Crypto ETFs in Sight as Japan’s FSA Pushes Bold Tax Reform

Digital assets might soon gain more adoption in Japan, particularly among institutional investors, as the Asian nation considers tax reforms. The tax reform will center on crypto and make the current laws on the asset less punitive. A move that could now support the crypto exchange-traded funds (ETFs).

Japan’s FSA Targets Fairer Taxation for Crypto Earnings

According to a report, Japan’s Financial Services Agency (FSA) is considering the integration of the Small Investment Tax Exemption System (NISA) into the 2026 tax reform. This is part of a broader plan to make the nation a hub for “asset management.”

The idea behind the move is to make the country attractive to potential investors, particularly corporations interested in cryptocurrency.

It has become necessary to reform the tax law, given that under current conditions, profits from cryptocurrency are considered “miscellaneous income.” This gain may be subject to up to 55% progressive rates after including local levies.

Many investors in Japan have criticized the high rates as punishing, considering that equities and bonds are pegged at a flat rate of 20%.

Proposed 20% Flat Rate Could Boost Investor Participation

However, the FSA’s proposal would see crypto earnings being taxed at the same rate of 20% as stocks. If this happens, it could lessen the financial strain that traders currently experience in the market space.

Notably, the move could encourage greater participation from both individual and institutional investors. This might pave the way for crypto exchange-traded funds (ETFs) to debut in the country. Worth noting is that Japan has yet to authorize a spot Bitcoin ETF.

The proposal for reclassification is likely to make the launch possible. With the reform looking to classify cryptocurrencies as financial products, the country’s regulators will be able to enforce laws on insider trading and provide protection for investors.

Japan’s Growing Crypto Market Shows Institutional Potential

Interestingly, Japan has huge digital asset potential. The FSA notes that there are over 12 million active domestic crypto accounts in the country. These collectively have crypto assets valued at over five trillion yen (about $34 billion).

The Japanese market is already active with activities from Metaplanet, the institutional Bitcoin accumulator that has borrowed Michael Saylor, led by Strategy. As of the last count, Metaplanet has 18,888 BTC in its holdings worth about $2.18 billion.

Ripple Labs has also launched its USD stablecoin (RLUSD) in the Japanese market. These developments hint at the potential of Japan for crypto assets.