Japan is moving closer to building a future-proof digital currency infrastructure. Following two years of proof-of-concept trials, the Bank of Japan (BoJ) launched a full-scale pilot program for a central bank digital currency (CBDC) in April 2023. Its latest progress report, published in May 2025, sheds light on key technical experiments, privacy-driven architecture, and the collaborative industry forum driving Japan’s CBDC design.

1. Dual Framework: Technical Verification Meets Industry Co-Design

The pilot revolves around two core pillars: system development and experimentation, and the CBDC Forum. These efforts are tightly integrated—technical findings feed into industry dialogue, while business insights shape technical testing priorities.

BoJ has built a comprehensive prototype encompassing central infrastructure and endpoint devices (e.g., mobile apps), implementing account-based ledgers with features like scheduled and debit transfers. Emphasis is placed on performance (via parallel processing) and modularity for future scalability.

2. Privacy-Centric Intermediary Model

A cornerstone of Japan’s CBDC design is user privacy. The pilot separates customer management systems (handling user identity and transaction data) from ledger management systems (handling balance records), ensuring that personal information does not reside in the CBDC ledger.

For instance, when “Taro” sends ¥100 to “Hanako,” the ledger only records a transfer from ID abc123 to xyz456. Actual user-ID mapping is maintained only within the sender and receiver’s respective customer management systems.

3. Robust Transfer Logic and Atomicity

The report details a complex but robust credit transfer workflow, especially for intermediation across different entities. To avoid partial failures (e.g., successful debit but failed credit), the system incorporates reserved balances and token-based authorization to ensure atomicity.

The design also eliminates the need for real-time updates to a central consolidated account, improving processing efficiency. However, end-of-day reconciliation is still supported for oversight.

4. Desktop Testing: From Account Setup to Overlay Services

For features not yet implemented in the pilot system, BoJ conducted desktop simulations of end-to-end CBDC use scenarios:

• Account Opening: Similar to bank account setup, with KYC handled by intermediaries.

• Top-Up & Redemption: Via linkage with bank accounts or cash; stress testing addresses potential load on banking systems.

• Retail & P2P Payments: Using QR codes, cards, or mobile apps; the system supports static/dynamic MPM and CPM payment modes.

• Overlay Services: Public APIs allow for read/write access; a webhook-style event trigger model is under consideration to improve efficiency.

5. CBDC Forum: Building a Multi-Stakeholder Ecosystem

BoJ convened 64 public and private entities—including banks, fintechs, telecoms, and retailers—into a CBDC Forum structured around seven Working Groups:

• WG1: Connection with core banking and payment infrastructure (now complete)

• WG2: Overlay services and ecosystem design; includes an API sandbox

• WG3: KYC, authentication, and fraud detection

• WG4: New technologies (e.g., UTXO models, DLT integration)

• WG5: UI/UX, offline use, and accessibility

• WG6: Horizontal coexistence with private digital money

• WG7: Operational flows including ATM-based cash/CBDC exchange

Notably, the API sandbox initiative under WG2 has explored programmable payment features and CBDC-backed stablecoin services using Hashed TimeLock Contracts (HTLC).

6. Looking Ahead

BoJ emphasizes that no decision has been made on issuing a digital yen. However, the pilot program is laying the technical and institutional groundwork for such a move, should the public and policymakers decide in favor.

With its privacy-forward architecture, scalable design, and industry-aligned development, Japan’s CBDC efforts are emerging as a reference model for advanced economies navigating the transition to digital sovereign money.