The J-Coin will be pegged to the yen and users will be able to spend it through a mobile app.
Japanese banks are looking to launch their own digital currency called the J-Coin to wean consumers off cash.
Mizuho Financial Group is one of the institutions spearheading the move.
"The project is in the early stages, and we have just held study meetings with other institutions," a spokesperson for the bank told CNBC via email Wednesday.
The Financial Times reported Tuesday that a consortium of banks including Japan Post Bank was involved and that the J-Coin would launch in time for the Tokyo Olympics in 2020. The Mizuho spokesperson declined to comment on the involvement of other banks or the timeline.
However, the spokesperson told CNBC that there hasn't been any approval from regulators yet and provided more details on the plans for the digital currency.
"This will be pegged with Japanese Yen, and hopefully used to make payments and transfers through a mobile phone app," the bank said.
Mizuho has been exploring the digital currency space for the past few months. It has had a particular interest in blockchain technology that underpins the cryptocurrencies currently on the market. Blockchain is a distributed ledger system that promises to revolutionize many processes at large financial institutions, such as money transfers and trade finance, for example.
Earlier this year, Mizuho completed a trade finance transaction via a blockchain. This involved sending information from Japan to Australia with key documents such as the letter of credit, all being completed on a digital platform backed by blockchain technology.
Japan's government has also been open to the idea of digital currencies. Earlier this year, bitcoin was legalized as a legal payment method in Japan and large retailers began accepting the cryptocurrency. But cash is still heavily used in Japan. The J-Coin could be a way to wean Japanese society off of cash.