Japan Officials Working on a National Digital Currency Proposal

A group of lawmakers from Japan’s ruling Liberal Democratic Party is reportedly working on a proposal to issue a national digital currency, according to a report published on January 24th

It appears the proposal came into existence as a response to Facebook’s Libra and China’s drive to create a digital yuan.

“China is moving toward issuing digital yuan, so we’d like to propose measures to counter such attempts,” Norihiro Nakayama, a member of the party and parliamentary vice-minister for foreign affairs, stated in a press release on Friday.

According to Nakayama, the digital Yen could be a joint initiative between the government and private companies that would put Japan in tune with global changes in financial technology and would follow many similar initiatives across the world. 

The lawmakers in charge of the proposal is a parliamentary group comprised of 70 Liberal Democratic Party lawmakers led by party heavyweight and former economy minister Akira Amari. The group plans to submit its proposal to the government as early as next month.

Although Japan is unlikely to issue digital currencies any time soon due to technical and legal hurdles, the news comes in the wake of a decision by the Bank of Japan to join five other major central banks – the Bank of England, the European Central Bank, the Bank of Canada, the Sveriges Riksbank (Sweden) and the Swiss National Bank – with the goal to share expertise and to explore digital currencies..

Notably, Japan’s Prime Minister Shinzo Abe has told the parliament today that the government will work with the Bank of Japan to study and research digital currencies as well as to find ways to increase to the yen’s convenience as a settlement means.

In the meantime, Facebook’s own Libra project has urged many central banks around the world to look at issuing digital currencies. According to the latest survey from the Bank for International Settlements, out of 66 major central banks, around 40% of them have progressed from conceptual research to experiments, or proofs-of-concept; and another 10% have developed pilot projects. 

On the other hand, China’s own CBDC has elicited a varied responses with some Japanese lawmakers expressing concern over Beijing’s move to attempt to expand the yuan’s use as a settlement currency in emerging economies.

Japan’s Finance Minister Taro Aso stated earlier this month that it would be a “very serious problem” if the digital yuan becomes a widespread means for international settlement, as Japan settles transactions mostly in dollars.

Meanwhile, former Bank of Japan board member Takahide Kiuchi, said that China and Japan have different reasons to issue a digital currency. He believes that the primary motivation for a Japanese CBDC is to replace cash, whilst China’s main drive is to enhance the yuan’s clout in the global community.

“The BOJ probably won’t want to do anything that would stifle private-sector innovation. The best way could be to issue a hybrid-type digital currency that is operated and issued by private firms, with the central bank’s involvement,” he concluded.

Japan Reportedly Working on Payments Network to Replace SWIFT

The Japanese government is leading a global project to create a new international network for cryptocurrency payments, similar to the SWIFT network used by banks.

According to a Reuters report published on July 18th, ‘a person familiar with the plan’ claimed that Japan’s new project is motivated by the intention to combat money laundering.

SWIFT is the international payments messaging system used by banks for money transfers around the world. However, at the moment no other details of the project have been disclosed and it remains unclear how the cryptocurrency network would work.

The person further added that the government hopes to launch the network in the next few years and it would be monitored by the Financial Action Task Force (FATF)— a G7-initiated intergovernmental organization that promotes legal, regulatory and operational measures that aim to fight money laundering on a global scale.

Seemingly, the FATF has already approved the plan for setting up the network in June, which was initially proposed by Japan’s Ministry of Finance and the country’s financial regulator – the Financial Services Agency (FSA).

At the moment, it remains unclear whether this initiative would meet resistance from users. The lack of regulation of cryptocurrencies is what mostly worries governments and central bankers.

Most recently, Facebook’s announcement of plans to launch a digital coin was met with stern comments from regulators as well as central banks and governments insisting the social media giant must respect anti money-laundering rules and ensure the security of transactions and user data.

Ahead of this week’s meeting of G7 finance ministers in France, Japan had set up a national liaison conference — involving the Bank of Japan, the Ministry of Finance and the FSA — assigned with the task of investigating the impact of Libra on monetary policy and financial stability.

Meanwhile, Japan has taken several initiatives to ensure the security of the cryptocurrency industry, hoping to leverage the fintech industry to stimulate economic growth.

In 2017, the country passed a law that recognized Bitcoin (BTC) as a legal method of payment, as well as bringing cryptocurrency exchanges under anti-money laundering (AML)/know-your-customer (KYC) rules. It became the first country in the world that regulated digital currencies at a national level.

This spring, the Japanese House of Representatives officially approved a new bill to amend national laws that govern crypto regulation. The revised acts, which include specific AML measures focused on privacy coins, are to come into effect in April 2020.

LINE Set to Receive Crypto Exchange License in Japan

Japanese messaging giant LINE will likely soon launch a cryptocurrency exchange for users based in the country, according to a report from Bloomberg.

According to people familiar with the matter, the messaging giant is close to being granted a crypto exchange license from the Japanese Financial Services Agency (FSA), which could happen as early as this month.

If it gets regulatory approval, the forthcoming exchange – BitMax, will reportedly start operations a few weeks after receiving the license. The exchange will offer its cryptocurrency trading services to 80 million users, including Bitcoin (BTC) and the social media app’s own token Link.

