Japan Has a Private and Public Digital Yen in the Works, But Will Cash-Friendly Consumers Go Along?

digital yuan

Two of the most prevalent and fastest-growing ways of making cashless, digital payments are via scannable QR codes and tap-your-card NFC readers. Both were invented in Japan.

Care to guess which developed nation is using them the least? That’s right, Japan.

Despite being one of the most high-tech-friendly societies, and an early adopter of many new technologies, Japan is in last place among wealthy nations when it comes to moving from paper currency to cashless transactions.

At the beginning of 2021, 70% to 75% of all Japanese consumer transactions were made in cash. Flip that around in the U.S., where 28% of purchases used dollar bills. Then compare that to cashless world leader Sweden, at 9%, where it can be difficult to find merchants willing to accept cash.

Which leads to a very serious question for two Japanese organizations looking to bring digital currencies to the country: Does anyone actually want them?

Well, two groups certainly do.

The Digital Currency Forum is a consortium of 74 major companies and banks, local governments and other organizations that hope to have a privately issued digital yen stablecoin on the market by late 2022.

The other is the Bank of Japan (BoJ), which said in April that it intends to have a phase-one test of a real digital yen — a central bank digital currency — completed by March 2022.

Consumers, however, are not convinced. For one thing, there’s trust: Japanese consumers have trusted the cash and bank passbook systems they have used for decades and see no reason to change. It also helps that Japan’s crime rate is very low.

Besides, cash is accepted everywhere, there are no fees associated with it — for consumers or merchants — and transactions are completed immediately. As much as half of all Japanese households are thought to have a cash nest egg.

Why Go Digital?

The DCF’s members have a lot of reasons for wanting to increase cashless transactions — among them the unspoken but obvious desire to collect those fees.

Its members include three of the country’s biggest banks — MUFJ Bank, Mizuho Bank and Sumitomo Mitsui Banking Corp — as well Mitsubishi, Nippon Telegraph & Telephone Corporation, and East Japan Railway.

There is also the desire to capture consumers’ personal information available when they use credit and debit cards and other forms of digital money. Of course, how the data privacy issue will go over with a society happy to trust cash remains to be seen.

But there are other drivers, including labor savings and convenience. In the COVID era, personal hygiene has accelerated the use of various forms of contactless payments like NFC readers, payment apps like PayPal, Venmo and Cash App, and tech giant payment tools like Apple Pay, Google Pay, and China’s Alipay almost everywhere — and Japan is a country very focused on personal and public hygiene.

Then there’s the government. The ruling Liberal Democratic Party has a number of goals for a CBDC, among them the ability to get more insight into business conditions, improve corporate cash flow management, produce better credit information, and integrate banking and supply chain data, according to a speech in March by BoJ Governor Haruhiko Kuroda.

He was also interested in consumer data, saying, “Information on the customer’s lifestyle obtained from this business data could help identify where there is a hidden potential demand for financial and non-financial services.”

But another driver of Japan’s CBDC push is geopolitical. Digital transaction-friendly China is likely to have a fully-operational CBDC in place by early 2022 — it’s shooting for the Beijing Winter Olympics in February — and the Japanese government is not eager to see broader acceptance of a digital yuan, which it fears could damage the yen’s status as a safe-haven currency.

China’s digital yuan, which has undergone many large-scale consumer tests, relies largely on QR codes invented in Japan. Whether the Japanese are willing to embrace their own technology remains to be seen.