The stability of the stablecoin market in Japan is mainly due to the establishment of a clear regulatory framework. The government’s support and the policies of the ruling Liberal Democratic Party have further accelerated the development of the Web3 industry. In contrast to the uncertain or restrictive attitudes of many countries towards stablecoins, Japan’s positive and open attitude stands out. Therefore, people are optimistic about the future of the Web3 market in Japan. This article will explore the current regulatory status of stablecoins in Japan and analyze the potential impact of yen-backed stablecoins.
I. Regulatory Drive Boosts the Japanese Stablecoin Market
In June 2022, Japan laid the foundation for amending the Payment Services Act (PSA) and established a regulatory framework for stablecoin issuance and brokerage. These amendments officially came into effect in June 2023, marking the official start of stablecoin issuance. The new law provides a detailed definition of stablecoins, clarifies the issuing entities, and specifies the licenses required for related businesses.
1. Definition of Stablecoins
According to the revised PSA, stablecoins are classified as “Electronic Payment Instruments” (EPI) and can be used to pay for goods or services to an unspecified number of recipients.
However, not all stablecoins belong to this category. According to Article 2, Paragraph 5, Clause 1 of the revised PSA, only stablecoins backed by legal tender are considered electronic payment instruments. This means that stablecoins based on cryptocurrencies such as Bitcoin or Ethereum (e.g., MakerDAO’s DAI) are not considered electronic payment instruments. This distinction is an important feature of Japan’s regulatory framework.
(Source: Tiger Research)
Supplement by Aiying: Japan’s classification of stablecoins is somewhat similar to the European MICA proposal. Stablecoins backed by legal tender are classified as “E-money Tokens” under the MICA proposal, while asset-referenced stablecoins like DAI are classified as “Asset-referenced Tokens”. For more details, please refer to the report “Comprehensive Interpretation of the European MiCA Proposal: Profound Impact on the Web3 Industry, DeFi, Stablecoins, and ICO Projects”.
2. Issuing Entities for Stablecoins
According to the revised PSA, stablecoins can only be issued by three types of entities:
– Banks
– Funds transfer service providers
– Trust companies
Each type of entity has differences in functionality, such as transfer limits and recipient restrictions.
Among them, stablecoins issued by trust companies are worth paying attention to because they are expected to be the most compatible with Japan’s current regulatory environment and have similar characteristics to widely known stablecoins like USDT and USDC.
Stablecoins issued by banks will be subject to certain restrictions. As banks need to maintain the stability of the financial system, regulatory authorities have stated that stablecoins issued by banks need careful consideration and may require further legislation.
Funds transfer service providers are also subject to certain limitations. The transfer limit for each transaction is 1 million yen, and it is currently unclear whether transfers can be made without KYC verification. Therefore, these stablecoins may require further regulatory updates. Given these conditions, stablecoins issued by trust companies are most likely to emerge.
3. Licenses for Stablecoin-related Activities
To engage in stablecoin-related activities in Japan, entities must register as Electronic Payment Instrument Service Providers (EPISPs) and obtain the relevant licenses. This requirement was introduced after the amendment of the Payment Services Act in June 2023. Stablecoin-related activities include buying, selling, exchanging, brokering, or acting as an agent for stablecoins. For example, virtual asset exchanges that support stablecoin transactions or custodial wallet services for managing stablecoins for others need to be registered. In addition, these activities must also comply with user protection and anti-money laundering (AML) requirements.
II. Yen-backed Stablecoins
With the improvement of Japan’s stablecoin regulatory framework, multiple projects are actively researching and testing yen-backed stablecoins. The following are several major stablecoin projects in Japan, which can help understand the current status and characteristics of the yen stablecoin ecosystem.
