Japan Explores Legislative Changes for Regional Government Digital Bonds

Japan Considers Digital Bonds for Local Governments

The Japanese government is reportedly exploring legislative reforms to enable regional governments to raise funds through digital bonds, as highlighted by the Nikkei newspaper. Currently, corporate entities in Japan are permitted to issue digital securities, but local governments require new legal frameworks to do the same.

Legislative Changes and Decentralization

The push for this legislative update is part of the Decentralization Reform Promotion strategy. In this context, decentralization refers to the transfer of certain powers and responsibilities from the central government to regional authorities, not to blockchain or web3 decentralization. This approach aims to provide local governments with more autonomy in financial management and innovation.

Global Examples of Digital Bond Issuance

Several international regions have already implemented digital bonds at the local government level. Switzerland stands out as a leader, with digital bond issuances by cities such as Basel, Lugano, St Gallen, and Zurich. In the United States, the City of Quincy issued a municipal bond with assistance from JP Morgan in 2023, and AlphaLedger facilitated three similar issuances in 2022. These examples demonstrate the practicality and benefits of digital bonds for public sector financing.

Potential Impact for Japan

If Japan proceeds with these legislative changes, local governments could gain new tools to access capital markets more efficiently. Digital bonds offer advantages such as reduced issuance costs, enhanced transparency, and streamlined settlement processes. This could support regional development projects and strengthen Japan’s overall economic resilience.

Next Steps

The Japanese government is still in the early stages of this legislative review. Further details and timelines for potential implementation have not been disclosed, but the move signals Japan’s intention to modernize its public sector financing and align with international best practices.