Japan FinTech Observer #30

Welcome to the thirtieth edition of the Japan FinTech Observer. Crypto climbs on expectations of a Bitcoin ETF. Fixed Income market jitters. Continued Yen weakness. And the Bank of Japan's Statement on Monetary Policy coming on October 31. Fasten your seatbelts.

As analysts at Goldman Sachs note, after the TOPIX reached a post-bubble record high on September 19, valuations have now fallen to below their historical average as a result of the recent sharp correction. This is the level as of mid-May when foreign investors just began buying cash equities in earnest.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Tokyo in Pitchbook's Global VC Ecosystem Rankings; MUFG Bank and SDG Impact Japan have entered into a capital and business alliance; Global Brain has invested in PIONIX and Hayden AI; Hyperithm invests in Superlocal and Supra; Nomura has launched a private equity service based on the J-Ships; the?FSA?plans to double the cap on the amount of money retail investors can invest in unlisted startups
• Banking: Mizuho Financial Group has announced its intention to change its structure in the EU, through the creation of a Universal Bank; Mizuho also published their latest progress report on addressing the 2021/2022 system failures; Fujitsu announced the digitalization for all of 77 Bank’s branches in Japan through tablet devices; Persefoni appointed a former Vice Minister at the Japanese Ministry of the Environment to its advisory board; a RENOSY survey found that, about 80% of young people feel insecure about financial plans for the future
• Insurance: Tenity hosts Dai-ichi Life Co-innovation Challenge; Finatext Holdings published a comprehensive company profile
• Payments: Nium expands its B2B travel payment solutions in Asia Pacific, including Japan; Sumitomo Mitsui Card Company has launched a 24-hour, instant credit card issuing service
• Capital Markets & Asset Management: Japan Exchange Group ranked as the fifth largest exchange worldwide
• Digital Assets: The Japan Cryptoasset Business Association (JCBA) requests a loosening of margin trading rules for cryptoassets; Komainu partners with Copper and Gate.io
• The Last Word: Inflation and the BOJ

Venture Capital & Private Markets

• In Pitchbook's Global VC Ecosystem Rankings, published in October, Tokyo comes in 11th on the "Development Score", making it an "Established" market, however, is ranked outside of the Top 20 when it comes to growth
• MUFG Bank and SDG Impact Japan have entered into a capital and business alliance ; this strategic partnership is dedicated to fostering a wide range of sustainability-related business collaborations, including the creation and utilization of high-quality carbon credits, with the aim of achieving carbon neutrality in Japan and around the world
• Global Brain has invested in PIONIX , the leading pioneer in open source software for EV charging, through its Flagship Funds; the investment will accelerate PIONIX’s global growth strategy, particularly for the Asian market
• Global Brain also takes three bites out of Hayden AI's Series B , a leader in artificial intelligence and geospatial analytics, participating with its own GB8 fund, as well as the KDDI Corporation Open Innovation Fund, and the Mitsubishi Electric CVC Fund
• Hyperithm invests in Superlocal , a subscription app that automatically records your life using your location, and Supra, a low-latency interoperability infrastructure to provide capabilities that traditional blockchain designs lack
• Nomura has launched a private equity service based on the J-Ships system , which allows specified investors access to stocks of unlisted companies, investment trusts, etc. through securities companies
• The?Financial Services Agency?plans to double the cap on the amount of money retail investors can invest in unlisted startups ; the agency plans to strengthen the funding pool for emerging growth sectors; at present, through crowdfunding, retail investors have a limitation of investing a maximum of 500,000 yen annually in individual unlisted startups; however, based on annual income, the proposed change is set to change this cap to one million yen or potentially higher; this adjustment is expected to come into effect by 2024

Banking

• Mizuho Financial Group has announced its intention to change its structure in the EU, through the creation of a Universal Bank , bringing together its Banking and Securities business in the region; Mizuho Bank Europe in Amsterdam will transition to a key hub for the new Universal Bank — with Frankfurt, Madrid and Paris becoming branches of MBE
• Mizuho has been under FSA Administrative Action issued on November 26, 2021, in response to a series of system failures , and had to submit its initial Business Improvement Plan by January 17, 2022; their latest progress report sees some light at the end of the tunnel
• Fujitsu announced the development of a system that allows customers to easily complete transactions in a concise manner at all branches of 77 Bank using an “in-store tablet” that utilizes Fujitsu’s Customer Engagement Solution CHORDSHIP, a cloud-based service; its introduction was completed in September 2023 for all of 77 Bank’s branches in Japan
• Persefoni, a leading?Climate Management & Accounting Platform (CMAP)?for enterprises and financial institutions, has announced the appointment of Tokutaro Nakai to its?Sustainability Advisory Board (SAB) ; Nakai previously served as Vice Minister at the Japanese Ministry of the Environment (MoE)
• RENOSY, a Japanese real estate investing service operated by GA Technologies, carried out an online survey among 1,037 employee candidates who are going to join the GA group in 2024, about their opinions about financial management plan, and formal education on the topic; overall, about 80% of the young people who participated in the survey this time answered that they feel insecure about financial plans for the future

