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Bank of Japan (BOJ) officials are publicly acknowledging an unprecedented scenario: cryptocurrencies might one day challenge the yen as Japan’s primary payment method if the central bank fails to maintain price stability and public confidence.
Deputy Governor Shinichi Uchida delivered this stark warning during recent remarks, stating that “there is no guarantee that currency issued by the central bank of a sovereign nation will continue to function as a generally acceptable payment instrument.” His comments represent a notable shift in how Japan’s financial establishment perceives digital assets.
The warning comes as Japan accelerates its transition away from cash. Cashless payments reached 42.8% of all transactions in 2024, nearly tripling from just over 13% in 2010. Credit cards dominated at 82.9% of cashless transactions, while mobile and QR code payments captured 9.6%.
Executive Director Kazushige Kamiyama, who leads the BOJ’s payment system research, emphasized the urgency of innovation. “Japan must consider what steps it can take now to ensure its retail settlement system is convenient, efficient, accessible universally, while being safe and resilient,” he said in a recent speech.
The central bank has been testing a digital yen since 2023. Major banks, including MUFG, SMBC, and Mizuho, are participating in the pilot program alongside regional banks and fintech companies.
Japan’s crypto market is expanding rapidly. Active crypto accounts jumped to 7.13 million by December 2024, up from 5 million earlier that year. Bitcoin and Ethereum remain popular, but yen-pegged stablecoins are gaining traction for cross-border payments and remittances.
Regulatory changes are supporting this growth. Japan’s Financial Services Agency proposed a new framework that divides cryptocurrencies into two categories. Type 1 includes fundraising tokens requiring stricter disclosure. Type 2 covers decentralized assets, such as Bitcoin and Ethereum, which are primarily regulated through exchanges.
Uchida cautioned that cryptocurrencies and stablecoins could “step in to fill the gap” if people lose faith in the yen. However, he stressed that cash won’t disappear “any time soon.”
The BOJ’s dual strategy reflects global pressure. President Donald Trump’s January ban on a U.S. digital dollar has accelerated international central bank digital currency (CBDC) development. The European Central Bank is advancing its digital euro plans while major U.S. banks reportedly explore shared stablecoin initiatives.
Japan’s economy remains fragile, with inflation hovering near 2% and slow growth. In this environment, younger consumers increasingly embrace mobile apps and QR code systems for payments.
The central bank’s acknowledgment of crypto’s potential represents a dramatic evolution. Japan previously maintained some of the world’s strictest regulations for cryptocurrencies. Now, officials are preparing for a future where digital assets could play a central role in the nation’s payment ecosystem.
No official launch date exists for Japan’s digital yen. The government and parliament must ultimately decide whether to issue a CBDC. Meanwhile, the BOJ continues preparing for scenarios that once seemed impossible.
