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Welcome to Thoughts on the Market. I'm Miya Nagasaka, head of Japan Financials Research at Morgan Stanley MEFG securities. Today, Japan's stablecoin revolution and why it matters to global investors It's Friday, October 31st at 4pm in Tokyo.
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Japan may be late to the crypto market, but its first yen denominated stablecoin is just around the corner, and it has the potential to quietly reshape how digital money moves across the country and globally. You may have heard of digital money like bitcoin, it's significantly more volatile than traditional financial assets like stocks and bonds. Stablecoins are different. They are digital currency designed to maintain a stable value by being pegged to assets such as the yen or US dollar.
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And in June 2023, Japan amended its Payment Service Acts to create a legal framework for stablecoins market. Participants in Japan and abroad are watching closely whether the Japanian stablecoin can establish itself as a major global digital currency such as tether.
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Stablecoins promise to make payments faster, cheaper and available 247 Japan's cashless payment ratio jumped from about 30% in 2020 to 43% in 2024, and there's still room to grow compared to other countries. The government's push for fintech and digital payment is accelerating, and stablecoins could be the missing link to a truly digital economy. Unlike bitcoin or other cryptocurrencies, stablecoins are designed to suppress price volatility. They're managed by private companies and backed by assets. Think cash, government bonds or even commodities like gold. Industry watchers think stablecoins can make digital payments as reliable as cash, but with the speed and flexibility of the Internet. Japan's regulatory approach is strictly stablecoins must be 100% backed by high quality liquid assets, and algorithmic stablecoins are prohibited. Issuers must meet transparency and reserve requirements, and monthly audits are standard. This is similar to new rules in the U.S. eU and Hong Kong. What does this mean in practice? Financial institutions are exploring stablecoins for instant payments, asset management and lending. For example, real time settlement of stock and bonds trades normally take days. These transactions could happen in seconds with stablecoins. They also enable new business models like banking as a service and Web3 integration, although regulatory costs and low interest rates remain hurdles for profitability. Or think about swift transactions, the backbone of international payments. Stablecoins will not replace Swift, but they can supplement it. Payment that used to take days can now be completed in seconds with up to 80% lower fees. But trust and issuers in compliance with anti money laundering rules are critical. There's another topic on top of investors minds CBDCs, the central bank digital currencies. Both stablecoins and CBDCs are digital, but digital currencies are issued by central banks and considered legal tender, whereas stablecoins are private sector innovations. Japan is the world's fourth largest economy and considered a leader in technology, but it takes a cautious approach to financial transformation. It is preparing for a CBDC but hasn't committed to launching one yet. If and when that happens, stablecoins and CBDCs can coexist with the digital currency, serving as public infrastructure and stablecoins driving innovation. So what's the bottom line? Japan's stablecoin journey is just the beginning, but its impact could ripple across payments, asset management and even global finance. Thanks for listening. If you enjoy the show, please leave us. A review wherever you listen and share thoughts on the market with a friend.
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Or colleague today, the proceeding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.