Japan experiment digital yen
Cryptocurrencies

Stubborn, cash-loving Japan to experiment with digital yen

Thirty companies are teaming up for the initiative, which aims to tackle the extremely fractured nature of Japan’s cashless payments market

Japan is a country that loves its cash—despite the government encouraging shoppers and retailers to embrace electronic forms of money, more than 80% of consumers still rely on good old banknotes and coins for smaller purchases.

Although adoption is improving among the nation’s young, adoption is happening at a glacial rate. A target has been set to increase cashless settlements to 40% by 2025. That’s hardly ambitious.

Undaunted, a consortium of 30 big companies is planning to put a digital yen through its pace next year—all with a view to improving productivity.

It could be argued that this is less about dragging the population kicking and screaming into the 21st century. Instead, it’s more of a concerted push to improve Japan’s digital landscape, where a myriad of small platforms in a fractured market can’t communicate with each other.

According to a Reuters report, the group of telecoms firms, retailers and brokerages will experiment with “issuing a digital currency that will use a common settlement platform.”

As the group’s chairman Hiromi Yamaoka warned, himself a former Bank of Japan executive, it might be a bit of an uphill struggle. He was quoted as saying:

“Japan has many digital platforms, none of which are big enough to beat cash payments. We don’t want to create another silo-type platform. What we want to do is to create a framework that can make various platforms mutually compatible.”

If it ain’t broke, why fix it?

Japan’s stubbornness may have advantages.

The continued use of cash means that older consumers are far less likely to be cut out of the digital age.

Over in China—where 70% of payments are cashless—a two major platforms dominate the market, Alipay and WeChat Pay. Just like Visa and Mastercard rule the roost in the U.S., this can mean that consumers and merchants end up with a raw deal.

And another added perk comes in the fact that Japan is far less susceptible to inflation than some of its neighbors. As the British business journalist Ian King noted: “The ¥1,000 note (roughly equal to $9.80) has been for years used by many office workers to pay for their lunch, making it near-impossible for cafes, takeaways and workplace canteens to raise prices above that level for a meal.”

King added that Germany, another country that has been wary about cashless payments, has also managed to keep the scourge of inflation at bay.

Change is a-coming

As reported by Modern Consensus back in July, the Bank of Japan is separately looking into the development of a central bank digital currency.

Kazushige Kamiyama, a top economist, was appointed to head up a department overseeing CBDCs, in a sign that the world’s third-largest economy fears being left behind.

And there are increasing warnings that nations who turn a blind eye to CBDCs could be left at a disadvantage. Just last week, Deutsche Bank warned countries could be forced to rely on digital assets rolled out by the likes of Sweden and China unless they start to catch up.

Although the German bank’s warning was specifically leveled at the likes of the U.S. and Europe, it’ll apply just as much to Japan… if not more.

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.