Japan’s Ministry of Finance Maps Three Models for Tokenized Bonds

Japan’s Ministry of Finance is examining three ways to apply blockchain technology to the government bond market, with a formal research report expected around January 2027.

The ministry held the first meeting of its study group on on-chain government bonds on Oct. 8. The group is considering how blockchain networks could support the trading and settlement of Japanese government bonds.

The first model would place beneficial interests in money market funds backed by government bonds on a blockchain for trading. The second would connect existing book-entry settlement systems to blockchain networks. The third would involve issuing a new form of government bond directly on a blockchain outside the current settlement framework.

The ministry identified potential benefits including more efficient collateral management and intraday liquidity management. Blockchain-based systems could also strengthen the market’s ability to absorb government bonds steadily and improve its international competitiveness.

The study is also examining risks. These include fragmented liquidity, the risk that volatility could spill over more quickly in 24/7 markets and the costs of upgrading existing systems.

The three models are an initial framework for discussion. The ministry plans to hold hearings as the study progresses, with a formal research report expected around January 2027.