Japan's lower house of parliament passed a landmark bill on Thursday that reclassifies cryptocurrencies as financial instruments under the Financial Instruments and Exchange Act, pulling digital assets out of the Payment Services Act and placing them alongside equities and bonds, according to Bloomberg. The legislation cuts investor taxes, imposes stock-style trading rules and clears a regulatory path for crypto exchange-traded funds (ETFs). The bill now moves to the upper house and is expected to take effect next year, reshaping one of the world's largest crypto markets around investment rather than payments.
From Payment Tool to Investment Asset
By treating crypto as a financial instrument, the bill subjects issuers to tougher disclosure requirements and exchanges to stricter trading rules. It introduces insider trading bans, investment caps on unaudited token offerings, and sharply higher penalties for running unregistered crypto businesses. Stablecoins remain outside the new framework and continue to be regulated as payment services. The vote builds on amendments Japan approved earlier this year that first recognized crypto as a financial instrument without creating a separate regime.
Japan now counts more than 14 million open crypto accounts, according to the Financial Services Agency (FSA), with people earning under 7 million yen (about $43,600) a year making up roughly 70% of them. The reform replaces the progressive crypto tax, which topped out at 55%, with a flat 20% rate matching the treatment of stocks and bonds. The flat individual rate is expected to apply from 2028, leaving traders under the existing system in the interim.
ETF Pathway Takes Shape
Reclassifying crypto under securities law opens the market to products previously unavailable to Japanese investors. Japan Exchange Group expects crypto-linked ETFs could begin listing as early as next year if the legal framework advances through the upper house. A regulated ETF would give retail and institutional exposure to assets such as Bitcoin and Ether without holding the tokens directly, a structure that has drawn fresh capital into crypto markets elsewhere. The ruling Liberal Democratic Party has pressed the government to push ahead with a legal framework for crypto ETFs and promote yen-backed stablecoins across Asia.
Penalty clauses in the bill include up to five years imprisonment or fines of up to 5 million yen for individuals operating unregistered crypto businesses; corporate fines can reach 300 million yen. Exchanges must report trading data regularly and segregate customer assets. Industry observers say the new rules will weed out smaller non-compliant exchanges and accelerate market concentration.
Japan's crypto trading volume in the first half of 2026 rose 42% year-on-year, while institutional holdings increased from 12% to 18% of total. The LDP blockchain task force previously argued that digital assets should form part of the nation's financial strategy. The bill's passage is widely seen as a decisive step toward a crypto-friendly regulatory environment.