Japan’s Financial Services Agency (FSA) has submitted a draft proposal requiring top-tier credit ratings and bonds from issuers with at least ¥100 trillion in outstanding debt to qualify. The measure aims to improve service quality and security for stablecoin users.
In its plan to improve user security, Japan has released a draft regulation reclassifying redeemable and fiat-pegged stablecoins as Electronic Payment Instruments (EPIs). The draft also stipulates that these instruments must be fully backed by high-quality, liquid assets held in segregated trusts, undergo monthly audits, and explicitly prohibit algorithmic models.
Under the provisional rules, overseas-issued bonds used as reserves must have top-tier credit ratings and originate from issuers with outstanding debt exceeding ¥100 trillion.
Japan’s Financial Services Authority (FSA) incorporated these criteria into the Payment Services Act, adopted in 2025, classifying eligible stablecoins as EPIs and requiring transparent custody arrangements and regular audits. The regulator also banned algorithmic stablecoins and emphasized liquidity and consumer protection.
These provisions are designed to limit the risks to which stablecoin users and treasuries are subject, and also serve to question the current market structure and how only a handful of issuers can comply with these elements.
Who can meet Japan’s demands?
Undoubtedly, the draft excludes many structures that find it impossible to meet these requirements. Those that will be able to participate are Japan’s megabanks and large domestic stablecoin issuers with substantial capital.
Large financial groups such as Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho are already piloting yen-backed tokens and have the balance sheet depth, infrastructure, and market access to obtain eligible collateral.
In contrast, smaller fintech startups, issuers with weaker credit profiles, foreign entities lacking local partnerships, and all algorithmic stablecoin projects will be excluded from the system.
Even for compliant companies, the operating costs of ongoing audits, escrow custody, advanced risk management, and liquidity provision will be high. The limited universe of eligible foreign bonds could concentrate demand for reserves and complicate redemptions, while sustained compliance will require continued investment in governance and treasury operations.
