Japan to reclassify crypto as financial products, impose securities rules and 20% tax

Japan’s Financial Services Agency (FSA) is advancing a policy overhaul to reclassify crypto assets from payment instruments under the Payment Services Act to financial products under the Financial Instruments and Exchange Act (FIEA). The working group cited rising consumer complaints (about 350 per month), international fraud schemes and heightened cyber threats as drivers. Under FIEA treatment, exchanges and crypto businesses would face securities-style disclosure, insider-trading protections, criminal penalties, and stricter compliance. Regulators are also considering token classification based on whether a token has an identifiable issuer — potentially separating Bitcoin-like decentralized assets from issuer-backed tokens. The proposal includes tax reform to align crypto with equities by replacing the current miscellaneous-income tax (15–55%) with a flat 20% tax on crypto gains. Industry voices (Tatsuo Oku, Rintaro Kawai, Prof. Yoshikazu Yamaoki) say the market now resembles a securities ecosystem and warn that heavier compliance costs could drive consolidation, favor larger financial firms, and raise barriers for smaller exchanges. Possible outcomes: higher transparency and investor protection, increased compliance costs, market consolidation, and stronger self-regulatory roles for bodies like the Japan Virtual and Crypto Assets Exchange Association (JVCEA). Key metrics: ~13 million crypto accounts in Japan, ~350 monthly complaints, current top marginal crypto tax up to 55%, proposed 20% flat tax. This shift is likely to materially change operating requirements for exchanges and affect liquidity, listing practices and institutional participation.