Inside Japan’s Stablecoin Experiment: Issuers, Brokers, and the Travel Rule

Japan built a stablecoin framework—then waited two years to use it

Before going into the AML/CFT controls expected under Japanese law, it is useful to explain why it took so long for stablecoin issuers to be registered in Japan. In June 2023, amendments to the Payment Services Act (PSA) came into force, granting stablecoins a clear legal status. Globally—and from a purely technical perspective—stablecoins are often treated as a sub-category of crypto assets, in the sense that they are digital representations of value issued and transferred on a blockchain. In Japan, only certain types of stablecoins are legally recognized. Under the Payment Services Act (PSA), fiat-backed stablecoins and trust-type stablecoins are designated as “electronic payment instruments” (EPI). Fiat-backed stablecoins include those backed by assets such as Japanese government bonds designated by the state. These categories are therefore effectively recognized as stablecoins under Japanese law. So-called algorithmic stablecoins are not treated as stablecoins in Japan; they remain classified as “crypto assets” for legal and regulatory purposes.

Japan also draws a clear line between the issuer of an EPI and the intermediary (broker). Stablecoin issuers and stablecoin brokers are subject to separate registration regimes. The amended PSA, which came into force in June 2023, created this new framework for EPI, but—as in other jurisdictions—the substantive requirements are demanding. In formal terms, the regime is structured as a registration system, meaning that an entity that meets the statutory criteria “must” be registered. In practice, however, especially in the crypto-related space, where hacks and operational failures have been frequent, the Financial Services Agency (FSA) has operated the regime more like a de facto licensing system, applying stringent scrutiny.

As a result, for roughly two years after the amended PSA came into force, no EPI issuer appeared in the market. By contrast, on the intermediary side, an SBI Group subsidiary was registered in March 2025 as the first stablecoin broker under the new regime. From a political standpoint in Japan, the prolonged absence of any registered issuer creates an awkward situation. The Diet has spent time debating and approving a new framework for stablecoins, yet two years on, no issuer is operating under it. Based on my prior experience in government and in drafting legislation in Japan, I would argue that it is difficult for a ministry to leave such a gap unaddressed for long. Even if, from a supervisory perspective, the FSA is rightly cautious about approving only highly reliable operators with strong capabilities in user protection, AML/CFT, and cybersecurity, there is, at the same time, a natural political incentive to show that the new regime is actually usable.

Against this backdrop, the first stablecoin issuer was registered on August 18, 2025. That entity may well meet all the registration criteria fully. My point is not to question the applicant's merits. Rather, the timing itself is telling. Just over two years had passed since the amended PSA took effect, and the registration of the first issuer at that point can reasonably be seen as the FSA signalling that the new framework is finally operational in practice. Given the typical review period for such registrations, it is likely that the formal application was filed around June 2025, which again aligns with the two-year mark after the amendments came into force. This “two years after implementation” milestone is an important reference point when looking at how regulatory frameworks are rolled out in Japan. Keeping this in mind makes it easier to understand developments in context and to form a view on how a given regime is likely to evolve.

Stablecoins as payment infrastructure

Turning to the product side, one key difference between stablecoins and traditional crypto assets lies in volatility. The PSA, as amended and brought into force in 2017, recognized crypto assets (then labelled “virtual currencies”) as a means of payment, but their high volatility meant that adoption as a practical payment instrument remained limited. Fiat-backed stablecoins, by contrast, are designed to maintain a stable value relative to legal tender and are therefore much more suitable for payments. Cross-border settlement can be completed on-chain; the use of distributed ledgers reduces single points of failure, and transaction costs can be significantly lower than those of traditional correspondent-banking channels. Finality times depend on network conditions, but in general, settlement can be achieved far more quickly than in today’s bank-to-bank systems. In short, from a functional standpoint, stablecoins are superior to existing payment infrastructures in many respects. Stablecoin-based payment systems can outperform many traditional payment infrastructures.

