MUFG to Test Real-Time Blockchain Settlement for Japanese Government Bond Trades
Key Takeaways
- •MUFG, Japan's largest bank by assets, is preparing a proof-of-concept to settle Japanese government bond transactions on the Canton blockchain network developed by Digital Asset.
- •Traditional JGB settlement takes one to three days, and MUFG expects real-time, around-the-clock onchain settlement to improve operational and capital efficiency in repo transactions.
- •The Canton network already carries live institutional repo activity, with Broadridge's Distributed Ledger Repo platform surpassing $1 trillion in monthly repo transaction volume in 2023.
- •Blockchain-based intraday U.S. Treasury repo transactions have existed since 2020 through JPMorgan's Kinexys network, and financial institutions in Europe and the U.S. have expanded similar proof-of-concept projects.
- •MUFG is also working with SMBC and Mizuho toward listing a jointly issued stablecoin by March 2027, under a licensing framework created by Japan's revised Payment Services Act effective in 2023.
Mitsubishi UFJ Financial Group (MUFG) plans to use blockchain technology to speed up the settlement of Japanese government bond (JGB) transactions, in a move that echoes similar initiatives by banks in other countries.
The Tokyo-based banking group, Japan's largest by assets, is preparing a proof-of-concept for onchain JGB transactions using the Canton network, a blockchain infrastructure developed by Digital Asset and designed for institutional financial markets. Canton already carries live institutional repo activity: Broadridge's Distributed Ledger Repo platform, which runs on the network, surpassed $1 trillion in monthly repo transaction volume in 2023. Settlement of JGB trades by traditional means typically takes one to three days.
MUFG expects real-time, around-the-clock onchain settlement to improve the operational and capital efficiency of repo transactions — the purchase of securities as a form of short-term borrowing and lending. The market involved is among the largest of its kind: Japan's outstanding government debt exceeds 1,000 trillion yen, the bulk of it issued as JGBs.
"Given their high credit worthiness and liquidity, JGBs are widely used as collateral for repo transactions by market participants in Japan and overseas, and momentum for bringing them onchain is growing," MUFG said in a statement on Wednesday.
The bank noted that financial institutions in Europe and the U.S. have expanded proof-of-concept projects aimed at achieving this same goal. Blockchain-based intraday U.S. Treasury-bond repos have existed for several years through JPMorgan's Kinexys network, which went live in 2020 and lets firms earn a return on cash that would otherwise sit idle for hours within the trading day.
The project forms part of a broader array of MUFG initiatives exploring the use of blockchain technology in traditional financial functions. Most recently, the bank teamed up with two of Japan's largest banks, Sumitomo Mitsui Financial Group (SMBC) and Mizuho Financial Group, to explore listing a jointly issued stablecoin by March 2027, a plan supported by Japan's revised Payment Services Act, which took effect in 2023 and created a licensing framework for such bank-issued digital tokens.
