Statutory definition

“Acquisition under the items of the preceding paragraph shall not include acquiring crypto assets other than those being purchased, sold, or exchanged for a different type, where such other assets are temporarily necessary for that purchase, sale, or exchange.”

“Paragraph (2) of the preceding article applies mutatis mutandis to acquisition under the preceding paragraph.”

The first quotation is Article 119-2(2) of the Order for Enforcement of the Income Tax Act; the second is Article 119-3(3). Both adjust the scope of “acquisition” for valuation and notification. Ordinary exchanges and purchases using crypto assets require calculation of the gain or loss on the crypto assets disposed of. Individuals generally recognize revenue in the year of delivery, but may elect the year in which the sale or other transaction agreement was concluded. This conclusion is confirmed by Article 36 of the Income Tax Act and National Tax Agency FAQ 1-2, 1-3, and 2-1.

Article 119-2(1) specifies the total average and moving average methods for valuing crypto assets held by individuals on December 31. Paragraph (2) excludes from “acquisition” in those items the acquisition of other crypto assets temporarily required as an intermediate step in buying, selling, or exchanging for another type.

Article 119-3(3) applies paragraph (2) “mutatis mutandis to acquisition under the preceding paragraph.” That preceding paragraph is paragraph (2) of the same article, requiring notification of the valuation method to the tax office director. The same exclusion therefore also applies to “acquisition” when determining whether notification is required.

Overview

The Provision Excludes “Temporarily Necessary Acquisitions”

Article 119-2(2) does not directly determine whether tax applies. It narrows the scope of “acquisition” in the items of paragraph (1).

The adjustment is needed because of the calculation in paragraph (1). Item (i)'s total average method uses as unit cost the amount obtained by dividing the combined acquisition cost, including crypto assets of the same type acquired during the year, by their total quantity. Item (ii)'s moving average method likewise revises the average unit cost after each acquisition. Because these calculations count acquisitions and accumulate their cost, what counts as an acquisition changes the per-unit amount.

Paragraph (2) removes some acquisitions from that count. The exclusion is limited to “other crypto assets temporarily necessary” for the transaction: an asset obtained merely as an intermediate step in exchanging one currency for another. It can be read as keeping these pass-through assets out of the average unit cost calculation.

The exclusion is narrowly worded. “Temporarily necessary” and “other than those crypto assets” impose two cumulative limits; acquisitions associated with exchanges are not excluded as a whole.

What Happens in an Ordinary Exchange?

Read the wording from the other direction. Paragraph (2)'s deliberate exclusion of “temporarily necessary” acquisitions can be understood as presupposing that acquisitions outside that exclusion fall within paragraph (1). Exclusions are provided for things that would otherwise be included.

Applied to an exchange, crypto assets received in return for assets of another type fall within “acquisition” in paragraph (1), unless they are merely temporary pass-through holdings. If they are acquisitions, their cost must be determined before either total average aggregation or moving average revision can be performed.

Acquisition cost is specified in Article 119-6(1) of the Order for Enforcement of the Income Tax Act. Item (i) specifies purchased crypto assets' “purchase price (plus purchase commissions and other acquisition expenses, if any).” Item (iii) specifies for “crypto assets other than those listed in the preceding two items” the “value ordinarily required to acquire those crypto assets at the time of acquisition.” National Tax Agency FAQ 1-5 lists crypto received through exchange as an “other” acquisition and uses market value at acquisition as its cost. This corresponds to item (iii). The approach is explained in How is the acquisition price of crypto assets held by individuals determined? summarizing in

For the assets given up, income is calculated as a crypto asset transfer. Under Articles 36 and 37 of the Income Tax Act and National Tax Agency FAQ 1-3, the transfer cost and necessary expenses of the assets disposed of are deducted from the market value of those received. For example, exchanging crypto asset A with a transfer cost of JPY 1 million for crypto asset B worth JPY 1.5 million produces income of JPY 500,000 if there are no other necessary expenses. This calculation cannot be postponed merely because no conversion to yen occurred.

The cross-application in Article 119-3(3) also matters. Paragraph (2) requires residents acquiring crypto assets to notify their valuation method in writing by the final return deadline. Applying Article 119-2(2) here means temporarily necessary acquisitions are disregarded when determining notification requirements, while other acquisitions count.

