Japan’s Stablecoin Moment: The New Licensing Regime, What Came Before, and What Comes Next

Stablecoins are digital tokens designed to maintain a stable value, usually pegged one-to-one with a fiat currency such as USD or JPY. They function as cash on blockchain networks. They enable 24-hour settlement, programmable payments, atomic delivery versus payment, and cross-border transfers without relying on correspondent banking rails.

Globally, stablecoins have become systemically important. USD stablecoins settle trillions of dollars per year. Tether, issuer of USDT, has reported record profits driven largely by interest income on reserves invested in US Treasuries. Recent reporting has described Tether as one of the most profitable financial firms in the world on a per-employee basis. This profitability is tightly linked to high US dollar interest rates and large reserve balances.

Japan presents a different story.

For many years, stablecoins were not essential in Japan. Domestic centralized exchanges were well-regulated and tightly integrated with the banking system. Retail and professional users could move in and out of JPY efficiently through licensed exchanges, and banking rails were reliable. The marginal utility of a JPY stablecoin was lower than in markets with weak banking access.

That is changing as on-chain activity is increasing. Cross-border digital asset flows are growing and corporations want 24-hour settlement and programmable treasury operations. Most importantly, Japan now has a clear legal framework for fiat-backed stablecoins.

The Three Types of Stablecoin Issuers in Japan

Japan’s amended Payment Services Act introduced a framework for what it calls electronic payment instruments, which include fiat-backed stablecoins redeemable at par. Under this regime, issuance is restricted to three categories of licensed entities:

1. Banks

2. Trust companies or trust banks

3. Funds transfer service providers

This structure is laid out by the Financial Services Agency in its overview of the revised framework for stablecoins and other digital payment instruments. The core principle is that fiat-linked stablecoins must be issued by regulated entities that can ensure redemption and appropriate safeguarding of funds.

In addition to issuer licensing, Japan created a new registration category for entities that handle or distribute stablecoins. This is the “Electronic Payment Instrument Exchange Service Provider”. The FSA maintains a public list of registered electronic payment instrument exchange service providers and the instruments they handle.

This dual structure matters: issuance is tightly controlled, while distribution is separately regulated. Together they create a closed but legally certain environment for fiat-backed tokens.

Before the Framework: JPYC v1 and Offshore GYEN

Before the new stablecoin rules took effect in 2023, Japan did not have a dedicated category for fiat redeemable tokens on public blockchains. Projects had to fit into existing buckets.

JPYC v1 is the clearest example. Early JPYC was structured as a prepaid payment instrument rather than as a legally defined stablecoin. This allowed it to operate under existing prepaid instrument rules while maintaining a JPY-linked value. As the new electronic payment instrument framework matured, JPYC announced a transition toward the new regulatory category. In August 2025, JPYC received a funds transfer service provider license, one of the three permitted issuer types under the stablecoin regime.

GYEN followed a different path. It is issued by GMO Z.com Trust Company, a New York limited-purpose trust company regulated by the New York Department of Financial Services. GYEN is a yen-linked stablecoin, but its regulatory home is the United States rather than Japan. At the time of its launch, Japan lacked a purpose-built stablecoin issuance regime, making offshore issuance under NYDFS oversight a pragmatic solution.

These two models illustrate the constraints of the pre-2023 environment. Projects either fit into adjacent categories domestically or issued offshore under foreign regulatory frameworks.

Global Stablecoins in Japan

The revised framework also created a path for handling foreign-issued stablecoins within Japan.

In November 2023, SBI Holdings and Circle announced a partnership aimed at expanding USDC adoption in Japan. In March 2025, SBI VC Trade announced registration as an Electronic Payment Instrument Exchange Service Provider and identified USDC as the first stablecoin it would handle under the new regime.

This marked the first clear regulatory pathway for a major global stablecoin to be distributed domestically under Japanese law.

What about Tether’s USDT, which is the globally dominant stablecoin with more than twice the market cap of Circle’s USDC? It does not currently have a sponsor in Japan in a similar way to SBI with USDC. The regulatory requirements for distribution and the need for registered intermediaries create substantial barriers to entry. Moreover, the economics differ. Tether’s profitability has been driven by investing dollar reserves at relatively high US Treasury yields. Japanese yen yields have historically been much lower, although they have risen in recent years. As of February 2026, Japan’s 10 year government bond yield was around 2 percent. That spread difference has a material impact on the reserve income model.

In short, the yield-driven business model that works in USD does not scale the same way in JPY.

Progmat, SBI, and the Megabank Initiatives

The most significant domestic infrastructure initiative is Progmat Coin, originally developed by MUFG and now positioned as a broader issuance and management platform for tokenized assets and stablecoins.

In January 2024, Mitsubishi UFJ Trust and Banking and Progmat announced efforts to explore stablecoin-based settlement use cases, including trade settlement. In November 2025, MUFG Bank, Mizuho Bank, SMBC, Mitsubishi UFJ Trust and Banking, and Progmat announced a joint proof of concept for stablecoin issuance and advanced cross border payments under the FSA’s FinTech PoC Hub framework.

These announcements signal that Japan’s largest banks are not treating stablecoins as fringe crypto tools. They are exploring joint issuance models and interoperable infrastructure. If standardized, this could create credible, bank-backed JPY stablecoins with direct enterprise relevance.

SBI’s partnership with Circle suggests a complementary strategy. Rather than focusing solely on domestic JPY issuance, SBI is also positioning itself as a regulated distribution channel for USD stablecoins such as USDC within Japan.

Together, these initiatives indicate a two-track future. One track is domestic, bank-backed JPY stablecoins for enterprise and settlement use cases. The other is regulated access to major global stablecoins for trading, cross-border flows, and Web3 integration.

The Uphill Battle for Non-USD Coins

The fiat-backed stablecoin market is about $292B, and the gravity well is USD liquidity. Circle’s EURC was the obvious candidate to prove that a G10 alternative could scale, but its market cap is a fraction of USDC’s at $464M, a “failure” in the only sense that matters here: it has not broken out of the long tail.

Japan’s homegrown yen tokens show the same headwinds, with JPYC around a $12M market cap. That is not because the yen is irrelevant, but because the world is structurally dollar-centric. The dollar is about 56.92% of global FX reserves and it is on one side of 88% of all FX trades. Stablecoins mirror that reality. The hope case for JPY is not to beat USD in global crypto markets. It is to win at home as regulated, programmable cash for Japanese commerce and capital markets, then export that utility through rails Japan already controls: banks, payment apps, and enterprise settlement.

Why Stablecoins Now Matter in Japan

For retail users, strong exchanges and bank integration reduced the urgency for stablecoins. For corporations and institutions, the calculus is different.

Stablecoins offer continuous settlement, programmable escrow, automated reconciliation, and potentially lower friction in cross border trade. As tokenized securities, digital bonds, and on chain collateral markets develop, having regulated on chain money becomes foundational infrastructure rather than a speculative instrument.

The regulatory clarity introduced in 2023 removed a key uncertainty. The next phase will depend on actual issuance, real world volume, and integration into enterprise systems and compliance-focused blockchains.

Japan’s approach is conservative but deliberate. By restricting issuance to banks, trust companies, and licensed funds transfer providers, and by regulating distribution separately, the FSA has prioritized redemption certainty and consumer protection. The result is not a free for all. It is a controlled build out of digital cash rails.

The coming years will show whether this structure produces meaningful scale. The pieces are now in place.

For financial institutions and enterprises exploring compliant stablecoin strategies in Japan, we’re actively working with partners in this space. Get in touch with us today.