Japan's FSA Approves First Bank-Issued Stablecoin | Traditional Finance Officially Enters the Digital Currency Era

Summary

Japan's Financial Services Agency (FSA) has approved the JPY Token (JPYT), a fiat-backed stablecoin issued by Sumitomo Mitsui Trust Bank, marking Japan as the first major economy in Asia to allow banks to issue stablecoins. The project is pegged 1:1 to the Japanese yen and is fully regulated by the FSA, signifying the traditional banking system's full entry into the digital currency era.

I. Introduction: Japan Achieves Historic Breakthrough in Digital Finance

In October 2025, Japan's Financial Services Agency (FSA) officially approved the country's first stablecoin project issued by a commercial bank. This makes Japan the first major Asian economy to fully open bank-grade stablecoin issuance under a fiat-backed framework, and symbolizes the deep integration of traditional financial system with blockchain technology. The project is led by Sumitomo Mitsui Trust Bank, with the token named JPY Token (JPYT), pegged 1:1 to the Japanese yen. Issuance and settlement are fully supervised by the FSA. This move is regarded as a major strategic turning point for Japan in the global digital-currency competition.

II. Policy Background: From Cautious Regulation to Proactive Innovation

Japan was one of the first countries in the world to legislate crypto assets back in 2017, but its regulatory stance had long been conservative, especially toward stablecoins. Only with the 2022 amendment to the Payment Services Act were stablecoins formally defined and permitted under strict conditions:

• Must be backed by legal tender
• Only banks, trust companies, or licensed money transfer agents may issue them
• Holders have the right to redeem at par value

After three years of revisions and deliberation, the framework finally came into effect in 2025. An FSA official stated at the press conference: “We are not against innovation, but innovation must be built on trust and safety.” This reflects Japan’s regulatory philosophy shifting from “risk prevention first” to “openness under clear rules.”

III. Project Details: Operating Mechanism of JPYT

The design of JPYT follows three core principles: Asset Segregation + Audit Traceability + Bank Custody.

1. Asset Segregation The actual yen reserves corresponding to JPYT purchased by users are placed in a segregated trust structure under strict regulation, preventing commingling of funds.
2. Real-time Auditing & Supervisory Interface The system has a built-in automatic reporting module that allows the FSA to monitor issuance volume, settlement flows, and abnormal transactions in real time. Additionally, an external auditor issues a reserve attestation report quarterly.
3. Cross-platform Compatibility JPYT is built on an enterprise-grade blockchain network (jointly developed by Sumitomo Mitsui Trust and NEC Corporation) and supports seamless interoperability across exchanges and institutions.

From a user perspective, individuals and enterprises can purchase or redeem JPYT directly through their existing bank accounts with an experience no different from ordinary online banking.

IV. Strategic Significance: Banks Become the New Players in Digital Currency

The launch of JPYT is viewed as an important milestone in the self-reform of Japan’s banking sector, which has long faced challenges such as sluggish deposit growth, low payment efficiency, and loss of younger customers. By issuing stablecoins, banks can regain competitive advantages in several areas:

1. Retain customer assets and prevent capital outflow to crypto exchanges
2. Enable instant, low-cost inter-enterprise settlements without intermediary banks
3. Unlock new business models (supply-chain finance, programmable payments, payroll, etc.)
4. Lay groundwork for future cross-border settlement cooperation with China, Korea, and ASEAN

Industry experts note: “Stablecoins are no longer just the domain of fintech; banks are the next real protagonists.”

V. Market Feedback: Capital Markets Respond Enthusiastically

Following the approval, the Japanese financial markets reacted strongly. Blockchain-related stocks on the Tokyo Stock Exchange rose an average of ~3%, with notable gains including:

• NEC +6.8%
• SBI Holdings +4.5%
• Sumitomo Mitsui Financial Group +3.9%

Market consensus is that the FSA’s green light officially grants banks the right to issue digital assets, which will accelerate digital transformation across the sector. The Japan Bankers Association stated it will support more member banks in exploring stablecoin and tokenized deposit pathways.

VI. International Comparison: The Uniqueness of the Japanese Model

Compared to other jurisdictions, Japan’s approach stands out distinctly:

Japan’s “bank-centric” model leverages its existing trust infrastructure to create a highly controlled yet innovative stablecoin ecosystem.

VII. Relationship with CBDC: Complementary, Not Competitive

The Bank of Japan is separately advancing pilot studies on a digital yen (CBDC). Official statements emphasize that bank-issued stablecoins like JPYT are **complementary:

• CBDC → risk-free public payment infrastructure
• Bank stablecoins → market-driven innovation for enterprise and cross-border use cases

This “dual-track” system positions Japan as a frontrunner in building a hybrid central-bank + commercial stablecoin framework.

VIII. Regulatory Innovation: Risk Controls & Safeguards

To ensure safety, the FSA simultaneously introduced five core protective mechanisms:

1. Daily reserve disclosure
2. Establishment of a “Stablecoin Protection Fund” for extreme redemption scenarios
3. Mandatory compliance checks for cross-border transfers
4. Minimum 50% of reserves in cold storage
5. Emergency freeze authority in case of technical incidents

Experts describe this as “conservative yet progressive” regulation that balances safety with innovation.

IX. Potential Regional Impact

The launch of JPYT is expected to:

• Catalyze an “Asian Stablecoin Interoperability Network” led by Japan
• Attract international capital through more efficient yen settlement
• Enhance the yen’s role in global programmable payments
• Set a regulatory precedent that may be followed by Korea, Taiwan, and ASEAN nations

X. Conclusion: The “Digital Renaissance” of Japanese Banks

From initial rejection to full embrace, it took Japan eight years to institutionalize digital currency adoption. The approval of JPYT is not merely technological endorsement — it redefines the role of banks in the digital age. Banks are transitioning from passive adapters to core architects of the next-generation financial system.

As the Chairman of Sumitomo Mitsui Trust Bank stated at the press conference: “Our goal is not to replace money, but to make it more efficient and trustworthy.”

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