Japan is preparing its financial system for a world of stablecoins and tokenized assets, with banks, regulators, and financial conglomerates working to bring the yen economy on-chain.
The country is the world’s fourth largest economy and its yen is one of the most important currencies in global finance. According to the International Monetary Fund, the yen accounts for 5.82% of the world’s foreign exchange reserves, ranking third in the world.
The main reason why the yen is systemically important is the carry trade. Low interest rates have made the yen one of the most reliable funding currencies for global markets, as investors borrow cheap yen, exchange it for other currencies, and invest in high-yield assets.
Still, Japan’s central role in global finance is not reflected in the blockchain economy. The situation began to change after U.S. President Donald Trump took office in January last year, and discussions on virtual currency policy accelerated around the world.
Like the United States, Japan’s ruling party has expressed ambitions to become the global center of Web3. Achieving that goal may depend on a stablecoin that can bring yen on-chain. However, retail crypto activity in Japan remains relatively subdued, even though the domestic industry is backed by large financial conglomerates and banks.
Japan’s crypto industry is beholden to the government and conglomerates
Sanae Takaichi became Japan’s first female prime minister in October 2025. After only a few months in office, she dissolved the House of Representatives and called a snap general election. Takaichi’s Liberal Democratic Party secured a two-thirds majority victory on February 8, and lawmakers voted to re-elect Takaichi for a second term 10 days later.
StarTale Group CEO Sota Watanabe told Cointelegraph that he is widely seen as politically and strategically aligned with the Trump administration, which is accelerating the adoption of cryptocurrencies in the country.
In April 2024, Takaichi’s Liberal Democratic Party released the Web3 White Paper, expressing its ambition to “make Japan the center of Web3.” The document outlined 11 crypto issues that should be addressed “immediately,” including personal income tax reform, stablecoins, and security tokens.
These priorities are also set in the blockchain strategy of SBI Group, one of Japan’s largest financial conglomerates, led by Yoshitaka Kitao.
“Kitao-san is the perfect person to work on Japan’s crypto revolution because he founded SBI in the midst of the evolution of the Internet,” said Watanabe, whose Startail Group co-developed SBI’s Strium blockchain. Layer 1 aims to be the payments infrastructure for institutional trading of tokenized stocks and real-world assets (RWA).
Mr. Kitao previously served as an executive at Nomura, Japan’s largest securities company, and later served as an executive at SoftBank alongside Masayoshi Son, who ranks second on Forbes’ list of Japan’s richest people. Mr. Kitao later founded SBI for Softbank.
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Watanabe argued that SBI believes that the next on-chain evolution of cryptocurrencies will be securities and stocks, but that this will require a green light from the government.
“Currently, it is easy to create derivatives on-chain, but to implement real on-chain dividends or real stock voting rights, we need to comply with regulations,” Watanabe said, adding that he is in discussions with the Japanese government.
Additionally, dividends on on-chain assets cannot be paid off-chain, so a yen-backed stablecoin is required.
Why is the Yen stablecoin important?
Japan’s interest rates and the yen carry trade are major forces that move the market. The Bank of Japan will raise interest rates from -0.1% to 0.1% in March 2024, marking the first rate hike in 17 years. The following July, the central bank announced a more aggressive hike to 0.25%, sending global markets and Bitcoin (BTC) into turmoil.
Yen-backed stablecoins could expand carry trade into the blockchain market by bringing Japan’s low borrowing costs on-chain.
For example, investors can borrow yen-denominated stablecoins at low interest rates. These funds can be used as collateral to borrow USD stablecoins and can be deployed in decentralized finance (DeFi) lending, liquidity provision, or other yield-generating strategies.
On Friday, Startail announced its own yen-backed stablecoin, JPYSC, with a goal of launching in the second quarter. According to Watanabe, the stablecoin is specifically designed to enable on-chain yen carry transactions.
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He said, “Introducing a stablecoin backed by a trust bank will enable investors and institutions around the world to carry out yen carry trades on-chain.”
Carry trades usually take a long time. Because business hours in Japan and the United States do not overlap, this process may take 1-2 days to complete.
“But if you can do it on-chain, you can do it instantly 24 hours a day, 365 days a year,” Watanabe said.
In theory, this could introduce yen borrowing by institutional investors into DeFi. However, Justin Danesan, head of research at Arctic Digital, told Cointelegraph that on-chain carry trading will not have any impact unless it is accompanied by a large backer and large market capitalization.
Watanabe told Cointelegraph that he is in talks with some of the largest financial institutions in the U.S. interested in carry trades and intraday swaps, but declined to disclose their names. He said he is also in contact with “top players” in DeFi.
The process still requires approval from Japanese regulators, but the regulatory treatment of stablecoins on banks’ balance sheets remains an open question. Authorities such as the U.S. Securities and Exchange Commission are still working to clarify capital and accounting requirements.
Japan’s crypto scene is accelerating, but retail is being left behind
A yen-backed stablecoin already exists in Japan in the form of JPYC, but it is primarily designed for payments. At the time of writing, its relatively small market capitalization of approximately $20 million makes it unsuitable for carry trades that require deep liquidity and large borrowing capacity.
SBI is not the only financial institution considering stablecoins in Japan. According to reports, three major Japanese banks, Bank of Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation, and Mizuho Bank, are jointly considering issuing a yen-pegged stablecoin.
Despite interest from local traditional financial giants and the government, activity in the retail industry has been slow.
The slow retail adoption is often due to the up to 55% tax that crypto investors face. That may also be changing. Japan is considering reclassifying cryptocurrencies from payment tools to financial instruments, which would lower cryptocurrency taxes to 20% and allow exchange-traded funds based on cryptocurrencies.
Tax credit reform is scheduled to begin in 2028, but Watanabe says this is not enough.
“The Japanese government is very slow,” he said. “Given that the US is accelerating on-chain finance, a 2027 tax credit is needed to catch up.”
For decades, the yen has served as the world’s funding currency through carry trades, but the yen has little presence in the crypto industry. Although individual participation remains restricted by heavy taxation, governments and institutions are already positioning the yen to operate within blockchain-based capital markets.
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