作者：Jay Jo & Yoon Lee, Tiger Research

Compiled by: Felix, PANews

Key Points

  • Thanks to its government-led and friendly Web3 policies, Japan has one of the most advanced stablecoin regulatory frameworks among mainstream countries.

  • However, stablecoin use cases in Japan are limited. Japan does not have an EPISP registration for stablecoin businesses, and no stablecoins are listed on local exchanges, limiting the application of stablecoins in the retail sector.

  • However, the existence of a regulatory framework is still important, providing clarity for businesses. It is foreseeable that large Japanese banks and large companies such as Sony will participate in the stablecoin market.

1. Introduction

The Japanese stablecoin market has achieved stability, largely due to the establishment of a clear regulatory framework. This is also supported by government initiatives and the ruling Liberal Democratic Party's policies aimed at accelerating the development of the Web3 industry. Japan's proactive and open attitude contrasts with many other countries that have taken unclear or restrictive stances on stablecoins. As a result, there is optimism about the future of Japan's Web3 market. This report examines Japan's stablecoin regulations and explores the potential impact of yen-backed stablecoins.

2. Japan’s stablecoin market takes off as regulation improves

In June 2022, Japan revised the (Payment Services Act) (PSA) to lay the foundation for establishing a regulatory framework for the issuance and brokerage of stablecoins. These amendments came into effect in June 2023. This marks the official start of the issuance of stablecoins. The revised law defines stablecoins in detail, specifies issuing entities, and outlines the licenses required to handle stablecoin business.

2.1. Stablecoin definition

Under Japan’s revised PSA, stablecoins are classified as “electronic payment instruments (EPIs)”, meaning they can be used to pay for goods or services to an unspecified number of recipients.

Source: Tiger Research

However, not all stablecoins fall into this category. Under the revised Article 2(5)(1) of the (Public Services Act), only stablecoins that maintain their value based on fiat currencies are considered electronic payment instruments. This means that stablecoins backed by cryptocurrencies such as Bitcoin or Ethereum (such as MakerDAO’s DAI) are not classified as electronic payment instruments. This is a key feature of Japan’s regulatory framework.

2.2. Stablecoin Issuing Entity

Japan’s revised PSA clarifies the entities that are authorized to issue stablecoins, which are only three categories:

  • bank

  • Funds transfer service providers

  • Trust Company

Each entity can issue stablecoins with different characteristics, but they differ in terms of maximum transfer amounts and recipient restrictions.

Source: Mitsubishi UFJ Financial Group (MUFG)

Among these issuers, the most noteworthy is the trust-type stablecoin issued by trust companies, because it is perhaps the most compatible with Japan's current regulatory environment and is similar in features to common stablecoins such as USDT and USDC.

According to Japanese regulators, stablecoins issued by banks will be subject to certain restrictions. Banks must maintain financial system stability under strict supervision, but stablecoins without permission are difficult to control. Therefore, regulators emphasize that stablecoins issued by banks need to be carefully considered and may require further legislation.

Money transfer service providers also face restrictions. The transfer amount per transaction is capped at 1 million yen, and it is unclear whether it is possible to transfer money to a recipient without KYC verification. Therefore, stablecoins issued by money transfer service providers may require additional supervision in advance. Given these conditions, the most likely to be widely used will be stablecoins issued by trust companies.

2.3. Stablecoin-related licenses

To conduct stablecoin-related business in Japan, entities must obtain a stablecoin-related license by registering as an Electronic Payment Instrument Service Provider (EPISP). Stablecoin-related business refers to activities such as buying, selling, exchanging, brokering or acting as an agent. For example, virtual asset exchanges that list and support stablecoin transactions, or custodial wallet services that manage stablecoins on behalf of others, also need to register. In addition to registration, these businesses must also meet user protection and anti-money laundering (AML) compliance obligations.

3. Japanese Yen Stablecoin

Due to Japan’s well-developed regulatory framework for stablecoins, various projects are actively researching and experimenting with yen-based stablecoins.

3.1. JPYC: Prepayment Tool

Source: JPYC

JPYC is Japan's first issuer of digital assets pegged to the yen, established in January 2021. However, the "JPYC" token is currently classified as a prepaid instrument rather than an electronic payment instrument, which means it is not legally considered a stablecoin. As a result, JPYC functions more like a prepaid coupon with limited uses and applications. Specifically, while fiat currency can be exchanged for JPYC, JPYC is not allowed to be exchanged back to fiat currency, which limits its utility.

It is worth noting that JPYC is making efforts to issue stablecoins that comply with the revised PSA. First, JPYC plans to issue a money transfer stablecoin by obtaining a money transfer license. The goal is to expand its use by exchanging it with Tochika, a deposit-backed digital currency issued by the Bank of Japan.

