In a significantly tumultuous period for both Stablecoins and Centralized Exchange Binance, often considered the biggest CEX in the world up until 2023, one incredibly important Asian nation has seemingly decided which approach it will have towards the still unsatisfyingly regulated Blockchain product.
With 125 Million inhabitants, Japan is the 11th most populated country on the planet, and one of the largest economies by Groce Domestic Products and in the Import-Export sector: the nation legalized Bitcoin as a form of payment as early as 2017, and it now seems to be calculating its next, bold move in the space: the issuance of Japanese YEN backed stablecoins.
THE NEWS
Though until very recently stablecoins were banned in Japan, in December 2022 the Financial Services Agency passed legislation lifting the ban which reigned over foreign-issued Stablecoins. If we add that to the June 2022 regulatory framework emitted specifically for Stablecoins in Japan; the result is a very bullish outlook on them by Japan, especially when compared with other countries’ positions.
This legislative change of heart has brought undisputed interest by crypto’s biggest players to Japan: as its biggest banks started talks to develop nationwide stablecoins in June 2023, Both Circle and Binance showed their hand, and as of last month, Binance and MUFG Bank (The Bank of Tokyo-Mitsubishi UFJ) have stated their intention to launch a YEN Stablecoin for the nation.
MUFG is Japan’s largest bank, and as of 2020 presented $2.27 Trillion AUM (Assets Under Management). Its involvement in such an endeavor, as one of three recognized Megabanks in Japan, is an incredibly telling sign of the direction The Land of the rising Sun is taking with stablecoins.
JAPAN’S REASONING
As we briefly stated in this article’s introduction, foreign issued stablecoins, which means virtually all reliable stablecoin players, had been banned in Japan for quite some time. So the legitimate question to ask would be, especially in the current indecisive worldwide environment around crypto: what changed?
While Japan is one of the biggest economies of the world, it also is renowned for its gigantic National debt, and its near-tragic relationship to the country’s GDP. As of June 2023, debt accounted for 224% of Japan’s GDP. We’re talking about approximately $9.1 Trillion, which positions the nation in the top spot of this GDP/debt ratio ranking.
This means that Japan must do everything it can to re-enforce the YEN and its economy, which means buying less foreign products and Debt, through their backed treasury bonds, and finding ways for external entities to invest in Japanese bonds and the japanese economy.
Enter Binance, Circle and the stablecoin sector. While stablecoins were initially banned because of the common fear that they would potentially drain liquidity from the nation’s FIAT, centralized financial system, Japanese authorities have quickly realized that as stablecoins comply more and more with user and regulator concerns, the assets backing them are becoming more and more Real World based, to assure the asset’s stability. As the most stable assets in our financial system are those backed directly by national governments, this implicitly means that these stablecoins also buy billions of dollars in national debt, mostly U.S. treasury bonds, to collateralize their product.
As its debt situation is dire, Japan cannot afford to reject a $130 Billion industry, which might just take the pressure off many struggling economies in the future.
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Giorgia Bagnasco