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    BOJ and JFSA Make Multiple Announcements for Banks

    March 01, 2023

    The Bank of Japan (BOJ) announced commencement of the pilot program on central bank digital currency (CBDC). Additionally, the Financial Services Agency of Japan (JFSA) launched a sub-working group on financed emissions to promote transition finance and published a report on lending practices. JFSA also announced an order to partially revise regulations for enforcement of the Deposit Insurance Act (Draft). This order is promulgated and came into force as of February 03, 2023.

    With respect to the CBDC pilot, BOJ announced commencement of the pilot program on central bank digital currency experiments in April 2023, following the completion of proof of concepts (PoCs) with technical feasibility of the basic functions of a CBDC, in March 2023. In the pilot program, BOJ will develop a system for experiments, in which a central system, intermediary network systems, intermediary systems, and endpoint devices are configured in an integrated manner. BOJ will test the end-to-end process flow while exploring the measures and potential challenges for connecting the experimental system with external ones. With a view to proceeding with institutional arrangements for CBDC in an appropriate manner, BOJ will establish a CBDC Forum to discuss and explore a wide range of topics with private businesses related to retail payments. BOJ plans to hold information sessions in March to explain the selection process and requirements for participating in the CBDC Forum.

    Regarding transition finance, JFSA, together with the Ministry of Economy, Trade and Industry, the Ministry of the Environment, and 10 other global private financial institutions, formed a study group on improving the environment for transition finance to promote transition finance in the public and private sectors. JFSA established a sub-working group on financed emissions that considers and discusses on how to specifically calculate and disclose financed emissions and contribute to international rulemaking. In addition, JFSA issued a presentation paper that summarizes the role expected of financial institutions in achieving carbon neutrality and the characteristics of financed emissions. The paper suggests that disclosure should be considered to support funding for decarbonization by institutions. Going forward, the sub-working will hold discussions on these basic ideas in intergovernmental tracks, including the G7 and G20, and the private sector will also contribute to discussions in international initiatives.

    The JFSA report on lending practices was prepared by the Financial System Council working group. The report highlights that start-ups and businesses that are in the phase of business growth, succession, revitalization, and so on primarily face difficultly in raising funds without collateral for tangible assets such as real estate and manager guarantees. The problems faced by these business operators in procuring funds are a major obstacle to the sustainable growth of Japanese companies and the economy. To address such issues, the working group establishes a system that enables business operators to procure growth funds from financial institutions using the entire business as collateral, while also considering how lending practices should be focused on business feasibility.

    Keywords: Asia Pacific, Japan, Banking, CBDC, Regtech, Central Bank Digital Currency, Deposit Insurance, Transition Finance, Lending, Credit Risk, Carbon Neutrality, Decarbonization, ML TF Risk, JFSA, BOJ

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