Japan’s cabinet has given the green light to a bill that would reclassify cryptocurrencies as financial products under the Financial Instruments and Exchange Act, signaling a pivotal change in the nation’s regulatory stance towards digital assets.

Should this legislation be enacted during the ongoing Diet session, it is anticipated to come into force by fiscal 2027. This bill will mark the first time cryptocurrencies are regulated as financial products under Japan’s securities law. Among its key provisions is a ban on insider trading and transactions based on non-public information, along with mandatory annual disclosure requirements for cryptocurrency issuers.

Additionally, the new legislation increases penalties for unregistered operators, extending the maximum prison sentence from three years to ten years and boosting the maximum fine from JPY 3 million to JPY 10 million.

Regulatory shift and broader context

Currently, Japan’s Financial Services Agency primarily oversees cryptocurrencies through the Payment Services Act, classifying them as means of payment. The proposed reclassification implies a move towards treating cryptocurrencies as financial instruments subject to securities-style regulation, similar to how stocks and other investment products are managed.

Moreover, this bill is part of a wider regulatory transformation in Japan. Early reports suggest that the Financial Services Agency had plans in January 2026 to include cryptocurrencies in the list of base assets eligible for exchange-traded funds, potentially allowing their approval as early as 2028. Japanese authorities are also considering lowering the tax rate on cryptocurrency income from a maximum of 55% to 20%, aligning it with the rate applied to stock investments.

In sum, these developments indicate Japan’s commitment to enhancing regulatory clarity for the crypto industry while fostering innovation and market growth.