The Japanese central bank has said that it will start a pilot programme to test the use of a digital yen.

Confirmed by the Tokyo-based Bank of Japan, the central bank digital currency (CBDC) pilot comes after two years of experiments into whether it should launch a digital version of the yen.

The pilot programme will see the BOJ conduct simulated transactions with private entities in a test environment. This could potentially expand to involve real-world transactions between retailers and consumers.

Speaking at a meeting with private-sector executives, BOJ executive director Shinichi Uchida said: "Our hope is that the pilot programme will lead to improved designs through discussion with private businesses.”

The development of a CBDC will be overseen by Kazushige Kamiyama, director general, payment and settlement systems department. He said that the pilot programme will last for several years, and that the BOJ will remain in discussions with commercial banks along with non-bank settlement firms and carriers.

Japan is one of several countries looking to develop CBDCs in an effort to catch up with China which has led the way in digital currency development. The US Federal Reserve has also been exploring a fully digital dollar dubbed ‘Fedcoin’, but any launch would require the support of elected leaders.

The bank's incoming governor Kazuo Ueda, who was nominated to succeed the incumbent Haruhiko Kuroda earlier this week, plans to shake up the BOJ’s approach to the economy with the markets currently unstable. Ueda, a celebrated academic and economist, inherits what has been described as the “world's toughest central bank job” by Nikkei.

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