On December 19, 2024, the Policy Research Council of Japan’s Liberal Democratic Party (LDP) released a proposal titled “Emergency Proposal for Making Crypto Assets an Asset That Contributes to the National Economy.” This proposal, crafted by the LDP’s Digital Society Promotion Headquarters and Financial System Research Council, outlines potential reforms and initiatives for integrating crypto assets (cryptocurrencies) into Japan’s broader economic framework. Below is a summary of the key points:
- Review of Cryptocurrency Taxation
Currently, income from cryptocurrency transactions in Japan is taxed as aggregate income, with rates reaching up to 55%. The proposal suggests a shift to a more favorable system, introducing a flat 20% separate tax on declared income from cryptocurrency transactions. Additionally, it recommends allowing losses to be carried forward for three years to offset future gains, and similar measures may be considered for cryptocurrency derivative transactions.
However, the proposal frames this change as a “review,” rather than a definitive endorsement, reflecting the cautious stance often taken by the LDP in such matters.
- Reevaluation of Crypto Assets Regulations
The proposal acknowledges that cryptocurrencies serve purposes beyond investment, particularly in the emerging Web3 landscape. While current regulations are primarily governed by the Payment Services Act, the proposal suggests exploring the possibility of designating certain cryptocurrencies as financial products under the Financial Instruments and Exchange Act. This would open the door for cryptocurrencies to be included in financial instruments like exchange-traded funds (ETFs).
The proposal also emphasizes the need for regulatory frameworks that strike a balance between maintaining innovation and ensuring investor protection.
- Strengthening Cybersecurity
Cryptocurrency exchanges face growing challenges in safeguarding user assets against cyber threats. The proposal highlights the limitations of relying solely on individual operators for security measures and recommends fostering cooperation through the establishment of an Information Sharing and Analysis Center (ISAC).
A private-sector initiative, tentatively named “JP Crypto-ISAC,” is already underway. The government is encouraged to support this initiative and promote collaboration between domestic and international stakeholders to enhance cybersecurity across the sector.
This proposal reflects Japan’s cautious yet forward-looking approach to integrating crypto assets into its economy, emphasizing the need to adapt taxation, regulation, and security measures to foster innovation while ensuring stability and fairness.
