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Japan's Progress Towards a Digital Yen: Navigating Legalities for CBDC Issuance

Japan sets course for CBDC issuance: legal framework by Q2 2024

As Japan positions itself at the forefront of digital currency innovation, the Bank of Japan (BoJ) and the government have embarked on a critical mission to iron out the legal framework for a Central Bank Digital Currency (CBDC) by the second quarter of 2024. This groundbreaking development was highlighted in a recent meeting between the two entities, as reported by NHK, Japan's national broadcasting organization.

The focus of this collaboration is the digital yen, a pioneering initiative in the realm of government-backed digital currencies. While there's anticipation in the air, both the BoJ and the Japanese government have refrained from committing to an official launch date. It's clear that any forward movement will hinge on a comprehensive national discussion, a process slated for no earlier than 2026.

This cautious yet progressive approach follows on the heels of a December 2023 recommendation from an expert panel at the Ministry of Finance. The panel's advice? To introduce the digital yen promptly, ensuring it complements existing cash systems while prioritizing minimal personal data storage.

Japan's deliberate approach: testing and national discussions

Japan's path to CBDC adoption is marked by meticulous planning and extensive testing. In May 2023, the Bank of Japan successfully concluded the second phase of its CBDC testing, a significant stride involving 100,000 participants and handling up to 3,000 transactions per second. This ambitious experiment laid the groundwork for the next phase – a pilot project aimed at scrutinizing the entire process flow and integrating with external systems.

Contrary to its reputation as a predominantly cash-based society, Japan has shown a consistently positive attitude towards CBDCs. This stands in stark contrast to perspectives in the United States, where some lawmakers and political figures express skepticism about digital currencies. 

However, Japan's embrace of the digital yen doesn't equate to a rejection of cryptocurrencies. In an encouraging move for the crypto sector, from April 2024, local businesses in Japan will benefit from tax exemptions on unrealized gains from cryptocurrency holdings.

Looking at the broader Asian context, Japan is not alone in its digital currency endeavors. China is gradually implementing its digital yuan, and other countries like Hong Kong, Singapore, Malaysia, India, and South Korea are actively exploring CBDCs. Cambodia's National Bank has also announced plans to launch a CBDC by the end of 2024, marking a significant trend in the region's monetary evolution