Digital Yen

The Digital Yen is the Bank of Japan's Central Bank Digital Currency pilot project testing retail CBDC implementation, commercial bank integration models, and technical infrastructure for potential future deployment in world's third-largest economy.

The Bank of Japan launched pilot programs in 2023 following extensive research and experimentation phases, testing core CBDC functionality including issuance, distribution through commercial banks, user payments, redemption mechanisms, offline payment capabilities, and interoperability with existing payment systems. The BoJ uses two-tier intermediated model where commercial banks and payment service providers distribute digital yen to end users, maintaining existing banking relationships while providing central bank money option.

Strategic considerations include addressing cash decline trends while ensuring continued access to central bank money, providing resilient payment infrastructure backup to private systems, enabling innovative payment services through programmable money and smart contracts, supporting cross-border CBDC initiatives including Project mBridge with other Asian central banks, and maintaining yen's role in international payments amid CBDC competition. The Bank of Japan emphasizes collaboration with financial industry, gradual approach based on pilot learnings, privacy protection balanced with AML requirements, and careful assessment of impacts on commercial bank business models and monetary policy transmission. Implementation timeline remains uncertain pending resolution of policy questions, legal framework development, and demonstration of clear advantages over existing highly efficient Japanese payment systems.