According to a report by Reuters, more than 30 major Japanese companies are spearheading an initiative to investigate digital yen in one of the most cash-loving countries in the world. This initiative reflects Japan’s increasing interest in the digitization of assets, in order to compete in an ever-advancing financial landscape.
Stakeholders involved with this initiative include three of Japan’s biggest banks, along with brokerages, telecommunication firms, utilities, and retailers from various Japanese companies.
An Evolution Towards Digital Payments
Hiromi Yamaoka, a former Bank of Japan executive who chairs the organization, said in an online briefing:
Japan has many digital platforms, none of which are big enough to beat cash payments. We don’t want to create another silo-type platform. What we want to do is to create a framework that can make various platforms mutually compatible
Japan ranks among the world’s biggest cash lovers, with cash-free transfers comprising just 20% of overall settlement – well behind the US’s 45%, and China’s 70%.
Authorities are eager to encourage cashless purchases in order to improve efficiency, but development was partially sluggish due to discomfort with digital payments.
In Japan, various digital channels clash and remain incompatible, as in China, which is dominated by a limited number of big networks.
In terms of how the people pay, Japan as a nation is eager for reform. While technology has advanced, cash reliance has remained high over the years. Some 75% of payment transactions remain in currency, which is more than US$ 70 billion or 7.7 trillion yen a year in the Japanese economy.
A Cash-Focused Society
Generally speaking, the need for digital payments has been low through most of Japan’s modern history until recently. The incidence of robbery is very low in Japan, with just 356.2 incidents per 100,000 population as reported in 2016. In addition, most vending machines in Japan only take cash at the moment.
Within the elderly population and in small and medium-sized enterprises, users are extremely hesitant to participate in digital transactions. About 30% of the Japanese populace considered elderly. They keep more than half of their investments in cash and savings, and others make use of cash instruments.
Several years of ultra-low interest rates along with a national network of ATMs has rendered cash extremely useful to the general Japanese populace.
“Saving money under your mattress” also has a Japanese practice. In 2017, about 43 billion yen (380 billion USD) was reported to be kept in Japanese homes. The population has long considered the best place to store one’s money to be homes even with with poor or negative interest rates and risk prone approaches to investing.
In addition, many SMEs only accept payment in regular cash. Most SMEs are wary of the effects of transaction fees on their bottom line.
According to a survey by a by a central bank-affilated research institute, cash usage is still widely prevalent. For minor transactions, 84% of Japanese people still use bills and coins.
And 48,5% of households say they pay in cash and 3.4% in electronic money for purchases reaching 10,000 yen and up to 50,000 yen, according to the report.