A Turning Point in Japan’s Financial Policy: Crypto Assets Recognized as “A New Asset Class”

March 6, 2025 marked a watershed moment in Japan’s financial policy. The ruling Liberal Democratic Party’s (LDP) Headquarters for the Promotion of a Digital Society released “Web3 Proposal 2025,” drafted by its subordinate Web3 Working Group (WG). At the heart of the proposal is a bold and explicit pivot: to formally position crypto assets—long treated primarily as payment instruments or speculative vehicles—as a new asset class in law. This is not a mere tweak in technical definitions. It is a declaration of a paradigm shift: an official recognition that crypto assets constitute a legitimate investment vehicle for household wealth-building.

As a concrete step, the proposal calls for moving the principal legal basis for crypto regulation from the current Payment Services Act to the Financial Instruments and Exchange Act (FIEA). This shift in legal framework is highly consequential. The Payment Services Act—true to its name—was crafted to ensure stability and safety in transactions such as payments and remittances, treating crypto assets as “property value.” By contrast, the FIEA is a law for investments, covering securities such as stocks and bonds to ensure investor protection and market fairness.

Accordingly, this jurisdictional realignment signals that the Japanese government now redefines crypto assets not as mere tools of payment or technological curiosities, but as full-fledged financial products for capital growth and accumulation. The intent is to harness their asset potential for national economic growth while constraining speculative excess.

Crucially, the proposal does not simply cram crypto assets into existing securities boxes. It acknowledges their unique, blockchain-native properties and recommends creating, within the FIEA, an independent category for “crypto assets,” separate from traditional “securities.” The design aims to apply the FIEA’s robust investor-protection discipline without stifling the technological innovation and flexibility intrinsic to crypto—an order-made regulatory regime aligned to the asset’s distinctive features.

Behind this policy turn lies a market too large to ignore. By late 2024, Japan had over 11 million domestically opened crypto accounts, with ¥2.9 trillion in client assets on deposit. Leaving such a widely used market in legal limbo is no longer tenable. For healthy market development and investor protection from unforeseen risks, a sturdier, more comprehensive framework like the FIEA is indispensable—so the proposal argues.

The Core of a “Web3 National Strategy”: Boosting Global Competitiveness and Stemming Brain Drain

This LDP proposal is not a standalone technical fix in financial regulation. It is positioned as a critical component of Prime Minister Fumio Kishida’s flagship economic agenda, “New Capitalism,” which seeks to convert social challenges into engines of growth. Within this vision, web3—and the broader digital economy—are identified as key fields for Japan’s return to a sustained growth path. The LDP asserts that precisely because Japan has weathered past industry crises, it can persuasively champion the immense future potential of web3.

Yet behind this grand vision lies an urgent problem: the “Web3 Exodus.” Promising startups, founders, and top engineers in Japan’s web3 ecosystem have been decamping overseas. Historically, Japan’s legal and, especially, tax regime has been punishing for web3: individuals faced comprehensive taxation up to 55%, while corporations suffered mark-to-market taxation on unrealized gains at fiscal year-end. The result was a steady outflow of talent and future wealth to friendlier hubs such as Singapore and Dubai.

The proposed reforms aim to halt and reverse this brain and capital drain—a state-level strategic move. By aligning business conditions, particularly tax policy, with global standards, the proposal seeks to re-establish Japan as an attractive place to launch and scale web3 ventures. This is not mere industrial protection—it is a modern industrial policy that will shape national competitiveness in the 21st-century digital economy.

Just as Japan once fostered its automotive and semiconductor sectors as national strategic industries, the government now views web3 as a future core industry, deploying regulation and taxation as tools to accelerate domestic growth. Recurrent terms like “national strategy,” “international competitiveness,” and “new engine of economic growth” underscore that this is not passive market reaction, but a deliberate bid for future economic leadership.

The striking gap with major economies—especially the U.S., which typically taxes crypto gains as capital gains at relatively lower rates—has been identified as an urgent competitiveness issue. In a borderless digital economy, preparing fertile ground for domestic industry is not only an economic matter but a strategic question of sovereignty and security. These reforms reflect Japan’s determination not to be left behind, but to re-emerge as a central player in the digital economy.

