Japan’s recent launch of a second-phase study into a potential central bank digital currency (CBDC) shows that serious steps are being taken towards a digital yen and highlights a potential shift in attitude towards Japan’s deeper involvement in the Web 3.0 digital economy.
In a report last month that declared proof of concept in the first-phase study, the Bank of Japan repeated its stance that it has “no plans to issue” a CBDC. But it also said that, “to ensure the stability and efficiency of settlement systems as a whole, the BOJ regards it as important to be prepared thoroughly to respond appropriately to any future changes in the environment”.
The second phase of the BOJ’s study examines digital assets in conjunction with a proposed CBDC. A Japanese CBDC would enable the deeper and wider exploration of digital asset usage within Japan and beyond.
The government’s interest in Web 3.0 is woven into its latest economic and fiscal reform policy which, among other things, promotes blockchain and digital asset growth in Japan.
There is serious firepower behind this resolve. When the BOJ established the CBDC liaison and coordination committee in March last year, it consisted of government entities such as the Ministry of Finance and Financial Services Agency, as well as private actors including the Japanese Bankers Association, building on a July 2020 government paper that mentioned a CBDC for the first time.
Japan’s private sector is also interested in a digital yen. A consortium of more than 60 firms led by the financial groups of Mitsubishi UFJ, Mizuho and Sumitomo Mitsui has established a digital currency forum to begin trials to hopefully launch a yen-based digital currency, tentatively called DCJPY, by the end of the financial year.
Japanese citizens have also been exploring Web-3.0-friendly developments such as cryptocurrency casinos and non-fungible tokens (NFTs), amid a push by Prime Minister Fumio Kishida to make Web 3.0 part of Japan’s growth strategy.
Digital payments in Japan have grown steadily over the past decade, with cashless payments last year rising to make up 32.5 per cent of all payments, according to the Ministry of Economy, Trade and Industry. The breakdown was 27.7 per cent by credit card, 0.92 per cent by debit card, 2 per cent by e-money and 1.8 per cent by code payment.
But cashless payments remain low in Japan compared to countries such as the United States and China.