Japan FinTech Observer #107

Welcome to the one hundred seventh edition of the Japan FinTech Observer.

While we thought the prior week was extreme, the past week gifted us two of the best 20 return days of the TOPIX, and one of the worst 20.....since 1968!

By this point, you will also have read that a simultaneous sell off of the currency, stock markets, and bond markets is highly unusual and a strong sign of distress. Fault lines in the treasury market came to the fore, which are quite interesting to read up on if you are into all things market structure.

Meanwhile, economists can hardly keep up with the daily changes in tariff "policy". The BOJ watchers at Mitsubishi UFJ Morgan Stanley have stuck out their neck and provisionally pushed back their forecast of the next BOJ rate hike (to 0.75%) to January 2026, the first analysts to do so. It is provisional since their economist colleagues have not completed their latest forecast yet.

Elsewhere, the Financial Services Agency issued an AI Discussion Paper entitled “Preliminary Discussion Points for Promoting the Sound Utilization of AI in the Financial Sector”  in Japanese during Japan Fintech Week, and has now provided an official English translation.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: UTokyo Innovation Platform has made a limited partner investment in the “Vertex Ventures Japan Fund I”; Sumitomo Mitsui Banking Corporation has concluded an investment agreement with MobiSavi; FactBase raises JPY 1.45bn Series B from Financial Institutions
• Insurance: MS&AD Insurance Group Holdings has reached an agreement to sell all of its shares in Challenger Limited to Dai-ichi Life; Digital Garage to Launch "Musubell Insurance" in June 2025
• Banking: AEON's Financial Services segment produced stellar full-year results; Mizuho completes European reorganization into a universal bank; Mitsubishi UFJ Bank Implements Salesforce Financial Services Cloud as New CRM System; Credit Saison raises $300 million in bid to expand its Indian lending business
• Payments: Nudge Obtains License for Credit Limits exceeding JPY 100,000; Digital salary payments via smartphone apps and similar means remain underutilized; JCB Enhances Expands Payment Acceptance for App Store and Apple Services in Asia
• Capital Markets: Morgan Stanley downgrades Japanese equities to neutral on yen appreciation; Woodstock launches trading of proprietary community-based baskets
• Digital Assets: FSA Discussion Paper on Regulatory Frameworks for Crypto Assets
• The Last Word: Aging Doesn’t Have to Be Economic Destiny

Venture Capital & Private Markets

• Bain Capital's David Gross on investing in Japan: When David Gross, co-managing partner at investment firm Bain Capital, graduated from college in the late 1980s, he decided “on a bit of a whim” to work in Japan; years later, he returned to the country to build up Bain Capital's presence there; "We're very bullish on Japan,” Gross tells Alison Mass, chairman of investment banking at Goldman Sachs, on the latest episode of Goldman Sachs Exchanges: Great Investors; he adds that the Japanese market has taken a long time to develop, but a recent convergence of forces promises to turn it into “a really big buyout market [and] a market for really all of the asset classes in which we participate,” including private credit and real estate
• UTokyo Innovation Platform has made a limited partner investment in the “Vertex Ventures Japan Fund I,” managed by Vertex Ventures Japan (VVJ); the investment was made through the Academic Startup Acceleration Fund (ASA Fund), operated by UTokyo IPC with support from the Tokyo Metropolitan Government under its startup strategy “Global Innovation with STARTUPS”; VVJ is a member of the Vertex Holdings network—a Singapore-headquartered venture capital holding company with over USD 6 billion in assets under management and a wholly owned subsidiary of Temasek Holdings
• Sumitomo Mitsui Banking Corporation has concluded an investment agreement with MobiSavi, which operates an EV data utilization business using EV performance prediction technology; Sumitomo Mitsui Financial Group has designated "Environment" as one of the priority issues to be actively addressed and has been working to promote the circular use of EV batteries through participation in the "EV Battery Smart Use Council" and "GBNet Fukuoka"
• FactBase raises JPY 1.45bn Series B from Financial Institutions: FactBase and its group companies announce have raised a total of 1.45 billion yen in Series B round through third-party allotment of shares and share transfers to Mitsubishi UFJ Capital, Mizuho Capital, Resona Capital, and others; under the vision of "Creating an order-receiving platform where small factories are the main players," FactBase provides "Zume-n," a drawing management system; aiming to become a core system for the manufacturing industry with drawings as the starting point, it has received favorable reviews from many companies

