Japan is preparing its financial system for a world of stablecoins and tokenized assets, as banks, regulators and financial conglomerates work to bring the yen economy onchain. The country is the world’s fourth-largest economy and its currency is one of the most important in global finance: the International Monetary Fund reports the yen accounted for 5.82% of global foreign exchange reserves, ranking third worldwide.
A major reason for the yen’s systemic importance is the carry trade. With historically low interest rates, investors borrow cheap yen, convert it into other currencies and deploy the proceeds into higher-yield assets, making the yen a trusted global funding currency. Yet that central role has been underrepresented in the blockchain economy — a gap Tokyo is now trying to close.
Political momentum and corporate backing
Japan’s ruling Liberal Democratic Party (LDP) has set an explicit ambition to make the country a global center for Web3. In April 2024 the party published a Web3 white paper listing priorities that include income tax reform for individuals, stablecoins and security tokens. The political shift accelerated following the January 2025 change in the U.S. administration, which stimulated policy discussions worldwide.
Sanae Takaichi, who became prime minister in October 2025 and was recently reelected, is broadly seen as aligned with pro-crypto policy directions. Industry figures say her administration’s stance has been warmly received by local crypto proponents.
Large Japanese financial groups are moving in step with government intent. SBI Group, led by Yoshitaka Kitao, has prioritized blockchain infrastructure and tokenization. SBI co-developed the Strium layer-1 blockchain with Startale Group to serve as settlement infrastructure for institutional trading of tokenized equities and real-world assets (RWAs). Startale CEO Sota Watanabe says SBI sees the next onchain evolution as securities and stocks — but emphasizes this requires clear regulatory approval to implement onchain dividends and voting rights. Key to that is a yen-backed stablecoin: onchain dividends can’t be paid offchain without a reliable onchain yen representation.
Why a yen stablecoin matters
Japan’s central bank moves and the carry trade are market-moving forces. The Bank of Japan’s rate increases in 2024 — from -0.1% to 0.1% in March and later to 0.25% in July — rattled global markets and illustrated how yen funding dynamics affect broader asset prices. A yen-backed stablecoin could extend the carry trade into crypto markets by bringing Japan’s low borrowing costs onchain.
Practically, an investor could borrow a yen-denominated stablecoin at low rates, use those funds as collateral to borrow dollar stablecoins, and then deploy the dollars into DeFi lending, liquidity provision or other yield strategies. Onchain processes would compress what today can take one or two days — crossing time zones and business hours — into instant, 24/7 transactions.
Startale recently unveiled JPYSC, a yen-backed stablecoin targeting a second-quarter launch, specifically designed to enable an onchain yen carry trade. Watanabe says trust bank-backed stablecoins would allow global institutions to execute intraday swaps and carry strategies onchain. He also reports talks with major U.S. financial institutions and top DeFi players, though he declined to name counterparts.
Obstacles: liquidity, regulation and tax
For an onchain carry trade to be meaningful it needs scale. Existing yen stablecoins in Japan exist — JPYC is one example — but relatively small market capitalizations (JPYC was around $20 million at the time of reporting) make them unsuitable for large-scale carry strategies that require deep liquidity and substantial borrowing capacity.
Regulatory clarity is another hurdle. The treatment of stablecoins on bank balance sheets, accounting and capital requirements remains unresolved in many jurisdictions. U.S. regulators, for example, are still working through capital and accounting rules for institutions that hold or issue stablecoins. Such unresolved rules complicate how banks and trust institutions would support large-scale stablecoin issuance and custody.
Japan’s three mega-banks — Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation and Mizuho — have reportedly discussed jointly issuing a yen-pegged stablecoin, a sign that incumbents see commercial opportunity. But any bank-backed stablecoin rollout needs clear domestic regulatory guardrails.
Retail market and tax policy
Despite government and institutional momentum, retail crypto activity in Japan has been muted. A major factor is taxation: crypto gains have faced high levies — up to 55% — which deter retail participation. Japan is exploring reclassifying crypto from a payment tool to a financial product, a move that would lower the crypto tax rate to around 20% and enable crypto-based ETFs. That tax reform is slated to phase in starting in 2028, although industry voices argue for an earlier change to help Japan keep pace with global onchain finance developments.
Sota Watanabe has urged faster action, saying Japan risks falling behind as the U.S. accelerates onchain finance and calling for tax adjustments by 2027.
The broader picture
For decades the yen has served as a global funding currency through carry trades, yet it remains largely absent from crypto-native finance. Bringing the yen onchain via stablecoins could enable a range of institutional uses — from onchain dividends and securities settlement to institutional carry trades and DeFi integration — but success depends on large backers, deep liquidity, regulatory clarity and tax reform.
Japanese authorities, large domestic banks and financial conglomerates are positioning the yen to operate inside blockchain-based capital markets. If they can resolve regulatory and market-structure gaps, a liquid, trust-backed yen stablecoin could make Japan’s funding currency an active pillar of the onchain global financial system.
