TOKYO—Japan is likely to stop short of regulating bitcoin after a ruling-party panel looking into issues surrounding the virtual currency decided that no legislation was needed for now.

Prime Minister Shinzo Abe's Liberal Democratic Party also said Thursday that no single government agency should be appointed to oversee the digital currency. Instead, it called for self-regulation by those involved in trading in bitcoin, as the party seeks to nurture the fledgling industry.

"While we may need to be flexible in reviewing legislation in the future, we also have to have to stand back and allow this new sprout of industry to grow," said Takuya Hirai, who heads the LDP's panel on information-technology strategy.

In a statement of proposals for how the government should handle bitcoin, the panel defined the virtual currency as an "electronic record with value," meaning it is neither a currency nor a commodity. The panel also recommended that specific bitcoin transactions and capital gains be taxed.

Given the current vacuum in regulation, some law experts and bitcoin users in Japan have said bitcoin and its exchange platforms warrant government regulation to protect users. Many of them pointed to the Financial Services Agency as the most appropriate watchdog under existing law.