Japan FinTech Observer #32

Welcome to the thirty-second edition of the Japan FinTech Observer. Some brief observations from Hong Kong FinTech Week, before the conference caravan moves on to Singapore next week.

First, Hong Kong will push anything that the US cannot or is unwilling to do, or that gets mired in "regulatory competition" among the various agencies: cryptocurrency exchanges, tokenization, e-HKD, stablecoins, and even a Bitcoin ETF are all part of the conversation. Competition is good, and in addition to providing optionality in the geo-political chess game, will lift the tide for all players in Asia. We welcome that.

Second, the programs offered by the Hong Kong Science & Technology Park (HKSTP) to attract startups and scaleups are first class. They are not only backed by strong funding options, but also by a highly skilled, well-connected, and incentivized team of business developers, account managers, etc. This is unlike many of the Japanese programs, where you get a Big Four consultant two years out of college to talk to when applying for a Tokyo Metropolitan Government grant.

Third, at the very least in the family office space, Saudi Arabia has taken quite a bit of mind share as the next big opportunity. The conversation has certainly started to move on from "Hong Kong, Singapore or the UAE". I was expecting this still to be quite low key, but the cat seems to be out of the bag.

Now let us get back to what we are going to cover this week:

• Venture Capital & Private Markets: the Osaka Digital Exchange (ODX) has accepted equity participations; Mizuho Capital and Mizuho Bank have established a JPY 15bn venture capital fund; Mizuho Capital has made its first investment through the “Mizuho Venture Debt Fund”; MUFJ and Mizuho invest in Sensyn Robotics' JPY 2.25bn (USD 15m) equity round; Digital Garage is investing in Komainu; alternative investment platform LUCA Japan closed its Pre-Series A; gumi Cryptos Capital and Arcane Group led Moonveil Entertainment's funding round, with Infinity Venture Crypto participating; GMO Internet Group invests in INTMAX; MUFG Innovation Partners (MUIP) invests in Broom, the Indonesia-based auto financing startup; SBI Holdings has entered into a strategic capital alliance agreement with Novastar for investment business on the African continent; SBI Investment and Nikon Corporation have jointly established the “Nikon-SBI Innovation Fund II”
• Banking: SumiTrust has more than halved its net income projection for the fiscal year, from JPY 200bn to JPY 85bn; Sumitomo Mitsui Banking Corporation has opened a representative office in Washington, D.C.; MUFG has launched its Green Deposit in South Korea and Taiwan; Mizuho Bank and Blue Lab will start a demonstration experiment this month using “LocoViz” to support regional revitalization; b8ta Japan will partner with Mitsubishi UFJ Trust and Banking Corporation during November 2023
• Payments: Tap-to-Pay will be available at Osaka railways in 2024 for World Expo; JCB expands partnership with Stripe to boost e-commerce merchant acceptance in Europe, Singapore and Hong Kong
• Insurance: Dai-ichi Life and YuLife have commenced a pilot implementation of the YuLife Wellbeing Model
• Capital Markets & Asset Management: Q3 (July to September) league tables
• Digital Assets: Policymakers partner to foster responsible digital asset innovation; SBI Digital Markets collaborated with UBS Asset Management to conclude a technical pilot for the issuance and distribution of a tokenised Variable Capital Company (VCC) fund; Komainu and Crypto Garage are collaborating in building best-in-class institutional crypto service levels in Japan; Laser Digital, in cooperation with Nomura, has debuted the ‘Nomura & Laser Digital Botanical Garden’ in The Sandbox metaverse; Okcoin Japan has been officially welcomed as the latest corporate baker on the Tezos blockchain
• The Last Word: All ships leak