1. JPYC: Prepaid Payment Instrument
JPYC is the first digital asset issuer pegged to the Japanese yen, established in January 2021. However, JPYC is currently classified as a prepaid payment instrument rather than a stablecoin defined by the revised Payment Services Act, so it is not considered a stablecoin. JPYC has limitations on its usage, such as only supporting the conversion of fiat currency to JPYC (top-up) but not the conversion of JPYC back to fiat currency. It is similar to a rechargeable card, which restricts its use to some extent.
However, JPYC is actively working towards issuing stablecoins that comply with the new law by obtaining a funds transfer license to issue funds transfer stablecoins and expanding its usage, such as exchanging with the Tochika issued by Hokkoku Bank.
In addition, JPYC plans to register as an EPISP to operate stablecoin businesses. In the long term, the company also plans to issue and operate trust-type stablecoins based on Progmat Coin to support cash or bank deposit-related business activities.
2. Tochika: Deposit-supported Digital Currency
Tochika is the first digital currency supported by bank deposits in Japan, launched by Hokkoku Bank in 2024. Tochika is supported by bank deposits and can be easily accessed through the “Tochika” app and used at cooperating merchants in Ishikawa Prefecture.
Tochika is characterized by its simplicity and low merchant fees of only 0.5%. However, it is currently limited to use within Ishikawa Prefecture, and there is only one free cash withdrawal opportunity per month. After exceeding this limit, a handling fee of 110 Tochika (equivalent to 110 yen) will be charged. In addition, Tochika operates on a private blockchain with limited scope.
In the future, Tochika plans to expand its service range, including linking accounts with other financial institutions, expanding geographical coverage, and introducing peer-to-peer remittance functionality.
3. GYEN: Offshore Stablecoin
GYEN is a yen stablecoin issued by GMO Trust, a subsidiary of the Japanese GMO Internet Group based in New York. It is regulated by the New York State Department of Financial Services and is on the state’s green list. GYEN is pegged to the yen at a 1:1 ratio, but since it is not issued by a Japanese trust company, it cannot circulate domestically in Japan.
However, GYEN may be included in Japan’s regulatory framework in the future as part of compliant stablecoins.
Is the Stablecoin Business Really Feasible?
Although the regulatory framework for stablecoins has been established for some time, the progress of stablecoin projects in Japan has been limited. Stablecoin projects similar to USDT or USDC are still scarce in the Japanese market, and no company has completed EPISP registration yet.
In addition, the requirement for stablecoin issuers to manage all reserve funds as demand deposits poses significant limitations on commercial operations. Demand deposits can be withdrawn at any time and have thin profit margins, making it difficult to generate income for stablecoin businesses. Although the Bank of Japan recently raised interest rates from 0%, the short-term rate of 0.25% is still low, weakening the profitability of stablecoin businesses. Therefore, there is increasing demand for competitive stablecoins backed by other assets such as Japanese government bonds.
Despite these challenges, major financial institutions and corporate groups in Japan are still actively participating in stablecoin businesses. These include major banks such as Mitsubishi UFJ Bank (MUFG), Mizuho Bank, and Sumitomo Mitsui Banking Corporation (SMBC), as well as companies like Sony and DMM Group.
Conclusion
In recent years, Japan has been striving to address the issue of a weak yen and has implemented various strategies to enhance its competitiveness. Stablecoins are part of this effort, as an attempt to enhance the scalability and competitiveness of the yen. By adopting advanced stablecoins, it is expected that Japan can not only apply them domestically but also explore new application scenarios in the global payment field, providing new opportunities for Japan to expand its influence in the international financial market.
(Source: rwa.xyz)
Although the regulatory framework for stablecoins has been established for some time, the influence of the yen in the stablecoin market is still limited. There are few practical use cases for stablecoins, and no companies have completed EPISP registration yet. The declining support for the Kishida Cabinet and the Liberal Democratic Party also make it difficult to push forward strong Web3-related policies. Despite this, establishing a regulatory framework is a meaningful progress. Although progress may be slow, the anticipated changes are worth looking forward to.
