Japan to launch pilot program to test use of digital yen

TOKYO  -Japan will start a pilot program in April to test the use of a digital yen, its central bank said on Friday, joining a growing number of countries seeking to catch up to front-runner 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. It also comes ahead of BOJ’s leadership transition to academic Kazuo Ueda, who is expected to succeed incumbent Haruhiko Kuroda. Kuroda’s second five-year term ends in April.

“Our hope is that the pilot program will lead to improved designs through discussion with private businesses,” BOJ Executive Director 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 financial institutions in a test environment, Uchida said. It does not plan to conduct actual transactions among retailers and consumers, he said.

The program will help the BOJ be ready in case the government decides to issue a digital yen, the bank said.

“If a CBDC were to be issued in the future, exploring its framework in such a phased manner and engaging in highly transparent communication with the private sector are necessary steps to take for adoption in society,” said Uchida, who has been named by the government as the next BOJ deputy governor.

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.