A member of a Financial Services Agency (FSA) study group has warned that a wave of stablecoin redemptions could force issuers to sell large volumes of Japanese government bonds (JGBs), adding to pressure on a market where the Bank of Japan (BOJ) — holder of close to half of the country's bonds and roughly $7 trillion in debt — is already trimming its purchases.

The warning was raised at the first meeting of the FSA's study group on digital and decentralized finance, held on October 20. According to the minutes published by the FSA, one member said a large issuer of electronic payment instruments — Japan's legal term for stablecoins — could face heavy redemption demands. That could in turn compel the issuer to sell the government bonds backing its tokens. The member asked the group to examine whether existing rules are strong enough to handle such a scenario.

Redemption, lending and disclosure questions

Token lending emerged as another area of uncertainty. One member noted that when a company lends out tokens while also issuing them, the arrangement can resemble a solicitation for people to put money into an investment, and questioned whether current rules even cover the practice.

Members also observed that global interest in stablecoins appears to be waning, with attention shifting toward tokenized deposits. They attributed the change partly to price swings and anti-money-laundering (AML) shortcomings that make stablecoins awkward for cross-border transfers. Per the meeting minutes, building on a public blockchain — an open network anyone can join — makes it harder to trust AML checks.

The panel further questioned whether banks and other financial institutions can safely hold assets on a public blockchain and return them to their rightful owners. Members said a system should spell out who is permitted to halt activity on a public blockchain during an incident, and to what extent. Where such controls are not built into the design, they argued, the arrangements should be clearly disclosed to users.

DeFi: set the approach before writing rules

Decentralized exchanges and decentralized finance (DeFi) — trading and lending platforms that run without a central company — were taken up as a separate topic. One member said Japan should first decide how it wants to approach these systems before drafting rules. Another said the country needs to determine how it will respond to the report the Financial Action Task Force published in July on DeFi.

Members cautioned that Japan should avoid becoming a venue where people exploit weak or missing rules, and raised the question of who would serve as the gatekeeper on such platforms.

Nomura Holdings (NYSE: NMR) and Securitize Japan spoke at the meeting. Nomura asked for DeFi and wallet rules as flexible as those adopted in other countries. The study group held its second meeting on November 2. How the group weighs those questions — from redemption safeguards to DeFi gatekeeping — will help set the direction of Japan's digital-finance rules.

Could stablecoin reserves absorb JGB supply?

JPYC founder and CEO Noritaka Okabe told the group that money held in reserve to back stablecoins could be used to buy Japanese government bonds, potentially making up for the BOJ's reduced purchases. He said stablecoin issuers may become major holders of JGBs within a few years.

JPYC launched its yen-linked token in October 2025, following changes to Japan's Payment Services Act — the framework behind Japan's legal designation of stablecoins as electronic payment instruments. Okabe said 80% of the money the company takes in will go into government bonds, with the remaining 20% held in bank savings. The issuer intends to begin by buying short-term bonds and may add longer-dated debt depending on demand. The company's goal is to have 10 trillion yen (about $66 billion) of its token in circulation within three years, according to earlier Cryptopolitan reporting.

Taken together, Okabe's plan and the panel's redemption warning describe the same reserve portfolios from opposite sides: as a prospective new source of demand for JGBs, and as holdings that could be sold in volume if redemption demands spike.

Separately, Japan's Finance Ministry started a study group on October 8 to examine tokenizing government bonds, hoping to attract new investors. The ministry faces a record budget request of 143 trillion yen (about $944 billion), with debt-servicing costs of around 36.64 trillion yen (about $242 billion).