Venture Capital & Private Markets

• The Osaka Digital Exchange (ODX) has accepted equity participations by Cboe Worldwide Holdings, a subsidiary of Cboe Global Markets, Virtu Investments, a subsidiary of Virtu Financial, and Optiver PSI, a subsidiary of Optiver Holding
• Mizuho Capital and Mizuho Bank have established a JPY 15bn venture capital fund called “Mizuho Growth Support Fund №5” (the “№5 Fund”)
• Mizuho Capital has invested in JUNTEN BIO through the “Mizuho Venture Debt Fund”; the JPY 100bn fund was established in August to provide financing through bonds with stock acquisition rights; this is the first project of the fund
• MUFJ and Mizuho invest in Sensyn Robotics' JPY 2.25bn (USD 15m) equity round as new shareholders alongside Nabtesco Technology Ventures, with participation from existing shareholders ENEOS Innovation Partners and V-Cube; additional debt financing was raised from Japan Finance Corporation and Shoko Chukin Bank
• Digital Garage is investing in Komainu as part of their collaboration agreement (see "Digital Assets" below), joining other Japanese shareholders of Komainu, including Laser Digital and Nomura Research Institute
• Alternative investment platform LUCA Japan closed its Pre-Series A funding round by raising USD 2.7m (JPY 400m) from VCs and angel investors; this brings the cumulative raised amount since its inception to approximately USD 4.2m (JPY 630m)
• gumi Cryptos Capital and Arcane Group led Moonveil Entertainment's funding round (which had two parts) for multiplayer mobile games using blockchain technology, with additional support from other investors such as LongHash Ventures, IOSG Ventures and Infinity Ventures Crypto (IVC); the company raised $3 million in September 2022 and $2.4 million more recently
• GMO Internet Group invests in INTMAX; Ryodan Systems AG, a leading Swiss blockchain company, has completed its strategic funding round for its innovative Ethereum Layer2 project, “INTMAX zkRollup”, and the recently launched “INTMAX Wallet”, with?participation from LD Capital, KX, GMO web3, and Kepple Africa Ventures
• MUFG Innovation Partners (MUIP) invests in Broom; the Indonesia-based auto financing startup?has raised USD 4m in funding from existing investors Openspace Ventures, AC Ventures, and MUIP, among others; founded in June 2021, Broom helps used car dealers to work more efficiently by means of asset-backed lending
• Funding Societies | Modalku, the largest unified small and medium enterprises (SME) digital finance platform in Southeast Asia, has raised USD 7.5m in debt from Norfund, a Development Financial Institution (DFI), which operates an investment fund owned by the Norwegian government for developing countries; SoftBank Vision Fund 2, SoftBank Ventures, and SMBC Bank are among Funding Societies' investors
• SBI Holdings has entered into a strategic capital alliance agreement with Novastar for investment business on the African continent; SBI Holdings will invest USD 40m in funds managed by Novastar; further, SBI Holdings plans to help Novastar raise an equal investment amount from Japanese investors; SBI Holdings will also own a portion of Novastar’s shares and will dispatch part-time executives
• SBI Investment and Nikon Corporation have jointly established the “Nikon-SBI Innovation Fund II”; this Fund will make investments in the latest technologies and services such as aerospace, energy, carbon neutral, etc. which are considered as new areas looking beyond Nikon’s Medium-Term Management Plan
• Axiata Digital & Analytics (ADA), announced Mitsui’s investment of USD 58m in ADA, facilitated through ADA’s holding company, Axiata Digital Services (ADS); Mitsui’s additional investment has established a watermark valuation of USD 550m for ADA, reflecting the company’s continued growth and innovation in the digital and data transformation domain; other shareholders in ADA include Sumitomo and Softbank

Banking

• SumiTrust has more than halved its net income projection for the fiscal year, from JPY 200bn to JPY 85bn, due to the unwinding of hedges that were put on to protect valuation gains on cross-shareholdings as the Nikkei was rising strongly this year; in contrast, ordinary business has been reported as strong, and the forecast slightly raised for the year; the dividend per share remains unchanged
• Sumitomo Mitsui Banking Corporation has opened a representative office in Washington, D.C. to deepen ties with key stakeholders as the bank continues to expand its support of the U.S. economy
• MUFG has launched its Green Deposit in South Korea and Taiwan, reaffirming the popularity of this product and the increasing acceptance of Asia’s corporates in exploring differentiated solutions in pursuit of their climate goals
• Mizuho Bank and Blue Lab will start a demonstration experiment this month using “LocoViz”, a blockchain-based service that provides new connections with local communities for those who feel an attachment to a particular region
• b8ta Japan will partner with Mitsubishi UFJ Trust and Banking Corporation during November 2023; for one month, b8ta Tokyo — Shibuya will exhibit products from Mitsubishi UFJ Trust and Banking Corporation business partners who utilize OMO Data Search; b8ta will acquire offline data for customers visiting physical stores, while Mitsubishi UFJ Trust and Banking’s “Dprime” app will acquire online data from its approximately 300,000 members; the partners will release analytics and begin a collaboration with OMO Data Search, a customer research support service that transcends the boundaries between online and offline
• Malaysian bank CIMB?and Japanese publicly listed finance company J Trust?are among firms vying to buy Indonesia's PT Bank Commonwealth in a deal that could value the lender at USD 400-500m

Payments

• Tap-to-Pay will be available at Osaka railways in 2024 for World Expo; Hankyu Corporation, Sumitomo Mitsui Card, Visa Worldwide Japan, JCB, Toshiba, and QUADRAC will start a railway riding service using credit cards, debit cards, and prepaid cards with touch payment functions, as well as smartphones with such cards set up, utilizing Sumitomo Mitsui Card’s transit solution for public transportation “stera transit” at all Hankyu railway stations by 2024; similar announcements were published by Kinki Nippon Railways and Hanshin Railways
• JCB expands partnership with Stripe to boost e-commerce merchant acceptance in Europe, Singapore and Hong Kong; JCB International, the international operations subsidiary of JCB, and Stripe have expanded their partnership to provide new growth opportunities for all of Stripe's e-commerce merchants in those areas by welcoming JCB's valued cardmembers

