BoJ releases results and launches Digital Yen Pilot Program

The rapid growth of digital assets has compelled global central banks, including the Bank of Japan (BoJ), to explore ways to leverage the emerging technology for their benefit. Most central banks unanimously agree that digital assets should not be banned, but rather regulated to promote secure growth. Consequently, many central banks worldwide are working on introducing the best Central Bank Digital Currency (CBDC) to attract both local and foreign investors.

Furthermore, the quest to outperform the US dollar as the global reserve currency has led to many governments, including China, introducing CBDCs.

Japan on CBDC via Digital Yen

In the past few years, the Japanese government, led by Prime Minister Fumio Kishida and the Bank of Japan (BoJ), has explored the best approach to introducing a digital yen. The BoJ has already undertaken several initiatives aimed at launching a seamless CBDC. Notably, the Payment and Settlement Systems Department of the Bank of Japan (BOJ) conducted its Proof of Concept (PoC) Phase 1 from April 2021 to March 2022.

During the PoC Phase 1 process, the bank created an experimental environment using various design alternatives for a Central Bank Digital Currency (CBDC) ledger as the foundation of a CBDC system to assess whether its basic functions could be processed correctly. After successfully completing the initial phase, the bank commenced PoC Phase 2 from April 2022 to March 2023. According to the BOJ, the additional functions evaluated were those that it deemed desirable to confirm technical issues early on.

Reportedly, the results for phase 2 were evaluated in terms of processing performance and technical feasibility. Additionally, the second phase examined possible use cases for the digital yen to ensure proper feasibility. The BoJ previously stated that it expects to introduce a proper CBDC as early as 2026.

“Whether to issue a CBDC should be decided by discussions among the Japanese public. To facilitate such discussions, the BOJ will continue to make such thorough preparations as conducting technical experiments to respond to changes in circumstances in an appropriate manner,” the BoJ noted.

Pilot Program

Meanwhile, the BoJ has announced the launch of a digital yen pilot program to test the end-to-end process flow. Additionally, BoJ’s digital Yen pilot program will be used to showcase measures and potential challenges for connection with external systems. Further, the BoJ noted that it will involve private businesses in the pilot program.

“A CBDC Forum will be established with a view to proceeding with institutional arrangements for CBDC in an appropriate manner, and ideas and insights set out by private businesses related to retail payments will be drawn upon to deepen the study,” the BoJ concluded.