Japan plans to reform the cryptocurrency tax rate to 20%. Will it bring a new wave of buying?

Author: Wenser, Odaily Planet Daily

At the recently concluded WebX event in Japan, Katayama Satsuki, a member of the House of Councillors and chair of the budget committee from the Liberal Democratic Party, stated on-site that Japan is currently exploring the reclassification of cryptocurrencies, specifically redefining well-known crypto investment assets like BTC and ETH. Japan's current tax rate on crypto assets is as high as 55%, but if cryptocurrencies 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 it with the stock tax rate. She also mentioned, "This reform is expected to be realized within one to two years and is anticipated to take effect soon. The direction of this reform has been decided by the Cabinet meeting—this usually means strong promotion. However, since the Liberal Democratic Party currently lacks a majority in the parliament, we need to negotiate with other parties, which will take time and complicate the process. Nevertheless, several parties share our vision, so we will wait and see how things develop. The final conclusion must be finalized before December."

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

The Unchanging Crypto Tax Rate: The Economic Dilemma Under "New Capitalism"

A closer look at the cryptocurrency tax rate reform initiated by Japan's Financial Services Agency and driven by the Liberal Democratic Party reveals that the main impetus lies in Japan's currently somewhat poor economic environment.

In early July, Japan's Ministry of Health, Labour and Welfare released data showing that in May, Japan's inflation-adjusted real wages fell by 2.9% year-on-year, further widening from the revised 2.0% decline in April, marking the largest drop since September 2023. Additionally, the consumer price index used by the Ministry of Health, Labour and Welfare to calculate real wages (which includes fresh food prices but excludes housing costs) rose by 4.0% year-on-year in May, significantly outpacing the growth of nominal wages. The price of rice in Japan surged by 101.7% year-on-year in May, the highest increase in over half a century.

Soaring prices, combined with previous cabinet gaffes and issues with commodity vouchers, have continuously undermined the credibility of the ruling Liberal Democratic Party. On July 21, the counting of votes for the 27th House of Councillors election was completed, with the ruling coalition formed by the Liberal Democratic Party and Komeito securing a total of 47 seats, failing to achieve the majority goal of 50 seats, thus unable to maintain a majority in the House of Councillors. Coupled with the previous failure to secure a majority in the House of Representatives, the ruling coalition has officially transitioned to a "minority government" in both houses. This marks the first time since the Liberal Democratic Party's establishment in 1955 that a ruling coalition led by it has lost a majority in both houses simultaneously.

In addition, the Japan-U.S. tariff negotiations are also affecting the pulse of Japan's economy, influencing changes and developments in both domestic and international economic situations. Today's Japan finds itself in a somewhat "internally and externally troubled" predicament. In light of this, the Japanese government has no choice but 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 to "increase revenue" for the public by raising the minimum wage. In early August, the Central Minimum Wage Council of Japan's Ministry of Health, Labour and Welfare decided to raise the guideline for the national weighted average minimum wage for 2025 to 1,118 yen per hour (approximately 54.60 RMB), an increase of 63 yen from the current 1,055 yen, marking a 6% rise, the largest increase since the implementation of the hourly wage system in 2002. This will also be the 23rd consecutive year of raising the minimum wage standard, and if implemented, hourly wages in all prefectures will exceed 1,000 yen for the first time.

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

As a result, the tax on cryptocurrency gains will be reduced from a progressive tax system of up to 55% (45% income tax + 10% resident tax) to a unified tax of 20%, the same as for stocks and bonds.

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

It is worth mentioning that Japan's tax reform is not something that can be achieved overnight, and the cross-modification of crypto assets involving the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA) makes the cycle more complex, also influenced by the review of the Financial Services Agency (FSA) and political dynamics in the Diet.

Currently, Japan's tax reform will be carried out in two steps:

The first step is to amend the tax law, adjusting cryptocurrencies from the "comprehensive taxation" category to the same "separate declaration taxation" category as stocks, with the tax rate lowered to around 20% (15% income tax + 5.015% resident tax + special reconstruction tax).

