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Japan FinTech Observer #91

Norbert Gehrke

Norbert Gehrke

— 9 min read
Japan FinTech Observer #91

Welcome to the ninety-first edition of the Japan FinTech Observer.

The Federal Reserve and Bank of Japan meetings dominated this week. With the former a little more hawkish, and the latter a little more dovish than expected, the Japanese Yen has found itself close to the 160 JPY/USD territory again. We side with the Apollo economist who predicts a 40% chance of a US rate hike in 2025, and with our former Goldman Sachs colleagues, who see the Bank of Japan raising by 0.25% every six months, for a terminal rate of 1.5% at the end of the forecast horizon, March 2027.

Here is what we are going to cover this week:

  • Venture Capital & Private Markets: MS&AD Ventures has increased its CVC fund by USD 100m; Yoii has established Japan's first Revenue-Based Financing (RBF) fund; Sngapore-based Funding Societies has raised US$25 million in equity investment from the Cool Japan Fund (CJF)
  • Banking: GMO Aozora Net Bank topped the list for increase in main bank corporate customers; Yamaguchi Financial Group went live on nCino to integrate the entire process for mortgages, from application to approval and contracting; Sumitomo Mitsui Trust Bank has begun a review of its system development, maintenance, and operation structure; South Korean cybersecurity firm RaonSecure has won a contract with Sumishin SBI Net Bank; SBI Savings Bank wins the "Savings Bank Grand Prize" at the Korea Financial Awards
  • Payments: the second CBDC liaison meeting between the Bank of Japan and related ministries was held; Digital Garage has launched "CurePort," an online payment service optimized for the medical industry
  • Capital Markets: Nomura became subject to further sanctions for unlawful trading of Japanese government bond futures conducted in March 2021; US Senators' letter to the CFTC asks to allow US investors to clear yen swaps at Japan Securities Clearing Corporation
  • Digital Assets: LDP's proposal for making cryptocurrency an asset that benefits the national economy; Metaplanet is aggressively pursuing a "Bitcoin First, Bitcoin Only" strategy; build the Open Internet with SCS and thirdweb; Binance Japan 2024 review and 2025 outlook
  • The Last Word: Bankruptcies on the rise

Bank of Japan Monetary Policy Meeting

The Bank of Japan has concluded its last Monetary Policy Meeting (MPM) of the calendar year, issuing its "Statement on Monetary Policy" while leaving policy rates unchanged. Governor Ueda's press conference was a little more interesting, with him raising two points that might be interpreted differently with regards to further rate hikes in January or March.

First, Ueda says it's unlikely that all the information about the Shunto negotiations will be available for the January meeting, so the board will look at a combination of Shunto-related information, the thematic review, and Trump administration policies/statements etc, and incorporate all these into their outlook for the future, which will inform policy decisions.

In answering another question, the Governor clarifies that he uses the word "momentum" to refer to the overall trend in wage negotiations and the direction they are likely to go. He acknowledges that this can be gauged to an extent by pre-negotiation announcements by companies, but that a fuller picture requires the completion of the negotiation period itself.

Additionally, the Bank of Japan completed its "Review of Monetary Policy from a Broad Perspective". Since the late 1990s, when Japan's economy fell into deflation, achieving price stability has been a challenge. In April 2023, the Bank of Japan decided to conduct a review of monetary policy from a broad perspective in order to deepen its understanding of monetary policy during that period and gain insights that would be useful for future policy conduct. The results of this review are available as the full document, and also in summary form.

Supporting the review, the Bank of Japan also published four working papers:

The overall sentiment of the review, judging the unconventional monetary policy under Kuroda as overall positive, has attracted heavy criticism from economists, alleging the discounting of significant side effects.

We offer a very simple measure to judge the policy's success. On starting his role, Kuroda promised two percent inflation in one year. What he accomplished was two percent inflation over ten years. Please form your own opinion.

Venture Capital & Private Markets

  • MS&AD Ventures has increased the fund amount by USD 100m, which brings the total amount under management to USD 400m; the CVC's investment target are startups that potentially generate financial returns and contribute to MS&AD group’s business expansion; typically, this would be startups focusing on the early stages in the areas of InsurTech, FinTech, Life & Health, Sustainability, Mobility, AI, and others; MS&AD Ventures has made 112 investments to date
  • Yoii has established Japan's first Revenue-Based Financing (RBF) fund with participation from Mitsubishi UFJ Trust & Banking and others; through this fund, Yoii will continue to support the growth of startups and small and medium-sized businesses (SMBs) that are taking on new challenges; Yoii launched a product called Yoii Fuel in 2021 and began offering RBF with the desire to provide a new option for financing for growing companies
  • Funding Societies has raised US$25 million in equity investment from Cool Japan Fund (CJF); the investment from CJF signifies the fund's first investment into a FinTech company in Southeast Asia; Funding Societies will funnel the investment to deepen its core business in SME financing across its five markets - Singapore, Indonesia, Malaysia, Thailand, and Vietnam - whilst further expanding its payment business since embarking on it in 2022

