As BOJ Tapers, Stablecoins Eye JGB Market Leadership in Japan's Financial Shift

Japan's first domestic stablecoin issuer, JPYC, has outlined a bold vision for its yen-pegged digital asset to play a pivotal role in the country's sovereign debt market. The startup, which launched its stablecoin on October 27 under the Payment Services Act, plans to allocate 80% of its reserves to Japanese government bonds (JGBs) and 20% to bank deposits, according to a Cointelegraph report. CEO Noritaka Okabe told Reuters that as the Bank of Japan (BOJ) slows its bond purchases, stablecoin issuers could emerge as the largest holders of JGBs within a few years, Reuters reported.

JPYC's strategy hinges on leveraging the rapid growth of stablecoins to fill a potential void left by the central bank.

The BOJ currently holds roughly 50% of Japan's $7 trillion JGB market but has begun tapering its bond-buying program as it unwinds a decade-long stimulus policy, Reuters reported. Okabe argued that stablecoin reserves could naturally absorb JGB issuance, linking blockchain innovation to fiscal financing. "The volumes of JGBs stablecoin issuers buy will be swayed by the balance of supply and demand for stablecoins," he said, Reuters reported.

The startup aims to issue 10 trillion yen ($66.32 billion) in JPYC stablecoins over three years, Reuters reported. While still a small fraction of the global stablecoin market—dominated by U.S. dollar-backed tokens—JPYC's expansion could help the yen gain a foothold in digital finance. Okabe emphasized the economic advantages of a yen-pegged stablecoin, noting that Japanese firms currently face higher transaction and hedging costs due to the dollar's dominance, Yahoo Finance reported.

Regulatory support is also emerging. Japan's Financial Services Agency (FSA) recently endorsed a yen-pegged stablecoin project led by the country's largest banks, signaling growing acceptance of digital assets in traditional finance, Cointelegraph reported. JPYC's approach, however, raises questions about the central bank's ability to control monetary policy. Okabe acknowledged that while authorities could influence the duration of bonds stablecoin issuers purchase, they would struggle to regulate the volume. "This will happen around the world. Japan is no exception," he said, Reuters reported.

JPYC's ambitions are not without risks. Policymakers have warned that stablecoins could redirect funds away from regulated banking systems, potentially undermining commercial banks' role in global payments, Reuters reported. Still, the startup's partnerships with major financial institutions and the FSA's regulatory sandbox suggest a path to scaling adoption. With lawmakers already discussing the possibility of JPYC investing in longer-term JGBs, the stablecoin's impact on Japan's debt market could accelerate faster than anticipated, Reuters reported.

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