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June 24, 2016
Bank of Japan
Japan's payment and settlement systems have faced significant changes in recent years in light of globalization in economic activity and further progress in information technology.
On the demand side, commercial transactions have been expanding into different time zones as a result of internationalization in business activity. Lifestyles have diversified and new businesses -- including e-commerce -- have flourished. Against such background, an appetite for a variety of payment and settlement services is increasing. The services include such as those enabling efficient cash management of globally-active firms, ensuring settlement in the middle of the night and on holidays, and realizing cross-border settlement at a modest cost.
On the supply side, in light of further progress in information technology, computers' ability to process information has continued to expand, and internet and mobile devices have been widely used around the world. Against such background, technology to be applied to payment and settlement services has advanced and new devices enabling the public to access those services have continued to grow.
Despite such changes, the safety of Japan's payment and settlement systems is maintained on the whole. In addition, measures contributing to further advances in those services and moreover enhancing their efficiency are now making progress -- both on the wholesale and retail payment fronts -- while they are continuing to incorporate emerging technologies and capturing end-users' needs.
As for the wholesale payment system, the Bank of Japan is responsible for operating the BOJ-NET -- the core payment and settlement system in Japan. The BOJ-NET handles settlements smoothly on a daily basis: to be specific, the settlement via the Bank's current accounts amounts to 136 trillion yen and the face value of the JGB settlements in the book-entry system amounts to 102 trillion yen (daily average in 2015 respectively). In addition, the new BOJ-NET was fully launched in October 2015. It uses the most advanced information technology and has great flexibility in adapting to changes in financial services and various other needs. Furthermore, the BOJ-NET enhances accessibility to cope with changes in the financial environment. In February 2016, it extended its operating hours up to 21:00. In sum, the new BOJ-NET provides powerful underpinnings for private financial institutions which contribute to enhancing the safety and efficiency of the payment and settlement systems in Japan.
On the securities settlement, stakeholders are now making efforts to reduce settlement lags in JGBs, equities and other securities. Those efforts are aimed at reducing risks associated with the settlement lags.
On the retail payment, progress has been made to realize 24/7 services which enable bank transfers from a sender to a receiver over the weekend and in the evening. Moreover, the efforts to facilitate financial electronic data interchange (EDI), which will contribute to enhancing corporate financial activity and raising the efficiency of its back-office operations, are progressing.
More recently, new financial services, dubbed "FinTech," that make the most of information technology are also flourishing. Above all, innovation in payment and settlement services is eminent: for example, payment means that are compatible with e-commerce -- which can be accessed through mobile phones regardless of the day and time -- and services enabling small-lot overseas remittances with low costs are starting to emerge. Such payment services are undertaken by a wide range of service providers including financial institutions and non-banks which excel in information technology. On top of that, a distributed ledger which constitutes a technology underpinning digital currencies receives considerable attention as it could be applicable to a variety of assets in managing ownership changes without relying on a third party.
As a central bank, the Bank is firmly committed to enhancing the safety and efficiency of the payment and settlement systems in Japan. From such a viewpoint, it conducts its oversight activity on financial market infrastructures (FMIs), based on the Principles for Financial Market Infrastructures (PFMIs), released in April 2012. In addition, the FMIs in Japan and other major economies have been comprehensively reviewed from the perspective of international standards. Those activities suggest that the payment and settlement systems in Japan continue to be stable as a whole and are fully FMI compliant.
Considering that the payment and settlement systems are vital to the foundations of economic society, all stakeholders involved with market infrastructure -- including the Bank of Japan -- need to prepare robust business continuity plans (BCPs). The Bank is intensifying its efforts to prepare for a disaster through examining its own BCP strategy and carrying out a variety of training sessions while it takes account of the experiences of the Great East Japan Earthquake and reviews its own resilience to casualties. In addition, it continues its dialogue on BCPs with private financial institutions and FMIs. Against such background, those institutions and FMIs are making their own efforts to strengthen their BCPs. Such efforts on the part of the private sector will contribute to strengthening the resilience of payment and settlement systems in Japan.
The Bank, as a central bank, provides payment and settlement services through the BOJ-NET, the core payment and settlement system among Japan's FMIs. In light of rapid changes in financial conditions, it has established the new BOJ-NET. Furthermore, it contributes to enhancing the safety and efficiency of Japan's payment and settlement systems by engaging in dialogue with relevant stakeholders and conducting oversight. Against a background of innovation in payment and settlement services, a variety of entities now engage in the provision of those services and preparations against a cyber attack have become critical. The Bank is firmly committed to playing a catalytic role in enhancing cooperation and coordination among relevant stakeholders with the aim of further advancing payment and settlement services and ensuring the safety of those systems. In the meantime, the Bank will carefully monitor developments in payment and settlement in light of the introduction of "Quantitative and Qualitative Monetary Easing with a Negative Interest Rate."
Through those measures, the Bank will make its utmost efforts as a central bank to enhance the safety and efficiency of Japan's payment and settlement systems. It will further underpin, from the viewpoint of building market infrastructure, financial market developments and sustainable growth in the economy.
This document is an abridged English translation of the Japanese original published on March 16, 2016.
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