The Reform Blueprint: Tax Overhaul and a New Investor-Protection Framework

The proposal’s reform package rests on two pillars: (1) removing the most serious structural obstacles to web3 industry growth, and (2) building a trustworthy framework that enables investors to participate with confidence. It is, in effect, a “grand bargain” combining carrots (tax incentives) with sticks (mature market rules).

A Tax Revolution: Unlocking Growth and Investment

For individual investors, the biggest relief would be an overhaul of income tax treatment. Currently, crypto trading gains are classified as miscellaneous income, aggregated with other income, and taxed—together with local inhabitant tax—at rates as high as 55%. Loss carryforwards are not allowed.

The proposal calls for adopting separate self-assessment taxation like that for stocks and FX, with a flat 20% rate. This frequently requested change would make tax obligations clearer and fairer. It also includes introducing loss carryforwards up to three years, enabling longer-term risk management.

For corporations, the most onerous burden has been year-end mark-to-market taxation on unrealized gains—a cash-flow killer, especially for startups. Although the government has begun to relax this (2023–2024 reforms excluded certain self-issued tokens), the new proposal goes further: long-term, business-purpose holdings of third-party tokens should also be excluded from taxation until gains are realized, aligning Japan with international norms.

A New Regulatory Architecture: Marrying Innovation and Trust

In exchange for tax incentives, the government seeks to upgrade market integrity and transparency. Under the FIEA, the new architecture would impose calibrated obligations on issuers, service providers, and investors.

Issuers: For public offerings (e.g., IEOs), issuers would need to disclose business plans and risk information to protect investors. However, issuers would not be forced to register as financial business operators solely for issuing, to avoid over-burdening innovation at launch.

Service providers (exchanges, etc.): Requirements would tighten. Though categorized separately from traditional PTS, providers would need to meet statutory capital adequacy ratios and possibly higher minimum capital—key safeguards for client assets against operator failure. At the same time, given web3’s multi-service design, broad “ancillary business restrictions” that could stifle diversification would be avoided. New categories—such as investment advisors and fund managers—would be created to widen the net appropriately.

Insider trading rules: Perhaps most significantly, insider trading prohibitions would extend to all market participants, not just exchange personnel—banning trades based on material non-public information. Designing workable rules for a 24/7 global market will be essential, but the uplift in perceived fairness should be substantial.

In short, the reform package pairs growth-friendly changes with trust-building guardrails, sketching a blueprint for Japan not merely to be “easy to do business in,” but to build the world’s safest and most trusted web3 market.

The Road to Regulatory Leadership: Timeline and Open Questions

Ambitious as it is, the LDP proposal is not yet law. It is a strong input to policymaking, with several steps remaining before it becomes statute.

After the public comment period closed on March 31, 2025, the LDP is expected to deliver its formal recommendation to the Financial Services Agency (FSA) in April.

In parallel, the FSA is conducting its own expert study and is expected to publish its policy direction by June.

The ultimate aim is to submit a FIEA amendment bill to the Diet, potentially as early as the ordinary session in January 2025. With ruling-party backing and alignment with “New Capitalism,” momentum is strong.

Understanding the significance of this shift requires recalling Japan’s hard-won regulatory caution. The 2014 Mt. Gox collapse and the 2018 Coincheck hack left deep scars, prompting Japan to pioneer a registration regime for exchanges in 2017 under the amended Payment Services Act—highly consumer-protection-oriented and focused on damage control.

What’s groundbreaking now is the turn from risk-avoidance only to growth-oriented regulation that manages risk while unlocking potential. Japan paid dearly to build one of the safest crypto markets. Now it aims to leverage that safety to become one of the most innovative.

Challenges remain. Public concerns over fraudulent projects and hacking are persistent, and there is resistance to hasty deregulation. Government and industry must steadily cultivate trust through financial literacy initiatives and stronger security.

Moreover, the proposal mainly addresses areas with identifiable issuers or intermediaries. How to position DeFi, which operates without central administrators, within a legal framework remains an open frontier. And because crypto is inherently global, purely domestic rules cannot fully police misconduct like insider trading; cross-border regulatory cooperation will be vital.

If these hurdles are cleared, Japan’s goal is not to “catch up,” but to set the standard—a regulatory model that balances innovation and protection, leading the global “race to the top.” From reactive, loss-limiting regulation to proactive, future-shaping policy—Japan’s crypto strategy is poised to step beyond an era of fear into one of strategic embrace.