New Funds

• KDDI forms JPY 5bn KDDI Open Innovation Fund V: KDDI has joined forces with independent venture capital firm Global Brain Corporation to establish the KDDI Open Innovation Fund V, a fund that will invest in companies that have the potential to become seeds for KDDI's new business ventures, particularly in fields such as AI and DeepTech; since 2012, KDDI and Global Brain Corporation have been promoting investments and business co-creation through the KDDI Open Innovation Fund, investing approximately JPY 40 billion in total in 150 promising domestic and international startups across various fields, including AI, IoT, data marketing, FinTech, B2B SaaS, and entertainment
• GOLDEN EGG Ventures has completed the formation of GOLDEN EGG Investment Limited Partnership No. 1 with total capital of over 4 billion yen; eleven financial institutions, eleven non-financial companies, and eight individual investors have participated, and the fund has already begun investing in a number of startups both in Japan and overseas
• Frontier Innovations announces that SME Support Japan and JA Mitsui Leasing have joined as new Limited Partners (LPs) at the second close of the Frontier Innovations Fund 1 operated by the Company as a General Partner; SME Support Japan has agreed to invest up to 2.5 billion yen; this fund is the first to receive anchor LP investment from the Japan Aerospace Exploration Agency (JAXA), the core implementing agency that technologically supports the entire Japanese government's space development and utilization; it is also the first fund in Japan to receive LP investment from a National Research and Development Agency
• MUFG Raising $675M Fund to Shop for Japan Property Bargains: Mitsubishi UFJ Financial Group plans to invest JPY 100 billion ($675 million) in real estate over three years, as MUFG takes advantage of Japan’s undervalued property market; the Japanese group will debut a fund with a JPY 30 billion contribution from MUFG Bank, its flagship banking unit; it also will pursue external contributions to take total investments to JPY 100 billion; Mitsubishi UFJ Trust and Banking will operate the fund, investing in special purpose companies created by property funds and others; MUFG intends to consider expanding the initiative to nearly JPY 200 billion
• Bain Capital is reportedly aiming to raise at least $7bn for its upcoming Bain Capital Asia Fund VI, with plans to commence fundraising at the end of April 2025, surpassing the $4bn raised for its previous Asia-focused fund; the firm has a significant presence in Asia, having invested in companies such as Emcure Pharmaceuticals Limited and CitiusTech Healthcare Technology in India, and acquiring a 60% stake in York Holdings and medical firm Mitsubishi Tanabe Pharma Corporation in Japan

Insurance

• MS&AD Insurance Group Holdings has reached an agreement to sell all of its shares in Challenger Limited, an Australian financial services company with annuities and fund management businesses listed on the Australian Securities Exchange, amounting to 15.1% of the issued shares, to a group subsidiary of Dai-ichi Life Holdings; MS&AD Insurance Group Holdings has been exploring an opportunity for further improvement of its capital efficiency, and accepted a share purchase proposal from Dai-ichi Life Holdings, considering a sufficient premium over the current stock price
• Digital Garage to Launch "Musubell Insurance" in June 2025: Digital Garage has decided to launch "Musubell Insurance," an embedded insurance solution that enables online completion of fire insurance applications when purchasing real estate, as a new service of "Musubell," which allows electronic document creation/management and centralized online status management for real estate transactions; this service will be provided as a DX service for insurance agencies of Tokio Marine & Nichido Fire Insurance starting in June 2025; the service will enable smooth insurance contracting through Musubell by utilizing Robotic Process Automation (RPA) technology for automatic data integration

Banking

• AEON, the mall operator with a fiscal year ending in February, reported full-year results; the financial services segment performed exceptionally well, contributing more than 25% of overall group operating profit; only about 36% of that is attributed to domestic business, which benefited from higher settlement/banking revenue and cost efficiency; international 4Q profit growth continued, with loan expansion offsetting bad debt costs; the segment strengthened fraud prevention through internal controls and external partnerships
• Mizuho completes European reorganization into a universal bank: Mizuho Financial Group announced that Amsterdam-based Mizuho Bank Europe, a subsidiary of Mizuho Bank, has merged with Frankfurt-based Mizuho Securities Europe, a subsidiary of Mizuho Securities; as the surviving entity, Mizuho Bank Europe has successfully commenced operations under its new universal bank structure, offering a fully integrated banking and securities business; in the Europe, Middle East, and Africa (EMEA) region, Mizuho focuses on primary market business and has recently gone through a period of transformation towards a Corporate and Investment Banking model, optimizing its entity/operating structure; in the EU, with its transition to a universal bank model, Mizuho Bank Europe will be better able to provide comprehensive financial services and meet its valued clients’ expectations
• Mitsubishi UFJ Bank Implements Salesforce Financial Services Cloud as New CRM System: Salesforce Japan announces that Mitsubishi UFJ Bank has implemented Salesforce's Financial Services Cloud (FSC) as its new CRM system with approximately 26,000 users, including sales representatives across all branches; this new CRM system aims to centralize customer data and enhance both sales capabilities and customer experience
• German manager magazin reports that SBI Holdings/SBI Investment, which took a majority stake in Banking-as-a-Service provider Solaris SE at the end of last year when rescuing the company from bankruptcy, has put on a search for a new CEO; apparently, one is to expect more crypto business, and a closer cooperation with entities under the SBI Holdings umbrella
• Credit Saison India raises $300 million in bid to expand lending business: the company has secured $300 million through its first dollar loan to diversify funding, planning to expand branches, add new lending segments like MSMEs, and grow its Rs17,000-crore loan book; CS India's funding includes ECBs from various banks, and it aims to deepen relationships and boost its MSME loan share to 35% by fiscal 2028

