Japan Builds Blockchain Infrastructure for Zero Lag Stock Settlement

Japan is working on a blockchain infrastructure to modernize its stock and bond settlement processes. The plan, set to be completed by early 2027, aims to reduce the current two-business-day lag in settling stocks and one business day for government bonds to near zero. This will cut counterparty risk and eliminate daily interbank overdrafts.

The authorities involved are the Financial Services Agency, the Ministry of Finance, and the Bank of Japan, with major domestic financial institutions participating. The initial report came from Nikkei on Wednesday (8/26). A joint working group was formed this summer to develop a blockchain design and division of responsibilities among institutions.

Central bank money will be tokenized first, not securities. Banks are requested to convert a portion of their reserve accounts at the Bank of Japan into digital tokens, which will function as wholesale central bank digital currency for interbank settlement. The securities side is handled through a separate channel using delivery versus payment (DvP) on the blockchain.

The mechanism is being tested by authorities, with several major financial institutions participating, including Nomura Securities, Daiwa Securities, and three major banking groups. They will cover government bonds, corporate bonds, mutual funds, and stocks. The goal is to reduce settlement risk and lighten operational burdens.