Settling Stock Trades Takes Two Days In Japan. Blockchain Could Make The Process Almost Instant.

Japan is preparing to explore a blockchain-based system that could settle stock and government bond transactions almost instantly, potentially eliminating the waiting period investors currently face before receiving cash from completed trades.

The Financial Services Agency, Ministry of Finance, Bank of Japan and financial institutions plan to establish a study group this summer, with a development plan expected around the beginning of 2027 at the earliest, the Nikkei newspaper noted.

The plan is expected to determine the design of the blockchain network, assign responsibilities among government agencies and participating financial institutions, and establish a road map for building the infrastructure. If formally approved, operations could begin within several years, with the full system potentially running in the early 2030s.

Japan currently settles stock transactions two business days after a trade, known as T+2 settlement, while Japanese government bond transactions generally settle the following business day. Moving toward real-time settlement would sharply reduce that gap, allowing investors who sell assets to receive and reinvest their proceeds almost immediately.

The government effort follows blockchain experiments already underway in Japan's financial sector. In February, the Financial Services Agency said it would support a demonstration involving major securities firms and megabanks through its Payment Innovation Project. That initiative is testing blockchain-based transfers of rights to government bonds, corporate bonds, investment trusts and stocks, with stablecoins used to settle payments.

Financial Services Minister Satsuki Katayama said at the time that faster settlement using blockchain and stablecoins could help Tokyo compete with other financial centers experimenting with new trading infrastructure. The FSA is supporting the project on issues including interpretation of existing laws and regulations.

The Bank of Japan has also been testing how central bank money could work with blockchain networks. BOJ Governor Kazuo Ueda said in a March speech that the central bank was conducting experiments using current-account deposits for settlement on blockchain-based systems, including possible applications for domestic interbank payments and securities settlement.

Japan has studied distributed-ledger technology for financial infrastructure for years. The BOJ and European Central Bank examined securities settlement using DLT under their joint Project Stella in 2018, including whether securities and payments could be transferred simultaneously. Later phases examined cross-border payments and transaction privacy.

Other major economies are also experimenting with blockchain-based financial markets. India is preparing its first tokenized corporate bond issuance in September, using its wholesale central bank digital currency for settlement, Reuters reported this week.

Japan's proposed infrastructure could eventually extend beyond domestic securities. The Nikkei report said officials are considering whether the blockchain-based system could also be used for international remittances, although the design and timetable have yet to be finalized.