Japan Under Dual Financial Stress

Japan is facing a rare and challenging combination of macroeconomic pressures. On one side, the yen continues to weaken against the US dollar. On the other, yields on Japanese government bonds are moving higher. Together, these signals suggest that investor confidence in Japan’s debt market may be starting to erode.

This dynamic does not remain confined within Japan’s borders. Hayes points out that Japanese institutional investors, long known as major holders of US Treasuries, could be incentivized to sell US bonds and rotate capital back into higher-yielding domestic debt. Such a shift could introduce volatility into the US Treasury market and tighten global liquidity conditions.

Why Central Bank Intervention May Be Inevitable

In Hayes’ view, a scenario where both the yen and the JGB market come under severe stress would almost certainly force central banks to act. Either the Bank of Japan (BOJ), the Federal Reserve, or both could step in to stabilize markets through monetary expansion.

Hayes outlines a potential intervention framework in which the Federal Reserve creates dollar liquidity via large US banks, exchanges those dollars for yen to support the Japanese currency, and then uses the yen to purchase Japanese government bonds. This process would help cap JGB yields while strengthening the yen, but it would also expand the Fed’s balance sheet under foreign-currency-denominated assets.

The Bitcoin Connection

For Bitcoin, this type of monetary response is highly relevant. Hayes emphasizes that Bitcoin has historically responded positively to periods of aggressive liquidity injection and balance sheet expansion by central banks. A return to money printing, even if initially targeted at stabilizing bond and currency markets, could spill over into risk assets.

According to Hayes, Bitcoin’s prolonged sideways price action reflects a lack of fresh liquidity. A renewed wave of monetary expansion could provide the catalyst needed to push Bitcoin out of its current range and into a new pricing regime.

Watching the Fed’s Balance Sheet Closely

Hayes has made it clear that he is closely monitoring the Federal Reserve’s weekly H.4.1 balance sheet reports for confirmation of such intervention. Until clear evidence of renewed money creation appears, he remains cautious about increasing risk exposure.

A Broader Macro Implication

With the US dollar index hovering near multi-year lows, the global monetary system appears increasingly fragile. Hayes believes that any disruption in Japan’s bond market could accelerate central bank responses worldwide, indirectly reinforcing Bitcoin’s appeal as a scarce, non-sovereign asset.

In short, a potential crisis in Japanese government bonds may not remain a regional issue. If it forces global liquidity back into expansion mode, Bitcoin could emerge as one of the key beneficiaries.

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XRP to Exit Cryptocurrency Asset Status

At present, XRP is classified as a “crypto asset” under Japan’s Payment Services Act. With the planned change by the FSA, XRP will be removed from this category and brought under the scope of the Financial Instruments and Exchange Act (FIEA). This would grant XRP a status similar to traditional financial products that are subject to stricter regulations.

Officials emphasize that the primary reason for this change is the gap between XRP’s legal definition and its real-world usage in Japan. XRP is already actively used within Japan’s banking system and international money transfer infrastructure. Many financial institutions utilize Ripple’s technology for cross-border payments.

A regulatory source commented on the matter as follows:

“XRP’s widespread institutional use in Japan has gone beyond the scope of the existing crypto asset definition. The new classification will place this reality on a legal foundation.”

A New Door for Institutional Investors

Following the reclassification, XRP would gain the status of an investable financial instrument, similar to stocks and bonds. This is expected to make it easier for institutional investors to access XRP and could encourage new capital inflows. According to experts, this step may further accelerate XRP’s institutional adoption in Japan. Under the new regulatory framework, cryptocurrency exchanges and liquidity providers will be required to provide more detailed disclosures regarding:

• XRP’s volatility
• Its technical structure
• Its relationship with the issuer

In addition, insider trading and market manipulation will be explicitly prohibited, with the goal of strengthening investor protection.

A Potential Precedent for Global Markets

Experts note that Japan’s move could serve as a precedent not only for XRP but also for other major digital assets. Classifying XRP as a regulated financial product may influence how regulatory authorities in other countries approach cryptocurrencies. The implementation of a clearer, more comprehensive, and predictable regulatory framework could positively impact institutional investors’ perception of the crypto market. Such steps are expected to contribute to long-term market confidence and accelerate the integration of crypto assets into the traditional financial system.

