Japan Plans Blockchain System for 24/7 Instant Trade Settlement

Japan’s Financial Services Agency, Finance Ministry and the Bank of Japan will form a study group this summer to design a blockchain-based system to enable immediate cash settlement of stock and government bond trades at any time of day. The agencies plan to produce a detailed development plan by early 2027. If regulators approve the plan and development proceeds as scheduled, operation could begin in the early 2030s.

The study group will include public agencies and private financial institutions. It will decide how the blockchain infrastructure will be built, divide responsibilities among participants, and map out technical and operational requirements, including architecture, legal roles and integration with existing market systems.

Under the proposal, a portion of the central bank balances that commercial banks hold in Bank of Japan current accounts would be converted into digital tokens that circulate on a distributed ledger for interbank settlement. Tokenized central bank balances could be used to settle the cash leg of trades instantly on the ledger rather than waiting for end-of-day or next-day processes. The system is intended to operate around the clock.

Currently, ordinary equity trades in Japan settle on a T+2 cycle, meaning cash and securities are exchanged two business days after a trade is executed. Domestic government bond trades typically settle on a T+1 cycle. The proposed blockchain system would enable immediate finality of the cash payment leg when tokenized central bank money is used.

Planners will need to address technical issues such as how tokenized central bank balances interact with existing payment and securities settlement systems, data security on the ledger, and reconciliation between tokenized and non-tokenized accounts. Legal and regulatory questions include the legal status of tokenized central bank balances, oversight of private infrastructure operators, and safeguards for financial stability and consumer protection.

The study group will examine international practices and technical models for central bank digital money and tokenized settlement and coordinate roles among the Bank of Japan, the Finance Ministry, the Financial Services Agency and market participants. The work will also consider how the new system would interface with custody, clearing and settlement arrangements used by banks, broker-dealers and central securities depositories.