DID THE BANK OF JAPAN ABANDON THE DIGITAL YEN?

According to Asia Times, Bank of Japan (BoJ) seemed to be abandoning its Central Bank Digital Currency ambitions for the foreseeable future stating that “The decision as to whether or not a CBDC should be issued will have to be a judgement by the Japanese people”. It is most certainly either a fake news or a bad interpretation of the latest reports of the BoJ. Tomohiro Sugo, head of the payment and settlement system division, tells Central Banking that the BoJ is still open to the idea of launching a digital yen in future: “The Bank of Japan continues preparing for the possible issuance of CBDC in the future and it has not quit its preparations,”

Since 2021, the BoJ has been conducting CBDC experiments to assess the technological feasibility and the operational characteristics of a retail CBDC ecosystem inside Japan and in cross border payments context along with other central banks worldwide. After the launch of phase 2 in April 2022, the BoJ report noted that “Even if CBDC is introduced, it will not be fully utilized unless the public understanding is gained, including its necessity, as a basic infrastructure suitable for a digital society,” the report also stressed on the need for “institutional arrangements.” To make a digital yen a possibility.

BOJ has not made any decision about what sort of blockchain or distributed ledger technology it might adopt but proclaimed Hitachi as the provider in charge of constructing its Central Bank Digital Currency (CBDC) during the experimentation phases.

The majority of the Japanese population is old, 33% are above 65 years and they are not likely to be using CBDC and they ll continue prefer physical cash (accounting for about 20% of nominal GDP). The amount of cash issuance remains high in Japan despite it being used more for hoarding than in payment transactions. On that side card payments are dominant at 27,7% of payments followed by 4% e-money and QR code.

The interest rates on electronic money, loyalty and added value services will be a disadvantage for a digital yen that will lack these services. BoJ said it will still monitor the monetary risks arising from the adoption of stablecoins and DeFi and will still coordinate it’s course of action with the ECB digital euro ambition and and Fed Digital Dollar but it seems that the internal banking consensus didn’t work well yet for BoJ. It will be interesting to watch the ECB trying to solve this dilemma in Europe.