Japan’s top regulator is set to recognise foreign issued stablecoins as electronic payment instruments, amid a rise in the nation’s stablecoin user base.
According to an official announcement from Tuesday, Japan’s Financial Services Agency (FSA) will recognize foreign based stablecoins, creating a legal framework for their distribution in the region commencing June 1.
Japan’s new rules will apply to certain foreign-issued stablecoins and related trust structures if regulators determine that they operate under standards similar to Japan’s own stablecoin framework under the Funds Settlement Act.
In simpler terms, overseas stablecoins may now be recognized in Japan as long as their regulatory safeguards are considered comparable to domestic rules.
The FSA also amended the definition of securities to explicitly exclude eligible foreign trust beneficiary rights.
The ordinance was formally finalized on May 19 following a public consultation process, during which regulators received 16 comments and feedback submissions on the proposed changes.
The regulator has also added that the issued stablecoins will be handled by only licensed operators, ensuring the legitimacy of the projects. Additionally, Japan will not be considering the issued stablecoins as securities.
Who will be benefited?
The newly amended law will particularly help trust-based stablecoins issued overseas which will now be officially treated as electronic payment instruments if they meet standards similar to those required for domestic issuers.
The amendment particularly focuses on fiat-collateralized stablecoins that follow a trust mechanism, which implies that the reserve currencies are put in a trust mechanism and the token owners retain their legal right over the funds.
This mechanism has been adopted by certain international markets as a means to enhance consumer protection and increase confidence in the reserve currency of stablecoins.
Prior to the amendment, there was ambiguity regarding how the foreign issued stablecoin should be regulated in Japan, and in certain instances, they were subject to the possibility of being categorized as securities under Japan’s Financial Instruments and Exchange Act.
This categorization could have posed challenges for their distribution as well as their application for everyday transactions.
Rule change in tandem with Japan’s overall agenda
Interestingly, the regulatory update was announced on the same day that Japan’s ruling Liberal Democratic Party released a wider policy roadmap aimed at positioning the country as a global hub for AI-driven, on-chain financial systems.
The proposal, issued by the party’s Digital Society Promotion Headquarters along with its Next-Generation AI and On-Chain Finance Initiative, highlighted stablecoins and tokenized bank deposits as core building blocks for a future financial system where payments are automated, continuous, and always available in digital form.
The report pointed out that Japan’s stablecoin market has already expanded to around ¥45 trillion, or roughly $290 billion, with growth largely driven by U.S. dollar-backed tokens such as Tether and USD Coin.
It also pointed out the danger that Japan might lose its competitive edge in the future if it does not accelerate efforts to upgrade its payment system.
The solution offered was the need for more transparent regulations regarding stablecoins, enhanced interoperability between yen-based stablecoins and foreign stablecoins, as well as the development of tokenized deposits and wholesale central bank settlement systems.