Japan FinTech Observer #101

Welcome to the one hundred first edition of the Japan FinTech Observer, and welcome to Japan Fintech Week 2025 !

The Japanese equity market has been lagging so far this year. Topix and Nikkei were down by around 2% and 3% mid-week, respectively, while the Hang Seng Index led with a 17% gain, followed by the KOSPI (+11%) and Europe's STOXX600 (+9%). That despite a very strong earnings season for the October to December quarter, and a net profit rise of 26% year-on-year. The Japan story remains intact, although the momentum has shifted, and one year after breaching the bubble-era all time high (February 22, 2024), further progress under the TSE reforms is needed. The lowest hanging fruits in terms of capital returns and unwinding of cross-shareholdings have been tackled, and the next stage requires more capital investment to drive efficiency gains.

This week, we offer special coverage of the FSA meetings with industry during January 2025, a proposal for stricter identity verification starting in 2027, and Japan's lighter touch on AI regulation; in addition, here is what we are going to cover:

• Venture Capital & Private Markets: Nomura participates in Plasma's Seed & Series A; Gojo makes second investment in Tajikistan; Fracton Ventures completed its third incubation cohort
• Insurance: Tokio Marine & Nichido Risk Consulting (TdR) and Private AI are initiating a strategic business partnership for AI utilization
• Banking: Japan Post Holdings to cut stake in Japan Post Bank; 01Bank granted banking license; MUFG Bank has completed its first fully-digitalised trade finance transaction from its GIFT City Branch
• Capital Markets: AlpacaTech has begun providing Japanese and US stock news data owned by Minkabu The Infonoid on the Snowflake Marketplace; Nomura partners to drive decarbonization and enhance agriculture using Biochar; generating carbon credits
• Asset Management: State Street to acquire Mizuho’s Global Custody Business; Fivestar Asset Management launches "TOB Hunter" fund; Japanese Hedge Funds 2024 Review and 2025 Outlook
• Digital Assets: staking/restaking under Japanese law; Web3 Investing hosted SBI Digital Markets Chief Operating Officer CK Ong; STEPN and KDDI's INFOBAR collaborate on NFT sneaker project
• The Last Word: Japanese domestic migration trends

FSA meetings with industry during January 2025

During January 2025, the Financial Services Agency (FSA) met with the industry associations for major banks, regional banks, shinkin banks, trust banks, securities dealers, and investment trusts. Common themes across the meetings emerged:

• The FSA emphasized the importance of fostering a shift "from savings to investment" to support economic growth
• The FSA emphasized the need for financial institutions to maintain financial soundness, manage risks effectively, and adapt to changing economic and market conditions
• The FSA emphasized that financial institutions must prioritize customer interests; they also noted that it should extend to the product creation and sales levels, including the management of these items
• The FSA stressed the need for vigilance against illicit activities; they also noted that there should be a follow up performed to help ensure laws are being kept
• Cybersecurity remains a critical concern
• The FSA emphasized the role of financial institutions in supporting local businesses, facilitating regional economic development, and addressing demographic challenges
• The FSA promoted innovation and development of new technologies; they noted that they were prepared to accept risks to help foster innovation
• Natural disasters are part of life in Japan, and firms are expected to give flexibility to customers

Venture Capital & Private Markets

• Nomura participates in Plasma's Seed & Series A: Plasma has?raised $24M across their Seed and Series A, led by Framework and Bitfinex/USD?0; Plasma is the purpose-built blockchain that aims to drive global stablecoin adoption; as a Bitcoin sidechain, Plasma features a trust-minimized BTC bridge and anchors state roots to Bitcoin; by combining Plasma's own consensus mechanism with a fully EVM-compatible execution layer, Plasma delivers the speed, scalability, and specialized features that stablecoins demand — all built on a robust and secure foundation
• Gojo makes second investment in Tajikistan: announced this week, Gojo & Company has acquired a 9.0% stake in CJSC Bank Arvand, a commercial bank in Tajikistan, in November 2024; this is Gojo's second investment in the country following the investment in CJSC MDO “HUMO” in 2021; Arvand is the fourth largest financial institution, including banks and micro credit deposit organizations, in Tajikistan, having obtained its banking license in 2019; Arvand offers unsecured loans which enable low-income households and micro-entrepreneurs to increase their income and improve their living standards, achieving a Gross Loan Portfolio of USD 115 million as of December 2024
• Fracton Ventures is Japan's first Cryoto-specialized incubator, proclaiming itself to be a "Protocol Studio for Ethereum"; in 2021, the year of its founding, and the following year in 2022, "Fracton Incubation 2021/2022 Powered by bitbank" was held, and a total of 18 Cryoto protocols/projects were nurtured and launched globally; from December 3, 2024, to February 14, 2025, the acceleration program "Fracton Incubation Cohort 3" was conducted, focused on decentralization, a core value of the Ethereum ecosystem, and aimed to support the development of protocols that are aligned with the priorities of the "Ethereum Alignment"

