Research and Studies

Home > Research and Studies > BOJ Reports & Research Papers > Payment and Settlement Systems Report > Payment and Settlement Systems Report (Mar. 2019)

Payment and Settlement Systems Report (March 2019)

April 26, 2019
Bank of Japan

Executive Summary

In Japan, a huge value of transactions is settled every day via financial market infrastructures (FMIs). In the Bank of Japan Financial Network System (BOJ-NET), which is operated by the Bank of Japan, about 150 trillion yen worth of funds and about 80 trillion yen worth of Japanese government bonds (JGBs) on average are smoothly settled every business day. In the private-sector FMIs, the value of transactions handled by the Zengin Data Telecommunication System (Zengin System) and the Foreign Exchange Yen Clearing System is gradually increasing, and the use of central counterparties (CCPs) is expanding for securities and over-the-counter (OTC) derivatives transactions. Looking at netting efficiency, the settlement value of JGB OTC transactions is compressed to the range of 20-25 percent, attesting sufficiently high netting efficiency.

Improving the Safety and Efficiency of Payment and Settlement Systems

FMIs have been making various efforts to improve payment and settlement, in terms of safety, efficiency, and user convenience.

For payments, the Japanese Banks' Payment Clearing Network (Zengin-Net) has initiated the 24 hours a day and 365 days a year operation of the Zengin system (Zengin More Time System) since October 2018. In December 2018, the Zengin EDI System started its operation, enabling firms to attach commercial information such as transaction details to inter-firm remittance messages. These new efforts were made against the backdrop of changing consumer and corporate needs -- that is, the need to transfer funds during the nighttime or on holidays, as e-commerce services spread, and the need to raise efficiency of business-to-business administrations.

For securities settlements, the JGB settlement cycle was further shortened (from T+2 to T+1) in May 2018, resulting in mitigation of settlement risks of the JGB. In April 2018, the Bank, in cooperation with the Hong Kong Monetary Authority, started the development of a cross-border delivery-versus-payment (DVP) link, which links the BOJ-NET JGB Services with the Hong Kong Dollar Real-Time Gross Settlement, with the aim to support stable foreign currency funding by Japanese financial institutions against JGB collateral. These efforts were initiated in response to the following changes in economic environment: (1) the global financial crisis in 2008 reinforced the importance of mitigating settlement risk, and (2) the globalization of financial and economic activities increased the need for an infrastructure that supports safe and efficient cross-border transactions among financial institutions.

Oversight of FMIs by the Bank

As a central bank, the Bank is strongly committed to improving the safety and efficiency of Japan's payment and settlement systems. From this viewpoint, it conducts oversight of main FMIs based on the Principles for Financial Market Infrastructures (PFMIs) -- the international standard formulated by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) that FMIs are required to meet. In addition, given the rising international attention in the importance of CCPs and cyber security, CPMI and IOSCO developed guidance that provides more clarity and granularity to PFMIs.

The main FMIs in Japan are proactively engaging in efforts to enhance risk management and improve safety and reliability of their operations. The Bank considers that overall, the main FMIs are in conformity with the PFMIs and that safety and efficiency are ensured. FMIs are expected to continue efforts to improve the risk management framework, business continuity arrangements, and recovery planning to prepare for an extreme shock.

New Development of FinTech and Payment

The retail payment market is experiencing change in its structure in recent years, as the number of new FinTech firms entering the market increases with the rapid progress of information technologies. Coupled with both collaborative and competitive aspects, the relationships between financial institutions offering traditional settlement services via bank accounts and FinTech firms providing new settlement services are becoming more diversified and complicated. Under the new market structure, it largely depends on the profitability of financial institutions and FinTech firms respectively whether efficient and convenient payment services are sustainably provided in the long term. The Bank will take these points into consideration and pay close attention to implications that changes in the retail payment market would have on the financial and payment and settlement systems as a whole.

Future Issues of the Payment and Settlement Systems

To maintain safety of payment and settlement systems and further improve their efficiency, it is important to address the following issues. The first challenge is to make the best use of recently introduced functions and services of payment and settlement infrastructures, and fully realize their benefits, such as further sophistication of financial and settlement services, reduction of transaction costs of various economic activities, and utilization of data. The second is to pave the way to a retail payment market in which consumers and retailers can fully benefit from the convenience and efficiency of cashless payment methods when the market is crowded with a number of those services. The third is to secure safety of payment and settlement as a precondition for promoting further improvement in convenience and efficiency, by ensuring resiliency against cyber attacks and improving business continuity arrangements.

The Bank will, through its oversight activities, encourage stakeholders to take actions to address these issues. At the same time, it will also play a role as a catalyst and promote cooperation and collaboration among stakeholders, with a view to enhancing the safety and efficiency of payment and settlement systems as a whole.


This document is an English translation of the Japanese original published on March 27, 2019. Please contact the Payment and Settlement Systems Department in advance to request permission, when reproducing or copying the content of this report for commercial purposes. Please credit the source when reproducing or copying the content of this report.


Payment and Settlement Systems Department

E-mail :