Japan's Stablecoin Issuers May Fill Central Bank's Bond-Buying Gap

Japan's inaugural domestic stablecoin issuer has indicated that digital asset companies could soon play a critical role in the nation's sovereign debt market, potentially influencing monetary policy adjustments.

Key Takeaways

JPYC, Japan’s first stablecoin issuer, aims to play a significant role in the Japanese sovereign debt market.
The company plans to invest 80% of its issuance profits in JGBs, filling a gap left by the BOJ's reduced bond purchases.
The stablecoin is backed by bank deposits and JGBs, fully convertible to yen.
Recent moves from Japan's Financial Services Agency support the growth of stablecoins in the traditional finance sector.

Japan stablecoin issuers could fill central bank’s bond-buying gap: Report

JPYC, the company behind Japan's first yen-pegged stablecoin, predicts that as their reserves grow, stablecoin issuers could become key purchasers of Japanese government bonds (JGBs). This assertion was made by Noritaka Okabe, the founder and CEO of JPYC, during a conversation reported by Reuters. As the Bank of Japan (BOJ) reduces its bond-buying activities, stablecoin reserves might bridge this gap, creating a new dynamic in Japan's fiscal landscape.

Stablecoin Issuers as New Bond Buyers

Noritaka Okabe explained that JPYC intends to allocate 80% of its issuance revenue towards purchasing JGBs, while the remaining 20% will be held in bank savings, initially concentrating on short-term securities. As demand increases and yields remain appealing, the firm may consider investing in longer-term JGBs as well.

This type of allocation could position stablecoin issuers as vital players in Japan's debt market, where the BOJ currently possesses about half of the $7 trillion JGB market. With the central bank slowing down its bond purchases, fresh buyers will be necessary to absorb new issuances. Consequently, Okabe suggested that stablecoin reserves could effectively occupy part of this resulting gap, linking the growing adoption of blockchain technology to fiscal funding.

“The volumes of JGBs that stablecoin issuers purchase will be influenced by the supply and demand dynamics for stablecoins,” he stated, indicating that similar trends “will occur globally,” with Japan not being an exception.

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Growing Interest in Stablecoins in Japan

Okabe's insights came amidst rising adoption of stablecoins within Japan’s traditional financial sector. Recently, the Financial Services Agency (FSA), the country's financial regulator, backed a yen-pegged stablecoin project led by major financial institutions in Japan.

On Friday, the FSA launched the “Payment Innovation Project,” which involves collaboration from Mizuho Bank, Mitsubishi UFJ Bank, Sumitomo Mitsui Banking Corporation, Mitsubishi Corporation and its financial services division, along with Progmat, MUFG’s stablecoin issuance platform. The regulator announced that these companies will start issuing payment stablecoins as early as this month.

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