The second step is to upgrade regulation, through legal amendments, to reclassify cryptocurrencies as financial products, enabling the Financial Services Agency to apply insider trading rules, information disclosure standards, and investor protection measures under the Financial Instruments and Exchange Act.

Behind the Crypto Tax Rate Reform: Crypto ETFs and Yen Stablecoins Gearing Up

Notably, the above reforms are also seen as preparatory steps by Japanese regulators for the launch of cryptocurrency ETFs and yen stablecoins. It must be said that the current lack of momentum in Japan's domestic cryptocurrency development is somewhat related to previous security incidents such as the Mt. Gox Bitcoin theft; meanwhile, the excessively high tax rates have also limited the trading activity in the cryptocurrency industry to some extent.

According to statistics from Shiraishi, vice president of the Japan Cryptocurrency Business Association, in the context of the global cryptocurrency market expanding from $872 billion to $2.66 trillion, Japan's domestic trading volume has only increased from $66.6 billion in 2022 to an estimated $133 billion this year, with a growth rate of only about double.

At the same time, a survey conducted by the Cornell Bitcoin Club shows that 88% of Japanese residents have never owned Bitcoin; however, a joint survey by Nomura Holdings and Laser Digital indicates that 54% of Japanese institutional investors plan to invest in crypto assets within three years.

Based on the above information, the reform of the crypto tax system, the launch of crypto ETFs, and the introduction of yen stablecoins are imminent. According to media reports, the first yen stablecoin approved by Japan's Financial Services Agency—JPYC—is issued by a Tokyo fintech company of the same name, planning to issue stablecoins worth 1 trillion yen (approximately $6.78 billion) within three years. This stablecoin will be backed by highly liquid assets such as deposits and government bonds, with potential application scenarios including international remittances, corporate payments, and DeFi. Japan's second-largest bank, Sumitomo Mitsui Trust Bank (SMBC), has also announced plans to collaborate with Ava Labs and Fireblocks to launch a stablecoin.

Emerging Industries, Including Cryptocurrencies, Seen as a "Lifeline" for Japan's Social Development

The reason the Japanese government places such importance on the cryptocurrency industry is that it sees the development potential of emerging industries represented by the cryptocurrency sector. At the WebX 2025 conference held in Tokyo, Japanese Prime Minister Shigeru Ishiba stated on-site that in the face of increasing geopolitical uncertainties, the power of emerging industries has become extremely important in exploring new economic growth paths. The Japanese government will continue to optimize the development environment for emerging industries, promoting the growth of new industries such as digital, semiconductors, AI, and space, through investment support and regulatory reforms to foster the vigorous development of new industries.

Ishiba also mentioned that the fundamental reason for Japan's declining population is the excessive concentration of population in Tokyo, along with declining marriage and birth rates, creating a vicious cycle. At this historical juncture, the government hopes to harness the potential of new technologies like Web 3 to bring new vitality to Japanese society. Web3 technology can assist in various reform measures promoted by the government, and through the innovative application of digital technology, it can not only enhance industrial competitiveness but also provide new solutions to social issues such as local development and changes in population structure.

Conclusion: When Will the Tax Rate Reform Start and Be Implemented?

According to the legal change cycle in Japan, the tax reform process typically follows an annual advancement rhythm: a tax reform outline is released every December, submitted to the Diet for review in March-April of the following year, passed around June, and takes effect in April of the following year. The urgency of this cryptocurrency tax rate reform suggests that specific proposals are expected to be put forward before the end of the year, with legislative actions possibly taking place in early 2026.

As for the formal implementation, it may have to wait until June 2026 or even the second half of that year. Key figures driving this bill include Masaaki Taira and Katsunobu Kato from the Liberal Democratic Party's Web 3 project team (Web 3 PT), as well as Noriyuki Hirosue, president of JCBA and CEO of Bitbank, along with the aforementioned Katayama Satsuki.

At that time, the market is expected to welcome a new wave of buying.