Japan To Launch First Yen-Based Stablecoin

The Nikkei reported that Japan’s Financial Services Agency (FSA) could approve the issuance of Japan’s first yen-denominated stablecoin as early as this fall, joining a global scramble to issue stablecoins denominated in one’s own currency (or linked to one’s stock, in the case of multiple publicly traded companies).

The report states that fintech company JPYC will register as a funds transfer service provider and begin selling its “JPYC” stablecoin within a few weeks. JPYC has been issuing a prepaid payment instrument called “Prepaid JPYC”, but has been preparing to issue and distribute “JPYC”, an electronic payment instrument exchangeable for Japanese yen, under the revised Payment Services Act, which came into effect in 2023.

The goal is to issue 1 trillion yen ($6.81 billion) of the JPYC stablecoin over three years. It has already drawn interest from multiple parties, including hedge funds that invest in cryptocurrencies and offices that manage the assets of wealthy individuals. Expected uses include carry trades, which aim to profit from interest rate differentials.

While attention has been focused mainly on USD stablecoins, the reported approval of a yen-based stablecoin could provide impetus to the digital currency ecosystem in Japan. In results briefings by fintech companies in Jul-Aug, some expressed expectations for domestic stablecoins. For the banking industry, Goldman sees potential for fee income from areas such as custodial services and collateral management. According to JPYC, its trust-type stablecoin is issued on the Progmat Coin platform of Mitsubishi UFJ Trust and Banking.

The Nikkei article cites cross-border remittances, corporate payments, and asset management as potential applications.

However, challenges remain. One concern is the risk of fluctuation and a potential decoupling from the assumption that each stablecoin unit would trade at one yen. While stablecoins generally have lower volatility than cryptocurrencies, in legal tender one yen is always worth one yen.

Meanwhile, Goldman sees debate soon focusing on anti-money laundering measures, e.g., remittances to recipients not subject to KYC restrictions in the event that stablecoins were used/traded by unspecified parties to be redeemed for legal tender or circulated on a blockchain.