Top Japanese banking group Mitsubishi UFJ (MUFG) is reportedly holding discussions with stablecoin issuers to have them issue such tokens on the group's blockchain platform. MUFG is also engaging entertainment companies and non-financial businesses on stablecoin projects.

The announcement is in conjunction with the implementation of Japan's stablecoin law on June 1. The law enabled the country's licensed financial institutions and registered money transfer agencies to issue stablecoins. However, it only allowed for the issuance and use of such tokens that are fully backed by fiat currencies.

Japan Eases Laws on Stablecoins

Speaking in an interview with Bloomberg, MUFG's Vice President of Product, Tatsuya Saito, said the group was engaging multiple parties to have them mint stablecoins tied to foreign currencies, including the US dollar, on their proprietary blockchain , Progmat. "Issuers and users can feel safe using stablecoins now the legislation is in effect," he said.

Under the new legislation, stablecoins can be denominated in dollars and other currencies. This presents an important opportunity to issue tokens for overseas use, Saito added. Such favorable policies come at a time Japan is easing restrictions on cryptocurrencies.

MUFG has since launched the Progmat Coin platform for banks in Japan, enabling lenders to launch stablecoins on public blockchains such as Ethereum. The launch was in partnership with TOKI, a company developing a cross-chain bridge, and Datachain.

This year, through its parliament, Japan introduced a registration system for stablecoins and enabled overseas businesses to issue such tokens in the country through custodians of digital assets. The changes were made in accordance with a bill passed in 2022 that regulates cryptocurrencies pegged to the yen and any other currencies.

Taming Financial System Risks

Japan has been keen on controlling the financial system risks of stablecoins to protect investors, especially amid the growing importance of stablecoins in the digital asset sector. Stablecoins are backed by fiat currencies and bonds to maintain a steady value, unlike the other volatile cryptocurrencies. However, at times they can lose their peg, and can lead to massive volatility.

Terraform Labs, TerraUSD, a stablecoin that used algorithm and incentive paid to traders to maintain its peg to the US dollar, collapsed in May. The implosion caused a massive market wipe-out of more than $40 billion. It also brought litigations against its Co-Founder, Do Kwon, who is serving a jail term in Montenegro for forgery.