Japan’s Financial Services Agency (FSA) Regulations on Yen Stablecoins
Japan’s Financial Services Agency (FSA) is instituting stringent regulations regarding the backing of yen stablecoins, a move that is poised to significantly influence both bond reserves and the broader landscape of digital currency settlements led by major banks. Under the proposed guidelines, which are part of the amendments to the Payment Services Act set to take effect in 2025, the FSA has outlined specific criteria that must be met by bonds used to support stablecoin reserves.
Proposed Guidelines and Public Consultation
Notably, foreign bonds must achieve an elite credit rating and originate from issuers with a minimum of 100 trillion yen in outstanding debt— a standard that may limit the number of qualifying entities on the global stage.
The FSA is currently soliciting public input on these reserve specifications until February 27, 2026, as it works to finalize how stablecoin providers can manage assets classified as “specified trust beneficiary interests” under Japan’s evolving digital currency regulations. These new collateral requirements would restrict acceptable backing assets to foreign bonds that meet dual standards: a credit rating of “1–2” or higher and issuance exceeding the 100 trillion yen benchmark.
Supervisory Protocols and Consumer Protection
In addition to these collateral requirements, the FSA has established supervisory protocols for banks and insurance firms that facilitate cryptocurrency transactions, emphasizing the importance of transparency regarding the risks associated with digital assets. Financial institutions will be obligated to provide clear warnings to consumers to ensure they remain aware of the inherent risks, despite these products being linked to traditional banking operations.
Furthermore, businesses engaged in foreign stablecoin transactions will face new scrutiny to confirm that overseas issuers do not actively target Japanese retail customers.
Impact on the Bond Market and Stablecoin Issuers
These measures stem from the June 2025 revisions to Japan’s electronic payment and settlement framework. Once the public consultation concludes, the proposed regulations will move into finalization before being enacted. As Japan embraces this innovative financial environment, domestic stablecoin issuers like MofJPYC—the first to introduce a yen-pegged digital currency—anticipate significant participation in government bond markets, potentially filling roles historically held by the Bank of Japan (BOJ).
MofJPYC intends to direct a substantial portion of its reserves, specifically 80%, towards Japanese government bonds (JGBs), with the remaining 20% set aside for bank deposits.
With the BOJ scaling back its bond acquisitions after prolonged monetary easing, stablecoin issuers are expected to play a larger role in the bond market. MofJPYC’s founder, Noritaka Okabe, indicated that as stablecoin issuance increases, these digital currency providers could become primary participants in government bond ownership, particularly as the BOJ currently dominates with about half of the 1,055-trillion-yen bond market, leaving space for private entities.
Collaboration Among Major Financial Players
In parallel, Japan’s major financial players—including Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group—are collaboratively working on establishing their own yen-backed stablecoins aimed at local users. This initiative seeks to foster the adoption of cryptocurrency for settlements, posing a direct challenge to the prevalence of dollar-based stablecoins.
These banks plan to create a robust infrastructure for corporate clients to transfer stablecoins efficiently, with an initial emphasis on yen-linked options.
Broader Context of Digital Finance in Japan
In the broader context of this movement toward digital finance, Japan is witnessing a rapid rise in cashless payment adoption, soaring from 13.2% in 2010 to 42.8% in 2024, as reported by government data. Additionally, firms like Nomura Holdings and SBI Holdings are working on pioneering crypto exchange-traded funds (ETFs), with hopes of gaining listing approval on the Tokyo Stock Exchange.
Indeed, Japan’s financial watchdog is also considering allowing banks to invest in digital assets, such as Bitcoin, paving the way for further advancements in its financial landscape before the end of the decade.
