Japan’s new crypto tax could wake ‘sleeping giant’ of retail investors

A new, more moderate tax on digital assets in Japan is projected to make crypto more appealing to retail investors.

Lawmakers in the National Diet, Japan’s legislature, reportedly support a proposal from the country’s financial watchdog, the Financial Services Agency (FSA), that would lower taxes on crypto. The rate would decrease from a maximum of 55% to 20%, aligning the taxation regime more closely with traditional assets and securities.

Relaxing the tax code reflects a growing trend of the government moderating its stance toward crypto in Japan. From a relative gray zone to strict regulations, to becoming part of a national growth plan, the government has gradually recognized crypto as part of the financial industry.

This growing recognition, soon to take the form of lower taxes for crypto traders, will onboard new retail users, industry observers state.

More retail investors to come with lower crypto tax in Japan

For years, cryptocurrencies operated in a somewhat gray space in Japan. After the collapse of the Mt. Gox cryptocurrency exchange in 2014, the Diet decided that digital assets like Bitcoin (BTC) were not to be considered currency or bonds. Therefore, they could not be regulated under the Banking Act and Financial Instruments and Exchange Law.

This effectively prohibited banks and companies dealing in securities from offering cryptocurrency-related services.

In May 2016, the FSA established a regulatory regime for crypto-asset service providers under the Payment Services Act (PSA). Subsequent amendments to the PSA in 2017 legalized crypto and created standards for exchanges. These included Anti-Money Laundering, Know Your Customer and registration requirements.

The amendments also labelled crypto as “miscellaneous income.” The progressive income tax rates in Japan range from 5% to 45%. Combined with a flat 10% inhabitant tax, the maximum tax penalty for crypto adds up to 55%.

Related: An overview of cryptocurrency regulations in Japan

The proposed flat capital gains tax of 20% would bring digital asset taxation more in line with traditional financial instruments. In doing so, market observers believe more retail investors will jump into crypto.

*This table was compiled and published in September 2023.*Sota Watanabe, CEO of blockchain development firm Startale, said that it’s “a big day [for] Japan […] . If approved this year, likely crypto ETFs and tax deduction from up to 55% to 20% come. I am 100% sure more Japanese people come onchain.”

Haseeb Qureshi, a managing partner at crypto venture fund Dragonfly, said that the high tax rate in Japan has resulted in “relatively low retail trading volume today, and few world-stage crypto companies.” But with a GDP close to Germany and India, this makes Japan a “sleeping giant in crypto.”

The main culprit, said Qureshi, is taxes. “This tax arbitrage is a big part of why MetaPlanet trades at a premium to [net asset value] — buying a corporate shell of BTC is tax-advantaged vs trading BTC directly.”

Japan’s crypto ecosystem grows as regulations stabilize

Even after the amendments in 2017, crypto regulations tightened after further shocks to the crypto ecosystem.

In 2018, the crypto exchange Coincheck was hacked for some $350 million. Later that year, crypto exchanges founded the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body for the industry that received registration from the FSA. The FSA also formed a study group to enhance crypto exchange security.

In 2019, regulators clarified definitions for the crypto industry and required platforms to declare their intent to offer services in Japan and comply with the necessary reporting laws.

This clarification and requirements also contained measures that have driven growth. In 2022, new legislation allowed certified institutions to offer fiat-backed stablecoins. The FSA also started classifying some cryptocurrencies as “financial products.”

These updates have led to a surge in new products and offerings, and piqued investor interest in digital assets. Combined with a decrease in real wages relative to inflation, Japanese investors are seeking investments with better — albeit riskier — returns.

Overall crypto holdings show peaks and valleys that reflect market conditions, yet remain on an uptrend. Growth in crypto-related accounts has been steady.

Observers say that there’s still plenty of room for growth. Noriyuki Hirosue, CEO of exchange Bitbank, said the tax rule overhaul “could hugely expand the market.”

Watanabe said that, if passed, the tax reform “will be a win for the industry. The government has been speaking with industry leaders of Japan and this is a great outcome of collaborations.”

Satoshi Hasuo, representative director and executive officer of exchange Coincheck, said that there are still about three times as many people with trading accounts as cryptocurrency accounts. The next step will be “to think about how we’ll win these people over.”

Indeed, platforms are beginning to compete for what they see as the burgeoning new wave of retail traders entering Japanese markets. Qureshi said, “Corporates drive a lot of the energy here, which is pretty unique. […] you see SBI (major Ripple stake), Sony, Sega, Nomura, all moving fast and making big moves.”

SBI VC trade is reportedly considering offering higher leverage in its crypto trading services. SBI Holdings also recently established a joint venture with Circle to offer USDC (USDC) lending services.

And while non-fungible tokens (NFTs) may be essentially dead in most places, Japanese companies are using them to appeal to tourists and cash in on popular IPs like Hello Kitty. At the beginning of 2025, HTT Digital partnered with 22 different companies, including Hello Kitty creator Sanrio and giants like Nissan and Yamaha, to launch an NFT collection.

The crypto industry in Japan is gearing up for growth, as offerings expand and the government gradually integrates digital assets into the financial system.

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