Japan plans blockchain-based instant settlement for stocks and government bonds

Japan is preparing to set up a payment infrastructure to enable instantaneous settlement of transactions in stocks and Japanese government bonds using blockchain technology. The move, first reported by Nikkei, marks a significant escalation in the country's push to modernise its financial market infrastructure.

A Coordinated Government Push

Japan's Financial Services Agency (@JFSA_en), the Ministry of Finance (@MOF_Japan), the Bank of Japan (@Bank_of_Japan_e), and financial institutions plan to form a study group this summer to design the system. Under the proposed system, a portion of the accounts that banks currently maintain at the BOJ could be converted into digital tokens circulating on a blockchain.

A development plan could be prepared by early 2027, covering the blockchain's design, the division of responsibilities among participating agencies and institutions, and a potential implementation roadmap. If the project moves forward, the system could potentially enter service in the early 2030s. The initiative may also be included in a multiyear strategic-sector investment framework the government plans to establish from fiscal 2027.

Private Sector Already Running Pilots

Japan's three largest banks and major securities firms are already conducting a pilot on the management and distribution of tokenized stocks and tokenized government bonds on blockchain networks. The government and central bank initiative is intended to supply the underlying settlement layer for those activities.

Mitsubishi UFJ Financial Group (MUFG) is at the heart of developments, running a proof-of-concept placing Japanese government bond repos onto the Canton Network, a blockchain purpose-built for institutional finance. A key feature of this initiative is that Japanese government bonds themselves are not tokenized. Only the settlement component of transactions involving existing JGBs is placed on the blockchain, preserving the legal nature of the bonds while linking to and updating existing ledgers.

The working group includes Japan's three megabanks, Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group, alongside major financial institutions including BlackRock Japan, Daiwa Securities Group, SBI Securities, and State Street Trust and Banking.

Japanese officials are also concerned about competition in securities tokenization. The US and Europe have made progress in developing tokenized securities infrastructure, raising concerns that Japanese markets could become less attractive to overseas investors if domestic systems do not keep pace. The Japanese government bond market is one of the largest debt markets in the world, worth trillions of dollars.

Sources:
Crypto Times: Japan Weighs Blockchain-Based Settlement for Stocks, Government Bonds
Global Government Finance: Japan Tests Blockchain for Government Bond Trading
Yahoo Finance (Reuters): Japan Eyes Blockchain for Instant Stock, Government Bond Settlement