When Used for Purchases

What happens when crypto assets are used to pay? The definition of crypto assets provides a clue.

Article 48-2(1) of the Income Tax Act refers to “crypto assets under Article 2(14) (Definitions) of the Payment Services Act (Act No. 59 of 2009).” Article 2(14)(i) of that Act defines them as “property value usable with unspecified persons to settle payment when purchasing or leasing goods or receiving services, and purchasable and saleable with unspecified counterparties.” Usability for payment forms part of the requirements; using them for purchases is built into the definition.

By contrast, Article 119-2(2) excludes acquisitions temporarily necessary for purchases, sales, or exchanges for another type of crypto asset. Disposing of crypto assets to pay for goods or services falls nowhere within that wording.

Using crypto assets for purchases is also a transfer of the assets given up. National Tax Agency FAQ 1-2 calculates the result by subtracting their transfer cost from the price of the purchased goods, including consumption and similar taxes. Other necessary expenses are also deductible. Under FAQ 2-1, revenue generally belongs to the year of delivery of the crypto assets, although the year the sale or other agreement was concluded may be elected. Where a transaction spans year-end, transaction records should establish the reporting year.

Where Are Necessary Expenses Calculated?

Article 48-2(1) of the Income Tax Act identifies where this calculation occurs. It provides that “the value of crypto assets held on December 31 forming the basis for calculating amounts included as necessary expenses in business income or miscellaneous income under Article 37(1) (Necessary Expenses)” is the amount valued using the person's selected valuation method.

Article 37(1), expressly referenced, defines amounts included as necessary expenses in calculating business or miscellaneous income for the year to include “cost of sales relating to the gross revenue from such income and other expenses directly incurred in earning that gross revenue.”

Read together, these provisions show that valuation methods and acquisition cost are not self-contained calculations. They determine necessary expenses within the calculation of business or miscellaneous income. Changes occurring on exchange or payment enter the framework aggregating that year's gross revenue and necessary expenses. The income classification itself is discussed in Which category of income do individual cryptoasset earnings fall under? summarizing in

When Do Corporations Recognize the Transaction?

For corporations, timing is expressly specified. Article 61(1) of the Corporation Tax Act provides that gains or losses on a domestic corporation's transfer of short-term trading commodities and similar assets “shall be included in gross income or deductible expenses in calculating income for the fiscal year containing the date the transfer agreement was concluded (or, for distributions of surplus and other events prescribed by Ministry of Finance Order, the date the distribution takes effect or another date prescribed by that Order).” Crypto assets are included in short-term trading commodities and similar assets by the paragraph's parenthetical definition.

For ordinary corporate transfers, the key is recognition in the fiscal year containing the agreement date. For individuals, National Tax Agency FAQ 2-1 generally uses the year of delivery but permits election of the agreement year. It is necessary to check individuals' revenue timing as well, rather than merely compare individual valuation provisions with corporate revenue-timing provisions. For details, see When a corporation sells crypto assets, when is the gain or loss recorded? summarizing in

Corporations have the same exclusion. Article 118-6(6)(i) of the Order for Enforcement of the Corporation Tax Act excludes “acquisition of other crypto assets temporarily necessary when purchasing, selling, or exchanging crypto assets for a different type.” This is almost identical to Article 119-2(2) of the income tax Order. The same exclusion for both individuals and corporations supports reading it as an adjustment for a specific situation.

Points that require care in practice

• How far does “temporarily necessary” extend? The provision specifies no holding period, frequency, or amount.
• When crypto assets used as an intermediate step in an exchange end up being retained.
• Crypto assets received in exchange are calculated at market value on acquisition, as National Tax Agency FAQ 1-5 indicates. Keep records verifying the quantity exchanged and the yen-denominated market value at that time.
• How should “the value ordinarily required to acquire the crypto assets at the time of acquisition” be determined when only an exchange ratio, not a yen price, is shown?
• When used for purchases, transfer gains or losses are calculated from the price of the goods or services purchased. Match receipts and other purchase records with the quantity and transfer cost of the crypto assets used for payment.
• Notification when an exchange yields a type of crypto asset not previously held. Article 119-3(2) requires notification by the final return deadline; without it, Article 119-5(1) requires the total average method.
• For corporations, identifying “the date on which the agreement for the transfer was concluded.”
• The FY2026 tax reforms propose changes to taxation of individuals' crypto holdings. The outline is discussed in Key points of the FY2026 tax system revision outline summarizing in

