If approved, the reclassification could lead to the lifting of the ban on Bitcoin ETFs, providing easier access to Bitcoin for both institutional and retail investors through regulated products.

Japan's Financial Services Agency (FSA) has proposed a significant regulatory change aimed at potentially allowing Bitcoin exchange-traded funds (ETFs) and bringing crypto assets under the Financial Instruments and Exchange Act (FIEA).

As part of this initiative, the FSA plans to establish a flat tax rate of 20% on crypto gains, down from the current progressive rate of up to 55%, making crypto trading more appealing to investors.

This proposal is part of Japan's broader 'New Capitalism' strategy, which seeks to transform the nation into an investment-driven economy.

The FSA's proposal comes in response to a growing interest in cryptocurrencies, particularly among tech-savvy retail investors, where ownership has surpassed participation in some traditional financial products.

In a related development, Japan's first license for stablecoin operations was issued to SBI VC Trade, enabling it to support Circle’s USDC.

To support these changes, the FSA has established a dedicated working group to develop updated regulations for the crypto sector.

Analysts have noted that Japan's steep tax regime has driven capital migration overseas, exemplified by significant investments like Metaplanet's $5 billion in its US subsidiary for Bitcoin purchases.

The FSA has also introduced a draft framework categorizing crypto assets into Type 1 tokens and Type 2 assets, with varying regulatory requirements based on their purpose and decentralization.

Additionally, a memorandum of understanding signed in April 2025 by Sumitomo Mitsui Financial Group and other companies aims to explore stablecoin commercialization in Japan.

This reform aims to promote institutional involvement and boost retail investor confidence in the crypto market, signaling a shift in the government's view of cryptocurrencies as part of the formal financial ecosystem.

The proposed tax changes would align the taxation of digital asset gains with that of traditional stocks, potentially increasing participation from high-net-worth individuals and institutions.