Japan has reclassified cryptocurrencies as financial instruments, a structural change that establishes the legal framework for separate taxation of crypto assets and for future crypto exchange-traded funds (ETFs).
The legislation approved by Parliament on Wednesday amends the Financial Instruments and Foreign Exchange Act and the Payment Services Act (PSA). This moves crypto from a framework in which it was primarily treated as a payment tool to one that treats it as an investment alongside other financial instruments. The new rules are expected to come into force in 2027.
The new framework also removes a major legal hurdle for future spot Bitcoin exchange-traded funds (ETFs), although lawmakers have not approved any ETF products. Financial Services Agency officials said Japan will now consider developing a regulatory framework for crypto ETFs.
The legislation increases the maximum prison term for unregistered crypto operators from three years to 10 years and increases the maximum fine from 3 million yen ($18,500) to 10 million yen. It also introduces stricter insider trading rules and expands disclosure requirements for issuers and crypto exchanges.
