The truth behind Japanese investors fleeing cryptocurrencies: 55% tax rate is more deadly than volatility

Japanese financial platform 400F conducted a cryptocurrency usage survey in November among 894 participants nationwide. The results showed that 22.2% of Japanese investors exited the cryptocurrency market due to tax complexity, surpassing the 19.4% who left because of price volatility. In Japan, cryptocurrency gains are classified as “miscellaneous income,” with tax rates reaching up to 55% after local taxes, and investors must track every transaction and file annual reports.

Double Blow of the 55% Tax Rate

In Japan, the tax treatment of cryptocurrency gains is completely different from that of stocks or real estate. Traditional financial products enjoy capital gains tax benefits with a fixed rate of 20%, while cryptocurrencies are classified as “miscellaneous income” and subject to progressive tax rates. This means high-income investors can face an effective tax rate of up to 55% after national income tax (up to 45%) and local tax (10%) are combined. This tax regime puts Japanese crypto investors among the most heavily taxed in the world.

What’s even more frustrating is the cumbersome reporting process. Investors must track every transaction, calculate profits and losses in Japanese yen, and file annual reports. This includes transfers between exchanges, crypto-to-crypto swaps, and even using crypto for shopping—each action can trigger a taxable event. For active traders, the paperwork may involve hundreds of records, and tax software support in the Japanese market is relatively limited.

The survey showed that investors currently holding digital assets generally see volatility (61.4%) and tax complexity (60%) as their two biggest challenges, almost neck and neck. This data reveals a key fact: tax issues trouble holders as much as market volatility, and for those who have exited, tax issues even surpass volatility as the main reason for leaving.

NISA and iDeCo Highlight Systemic Gaps

Investors using NISA and iDeCo (two popular tax-advantaged stock and retirement savings accounts) are particularly affected by the complex cryptocurrency reporting requirements. NISA (Nippon Individual Savings Account) allows investors to invest in stocks and funds tax-free up to a certain limit, while iDeCo (individual-type defined contribution pension plan) provides tax benefits for retirement savings. Both systems are characterized by simple operation, transparent taxation, and clear tax-free or preferential limits.

In contrast, cryptocurrency investors not only face high tax rates but must also calculate and report every transaction themselves. This comparison causes many Japanese investors used to the convenience of traditional investment tools to shy away from crypto. In the survey, 62.7% of investors said long-term wealth accumulation was their main reason for investing, while only 15.1% prioritized short-term speculation. This shows that Japanese crypto investors are mainly long-term holders, not short-term traders, but the current tax system penalizes all trades regardless of investment horizon.

Three Main Tax Challenges for Japanese Investors

Progressive tax rates up to 55%: Much higher than the 20% flat rate for stocks, severely eroding investment returns

Each transaction must be calculated for yen-denominated gains/losses: Includes crypto-to-crypto trades, transfers, and spending, creating massive paperwork

Losses cannot be offset against other capital losses: Crypto losses can only be offset against other miscellaneous income, not stock losses

Reform Expectations and Market Response

Reports suggest that Japan’s Financial Services Agency plans to reclassify cryptocurrencies as standard financial products and lower the top tax rate to 20%. If implemented, this reform would align Japan’s crypto tax rate with that for stocks and other financial products, significantly reducing the tax burden on investors. The survey showed that 70.6% of respondents described their risk preference as neutral, aiming to balance risk and reward. However, about 40% of these “neutral” investors said they would be willing to take on more crypto risk if Japanese regulators clarified their stance on digital assets and taxation.

This data reveals an important message: it’s not that Japanese investors are unwilling to participate in the crypto market, but rather that the current system design discourages their participation. Once the tax rate drops from 55% to 20% and the reporting process is simplified, a large influx of capital is expected to return to the Japanese crypto market. Japan is the world’s fourth-largest economy, and its crypto market holds enormous potential; reforms could unlock tens of billions of dollars in new demand.

It’s worth noting that reform expectations have already begun to affect market sentiment. While the specific implementation timeline remains unclear, investor anticipation for policy improvements is rising. This expectation could stabilize the market in the short term and trigger a new wave of investment once reforms are enacted.

Dual-Track Model of Information Sources

The survey found that respondents rely almost equally on professional or official media (63%) and community or influencer platforms (58.9%) for cryptocurrency information. This dual-track model reflects the balance Japanese investors strike between caution and openness. They seek authoritative, professional information, yet also value practical experience shared by the community.

Overall, the research indicates that Japanese investors’ participation in cryptocurrency is determined more by government regulation and administrative procedures than by price volatility. Simplified tax rules could promote greater growth for cryptocurrencies within Japan’s vast economy.