Japan’s FSA Pushes Bold Crypto Tax Reform, Boosting Prospects for ETF Listings

Japan’s FSA has made moves to reshape taxation rules and reclassify digital assets in the country. This could potentially open the door for cryptocurrency exchange-traded funds (ETFs). 

Japan Seeks Crypto Tax Overhaul

Nikkei reports that Japan’s Financial Services Agency (FSA) plans to incorporate the expansion of the Small Investment Tax Exemption System (NISA) into its fiscal 2026 tax reform proposal. The plan is part of Tokyo’s broader vision of becoming an “asset management nation.” This would allow its financial markets to attract greater participation from corporations. 

Currently, crypto gains in Japan are treated as “miscellaneous income” under the tax code. This is subject to progressive rates that can reach as high as 55% when local levies are included. The system has long been criticized as punitive, especially when compared with equities and bonds, which are taxed at a flat 20%.

The FSA’s proposal would change that by moving crypto earnings into the same 20% bracket as stocks. This also allows investors to carry forward losses for up to three years. Officials argue that this parity will reduce financial strain on traders. It could also stimulate greater participation from both individuals and institutions. 

Japan’s troubled history with cryptocurrency has shaped this reform package. The demise of Tokyo-based Mt. Gox in 2014 rocked trust in digital assets. Since then, Japan has put in place some of the most stringent cryptocurrency laws in the world, with a focus on protecting investors.

Additionally, back in May, Japan faced economic challenges tied to the crypto market crash. This move could also help in easing future risks.

Proposed Tax Reforms Set Stage for Crypto ETFs

These reforms aim to classify cryptocurrencies as financial products under the Financial Instruments and Exchange Act (FIEA). This change would put digital assets under the same rules that govern stocks and bonds. It allows regulators to enforce laws on insider trading, set disclosure standards, and provide stronger protection for investors.

Although Japan has not yet authorized a spot Bitcoin ETF, this new classification could pave the way for its launch. According to analysts, crypto ETFs would provide investors with a controlled and convenient means of gaining access to digital assets. The commission had previously hinted at a potential Bitcoin ETF approval.

Furthermore, the FSA recently reported more than 12 million active domestic crypto accounts holding assets worth over 5 trillion yen (about $34 billion). Crypto ownership now surpasses participation in some traditional financial products such as foreign exchange and corporate bonds, particularly among younger, tech-savvy investors.

Japanese corporations are also advancing digital finance. In April, Sumitomo Mitsui Financial Group, TIS Inc., Ava Labs, and Fireblocks signed an agreement to commercialize stablecoins pegged to both the U.S. dollar and the yen. Ripple also launched its RLUSD stablecoin in the Japanese market, in partnership with SBI Holdings,

At the same time, listed company Metaplanet has continued with its aggressive Bitcoin purchases. This suggests a growing trend in Japan’s crypto space.