Japan's ruling Liberal Democratic Party (LDP) has officially approved a policy proposal titled 'Next-Generation AI and On-Chain Finance Concept' on May 19th, 2026, marking a significant milestone in the country's digital financial transformation. The proposal, drafted by a project team led by LDP lawmaker Seiji Kihara who initiated the project in March, was formally adopted by the party's Policy Research Council on May 19th. This represents a concrete step toward implementing the vision that was initially approved by the LDP's Policy Research Council on May 19th, with the government's Policy Council subsequently approving the proposal in May. The core of the proposal is to utilize AI and blockchain to build a new generation financial system that supports 24/7 automated agent business activities, achieving integration of transactions, settlements, and financing. Crucially, the proposal is being considered for inclusion in Japan's 'Basic Policy on Economic and Fiscal Management and Reform 2026', the document that shapes the country's budget direction and is typically approved by Cabinet in June, signaling a government treating blockchain not as a tech experiment but as core economic infrastructure.
The approved framework outlines an ambitious AI-driven financial automation system where AI systems would independently identify and execute transactions while blockchain provides transparent and immutable records. As reported by MEXC, under the proposal, AI would identify and execute transactions involving goods and services, while blockchain systems and smart contracts would handle settlement and reconciliation automatically. The framework emphasizes transparency, regulatory compliance, and systemic risk management as central design features, positioning blockchain as the record-keeping layer that makes AI-led finance easier to monitor. At the center of the effort is Seiji Kihara, who spearheaded the Liberal Democratic Party project team behind the proposal, with the idea being to create a financial architecture that can keep economic activity running continuously, with digital representations of yen-based value moving through a transparent, code-driven system. The strategy does not stop at digitizing money but also sketches out how the system would function once those assets circulate, with AI systems expected to oversee digital currency circulation while tracking exposure across the financial system. AI will select products and services autonomously, improving efficiency across the financial network, while blockchain ensures transactions remain verifiable, tamper-resistant, and fully programmable, aligning with AI operations. House of Representatives member Masaaki Taira emphasized that traditional bank accounts cannot support these automated agents, necessitating on-chain payment rails for economic operation at scale, highlighting the critical infrastructure gap that the policy addresses.
The proposal outlined specific support for tokenized deposits and Japanese yen-denominated stablecoins, with the government now expressing supportive stance toward tokenized assets such as stocks and yen-denominated stablecoins. According to MEXC, regarding tokenized deposits, the proposal stated it is essential to tokenize the Bank of Japan's current account deposits for efficiency. For stablecoins, the proposal highlighted the importance of legal clarity and mitigating systemic risks, while also supporting the joint stablecoin issuance project under three Japanese megabanks. The policy also emphasizes tokenizing central bank account deposits to unify transactions, settlements, and financing, positioning these as key components of the proposed financial infrastructure. The proposal calls for accelerating bank-issued yen-denominated stablecoins with legal clarity for salary and tax payments, and developing international compatibility for cross-border transactions. The framework puts tokenized bank deposits at the heart of the model and supports stablecoins pegged to the Japanese yen, giving the proposal a clear focus on yen-denominated digital money rather than purely speculative crypto assets. The inclusion of yen stablecoins and tokenized deposits is one of the clearest signs that this plan is aimed at real financial infrastructure, rather than treating digital assets as a side market.
The Japan's Financial Services Agency (FSA) is tasked with creating a five-year implementation timeline to promote investments in the project by both public and private groups, giving the proposal a defined policy horizon. As reported by MEXC, the proposal called for a framework to strengthen cooperation with other Asian countries on AI and blockchain initiatives. The FSA roadmap will involve both public and private sector investments, with the government supporting joint investment in AI and blockchain financial infrastructure by the public and private sectors. The Liberal Democratic Party is expected to work with relevant government bodies to turn the concept into formal policy, with the project already assigning responsibility for execution rather than leaving the plan at the level of broad political messaging. The proposal designates finance as the '18th growth investment area,' placing it alongside AI, semiconductors, quantum computing, and aerospace in Japan's national growth strategy. The strategy also looks outward, calling for partnerships with neighboring Asian nations on AI and blockchain ventures, signaling that the plan is not only about domestic modernization but also about regional coordination. The on-chain settlement technology is positioned as foundational for achieving T+0 instant settlement on the Tokyo Stock Exchange, a market with an annual trading volume of approximately 1,600 trillion yen. This approach could strengthen Japan's influence in digital finance and AI applications while establishing the country as a potential global leader in automated and blockchain-based finance.
The Japan's Financial Services Agency has simultaneously issued revised enforcement ordinances clarifying the handling of stablecoins issued under foreign laws, effective June 1, 2026. These rules classify specific foreign trust-type stablecoins as electronic payment instruments under the Payment Services Act, explicitly removing them from the scope of the Financial Instruments and Exchange Act and resolving long-standing legal ambiguity for domestic firms. To qualify for this designation, foreign issuers must operate under laws equivalent to Japanese banking regulations and be supervised by authorities capable of cooperating with the FSA on cross-border oversight. The framework employs a case-by-case assessment approach, evaluating liquidity, credit risk, and audit quality rather than requiring domestic trust structures, with issuers required to maintain systems to address criminal misuse and properly managed reserve assets that match displayed monetary denomination. The central bank is tasked with publishing an implementation roadmap for tokenizing Bank of Japan current accounts by the end of the year, viewed as a critical step toward replacing traditional settlement rails with programmable blockchain technology. The framework also calls for cross-border interoperability standards to facilitate international transactions, aligning regional standards for KYC and AML compliance to reduce friction in cross-border capital flows and support the broader goal of creating a seamless digital economy.
