What a silly filter, blocking all xn domains

That whole feature is kind of paragraph 22. No legit/popular site uses it so users don't expect national characters in domain names, so no one actually hosts sites using "xn-" domains.

Kind of an interesting history to this kind of url: https://www.nic.ad.jp/ja/dom/idn.html

Shrug. First time I'd seen this. If it displayed as the original text it would have been clearer.

It would make it hard to spot impostor domains like "news.усомbiнаtor[.]сом" if it was. There's enough inertia for FQDNs to be strictly ASCII and any UTF-8(outside ASCII) in domain names to be felt unnatural for an URL, so most systems default to the raw "Punycode" xn-- scheme for all IDNs.

In this case yes but it's meant as a punycode scam prevention where common Latin alphabet letters are swapped for similar looking alternatives.