Japan’s financial regulator is rewriting the rulebook for stablecoins with a bold new plan that tightens bond requirements and could reshape both the digital currency and government bond markets.
Quick Summary – TLDR:
- Japan’s FSA wants only top-rated foreign bonds from massive issuers as collateral for stablecoins.
- New draft rules are part of implementing the 2025 Payment Services Act.
- JPYC and major banks like MUFG, SMBC, and Mizuho are driving forward yen-backed stablecoin projects.
- The public consultation on the proposed guidelines runs until February 27, 2026.
What Happened?
Japan’s Financial Services Agency (FSA) has proposed tough new rules on what kinds of bonds can be used to back stablecoins pegged to the yen. The draft guidance, part of changes under the 2025 Payment Services Act, sets a very high bar for foreign bonds, while encouraging stablecoin issuers to hold more Japanese government bonds (JGBs). The agency is now seeking public input before finalizing the rules.
Japan’s FSA has opened a public consultation on eligible bond types for stablecoin reserve collateral.
— Ous (@DangaWrites) January 27, 2026
Draft rules specify foreign bonds must carry a top credit rating (1–2 or above) and the issuer must have ≥¥100 trillion (≈$648B) in total bonds outstanding.
FSA Raises the Bar on Foreign Bond Collateral
Under the proposed rules, only foreign-issued bonds with top credit ratings and a minimum of 100 trillion yen in total issuance would qualify as collateral for yen-backed stablecoins. This restricts eligibility to only the largest and most creditworthy global entities, such as certain sovereign or major corporate issuers.
This move is part of a broader effort to enforce safety and transparency in Japan’s growing digital asset market. The rules also clarify how stablecoin issuers may manage reserves under “specified trust beneficiary interests,” a structure set out in Japan’s revised framework.
The consultation window for public feedback is open until February 27, 2026. After that, the FSA will finalize the regulations, which are expected to significantly impact both local and international stablecoin strategies.
Tighter Oversight for Banks and Crypto Intermediaries
The FSA is also addressing concerns around risk disclosure for crypto-related services offered by traditional financial institutions. Banks and insurers entering digital asset services will need to clearly inform customers that these products carry inherent risks, even if backed by established financial brands.
Furthermore, foreign stablecoin issuers looking to operate in Japan must now confirm they won’t directly target Japanese retail customers. Japanese regulators plan to collaborate with overseas authorities to monitor these firms and prevent regulatory loopholes.
JPYC and Megabanks Push Ahead
Tokyo-based JPYC, the issuer of Japan’s first legally compliant yen-backed stablecoin, has welcomed the direction of the new rules. The company plans to allocate 80% of its stablecoin reserves to JGBs, with the remaining 20% held in bank deposits.
JPYC’s CEO, Noritaka Okabe, said:
The Bank of Japan currently owns around 50% of the 1,055-trillion-yen JGB market, but that number is expected to fall as the central bank scales back its purchasing program.
Japan’s three largest financial institutions named MUFG, Mizuho, and SMBC are also moving fast on launching yen-backed stablecoins. Their goal is to build infrastructure for stablecoin-based settlements, initially using yen and possibly expanding to dollar-pegged versions in the future. These efforts align with Japan’s broader push for digital finance adoption, which has seen cashless payments rise to 42.8% in 2024, up from just 13.2% in 2010.
FSA’s Goals: Safety, Liquidity and Control
The FSA aims to allow more flexibility in stablecoin reserves while still maintaining strict oversight. Early guidance indicates that up to 50% of reserves could be held in low-risk assets like government bonds or term deposits, provided the principal is protected.
Officials say this shift is necessary to help stablecoin issuers earn modest returns and manage reserves more efficiently, without compromising on user safety. Clear standards could also help Japanese banks and trust companies launch more competitive digital yen products.
SQ Magazine Takeaway
I think this is a smart but cautious move by Japan. On one hand, it shows the government is serious about protecting users and making sure stablecoins are safe. On the other, it leaves room for innovation and growth in the digital finance space. I’m particularly intrigued by how stablecoin issuers might soon play a major role in the bond market. That’s a major shift, especially as the BOJ steps back. If done right, this could become a model for other countries trying to balance financial innovation with regulatory oversight.
