Japanese Finance Minister Katsunobu Kato has confirmed that Tokyo will reassess the country’s highly criticized crypto tax laws by June 2025. Speaking at a plenary session of the House of Representatives on January 31, Kato acknowledged growing concerns over Japan’s stringent crypto tax framework. His remarks, reported by Iolite and the House of Representatives’ official website, indicate that regulatory adjustments could be on the horizon.
This development follows increasing pressure from lawmakers and industry advocates who argue that Japan’s tax policies are stifling innovation in the Web3 and crypto sectors.
Regulators Prepare for a Crypto Tax Overhaul
Kato was responding to a direct question from Akihisa Shiozaki, a Liberal Democratic Party (LDP) lawmaker and head of the Web3 Digital Society Promotion Office. In his statement, Kato revealed that Japan’s Financial Services Agency (FSA) is actively reviewing crypto tax laws, in alignment with the ruling LDP’s tax policy proposals.
According to Kato, the FSA’s review will include legislative recommendations that could shape the future taxation framework for crypto assets in Japan.
Notably, Prime Minister Shigeru Ishiba also weighed in on the issue, acknowledging that cryptoassets could play a pivotal role in addressing Japan’s social and economic challenges. Ishiba emphasized:
“The healthy development of Web3 – including cryptoassets – is extremely important.”
However, he also stressed the need for consumer protection and regulatory clarity, suggesting that Japan’s crypto ecosystem must evolve in a way that balances innovation with security.
Key Issues in Japan’s Crypto Tax System
Japan’s current crypto tax regime is widely regarded as one of the most burdensome in the world. Unlike many countries that apply a flat capital gains tax (~20%) to crypto profits, Japan classifies crypto trading gains as "other income", subjecting them to progressive tax rates of up to 55% for high earners.
Critics argue that this system discourages domestic participation in the crypto market and drives Japanese investors to offshore exchanges. Shiozaki’s department has labeled crypto tax reform an "urgent" priority, pushing for simpler, more competitive taxation policies.
A Shift in Crypto’s Legal Definition?
Beyond taxation, Kato also suggested that Japan is reconsidering its legal classification of crypto assets. Under existing Japanese law, Bitcoin (BTC) and other cryptocurrencies are treated as "payment instruments." However, Kato acknowledged that, in practice, digital assets are primarily used for investment purposes.
He hinted that the FSA may recommend changes to crypto’s legal status after consulting industry stakeholders. Such a shift could have broad regulatory implications, potentially aligning Japan’s crypto framework with global trends.
FSA’s Expanding Role in Crypto Regulation
Since 2017, the FSA has been the dominant force in shaping Japan’s crypto regulations. While the LDP sets high-level crypto policy, the FSA is responsible for drafting, implementing, and enforcing specific regulations. Historically, all of the FSA’s legislative proposals have been swiftly adopted by parliament, suggesting that any recommendations from the agency will likely become law.
The FSA is also considering amendments to the Payment Services Act, which could redefine crypto as a financial instrument under the Financial Instruments and Exchange Act. If enacted, this would strengthen regulatory oversight while integrating crypto more deeply into Japan’s financial system.
Balancing Caution and Progress in Japan’s Crypto Policy
Former Prime Minister Fumio Kishida was seen as progressive on crypto policy, promoting initiatives to develop Japan’s Web3 industry. In contrast, Prime Minister Ishiba has taken a more cautious approach, particularly regarding tax reform. However, his recent statements suggest a willingness to support blockchain innovation, provided that consumer protection measures remain robust.
With Japan’s crypto industry voicing strong opposition to its current tax framework and the global Web3 market rapidly evolving, the upcoming FSA review could mark a turning point for Japan’s regulatory landscape. If meaningful tax reforms are implemented, Japan could regain its competitiveness as a major crypto and blockchain hub.
Looking Ahead: Will Japan Finally Ease Crypto Tax Burdens?
As the June 2025 deadline for the tax review approaches, all eyes will be on the FSA’s recommendations. Key questions remain:
- Will Japan adopt a flat capital gains tax on crypto, aligning with global standards?
- Could a revised legal classification of crypto assets open new regulatory and investment opportunities?
- Will the FSA and LDP prioritize innovation, or will regulatory caution continue to dominate policy?
If Japan moves towards more favorable crypto regulations, it could attract more domestic and international investment, fostering the growth of Web3 and blockchain enterprises. However, without substantial reforms, Japan risks falling further behind crypto-friendly jurisdictions like Singapore, Hong Kong, and the United States.