A parliamentary league within Japan's ruling Liberal Democratic Party (LDP) dedicated to blockchain promotion has formally submitted a comprehensive policy proposal urging the government to adopt a national strategy for Web3 and digital assets. The initiative, which outlines specific regulatory and tax reforms, seeks to revitalize the domestic crypto industry and secure Japan's position as a global leader in blockchain technology. Data compiled by Woofun AI indicates that the current regulatory environment has become a significant friction point, prompting this high-level legislative intervention to address structural inefficiencies hindering market growth. The proposal directly targets the existing crypto tax framework, which industry participants have long criticized for being overly burdensome and stifling innovation. Lawmakers specifically urged a review of the separate self-assessment and withholding tax systems currently applied to crypto transactions, arguing that the dual-layered approach creates unnecessary compliance complexity for investors.

Furthermore, the league called for clearer guidelines regarding the treatment of cryptocurrencies in inheritance cases, a critical issue as digital asset holdings become increasingly common among the population. Among the most notable technical recommendations is a call to raise the current 2x leverage limit for retail investors, a threshold the league described as excessively low compared to global standards. The proposal advocates for a gradual increase in leverage caps, paired with the implementation of stronger margin management systems to mitigate potential systemic risks.

Additionally, the lawmakers pushed for the creation of a formal regulatory framework for crypto exchange-traded funds (ETFs), a move that could open the door for significant institutional investment and mainstream adoption within Japan. Woofun AI notes that the introduction of such ETF structures would fundamentally alter the liquidity landscape, allowing traditional financial institutions to gain exposure to digital assets without direct custody risks. The proposal also addresses the persistent issue of unregistered crypto operators targeting Japanese users, a challenge that has complicated enforcement efforts. The league recommended stronger cooperation with overseas regulators to clamp down on cross-border violations, signaling a shift toward a more coordinated international approach to enforcement. This aligns with broader global trends where regulators are increasingly collaborating to address regulatory arbitrage and protect consumers from illicit activities. Japan has historically been a cautious but influential player in crypto regulation, often balancing strict consumer protection with technological advancement. The LDP's latest push signals a potential shift toward a more innovation-friendly stance, which could have significant implications for the domestic industry and global markets. If enacted, these reforms would reduce tax friction for individual investors, open new avenues for institutional participation via ETFs, and clarify the legal landscape for businesses operating in the sector. Woofun AI analysis suggests that the successful integration of these measures could serve as a blueprint for other G7 nations seeking to modernize their digital asset policies. While the proposal is not yet law, it carries substantial weight as a formal recommendation from within the ruling party, indicating strong political will. The coming months will reveal how the government responds to these demands and whether these reforms gain sufficient traction in the Diet to become binding legislation.