Key Takeaways
- Led by Progmat, Japan will tokenize government bonds this year to tap the $4T daily global repo market.
- Tokenization will cut 1-day settlements to instant, boosting market liquidity for securities.
- Next, Japan hopes to expand its $2.3B digital security market to attract trillions of yen in capital.
Japan Taps Blockchain For Speeding Up Government Bond Trading
Blockchain is making inroads in all aspects of the financial markets, and it is now getting into the digitization of government bonds in Japan.
According to local reports, Japan is introducing a system that will allow the trading of Japanese government bonds (JGBs) round-the-clock, opening the door to more efficient liquidity utilization, lower costs, and quicker settlement times.
The goal is to introduce this system later this year to debut the securities as part of the repo market, where financial institutions are lending and borrowing funds with these bonds as collateral. The global repo market encompasses up to $4 trillion in daily repurchase agreements, and Japan accounts for 10% of this volume.
To achieve the tokenization of Japanese bonds, a new entity will be created with Progmat, a Japanese digital assets developer, at the helm, and participation of the largest Japanese banking groups and institutions like Tokio Marine Holdings, Daiwa Securities, and SBI Securities.
One of the most ambitious goals of the project is to shorten settlement times of these bonds, which are now traded and settled on the next business day. With the proposed tokenization, trading and settlement of these bonds will happen almost instantly, enhancing the capital efficiency of these operations.
The Japanese digital security market is still in its nascent stages, with only $2.3 billion issued, most representing real estate assets. Nonetheless, with this move, the market is ready to boom, as institutions will enter and bring trillions of yen in capital to support bond operations.
Japan’s push towards bond tokenization comes after other markets, including the U.S., are also undergoing similar changes. In December, the Depository Trust & Clearing Corporation (DTCC) unveiled an initiative to move U.S. treasuries on-chain.
