Japan FinTech Observer #77

Welcome to the seventy-seventh edition of the Japan FinTech Observer.

It's Monetary Policy Meeting week! The Bank of Japan is meeting on Thursday and Friday, and the consensus forecast from the economists we follow is no action on interest rates. As we are writing this week's edition, the JPY/USD reached a 139 print, the strongest it has been in over a year.

The field for the LDP President election is set, with a record nine candidates vying to lead the party and become the country's next Prime Minister. The Nikkei currently has Ishiba in front of Koizumi for the first round.

For this and the coming weeks, we will host the Japan FinTech Observer weekly call on Tuesdays, starting at 10pm JST on LinkedIn Live. You can find this week's event here.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: MSIG Asia, part of MS&AD Insurance Group, has invested in Serenity Health Partners as a major shareholder; SMBC has executed an investment agreement with the Japan Hydrogen Fund; DeCurret raised JPY 6,35bn from a total of 13 companies including Internet Initiative Japan as the largest shareholder, SBI Holdings, Hitachi, TIS, NSD, Fujitsu, KDDI, MUFG Bank, GMO Financial Holdings, ABeam Consulting; Genesis Alternative Ventures has raised total commitments of USD 125m for its second Southeast Asia-focused venture debt fund, with Aozora Bank, Mizuho Leasing, and Mizuho Bank as LPs; Japan Investment Corporation participates in Atomico's two new funds totalling?$1.24bn?to back startups in Europe; Bain Capital sees a broad range of opportunities to provide capital across the risk spectrum for Japanese corporates
• Insurance: Four non-life insurance companies have submitted the Second Progress Report concerning the Business Improvement Plan to the Financial Services Agency of Japan in response to administrative actions (Business Improvement Order) issued by FSA on December 26, 2023
• Banking: SMBC's bid to take a majority 51 per cent stake in YES BANK is facing regulatory headwinds; Shizuoka Bank and Hitachi have completed technical and effectiveness verifications for the development of a core banking system hat operates on a public cloud; Raksul is evaluating becoming a BaaS customer of SBI Sumishin Net Bank's “NEOBANK?”; an update on Tokyo Star Bank's service that offers bank accounts for non-residents; South Korea’s Shinhan Bank has embarked on a new business venture to provide digital finance consulting, with Kiraboshi Bank its first customer
• Payments: Credit Saison has launched a new card application form with instant approval, based on tooling provided by DataRobot
• Capital Markets: Seven & i Holdings has brought on Nomura to advise its board in preparation for a potential takeover battle with Canada’s Alimentation Couche-Tard; Mercuria has successfully closed a new JPY 130.9 billion, three-year Samurai Term Loan Facility, the largest transaction of its kind in the commodities sector
• Asset Management: MUFG will transfer the credit investment functions and capabilities developed over many years within MUFG Trust and Banking and MUFG Bank to the Group’s core asset management company Mitsubishi UFJ Asset Management
• Digital Assets: Circle announced a strategic collaboration with Sony Block Solutions Labs; a Tokyo Electric Power Company subsidiary is tapping into bitcoin mining; Animoca Brands Japan joins the Orbs network as a guardian node operator; gaming blockchain Oasys has entered into a partnership with SK Planet; Crypto Garage, GREENING, and Decentier have reached a basic agreement on a business alliance to tokenize Real-World Assets; SBINFT has agreed to provide NFT services using its marketing platform “SBINFT Mits” in cooperation with Lawson Ticket, operated by Lawson Entertainment
• The Last Word: Yield Curve Inversion

The FSA's Strategic Priorities 2024-2025

This Financial Services Agency (FSA) has published its administrative policy/strategic priorities for the period from July 2024 to July 2025. It lays out the FSA’s overarching objectives, outlining its strategy to contribute to sustainable economic growth, ensure the stability and reliability of the financial system, and continuously improve financial administration. The Japan FinTech Observer has compiled a comprehensive summary of the original Japanese document.

In related news, the FSA has been working to promote the advancement of internal audit functions in financial institutions since 2019. In 2019, the FSA published a report titled “Current Status and Challenges of Internal Audit Advancement in Financial Institutions” and has continued to promote the advancement of internal audit functions through monitoring efforts. The FSA has now compiled the results of these monitoring efforts, together with the FSA’s awareness of issues and expectations, into the “Monitoring Report for the Advancement of Internal Audits at Financial Institutions,” which was published on September 10, 2024.