The problem, of course, is that these advantages are equally available to criminals. In crypto, thanks to its pseudo-anonymous and decentralized nature, proceeds of crime can be moved, layered, and obscured more quickly and along more complex paths using stablecoins, and the use of mixers and similar tools can materially reduce traceability. Compared with traditional crypto assets, the very convenience and efficiency of stablecoins means that ML/TF risks are not merely a repetition of existing crypto-specific risks; they are layered on top of those risks and amplified by the payment-system-like features of stablecoins. The FATF’s most recent targeted report actually finds that the rapid growth of stablecoins and the use of unhosted wallets create increasing risks for money laundering and illicit finance, particularly through peer-to-peer transactions, and recommends stronger risk-mitigation measures for governments and the private sector. Against this global regulatory backdrop, the key question becomes how these risks are addressed within specific national legal frameworks.

From the standpoint of Japanese law, what matters is whether entities designated as “specified business operators” under the Act on Prevention of Transfer of Criminal Proceeds apply a genuine risk-based approach (RBA) to managing money-laundering and terrorist-financing risks. If, as an issuer, a firm considers its own ML/TF risk-management capabilities to be immature or insufficient, then the rational choice is not to reach for ever more complex use-cases, but rather to decline to offer high-risk business models in the first place and to limit the scope of use-cases it is willing to support.

In this sense, the key regulatory question is not about the risks stablecoins create, but also how those risks are managed within the existing AML/CFT framework. Japan’s regime places particular emphasis on the obligations of regulated intermediaries in the transfer of value. One of the most important of these mechanisms is the so-called Travel Rule, which governs the transmission of originator and beneficiary information between regulated entities.

Peculiarities of the crypto Travel Rule in Japan: Who must comply?

From the perspective of the travel rule, the Japanese framework is relatively clear. Under the current AML/CFT regime, the Travel Rule obligation—the duty to transmit originator and beneficiary information along with a transfer—applies directly to two types of regulated business operators: crypto-asset exchange service providers (CASPs) and registered stablecoin brokers. By contrast, an entity only registered as a stablecoin issuer, for example, a Type II Fund Transfer Business Operator (FTBO) issuing EPI, is treated as a specified business operator and is subject to customer due diligence, record-keeping, and suspicious transaction reporting obligations, but is not, by virtue of being an issuer alone, designated as a Travel Rule-obliged entity.

To make this more concrete, consider an issuer such as JPYC, which is registered only as a Type II FTBO and does not also act as a registered stablecoin broker. When that issuer mints and redeems a fiat-backed stablecoin between its own wallets and customers’ self-hosted wallets, no other regulated crypto-asset exchange or stablecoin broker is involved in those on-chain transfers. In such cases, the issuer must, of course, conduct KYC, monitor transactions, and keep records in line with its obligations as a specified business operator, but there is no regulated counterparty (exchange or broker) to whom originator and beneficiary information would be transmitted. These transfers, therefore, fall outside the scope of the Travel Rule, which is designed precisely for transfers between such regulated entities.

The picture changes, however, when the same entity is both a stablecoin issuer and a stablecoin broker, and engages in stablecoin transfers with crypto-asset exchanges or other stablecoin brokers. In that case, on-chain transfers between the issuer–broker and the other regulated entity are, in form and in substance, transfers between two regulated entities (an exchange or broker on each side), and therefore fall within the scope of the travel rule. For example, if a firm that issues a stablecoin also acts as a stablecoin broker and transfers that token to the wallet of a crypto-asset exchange or another stablecoin broker, that transfer is treated, for travel-rule purposes, as a transfer between regulated entities. The firm must then transmit information identifying itself as the originator and the counterparty as the beneficiary, along with the relevant wallet addresses and other required data, in accordance with the Japanese Travel Rule requirements.

In this sense, under Japan’s current framework, the scope of the Travel Rule is not drawn on the basis of whether a token is legally a “crypto asset” or a “stablecoin”, but rather on the basis of who is performing the transfer and under which registration. It is the entity's functional role in the value chain—issuer, broker, or both—that determines whether the Travel Rule applies.

To conclude, Japan’s framework offers an instructive example of how stablecoin regulation can be integrated into existing financial regulation. Rather than focusing primarily on the legal classification of tokens, the Japanese regime emphasizes the roles performed by regulated entities within the payment ecosystem. The Travel Rule, in turn, operates as a tool applied to those functional roles. Although the implementation of the framework has been cautious, this functional approach may provide a useful reference point as other jurisdictions consider how to regulate stablecoins within their own AML/CFT systems.