New crypto regulation in Japan will allow stablecoins

New cryptocurrency regulations in Japan will allow investors to trade stablecoins, with a timeline for the legislation expected as soon as June 2023.

According to local news media, the Financial Services Agency (FSA) of Japan is working on lifting the ban in place that limits the domestic trading of stablecoins. From June 2023, investors and traders in the country will be able to trade, buy and sell certain stablecoins such as but not necessarily including Tether ($USDT). The FSA has stated that it does not mean any and all foreign products of stablecoins will be permitted without regulation and restriction, but rather stablecoins that have passed certain requirements will be available for trading.

According to the FSA, public commentary on amendments to the Payments Service Act, which includes the cryptocurrency and stablecoin regulation, will be accepted until the 31st of January 2023.

According to the FSA, the limits will be in place as part of user protection to avoid investors falling prey to scam projects or rug-pull schemes. The checks in place to ensure the safety of investors’ funds will include the regulation in the foreign currency that underpins the stablecoin – for example, the US dollar is the pegged asset to Tether. As it stands, there is no commentary or certainty on whether leading stablecoins like Tether and USD Coin ($USDC) will be permitted in Japan with the new regulation.

Japan’s new stablecoin regulations

The new regulations form part of the proposed cabinet orders on adjustments to the Payment Services Act of 2022. The proposed new legislation plans to develop the legal infrastructure for digital currencies and create the necessary protocols to use digital assets as both a payments system and an investment option.

In 2022, the Japanese government outlawed the use and trade of foreign stablecoins. This law required crypto exchanges and trading platforms to allow the trade and purchasing of stablecoins that were pegged to the Japanese yen only.

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