Venture Capital & Private Markets

• MSIG Asia, part of MS&AD Insurance Group, has entered into a new regional partnership with Serenity Health Partners, aiming to redefine the health insurance landscape by bridging the gap between local health insurance products and International Private Medical Insurance (IPMI), offering a unique blend of comprehensive yet affordable coverage; to demonstrate its commitment, MSIG has invested in Serenity as a major shareholder
• Sumitomo Mitsui Banking Corporation (SMBC) has executed an investment agreement with the Japan Hydrogen Fund as one of the major LP investors, and Sumitomo Mitsui DS Asset Management (SMDAM) participates in the fund as a service provider; this LP investment from SMBC is made through the ‘’Social Value Creation Investment Fund’’ announced by Sumitomo Mitsui Financial Group (SMBC Group), which is a framework to support SMBC Group’s customers’ creation of new businesses, development of new technologies and fostering of industries themselves
• DeCurret Holdings raised a total of JPY 6,35bn from a total of 13 companies including Internet Initiative Japan as the largest shareholder, SBI Holdings, Hitachi, SHIZUOKA BANK, TIS, NSD, Fujitsu, KDDI, MUFG Bank, Higo Bank, Kagoshima Bank, GMO Financial Holdings, and ABeam Consulting; in August this year, DeCurret DCP, a subsidiary of DeCurret Holdings, has launched the digitalization of environmental values into digital assets and settlement transactions using DCJPY as the first step in the commercialization of the digital currency DCJPY
• Genesis Alternative Ventures has raised total commitments of USD 125m for its second Southeast Asia-focused venture debt fund, which welcomes back over 80% of investors from Fund I, including Aozora Bank, Korea Development Bank, Mizuho Leasing, Sassoon Investment, and Silverhorn Group; new and notable investors in Fund II include Japanese mega bank, Mizuho Bank, and OurCrowd, the online global investing platform
• Atomico has closed two new funds totalling?$1.24bn?to back startups in Europe; the capital is divided between a $485m early-stage fund that will focus on Series A, and a $754m growth fund targeting Series B to pre-IPO; PitchBook lists the Japan Investment Corporation (JIC) as an LP
• With interest rates expected to remain relatively low in Japan, Bain Capital sees a broad range of opportunities to provide capital across the risk spectrum for Japanese corporates, including pure asset acquisitions, private equity buyouts and alternative debt financing

Insurance

• Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance, subsidiaries of MS&AD Insurance Group, have submitted the Second Progress Report concerning the Business Improvement Plan to the Financial Services Agency of Japan in response to administrative actions (Business Improvement Order) issued by FSA on December 26, 2023; so have Tokio Marine & Nichido Fire Insurance, part of Tokio Marine Holdings, and Sompo Japan Insurance, part of Sompo Holdings

Banking

• SMBC's bid to take a majority 51 per cent stake in YES BANK is facing regulatory headwinds; apparently, the Reserve Bank of India is wary about a foreign bank taking a majority, controlling stake in a relatively large private sector such as Yes Bank; besides SMBC, the other Bank that is in the race to pick up a stake in Yes Bank is believed to be Emirates NBD
• Shizuoka Bank and Hitachi have completed technical and effectiveness verifications for the development of a core banking system hat operates on a public cloud, and have begun system development; the system is scheduled to go live on Amazon Web Services (AWS) in 2027, enabling Shizuoka Bank to promote a cloud-first approach, leading to the swift provision of higher value-added financial services, and strengthening business continuity; additionally, Hitachi will apply this system to its open core banking package “OpenStage” and other open core banking systems, and expand it to other financial institutions, contributing to the promotion of DX in the financial sector
• SBI Sumishin Net Bank (SSNB) and Raksul have begun discussions to realize financial services for business operators using “NEOBANK?” provided by SBI Sumishin Net Bank; SSNB has been promoting the “NEOBANK?” service, an initiative that aims to create new added value in financial services for the customers of partner companies through BaaS (Banking as a Service), which provides banking functions to partner companies by utilizing the cutting-edge IT and financial know-how it has cultivated since its establishment
• As we reported in March of this year, Tokyo Star Bank had launched a service to open bank accounts for non-residents, with the number of applications for “Tokyo Lucky Star,” a real estate investment loan available to residents of Taiwan with Republic of China (Taiwan) passports for the purchase of real estate in Japan, exceeding 15 times the number of applications in 2023 compared to 2022; Bloomberg has an update on how the business is progressing
• South Korea’s Shinhan Bank has embarked on a new business venture to provide digital finance consulting services to global peers, with Kiraboshi Bank as its first client; Kiraboshi's digital bank, UI Bank, already runs on a core banking system developed by Shinhan Financial Group; Shinhan’s decision to enter the new area of business leverages its accumulated digital transformation experience, as a myriad of foreign firms have requested the Korean bank to share its innovative solutions

Payments

• Credit Saison has launched a new card application form, optimizing customer information required on application forms with the aim of improving the customer credit card application experience; the new form reduces the information customers are required to provide when applying for a credit card by up to 30%; in addition, after applying for a card, in an industry first, card applications can be screened instantly through an AI model developed by DataRobot; this function is patent pending
• The Japanese Bankers Association (JBA) has provided comments on the Financial Stability Board (FSB) Consultation Report: “Recommendations to Promote Alignment and Interoperability Across Data Frameworks Related to Cross-border Payments”, released on 16 July 2024; the JBA supports the FSB's efforts and the general direction of the recommendations to address the identified frictions from data frameworks that pose significant challenges to improving the cost, speed, transparency, and accessibility of cross-border payments, while maintaining their safety and security; however, the JBA believes that there are several points to keep in mind as discussions progress
• The Bank of Japan has published its annual "Payment and Settlement Systems Report"; unfortunately, the only section currently available in English is on the "Future of Payments"

