Japan FinTech Observer #13

Welcome to the thirteenth edition of the Japan FinTech Observer. The World Economic Forum and IMD gave us their annual rankings this week, for gender parity and competitiveness, respectively, and Japan just keeps sliding. This is in stark contrast to the markets and many an economist's forecast. These rankings naturally take a snapshot of the past, while the market's role is to project forward, although it is hard to see how a low competitiveness today can lead to superior returns in the future. The weak yen appears much more aligned with that assessment than a surging Nikkei.

Here is what we are going to cover:

• Venture Capital & Private Equity: Japan Post Bank to invest JPY 1trn, about a tenth of its current "strategic investments" portfolio, to generate unicorns; Global Brain will manage Fukoku Life's corporate venture capital fund; FLUX raises USD 32m for a no-code AI platform; TDK Ventures will open an office in London, its first in Europe; Eight Roads invites former Coinbase Japan head as Investment Partner
• Banking: SBI Holdings' tender offer for the shares in SBI Shinsei Bank that it does not currently own came up short; MUFG and FinDev Canada launch climate-focused investment platform; SMBC's new Olive product suffers from unintended consequences through its reward system; and PayPay has postponed kicking other companies' credit cards off its mobile payment app
• Capital Markets & Investment Management: the Japan FSA has published an English translation of its progress report on the asset management business in Japan; WeBull Japan has launched domestic stock trading; Phillip Securities Japan will launch a digital twin branch office in the metaverse in July
• Digital Assets: Animoca Brands partners with Mitsui; Oasys blockchain adds an NTT Docomo subsidiary as a validator; Japan's crypto exchanges are pushing for a loosening of margin roles; SBI Alpha Trading, QCP Capital, ClearMarkets and Zodia Custody execute first uncleared cryptocurrency options trade with new risk management solution
• The Last Word: Reading & Watching List

Ranking Japan (I)

• The World Economic Forum 's latest Global Gender Gap Report pegs Japan at 125th place out of 146, down nine spots from the prior year; the report helpfully notes that for East Asia and Pacific as a whole, "progress towards parity has been stagnating for over a decade"
• The "Good" (or at least "Better"): Japan ranks 47th in "Educational Attainment" and 59th in "Health and Survival"
• The "Ugly": Japan ranks 123rd in "Economic Participation and Opportunity" and 138th in "Political Empowerment"
• In other news, on June 19, the Liberal Democratic Party announced a 10-year plan to increase the percentage of female Diet members to 30%

Ranking Japan (II)

• 瑞士洛桑国际管理发展学院 (IMD) - 商学院 's annual World Competitiveness ranking has Japan in 35th place, down one spot from the prior year and its lowest ranking ever; the IMD helpfully provides a filter on countries with more than 20 million inhabitants, here Japan ranks 14th; among countries with a per capita GDP of more than USD 20,000, Japan ranks 31st
• The "Good": Japan ranks 5th in "Employment", 8th in "Scientific Infrastructure" and also 8th in "Health & Environment"
• The "Ugly": Japan ranks 57th in "International Trade" and also in "Prices", and 62nd in both "Public Finance" and "Management Practices"
• There is likely more bad news to come, as the IMD also publishes an annual Digital Competitiveness ranking, as well as a Talent Ranking; all three have been trending downwards for Japan for about five years at least

Venture Capital & Private Equity

• JAPAN POST BANK Co., Ltd. ?plans to invest JPY 1trn (USD 7bn) into?startups across the country, leveraging its nationwide postal network to identify promising businesses; so next time you are raising funds, do not forget to pitch to your local postal worker; we have previously covered Japan Post Bank's JPY 10trn "strategic investments" portfolio
• Global Brain and Fukoku Mutual Life Insurance Company (Fukoku Life) have jointly established “FUKOKU -THE MUTUAL for Next 100 Fund L.P.” (TMN100); the fund size is JPY 5bn (approximately USD 35m) with an expected lifetime of 10 years, and agnostic to industry and funding stage
• 株式会社FLUX , Japan’s leading AI platform developer, announced JPY 4.4bn (approximately USD 32m) in Series B funding led by DNX Ventures - US , and including existing investor Archetype Ventures Inc. and new investors Japan Co-Investment, Aozora Corporate Investments, Salesforce Ventures , Sony Innovation Fund , SMBC Nikko Securities Inc. , and NTT DOCOMO Ventures, Inc. ; the round also included additional debt financing from Resona Bank and Shoko Chukin Bank
• Adding to its previous announcement of a third TDK Ventures fund, named “EX1”, totaling USD 150m in new capital for investments in energy transition, electrification, and decarbonization within the U.S. and Europe, TDK has now confirmed London as the location for its new European office
• Former Coinbase Japan head Nao Kitazawa joins Eight Roads as a Venture Partner
• India's? Lumikai Fund ?launches a USD 50m gaming & interactive media fund with participation from?Japan's? COLOPL Inc.　株式会社コロプラ ?and? 株式会社MIXI , Reuters reported
• Leading international law firm? Herbert Smith Freehills ?has advised Japan's Sumitomo Corporation on a US$36.5 million investment in? M-KOPA 's digital finance platform in sub-Saharan Africa

