Japan plans to reform cryptocurrency tax rates to 20%. Can this bring a new wave of buying?

Author: Wenser, Odaily

At the recently concluded WebX event in Japan, Katayama Satsuki, a member of the House of Councillors from the Liberal Democratic Party and Chairperson of the Committee on Audit and Oversight of Administration, stated at the venue that Japan is currently exploring the reclassification of cryptocurrencies themselves, that is, redefining well-known crypto investment assets such as BTC and ETH. The current tax rate on crypto assets in Japan is as high as 55%, but if crypto assets can be moved from the jurisdiction of the Payment Services Act to the Financial Instruments and Exchange Act, the tax rate could be reduced to 20%, aligning with the stock tax rate. She also stated: "This reform is expected to be realized within one or two years and is expected to take effect soon. The direction of this reform has already been decided by the Cabinet meeting—which usually means strong promotion. However, since the Liberal Democratic Party has currently lost its majority in parliament, we need to negotiate with other parties, which will take time and make the process slightly more complicated, but several parties already share our philosophy, so let's watch how things develop. The final conclusion must be settled before December."

Odaily will provide a detailed analysis of this in this article to explore whether this tax rate reform can bring more variables to the crypto market.

Inevitable Change in Crypto Tax Rate: Economic Dilemma under "New Capitalism"

Looking closely at this crypto tax rate reform, which was first initiated by the Financial Services Agency of Japan and mainly promoted by the Liberal Democratic Party, the main reason lies in Japan's current somewhat dire economic environment.

According to data released by the Ministry of Health, Labour and Welfare in early July, Japan's real wages, adjusted for inflation, fell by 2.9% year-on-year in May, further widening from the revised 2.0% decline in April, marking the largest drop since September 2023. In addition, the consumer price index used by the Ministry of Health, Labour and Welfare to calculate real wages (which covers fresh food prices but excludes rent costs) rose by 4.0% year-on-year in May, a significant increase that far exceeded the growth in nominal wages. The price of rice in Japan in May soared by 101.7% year-on-year, the highest increase in more than half a century.

Soaring prices, combined with previous gaffes by cabinet ministers and issues with commodity vouchers, have led to a series of blows to the credibility of the ruling Liberal Democratic Party. On July 21, the 27th House of Councillors election in Japan completed its vote count, and the ruling coalition of the Liberal Democratic Party and Komeito won a total of 47 seats, failing to achieve the majority target of 50 seats and unable to maintain a majority in the House of Councillors. In addition, the coalition had previously failed to secure a majority in the House of Representatives, officially turning the ruling coalition into a "minority government in both houses." This is the first time since the Liberal Democratic Party was founded in 1955 that the ruling coalition led by it has lost a majority in both houses simultaneously.

In addition, Japan-U.S. tariff negotiations are also affecting the pulse of the Japanese economy, influencing changes and developments in both domestic and international economic situations. Today's Japan is in a predicament of "internal and external difficulties." In view of this, the Japanese government has to seek new solutions under the "new capitalism" policy. Specifically, the efforts made by the Japanese government include the following two aspects:

On one hand, it is "increasing revenue" for the people by raising the minimum wage. In early August, the Central Minimum Wage Council of the Ministry of Health, Labour and Welfare decided to raise the guideline for the nationwide weighted average minimum wage for fiscal 2025 to 1,118 yen per hour (about 54.60 yuan), an increase of 63 yen from the current 1,055 yen, a 6% increase, the largest since the implementation of the hourly wage system in 2002. This also marks the 23rd consecutive year of minimum wage increases in Japan, and if implemented, the hourly wage in all prefectures will exceed 1,000 yen for the first time.

On the other hand, it is "cutting expenditure" for the people by lowering tax rates. Currently, this step is limited by party disputes and is still in its early stages. The Liberal Democratic Party has long been committed to promoting the reclassification of crypto assets and lowering tax rates to promote Japan as a center for Web 3 industry development; however, opposition parties such as the Constitutional Democratic Party and the Democratic Progressive Party have also made similar policy promises during elections (for example, Democratic Progressive Party leader Yuichiro Tamaki's proposals on NFT and Web 3 measures). Therefore, after becoming a "minority government," the pace of tax reform by the Liberal Democratic Party has inevitably been delayed to avoid criticism as a "tax cut for the rich." This is also why crypto tax reform is seen as a new breakthrough, that is, to shift cryptocurrencies from "payment methods" regulated by the Payment Services Act to "financial products" under the Financial Instruments and Exchange Act.

As a result, crypto gains will be reduced from "miscellaneous income" subject to a progressive tax rate of up to 55% (45% income tax + 10% resident tax, excluding local taxes) to a unified 20% tax rate, the same as stocks and bonds.

