Japan's Crypto Industry Faces Critical Test Ahead of Snap Election

As Japan heads to the polls on Sunday, Prime Minister Sanae Takaichi is staking her political future on translating approval ratings of 60-80% into a parliamentary majority that could accelerate crypto reforms.

Takaichi has turned the election into a referendum on her leadership, declaring she is "putting my future as prime minister on this election."

She called the parliament dissolution move an “extremely weighty decision” that would “determine Japan’s course together with the people,” setting up the country’s second general election in as many years. 

Japan has endured inflation above 2% for 45 consecutive months, with falling real wages and bond yields surging to multi-decade highs amid concerns about fiscal discipline in a country with public debt exceeding twice its GDP.

If Takaichi’s coalition wins decisively, industry leaders expect faster legislative throughput: smoother tax reform, quicker legal reclassification, and stronger backing for stablecoin and tokenization infrastructure.

If the result is fragmented, reforms are still expected, but slower, more negotiated, and more vulnerable to fiscal trade-offs.

Last month, Takaichi dissolved the parliament, just three months after taking office, marking Japan's second election in as many years and seeking to convert personal popularity into seats for her Liberal Democratic Party, which languishes at under 30% party support.

Campaigning for all 465 seats in the House of Representatives began on January 27, with voters focused on inflation, wages, and the yen's weakness. 

Crypto proponents are also closely watching the result for signals on planned tax cuts, stablecoin rules, and the proposed reclassification of cryptocurrencies under financial law.

Crypto stakes

Japan is pursuing sweeping crypto reforms, with plans to slash taxes from 55% to 20% by 2028, reclassifying 105 cryptos as financial products, and launching crypto ETFs by 2028. 

Currently, crypto gains are taxed as miscellaneous income at rates up to 55%, with no ability to offset losses against other income. 

The proposed changes would move crypto into the same category as traditional financial assets, such as stocks and bonds, enabling a flat 20% tax rate and allowing investors to offset losses. 

Sota Watanabe, founder of Astar Network and CEO of Startale Group, told Decrypt that tax reform is "already almost given regardless of outcome," but a crypto-positive parliament could accelerate stablecoin and tokenized securities reforms.

"Nobody, no party is questioning crypto and how it shapes the world in the coming years," Watanabe said. "Regardless of outcome, the new bill to incorporate crypto will be passed."

The 2028 timeline is "very slow" with "industry trying to make it 2027," he added. 

Watanabe said crypto should be treated as part of national strategic planning, noting that the U.S. is already positioning it as a strategic sector and that Japan should move alongside it and lead rather than risk falling behind.

He explained Japan's crypto environment "is heavily led by big enterprises such as Sony, SBI, and a lot of banks," with "stablecoin and tax reduction" as the hottest topics.

Changing tides

Last year, the FSA opened public consultations on reserve asset rules for regulated stablecoins, limiting eligible collateral to high-rated foreign bonds with at least 100 trillion yen in outstanding issuance. 

Japan's three megabanks, MUFG, SMBC, and Mizuho, have already rolled out stablecoin and tokenized deposit pilots, receiving formal FSA backing in December.

On Japan's competitive positioning, Watanabe pointed out the country's strengths in finance and entertainment.

“If you look at global financial markets, the yen, Japanese equities, and Japan’s broader economy already have a relatively strong global presence,” Watanabe said, adding that in his view, nearly all assets will move on-chain over time.

Worst-Case scenarios

Mai Fujimoto, co-founder of Japan Blockchain Week and INTMAX, told Decrypt that a shift toward "a coalition driven by demographic populism rather than economic strategy" could fundamentally reframe crypto policy.

"If the Liberal Democratic Party retains power, there is effectively no worst-case scenario. Continuity is the baseline," Fujimoto told Decrypt. "The downside risk only materializes if political control shifts toward a coalition driven by demographic populism."

If that happens, Japan could drift into an intensified “silver democracy,” Fujimoto warned, where crypto is treated less as strategic infrastructure and more as a convenient tax base, not banned but “harvested” through heavier taxes and tighter rules that gradually drain capital and talent.

“That doesn't kill the industry overnight, but quietly drains capital, talent, and ambition," Fujimoto said. "Over two years, that would stall Japan's crypto momentum meaningfully."

"Within the LDP and Democratic Party for the People, crypto policy is now embedded at the institutional level,” she added. “Formal study groups, policy committees, and regulatory dialogues with industry have created a shared baseline of understanding."

On Japan’s competitive positioning, Fujimoto said the race to match Singapore, Dubai, or South Korea as a crypto startup hub is already outdated, noting those markets mainly host funds and regulatory arbitrage while top startups are gravitating to the U.S., and that Japan is instead pivoting toward an institutional-capital strategy rather than a “best startup hub” contest.

"With one of the world's largest net foreign asset positions, Japan is increasingly focused on how large pools of capital can be deployed, settled, hedged, and governed using crypto rails—stablecoins, tokenized assets, and regulated on-chain finance," Fujimoto said, echoing Watanabe’s sentiments.

If the chips fall the wrong way politically during the snap elections, the “worst-case isn't merely delay; it's Japan missing its window in the global capital cycle,” Yoshikazu Abe, chief strategy officer at Hyperithm, told Decrypt.

"If government deprioritizes Web3, leading to 'deliberation without action' on the 20% taxation, it won't just be a year delay," Abe said, noting amendments to the Financial Instruments and Exchange Act aren't slated until 2028, "widely perceived as lagging."

"What investors value is assurance rules won't be overturned by administration changes," Abe said. "The FSA and METI maintaining pro-Web3 stances suggest policy is hard-coded into bureaucracy."