Insurance

• Dai-ichi Life and YuLife, the tech-driven financial services company on a mission to inspire life, have commenced a pilot implementation of the YuLife Wellbeing Model, a variety of health and wellness services including the award-winning YuLife app and online hub, in Japan

Capital Markets & Asset Management

The league tables for the second quarters are out, with some big movers in the M&A segment

• M&A: 1 - Daiwa (up from 9), 2 - Nomura (up from 6), 3 - Plutus (up from 13), 4 - MUFJ Morgan Stanley (down from 1), 5 - SMBC Nikko (up from 7)
• Equity Underwriting: 1 - Nomura, 2 - SMBC Nikko, 3 - Mizuho, 4 - Daiwa, 5 - Goldman Sachs
• Debt Underwriting: 1 - Mizuho, 2 - SMBC Nikko, 3 - Nomura, 4 - Daiwa, 5 - MUFJ Morgan Stanley

Digital Assets

• The Monetary Authority of Singapore (MAS) is partnering the Financial Services Agency of Japan (FSA), the Swiss Financial Market Supervisory Authority (FINMA) and the United Kingdom’s Financial Conduct Authority (FCA) to advance digital asset pilots in fixed income, foreign exchange and asset management products
• SBI Digital Markets collaborated with UBS Asset Management to conclude a technical pilot for the issuance and distribution of a tokenised Variable Capital Company (VCC) fund as part of the Monetary Authority of Singapore (MAS)’s?Project Guardian, a collaborative industry initiative with the financial industry that seeks to test the feasibility of applications in asset tokenisation and DeFi while managing risks to financial stability and integrity; the pilot was executed on a permissioned environment of the Ethereum network
• Komainu, a leading digital asset custodian, and Crypto Garage, a Japanese digital asset services company and subsidiary of Digital Garage, are collaborating in building best-in-class institutional crypto service levels in Japan
• Laser Digital, in cooperation with Nomura, has debuted the ‘Nomura & Laser Digital Botanical Garden’ in The Sandbox metaverse; the experience showcases the combined resources and talent at Nomura’s Digital Company and Laser Digital, to accelerate innovations in the digital asset sector
• Okcoin Japan has been officially welcomed as the latest corporate baker on the Tezos blockchain; this move not only marks a notable addition to Tezos’ list of corporate bakers, which includes names like Google Cloud and Ubisoft, but also heralds the introduction of XTZ staking services on OKCoin Japan’s platform starting November 8, 2023
• GensoKishi ONLINE -Meta World- is committed to building on Immutable zkEVM, powered by Polygon Labs; Genso is an MMORPG and one of the most significant web3 gaming projects in Japan; the project had been incorporated in Japan due to the known taxation issues for tokens held by corporations
• THXNET., a Japan-based Web3-as-a-Service Blockchain Infrastructure firm, and AsiaTokenFund Group, a leading web3 conglomerate based in Asia announced a strategic partnership with a focus on extending the reach of THXNET.'s ground-breaking blockchain technology infrastructure services into the broader Asian market

Other Media

• Bank of Japan, "Statement on Monetary Policy"
• Oxford Economics, "BOJ to allow 10-year JGB yields to exceed 1%"
• The Financial Services Agency has published the materials used for its seventh and eighth Japan Corporate Governance Forum, with the Asian Corporate Governance Association (ACGA) and the International Corporate Governance Network, respectively
• The Ministry of Economy, Trade and Industry (METI) has published case studies relating to the use of inbound M&A transactions; while originally dated April 19, 2023, the document has been updated in the interim
• Anderson, Mori & Tomotsune, "Recent developments in Carbon Offset Markets in Japan"
• Whithersworldwide, "Navigating fund management licensing in Singapore, Hong Kong and Japan"

The Last Word: All ships leak

Japan is a hotbed of information leaks. In a wonderful piece published in the Japan Times, Bloomberg's Gearoid Reidy and Daniel Moss take on the Bank of Japan, noting that every time Bank of Japan Governor Kazuo Ueda has made an announcement since taking up his post, that information has appeared initially not in the public domain, but in the pages of the fourth estate. Rather than expecting the BOJ press release to arrive for everyone at the same time, pundits and traders alike spend the morning hitting the refresh button on the Nikkei home page to get the latest scoop.

The BOJ is far from the exception. Even for listed companies, including the mega banks, the Nikkei appears to publish a story before the companies' websites and investor relation pages have been updated. While often an argument can be had regarding the materiality of the information, such a judgement is best left to the investor, not the IR department. At the very least those corporations listed in the US run the potential risk of investor lawsuits. And with regards to the BOJ, the materiality of the information is undisputed.

If you want to be viewed as a Global Financial Center, act like one.

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.