Japan to Begin pilot programme for issuing digital yen

Japan's central bank announced that a pilot programme to test the use of a digital yen will begin in April, joining a growing number of countries attempting to catch up with China in launching a central bank digital currency (CBDC).

The widely anticipated move follows two years of experiments by the Bank of Japan (BOJ) to determine whether to issue a CBDC, and brings Japan closer to issuing a digital yen in a few years.

It also comes as the BOJ prepares to hand over leadership to academic Kazuo Ueda, who is expected to succeed incumbent Haruhiko Kuroda. Kuroda's second five-year term comes to an end in April.

"We hope that the pilot programme will lead to improved designs through discussion with private businesses," BOJ Executive Director Shinichi Uchida said in his opening remarks at the central bank's meeting with executives from the private sector.

According to Uchida, the BOJ will conduct simulated transactions with private entities in a test environment as part of the pilot programme. The programme will assist the BOJ in being prepared in the event that the government decides to issue a digital yen, according to the bank.

Kazushige Kamiyama, head of the BOJ's department in charge of CBDC development, stated that the pilot programme will last several years and will involve discussions not only with commercial banks but also with non-bank settlement firms and carriers.

While there are no plans to do so for the time being, he said the central bank could conduct experiments involving actual transactions between retailers and consumers in the future.

"To some extent, we need to move in lockstep with other advanced economies in determining the timeframe" for issuing a CBDC, Kamiyama said at a press conference.

Central banks all over the world have increased their efforts to create their own digital currencies in order to modernise financial systems and accelerate domestic and international payments.

Japan and other advanced economies are seeking to catch up with China, which is at the fore of a global race to develop CBDCs and has ramped up pilot schemes for retail payments.

The U.S. 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 launch of such an asset would need the support of elected leaders.

The Group of Seven (G7) advanced economies have sought to align themselves in their progress towards issuing CBDCs. In 2021, the group agreed that any digital currency issued by a central bank must "support and do no harm" to the bank's ability to fulfil its mandate on monetary and financial stability.