The first category does not touch the bond itself; rather, it transfers the beneficiary rights of a money market fund that invests in Japanese Government Bonds across a blockchain.
The second category takes place in Japan’s current book-entry settlement system, fixing the transfer ledgers on-chain; it could be at a single account-management institution, across several coordinated account-management institutions, or in the Bank of Japan’s own ledger as the central transfer agent.
The third category is the debut of a new kind of government bond that sits directly on a blockchain that is outside the existing settlement plumbing.
On the panel were academics from the University of Tokyo and Waseda University, as well as Chotaro Morita, a private-sector strategist. The Bank of Japan and the Financial Services Agency were also present.
The argument the ministry is making
The ministry split the payoff into two categories. Market participants, the ministry says, would benefit from the streamlined collateral and liquidity management that tokenization brings. Overseas investors would be the biggest beneficiaries, as those who already hold assets on-chain will have a stable place to park idle cash.
Demand has plateaued, with the last two 10-year auctions drawing weak bids, and the 10-year yield reaching 2.95% in August, a level last recorded in September 1996. The two-year hit a 31-year high of 1.75%, and the five-year set a record 2.21%.
Why Tokyo needs new buyers at this time
The math behind the rush is simply harsh. Ministries requested a record ¥143 trillion ($918 billion) for fiscal year 2027, breaking the record for the fourth year in a row. Debt servicing costs are about to go to a record ¥36.64 trillion ($234 billion), with the assumed interest rate increased from 3% to 3.8%. Japan currently has the worst fiscal position among major economies in the world.
Japan is learning a thing or two from Washington. Cryptopolitan reported that stablecoin issuers have begun purchasing US Treasury bonds. Also, a San Francisco Fed study found that the US has added short-term Treasuries more quickly than Japan since 2023. Japan also happens to be the single largest foreign holder of US government debt.
Stablecoin issuers are mandated by law, in particular the GENIUS Act, to back their tokens with safe, liquid assets, Treasury bills chief among them, turning a payments product into a steady source of government-bond demand.
Japan already has a homegrown version
Tokyo already has food at home. The JPYC, the first stablecoin pegged by the yen, is backed by domestic savings and JGBs. JPYC’s issuer mentioned that its earnings accrue from the interest on the holders as opposed to transaction fees. As it issues more tokens, it buys more JGBs.
The ministry hasn’t shied away from the adverse effects. The decision to split trading across several venues will only lead to market fragmentation and increase the amount of funds needed to sponsor the project. Also, 24/7 trading could make it tougher to manage sharp price swings.
Costs of rewiring systems, rules, and business processes are on the list of open questions too. The panel plans to flesh out its findings through hearings with firms and aims to pull together a report around January 2027.
