Mitsubishi UFJ Financial Group (MUFG) has launched a proof of concept to bring Japanese government bond (JGB) repo transactions on-chain, as the banking group explores how blockchain could improve efficiency in institutional financial markets.

It will use the Canton Network, a blockchain designed for regulated financial markets, and forms part of Japan's Financial Services Agency Payment Innovation Project.

The proof of concept will examine how JGB repo transactions can be executed on-chain while preserving the legal status of Japanese government bonds as book-entry transfer securities.

The project brings together Mitsubishi UFJ Morgan Stanley Securities, Mitsubishi UFJ Trust and Banking, MUFG Bank, Digital Asset Holdings, Progmat, and Secured Finance.

The first phase of the pilot will focus on enabling on-chain delivery-versus-payment settlement of tokenised JGBs and digital money. The participants are considering the use of tokenised deposits or stablecoins for settlement.

A second phase will explore automating the entire repo transaction lifecycle using blockchain and smart contracts through a lending protocol provided by Secured Finance.

MUFG said the project aims to improve operational efficiency by automating repo processing, while enhancing funding and capital efficiency through real-time intraday transactions and extended settlement windows.

The bank added that Japanese government bonds are widely used as collateral by domestic and international market participants because of their liquidity and credit quality, creating growing demand for on-chain equivalents.

Under the project, Digital Asset will provide the tokenisation framework built on the Canton Network, while Progmat will support the application of blockchain technology to JGB book-entry transfers and repo transactions. Secured Finance will implement the lending protocol used to automate the repo lifecycle.

MUFG said it plans to engage closely with regulators and collaborate with financial institutions in Japan and overseas as the project progresses towards commercial deployment. The group also intends to work alongside Morgan Stanley, its global strategic alliance partner, as it develops the initiative.

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