Japan FinTech Observer #57

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

A busy Monday in Kasumigaseki (April 29). With the Bank of Japan sitting tight during April’s Monetary Policy Meeting last week, and the Japanese Yen subsequently weakening further, crossing the 160 level early on Monday morning ultimately triggered intervention in the market, pushing the exchange rate back to 155, before settling just under 157 to the USD. After all, the dog that has been barking since the Yen was nearing 150, finally bit.

In other news, the Phoenix Suns, New Orleans Pelicans and the LDP got swept, the latter during three bi-elections held on Sunday, making an early election an extremely unattractive option for Prime Minister Kishida.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: enechain, which operates Japan’s largest wholesale energy trading marketplace, has raised a total of 6 billion yen through a third-party allotment for its Series B round; Nomura’s Laser Digital has led Tevaera’s $5 million funding round; IVC participated in Aark’s seed round; Katalysen Ventures, known as a leading global venture developer, announced its role as co-founder in the establishment of SKB.vc; Mizuho Capital participates in Turing’s JPY 3bn Pre-Series A first close; SMBC ventures into drug discovery
• Insurance: Tokio Marine HCC has selected AKUR8’s Core Platform solution to fuel innovation by building high-performing pricing models, producing analytics and reporting
• Banking: Culture Convenience Club and Sumitomo Mitsui Financial Group officially combined their T Point and V Point programs, encountering system issues at launch; Japan Post Bank also suffered a system outage; the Bank of Japan and the Financial Services Agency conducted a cybersecurity self-assessment targeting regional financial institutions; and were themselves part of the G7 Cyber Expert Group’s cross-border coordination exercise
• Payments: The Bank of Japan today published a progress report on the “pilot experiment” on a central bank digital currency (CBDC) as of April 2024; Soft Space and JCB International announced the launch of the first ever JCB payment gateway in Malaysia; Rizal Commercial Banking Corporation has teamed up with Digital Wallet Corporation to enhance the facilitation of cross-border digital transactions between the Philippines and Japan
• Capital Markets: Nomura reported fourth quarter and full year financial results; Rakuten is kicking the debt can down the road; GS announced a new president of Goldman Sachs Japan
• Asset Management: the Japan Securities Dealer Association reports strong NISA inflows; the FSA provides an English translation of changes to the Financial Instruments & Exchange Act; SBI Securities has migrated its online trading system for domestic equities to the AWS Cloud; the Government Pension Investment Fund deploys Bloomberg for its asset management operations
• Digital Assets: Mt. Gox is nearing the final phase of compensating creditors; the Japan Blockchain Foundation and Japan Post launch unique NFTs for regional revitalization; a Hitachi engineer becomes core maintainer for Hyperledger
• The Last Word: Monday Morning Quarterback

Please join us on Thursday, May 2, starting at 7pm JST, for a geopolitical conversation with Professor Stephen Nagy, based on his latest co-edited volume, “Southeast Asia and the Indo-Pacific Construct”, right here on LinkedIn.

Venture Capital & Private Markets

• Venture capital and buyout firm JAFCO has published a great overview of its business alongside the results for the fiscal year ending March 2024 — the document also includes some fundamental information about the startup ecosystem in Japan
• enechain, which operates Japan’s largest wholesale energy trading marketplace, has raised a total of 6 billion yen through a third-party allotment for its Series B round, as well as additional long-term borrowing from four major banks; in the Series B round, in addition to existing investors DCM Ventures and Minerva Growth Partners, and new investors such as JP Investment and the U.S. Soros Capital Management, funding was also received from 9 companies: JERA, a major player in domestic wholesale electricity trading; K4 Ventures, an investment subsidiary of Kansai Electric Power; Chugoku Electric Power; Chubu Electric Power Miraiz; Hokkaido Electric Power; Osaka Gas; Tokyo Gas; Sumitomo Corporation; and Mitsubishi Corporation, as well as SMBC Venture Capital, Mizuho Capital, Sumitomo Mitsui Trust Bank, and Mitsubishi UFJ Capital
• Nomura’s Laser Digital has led Tevaera’s $5 million funding round; supported by prominent investors, this funding will advance Tevaera’s mission to create a one-stop gaming ecosystem powered by zkSync’s ZK Stack
• IVC participated in Aark’s seed round alongside leading industry pioneers; this follows Aark’s Pre-Seed in the second quarter of 2023, led by Delphi Digital, with participation from OKX Ventures and Big Brain Holdings; Aark is a 1000x perpetual DEX set to revolutionize the DeFi space by leveraging LRT assets to bolster liquidity for perpetual traders
• Katalysen Ventures, known as a leading global venture developer, announced its role as co-founder in the establishment of SKB.vc, a pioneering Japanese venture capital fund; the fund will begin shortly to secure soft commitments from investors for SKB.vc while finalizing administrative requirements such as incorporation and necessary licenses; the formal fundraising period is scheduled for this fall, with a first close planned for the end of this year
• Mizuho Capital participates in Turing’s JPY 3bn Pre-Series A first close; Turing, a startup developing fully autonomous vehicles utilizing generative AI, has raised 3 billion yen in the first half of its pre-Series A funding round from multiple venture capital firms, companies, and individual investors, led by independent venture capital firm ANRI
• Investment platform Decarbonization Partners — jointly set up by Singapore state investor Temasek and global asset manager BlackRock — has raised US$1.4 billion at the close of its inaugural fund focused on investing in decarbonisation technologies, surpassing its initial target of US$1 billion; financial institutions Mizuho Bank and MUFG Bank are among some of the 30-odd investors
• SMBC ventures into drug discovery: Takeda Pharmaceutical, Astellas Pharma, and Sumitomo Mitsui Banking Corporation have concluded a basic agreement to establish a joint venture company to incubate drug discovery startups towards the creation of innovative pharmaceutical products originating from Japan; the joint venture company, to be established by mid-2024, will be based in the Shonan Health Innovation Park in Fujisawa City, Kanagawa Prefecture, witch a capital of approximately JPY 600m; Takeda will hold 33.4%, Astellas Pharma 33.4%, and SMBC 33.2%

