Japan FinTech Observer #56

Welcome to the fifty-sixth edition of the Japan FinTech Observer.

Line Yahoo got a dressing-down by their regulator, faster than they could say "Korean infrastructure". The next Bank of Japan Monetary Policy Meeting takes place on Thursday & Friday. The Japanese Yen stands at just under 155 to the US Dollar - foreign currency interventions are the business of the Ministry of Finance, not the BOJ. The first major mortgage bank is raising its short-term lending rates, affecting variable mortgages going forward. With an eye on financial stability, the BOJ is examining real estate risk and interest rate risk.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Japan Post Bank creates a JPY 10bn fund with Spiral Capital; Shinhan Venture Investment secures first close of Japan-focused fund with Global Brain; SBI Investment/SBI Ventures Europe participate in Pliant's Series A; Joba Network raised an undisclosed amount in a round led by Japan-based Decima Fund;
• Banking: SBI Sumishin Net Bank has become the first bank to raise its short-term lending rate
• Payments: the BOJ provides a summary of liaison meetings on a CBDC; Rakuten Payment plans to integrate the "Rakuten Point Card" app and the cashless payment service "Rakuten Pay", as well as "Rakuten Edy"; the partnership of NTT DOCOMO and Amazon Japan allows for accumulation of "d points" on Amazon purchases; the Visa touch payment-enabled smart ring “EVERING” will be launched at some DOCOMO shops
• Capital Markets & Asset Management: the Tokyo Stock Exchange published its fourth monthly "Status of Disclosure" list, with a new record of additions, signifying companies preparing for AGM season; the latest issue of the Bank of Japan's Financial Stability?Report?takes a deep dive into real estate risk and interest rate risk; Japan is leading the world in transition bond issuance; SuMi TRUST Asset Management has adopted The Depository Trust & Clearing Corporation ITP’s CTM to fully automate their post-trade processing and support the achievement of same day affirmation
• Digital Assets: eight countries will be added to the travel rule in Japan in May; Kraken Digital Asset Exchange has acquired TradeStation Crypto, part of Monex Group; Proof of Japan has produced a collaboration project with holders of “Azuki” NFT and Hyougu master Masahiro Inoue
• The Last Word: BOJ Watch

LINE Yahoo response does not satisfy Ministry of Internal Affairs and Communications

LY Corp. announced in November that its servers were hacked and that approximately 440,000 records, including user information for the Line app, may have leaked. The number was revised in February to approximately 510,000.

On March 5, 2024, the Ministry of Internal Affairs and Communications issued administrative guidance titled “Regarding Thorough Protection of Communications Secrecy and Ensuring Cybersecurity” to LINE Yahoo Corporation. On April 1, the company submitted a report on its efforts to prevent recurrence of data leakage incidents.

Last week, the Ministry of Internal Affairs and Communications rejected the improvement plan as inadequate, and has issued additional administrative guidance. It has particular concerns with the corporate ownership structure including Naver, and the use of some its infrastructure based in Korea.

Venture Capital & Private Markets

• Japan Post Bank says it will invest JPY 10bn, or about USD 65m, in a fund to support startups that aim to revive struggling regional economies; the fund was jointly launched with investment firm Spiral Capital; approved startups will each be eligible for as much as USD 6.5m in funding
• Shinhan Venture Investment secures first close of Japan-focused fund for a vehicle launched last year in partnership with Global Brain Corporation
• Pliant, a B2B credit card platform that enables businesses to streamline their payment processes, announced the closing of more than €18 million in Series A financing led by PayPal Ventures; existing investors such as SBI Investment (SBI Ventures Europe), Motive Ventures and Alstin Capital also participated in the round; this brings Pliant's total Series A financing to over €50 million; the company will use the funding to drive expansion in the UK and other markets outside the EU
• Joba Network, the Web3 startup that aims to revolutionize work utilizing verified identities, announced today that it has raised an undisclosed amount in a round led by Japan-based Decima Fund, with the participation of notable angel investors; Decima Fund is the largest Web3 investment fund with a Japan angle — committed to bridging the Japanese market with the rest of the world
• The Japan Investment Corporation (JIC) has published its view on the venture markets globally and in Japan

Banking

• SBI Sumishin Net Bank has become the first bank to raise its short-term lending rate, which serves as the basis for variable mortgages, by 0.1% to 1.775%; as Japanese banks typically review variable rates twice a year, in April and October, and any change in rate becomes effective three months later, the earliest increased rates would be reflected in the consumers' purse is January 2025

Payments

• The “Interim Summary of the Liaison Meeting between Related Ministries and Agencies and the Bank of Japan on CBDC (Central Bank Digital Currency)” was released; the document discusses the ongoing consideration by the Japanese government and the Bank of Japan regarding the potential introduction of a CBDC in the country; it provides background information, examines the current landscape of payment methods, and delves into key issues and concepts surrounding the design and implementation of a CBDC system
• Rakuten Payment plans to integrate the "Rakuten Point Card" app and the cashless payment service "Rakuten Pay" by the end of the calendar year; later on, Rakuten Edy will be integrated as well; with the integration come adjustments to the point program, seeking to establish "Rakuten Pay" as the gateway to all Rakuten financial services offerings
• In other "Poikatsu" news, the recently announced partnership of NTT DOCOMO with Amazon Japan will allow for the accumulation of "d points" through Amazon purchases; with this partnership, DOCOMO is extending its "economic zone"
• NTT DOCOMO and EVERING have concluded a business partnership agreement to promote a smart life business utilizing smart rings; as the first initiative of this collaboration, the Visa touch payment-enabled smart ring “EVERING” will be launched at some DOCOMO shops nationwide in early May 2024; the service can be used even without a DOCOMO subscription.