JPYC is also preparing to register as an EPISP to operate a stablecoin business. In the long term, the company aims to issue and operate trust-based stablecoins based on Progmat’s Progmat Coin, enabling it to support various business activities involving cash or bank deposits. Additionally, JPYC’s integration with Circle’s infrastructure is expected to provide significant advantages as it expands its business, particularly in cross-border payments.

3.2. Tochika: Digital Currency Supported by Deposits

Source: Northland Bank

Tochika is Japan’s first deposit-backed digital currency. It was launched in 2024 by Kitakyushu Bank, a local bank in Ishikawa Prefecture. Tochika is backed by bank deposits and offers digital tokens that bank account holders can use as deposit services.

Users can access Tochika through the Tochituka app, which was jointly developed by Kitakyushu Bank and the City of Suzu. Users can register their bank account on the app, top up Tochituka, and then use it as a payment method at participating merchants in Ishikawa Prefecture.

Tochika stands out for its simplicity and the 0.5% commission it offers merchants. But there are some limitations. Currently, Tochika is only available within Ishikawa Prefecture, and a topped-up Tochika can only be redeemed for free once a month, after which a fee of 110 Tochika (equivalent to 110 yen) is required. In addition, Tochika runs on a permissioned private blockchain developed by Digital Platformer, limiting its use to closed ecosystems.

In the future, Tochika plans to enhance and expand its services. These plans include linking to deposit accounts at other financial institutions, expanding its coverage, and introducing person-to-person remittance capabilities. Despite its current limitations, Tochika sets a good precedent for deposit-backed digital currencies.

3.3. GYEN: Offshore Stablecoin

Source: GMO Trust

GYEN is a yen-denominated stablecoin issued by GMO Trust, a New York subsidiary of Japan's GMO Internet Group. The stablecoin is regulated by the New York State Department of Financial Services and is included in the whitelist, which authorizes certain cryptocurrencies to be issued in New York. GYEN is the only yen stablecoin that is physically traded on crypto exchanges and is currently available on Coinbase.

GYEN is issued at a 1:1 ratio with the Japanese yen and is a trust-type stablecoin. However, since GYEN is not issued through a trust company within the Japanese regulatory system, it cannot be issued in Japan or among Japanese residents, limiting its use in Japan. Nevertheless, Japanese regulators are discussing specific requirements and compliance measures for GYEN, as well as stablecoins such as USDC and USDT.

4. Is the stablecoin business really feasible?

Although stablecoins have been legalized for more than a year, the various stablecoin projects that have emerged in Japan have made limited progress. There are still few permissionless stablecoins such as USDT or USDC in the Japanese market. No company has yet completed the EPISP registration required to operate stablecoin-related businesses.

In addition, regulations requiring stablecoin issuers to manage all reserves as demand deposits pose a significant restriction on business operations. Demand deposits are generally unprofitable because they can be withdrawn at any time and earn almost no interest. Although the Bank of Japan recently raised its interest rate from 0%, short-term interest rates remain low at 0.25%, still lower than many other countries. This low interest rate may reduce the profitability of stablecoin business. Therefore, there is a growing demand for more competitive stablecoins backed by different assets, such as Japanese government bonds.

Source: (left) Circle and Soneium, (right) DMM Crypto and Progmat

Still, expectations remain high as major Japanese financial institutions and companies are actively participating in the stablecoin market. These include large banks such as Mitsubishi UFJ Bank (MUFG), Mizuho Bank, and Sumitomo Mitsui Banking Corporation (SMBC), as well as corporate groups such as Sony and DMM Group.

Amid these expectations, there are growing calls for regulators to reassess their policies. As the legal framework has been in place for some time but lacks tangible results, doubts and concerns about its effectiveness are likely to grow.

5. Conclusion

Source: Financial Times, Refinitiv

In recent years, Japan has been struggling with the depreciation of the yen and has implemented various strategies to improve the competitiveness of its currency. Stablecoins are part of its attempt to make the yen both scalable and competitive. Advanced stablecoin adoption is expected to pave the way for a range of global use cases beyond Japanese applications, including cross-border payments. This could enable Japan to expand its influence in global financial markets.

Source: rwa.xyz

Although the stablecoin regulatory framework has been in place for more than a year, the yen has a minimal presence in the stablecoin market. Stablecoin use cases are still rare, and there are no EPISP registrations for stablecoin-related businesses. The decline in support for the Kishida Cabinet and the Liberal Democratic Party also makes it difficult to promote strong Web3-related policies. Nevertheless, the establishment of a regulatory framework is a meaningful step forward. Although progress may be slow, its changes are worth looking forward to.

Related reading: The battle for stablecoins is in full swing: the total market value has risen to the $170 billion mark, and many new players have entered the market with funds