The Digital Asset Co-Creation Consortium (DCC), for which Progmat serves as secretariat, on the 22nd published an interim report from its working group (WG) on tokenized government bonds and on-chain repo transactions. The report sets out a design for domestic implementation of repo transactions in which Japanese Government Bonds are managed on blockchain and tokenized deposits (TD) and stablecoins (SC) are used as settlement instruments, with the aim of starting live testing in November 2026.

The WG includes Japan’s three megabanks—MUFG Bank, Sumitomo Mitsui Banking Corp. and Mizuho Bank—along with 69 organizations including Nippon Life Insurance, BlackRock Japan and Daiwa Securities. Desk-based studies ran from May through September 2026, and the group is now moving to a second phase of live testing.

On-chain “management” while preserving the legal nature of book-entry transfer bonds

The centerpiece of the interim report is a design that does not issue new government bonds but instead switches only the management method for existing book-entry transfer government bonds to distributed ledger technology (DLT). Account management institutions such as banks and securities firms would establish new “on-chain management accounts” (OC accounts) synchronized with DLT. By transferring government bonds held by investors into OC accounts, balances would be managed on a system operating 24 hours a day, 365 days a year, while the bonds retain their legal character as government bonds.

Three tokenization approaches were considered: registered government bonds managed on the Bank of Japan’s government bond registry; a linked-rights model in which the right to request delivery of book-entry transfer bonds is separately tokenized; and a model targeting the book-entry transfer bonds themselves. The interim report adopted the book-entry transfer bond approach as its main proposal. One reason is that book-entry transfer bonds held by financial institutions are exempt from withholding tax on interest, and the other two approaches would require tax system revisions.

Progmat CEO Tatsuya Saito explained that transferring bonds to OC accounts “is not a process of doubly issuing new government bonds.” Under the mechanism, a portion of the book-entry transfer bonds managed in existing accounts is moved to an OC account in the same investor’s name, and the corresponding balance is represented on DLT.

Testing will begin with a single account management institution that holds an account directly with the Bank of Japan, and with transactions completed entirely within that institution. Within this scope, processing is possible without direct linkage to the Bank of Japan’s systems. For transactions spanning multiple account management institutions, the group is concurrently studying a method in which information on DLT serves as the starting point for an API connection to the Bank of Japan as the transfer institution, with the transfer finalized after records under the existing system are completed.

Target is post-trade processing left outside central clearing

The WG’s primary focus is not the creation of new financial products but the streamlining of existing institutional investor transactions. According to the interim report, Japan’s domestic government bond repo market exceeded ¥250 trillion (approximately $1.6 trillion) as of the end of 2024. Based on the Bank of Japan’s short-term money market survey and other data, the group estimates that on the funding side, roughly 40% remains as bilateral transactions not intermediated by central counterparties (CCPs) such as the Japan Securities Clearing Corporation (JSCC).

This non-CCP segment includes foreign financial institutions and funds, and analog processes remain in post-trade matching, settlement and collateral management. Rather than aiming for full on-chain operation like DeFi (decentralized finance), the WG plans to move post-trade processes on-chain while maintaining existing trading channels and contracts.

The group also argues that the significance of 24/7 operation is not merely the ability to move funds at night. Japanese banks can obtain intraday yen funds through the Bank of Japan’s intraday overdraft facility, so short-term funding alone is unlikely to differentiate the new infrastructure from existing systems. Greater utility is expected in areas such as non-residents and funds that cannot use intraday overdrafts, hours outside Bank of Japan network operating times, cross-border transactions and foreign currency funding. In these situations, “just in case” operations—securing more funds and collateral than needed in advance—persist, and the group says connecting government bonds and settlement instruments on-chain can move the market closer to a “just in time” model in which only the necessary amount is mobilized.

Note: Based on the DCC interim report and Progmat’s published materials

Sandbox on Canton, with massive volumes already processed in the U.S.

In the second phase, Progmat will build a sandbox environment on the Canton Network, a blockchain designed for regulated financial markets. Participants will be able to issue and manage test tokenized Japanese government bonds (tJGB), TDs and SCs, and plan to connect sequentially with multiple domestic and overseas repo and collateral platforms. Canton is strictly a testing foundation, and the group assumes that multiple blockchains will be used together at the commercialization stage.

Test items include use cases such as intraday transactions, cross-border transactions and cross-asset management of funds and collateral. Testing will kick off once integration preparations are complete, with the goal of publishing another interim report in spring 2027.

Saito cited as the question he most wants to answer through live testing: “whether on-chain repo initiatives using tokenized government bonds offer economic rationality for domestic and overseas financial institutions and institutional investors.” As the industry works with authorities and the transfer institution to promote on-chain finance, he said he wants to confirm whether the effort can achieve the level of clarity and buy-in from market participants that will be most essential.

The United States is ahead in moving its government bond and repo markets on-chain. Repo transactions using Broadridge Financial Solutions’ DLT reached an average daily processed volume of $365 billion (approximately ¥57.3 trillion) in July 2026, with monthly volume reaching $8 trillion (approximately ¥1,255.3 trillion). The U.S. DTCC is also preparing a tokenization service covering U.S. Treasuries and other assets held at DTC.

Japan’s tokenization market has so far centered on new products for retail investors, such as real estate security tokens. The distinguishing feature of this initiative is that it does not turn government bonds—already a massive market—into a new product, but instead aims to streamline settlement and collateral management among existing institutional investor transactions that remain outside central clearing. From tokenizing assets to putting the market’s plumbing itself on-chain: the interim report can be said to have given concrete form to that methodology.

Market participants say the success or failure of live testing will shape the future of Japan’s financial infrastructure. The design—adding on-chain components rather than fully replacing existing systems, thereby limiting the impact of modifications—lowers the barrier to adoption for participating institutions, but the implementation focus will be on how to finalize linkage with Bank of Japan systems for transactions spanning multiple account management institutions.