Japan to launch test program to issue digital yen

Japan will begin a pilot program in April to test the use of a digital yen, its central bank has said, joining a growing number of countries looking to catch up with China in launching a central bank digital currency (CBDC).

The widely expected move follows two years of experiments the Bank of Japan (BOJ) has been conducting to decide whether to issue a CBDC, and brings Japan closer to issuing a digital yen in several more years.

It also anticipates the transition of BOJ leadership to academic Kazuo Ueda, who is expected to succeed current Haruhiko Kuroda. Kuroda’s second five-year term ends in April.

“Our hope is that the pilot program will lead to improved designs through discussions with private companies,” BOJ Chief Executive Shinichi Uchida said in opening remarks at the central bank’s meeting with private sector executives.

Under the pilot program, the BOJ will conduct simulated transactions with private entities in a test environment, Uchida said. The program will help the BOJ to be ready in case the government decides to issue a digital yen, the bank said.

Kazushige Kamiyama, head of the BOJ department that oversees CBDC development, said the pilot program will last several years and will involve discussions not only with commercial banks, but also with settlement firms and non-bank operators.

While there is no plan to do so for now, the central bank could conduct experiments involving actual transactions between retailers and consumers in the future, he said.

“To some extent, we need to move in unison with other advanced economies to decide the time frame” for issuing a CBDC, Kamiyama told a briefing.

Central banks around the world have intensified their efforts to develop their own digital currencies to modernize financial systems and speed up domestic and international payments.

Japan and other advanced economies are trying to catch up with China, which is leading a global race to develop CBDCs and has ramped up pilot schemes for retail payments.

The US Federal Reserve has also been exploring how it can launch a fully digital dollar that some have referred to as Fedcoin. Fed leaders have said that any release of such an asset would need the support of elected leaders.

The advanced economies of the Group of Seven (G7) have tried to align themselves in their progress towards the issuance of CBDCs. In 2021, the group agreed that any digital currency issued by a central bank must “support and not harm” the bank’s ability to meet its monetary and financial stability mandate.