force at the end of that year or in early 2027, depending on the legislative calendar.
International observers remain alert, especially as South Korea prepares to impose a 20% tax on cryptocurrencies in January 2027. Japan’s path could influence regulatory norms across Asia as markets compete for cryptocurrency investments and talent.
