How Japan’s foray into a digital yen could be its key to the Web 3.0 universe
- While Japan may not be planning to launch a digital currency, its moves to study it in conjunction with digital assets belie a deep interest in Web 3.0 and the metaverse
- A digital yen could boost digital payments by offering a widely accessible, zero-fee solution, even as Web 3.0 generates more interest in cashless payments
Japan’s recent launch of a second-phase study into a potential central bank digital currency (CBDC) shows that serious steps are being taken towards a digital yen and highlights a potential shift in attitude towards Japan’s deeper involvement in the Web 3.0 digital economy.
In a report last month that declared proof of concept in the first-phase study, the Bank of Japan repeated its stance that it has “no plans to issue” a CBDC. But it also said that, “to ensure the stability and efficiency of settlement systems as a whole, the BOJ regards it as important to be prepared thoroughly to respond appropriately to any future changes in the environment”.
The second phase of the BOJ’s study examines digital assets in conjunction with a proposed CBDC. A Japanese CBDC would enable the deeper and wider exploration of digital asset usage within Japan and beyond.
The government’s interest in Web 3.0 is woven into its latest economic and fiscal reform policy which, among other things, promotes blockchain and digital asset growth in Japan.
There is serious firepower behind this resolve. When the BOJ established the CBDC liaison and coordination committee in March last year, it consisted of government entities such as the Ministry of Finance and Financial Services Agency, as well as private actors including the Japanese Bankers Association, building on a July 2020 government paper that mentioned a CBDC for the first time.
Japan’s private sector is also interested in a digital yen. A consortium of more than 60 firms led by the financial groups of Mitsubishi UFJ, Mizuho and Sumitomo Mitsui has established a digital currency forum to begin trials to hopefully launch a yen-based digital currency, tentatively called DCJPY, by the end of the financial year.
Japanese citizens have also been exploring Web-3.0-friendly developments such as cryptocurrency casinos and non-fungible tokens (NFTs), amid a push by Prime Minister Fumio Kishida to make Web 3.0 part of Japan’s growth strategy.
Digital payments in Japan have grown steadily over the past decade, with cashless payments last year rising to make up 32.5 per cent of all payments, according to the Ministry of Economy, Trade and Industry. The breakdown was 27.7 per cent by credit card, 0.92 per cent by debit card, 2 per cent by e-money and 1.8 per cent by code payment.
But cashless payments remain low in Japan compared to countries such as the United States and China.
The popularity of cash in Japan is mainly driven by cultural attitudes and consumer perception; many still do not completely trust even credit card payments. Many also prefer cash for fear of overspending due to the ease of digital payments. Others have raised security concerns around personal data as a barrier to using digital payments.
Furthermore, Japan’s smartphone penetration varies drastically across age groups, with only 64 per cent of those aged 65 and older owning a smartphone. This is particularly concerning as this demographic makes up 29 per cent of the population in one of the world’s oldest nations. This relatively low penetration rate also contributes to Japan’s sluggish adoption of digital payments.
The government has tried to drive digital asset adoption. In 2019, it announced a merchant fee subsidy for digital payment providers. By 2025, it wants 40 per cent of all its payments to be cashless.
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Additionally, Web 3.0 can play a critical role in generating government and societal interest in cashless payments. Harnessing digital payments as a launch pad to break into the Web 3.0 universe will enable Japan to bypass card-based systems, enabling a leap into the digital future.
Japan’s cautious exploration of a CBDC shows its interest not only in establishing a digital currency, but also in the Web 3.0 economy and digital assets at large.
Using a CBDC to drive digital payments in Japan’s cash-heavy society could enable a smoother transition into the Web 3.0 universe, with digital assets such as a CBDC making it easier to make online payments in the metaverse, for NFTs and beyond.
It will be interesting to see how Japan continues to develop the public- and private-sector momentum in CBDCs and digital assets.
Hugh Harsono writes about cyberspace, economics, foreign affairs and technology