Insurance

• Tokio Marine HCC has selected AKUR8’s Core Platform solution to fuel innovation by building high-performing pricing models, producing analytics and reporting with ease for powerful insights, and facilitating knowledge sharing across entities; Tokio Marine HCC is one of the world’s leading specialty insurers, underwriting more than 100 classes of specialty insurance in over 180 countries

Banking

• The customer loyalty program market in Japan is becoming increasingly competitive; in a bid to strengthen their position, two major players offering points-based reward systems have merged: Culture Convenience Club and Sumitomo Mitsui Financial Group officially combined their T Point and V Point programs on Monday, retaining the V Point name for the new unified system; the launch of the program was plagued by app outages for certain users
• In related news, Japan Post Bank suffered a system outage, with recovery of systems taking nearly 14 hours; reportedly, more than one million incoming transactions had to be processed on the following day
• Continuing from fiscal 2022, the Bank of Japan and the Financial Services Agency conducted a cybersecurity self-assessment targeting regional financial institutions (99 regional banks, 254 credit unions, and 145 credit cooperatives); the results of this survey show that many regional financial institutions view ensuring cybersecurity as an important management issue and are steadily making efforts to improve the effectiveness of cybersecurity measures by introducing both technological and organizational measures; however, it was confirmed that there are still issues with securing and training cybersecurity personnel and managing third-party risks
• At the global level, the G7 Cyber Expert Group completed a cross-border coordination exercise, with the primary objective to strengthen the ability of G7 financial authorities in effectively communicating and coordinating their respective responses to facilitate crisis management in the event of a significant cross-border cyber incident affecting the financial sector; the exercise built on previous simulations and workshops, which focused on cyber incident response, recovery management, and crisis communication; the Ministry of Finance, the Financial Services Agency, and the Bank of Japan represent Japan in the G7 Cyber Expert Group

Payments

Overview of the two-tier experimental CBDC system (Source: Bank of Japan)

• The Bank of Japan today published a progress report on the “pilot experiment” on a central bank digital currency (CBDC) as of April 2024; the pilot experiment consists of two pillars: 1) construction and verification of an experimental CBDC system, and 2) the CBDC Forum for discussions with private businesses
• Soft Space and JCB International announced the launch of the first ever JCB payment gateway in Malaysia; this is a significant milestone in the strategic partnership between Soft Space and JCB, which was signed in January 2022, and follows their successful central bank digital currency (CBDC) trial in December 2023, as well as the recent agreement to enable JCB acceptance for all HLB merchants
• The Yuchengco Group of Companies’s Rizal Commercial Banking Corporation has teamed up with a Japanese global IT and FinTech company Digital Wallet Corporation to enhance the facilitation of cross-border digital transactions between the Philippines and Japan

Capital Markets

Nomura full year results

• Nomura reported fourth quarter and full year financial results: (I) three segment pretax income of Y236.8bn, up 123% YoY on gains across all divisions; (II) Retail pretax income at eight-year high driven by higher recurring revenue underpinned by shift to asset management recurring business and lower cost base; (III) Investment Management net inflows of Y3.8trn and AUM of Y89trn trending above FY2024/25 KPI target; Investment gains doubled YoY; (IV) Global Markets net revenue up 8% YoY on improved performance in Spread Products and Equity Products; Investment Banking net revenue at highest since FY2016/17 reflecting growth in all businesses; and (V) year-end dividend of 15 yen per share, making annual dividend of 23 yen, full-year ROE of 5.1%
• Rakuten debt — kicking the can down the road (II): Rakuten has completed the purchase and cancellation of certain of its JPY denominated senior bonds, namely the JPY 75bn bond maturing in early December, with a total face value of the purchase of JPY 55.8bn, and JPY 19.2bn remaining outstanding; it used cash on hand and proceeds from the February 2024 issuance of USD denominated senior notes, less the amount used for the February 2024 offers to repurchase USD denominated senior notes due 2024 for cash consideration, as the source of funds for the purchase
• Goldman Sachs announced that Hidehiro Imatsu will become president and representative director of Goldman Sachs Japan, effective June 3, 2024; he will also become a member of the firm’s global Management Committee