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Japan Prepares for Cryptocurrency Tax Reform

Japan’s Liberal Democratic Party and the Japan Restoration Party shared the main outlines of the tax system reform for fiscal year Reiwa 8 (2026) with the public on December 19. In the draft proposal, cryptocurrencies are defined as financial products that contribute to national asset formation. This approach shows that digital assets are no longer seen as temporary or marginal investment vehicles, but as a permanent part of the financial system.

Cryptocurrencies Gain Financial Product Status

Under the proposed regulation, spot crypto transactions, derivatives, and crypto ETFs will be subject to a separate taxation regime similar to that applied to equities and other traditional financial products. Within this system, investors would be allowed to carry forward trading losses for up to three years. This would enable crypto investors to offset past losses against future profits.

This approach brings crypto investors in Japan closer to the tax framework applied in equity markets and is viewed as a step that could encourage long-term investment strategies.

However, the reform draft does not cover all crypto-related activities. Income-generating activities such as staking and lending are expected to remain under the existing tax system. NFTs are not explicitly mentioned in the reform text, meaning that NFT-related income is likely to continue being taxed under the “miscellaneous income” category for now. This suggests that uncertainty may persist for some time, particularly for investors active in the NFT ecosystem.

New Reporting Obligations for Crypto Exchanges

With the new system, crypto exchanges operating in Japan are expected to submit user transaction reports directly to tax authorities. While this step implies stricter tax compliance, it also aims to create a more transparent and auditable market structure for investors.

“This reform could make the crypto market more transparent and sustainable. However, it is critical for investors to be prepared for the transition period.” – Japanese Financial Expert

Experts emphasize that before the reform comes into force, investors should keep detailed transaction records and ensure their historical data is complete and well organized.

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A December Decision: Markets Brace for a 25 bps Increase

The policy meeting scheduled for December 18–19 is expected to confirm the BoJ’s commitment to continuing its normalization process. Current market pricing reflects an anticipated adjustment of the benchmark rate from 0.50 percent to 0.75 percent. Governor Kazuo Ueda’s recent public statements have consistently pointed toward the need for further tightening, reinforcing expectations that the central bank intends to follow through.

A Data-Driven Path: BoJ Mirrors the Fed’s Approach

Insights shared with Reuters indicate that Japan’s central bank will adopt a strategy similar to that of the U.S. Federal Reserve, basing future decisions on the trajectory of economic data. The pace of subsequent rate increases will depend heavily on how domestic activity responds to tighter financial conditions. Sources familiar with internal discussions suggest policymakers still view Japan’s rates as exceptionally low, leaving the institution with considerable room to act.

A Level Unseen Since 1995

If implemented, the expected hike would move Japan’s policy rate to 0.75 percent — a level last recorded in 1995. Despite decades of ultra-accommodative policy, the country now faces an inflation rate of around 3 percent, notably above the BoJ’s 2 percent target. For years, low borrowing costs enabled Japanese investors to access credit with ease and deploy capital globally, contributing to more than 12 trillion dollars in overseas assets.

A shift toward higher domestic yields raises the prospect of capital flowing back into Japan, a scenario that global financial markets are monitoring with caution.

Market Repercussions: Japan Policy Moves and Bitcoin’s Sharp Drop

Japan’s previous rate adjustments have already demonstrated their influence on global markets. The hike implemented at the end of July 2024 coincided with an unexpected financial shock in the United States, leading Bitcoin to fall to 49,000 dollars on August 5. Although the cryptocurrency market later recovered — aided by Donald Trump’s U.S. election victory — the episode underscored the sensitivity of global risk assets to changes in Japanese monetary policy.

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Crypto to Be Treated Like Stocks

According to a report by Nikkei, the Japanese government and ruling coalition are working on a model in which crypto trading profits will no longer be classified together with salary, business income, or miscellaneous earnings. Under the new system:

• 15% tax will go to the central government
• 5% tax will go to local authorities

This adds up to a flat 20% tax rate. The reform marks the first time crypto investors’ demands for a simpler and fairer taxation system are being taken seriously.

Why Was the Current System Problematic?

