（Original Video in Japanese was published on the FINOLAB CHANNEL on Jan. 20, 2026 by Makoto Shibata）

On December 10, 2025, the Financial System Council’s Working Group (WG) released a report that marks a historic turning point for digital assets in Japan. Based on these recommendations, specific legislative amendments are expected to be finalized over the next one to two years, fundamentally reclassifying crypto assets within the Japanese legal framework.

1. Background: The Evolution into an Investment Asset for 13 Million Users

While crypto assets like Bitcoin were originally introduced as a “means of payment” for seamless transactions, the reality in Japan has shifted significantly:

• Market Scale: Domestic crypto accounts have exceeded 13 million, with assets under custody reaching approximately 5 trillion yen.
• User Intent: Nearly 90% of users hold crypto for long-term investment purposes—a higher ownership rate than Forex (FX) or corporate bonds.
• Critical Issues: Challenges such as opaque information disclosure, scams by unregistered operators, cybersecurity breaches, and a lack of measures against unfair trading have necessitated a more robust framework.

To address these realities, a new system is required to protect users as “investors” rather than just “consumers.”

2. Fundamental Regulatory Overhaul: Transitioning to the FIEA

The most significant change is the shift of the legal basis from the Payment Services Act to the Financial Instruments and Exchange Act (FIEA).

• Unified Regulation: By integrating crypto under the FIEA, Japan aims to enhance market fairness and investor protection to the same standard as traditional stocks and bonds.
• Scope: While “Crypto Assets” are the primary focus, NFTs and Stablecoins will continue to be regulated under existing frameworks tailored to their specific functions.

Strengthening Information Disclosure

To eliminate information asymmetry, the following obligations are being considered:

• Issuers: Mandatory disclosure of information at the time of new sales for centralized projects.
• Exchanges: An obligation to gather technical data and provide it to users in an easy-to-understand format.
• Continuous Disclosure: Ongoing reporting of material events that could impact investment decisions, alongside periodic financial disclosures.

3. Cracking Down on “Unfair Trade”: Insider Trading Regulations

Insider trading regulations, previously reserved for the securities market, will now be applied to crypto assets.

• Prohibited Acts: Individuals with access to “material non-public information” will be banned from trading before public disclosure.
• Examples of Material Facts: Bankruptcy of an issuer, discovery of major security risks, info regarding new listings or delistings, and large-scale trades exceeding 20% of the circulating supply.
• Enforcement: The introduction of a monetary surcharge system (administrative fines) will significantly strengthen legal enforcement.

4. The Long-Awaited 20% Separate Taxation

Perhaps the most impactful change for investors is the tax reform. Following a Cabinet decision on December 26, 2025, a major policy shift was announced:

• Current Status: Classified as “Miscellaneous Income” subject to aggregate taxation (with a maximum tax rate of 55%).
• New Policy: Transition to 20% separate taxation (15% income tax and 5% local inhabitant tax), aligning crypto with other financial instruments under the FIEA.

This change is expected to allow for profit/loss carryforwards and significantly elevate the status of crypto assets as a legitimate investment vehicle.

5. Impact on Business and Future Outlook

The regulatory landscape for businesses will undergo a dramatic transformation:

• Increased Burden on Exchanges: Operators will face stricter “ancillary business restrictions” and security requirements equivalent to Type I Financial Instruments Business operators. Requirements for “liability reserves” against hacks may increase operational costs and entry barriers.
• Lower Barriers for Financial Institutions: Following the reform, banks and insurance companies may be permitted to hold crypto assets directly. Furthermore, their subsidiaries are expected to be allowed to engage in exchange services and investment management.

Conclusion

By reclassifying crypto assets as financial instruments, this shift effectively resolves the issues found under previous payment-focused regulations.

While increased compliance costs remain a challenge for operators, the transition to 20% separate taxation provides a massive tailwind for general investors. Though full implementation may take up to two years, the roadmap is now clear, and the industry is entering a new era of institutional maturity.