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FollowingJapan's Ministry of Finance explores the path of tokenization of government bonds for the first time
On Thursday, October 8, 2026, Japan's Ministry of Finance held its first meeting specifically on tokenization of government bonds. The meeting mapped out three potential paths for blockchain technology to handle Japanese government bonds (JGBs) and is assessing the feasibility of using crypto asset infrastructure to attract new investors to cope with the growing scale of debt.
Three Paths on the Chain
The Ministry of Finance released a report on Thursday that divided the core ideas into three different categories. Each category is designed to invite industry opinion and debate, rather than as a given decision.
Category 1: does not involve the bonds themselves, but transfers the beneficial rights of money market funds investing in Japanese government bonds through blockchain.
Category 2: It is carried out within Japan's existing bookkeeping and settlement system to link the transfer ledger. This may occur within a single account manager, between multiple coordinated account managers, or in the form of the Bank of Japan's own ledger as a central transfer agent.
Category 3: launches a new type of government bonds built directly on blockchain outside the existing settlement system.
Guests participating in the discussion included scholars from the University of Tokyo and Waseda University, and private enterprise strategist Chotaro Morita. The Bank and Financial Services Agency of Japan also sent people to attend the meeting.
The Ministry of Finance's Argument
The Ministry of Finance divides income into two categories. Market participants are said to benefit from simplified collateral and liquidity management brought about by tokenization. Overseas investors will be the biggest beneficiary group, as those who already hold assets in the chain will have a stable place to store idle funds.
Market demand has stabilized. The last two ten-year treasury bond auctions have been weak. The ten-year yield reached 2.95% in August, the highest level since September 1996. The two-year yield hit a 31-year high of 1.75%, and the five-year yield also hit a record high of 2.21%.
The mathematical logic of why new buyers are needed at this time
is very serious. The Ministry of Finance has requested the issuance of a record 143 trillion yen (approximately US$918 billion) of treasury bonds in fiscal year 2027, breaking the record for the fourth consecutive year. Debt service costs are expected to reach a record high of 36.64 trillion yen (about $234 billion), assuming interest rates have been raised to 3.8 percent from 3 percent. Currently, Japan has the worst fiscal situation among major economies.
Japan is learning from Washington's experience. According to reports, stablecoin issuers have begun buying U.S. Treasury bonds. In addition, a San Francisco Fed study found that since 2023, the United States has increased short-term national debt faster than Japan. It is worth noting that Japan is the largest foreign holder of U.S. Treasuries.
Under legal requirements, especially the GENIUS Act, stablecoin issuers must provide backing for their tokens with safe, liquid assets, with U.S. Treasury bills being the primary choice. This makes payment products a stable source of demand for government bonds.
Japan already has a local foundation
Tokyo is not unprepared. JPYC is Japan's first stablecoin pegged to the yen and is backed by domestic savings and Japanese government bonds. JPYC's issuer said its income comes from interest income from holders rather than transaction fees. As it issues more tokens, it will buy more Japanese government bonds.
Challenges and Future Plans
The Ministry of Finance has not avoided potential negative impacts. Dispersing transactions across multiple platforms could lead to market fragmentation and increase the amount of money needed to fund the project. In addition, round-the-clock trading may make it more difficult to manage sharp price fluctuations.
The cost of refactoring systems, rules, and business processes is also one of the issues to be solved. The expert group plans to further enrich the investigation results through hearings with companies and expects to summarize a report around January 2027.