Currently in Japan, crypto gains are categorized as “other income” and are subject to a progressive tax rate ranging from 5% to 45%. With an additional 10% local tax, the total burden for high-income individuals can reach up to 55%.

Industry representatives have long argued that such high rates:

• Reduce local investor participation
• Push corporate operations offshore
• Limit growth in local crypto trading volumes

If implemented, the new system would place digital assets under the same tax regime as stocks and investment funds, marking a major step toward standardization.

When Will the Reform Take Effect?

The plan is expected to be included in Japan’s 2026 tax reform proposal, to be announced at the end of the year. According to Nikkei Asia, the reform — drafted by the Financial Services Agency (FSA)  has already received official support from the government and ruling party.

The bill could be submitted to Parliament as early as early 2026.

This timeline aligns with Japan’s broader strategy to strengthen its crypto sector. During the same period, trading volumes on regulated exchanges have risen. The Japan Virtual and Crypto Assets Exchange Association (JVCEA) reported that spot volume exceeded $9.6 billion in September.

A Historic Opportunity for the Industry

Experts believe the reform could accelerate the mainstream adoption of crypto in Japan. With a simplified tax rate:

• More retail investors may enter the market
• High-income investors may return to Japan
• Local exchanges may see higher liquidity

Additionally, Japan aims to position itself as a more investor-friendly market in global competition.

Analysts commented:

“Taxing crypto gains at a flat 20% will simplify investor behavior and could make Japan one of Asia’s most competitive crypto markets.”

Conclusion

Japan’s plan to introduce a flat 20% tax on crypto gains has the potential to become one of the country’s most impactful reforms in the digital asset sector. Eliminating tax rates that can reach up to 55% could revive investor interest and bring long-awaited stability to the market.

The reform signals Japan’s shift toward a more crypto-friendly stance, both locally and internationally. By encouraging capital inflows and increasing trading volumes, the policy could become a key pillar of the nation’s financial innovation strategy.

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JPYC Ushers in the Stablecoin Era in Japan

In its official announcement, JPYC Inc. confirmed the launch of Japan’s first legally compliant yen-backed stablecoin, JPYC. Trading began on Monday morning (local time), marking Japan’s official entry into the stablecoin era within its regulated digital asset ecosystem.

Alongside the stablecoin, the company introduced a dedicated issuance and redemption platform called JPYC EX. JPYC Inc. had previously been registered with Japan’s Financial Services Agency (FSA) in August as an authorized fund transfer service provider, granting it the legal framework required to issue and manage digital currencies in compliance with Japanese financial laws.

JPYC Launches with Multi-Chain Support: Avalanche, Ethereum, and Polygon

The JPYC stablecoin has been designed to operate across Avalanche, Ethereum, and Polygon networks. This multi-chain compatibility enables broader accessibility and seamless integration for both institutional and retail users, ensuring interoperability across leading blockchain ecosystems.

Ambitious Goal: ¥10 Trillion in Circulation Within Three Years

JPYC Inc. has set an ambitious target for its stablecoin — aiming to have ¥10 trillion (approximately $65.4 billion) worth of JPYC in circulation within the next three years. For comparison, the world’s largest stablecoin, Tether (USDT), currently has a circulating supply of around $183 billion. If JPYC reaches its target, it could become one of the largest stablecoin projects in Asia, rivaling global leaders in market presence and adoption.

Corporate Integrations: Backed by Densan System, Asteria, and HashPort

The launch of JPYC has already spurred strong corporate partnerships across Japan’s tech and finance sectors:

• Densan System will develop JPYC-compatible payment systems for retail stores and e-commerce platforms.
• Asteria plans to integrate JPYC functionality into its data integration software, used by over 10,000 enterprise clients.
• HashPort will add JPYC support to its crypto wallet infrastructure, helping to boost the token’s transaction volume.

These collaborations are expected to pave the way for widespread adoption of JPYC in financial, commercial, and technological ecosystems across Japan.

Strengthening Stablecoin Regulations in Japan

The launch of JPYC comes as Japan tightens its stablecoin regulatory framework. A June 2023 amendment to the Payment Services Act and Banking Act requires all stablecoin issuers to be registered financial institutions. Under these rules, only fully reserve-backed stablecoins are allowed in the Japanese market — making JPYC the first legally recognized yen-backed stablecoin.