Capital Markets

• Seven & i Holdings has brought on Japan’s biggest investment bank to advise its board in preparation for a potential takeover battle with Canada’s Alimentation Couche-Tard, whose opening $39bn bid for the 7-Eleven owner was rejected; Nomura was recently appointed as an adviser to Seven & i’s special committee of independent board directors set up to examine the takeover offer for the world’s largest convenience store chain
• Mercuria has successfully closed a new JPY 130.9 billion, three-year Samurai Term Loan Facility, arranged by bookrunning mandated lead arrangers Mizuho Bank, MUFG Bank, SMBC, and Crédit Agricole CIB; this facility replaces Mercuria's previous?JPY 70.5 billion?Samurai loan, signed in 2022, and will be used for general corporate and working capital purposes; this marks the largest transaction of its kind in the commodities sector
• Nomura has published its monthly Individual Investor Survey for September 2024
• The Bank of Japan has published a Working Paper that quantitatively examines the effects of the BOJ's purchases of Japanese government bonds -- especially the large-scale purchases since the introduction of Quantitative and Qualitative Monetary Easing in 2013 -- on the formation of long-term interest rates in Japan using time series analysis

Asset Management

• MUFG, Mitsubishi UFJ Asset Management (MUAM), Mitsubishi UFJ Trust and Banking Corporation (MUTB) and MUFG Bank will execute an intra-group transfer of a part of credit investment functions, as previously announced with regards to the organization of the asset management business in January 2024; MUFG will transfer the credit investment functions and capabilities developed over many years within MUTB and MUFG Bank (Global Markets Business Group) to the Group’s core asset management company MUAM (Asset Management & Investor Services Business Group), to enhance asset management capabilities

Digital Assets

• The Cardano brain trust celebrated the blockchain's birthday in Japan, with Charles Hoskinson speaking at the Tech for Impact Summit about humanity, enlightenment and exponential technologies; also, a Japan-specific Catalyst map highlights the achievements of the domestic community, with a total of 110 projects, 74 of which have been completed
• Circle announced a strategic collaboration with Sony Block Solutions Labs to drive innovation and creativity through decentralized technologies on Soneium, a public Ethereum layer 2 blockchain ecosystem; through this initiative, Soneium will integrate Bridged USDC Standard and establish bridged USDC as one of the blockchain’s primary tokens for value exchange
• A Tokyo Electric Power Company subsidiary is tapping into bitcoin mining, banking that it can prevent renewable energy from being wasted and prompting its widespread use; Agile Energy X, based in Tokyo, is experimenting with drawing on renewables to mine bitcoins
• Orbs network, a fast-growing Layer 3 permissionless blockchain, has announced the addition of Animoca Brands Japan, a subsidiary of Animoca Brands, as a guardian node operator; Orbs works in conjunction with existing L1 and L2 solutions such as Ethereum, TON, Polygon, BNB Chain, Avalanche, Fantom, and others, acting as a “decentralized backend” to enhance the functionality of EVM and non-EVM smart contracts, enabling new possibilities for applications such as Web 3.0, DeFi, NFTs, GameFi, etc.
• Gaming blockchain Oasys has entered into a partnership with SK Planet, one of South Korea’s leading information and communications technology platforms; SK Planet’s popular digital wallet UPTN Station is set to integrate Oasys Hub (Layer 1), unlocking a world of opportunities for blockchain-related services; with SK Planet becoming Oasys’ new validator, users can soon stake OAS tokens directly to the SK Planet node directly from their wallets
• Crypto Garage, GREENING, and Decentier have reached a basic agreement on a business alliance; the three companies will plan and develop a platform for time-share real estate sales to create new lifestyles through the easy ownership/use of a wide variety of real estate; the ownership/use rights of the subject property will be converted to tokens as Real-World Assets (RWA), potentially improving liquidity and enhancing the property’s assets
• SBINFT has agreed to provide NFT services using its marketing platform “SBINFT Mits” in cooperation with Lawson Ticket, operated by Lawson Entertainment; through this agreement, SBINFT will support the sales of Japan’s first entertainment tour utilizing NFTs, conducted by Lawson Ticket and Lawson Travel, leveraging SBINFT’s services and expertise in planning

The Last Word: Yield Curve Inversion

Unfortunately, Amir Anvarzadeh and the team at Asymmetric Advisors no longer publish their weekly Japan market thoughts on their website, after having decided earlier this year to limit the circular to only their client base. By making this week's edition public, they draw attention to their out-of-consensus, well argued thesis on 2-10 yield curve inversion and the implications for the valuation of Japanese banks.

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.