Japan’s Ruling Party Pushes On-Chain Finance Plan to Protect Yen

In brief Japan’s ruling LDP party has put forward a proposal framing on-chain finance as a way to protect yen sovereignty. It seeks clearer rules for payroll, taxes, bank-issued stablecoins, and tokenized deposit settlement. Japan has the banks, capital and regulatory trust to compete, but execution remains the test, Decrypt was told. Japan’s ruling Liberal Democratic Party is pushing stablecoins, tokenized deposits and blockchain settlement as financial infrastructure, warning that Japan risks falling behind foreign payment systems.The proposal asks the Financial Services Agency to draw up a five-year roadmap, position finance as Japan’s 18th growth investment field, and clarify how stablecoins could be used for payroll, tax payments, corporate funding and cross-border transfers.“The accumulation of such efforts will help secure Japan’s on-chain financial sovereignty and safeguard its monetary sovereignty,” a rough translation of the proposal reads.Drafts were prepared by a digital policy working group within the LDP, chaired by party lawmaker Seiji Kihara, after meetings with banks, stablecoin issuers, tokenization firms, regulators and academics from March. The party’s Policy Research Council formally approved it Tuesday.To get there, the country’s central bank needs to study tokenized current account deposits, including a wholesale CBDC, while officials review bank-issued stablecoins, cross-border yen stablecoin use, and shared Asian rules for tokenized assets, audits, KYC, AML and counter-terrorist financing, the proposal reads.Building on momentumIndustry observers said the proposal would place Japan’s crypto policy inside familiar financial guardrails, instead of a looser market experiment.“Japan isn’t freelancing here,” Joshua Chu, lawyer, lecturer, and co-chair of the Hong Kong Web3 Association, told Decrypt. The country’s push for on-chain finance would operate under regulated money movement and market structure “wrapped in code,” he added.Tokyo’s bet is that a conservative, fully KYC’d stack can become a 24/7 system “scalable enough” for both money-laundering and securities regulators, Chu said, turning Japan’s overseas capital “paradox” into a stronger entry point for foreign institutions.“The momentum here cannot be ignored,” Samar Sen, head of international markets at Talos, told Decrypt. Japan’s three-bank stablecoin initiative shows the kind of bank-led effort that can move pilots into real infrastructure, he said.Singapore and Hong Kong are further ahead on live tokenization and stablecoin activity, Sen said, but Japan “brings something different”: large financial institutions, deep capital markets and a regulatory culture focused on long-term stability.Those countries are “moving more aggressively” on commercialization, Wish Wu, CEO and co-founder of Pharos, told Decrypt, leaving Japan’s edge dependent on how quickly it can move from policy alignment and pilots to real on-chain financial usage at scale.Such a shift could also have broader implications for Japan’s financial system.Stablecoins could serve as “a programmable layer for money movement and liquidity distribution” in Japan, increasing “settlement velocity” and giving banks a new channel for monetary policy transmission after decades of near-zero rates, Al Qureshi, CEO and co-founder at Black Lake, told Decrypt.Japan’s banking and corporate ties could help adoption if major institutions move together, Qureshi said, pointing out how execution remains a constraint, with legacy systems, manual processes and “institutional inertia” all risking delay.Still, regulators would need to clarify how banks account for stablecoins, while tokenized deposits need a shared clearing layer between institutions, Max Grabner, head of product at Range, told Decrypt.Japan’s “more open economy and financial system” could give it an edge over South Korea and China, he said, while foreign adoption of tokenized assets could create new demand for Japanese government bonds.Daily Debrief NewsletterStart every day with the top news stories right now, plus original features, a podcast, videos and more.