Japan classifies cryptocurrencies as financial products under amended law

Japan has approved amendments to the Financial Instruments and Exchange Act and the Payment Services Act that reclassify cryptocurrencies as financial instruments, moving them from a framework centered on their use as a payment tool toward treatment as investment assets. The shift creates the legal basis for separate crypto taxation and for a future regulatory framework covering domestic spot bitcoin exchange-traded funds, though no ETF products were approved. The legislation, approved by Parliament on Wednesday, is expected to take effect in 2027. It introduces stricter insider-trading rules, requires regular disclosures from cryptocurrency issuers and imposes tougher investor protection and reporting requirements on exchanges. Penalties for unregistered crypto operators will also increase, with the maximum prison term rising from three years to 10 years and the maximum fine increasing from 3 million yen to 10 million yen. Lawmakers also approved a framework to reduce Japan’s crypto tax burden from as much as 55% to 20%, with implementation not expected until 2028. The proposed split allocates 15% to the national government and 5% to regional authorities. Financial Services Agency officials said Japan will now consider developing a regulatory framework for crypto ETFs, removing a key legal obstacle for future spot bitcoin funds.