Stablecoin Issuers May Shape Japan’s Bond Market
TOKYO – The head of Japan’s pioneering yen-pegged stablecoin issuer suggests that these entities could become significant players in the Japanese government bond market in the near future. This could notably impact the central bank’s ability to manage monetary policy.
On October 27, the startup JPYC began rolling out its yen-pegged stablecoin, which is crucial in a country where many people still lean towards traditional payment methods like cash and credit cards.
To date, JPYC has issued around 143 million yen worth of its stablecoin. As of November 12, the total number of account holders reached 4,707, with ambitions to issue JPYC amounting to 10 trillion yen (approximately $66.32 billion) over the next three years.
Despite its current limited market share, JPYC’s presence represents a step for the yen in a digital market largely dominated by dollar-pegged stablecoins, which constitute 99% of the global supply. CEO Noritaka Okabe noted that while assets are traded in real time on global blockchains, the dollar’s dominance creates obstacles for Japanese companies, leading to higher hedging and transaction costs.
“It’s essential for Japan to maintain the yen’s role in the global stablecoin landscape,” Okabe argued.
Stablecoins, typically tied to fiat currencies, promise quicker and cheaper transactions. JPYC, in particular, is fully convertible to yen and is backed by domestic savings and Japanese government bonds (JGBs). Of its proceeds, the company plans to allocate 80% towards government bonds and 20% to bank deposits.
As stablecoins continue to grow, issuers might become significant purchasers of bonds, filling the gap left by the Bank of Japan’s diminishing footprint, according to Okabe. He predicts that with the central bank gradually tapering its bond acquisitions, stablecoin issuers could become the largest holders of government bonds within a few years.
This growing trend, however, could create challenges for the Bank of Japan’s monetary policy, as the volume of bonds purchased hinges on the balance between supply and demand for stablecoins. Okabe mentioned that while regulators might attempt to manage the timeline and volume of bond purchases by stablecoin issuers, it would likely be a challenging task worldwide, with Japan being no exception.
Currently, the Bank of Japan controls around 50% of the 1,055 trillion yen government bond market but has been reducing its purchases as part of its efforts to wind down extended economic stimulus measures.
There remains uncertainty about whether domestic financial institutions, which have scaled back holdings in recent years due to prolonged ultraloose monetary policies, will step in as primary buyers of bonds following an anticipated increase in bond issuance to support new government spending plans.
JPYC aims to focus on short-term securities but has also had discussions with congressional members and government officials regarding purchasing longer-term government bonds—something Okabe stated could be reconsidered down the line.
Meanwhile, the dollar-pegged stablecoin market has surged, bolstered by robust support from figures like former President Donald Trump. Japan’s top three banks are exploring opportunities to collaboratively issue stablecoins, with backing from the country’s financial regulator.
However, there are warnings from policymakers about the potential risks of stablecoins, which could enable financial flows outside regulated banking systems and threaten the role of commercial banks in global payment networks.
(1 dollar = 150.7800 yen)