Capital Markets & Asset Management

• The Tokyo Stock Exchange published its fourth monthly "Status of Disclosure" list, based on data gathered during the month of March, with 96 new TSE Prime names added; this is a record high for monthly additions, and suggests that a growing number of listed Japanese companies are keen show compliance with the TSE’s requests ahead of the AGM season in June
• The latest issue of the Bank of Japan's Financial Stability?Report?takes a deep dive into real estate risk and interest rate risk, which should be closely monitored for the time being; on this basis, the?Report?assesses the resilience of and potential vulnerabilities in Japan's financial system
• Eastspring Investment sees an overlooked opportunity in Japan's small to mid-cap universe: many of Japan’s small and mid-cap companies can easily improve their return on equity by using their net cash for share buybacks; higher share price performance of companies that disclose improvement plans will nudge more small caps to adopt balance sheet reforms; the small and mid-cap segment is a prime market for longer term valuation-driven stock pickers; many of them are currently trading below their book value

• Fidelity International sees Japan leading the world in transition bond issuance; over the next 10 years, the Japanese government plans to issue about 20 trillion yen (US$13.3 billion) in sovereign transition bonds, which will unlock 150 trillion yen of transition investment
• For its monthly newsletter, the Ministry of Finance picked up several events relevant to JGB investors; first, the BOJ released its Flow of Funds Accounts in March, including a breakdown of JGB and T-Bill Holdings as of the end of December 2023; second, Mr. Tsuji, Deputy Director-General of the Debt Management Policy Division, Financial Bureau, presented on “Japan’s Economy and Public Debt Management” to foreign central banks and several types of financial institutions in Kyoto; finally, the MOF conducted IR activities in Singapore, Malaysia, and Taiwan
• SuMi TRUST Asset Management has adopted The Depository Trust & Clearing Corporation ITP’s CTM to fully automate their post-trade processing and support the achievement of same day affirmation for cross-border transactions within the APAC region; Sumitomo Mitsui Trust Asset Management is the first Japanese asset management firm to adopt ITP services through Nomura Research Institute’s SmartBridge Advance, an offering made possible through collaborative efforts between DTCC and NRI

Digital Assets

• Coincheck informed its customers that on May 1, 2024, part of the "Designation of Countries or Regions Based on the Provisions of Article 17-2 and Article 17-3 of the Enforcement Order of the Act on Prevention of Transfer of Criminal Proceeds (Ministry of Finance and Financial Services Agency Public Notice No. 2 of 2023)" will be revised, and additional notification target countries will be added to the travel rule; these countries are: the United Arab Emirates, India, Indonesia, the United Kingdom, Estonia, Nigeria, Bahrain, and Portugal; this rule change will apply to all cryptocurrency exchanges in Japan
• Kraken Digital Asset Exchange has acquired TradeStation Crypto to help the exchange expand its footprint in the U.S.; TradeStation is part of Monex Group; Florida-based TradeStation Crypto has acquired money transmitter and other types of regulatory?licenses in most U.S. states?over the past few years; however, the crypto broker had a run-in with the SEC over a lending service, which resulted in a?$3 million settlement; parent firm TradeStation announced a withdrawal from crypto
• Proof of Japan (POJ) has produced a collaboration project with holders of “Azuki” NFT, a globally popular NFT series, and Hyougu master (Japanese art mounting craftsman) Masahiro Inoue; through planning a new initiative to mount PFPs (Profile Pictures) of the globally famous “Azuki” NFT community, POJ aims to provide experiential value that visualizes the connection between digital and real through mounting and aim to make “Hyougu” accessible to the next generation around the world

The Last Word: BOJ Watch

The BOJ will hold its next Monetary Policy Meeting (MPM) on April 25 and 26. The economists we follow expect the BOJ to maintain the status quo across all monetary policy parameters, since this meeting comes soon after a major pivot at the March meeting.

One data point to watch out for is the BOJ Outlook for the New Core CPI (excluding fresh food and energy), which the BOJ set at 1.9% for FY2024 and FY 2025. A 0.1% to 0.2% increase is expected, anything beyond that could be seen as an indication the BOJ has increased confidence in the "virtuous cycle" between wages and prices.

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. Registrations for the Tokyo FinTech Meetup have moved to Luma.

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.