Asia Morning Briefing: Yen Stablecoin and On-Chain Carry Trade

Japan has launched its first yen-backed stablecoin, poised to enhance decentralized finance (DeFi) by leveraging the yen's convertibility. The Bank of Japan's low interest rates position the yen as an attractive funding currency, allowing traders to borrow cheap digital yen for higher yields in dollar-linked assets. This new stablecoin enables a programmable on-chain carry trade, directly linking DeFi returns to Bank of Japan policies. With rates held at 0.5%, Japan’s funding costs remain favorable compared to higher global rates. However, while platforms in the DeFi space offer yields between 6% and 14%, the current scale of yen transactions is limited to ¥1 million daily. This highlights Japan's cautious financial environment, maintaining a careful approach to digital finance despite the innovative potential of the new stablecoin.

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