The Bank of Japan has announced that it will start a multi-year pilot program in April to test the use of a digital yen.

The BOJ has been studying the technical feasibility of the so-called Central Bank Digital Currency since 2021.

The central bank will invite private financial institutions and settlement service providers to take part in testing an experimental system. Simulated transactions will be performed to check the potential challenges in connecting the system with external networks.

A consultative forum will also be launched to discuss the challenges with businesses. But the pilot will not involve actual transactions between retailers and consumers.

The BOJ has no plans to issue a digital yen for now. But it says it is making preparations to respond to possible changes in circumstances.

Other central banks are undertaking similar studies of virtual currency. China is one step ahead. It has already tested the use of a digital yuan by its citizens. The European Central Bank is expected to decide this year whether to introduce its own digital currency.