Japan Reclassifies Bitcoin, XRP and Ethereum as Financial Products

Japan is moving cryptocurrencies deeper into the country's mainstream financial rulebook after the House of Councillors approved an amendment to the Financial Instruments and Exchange Act (FIEA) that treats digital assets as financial products rather than payment tools. Under the change, Bitcoin, Ethereum, XRP and other cryptocurrencies will be categorized as "financial assets" under the FIEA, aligning oversight more closely with the framework used for stocks and other investment instruments. Crypto had previously been regulated primarily under the Payment Services Act. The shift also advances the prospect of spot crypto ETFs in Japan. Regulators are targeting potential listings on the Tokyo Stock Exchange in 2027 or 2028. Nomura Holdings and SBI Holdings are among the major players preparing crypto ETF offerings. Key measures in the new framework mirror traditional market rules and include: - Insider trading ban: trading based on nonpublic information is prohibited. - Annual disclosures: token issuers must publish annual operational and financial disclosures. - Strict penalties: violations may draw up to 10 years in prison or fines of up to 10 million Japanese yen. - Retail investment cap: high-risk tokens will face a 2 million Japanese yen limit for retail investors. Enforcement is also being tightened for illegal crypto activity. The maximum prison term for running an unlicensed crypto business rises from three years to 10 years, while the maximum fine increases from 3 million yen to 10 million yen (about $18,500 to $61,600). In parallel, lawmakers are discussing tax reforms aimed at putting crypto investments on similar footing with equities. Plans include cutting the top tax rate on crypto gains from 55% to a flat 20%, and introducing a three-year loss carryforward so investors can offset future profits with past trading losses. If approved, the tax changes are expected to take effect in 2028.