Japan announced dual measures for innovation and regulation of Crypto Assets, fully supporting the yen stablecoin.

Recently, the Financial Services Agency (FSA) of Japan has clearly demonstrated its strategic blueprint in the field of Crypto Assets to the global market with an unprecedented “two-pronged” approach: on one hand, it fully supports and leads a yen stablecoin experiment involving banking giants with a forward-looking stance; on the other hand, it simultaneously tightens regulatory reins on Crypto Assets lending and Initial Exchange Offerings (IEO). This balanced strategy of “grasping innovation with one hand and risk control with the other” not only showcases Japan's determination to seize the initiative in the global digital asset competition but also provides a “Japanese model” for countries worldwide on how to find a balance between encouraging financial technology and protecting investors' interests.

Innovation Engine

The core of this initiative is the “Payment Innovation Project (PIP)” officially launched by the Financial Services Agency of Japan (FSA). This program is part of the “FinTech Proof-of-Concept Hub” established since 2017, but it focuses more on cutting-edge exploration in the payment sector. The first pilot project of PIP is a highly anticipated joint issuance proof-of-concept experiment for a yen stablecoin.

The lineup of participants in this experiment can be described as luxurious, gathering “half of the financial world” from Japan. Leading the group are Japan's three megabanks - Mizuho Bank, Mitsubishi UFJ Bank, and Sumitomo Mitsui Banking Corporation (SMBC). In addition, the alliance members also include the trading giant Mitsubishi Corporation, Mitsubishi UFJ Trust and Banking Corporation, and Progmat, which plays a core technological role.

According to the official statement from the FSA, the goal of this experiment is very clear: to verify whether multiple banking groups can legally, efficiently, and securely issue and manage stablecoins classified as “electronic payment means” under the current Payment Services Act framework. The experiment will begin in November 2025 and will last for a necessary observation period, aiming to comprehensively examine its performance in compliance processes, operational readiness, and compatibility with the existing regulatory system.

It is worth noting that the technological foundation of this experiment will be provided by the blockchain platform “Progmat” under the Mitsubishi UFJ Group. Progmat is a powerful multi-chain infrastructure platform that natively supports several mainstream public chains such as Ethereum, Polygon, Avalanche, and Cosmos. By providing a unified token format, strict asset custody standards, and transaction auditing tools, it ensures that no matter which blockchain network enterprises choose, they can conduct the issuance, circulation, and settlement of stablecoins under a unified compliance framework. This design fundamentally avoids the systemic risks of “individualism” that may arise from inconsistent technical standards and ensures that every digital yen circulating on the chain is strictly anchored at a 1:1 ratio with the actual yen deposits or Japanese government bonds held in the bank's core system.

The direct goal of this move is to reform Japan's massive corporate payment system. It is reported that the three major banks jointly serve over 300,000 corporate clients, many of whom still rely on traditional, inefficient clearing systems. The introduction of stablecoins is expected to reduce inter-company settlement times from several days to nearly real-time, significantly lowering transaction costs and administrative expenses. Mitsubishi Corporation has committed to being the first to pilot this in its more than 240 subsidiaries, with application scenarios covering various fields from import and export trade to energy and retail. If the experiment is successful, the FSA plans to gradually expand its application scope from domestic corporate payments to cross-border settlements, and even evaluate the feasibility of issuing a dollar stablecoin, thereby providing Japanese companies with a more competitive financial flow tool in the global supply chain.

regulatory shield

However, Japan's ambitions are not limited to promoting innovation. While paving the way for the growth of stablecoins, financial regulators have also raised another hand — tightening the reins of regulation to ensure that this financial experiment does not spiral out of control. At the meeting of the Financial System Council's working group held on the same day, the FSA proposed two key regulatory enhancement proposals.

First, it directly points to the frequent risks in the cryptocurrency lending business in recent years. The proposal suggests explicitly including crypto lending services within the jurisdiction of the Financial Instruments and Exchange Act. This move aims to fill the existing legal gap, as some platforms previously circumvented strict financial regulation by defining their services as “borrowing” rather than “deposit” or “investment.” Once the new regulations are implemented, relevant operators will be required to establish a sound risk management framework, particularly in the asset re-lending and staking stages; ensure the safe custody of customer assets, such as mandatory use of cold wallets; provide clear and comprehensive risk disclosures to customers; and strictly adhere to relevant advertising regulations. The FSA's goal is very clear, targeting high-risk products that promise up to a 10% annual yield, accompanied by long-term lock-ups, yet fail to provide sufficient asset segregation and custody protection for users.

Secondly, regarding the Initial Exchange Offering (IEO), the FSA proposed introducing an investment cap. This move draws on the regulatory framework of equity crowdfunding, aiming to prevent projects that have not undergone sufficient financial audits from over-financing through IEOs and to curb irrational retail speculation driven by market frenzy. Although some experts point out that the existence of a secondary market may weaken the effectiveness of this cap, it undoubtedly indicates the regulators' firm stance on protecting ordinary investors and maintaining market order.

Strategic Considerations

Overall, Japan is implementing a carefully designed “sandbox first, then release” prudent innovation strategy. Unlike the United States and Europe, where intense debates on stablecoin legislation are still ongoing, Japan has provided a clear and feasible development path for the market by amending the Payment Services Act and launching government-backed pilot projects. The FSA has created a controlled environment through PIP, allowing the public sector and private enterprises to collaboratively verify the feasibility and compliance of technologies, accumulate experience under controlled risks, and gradually expand successful models to a broader market.

This model not only actively responds to the urgent demand for financial innovation but also adheres to a “zero tolerance” baseline for systemic financial risks. By incorporating the country's top financial institutions into a government-led compliance framework for innovation, Japan is paving a solid path for the integration of traditional finance and decentralized technologies. Whether this stablecoin experiment led by the three major banks can successfully conclude will not only profoundly affect the future payment methods and global competitiveness of Japanese enterprises, but its exploration process seeking a delicate balance between innovation and regulation will undoubtedly provide profound insights into the turbulent global digital currency landscape.