Japan Plans to Recognize Bitcoin as an Investment Target and Financial Product

Japan plans to recognize virtual assets, represented by Bitcoin, as investment targets and acknowledge them as financial products under the Financial Instruments and Exchange Act.

Japan is planning to introduce virtual assets, such as Bitcoin, as investment targets and recognize them as financial products.

According to the Nihon Keizai Shimbun on March 31, the Financial Services Agency aims to submit an amendment bill to the Financial Instruments and Exchange Act in 2026.

Since October last year, a closed expert study group has been reviewing the current system, and detailed discussions will begin at the Financial System Council, an advisory body to the prime minister, starting this summer.

Currently, in Japan, virtual assets are covered by the Payment Services Act, while traditional financial products like stocks and bonds are managed as “securities” under the Financial Instruments and Exchange Act. Through this legal amendment, virtual assets will be recognized as financial products.

However, they are expected to be classified in a different category from existing securities.

If the law changes, insider trading regulations will also apply to virtual asset transactions. For example, if a person related to the issuer or exchange trades before the public announcement of new business information, it could be subject to regulation. Specific discussions on what information will be considered important facts are expected to take place, according to Nikkei.

The background of the legal amendment is the expansion of virtual asset investment in Japan. As of January, the number of active domestic accounts for virtual asset trading was approximately 7.34 million, an increase of about 3.6 times compared to five years ago.

As services allowing easy trading via smartphones increase, the number of people trading or holding assets is rising.

If virtual assets are legally treated equivalently to securities, it may lead to the approval of exchange-traded funds (ETFs) operated with physical Bitcoin. Nikkei explained, “This review could be a catalyst for the perception that virtual assets are financial products that help in forming national assets, keeping the allowance and promotion of virtual asset ETFs in view.”

In the United States, an ETF with Bitcoin as the operating target was approved in January 2024, leading to a large influx of institutional investors’ funds and a broadening of the investor base.

The tax treatment of virtual assets is also expected to be discussed upon legal amendment. Currently, virtual asset trading is subject to comprehensive taxation, with a maximum tax rate of 55% imposed on trading profits. Japan’s ruling Liberal Democratic Party included in this fiscal year’s tax reform policy the transition of this tax to “financial income taxation with a 20% tax rate,” based on “legal arrangements for investor protection.” The Financial Services Agency plans to request the application of separate taxation for virtual assets in the 2026 tax amendment request to be submitted this summer.

Additionally, the Financial Services Agency plans to impose information disclosure obligations on virtual asset issuers and exchanges to enhance market transparency and strengthen investor protection. Although not as strict as securities, disclosure obligations regarding corporate information and transaction information are expected to be imposed.

With many overseas operators in the virtual asset sector, the plan is to strengthen regulations regardless of corporate location, but ensuring effectiveness remains a challenge.