The Financial Services Agency (FSA) of Japan has announced that it will approve the issuance of yen-denominated stablecoins for the first time this autumn, marking a significant transformation for Japan's fintech industry.
Tokyo-based fintech company JPYC will become the first yen stablecoin and is expected to complete the registration process for funds transfer operators by the end of the month.
JPYC stablecoins will be pegged to the yen at a 1:1 ratio, with their value supported by bank deposits and Japanese government bonds. However, it is important to note that the interest generated from these bonds will belong to JPYC, and users will not receive any interest income. This approach differs from mainstream dollar-denominated stablecoins, such as USDC and Tether, which typically return some profits to users.
This approval signifies Japan's formal entry into the global stablecoin market, which currently exceeds $250 billion (approximately 37 trillion yen). The Japanese government's aim is not only to participate in international competition but also to enhance the efficiency of international remittances and cross-border transactions, hoping to achieve faster, cheaper, and more convenient payment methods through the yen-denominated stablecoin.
JPYC will issue its stablecoin using existing public blockchain technology instead of developing a new blockchain, which helps maintain the openness of the ecosystem and avoids creating a closed system. Ryosuke Okabe, a representative for JPYC, noted on X platform that the demand for government bonds from stablecoin issuers will act like a giant "absorption machine," potentially influencing the interest rates of Japanese government bonds and impacting the overall financial market, including lending rates and mortgage costs.
However, this innovation also comes with certain risks. JPYC acknowledges the risk of decoupling in the secondary market, particularly if the liquidity of the supporting Japanese government bonds decreases or their value declines, which could cause the stablecoin price to fall below 1 yen. While users can still redeem JPYC priced below 1 yen at full value, Okabe admitted that if Japanese government bonds default or crash, market panic selling could exacerbate the decoupling risk, leading the stablecoin price to remain below par for an extended period.
To mitigate liquidity shortage risks, JPYC must deposit 101% of the maximum issuance value within one week after issuing stablecoins and complete the process within three business days. This regulation reflects the Japanese regulatory authority's emphasis on risk management for stablecoins.
Overall, Japan's approval of yen-denominated stablecoin issuance is a significant milestone in the development of the global stablecoin market. It also highlights the delicate balance between stablecoin issuance and regulation. The JPYC model, along with its associated risks and opportunities, will provide insights for regulatory policies in other countries and regions and will influence the future direction of the stablecoin market.
