A New Era for Bitcoin in Japan! FSA Loosens Bank Holding Restrictions, Major Banks Launch Yen Stablecoins

The Financial Services Agency (FSA) of Japan has begun to consider regulatory reforms that would allow domestic banks to purchase and hold unsecured crypto assets such as Bitcoin for investment. In addition, Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG), and Mizuho Financial Group are jointly issuing a stablecoin pegged to the Japanese yen.

FSA promotes the inclusion of Bitcoin in Japanese banks' balance sheets

The deliberation by Japan's Financial Services Agency marks a significant reassessment of its conservative regulatory stance. Historically, the regulatory guidelines revised in 2020 effectively prohibited banking groups from acquiring cryptocurrency assets for investment, citing concerns over their excessive volatility. This ban has prevented Japanese Bitcoin from entering the traditional financial system, allowing banks to only provide cryptocurrency custody services but not to hold them as investments.

However, the domestic cryptocurrency market in Japan is showing strong maturity. Data shows that as of the end of February this year, the number of cryptocurrency accounts opened in Japan has exceeded 12 million, an increase of 3.5 times over the past five years. This explosive growth indicates that the acceptance of cryptocurrency assets among the Japanese public is rapidly increasing. 12 million accounts represent about 9.5% of Japan's total population, which puts this penetration rate at a leading level among developed countries.

Allowing banks to allocate capital to digital assets will cause Japanese Bitcoin to be regarded as a recognized asset class. This will diversify bank portfolios and may enhance profitability. In the current low-interest-rate environment, traditional business profits for Japanese banks are slim. If they can allocate a portion of their assets to digital assets with high growth potential, such as Bitcoin, it could significantly improve the banks' investment returns.

However, this policy shift is not without limits. Although supporting institutions invest in cryptocurrencies, the FSA remains committed to establishing strong protective measures. The focus of the Financial System Council's discussions will be on implementing measures that ensure financial soundness. Specifically, the working group will discuss the issue of implementing risk exposure limits. These limits will restrict the amount of crypto assets that banks can hold relative to their capital base.

Three Core Elements of FSA Regulatory Reform:

Risk Exposure Limits: The proportion of Bitcoin held by banks in Japan will be strictly controlled, potentially set at 1% to 5% of total capital.

Capital Requirements: Holding cryptocurrency assets requires additional capital buffers to cope with price volatility risks.

Regulatory Supervision: Banks need to establish a dedicated risk management framework and internal control system.

This prudent dual approach—allowing entry while strictly managing risks—aligns with the global regulatory concept of promoting innovation in a controlled environment. The FSA has clearly learned from the experiences of other countries, attempting to find a balance between embracing innovation and mitigating risks.

Three Major Banks Join Forces: Yen Stablecoin Project Launched

The collaboration to issue stablecoins is adding momentum to the integration of Bitcoin in Japan. Japan's three major banks—Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG), and Mizuho Financial Group—are jointly issuing a corporate stablecoin. The initial focus of the plan is on a stablecoin version pegged to the yen, with plans to expand to a stablecoin version pegged to the US dollar in the future.

The plan will fully leverage the updated Payment Services Act of 2023 to establish a clear legal framework for the circulation of stablecoins. Three banks plan to use a system developed by the fintech company Progmat Inc. Its key innovation lies in establishing unified standards for these stablecoins, ensuring interoperability and seamless fund transfers among the corporate clients of the three banks.

Their goal is to first have it used for corporate settlements by the large trading company Mitsubishi Corporation, with actual applications expected to be realized within this fiscal year. The main objective is to leverage blockchain technology to achieve faster, cheaper, and more efficient corporate payments and cross-border remittances, which will help alleviate the administrative burden on Japanese companies.

The joint actions of the three major banks hold symbolic significance in the history of Bitcoin development in Japan. These three banks are the pillars of the Japanese financial system, and their collective actions represent a comprehensive embrace of digital assets by traditional finance. The issuance of stablecoins will create a richer application ecosystem for Bitcoin and other encryption assets in Japan.

In addition, the financial bureau is considering allowing banking groups to register as cryptocurrency trading service providers, further supporting infrastructure development. This move solidifies the position of highly compliant TradFi institutions within the entire digital asset ecosystem. If banks can simultaneously act as exchanges and custodians, it will significantly lower the barriers for users to enter the cryptocurrency market.

Global Impact of the Japanese Bitcoin Market: Competition among Asian Financial Hubs

Japan's financial landscape is undergoing a digital transformation. This dual approach by regulators and traditional financial (TradFi) giants aims to rapidly integrate digital assets into the mainstream economy. This transformation has a demonstrative effect globally, especially for other Asian countries.

Singapore and Hong Kong have been competing for the position of the Asian encryption financial center. Singapore has attracted a large number of encryption companies with its clear regulatory framework and open attitude towards innovation. Hong Kong, on the other hand, has been vigorously promoting the opening of virtual asset policies after 2023, trying to rebuild its leadership in the encryption field. The openness of Japan's Bitcoin policy will allow it to join this competition.

Japan's advantages lie in its vast domestic market and mature financial system. With a user base of 12 million cryptocurrency accounts, it far surpasses the scale of Singapore and Hong Kong. If the Bank of Japan truly begins to hold Bitcoin and offer encryption services, this deep integration of traditional finance and encryption could make Japan one of the largest institutional-grade cryptocurrency markets in the world.

From the perspective of global capital flow, the Bank of Japan holding Japanese Bitcoin will inject a large amount of institutional capital into the market. The total assets of Japan's three major banks exceed 10 trillion dollars, and even if only 1% is allocated to encryption assets, it will bring a potential demand of 10 billion dollars. Such a scale of capital inflow will have a significant impact on the global Bitcoin price.

In addition, the participation of the Bank of Japan will provide a legitimacy endorsement for Japanese Bitcoin. When highly regulated traditional financial institutions start holding Bitcoin, it sends a clear signal to global investors: Bitcoin has evolved from a fringe speculative asset to a mainstream asset class. The long-term impact of this shift in perception may be more profound than the short-term influx of capital.