Japan will begin a review of national cryptocurrency rules, opening up the possibility of lower taxes on digital assets and potentially paving the way for the launch of domestic funds that invest in tokens.

The Financial Services Agency will assess in the coming months whether the current approach to regulating cryptocurrency under the Payments Act is appropriate, an agency official said, requesting anonymity in line with the institution’s rules.

The FSA will examine whether the law offers adequate investor protection as tokens are mainly used for investment rather than payments, the official said. This could lead to changes in the law or the reclassification of cryptocurrencies as financial instruments falling under Japan’s investment law, the official said.

The reclassification of digital assets through the Financial Instruments and Exchange Act would strengthen investor protections and lead to other “dramatic changes,” said Yuya Hasegawa, market analyst at crypto exchange bitbank Inc.

The change would boost the sector’s efforts to persuade officials to cut levies on cryptocurrency gains from as high as 55 percent now to 20 percent, in line with other assets such as stocks, Hasegawa said. Lifting the ban on launching exchange-traded funds (ETFs) containing tokens would also become a “natural” step, he added.

Strict regulations

An FSA official declined to comment on what might happen if there was a reclassification, saying there were no foregone conclusions and that the upcoming review could run through the winter.

Japanese crypto executives have long called for less stringent regulations to curb costs and spur growth. The current rules are seen as tough, reflecting lessons learned from past scandals. One of the most notorious was the 2014 hack and subsequent bankruptcy of Mt. Gox based in Tokyo, then the largest place for Bitcoin trading. Japanese platform DMM Bitcoin suffered a $320 million (roughly Rs. 2,681 crore) heist this year and must submit a business improvement plan to the FSA by October 28.

At the same time, Japanese companies such as Sony Group Corp. they want to take advantage of blockchain technology. The largest bank in the country Mitsubishi UFJ Financial Group Inc. is considering the possibility of issuing a stablecoin — a type of digital token intended to maintain a constant value — under laws implemented in 2023.

Regulators have taken steps toward easing the requirements for listing digital tokens on crypto exchanges during the tenure of prime minister Fumi Kishida, who has favored web3 — a term that refers to a vision of the Internet built around blockchains. But his term is ending and it is not clear whether his expected successor Shigeru Ishiba will also be the web3 champion.

Trading activity on Japanese digital asset exchanges has started to recover this year, helped by the rise of Bitcoin and other tokens. Average monthly volumes are approaching $10 billion (roughly 83,786 crore rupees) on Japan’s centralized exchanges, up from $6.2 billion (roughly 51,947 crore rupees) in 2023, according to data from CCData through August this year.

(This story was not edited by NDTV staff and was automatically generated from a syndicated feed.)