Asset Management

• The Financial Services Agency has published an English version of the “Overview of Revision Proposals for the Financial Instruments and Exchange Act and Act on Investment Trusts and Investment Corporations”; the revisions aim to develop a new system for the asset management business, large shareholding reports and tender offers to revitalize the Japanese capital market by enhancing the capability and diversification of AM business and promoting dialogue between investors and companies and ensuring transparency and fairness in the market
• According to the Japan Securities Dealer Association, (I) the number of NISA accounts at 10 securities companies (5 major companies and 5 online companies) as of the end of March 2024 was approximately 14.56 million, an increase of about 1.3 times from the end of March 2023; (II) in addition, the number of new accounts opened in the January to March 2024 quarter was approximately 1.7 million, about 3.2 times higher than the same period of the previous year; and (III) the cumulative purchase amount for January to March 2024 was approximately 2.9 times higher than the same period of the previous year
• SBI Securities has migrated its online trading system for domestic equities to the AWS Cloud; SBI Securities has over 12 million total securities accounts, the largest in Japan, and with this migration, it has become the first domestic securities firm to execute over 2 trillion yen in daily domestic equity trades on AWS; it plans to gradually migrate its other business systems to the AWS Cloud by 2026
• Bloomberg announced that Japan’s Government Pension Investment Fund, the world’s largest government pension fund, has selected a suite of integrated Bloomberg products for the management of its in-house asset management operations; GPIF already uses a series of Bloomberg’s electronic trading offerings and Bloomberg’s Enterprise Technology practice provided consulting and technology to support seamless systems integration

Digital Assets

• Mt. Gox is nearing the final phase of compensating creditors, with plans to disburse 142,000 BTC and 143,000 BCH by the end of October 2024; recently, there has been significant activity on the Mt Gox Reddit page, with creditors stating they are receiving updates on their claims and some even having received disbursements; finally, some believe the sheer weight of $9b+ of Bitcoin and cash returned to creditors will weigh on Bitcoin’s price
• Japan Blockchain Foundation, the consortium management company behind Japan Open Chain, together with JAPAN POST and Yamanobe Town, announced the launch of unique NFT sales on Japan Open Chain, the proceeds of which will contribute to the maintenance and development of Yamanobe Town; benefits for NFT purchasers visiting Yamanobe Town are under consideration, with further details to be announced as the initiative develops
• Tatsuya Sato of Hitachi has been appointed as a core maintainer, leading the development project for “Hyperledger Fabric”, an open source software for enterprise blockchains — a first for a Japanese company; Hyperledger Fabric is one of the development projects of the Hyperledger Foundation, which has participation from 130 companies and organizations; this time, a Hitachi employee has been selected as one of the core maintainers responsible for determining the technical direction of the development project and managing the quality of the code

The Last Word: Monday Morning Quarterback

Anatomy of an FX intervention

The Bank of Japan’s “Statement on Monetary Policy” on Friday was very brief:

• The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent.
• Regarding purchases of Japanese government bonds, CP, and corporate bonds, the Bank wil conduct the purchases ni accordance with the decisions made at the March 2024 MPM.

In the “Outlook Report”, which consists of ten pages, the back seems to suggest that it has increasing confidence that the economy is moving towards the Bank’s target by stating that “underlying CPI inflation is expected to increase gradually, since it is projected that the output gap wil improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify. In the second half of the projection period, it is likely to be at a level that is generally consistent with the price stability target.”

However, the Bank did not change their FY2024 and FY2025 New Core CPI (excluding fresh food and energy) projections from 1.9% as we expected, but it did introduce a new FY2026 forecast at 2.1%.

In other news on Friday, the Tokyo new core CPI came in well below the market forecast with +1.8% in April vs previously +2.9% in March. About half of the decline can be explained with special factors (extension of high school subsidies).

While there will be lots of market noise, the key development to watch is if and to what extent the increase in “Shunto wages” will benefit all employees, especially those working in small and medium enterprises, and those in the service sector. Reliable data points will only be available in September/October, which explains why some observers were surprised by the interest rate normalization steps taken by the Bank in March.

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.