A group of Japanese banks led by Mizuho Financial Group has come out with a plan to introduce a Japanese pegged digital currency by 2020. J-Coin will be ready in time for the 2020 Tokyo Olympics according to the Financial Times (paywalled). The Yen backed digital currency, championed by Mizuho and Japan Post Bank is aimed at weaning the Japanese economy off its dependence on cash. Users will be able to spend J-coin to purchase goods and transfer money using smartphone apps.

Ongoing discussion by top Japanese banks could see the J-Coin initiative merged with another blockchain powered digital currency by Mitsubishi UFJ Financial Group. MUFG coin has been tested internally amongst 1600 senior employees. Like many banks across the world, MUFG felt the need to respond to the new wave of cryptocurrencies.

At a FinSumm conference in Tokyo, MUFG's, chief information officer Hironori Kamezawa admitted the threat of digital disruption to Japan's Banks was real.

He said to the Financial Times

"We have a strong sense of urgency and a sense of crisis in the banks of the situation facing us."

One concern for Japanese banks is the overwhelming dependency on cash which makes up 70% of transaction value. It is an abnormally high value for a developed country compared to the 30% benchmark of its peers. But the banks are also out to make an impression in the upcoming Olympics.

Recently, a consortium of local banks lobbied the Japanese government on the threat of China's Alibaba's payment system Alipay. Banks fear the service, now available in Japan's cities, denies them access to consumer spending data. With thousands of tourists expected to flood the Olympics event in Japan, banks see it as an opportunity to collaborate in showcasing their fintech capabilities.

A spokesperson from Mizuho bank told CNBC

"The project is in the early stages, and we have just held study meetings with other institutions." 

Cryptocurrencies and blockchain technology have put banks in a tight spot, as the technology threatens their core business. Majority Central Banks are working on adopting blockchain technology in the future, while others are plotting their national digital currencies. For example, earlier this month the Bank of England's Chief economist talked up a national digital currency to alleviate monetary policy problems. Last month, Estonia's Director of the country's e-Residency program proposed "estcoin," a state-backed cryptocurrency.

Unlike most countries, however, Japan has been a forerunner in regulating cryptocurrencies. The Japanese Financial Services Authority regulates blockchain digital currencies under the Virtual Currency Payment Service Act passed in April this year.