Japan's "Two-Step" Strategy for Tax Reform: Amend Tax Law First, Then Upgrade Regulation

It is worth noting that Japan's tax reform is not a one-step process. In addition, the reclassification of crypto assets involves cross-amendments to the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA), making the process more complex, and it is also subject to review by the Financial Services Agency (FSA) and political influence from the National Diet.

At present, Japan's tax reform will proceed in two steps:

First, amend the tax law, that is, adjust cryptocurrencies from the "comprehensive taxation" category to the "separate self-assessment taxation" category, the same as stocks, with the tax rate reduced to about 20% (15% income tax + 5.015% resident tax + special reconstruction tax).

Second, upgrade regulation, that is, through legal amendments, reclassify cryptocurrencies as financial products, so that the Financial Services Agency can apply insider trading rules, information disclosure standards, and investor protection measures under the Financial Instruments and Exchange Act.

The Push Behind Crypto Tax Reform: Crypto ETFs and Yen Stablecoins Poised for Launch

It is worth noting that the above reforms are also seen as paving the way for Japanese regulators to launch crypto ETFs and yen stablecoins. It must be said that the reason for the somewhat sluggish development of the domestic crypto industry in Japan today is not unrelated to previous security incidents such as the Mt.Gox bitcoin theft; and excessively high tax rates have also to some extent limited the trading activity of the crypto industry.

According to statistics from Shiraishi, vice chairman of the Japan Crypto Asset Business Association, while the global crypto market expanded from $872 billion to $2.66 trillion, Japan's domestic trading volume only grew from $66.6 billion in 2022 to an estimated $133 billion this year, an increase of only about double.

Meanwhile, a survey by the Cornell Bitcoin Club showed that 88% of Japanese residents have never owned bitcoin; but a joint survey by Nomura Holdings and Laser Digital showed that 54% of Japanese institutional investors plan to invest in crypto assets within three years.

Based on the above information, crypto tax reform, the launch of crypto ETFs, and the introduction of yen stablecoins are all imminent. According to media reports, the first yen stablecoin approved by the Financial Services Agency of Japan—JPYC, issued by a Tokyo fintech company of the same name, plans to issue stablecoins worth 1 trillion yen (about $6.78 billion) within three years. The stablecoin will be backed by highly liquid assets such as deposits and government bonds, with potential use cases including international remittances, corporate payments, and DeFi. Japan's second-largest bank, Mitsubishi UFJ Financial Group (SMBC), has also previously announced plans to launch a stablecoin in cooperation with Ava Labs and Fireblocks.

Emerging Industries such as Crypto Seen as "Lifeline" for Japanese Society

The reason why the Japanese government attaches so much importance to the crypto industry is because it sees the development potential of emerging industries represented by crypto. At the WebX 2025 conference held in Tokyo, Japanese Prime Minister Shigeru Ishiba stated at the venue that in the current context of increasing geopolitical uncertainty, the power of emerging industries has become extremely important in seeking new paths for economic growth. The Japanese government will continue to optimize the development environment for emerging industries, promote the development of digital, semiconductor, AI, space, and other emerging industries including Web 3, and promote the vigorous development of new industries through investment support and regulatory reform.

Ishiba also mentioned that the fundamental reason for Japan's population decline is the excessive concentration of population in Tokyo, with both marriage and birth rates falling, forming a vicious cycle. At this historical juncture, the government expects to leverage the potential power of new technologies such as Web 3 to bring new vitality to Japanese society. Web3 technology can help promote various reform measures by the government. Through innovative applications of digital technology, it can not only enhance industrial competitiveness but also provide new solutions to social problems such as regional development and demographic changes.

Conclusion: When Will Tax Reform Begin and Be Implemented?

According to the cycle of legal changes in Japan, the tax reform process usually follows an annual schedule: the tax reform outline is released every December, submitted to the National Diet for deliberation in March-April of the following year, passed around June, and comes into effect in April of the following year. This crypto tax rate reform is somewhat urgent, so the specific proposal is expected to be put forward before the end of the year, and legislative action may take place in early 2026.

As for the official implementation, it may have to wait until June 2026 or even the second half of the year. Key figures promoting the bill include Masaaki Taira and Katsunobu Kato from the Liberal Democratic Party's Web 3 Project Team (Web 3 PT), JCBA President and Bitbank CEO Noriyuki Hirosue, and Katayama Satsuki, the aforementioned member of the House of Councillors and Chairperson of the Committee on Audit and Oversight of Administration.

At that time, the market is expected to usher in a new round of buying.