Banking

• Japanese online financial conglomerate SBI Holdings has raised its stake in SBI Shinsei Bank to 53.74%, an increase of just 3.7 percentage points, through a tender offer as a step toward taking the midsize lender private at JPY 2,800 per share
• MUFG and partners including Canada's development finance body have launched a USD 1.5bn platform to help drive climate-focused investment into developing and emerging countries; alongside FinDev Canada , the platform is backed by various United Nations bodies as well as public, private and philanthropic groups, and hopes to impact nearly 20 million people across 25 countries
• As the Nikkei reported, SMBC, which has onboarded about 500,000 customers to its Olive all-in-one-card since launch, faces unintended consequences of its rewards system; Japan's "poi-katsu" (*very* dedicated point collectors) use the free bank transfer service to remit minimum amounts multiple times per day to collect up to 90 points per month
• PayPay Corporation is backing away from disallowing other companies' credit cards in its leading mobile payments service; originally, only PayPay-branded cards were to be used from August onwards; there will now be a "grace period" until early 2025

Capital Markets & Investment Management

• The? Financial Services Agency, Japan (JFSA, 金融庁) ?published the translated version of the summary of "Progress Report 2023 for Enhancing Asset Management Business in Japan", which was previously published in Japanese on April 21th this year
• After launching its service in Japan at the end of April?with the trading of thousands of U.S. listed stocks and hundreds of ETFs, including many fractional shares, Webull Financial Japan has now begun to offer trading services for domestic stocks on the Tokyo Stock Exchange
• Phillip Securities Japan will open a “Digital Twin Branch Office” in the metaverse in co-operation with DiscoverFeed and Minkabu in July, where it will host investment seminars; they also plan to create Digital Twin Shops, Hotels and Social Spaces in Japan (from Kabuto-Cho to all regions) and establish a virtual economy ecosystem powered by NFT digital membership technology
• Since we have just recently reported on the?TSE’s plans to open a carbon credit market by October 2023, as well as SBI Holdings and startup Asuene partnering to do the same, on approximately the same timeline, the news of such exchange opening in Singapore should be of interest to our readers

Digital Assets

• Polygon Labs and Pacific Meta win the award for the best event during Japan Blockchain Week (so far) - thank you so much for a memorable evening, including the tuna cutting ceremony
• Animoca Brands , the company advancing digital property rights for gaming and the metaverse, has signed a memorandum of understanding for a strategic partnership with? Mitsui & Co., Ltd. ?through a strategic investment; Mitsui and Animoca Brands aim to create new business that contributes to innovation and the uptake of Web3 in the Japan market, by utilizing Mitsui’s extensive assets ranging from industrial businesses to consumer businesses, as well as its extensive partner and customer networks
• From the 索尼 & Astar Foundation Demo Day, we have captured recordings of Sota Watanabe's welcome speech, as well as DeStore's pitch on the Tokyo FinTech Association YouTube channel
• Oasys , a?gaming-optimised?blockchain, announced the integration of Frontier Development Strategy (a subsidiary of? NTT DOCOMO ) as a validator for the Oasys Chain; this strategic collaboration marks a significant milestone in Oasys’ growth and the advancement of its?#Web3?gaming ecosystem
• Japan’s crypto exchanges are pushing for looser margin trading rules (up to ten times leverage from the current 2x) to help the sector grow, according to Bloomberg
• SBI Alpha Trading and QCP , leading counterparties in the institutional crypto market, announced that they have executed the industry’s first uncleared cryptocurrency options trades using a breakthrough risk management method for crypto derivatives

• In the latest episode of our eXponential Finance Podcast, Secured Finance AG Founder & CEO Masa Kikuchi talks about what it takes to built an interbank-grade decentralized finance market (hint: yield curves play an essential role)

The Last Word: Reading & Watching List

Here are a few other research papers and TV appearances that might be of interest to our readers:

• Bank of Japan Working Paper Series - Heterogeneity and Wage Growth of Full-Time Workers in Japan
• Ritsumeikan University - Does FinTech penetration drive financial development?
• Another recently published paper discusses "Financial literacy, behavioral traits, and ePayment adoption and usage in Japan"
• CLSA Japan Strategist Nicholas Smith shared insights into the Japan market and shed light on the BOJ policy, dividends and buybacks, and the recent rally in Japanese stocks on a recent Money Talk Podcast
• James Riney , chief executive officer at? Coral Capital , discusses his views on the surge on investment into?Japan?markets from global investors and what that could mean for?startups?in the country on 彭博资讯
• The World Economic Forum has released its 2023 Technology Pioneers cohort, and Japan is represented with one startup, Infostellar

If you would like to see more of our content, please head over to the?Tokyo FinTech YouTube Channel?or check out the?eXponential Finance Podcast.

Have an awesome week ah