Japan's plans for a digital yen could start to take shape next year, according to a top lawmaker, report says

• The head of the ruling party's digital currency initiative told Reuters digital yen plans could take shape next year.
• He said he expected this to provide clarity on its impact on the existing financial system.
• The Bank of Japan started exploring a central bank digital currency earlier this year.

Japan's plans for a digital yen could start to come together next year and the design of a potential central bank digital currency will be clearer then, the head of the ruling party's digital currency initiative, Hideki Murai, told Reuters in an interview published on Monday.

"By around the end of next year, we'll have a clearer view of what Japan's CBDC would look like," he said, adding this would not necessarily lead to a clear-cut decision on whether to roll out a central bank digital currency (CBDC). The Bank of Japan launched its exploration into a CBDC earlier this year and is currently researching and assessing the concept.

Murai also said having a better picture of the digital yen's design would provide insight into how it might impact the existing financial system and institutions in Japan, which is currently undergoing significant shifts.

Private businesses have taken on responsibilities that previously fell to commercial banks, such as online settlement means, which have put the two industry groups at odds with one another. A digital yen could reverse the shift and commercial banks could benefit from this, Murai said.

"CBDC has the potential to completely reshape changes occurring in Japan's financial industry." he commented.

The Bank of Japan has previously said a CBDC would not significantly impact private businesses.

Murai also said the Bank of Japan would have to ensure the digital yen is compatible with CBDCs from other countries, to ensure it stays competitive against the Chinese digital yuan.

The Federal Reserve and the European Central Bank are currently among those banks researching the potential for a CBDC, while China is trialling a digital form of its currency in various cities around the country, before rolling it out nationwide. The country began to develop the digital yuan as early as 2014 and has said it might make the CBDC available to international visitors during the 2022 Winter Olympics in Beijing.

If China fully rolls out its own CBDC, this could threaten demand for the yen, Murai said in the interview.

"If a digital yuan becomes so convenient it's frequently used by tourists or becomes a main settlement means for trade, the relationship between the yen and yuan could change," he said.

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