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The global economy is entering an era of "Agentic Commerce," wherein autonomous artificial intelligence (AI) agents conduct 24/7/365 cross-border economic transactions across languages and time zones without manual human intervention. To support this paradigm, financial settlement infrastructure must undergo a structural evolution toward "on-chain finance"—leveraging blockchain technology—integrated in an optimal mix with established off-chain financial infrastructure. Domestic inertia in modernizing settlement capabilities risks creating a critical dependency on foreign payment platforms, which would severely erode national financial competitiveness and elevate economic security risks. Modernizing settlement infrastructure for the AI era requires satisfying three fundamental operational criteria: * **Continuous Availability:** Operating on an uninterrupted 24/7/365 basis to align with autonomous global commerce. * **Programmability:** Deploying smart contracts that seamlessly link financial execution with real-time commercial and logistics data. * **Systemic Stability & Security:** Maintaining absolute resilience, operational safety, and trust as a foundational settlement layer. To drive this transition, the Financial Services Agency (FSA) established the "On-Chain Finance Forum for the AI Era" in Summer 2026, convening its inaugural session on September 30, 2026. The Forum's primary mandate is to deliver an interim summary and a joint public-private roadmap by early 2027 during its second session. To fulfill its leadership role in reforming private-sector fund settlement, the FSA is also evaluating necessary organizational expansions. Simultaneously, the FSA is pursuing an international strategy comprising two critical pillars: (1) inter-authority dialogues with foreign regulators to establish equal footing on stablecoin (SC) reserve asset rules, redemption mechanics, and cross-border interoperability between yen SCs and foreign currency SCs; and (2) establishing the Asia Public-Private Policy Dialogue Framework to enhance regional cross-border remittance efficiency and share legal/technical best practices. This combined domestic modernization agenda and international regulatory engagement necessitate a robust, cross-sectoral governance architecture to oversee policy design and execution. ## Sign up for Japan FinTech Observer Cutting through the noise of Japanese Finance & FinTech Subscribe Email sent! Check your inbox to complete your signup. No spam. Unsubscribe anytime. ## 1. Forum Composition & Governance Architecture The governance architecture of the Forum is designed to reconcile regulatory oversight, academic rigor, and private-sector innovation. By convening leadership across central banking, statutory ministries, academia, and market institutions, the Forum establishes a balanced policy environment that accelerates technical execution while safeguarding financial system stability. ### 1.1 Official Forum Membership * **Chair:** Minister of State for Financial Services * **Expert Members:** * **Masato Ui:** Partner, Brunswick Group * **Nana Otsuki:** Professor, NUCB Business School * **Yuri Okina:** Senior Fellow, The Japan Research Institute * **Hideki Kanda:** Professor Emeritus, University of Tokyo * **Chikako Suzuki:** Partner, PwC Japan LLC * **Naoko Nemoto:** Professor, Waseda University Graduate School of Business Administration * **Hironari Nozaki:** Professor, Toyo University Faculty of International Studies * **Tetsuo Morishita:** Professor, Sophia University Faculty of Law * **Participating Government Agencies & Institutional Entities:** * Financial Services Agency (FSA) * Digital Agency * Ministry of Finance (MOF) * Bank of Japan (BOJ) * Japanese Bankers Association (一般社団法人 全国銀行協会) ### 1.2 Specialized Working Group Structure To operationalize its mandate, the Forum established two specialized working groups: 1. **Study Group on Environmental Development** (_Focus:_ Designing legal, regulatory, and structural frameworks for digital and decentralized finance). 2. **Study Group on Sound Use of AI, etc.** (_Focus:_ Formulating AI governance frameworks, supervisory standards, and risk management protocols for financial integration). This dual working group architecture directly feeds specialized technical, regulatory, and AI governance findings into the FSA's core action pillars. ## 2. Summary of FSA Explanatory Materials & Core Action Pillars Explanatory materials presented by the FSA at the September 30, 2026 session connect national macroeconomic strategy with concrete technical pilot projects and institutional updates across three distinct action pillars. ### 2.1 Pillar 1: Social Implementation of On-Chain Finance The FSA actively supports private-sector deployment through its Payment Innovation Project (PIP), launched within the FinTech Proof-of-Concept Hub on November 7, 2025. Four flagship pilot initiatives have been selected for support: * **PIP #1 (Approved Nov 7, 2025): Trust-Type Yen Stablecoin (JPYSC) for Trade Settlement** * _Scope:_ Joint issuance by Japan's three Megabanks of a trust-backed yen stablecoin to optimize cross-border commercial trade payments for major trading firms, targeting live transaction deployment within FY2026. * **PIP #2 (Approved