Japan's ruling Liberal Democratic Party has moved to push policies to institutionalise cryptocurrency exchange-traded funds and expand yen-denominated stablecoins. The plan is to bring cryptocurrencies into regulated investment products while building a yen-based digital payment network to expand influence in Asia's financial markets.

On June 1, blockchain outlet Cryptopolitan reported that the LDP's Blockchain Promotion Panel submitted a proposal on May 31 to Finance Minister Satsuki Katayama (사쓰키 가타야마) that includes allowing crypto ETFs and fostering yen stablecoins.

The proposal has two pillars. It aims to recognise crypto ETFs as regulated investment products in Japan and develop yen stablecoins into a payment gateway for Asian markets. The LDP defined crypto ETFs as simpler financial products that allow investment without directly holding digital assets. It means creating an institutional channel for investors to access the crypto market more easily.

LDP lawmaker Junichi Kanda (준치 간다) told reporters he hopes the government will foster yen stablecoins as a payment gateway in Asia. He argued Japan should use the Asian Development Bank annual meeting in Tokyo in May 2027 as an opportunity to publicise its blockchain policy and yen stablecoin strategy internationally.

The proposal comes amid the overwhelming global market share of dollar-pegged stablecoins. The stablecoin market has grown to about $315 billion, and most of it is held by dollar-linked stablecoins such as Tether (USDT) and USD Coin (USDC).

Policymakers in various countries are concerned that these dollar stablecoins could weaken the role of domestic financial institutions by processing cross-border payments outside existing banking networks. Analysis says Japan is also moving to secure financial sovereignty by building a yen-based digital payment infrastructure.

The Bank of Japan has also shown an open stance in related discussions. Deputy Governor Ryozo Himino (료조 히미노) stressed last month that rather than viewing central bank digital currencies and private stablecoins as opposing, a comprehensive approach is needed to use them together while discussing the future of the global monetary system.

In the private sector, yen stablecoin businesses are also gaining momentum. Japanese startup JPYC launched Japan's first licence-based yen stablecoin in October last year and has issued more than 1 billion yen so far. The company has set a target to expand issuance to 1 trillion yen within the next 3 years.

Large Japanese financial institutions are also accelerating related experiments. Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group announced late last year plans to pursue a joint stablecoin project.

In March, they conducted a proof of concept using yen- and dollar-pegged stablecoins on the blockchain-based financial infrastructure Progmat. Japan's Financial Services Agency has designated the project as a "payment innovation project" and is supporting the regulated experiment.

In May, another project called EJPY also won approval from the Japan Blockchain Foundation. EJPY was designed to apply three trust-based legal structures to avoid the 1 million yen per-transaction cap that applies to general electronic payment instruments. That gives it a structure better suited to business-to-business payments.

Discussion on institutionalising crypto ETFs could also gain pace. If the LDP plan is reflected, Japan would move in the same direction as markets such as the United States and Hong Kong that have allowed crypto ETFs. Japan's cabinet already approved in April a revised draft to reclassify cryptocurrencies as financial products. Before that, Japanese law treated cryptocurrencies only as payment instruments. This reclassification is close to a prerequisite for institutionalising ETFs.

Still, legislation will take time. Finance Minister Katayama has not yet made a public position on the proposal, and even though the LDP holds a parliamentary majority, legal revisions must go through standing committee review and a plenary vote. That makes the next point to watch whether Japan's plan to allow crypto ETFs and expand yen stablecoins can move from political proposals to institutionalisation.