A major Japanese banking group is collaborating with Digital Asset, the creator of the Canton network, and Progmat on a proof-of-concept. The project also involves Mitsubishi UFJ Morgan Stanley Securities, Mitsubishi UFJ Trust and Banking, and MUFG Bank.
Repo Transactions Underpin Market Dynamics
A repo (short for 'repurchase agreement') is a short-term financing transaction. One party sells securities, such as Japanese Government Bonds, and agrees to buy them back at a later date.
These transactions are a key tool for banks, brokerages, and other large investors. Japanese Government Bonds, known as JGBs, are widely used as collateral due to their high liquidity and the guarantee of the Japanese government.
On traditional markets, finalizing a transaction can take time and requires updating data across several separate systems. As a result, companies may be left with excess cash and collateral awaiting settlement.
MUFG Tests an Alternative Settlement Model
MUFG's pilot project does not involve replacing the legal form of JGBs with tokens issued on a blockchain. Instead, the bonds will remain book-entry securities, transferable under the existing Japanese system.
The blockchain will synchronize changes to the account ledgers maintained by the institutions managing the bonds. Payment and delivery will occur simultaneously—a process known as 'delivery versus payment'—using digital money, such as tokenized bank deposits or stablecoins.
The Canton platform was designed for institutional finance and allows sharing transaction details only with parties who need to see them. Swiss company Secured Finance AG will provide the lending protocol, or an automated system designed to handle the entire repo process via smart contracts.
Faster Trading Could Unlock Capital
For banks and brokerages, faster settlement could enhance financing efficiency and collateral utilization. It could also facilitate intraday repo trades, where positions are opened and closed within a single trading day.
MUFG explained that the pilot aims to automate operational work and extend the settlement time window. A near real-time system could ultimately reduce the amount of capital companies set aside to cover settlement delays.
This initiative is part of the Japan Financial Services Agency's Payment Innovation Project, which selected relevant pilot projects in February 2026. MUFG stated that it plans to collaborate with regulators, as well as domestic and international financial institutions as the project develops.
Japanese Market Continues Advancing Toward On-Chain Technology
This pilot project complements Japan's broader work on digital financial infrastructure. MUFG has previously been involved in projects concerning security tokens, tokenized financial assets, and digital money, including a previous plan with other major banks to conduct stablecoin transactions in fiscal year 2026.
Conducting testing does not guarantee the launch of a commercial service. Whether this approach can move beyond the pilot stage will depend on aligning legal aspects, integrating with existing market systems, and the participation of a wide range of organizations.
Readers should monitor the results of the pilot project, regulatory discussions, and any details on how digital money will be used to settle transactions. These steps will determine whether a significant part of the Japanese bond market can transition to faster, around-the-clock operation.
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