The Japanese government is pursuing legislative changes that would allow local governments to issue digital bonds, potentially offering an easy, accessible, and cost-effective way to invest in local communities.
A report by local paper Nikkei revealed that the national government plans to submit a new bill in the 2026 Ordinary Diet Session to allow local governments to issue digital bonds. The paper claims that the bill is in response to increasing requests from local authorities under a new strategy aimed at decentralizing power from the national government to provide better service.
As one local legal expert pointed out, tokenizing government bonds would attract a much larger investor audience that has traditionally leaned towards more liquid investments. Digital tokens are more easily tradable, and the government bonds can now compete with stocks and other money market funds. Increased transparency and fractional ownership will also reduce the barriers to entry for the retail market.
While large cities like Osaka and Tokyo are likely to be the market leaders with digital bonds, smaller towns are likely to benefit the most. These towns are burdened with high costs and can only issue smaller, less liquid bonds. Local residents also rarely participate in bond markets, leaving municipal funding largely reliant on institutional investors.
With digital bonds, these smaller investors can now invest in their local communities, while deeper-pocketed investors from the metropolitan cities can now access bonds from local towns that they initially wouldn’t have.
The government intends to hold a meeting later this month to consult with stakeholders and to gather public feedback in the ensuing months. The initiative is being spearheaded by the Ministry of Internal Affairs and Communications.
While it’s only now working on government-issued digital bonds, Japan has recorded an explosion of tokenized bonds in its private sector in recent years. According to one report, cumulative security token issuances hit JPY194 billion ($1.3 billion) last August, with tokenized real estate dominating the market.
Japan seeks to join other countries, such as Switzerland and Luxembourg, whose governments have issued digital bonds. Hong Kong remains the market leader in digital green bonds; last November, it announced plans for a $1.3 billion bond, which was already 13 times oversubscribed.
Watch: Tim Draper talks tokenization with Kurt Wuckert Jr.
Source: https://coingeek.com/japan-to-tokenize-local-government-bonds/
