Sep 15 (News On Japan) - Japan is renowned for its technological advancements, but as far as digital payments are concerned, it fails to maintain the same progress as its neighbors or other economies.
Japanese consumers hold a preference for cash, although they can choose from various payment options, such as credit cards or electronic money. The emergence of cryptocurrency, digital wallets, and online banking is expected to push for a cashless economy.
By the end of 2024, Japan had approximately 11.8 million cryptocurrency accounts and ranked 23rd globally in terms of adoption, alongside other East Asian nations. In 2017, Japan emerged as the first major economy to implement cryptocurrency regulations through the enactment of the Virtual Currency Act. Cryptocurrency exchanges must register with the Financial Services Agency, meet stringent compliance standards, and follow Anti-Money Laundering/Countering the Financing of Terrorism protocols. Starting roughly in the middle of 2025, Japan began reclassifying top cryptocurrency, advancing tighter disclosure, insider trading rules, and enabling exchange-traded funds (ETFs).
2025 is set to be a pivotal year for blockchain-based assets in the top-tier economy. By ensuring that cryptocurrency taxation and traditional finance products align, Japan aims to cement its position as a leading hub for innovation globally. The key proposed changes highlight a shift towards a more investor-friendly environment. If you're interested in investigating further, please continue reading.
Japan Currently Taxes Crypto Gains And Rewards As Miscellaneous Income
Cryptocurrency is regarded as property and taxed as miscellaneous income under the Payment Services Act and the Financial Instruments and Exchange Act. Buying and owning cryptocurrency isn't taxable. Additionally, the Japanese National Tax Association doesn't distinguish between individuals and wallets as far as cryptocurrency taxes are concerned. This is a key detail that leads to high tax rates.
Miscellaneous income is added to other earnings and taxed at progressive national rates of 5-45%, plus a flat 10% local inhabitant tax that pushes the top rate to 55%. It's considerably higher than the flat 20% tax on gains from stocks and other traditional financial investments. The tax on unrealized gains for corporations represented a significant deterrent for businesses holding digital assets long-term in 2024. Earlier this year, the Japanese Cabinet approved a proposal to end corporate taxation on the difference between the market and book value of crypto assets issued by other companies.
Taxable events are generally triggered by:
- Converting cryptocurrency for Japanese yen or any other fiat currency
- Exchanging one cryptocurrency for another
- Using cryptocurrency for payments
- Receiving cryptocurrency from mining, staking, yield farming, and airdrops.
Attention must be paid to the fact that transferring cryptocurrency from one wallet to another doesn't result in taxes owed.
Japan's Financial Services Agency Wants to Treat Crypto Like Traditional Investments
Japan's Financial Services Agency intends to revise the Financial Instruments and Exchange Act to give cryptocurrencies a legal status as financial products, similar to stocks and bonds, prohibiting buying and selling under undisclosed internal information. Should the proposal be approved for 2026, Japan will transition to a more streamlined, investor-friendly framework. The regime has often been criticized for being one of the most burdensome globally for cryptocurrency investors.
By treating cryptocurrencies as financial instruments, the Financial Services Agency aims to address key gaps in the current oversight structure, moving crypto assets out of the Payment Services Act and into a more comprehensive regulatory framework. Profits from cryptocurrency will no longer be subject to progressive tax rates. A capital gains rate of 20% will apply, therefore making cryptocurrency investing more accessible and predictable for both retail and institutional investors.
This reform is part of Japan's broader "New Capitalism" initiative, which aims to position the country as a hub for digital asset innovation. The government's stated goals include attracting domestic and international capital, driving economic growth via technological advancement, and consolidating Japan's position as a leader in the global digital economy. The Financial Services Agency's initiative is expected to foster a balanced environment that protects users while fostering innovation.
The reclassification of crypto assets as financial products aligns with Japan's ambitions to support institutional products like Bitcoin ETFs and stablecoins. The Financial Services Agency plans to lift the existing ban on cryptocurrency ETFs to align Japan with global markets like Hong Kong or the United States, where ETFs have already gained traction. The legislative changes are likely to be considered during the 2026 Diet session. The first yen-denominated stablecoin, issued by JPYC, will be approved as early as this fall, which will be backed by deposits and government bonds.
In The Meantime, Cryptocurrency Investors Should Perform Due Diligence
Although the reform is undertaken to enhance the efficiency of the tax administration, it also maximizes the economic and social benefits that can be achieved via the tax system. Japan will tighten its regulatory oversight to ensure security and compliance, aligning private sector interests with its strategic targets. Under the Travel Rule, all crypto exchanges must obtain, hold, verify, and share with each other information that can be used to identify individual customers. Anonymous wallets aren't available to prevent illicit activities.
In light of the global tightening of cryptocurrency regulations, Japan has a one-of-a-kind opportunity to lead the way in developing a flourishing Web3 and digital ecosystem that relies on a foundation of optimistic innovators and facilitates long-term value. There's much to be gained. For the time being, investors should meticulously document all digital asset transactions to avoid significant penalties, audits, and financial repercussions. This includes the activity on crypto wallets and crypto exchanges. Once ratified, the new tax regime will be a game-changer for investors.
Lower tax rates and increased regulatory clarity address two of the most significant barriers to large-scale cryptocurrency adoption, namely risk and complexity. Japan could attract more crypto-related businesses, therefore creating a more mature and liquid market. The loss carry-forward system will allow taxpayers to offset losses against future gains for up to three years from the following fiscal year. Under the old rules, taxpayers could counteract what they owed within the same income year.
All in all, industry leaders have expressed optimism regarding the changes to cryptocurrency taxation in Japan, which is rooted in the belief that reforms correct policy mistakes and position Japan as a leader in the Web3 space.
