Japan's government is considering using stablecoins and tokenised deposits for subsidies with restricted uses such as childcare and groceries. It is also examining the possibility of shifting not only payments but also government bonds and interbank payment infrastructure to blockchain-based systems, accelerating efforts to put onchain finance on a firmer institutional footing.

CoinPost, a blockchain media outlet, reported on Oct. 20 that Japan's Financial Services Agency on Sept. 30 released minutes from the first meeting of an "Onchain Finance Forum Looking Ahead to the AI Era". The agency plans to prepare an interim summary in early 2027 and draw up a public-private cooperation roadmap.

The meeting was attended by the Financial Services Agency, the Digital Agency, the Ministry of Finance, the Bank of Japan and the Japanese Bankers Association, among others. Participants discussed expanding programmable functions linked to real transactions, connecting onchain and offchain payments, and ensuring the stability and safety of payment infrastructure as key tasks.

The Digital Agency presented government disbursements as a priority area for review in onchain finance. Hasui Strategy and Organisation Group Director-General said it would technically examine whether stablecoins or tokenised deposits could be applied to subsidies with restricted uses such as childcare or grocery purchases.

Programmable payments control how funds are used or how transactions are executed based on preset conditions. Applying them to public subsidies could enable more precise design of fund disbursement, such as restricting where money can be spent in line with the purpose of the payments.

Still, legal issues must be settled for actual adoption, including whether stablecoins can be regarded as a means equivalent to money. The Digital Agency plans to review relevant laws in parallel and continue inter-ministerial discussions at the AI Digital Reform Promotion Council to be launched later.

Discussions on shifting to onchain systems are not limited to public subsidies. The Ministry of Finance launched an expert study group in October to examine whether government bonds can be adapted for onchain use. The group held its first meeting on Oct. 8.

The Bank of Japan is conducting technical verification to use central bank current account deposits for blockchain-based payments. Board member Kamiyama said it is testing the possibility of linking central bank funds with distributed ledger technology-based payments through a related project, the "DLT-linked sandbox".

The Japanese Bankers Association also launched a review group to discuss a structure that allows more financial institutions to participate and the role of next-generation interbank payment infrastructure. With Japan's government and the financial sector examining disbursements, government bonds and interbank payment systems together, they are effectively reviewing the possibility of shifting the overall financial infrastructure to onchain systems.

International cooperation is also being pursued. Iizuka, a counsellor at the Financial Services Agency, said it intends to hold "Asia Day 2027" in February 2027 to create a framework for policy dialogue involving governments and the private sector in Asia.

The meeting also produced views that onchain finance should not be rushed, but expanded step by step with a focus on real use cases.

Masato Ui (우이 마사토), a former Bank of Japan official at Brunswick Group, pointed to a so-called chicken-and-egg problem in which use cases do not emerge because infrastructure is lacking, and infrastructure development does not advance because use cases are scarce. He said an approach is needed that starts small with individual policies, verifies them and then scales up.

Technology choices and risk management were also cited as tasks. Hideki Kanda (간다 히데키), an emeritus professor at the University of Tokyo, said what the optimal combination of onchain and offchain systems is depends on circumstances and is a "moving target". Nana Otsuki (오쓰키 나나), a professor at Nagoya University of Commerce and Business Graduate School, stressed that while potential risks such as AI malfunctions should be checked through stress tests, an excessive approach that tries to eliminate all risks should be avoided.

Transaction transparency and securing user trust were also key issues. Chikako Suzuki (스즈키 지카코) of PwC Japan said if a system that assigns governance to a program becomes a black box, a "trust gap" could arise. She proposed a system that traces and leaves auditable records for the entire process from transactions and customer identification to settlement.

Securing technological competitiveness within Japan was also raised as a task. Hiroshige Nozaki (노자키 히로시게), a professor at Toyo University, said the more complete existing financial systems are, the harder they are to replace, and assessed that in the long term tokenising Bank of Japan current account deposits could be an effective option.

Naoko Nemoto (네모토 나오코), a professor at Waseda University Graduate School, warned that if Japanese banks fall behind while major overseas operators have already entered the stage of real-world use, payment operations by Japanese and Asian companies could move overseas. Tetsuro Morishita (모리시타 데쓰로), a professor at Josai University, also said it is necessary to examine whether it is appropriate to continue relying on overseas sources for core AI and blockchain technologies.

Financial Services Agency 자료 said outstanding stablecoins globally total about $310 billion, of which dollar-based stablecoins account for 83 percent. About one-third of 90 jurisdictions surveyed by the Bank for International Settlements have commercial banks moving into tokenised deposit businesses, it showed.

The number of cases supported by the Financial Services Agency's payment advancement project has also increased to 4. The agency on Sept. 29 announced as its fourth supported task a case of using stablecoins in trade operations.

Japan's discussion is drawing attention because it is expanding reviews of systems and technology to apply onchain finance not just as a technical experiment but to actual public disbursements and financial market infrastructure. Key tasks going forward are whether it can create practical use cases in public subsidies and how to connect central bank funds with private-sector payment infrastructure.