Japan’s Lower House of parliament passed a sweeping bill on Thursday that classifies cryptocurrency as a financial instrument and cuts the maximum tax rate on digital asset gains from 55 percent to a flat 20 percent. The legislation is expected to clear the Upper House and come into effect in 2027, with the tax changes taking effect in 2028. It represents the most significant shift in Japan’s approach to digital assets since the country became one of the first major economies to regulate cryptocurrency exchanges nearly a decade ago.

The bill introduces stock-style insider trading bans, tougher disclosure requirements, and sharply increased penalties for operating unregistered cryptocurrency businesses. The maximum prison sentence for running an unlicensed crypto exchange rises from three years to ten years under the new rules. Investment limits will be placed on unaudited token offerings.

The legislation also opens the door to cryptocurrency exchange-traded funds. Japan does not currently allow domestic crypto ETF products, and the change puts it in line with the United States and several European markets that have approved such funds in recent years. Asset managers in Japan are expected to file applications for crypto ETF approval within weeks of the bill becoming law.

The proposed changes come amid rising demand for crypto assets among Japanese institutional investors and retail savers, a trend the government says has been accelerated by the pro-crypto stance of the Trump administration in the United States. Japan has a large domestic retail investor base that has historically been interested in Bitcoin but deterred by the high tax rate on gains.

The bill passed with cross-party support in the Lower House, reflecting a broad consensus that Japan needed to update its regulatory framework to remain competitive as a financial hub. Finance Minister Katsunobu Kato said the legislation would help attract international capital and develop Japan’s digital asset market in an orderly way.

The bill now moves to the Upper House, where it is expected to pass. The tax changes are the most eagerly anticipated provision among retail investors. Under current law, crypto gains are taxed as miscellaneous income at rates of up to 55 percent, making Japan one of the most heavily taxed countries for digital assets among major economies. Bitcoin and other major cryptocurrencies rose modestly in Asian markets after the vote, reflecting investor optimism about the eventual opening of Japanese institutional flows. Major technology companies in Japan are also watching the regulatory shift for its implications on tokenized assets and digital securities. The full text of the legislation is published by the Japanese Financial Services Agency. The bill is expected to be enacted into law before the end of the current parliamentary session.