Japan’s major financial institutions are also preparing to enter the space. For example, Sumitomo Mitsui Banking Corporation (SMBC) announced in April that it was developing its own yen-backed stablecoin in partnership with Ava Labs and Fireblocks.

Assessment

The launch of JPYC marks a historic milestone in Japan’s digital finance evolution. With its legal compliance, multi-chain infrastructure, and institutional integrations, JPYC positions Japan as a potential leader in Asia’s regulated stablecoin market.

Experts believe this move could not only accelerate Japan’s digital financial transformation but also reshape the global stablecoin landscape, setting a new benchmark for transparency, interoperability, and trust in the sector.

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According to an October 19 report by Livedoor News, the FSA is evaluating a new legal framework that would permit banks to hold cryptocurrencies such as Bitcoin as investment instruments. This plan could reverse the existing guidelines revised in 2020 which currently prohibit banks from holding crypto assets due to concerns over their high volatility and risk exposure.

Banks May Soon Gain the Right to Invest in and Operate Crypto Exchanges

Japan’s Financial Services Agency (FSA) is developing a new reform plan that could allow banks to hold cryptocurrencies and operate licensed crypto exchanges, bringing digital asset management in line with traditional financial instruments such as stocks and government bonds. The FSA is expected to discuss the reform’s details at a meeting of the Financial Services Council, an advisory body to the Prime Minister. As part of the framework, regulators will introduce new capital and risk management requirements to help banks manage potential price volatility from crypto investments.

If approved, banks will be required to meet a certain capital adequacy threshold before being permitted to hold digital assets.

“The goal is to strengthen investor protection while integrating crypto into the traditional financial system.”
— Excerpt from an internal FSA report

In addition, the FSA is considering allowing banking groups to operate as “licensed crypto exchange operators”, enabling them to directly offer crypto trading and custody services. This move is seen as a major step toward accelerating crypto integration within Japan’s financial sector.

Japan’s Crypto Market Is Expanding Rapidly

According to FSA data, as of February 2025, Japan has over 12 million registered crypto accounts a 3.5× increase compared to five years ago. The growing user base highlights that regulators can no longer overlook the crypto market’s influence.

In September, the FSA proposed bringing crypto regulations under the Financial Instruments and Exchange Act (FIEA) to enhance investor protection and align crypto with securities laws. FSA officials noted that crypto-related risks mirror those of traditional investment products, making similar oversight both logical and necessary.

Japanese Banks Also Lead in Stablecoin Innovation

Japan’s three largest banks Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corp. (SMBC), and Mizuho Bank have partnered to launch yen-pegged stablecoins aimed at facilitating corporate payments and reducing transaction costs. This initiative is part of Japan’s broader digital finance strategy, accelerating the integration of blockchain and stablecoins into the economy. Meanwhile, the Securities and Exchange Surveillance Commission (SESC) is drafting new rules to ban and penalize insider trading in crypto assets. Together, these measures show Japan’s determination to build one of the world’s most comprehensive crypto regulatory frameworks.

If the FSA reform is enacted, Japan could become the first major economy to permit banks to hold cryptocurrencies, positioning the nation as Asia’s leading force in the digital finance revolution.

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Lib Work plans to use the acquired digital assets as a long-term store of value. In its statement, the company emphasized that Bitcoin has increasingly been regarded as “digital gold” in recent years, making it an attractive investment tool for long-term investors. It also highlighted the risks of holding reserves solely in cash assets.

Timing and Implementation Plan

The planned acquisition will take place between September and December 2025. Lib Work stated that the transactions will be carried out through highly reliable cryptocurrency trading platforms and will fully comply with risk management and accounting standards.

Financial Impact and Risk Management

The company noted that this investment will not have a direct impact on its current business results; however, if Bitcoin appreciates in value over the long term, it is expected to positively affect its financial statements. At the same time, the company acknowledged that fluctuations in the market value of digital assets may result in periodic gains or losses in the future.

