Japanese financial institutions recommend book-entry bond tokenization

A working group comprising 69 organizations, including three major Japanese megabanks, Nippon Life Insurance, and Daiwa Securities, has released an interim report recommending the tokenization of book-entry Japanese Government Bonds (JGBs). The group, organized under the Digital Asset Co-Creation Consortium (DCC) led by Progmat, suggests managing book-entry bonds directly on-chain to ensure consistency with existing legal frameworks and tax exemptions for financial institutions.

This initiative aims to enable 24/7/365 JGB trading, reducing constraints caused by time zone differences between Japan and international markets like London and New York. By facilitating continuous repo transactions, the move is expected to improve capital efficiency for both domestic and foreign institutional investors.

Progmat and Digital Asset Holdings (DA) plan to collaborate using the Canton Network, a blockchain designed for regulated financial markets, to verify on-chain JGB settlement. This includes testing the integration of account books held by custodians with on-chain data. The project is supported by the Financial Services Agency’s Payment Infrastructure Project (PIP), exploring the use of tokenized deposits or stablecoins to achieve simultaneous transfer of bonds and funds.