Legal basis

• Order for Enforcement of the Income Tax Act, Article 119-2(1) (Methods of Valuation of Crypto Assets) / Quoted wording: “a method using as acquisition cost per unit the amount calculated by dividing the combined total, including the total acquisition cost of crypto assets of the same type acquired during that year, by the total quantity of those assets.”
• Order for Enforcement of the Income Tax Act, Article 119-2(2) (Methods of Valuation of Crypto Assets) / Quoted wording: “Acquisition under the items of the preceding paragraph shall not include acquiring crypto assets other than those being purchased, sold, or exchanged for a different type, where such other assets are temporarily necessary for that purchase, sale, or exchange.”
• Order for Enforcement of the Income Tax Act, Article 119-3(2) (Selection of a Crypto Asset Valuation Method) / Quoted wording: “By the final income tax return deadline for the year in which that date falls, written notification must be made to the district director of the tax office having jurisdiction over the place of tax payment of the method to be used, from among those specified in paragraph (1) of the preceding article, for crypto assets of the same type.”
• Order for Enforcement of the Income Tax Act, Article 119-3(3) (Selection of a Crypto Asset Valuation Method) / Quoted wording: “Paragraph (2) of the preceding article applies mutatis mutandis to acquisition under the preceding paragraph.”
• Order for Enforcement of the Income Tax Act, Article 119-5(1) (Statutory Crypto Asset Valuation Method) / Quoted wording: “The method shall be valuation at acquisition cost calculated using the total average method specified in Article 119-2(1)(i) (Methods of Valuation of Crypto Assets).”
• Order for Enforcement of the Income Tax Act, Article 119-6(1) (Acquisition Cost of Crypto Assets) / Quoted wording: “(i) Purchased crypto assets: their purchase price (plus purchase commissions and other acquisition expenses, if any)”; “(iii) Crypto assets other than those listed in the preceding two items: the value ordinarily required to acquire them at the time of acquisition.”
• Income Tax Act, Article 37, paragraph 1 (Necessary Expenses) / Quoted wording: “Cost of sales relating to gross receipts from that income and other expenses directly required to obtain those gross receipts.”
• Income Tax Act, Article 48-2(1) (Calculation of Crypto Asset Transfer Costs and Methods of Valuation) / Quoted wording: “the value of crypto assets held on December 31 of that year forming the basis for calculating amounts included as necessary expenses in that person's business income or miscellaneous income under Article 37(1) (Necessary Expenses)”; “crypto assets specified in Article 2(14) (Definitions) of the Payment Services Act (Act No. 59 of 2009).”
• Payment Services Act, Article 2(14)(i) (Definitions) / Quoted wording: “property value usable with unspecified persons to settle payment when purchasing or leasing goods or receiving services, and purchasable and saleable with unspecified counterparties.”
• Corporation Tax Act, Article 61(1) (Gains and Losses on Transfers and Market Valuation of Short-Term Trading Commodities, etc.) / Quoted wording: “shall be included in gross income or deductible expenses in calculating income for the fiscal year containing the date the transfer agreement was concluded (or, for distributions of surplus and other events prescribed by Ministry of Finance Order, the date the distribution takes effect or another date prescribed by that Order).”
• Order for Enforcement of the Corporation Tax Act, Article 118-6(6) (Methods for Calculating Book Value per Unit of Short-Term Trading Commodities, etc., and Selection Procedures) / Quoted wording: “acquisition of other crypto assets temporarily necessary when purchasing, selling, or exchanging crypto assets for a different type.”

Additional Authorities and Sources

• National Tax Agency: Tax Treatment of Crypto-Assets, etc. (FAQ), December 26, 2025
• Income Tax Act (e-Gov)
• Order for Enforcement of the Income Tax Act (e-Gov)

Sources checked September 7, 2026.