The Growing Importance of Digital Assets in Japan

Lib Work’s Bitcoin investment stands out as a strong signal of the increasing interest of publicly listed Japanese companies in digital assets. In recent years, Japan has strengthened its regulatory frameworks around cryptocurrencies and blockchain technology, enabling companies to integrate digital assets into their financial planning. Particularly, stablecoins and Bitcoin are increasingly being adopted both for risk diversification and as a long-term store of value.

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Japan’s Financial Services Agency (FSA) is preparing to approve the issuance of the country’s first yen-pegged stablecoin this fall. This marks one of Japan’s pioneering steps in cryptocurrency regulation.

JPYC Stablecoin Is Coming

According to local news outlet Nikkei, Tokyo-based fintech company JPYC is nearing the completion of official procedures for its eponymous stablecoin. The company is expected to register with the FSA as a “fund transfer service” in August, and shortly afterward begin token sales.

The JPYC stablecoin will be backed by highly liquid assets such as deposits and government bonds, ensuring price stability and creating a trust-based usage environment.

JPYC’s new stablecoin could serve as an important tool not only for individual investors but also for corporate finance and global trade. Potential use cases include:

• International money transfers

• Corporate payments

• DeFi ecosystem integration

Use Cases and Goals

The company has ambitious targets: JPYC plans to issue stablecoins worth 1 trillion yen (approximately $6.78 billion) over the next three years. Reports also indicate that some hedge funds have already shown interest in this asset.

Japan’s Stablecoin Regulatory History

Japan has been an early mover in stablecoin regulation:

• June 2022: The Japanese parliament amended the Payment Services Act, defining stablecoins as “Electronic Payment Instruments.” This law allowed only licensed banks, service providers, and trust companies to issue stablecoins.

• 2023: Stablecoins were officially classified as “currency-denominated assets.”

Following these steps, many major players in Japan’s financial sector turned toward the stablecoin space. For example, Sumitomo Mitsui Financial Group (SMBC) announced plans earlier this year to develop a stablecoin in collaboration with Ava Labs and Fireblocks.

With FSA approval, the launch of the JPYC stablecoin will be a significant milestone not only for domestic payments but also in global finance and cryptocurrency markets. This move could position Japan as a regional leader in the Asian stablecoin ecosystem.

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A New Move From “Asia’s Strategy” – Metaplanet

Often referred to as “Asia’s Strategy”, Metaplanet made a public announcement on Friday confirming its intention to issue perpetual preferred shares to support its Bitcoin accumulation plan. The company emphasized that this initiative is a key component of its “Bitcoin Strategy.”

“The company intends to actively pursue equity financing as part of its ‘Bitcoin Strategy,’ which aims to acquire 210,000 BTC by the end of 2027. The introduction of Bitcoin-backed preferred shares represents a pioneering step to fill a market gap.”

Corporate Accumulation on the Rise

This major financial move came just a day after it was reported that corporate crypto holdings have surpassed $100 billion in total value. Notably, Bitcoin accounts for $93 billion of that amount. The continued accumulation by companies like Metaplanet and Strategy, combined with expanding global money supply, suggests that Bitcoin price could rise above $132,000 by the end of 2025.

Strategy’s Parallel Effort

Strategy, which holds the title of the world’s largest corporate Bitcoin treasury, is also pursuing similar capital-raising strategies. On July 22, the company introduced a new class of Bitcoin-backed stock, pegged at $100 per share, with an annualized dividend rate of 9%.

A New Macro Catalyst for Bitcoin May Be Approaching

While summer months are generally associated with lower market liquidity, a major macroeconomic catalyst for Bitcoin may be just around the corner—possibly as early as September.

According to a research report published Friday by Matrixport, attention in Washington is expected to shift to fiscal matters once Congress returns from its summer recess after Labor Day on September 2. The report highlights:

“Fiscal uncertainty has historically been a strong tailwind for hard assets, and Bitcoin is now at the center of this narrative.”

Despite the impact of US Crypto Week and ongoing corporate accumulation, Matrixport also pointed out that “the real macro driver may be hiding in plain sight.”

Interest Rate Outlook: High Probability of Status Quo

As of now, markets are pricing in a 60.8% probability that the Federal Reserve (Fed) will keep interest rates unchanged during the next FOMC meeting scheduled for September 17. This estimate is based on the latest data from CME Group’s FedWatch Tool.

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