Insurance

• Tokio Marine & Nichido Risk Consulting (TdR) and Private AI are initiating a strategic business partnership to support Japanese companies in promoting AI utilization; Private AI achieves high-precision automatic identification and masking of personal and confidential information in data using proprietary machine learning technology leveraging transformer models; this partnership aims to overcome challenges related to unstructured data faced by companies and realize safe and efficient AI utilization by combining Private AI's cutting-edge technology with TdR's AI governance and AI risk consulting capabilities

Proposal for stricter identity verification starting in 2027

The National Police Agency has published a "Draft Order Partially Amending the Enforcement Regulations of the Act on Prevention of Transfer of Criminal Proceeds".

This amendment aims to abolish methods of remote identity verification that carry a high risk of spoofing or impersonation through the forgery of identification documents, among other measures.

For individuals, the methods of receiving image data of identification documents and receiving copies of identification documents will be abolished, and the system will be unified to use the public personal authentication function of My Number Cards.

For corporations, for the method of receiving originals or copies of identification documents, the use of copies will be abolished, and only originals will be accepted.

Banking

• Central bank liquidity facilities around the world: A core task of central banks is to provide liquidity to banks, with the goal of facilitating monetary policy implementation, ensuring the smooth functioning of the payment system, and promoting financial stability; while central banks around the world pursue these goals, the design of liquidity facilities differs across countries; a new FEDS Note provides an overview of liquidity facilities around the world that resemble the Federal Reserve's discount window as well as intraday credit, comparing and contrasting setups in different countries
• Japan Post Holdings to cut stake in Japan Post Bank: Japan Post Holdings announced in Japan Post Group’s medium-term management plan entitled “JP Vision 2025+” in May 2024 that it aims to lower the holding ratio of its equity interest in each of the two financial companies to 50% or less by the fiscal year ending March 31, 2026; it is expected that the percentage of voting rights in Japan Post Bank held by Japan Post Holdings will decrease to about 49.90% (before the offering: 61.5%); Japan Post Holdings will, with its ratio of voting rights in Japan Post Bank having fallen below 50%, no longer be a holding company whose subsidiary companies include a bank (bank holding company) as provided in the Banking Act
• 01Bank granted banking license: Osaka-based Senshu Ikeda Holdings, a financial services group that offers banking, securities, leasing, and other services, has been granted a banking license for its digital "01Bank"; Senshu Ikeda disclosed its intention to launch a digital bank business in September 2023, and established a preparatory entity in February 2024; the target customer base for the new digital bank will initially be small and medium-sized businesses that are actively using cloud services provided by platformers for the purpose of improving business operations
• MUFG Bank has completed its first fully-digitalised trade finance transaction from its GIFT City Branch for a subsidiary of Tata International, the global trading arm of the Tata Group; utilising the Contour Network Hub from Xalts, MUFG and Tata International's Singapore treasury centre digitally negotiated, prepared, applied, and accepted a $15-million Letter of Credit within three hours, compared to a document-based transaction which would usually take up to two days; this breakthrough significantly enhances international trade efficiency and underlines MUFG's dedication to leveraging technology in support of trade digitalisation, while enhancing its suite of transaction banking solutions for its clients

Capital Markets

• AlpacaTech, a subsidiary of FOLIO Holdings that provides innovative financial solutions as part of the SBI Group, has begun providing Japanese and US stock news data owned by Minkabu The Infonoid and its subsidiary Minkabu Solution Services on the Snowflake Marketplace; Snowflake is currently accelerating its adoption as a data warehouse for various businesses including financial institutions, research organizations, and consultants, making it possible to easily evaluate sample news data available on the Snowflake Marketplace; through this initiative, companies and institutional investors can access reliable and timely stock market information to strengthen data-driven decision making
• Nomura partners to drive decarbonization and enhance agriculture using Biochar: Nomura Securities has signed a memorandum of understanding (MOU) with Shonaikomekobo Corporation for a business collaboration aimed at promoting decarbonization and enhancing agriculture using biochar; Nomura will help expand the production and use of biochar throughout Japan in this model project by partnering with companies and agricultural corporations, promoting the use of biochar in other industries, and contributing to the creation and sale of J-Credits, a type of carbon credit
• Japan Exchange Group has published an excellent overview of the Tokyo Commodity Exchange achievements in the past year, and the plans for this year; JPX acquired TOCOM in 2019, and there has been a push to make it much more suited to institutional trading

Japan Favors a Light Touch for AI Regulation

In a new Center for Strategic & International Studies (CSIS) research note, Hiroki Habuku argues that the new government policy (passed in the Diet on February 28) shows that Japan favors a light touch for AI regulation.

