Japan is gearing up to review its existing crypto regulations, potentially lowering the tax burden on digital assets and introducing dedicated exchange-traded funds (ETFs) in the market.
According to an official from the country's Financial Services Agency (FSA), the review is a significant move as it aims to assess whether the current regulations, which oversee cryptocurrencies under the Payments Services Act, are suitable for the digital asset space.
The FSA will spearhead this review over the next few months, seeking to determine if there is a need to “reclassify” cryptocurrencies under Japan's broader investment laws.
The reclassification of digital assets would represent a shift in the way crypto is viewed and regulated in Japan.
According to Bloomberg, so far, the current approach treats crypto largely as a means of payment, but with the increasing use of digital tokens primarily as investment vehicles, the FSA aims to explore how best to “protect investors” while “boosting market growth.”
Notably, a potential reclassification could lead to cryptocurrencies being regulated under the Financial Instruments and Exchange Act, a framework typically used for traditional financial instruments.
Such a move is said to usher in more investor safeguards, and may result in "dramatic changes" to the current regulatory landscape, according to Yuya Hasegawa, a market analyst at bitbank Inc.
Potential Tax Reductions and ETF Launches
One of the major potential outcomes of this review could be a reduction in the taxes levied on cryptocurrency gains.
Bloomberg reported that presently, profits from digital assets in Japan are taxed at rates as high as 55%, a figure that many investors find discouraging.
If the reclassification moves forward, there is a possibility that this tax rate could be slashed to around 20%, aligning it with the taxation rates for more traditional assets like stocks.
This change would benefit investors and may help in positioning Japan as a more attractive environment for crypto trading and investment.
The possibility of lowering tax rates is not the only expected change; the review might also lead to a rethinking of Japan’s approach to crypto-focused ETFs.
Currently, the launch of ETFs containing tokens is banned in the country.
However, if digital assets are reclassified under investment laws, Hasegawa stated that the lifting of this ban could be a "natural" next step, potentially offering new opportunities for both retail and institutional investors to gain exposure to crypto through regulated, publicly-traded funds.
This move would also bring Japan in line with other jurisdictions where crypto ETFs are increasingly becoming part of mainstream financial markets.
So far, there are no guarantees as to the outcomes of the review, and the FSA has stated that there are no "foregone conclusions."
Additionally, the FSA's upcoming review is said to continue through the winter.
