The Japanese government plans to introduce a bill to issue local government bonds as security tokens at the 2026 parliamentary session, aiming to modernize the public debt system.
Japan is preparing for a significant shift in how local governments raise Capital . According to a report from Nikkei , the Japanese government is pushing ahead with plans to issue local government bonds in the form of digital securities, also known as security tokens.
The related bill is expected to be presented at the regular session of Parliament in 2026, after policy measures are finalized later this month. This initiative is built on feedback and real-world needs from local governments as they face declining populations and increasing financial pressures.
The legal framework is established on an existing foundation.
The bond digitalization initiative aims to comprehensively modernize the public debt system. Through the application of digital securities, the government hopes to diversify Capital raising methods while simplifying the issuance and management process of bonds. Officials are currently reviewing existing legal regulations to ensure that digital bonds can be issued, traded, and managed within a transparent legal framework.
Japan already has a legal framework for security tokens. Amendments to the Financial Instruments and Transactions Act of 2020 introduced the concept of “electronicly recorded transfer rights,” allowing securities to be issued and managed digitally under strict supervisory regulations. Detailed policy directions will be established in the coming weeks before drafting the formal legislation.
Digital local government bonds will operate on a chain technology platform, where transactions are recorded in linked data blocks using cryptographic techniques. This structure enhances data integrity and minimizes reliance on manual processes.
In recent years, major financial institutions and exchanges have launched chain -based bond issuance pilot programs, focusing on improving settlement speed, increasing transparency, and enhancing investor traceability. Expanding this model to local government bonds aims to reduce administrative costs and improve operational efficiency, while also supporting more effective ownership tracking and interest payment management.
Issuing bonds in digital form also aims to expand investor participation. Digital platforms can lower barriers to entry, making it easier for individual investors to access bonds, especially younger investors familiar with online financial tools.
For local governments facing demographic and financial challenges, easier access to Capital markets can ensure a stable Capital source. Digital issuance also shortens payment cycles and improves data collection, allowing the government to more effectively monitor how institutions raise and allocate Capital.
This move is part of Japan's broader digital finance strategy, aligning with the global trend toward tokenizing assets. Regulators have supported trials of digital bonds, including green bonds and tokenized assets, over the past few years. If the bill is passed in 2026, local governments could gradually adopt digital securities as a standard Capital option.