Initially, two key publications from the first half of 2024 strongly signaled that Japan was heading toward new legislation aimed to more comprehensively regulate AI technology: in February, a concept paper from the ruling Liberal Democratic Party, and in May, a white paper by the Japanese Cabinet Office’s AI Strategy team. Both documents recommended the introduction of new regulations for large-scale foundational models. All signs suggested that Japan was moving in parallel with its allies toward establishing a strengthened regulatory structure for AI.

Now, Japan is hitting the brakes on the race to regulate AI. On February 4, 2025, the Japanese government’s Cabinet Office released the interim report of its AI Policy Study Group, which outlined a very different vision for AI regulation than the country’s two reports from the first half of the previous year. This CSIS white paper outlines the direction of Japan’s AI regulatory approach in 2025, based on the contents of the Interim Report, while also incorporating Japan’s response to the so-called DeepSeek Shock.

In a related note, the Korea Communications Commission released the "Guidelines for User Protection of Generative AI Services," which contain practical measures that operators can refer to in order to prevent damage in the process of using generative AI services such as text, audio, and images.

Asset Management

• State Street to acquire Mizuho’s Global Custody Business: State Street and Mizuho Financial Group have entered into an agreement for State Street to acquire Mizuho’s global custody and related businesses outside of Japan; these businesses support the overseas investments of Mizuho’s Japanese clients; Mizuho currently operates its global custody and related business outside of Japan through its local subsidiaries Mizuho Trust & Banking (Luxembourg), owned by Mizuho Trust & Banking, and Mizuho Bank (USA), a wholly-owned subsidiary of Mizuho Bank both of these entities represent combined assets under custody of approximately US$580 billion and US$24 billion in assets under administration
• Fivestar Asset Management launches "TOB Hunter" fund: Taking advantage of the Tokyo Stock Exchange's “Action to Implement Management that is Conscious of Cost of Capital and Stock Price”, Fivestar Asset Management today launches the Capital Efficiency Improvement Fund (Nickname: "TOB Hunter"), an?open-ended, additional type fund investing in domestic (Japanese) equities; the fund primarily targets Japanese companies that are likely candidates for Takeover Bids (TOBs), particularly those involved in parent-subsidiary restructurings or subject to the shareholding ratio
• Japanese Hedge Funds 2024 Review and 2025 Outlook: performance in the Japanese hedge fund industry in 2024 was driven by a combination of macro factors, ongoing excitement about Japanese corporate governance improvements and a resurgence of fundamentals; though, on the face of it, Japanese hedge funds (measured by the returns of the Eurekahedge Japan Long Short Index) did not manage to keep up with long only returns, delivering 10% versus 17.7% for the TOPIX index, Japanese hedge funds did once again show their resilience

Digital Assets

• Web3 Investing hosted SBI Digital Markets Chief Operating Officer CK Ong to discuss the potential for 2025 to be a pivotal year for the cryptocurrency and tokenization space; CK provides insights based on his extensive experience in both traditional finance and the digital asset realm, focusing on the evolution of technology in finance, the challenges and opportunities in tokenization, and the collaborative efforts underway to drive adoption and interoperability in the digital asset ecosystem; he emphasizes the importance of business adoption, regulatory clarity, and collaboration to push the boundaries of what's possible in this rapidly evolving landscape
• The So & Sato Law Office has published a primer on staking/restaking under Japanese law, published in volume 11 of the International Journal of Blockchain Law
• STEPN and INFOBAR collaborate on NFT sneaker project: KDDI will sell NFT sneakers that "fuse" the "STEPN" Web3 lifestyle app, which promotes "movement," and the "INFOBAR" mobile phone in the NFT marketplace "αU market" from Wednesday, March 12, 2025, in a limited edition of 200 pairs; "STEPN" is a lifestyle app that promotes physical activity, allowing users to acquire NFT sneakers and earn cryptocurrency while enjoying walking and jogging

The Last Word: Japanese domestic migration trends

In a research note, NLI Research analyzed the 2024 domestic migration trends, when 40 out of 47 prefectures in Japan experienced a?"social decrease," meaning a net loss of population due to domestic migration (people moving out exceeding people moving in). Only 7 prefectures had a social increase.

This distribution is similar to 2023. However, one change is that Shiga Prefecture moved from a social increase to a social decrease, and Yamanashi Prefecture barely managed to remain in the social increase category (an increase of only 82 people).

Overall, a net 156,933 people moved from the 40 "social decrease" prefectures to the 7 "social increase" prefectures. This is an increase of about 11% compared to the net migration loss in 2023 (141,706 people), showing an acceleration of people moving from areas with population decline to areas with growth despite any "regional revitalization" measures by the former, supported by the national government.

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