Japan Set to Approve First Yen-Backed Stablecoin This Fall, Marking Historic Shift in Digital Currency Policy

Japan’s Financial Services Agency (FSA) will approve yen-backed stablecoins this fall, making it the first time the country allows a domestic digital currency tied to its national currency.

Tokyo-based company JPYC will lead this groundbreaking launch after registering as a money transfer business within the month, according to Japanese financial newspaper Nihon Keizai Shimbun.

This decision puts Japan ahead of most countries in creating clear rules for digital currencies. The move comes as the global stablecoin market has grown to over $286 billion, mostly dominated by US dollar-backed tokens like USDT and USDC.

How JPYC Will Work

JPYC will maintain a fixed rate of one token equals one Japanese yen. The company backs each token with real assets including bank deposits and Japanese government bonds. When people or businesses want to buy JPYC tokens, they submit applications and pay through bank transfers. The tokens then go directly to their digital wallets.

The company must follow strict rules to keep the system stable. JPYC needs to deposit 101% of the highest amount of tokens they issue within one week. They have just three business days to make these deposits under current regulations.

Unlike many other digital currencies, JPYC won’t create its own blockchain. Instead, it will use existing public blockchains, keeping the system open and connected to the broader crypto world.

Impact on Japan’s Bond Market

JPYC representative Ryosuke Okabe believes yen stablecoins could change Japan’s government bond market. He pointed out that major US stablecoin companies have become some of the biggest buyers of US Treasury bonds, using them to back their tokens.

“JPYC will likely start buying up Japanese government bonds in large quantities going forward,” Okabe wrote on social media. He called stablecoins “absorption machines” for government bonds, suggesting they create new demand that could help keep interest rates low.

Okabe warned that countries slow to develop stablecoins might face higher government bond interest rates. They miss out on this new type of institutional demand that stablecoin companies create.

JPYC’s Journey to Approval

JPYC started working toward this goal years ago. The company began talking with Japan’s FSA in 2020, launched its first version as a prepaid payment tool in January 2021, and got official registration in March 2022.

The company has grown to 25 employees and claims nearly 100% of Japan’s domestic stablecoin market, with over 30 billion yen already issued. JPYC has partnerships with major Japanese financial companies including Mitsubishi UFJ Trust and Banking Corporation and Hokkoku Bank.

JPYC founder Noritaka Okabe says the company’s mission is “to overcome societal stagnation” by providing low-cost, efficient payment systems. He believes digital currencies work especially well with automated systems and artificial intelligence.

Japan’s Regulatory Leadership

Japan has become a leader in crypto regulation across Asia. The country passed specific stablecoin laws in June 2022, which took effect in June 2023. These laws clearly define what stablecoins are and set strict rules for who can issue them.

Under Japan’s system, only licensed banks, registered money transfer companies, and trust companies can issue stablecoins. The laws require strong backing assets and clear redemption processes to protect users.

This regulatory framework puts Japan ahead of many other countries still figuring out how to handle digital currencies. The clear rules give companies confidence to invest and innovate while protecting consumers.

Japan’s approach contrasts sharply with other major economies. While the US still debates comprehensive stablecoin legislation and China bans most crypto activities, Japan has created a clear path forward.

Broader Context and Competition

Japan’s move comes after Circle’s USDC became the first foreign stablecoin approved in the country in March 2025. That approval showed Japan was ready to work with international companies while developing its own domestic options.

The timing also aligns with Japan’s broader push to become a major player in digital finance. The country has been working on crypto tax reforms and considering approval of Bitcoin exchange-traded funds.

However, risks remain. Okabe acknowledged that if Japanese government bonds lose value or the country faces financial problems, the stablecoin’s value could become unstable. In extreme cases, if Japan defaulted on its bonds, people might sell JPYC tokens below their intended one-yen value.

The company has built in safeguards, including the ability for users to redeem tokens directly with JPYC for full value even if market prices drop temporarily.

What This Means Going Forward

Japan’s approval of yen-backed stablecoins represents a major step in global digital currency development. It shows how countries can create domestic alternatives to US dollar-dominated digital money while maintaining strict oversight and consumer protection.

The success of JPYC could encourage other nations to develop similar programs, potentially reducing the global financial system’s dependence on US dollar-backed digital currencies. For Japan, it offers a way to strengthen demand for government bonds while positioning the country as a leader in financial technology innovation.