Japan Aims to Blockchain-Enable its $7 Trillion Bond Market

Japan's $7 trillion bond market is on the cusp of a blockchain transformation. According to Nikkei, regulators have announced plans for stocks and Japanese government bonds (JGBs) to settle instantly around the clock.

The Financial Services Agency (FSA), Ministry of Finance, and Bank of Japan will lead the effort, with banks joining in a study group to develop the new system. The goal is to reduce settlement times from two days for stocks and one day for JGBs to near zero, allowing sellers to reinvest their cash almost instantly.

The move could have significant implications for Japan's bond market, which holds approximately 1,166 trillion yen in outstanding government bonds and bills, equivalent to around $7 trillion at current exchange rates. The study group is expected to complete its development plan by early 2027, with the system potentially going live in the early 2030s.

Interestingly, this move comes as Japan's bond market is experiencing stress, with the 10-year JGB yield sitting near multi-decade highs and markets seeing an 80% chance of a Bank of Japan rate hike next month. However, proponents argue that faster settlement will turn idle money into working capital.