Line accounts for 187 million global users monthly, with an estimated 50 million users registered its mobile payment service, Line Pay. This would be LINE’s second crypto exchange, having launched Bitbox in Singapore in July 2018. However the platform remains inaccessible for Japanese users due to lack of regulatory clearance.

The license has been mandatory for all crypto exchanges operating within Japan since the amendment of the country’s Payment Services Act back in April 2017, and the FSA has since then continued to have stringent requirements for applicants.

As of March this year, only 19 cryptocurrency exchanges in Japan had received a license from the FSA as the agency had tightened up its scrutiny following the $530 million Coincheck hack in January 2018. Coincheck obtained a license from the FSA earlier this year.

The report further notes that the company has currently another banking license pending in Japan, which is unlikely to be issued until next year. Under such a banking license, LINE would be able to allow deeper integration of cryptocurrencies with its other services, including e-commerce. Subsequently, LINE reportedly aims to enter into stock brokerage and banking services in the near future.

Meanwhile, the firm initially started as a messaging app but has been gradually moving into the fintech space to turn profitable.

Earlier this month, LINE’s digital wallet LINE Pay partnered with Visa to create new financial services for their app customers, including blockchain-based solutions, cross-border payments, and “alternative currency payments.”

Japan Manufacturers to Use Blockchain in Data Sharing Initiative

100 manufacturers in Japan are set to be part of an initiative that implements blockchain technology to cut operating costs and improve performance, according to Nikkei Asian Review.

The companies will share production data among themselves through a common digital ledger; including information about product design, production equipment and quality inspections. Blockchain technology will underpin the platform with the aim to ensure information remains secure. Another benefit of the novel technology is a more efficient processing speed of information and data.

Manufacturers have always had a protective stance on data gathered at their factories because it contains know-how directly linked to competitiveness. With the information security provided by the ledger, companies are expected to start collaborating in a mutually beneficial way. The project will allow participants decide what data to share, who to share it with, as well as whether to charge a fee for the information.

The project, initiated by the Industrial Value Chain – an organization formed by manufacturers interested in the internet of things (IoT) – is expected to launch in spring 2020.

Renowned manufacturers like Mitsubishi Electric, Yaskawa Electric, as well as DMG Mori are expected to join. The project aims to augment Japan’s manufacturing sector as a whole by collaborating not only with big corporations with advanced production technologies but also smaller manufacturers that are unable to invest large amounts in research and development.

Sharing production and manufacturing data in a secure and efficient way can help a lot of factories optimize their work flow improving output. For example, parts suppliers could begin mass production faster if an electronics manufacturer shares the data from computerized numerical control machine tools.

If machine tool makers and their clients share equipment usage data, they could gain a better grasp of how parts wear out and maintain the gear more efficiently. They also may be able to predict when machines will break down so that parts can be exchanged in advance, reducing downtime.

Moreover, the distributed ledger technology is expected to lower the risk of data leaks compared with managing the information on servers, as well as reduce operating costs.

Japanese SBI Holdings Invests in Upcoming Crypto Exchange FXCoin

Most recently, Japanese crypto startup FXCoin announced that it has finalized a third-party allotment of shares with financial services giant SBI Holdings. The news was reported on April 15th.

FXCoin was founded in December 2017 by the former head of foreign exchange sales at Deutsche Bank Tomoo Onishi. Other distinguished employees working alongside Onishi in the company include Nomura, Mitsubishi UFJ Financial and HSBC veterans.

The crypto startup, which currently focuses on providing market information for investors, aims to launch a crypto exchange business sometime in the near future, therefore the allotment of shares will help support FXCoin in its efforts to start a crypto exchange in Japan.

However, no further details about how many shares SBI Holdings purchased and their value, nor the timeline for when the company will launch the exchange.

Earlier this year, FXCoin secured second-tier membership within the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory crypto exchange association. The membership tier of the JVCEA is designed for businesses that seek to apply for an official crypto exchange license, issued by the country’s financial watchdog – Financial Services Association (FSA).

JVCEA is a self-regulatory crypto exchange association which formed in March 2018 in an effort to establish and provide industry-wide investor safety standards. The FSA officially bestowed the self-regulatory status later that year in October.

Since the amendment of the country’s Payment Services Act back in April 2017, all operating cryptocurrency exchanges have been required to apply for a license with the FSA. However, after the $532 million hack of crypto exchange Coincheck, the FSA had decided to become more strict with the requirements given to crypto exchanges.

Meanwhile, SBI Holdings continues to increase its footprint in the crypto industry, with multiple ventures including its own exchange — VCtrade — alongside a series of investments in businesses developing crypto infrastructure and services.

In March, the company announced the formation of SBI Mining Chip Co., Ltd. under which the company will manufacture crypto mining hardware. However, the company did not detail whether it will produce Bitcoin-specific mining devices or will manufacture mining systems for other digital currencies as well.

Earlier this year, SBI Holdings also revealed that it had joined forces with R3, to support the provision and introduction of the Corda license, through a joint venture – called SBI R3 Japan Co., Ltd. – with the company owning an investment ratio of 60% and R3 40%. The company has a capital of ¥500 million (around $4.5 million).

In October 2018, SBI and Ripple’s XRP-powered payments app, MoneyTap, went live for account holders at selected Japanese banks. The ultimate goal for this app is to incorporate a consortium of 61 institutions – representing over 80% of all of Japan’s banking assets – in its service. As of now, 13 local banks have joined the project as shareholders.