Feb 13, 2026): On-Chain Securities Settlement & Repo Collateral** * _Scope:_ Testing Delivery versus Payment (DvP) for tokenized securities and on-chain Japanese Government Bond (JGB) repo transactions, led by Nomura Securities, Daiwa Securities, and the Megabank groups (including Mizuho FG’s April 2026 pilot and MUFG’s August 2026 pilot). * **PIP #3 (Approved Apr 3, 2026): Multi-Bank Tokenized Deposit Interbank Transfers** * _Scope:_ Spearheaded by DCP and GMO Aozora Net Bank to build interbank transfer mechanisms for tokenized deposits via direct interbank ledger adjustments or stablecoin linkages. As of August 2026, 43 regional banks have joined. This initiative operates in close coordination with the Bank of Japan’s deposit tokenization sandbox. * **PIP #4 (Approved Sept 29, 2026): Digitized Trade Finance Integration** * _Scope:_ Led by TradeWaltz, linking electronic bills of lading and digitized trade documentation directly with stablecoin payment flows to fully automate trade execution. ### 2.2 Pillar 2: Environmental & Regulatory Development The regulatory framework is being systematically adapted to accommodate technical innovation while maintaining market integrity: * **Stablecoin Regulatory Evolution:** Building on the amended Funds Settlement Act (enforced June 2023), new rules enforced in June 2026 govern trust-type stablecoin reserve assets, permitting demand deposits, select time deposits, and up to 50% short-term JGBs/US Treasuries under 3 months maturity. A tax reform request covering trust-type SCs was submitted in August 2026. * **Decentralized Finance (DEX/DeFi) & Wallet Supervision:** Designing proportionate, non-excessive regulatory mechanisms matching technical realities. For entities providing user interfaces (UI) targeting domestic residents, policy emphasizes gaining a deeper operational understanding of service realities before finalizing targeted controls, such as risk disclosures and Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) obligations under the Act on Prevention of Transfer of Criminal Proceeds. * **Real-World Asset (RWA) Tokenization:** Reviewing institutional frameworks to support broad asset tokenization across government bonds, corporate bonds, money market funds (MMFs), equities, and real estate. ### 2.3 Pillar 3: Technological Adaptation (AI, Identity, & Quantum Security) * **AI Governance & Supervision:** Aligned with international supervisory frameworks (BoE, IMF, FSB, IOSCO toolkits evaluating market volatility, model concentration, and algorithmic collusion) and addressing the paradigm shift from human explicit authorization ("Click-to-Pay") to probabilistic AI execution ("Decide-to-Pay"). The FSA operationalized these principles in its AI Discussion Paper v1.1 (updated post-June 2025 launch of the AI Public-Private Forum), structuring oversight across four stages: 1. _Design & Pre-Verification:_ Technical controls (RAG, fine-tuning, LLM selection) and human-in-the-loop service architectures. 2. _Customer Explanation & Safeguards:_ Disclosures regarding AI limitations, error caveats, and seamless escalation to human operators. 3. _Verification & Monitoring:_ Monitoring conversation logs, conducting objective anti-bias checks, and requiring third-party reviews of recommendation logic. 4. _Whole-Lifecycle Governance:_ Executive management oversight, employee literacy, and risk-based agile governance. * **Identity Verification via DID/VC:** Deploying Decentralized Identifiers (DID) and Verifiable Credentials (VC) to authenticate autonomous AI agents and verify credentials without exposing raw personal data, establishing requisite trust for "Decide-to-Pay" automated transaction execution. * **Post-Quantum Cryptographic Migration:** Evaluating risks posed by quantum computing to current public/private key electronic signatures on blockchains (mitigating secret key recovery and signature forgery) and preparing migration paths, alternative algorithms, and emergency operational protocols. Translating these technical and regulatory pillars into a cohesive national infrastructure requires precise functional division and cross-agency execution. ## 3. Cross-Agency Execution Matrix & Strategic Roadmap Operationalizing on-chain financial infrastructure across the public and private sectors relies on a coordinated multi-agency execution matrix: By synchronizing regulatory frameworks, central bank settlement mechanisms, public disbursements, and commercial banking pipelines into a single agenda, Japan is executing a strategic blueprint to be formally delivered in the early 2027 Second Forum Session / Interim Summary. This unified public-private roadmap positions the nation to establish a highly competitive, secure, and fully programmable financial infrastructure for the AI-driven global economy. * * * FSA Launches Payment Innovation Project (PIP)The Financial Services Agency established the “FinTech Proof-of-Concept Hub” in September 2017 to help resolve hesitations and concerns that FinTech companies and financial institutions tend to have when attempting unprecedented proof-of-concept experiments, by supporting their experiments through the clarification of related laws and regulations interpretations andJapan FinTech ObserverNorbert Gehrke

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