Stablecoins in Japan May Impact Government Bonds

TOKYO - Japan's first local yen-based stablecoin issuer stated that stablecoins could play a significant role in purchasing Japanese government bonds within a few years.

The Japanese venture JPYC launched yen-linked stablecoins on October 27. This move represents an important development for Japan, which has many consumers who prefer traditional payment methods.

As of November 12, the company has issued stablecoins worth approximately 143 million yen and the number of account holders has reached 4,707. Within three years, it aims to issue a total of 10 trillion yen (66.32 billion dollars) worth of JPYC.

In a market filled with dollar-pegged stablecoins worth 290 billion dollars, JPYC will contribute to maintaining the presence of the yen in the digital market. JPYC CEO Noritaka Okabe stated, "Various assets are traded in real-time on blockchains worldwide. However, the dollar dominates the stablecoin market, and this situation requires additional risk management and transaction costs for Japanese companies."

Okabe emphasized that Japan needs to secure the yen's presence in the global stablecoin market. Blockchain-based stablecoins are generally pegged to a fiat currency and offer faster, lower-cost transactions. JPYC serves as a stablecoin that can be fully converted into yen and is backed by national savings and Japanese Government Bonds (JGB). The company stated that it plans to invest 80% of its income in JGB and 20% in bank savings.

The rapid growth of stablecoins and the potential for their issuers to become bond buyers could help compensate for the declining bond purchases by the BOJ (Bank of Japan). Okabe remarked, "With the BOJ reducing bond purchases, stablecoin issuers could become the largest holders of JGBs in the coming years."

The increasing presence of such issuers could constrain the monetary policy of the BOJ, as the amounts of JGBs purchased by stablecoins are influenced by supply and demand dynamics. "While officials try to control the durations of the bonds purchased by stablecoin issuers, it will be difficult for them to manage the amounts they hold," indicating that this is a global issue.

The BOJ holds approximately 50% of the 1.055 trillion yen JGB market. However, it began to slow down bond purchases within the framework of the conclusion of a major stimulus package last year. It remains uncertain whether local financial institutions, which have reduced their investments during a prolonged ultra-loose policy, will be able to take the place of the BOJ in JGB purchases with the new administration.

JPYC plans to primarily purchase short-term securities. However, Okabe noted that he has been approached by lawmakers and government officials about the possibility of purchasing longer-term JGBs. "We may evaluate that in the future," he said.

Dollar-based stablecoins have rapidly increased with strong support. Japan's three major banks announced a plan to conduct joint stablecoin issuance trials backed by the country's financial regulator. Policymakers have warned that stablecoins could facilitate the outflow of money from regulated banking systems and weaken the role of commercial banks in global payment flows.