Japan plans to change its progressive cryptocurrency tax rate from a maximum of 55% to a flat 20% in the fiscal year 2026.

The new rules will bring digital assets under the same regulatory framework as stocks and introduce safeguards against insider trading and unfair practices.

Investors will benefit from a three-year loss carryforward provision, which will help mitigate volatility and enhance portfolio risk management.

Japan is shifting from strict regulations following hacking incidents to a more Web3-friendly framework, seeking a balance between innovation and security.

Japan is about to make significant adjustments to its cryptocurrency tax policy. Currently, investors face a harsh tax regime with cryptocurrency trading tax rates as high as 55%. This policy has stifled market participation, leading to a loss of many traders and placing cryptocurrencies at a disadvantage compared to stocks, which are taxed at a flat rate of 20%.

However, the ruling Liberal Democratic Party has promised reforms that will introduce a more favorable flat tax rate for cryptocurrencies. This move is expected to change Japan's status as a global digital asset hub.

This article explores how the ruling party is pushing for cryptocurrency tax reform and the potential impact of these changes on the domestic cryptocurrency market.

The tax reform is expected to be implemented in the fiscal year 2026, pending approval from the National Diet. This transformation will create a new landscape that is markedly different from the existing tax system.

The reform will also introduce insider trading regulations for cryptocurrencies similar to those for stocks, preventing the exploitation of private information (such as token launches or protocol changes) for improper gains, thereby enhancing market fairness.

This tax reform is not an isolated measure but part of a broader economic strategy aimed at aligning cryptocurrencies with traditional investment tools, making them competitive and subject to regulation.

The 2025 tax review may also include more investor-friendly measures, such as allowing three-year loss carryforward provisions, aligning cryptocurrencies with stocks, and providing key flexibility for investors in volatile markets.

Did you know? Bitcoin (BTC) was the first cryptocurrency ever traded, with its first transaction in 2010 valued at just $0.003 each.

Japan is transitioning from one of the world's strictest cryptocurrency tax regimes to a more equitable and investor-friendly system. The government believes this will help solidify Japan's position as a global digital asset hub.

According to Finance Minister Katsunobu Katō, cryptocurrencies hold a place in diversified portfolios. He noted that while cryptocurrencies are volatile, they can become legitimate investment options if the right environment is created. He also emphasized that stability and transparency are crucial for enhancing investor confidence.

The ruling Liberal Democratic Party has stated that these reforms are included in their policy agenda. The reform plan includes incorporating cryptocurrencies into a flat tax rate system and extending stock-like regulations, indicating that digital assets are part of Japan's broader economic strategy.

According to the Financial Services Agency (FSA), relevant guidelines are being developed. Proposals include imposing a flat 20% tax rate on cryptocurrency gains starting in the fiscal year 2026, a three-year loss carryforward rule, and reclassifying cryptocurrencies under the Financial Instruments and Exchange Act. This will allow for the enforcement of insider trading regulations and investor protection measures similar to those in traditional markets.

Did you know? On some platforms, cryptocurrency leverage trading can go up to 100 times, greatly amplifying both profits and risks.

Following several major hacking incidents, particularly the 2014 collapse of Mt. Gox and the 2018 Coincheck hack, Japan implemented some of the strictest cryptocurrency regulations in the world.

The FSA has enforced strict standards on cryptocurrency exchanges, custody services, anti-money laundering (AML), customer identity verification (KYC), and cybersecurity, prioritizing investor protection even at the expense of innovation.

Under former Prime Minister Fumio Kishida's leadership, Japan began to shift its mindset. As part of the "New Capitalism" and Web3 strategy, the government has started to actively embrace blockchain and decentralized finance (DeFi) to retain local tech talent and maintain global competitiveness.

Subsequent public consultations and legislative planning will be conducted to readjust Japan's cryptocurrency policy, achieving a balance between security, innovation, and Web3-friendly growth.

Did you know? Automated bots process a large volume of cryptocurrency transactions using algorithms to exploit minor market inefficiencies for arbitrage.

If Japan implements the proposed tax reforms, the adoption of cryptocurrencies by businesses and individuals is expected to accelerate. Lower tax burdens and clearer rules are likely to enhance liquidity, attract institutional capital, and drive the development of digital asset infrastructure.

These reforms also align with a larger goal: to position Japan as a global digital finance center, competing with crypto-friendly jurisdictions like Singapore and the UAE.

Market analysis indicates that there is already optimism regarding these reforms. Japan's largest Bitcoin (BTC) holding company, Metaplanet, has been included in the FTSE Japan Index, reflecting increased mainstream acceptance. On August 25, 2025, the company purchased an additional 103 Bitcoins (BTC), raising its total holdings to 18,991 Bitcoins (BTC).

Japan's proposed cryptocurrency tax reforms face multiple challenges, including the high volatility of digital assets, which raises concerns about market stability and investor protection.

Regulatory enforcement is also a significant challenge, as ensuring compliance with new insider trading rules requires strong oversight. Additionally, the approval of the 20% flat tax rate by the National Diet may be delayed due to political disputes or conflicting priorities.

The reforms planned for implementation in 2026 mark a significant shift towards more investor-friendly policies and a stronger global positioning. Industry insiders expect these changes to drive rapid growth in Japan's cryptocurrency sector and promote the development of yen-pegged stablecoins (such as JPYC).

Through cryptocurrency reforms, Japan is laying the groundwork to become Asia's leading regulated cryptocurrency hub, providing clearer rules, tax equality, and robust infrastructure for retail and institutional investors.

Related: The U.S. Securities and Exchange Commission (SEC) delays decisions on BlackRock and Franklin Templeton cryptocurrency ETFs.

Original article: “From 55% to 20%? How Japan Plans to Revise Its Cryptocurrency Tax Rules”

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