Japan Financial Regulator Endorses Stablecoin Initiative by Top Three Banks

Quick Breakdown

• Japan’s Financial Services Agency has officially approved a stablecoin initiative led by MUFG, SMFG, and Mizuho under the Payment Innovation Project.
• The initiative builds on Project Pax and Progmat to establish a regulated ecosystem for yen-backed digital currencies.
• FSA supervision ensures the pilot stablecoin project aligns with legal and regulatory standards and supports structured adoption across institutional clients.

Japan’s Financial Services Agency has reportedly endorsed a new stablecoin initiative driven by the country’s top three banking institutions, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group.

The initiative operates under the regulator’s recently introduced Payment Innovation Project (PIP) and aims to develop and issue yen-backed stablecoins for both domestic and cross-border transactions. It represents a significant milestone in Japan’s financial modernization journey and reflects growing regulatory engagement with blockchain-based financial infrastructure.

Government Support and Project Details

Finance Minister Satsuki Katayama, who also oversees the FSA, confirmed that the government fully supports the initiative. The agency’s endorsement demonstrates increasing confidence in blockchain as a tool for modernizing payment systems while ensuring that all operations comply with existing legal and financial requirements.

This initiative builds upon prior experiments such as Project Pax, launched via MUFG’s Progmat platform. MUFG Trust Bank is set to act as the stablecoin issuer, while Mitsubishi Corporation plans to use the digital yen for payments between its domestic and international subsidiaries. The project will operate within the FSA’s FinTech PoC Hub, a regulatory sandbox designed to encourage innovation while maintaining full compliance with Japan’s stringent financial laws.

The institutions involved collectively serve over 300,000 corporate clients, highlighting the potential for large-scale adoption. The yen-backed stablecoin is expected to reduce transaction costs, improve payment efficiency, and strengthen Japan’s position in the global digital finance ecosystem.

The banks have indicated that the pilot phase will start before the end of 2025, with full-scale deployment planned for the following fiscal year. There are also early considerations for issuing dollar-backed stablecoins to support international trade and settlements between Japanese and foreign enterprises.

Foundations Behind the Payment Innovation Project

Japan FSA’s Payment Innovation Project represents a strategic continuation of several earlier initiatives and technical foundations that collectively laid the groundwork for PIP’s current scale and ambitions.

One of the earliest milestones paving the way for PIP was Project Pax. This project, started last year by Japan’s three largest banks, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Banking Corporation, and Mizuho Financial Group, was designed to create a yen-backed joint stablecoin for cross-border payments. Project Pax focused on modernizing corporate settlements and reducing transaction costs, functioning as an early demonstration under Japan’s evolving stablecoin regulatory framework.

Complementing Project Pax is the Progmat platform, developed by MUFG as Japan’s national infrastructure for digital assets. Progmat is not a single blockchain but a multi-asset, multi-chain technology suite built to handle Security Tokens (ST), Utility Tokens (UT), and Stablecoins (SC) within a secure permissioned Distributed Ledger Technology (DLT) environment.

At its core, Progmat leverages R3 Corda to provide high privacy and compliance. The platform offers a Software-as-a-Service (SaaS) model, allowing financial institutions to access ledger management and tokenization functions through API calls rather than running full DLT nodes.

Progmat also integrates advanced interoperability features via a partnership with Datachain, enabling secure cross-chain transfers and fiat-to-crypto onramps. This enhances Progmat Coin’s flexibility and security by allowing stablecoins to be moved safely between public and permissioned blockchains through a burn-and-mint process, considered both capital-efficient and safe for institutional use.

Progmat also provides client-facing components, including Token Manager and Token Wallet, to maintain clear ownership records and secure cryptographic key management. These features reinforce trust and user safety while allowing banks and other institutions to manage their clients’ assets internally.

The final component is JPYC, a Tokyo-based fintech’s yen-backed stablecoin launched last month under Japan’s stablecoin legislation, which came into effect in 2023. JPYC is fully backed by domestic bank deposits and Japanese government bonds, demonstrating how private sector innovation complements institutional infrastructure. Progmat works with JPYC to provide issuance and operational support.

JPYC established both the operational precedent and market context for the banks’ stablecoin initiative. It acted as an example of regulated stablecoin issuance and served as a trigger for financial institutions and the regulator to accelerate infrastructure development.

Each of these projects plays a distinct role, but together they converge to create the foundation for Japan’s PIP. JPYC demonstrated the operational and legal viability of a yen-pegged stablecoin. Progmat supplied the technical infrastructure and governance mechanisms necessary for regulated institutions to issue and manage tokens.

Project Pax united major banks and corporate clients to pilot issuance, settlement, and cross-border payment use cases under the FSA’s oversight. Together, they form a layered ecosystem where infrastructure, market precedent, and institutional collaboration align under regulatory supervision.

Japan’s Regulatory Milestones in Digital Finance

The move follows the agency’s fifth meeting on cryptocurrency systems, where it discussed tightening oversight of crypto lending services and indicated plans to bring them under the Financial Instruments and Exchange Act.

Currently, companies that manage or stake digital assets must register as crypto asset exchange operators. However, those framing the activity as “borrowing” have operated outside this rule, a loophole that regulators now aim to close. The Financial Services Agency (FSA) warned that such practices expose users to credit and price risks without requiring operators to maintain segregated accounts or secure crypto wallets.

The proposed framework would oblige businesses to strengthen risk controls for sub-lending and staking partners, safeguard stored assets, clearly disclose risks to users, and follow new advertising standards. Borrowing between institutional players would remain exempt.

Officials noted that the push is part of a broader effort to ensure safer crypto banking applications and greater accountability across Japan’s digital asset ecosystem, including areas like accepting crypto payments for business and retail platforms where users buy crypto. Some experts, however, questioned whether extending rules to off-chain operations reflects how staking actually functions on-chain.

Conclusion

Through institutional collaboration, advanced digital infrastructure, and regulatory frameworks, Japan has built a comprehensive approach to digital finance. From the Mt. Gox collapse to the launch of PIP, the nation has progressed over a decade of disciplined innovation. With stablecoin frameworks, robust digital asset infrastructure, and coordinated efforts across private and public sectors, Japan has established a model for secure, regulated financial modernization.