Insurance

• Tenity hosts Dai-ichi Life Co-innovation Challenge ; through this hackathon, participating startups will get direct access to meet the Business Units behind the challenges statements; the winning teams will also get a cash prize and have the opportunity to be considered for a POC project with Dai-Ichi Life
• We have published a blog post summary of our recent eXponential Finance Podcast with Zurich Insurance, discussing Zurich Edge, their embedded insurance platform
• Finatext Holdings, listed on the Tokyo Stock Exchange with a market capitalization of around USD 200m, has provided an English translation of an investor relations document that comprehensively describes the company history, product offering and market positioning ; Finatext provides data analytics, securities business and insurance business services

Payments

• Nium expands B2B travel payment solutions in Asia Pacific; as part of its expansion strategy, Nium is introducing a combination of domestic issuing and funding capabilities in key APAC markets, such as Hong Kong, Singapore, Australia, and #Japan
• Sumitomo Mitsui Card Company has launched a 24-hour, instant credit card issuing service that it claims is the first in the industry; up to now, the 10-second issuance of card number, expiry data and security code was available during the day time only (9am to 7:30pm); adjusting to changing shopping habits, and internet peak usage after dinner to bedtime, with a peak between 9pm and 10pm, this service has now extended to 24 hours; after issuance, identity verification occurs via phone, so for those applying during night time, a one-time payment limitation of JPY 50,000 applies until the process has been completed the next day

Capital Markets & Asset Management

• Japan Exchange Group ranked as the fifth largest exchange worldwide, with a market capitalization of approximately USD 5.9trn

Digital Assets

• The Japan Cryptoasset Business Association (JCBA) has filed a request with the Japan Virtual and Crypto assets Exchange Association (JVCEA), the self-regulatory body, to loosen the margin trading rules for cryptoassets; comparing the asset class to the booming retail FX industry in Japan as well as institutional margin trading, the JCBA believes a volatility-based ceiling would be appropriate; under current market conditions, this would allow a leverage ratio of between 4 and 9
• Komainu, a regulated digital asset custody service provider, and Copper.co, a pioneer in institutional digital asset solutions, announced their partnership to offer Komainu’s institutional clients the ability to trade via Copper’s ClearLoop , creating a market-first partnership and new era for off-exchange settlements
• Also, Gate.io, a leading digital asset exchange, has joined Komainu Connect , the collateral management platform offered by Komainu; launched in April, Komainu Connect reduces client counterparty risk by removing the need to store collateral with trading counterparties, and offering the ability to keep assets in safe custody instead

Other Media

• Bank of Japan, "Financial System Report for October 2023 "
• Bank of Japan, Institute for Monetary & Economic Studies, "The Forward Guidance Trap "
• The University of Tokyo & Tokyo Institute of Technology, "Reducing Latency of DAG-based Consensus "

The Last Word - Inflation and the BOJ

The Bank of Japan is due to release its latest Monetary Policy Statement on October 31. Given the continued weakness of the Japanese Yen, driven by "higher for longer" US rates, and 10-year JGB rates just below 0.85% at the end of the week, its highest since July 2013, some analysts, including CLSA's Nicholas Smith, suspect that the BOJ could adjust its monetary policy as soon as this meeting. "Direct FX interventions don’t work; only rate hikes work" to stem the Yen's weakness, Smith wrote.

While Japan's core inflation has slowed to a 13-month low, this obviously is backward-looking.

Smith instead points to a survey of corporate inflation expectations in the Tankan, which came in above the BOJ's 2% target even over three and five years, at the very least providing the BOJ with a data point to tighten monetary conditions.

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 .

We have also created two LinkedIn groups, the "Japan Startup Observer " if your interest in Japan goes beyond FinTech, and the "FinTechs of India " to capture the developments on the subcontinent. We invite you to join both these groups.

Have an awesome week ahead.