Payments

• Nudge Obtains License for Credit Limits exceeding JPY 100,000: Nudge has obtained a license as a "Certified Comprehensive Credit Purchase Intermediary" based on the Installment Sales Act; with this certification, Nudge can continue to utilize its proprietary screening model that does not depend on attribute information, while now being able to set more flexible credit limits according to each user's credit status and usage history, without the restriction of "limits of 100,000 yen or less"
• Digital salary payments via smartphone apps and similar means remain underutilized in Japan, with a usage rate of less than 3% in a recent survey, despite being approved two years ago as a key cashless initiative
• JCB Enhances Expands Payment Acceptance for App Store and Apple Services in Asia: JCB Cards are now available as a payment method for the App Store and Apple Services in Taiwan, Thailand, Indonesia, Vietnam, the Philippines, Hong Kong, and Malaysia; customers can now use their JCB Cards to pay for purchases on the App Store, Apple Music, Apple TV app, iTunes, iCloud storage and more; this expansion reflects JCB’s commitment to providing exceptional service and seamless payment solutions to its growing base of Cardmembers across Asia
• Square has appointed Stephen Adams as the Head of Japan; Adams previously served as Vice President at Visa Japan and was responsible for merchant sales and acquiring business; in his new role as Head of Japan, Adams will be responsible for accelerating business growth; he will enhance Square's recognition as a leader in the payment industry while supporting the team to adapt Square's global strategy to the Japanese market through the deployment of innovative products; additionally, he aims to expand partnerships and establish Square as an entity that supports the growth and success of Japanese businesses

Capital Markets

• Morgan Stanley | Morgan Stanley Investment Management downgrade Japanese equities to neutral on yen appreciation
• Woodstock launches trading of proprietary community-based baskets: Woodstock, which operates the Gen Z-focused social investment app woodstock.club, has launched a new basket trading feature that allows users to purchase portfolios based on the Woodstock app users' average performance, which outperforms market averages such as the S&P500 and Nasdaq; The Woodstock Average is an index created based on the top 30 most popular stocks in the woodstock.club community; launched in 2023 as a reference indicator representing the overall performance of the community, Woodstock has been providing transparent information about the top holdings in the community and their long-term performance; the components of the Woodstock Average are diversified across various sectors, not just manufacturing and technology, calculated based on actual user transactions within the app, and rebalanced quarterly
• Eastspring Investments has published "Why stay invested in Japan?"

Digital Assets

• FSA Discussion Paper on Regulatory Frameworks for Crypto Assets: In light of the current state of cryptocurrency transactions, the Financial Services Agency has been examining the state of systems related to cryptocurrencies, as outlined in the Financial Administration Policy for Fiscal Year 2024; they have compiled the results of that examination in the form of a discussion paper released on April 10, 2025; the paper aims to solicit broad public opinion on the current state and future direction of crypto asset regulation in Japan, considering the rapid technological advancements and evolving environment surrounding these assets; it acknowledges the previous regulatory developments and highlights the need for further adjustments to foster a sound crypto asset market, protect users, and promote innovation in the Web3 space; the public comment period ends on May 10, 2025
• Slash Fintech Limited has published its first quarter report

The Last Word: Aging Doesn’t Have to Be Economic Destiny

A recent IMF article shows that reforms would help address this adverse impact of aging in Korea, which is a similar argument we have long made for Japan.

Increasing labor force participation rates, especially among female and older workers, would help limit the decline in the supply of available workers. Drawing on experiences in other advanced economies, in a typical labor market reform scenario, the participation rate for older workers is assumed to increase by 3 percentage points and the gender gap for female participation is expected to decrease by half. Such improvements would offset about one-fifth of the aging impact by 2050. Korea's female labor force participation rate is 63%, below Japan's 75%, so the latter would expect a smaller effect of gender policies.

Improving the efficiency of resource allocation across firms within sectors could increase aggregate productivity growth. This could be achieved through reforms that help channel labor and capital toward fast growing firms with higher productivity. Such reforms include reducing barriers to opening or closing a business, enhancing access to finance, and removing distortive subsidies. In a reform scenario assuming a smaller productivity gap between the top and bottom performing firms, average annual potential growth could increase by 0.22 percentage points. That would be equal to about one-third of the aging impact.

Finally, better and broader use of artificial intelligence would help support potential growth. AI could impact the economy through three channels:

• Labor displacement, in which AI replaces people in some jobs, increasing productivity but reducing labor demand.
• Labor complementarity, where AI complements people in some roles, increasing productivity without eliminating their jobs.
• Overall productivity increase, or AI boosting productivity across all jobs, in turn raising overall labor demand.

The authors show in a separate paper that AI adoption across all three of these channels could significantly increase average annual potential growth by as much as 0.44 percentage point.

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