Japan Plans to Issue Local Government Bonds as Digital Securities

Japan is preparing a major shift in how local governments raise funds. According to a report by Nikkei, the Japanese government plans to promote the issuance of local government bonds in digital form. The team would issue these instruments as digital securities, also known as security tokens. The government expects to submit a related bill to the ordinary session of the National Diet of Japan in 2026. Before that officials plan to finalize policy measures later this month. This is based on feedback and needs from local governments.

Government Prepares Legal Framework

The initiative aims to modernize Japan’s public debt system. By using digital securities, the government hopes to diversify funding methods and simplify bond issuance and management for local authorities. Officials are currently reviewing whether existing laws need amendments. The focus is on ensuring that digital bonds can be issued. It can be traded and managed under a clear legal framework.

A policy direction is expected to be set within weeks, ahead of formal legislative drafting. Japan already has a legal base for security tokens. Amendments to the Financial Instruments and Exchange Act in 2020. That introduced the concept of electronically recorded transferable rights. This allows securities to be issued and managed digitally under regulated conditions.

Blockchain Seen as Core Infrastructure

Digital local government bonds would rely on blockchain technology. Specifically, these systems record transactions in linked data blocks using cryptography. As a result, this structure improves data integrity and reduces reliance on manual processes. Moreover, in recent years, Japan has tested blockchain-based bond issuance through pilot programs. Indeed, major financial institutions and exchanges have already issued experimental digital bonds. Notably, these projects focused on improving settlement speed, transparency, and investor tracking. By extending this model to local government bonds, authorities further aim to reduce administrative costs and improve operational efficiency. Digital records also make it easier to monitor ownership and manage interest payments.

Expanding Investor Access and Efficiency

Another goal of digital issuance is to broaden investor participation. Digital platforms can lower entry barriers and make bond purchases more accessible to individual investors. Local governments often face shrinking populations and rising costs. Easier access to capital markets could help them secure stable funding. Digital bonds may also attract younger investors familiar with online financial tools. In addition, digital issuance can shorten settlement cycles and improve data collection. This may allow governments to track how organizations raise and allocate funds more effectively.

Part of a Broader Digital Finance Strategy

Japan’s move fits into a wider push toward digital finance and asset tokenization. Authorities have supported experiments in digital bonds. With green bonds and other tokenized assets over the past few years. While the plan is still in its early stages, it signals long term intent. If the bill passes in 2026, local governments could gradually adopt digital securities as a standard funding option. Currently, the government’s focus remains on policy design and legal clarity. Concrete issuance timelines will likely depend on legislative progress and local government readiness.