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How Stable Are Japanese Regulators in Banning Foreign Stablecoins?

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A new stablecoin regime for Japan may be in the works. Japan became one of the first countries to establish a legal framework for stablecoins in June. Six months later, it is taking another crucial step to change the current ban as the Financial Services Authority (FSA) is looking to lift the ban on foreign-issued stablecoins.

The marks to be obtained are not yet known. However, Circle and Coinbase’s support of USDC and Tether’s USDT will make a comeback. According to a report from local media outlet Nikkei, a new stablecoin standard is expected to be introduced in 2023.

The Soft Situation of Japan and Stablecoins

Under the new rules, distributors will be responsible for managing stablecoins on behalf of foreign issuers to protect their value. The country’s digital currency exchange will be able to handle stablecoin transactions based on asset protection through deposits and high return rates. The FSA has proposed that the money transfer limit for virtual coins be set at 1 million yen (or $7,500 per transaction).

For stablecoins minted in the country, on the other hand, the issuer will need to prepare the property as packaging. In addition, only banks, money transfer service providers and trust companies can be issuers in the Japanese stablecoin market.

The FSA will require stablecoin distributors to record transaction details such as usernames as part of the anti-money laundering (AML) process. The financier plans to begin collecting feedback and proposals for its stablecoin protocol.

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Stablecoin Rules

Stablecoins have been on the radar of regulators for a few years now. Powerful and silent players in the crypto space have been researched and studied for their systemic risks to the ecosystem. This summer, the Japanese parliament passed a bill prohibiting the issuance of stablecoins by non-bank institutions and stipulating that issuance should be limited to licensed banks, registered money transfer agents and trust companies in Japan.

The bill was introduced after the implosion of TerraUSD sparked financial concerns in the market. Despite this, the FSA did not address algorithmic stable coins in what is considered a landmark rule. In December, the Japanese regulator released a document outlining its plans to block algorithmic support for stablecoins.

According to the deputy head of international affairs in Japan, Tomoko Amaya, the FSA has made recommendations that seek to support positions on algorithmic stablecoins for the first time. “The proposed amendment states that ‘global stablecoins will not use algorithms to improve their value’ and strengthens the promise of redemption rights.”

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