Banking

  • In the "2024 Corporate Main Bank Survey", GMO Aozora Net Bank topped the list for increase in main bank corporate customers (for companies with 500 or more clients); while GMO Aozora Net Bank was previously not included in the analysis due to this threshold, in 2024 its customer base rapidly increased to 890 companies, achieving a remarkable 118.6% year-on-year growth rate; the internet-only bank, established in July 2018, is particularly popular among startups and newly established companies. Key strengths include: free interbank transfers up to 20 times per month for companies less than one year old; same-day account opening; and speed of service
  • In October 2023, Yamaguchi Financial Group (YMfg) decided to adopt the nCino Bank Operating System to integrate the entire process for mortgages, from application to approval and contracting. This platform has now launched, improving convenience for customers and housing providers while enhancing employee efficiency; the project achieved rapid implementation by minimizing customization to leverage the ever-evolving features of cloud technology
  • Sumitomo Mitsui Trust Bank has begun a review of its system development, maintenance, and operation structure to strengthen financial IT services, realizing that it is key to realizing future growth; these steps go into the right direction, but are keeping the organization still far from being product-based; it is going to be a long journey
  • South Korean cybersecurity firm RaonSecure has won a contract worth 3.57 billion won (approximately $2.7 million USD) with Japan’s Sumishin SBI Net Bank to provide its biometric authentication solution, TouchEn OnePass; the deal marks a significant expansion of RaonSecure’s presence in Japan, following the company’s established track record in blockchain-based biometric solutions; this expansion into the Japanese financial technology sector builds upon RaonSecure’s expertise demonstrated through its previous implementation of blockchain-supported biometric authentication for the South Korean military
  • SBI Savings Bank wins the "Savings Bank Grand Prize" at the Korea Financial Awards: SBI Savings Bank stands out as a leader in fulfilling the original mission of savings banks: revitalizing low-income finance. Its commitment is evident across numerous initiatives designed to support financial inclusion and consumer well-being; the innovative "CIDA" product, launched in 2015 with an average annual interest rate of 9.9%, offered a significantly more affordable option compared to prevailing market rates for savings bank loans (25.8%), credit cards (15.7%), and cash services (17.16%); this commitment to fair lending has helped improve the overall image of savings banks

Payments

Capital Markets

Digital Assets

  • Japan Smart Chain is the sovereign blockchain for Japan; it is a public Layer 1 Ethereum Equivalent blockchain validated entirely onshore by Japan’s industrial leaders; JSC embeds digital KYC/AML methods into the Layer 1 infrastructure layer with its pioneering Mizuhiki Protocol, built to reduce compliance burdens on operators and users; the Protocol contains an identification method that users can control themselves, combined with a suite of eKYC tools and services optimised for Japanese regulations; the Mizuhiki Protocol will be provided free of charge to Japan Smart Chain projects and end-users
  • LDP's proposal for making cryptocurrency an asset that benefits the national economy: on December 19, 2024, a joint meeting of the LDP, Digital Society Promotion Headquarters, and the Financial Research Council took place; after hearing from the Financial Services Agency regarding the current state of expanding cryptocurrency transactions and a presentation from the Japan Crypto Asset Business Association (JCBA) regarding the current state of security in the crypto industry, the LDP has compiled urgent recommendations regarding three key points: taxation reform, review of the regulatory framework, and strengthening cybersecurity
  • Metaplanet (TSE:3350) is aggressively pursuing a "Bitcoin First, Bitcoin Only" strategy, transforming its operations and balance sheet around Bitcoin acquisition and related activities; here is a summary of their recent activities based on the announcements this week, including Bitcoin Treasury Operations as a new business line; the issuance of stock acquisition rights and bonds; and an updated consolidated earnings forecast
  • Build the Open Internet with SCS and thirdweb: Startale Cloud Services (SCS) hosted a Twitter Space discussion at the beginning of the week, focused on the key technologies driving mass adoption in Web3, particularly account abstraction, zero-knowledge proofs (ZKPs), and AI agents
  • Binance Japan hosted a press briefing, with CEO Takeshi Chino reviewing the overall market in 2024, as well as Binance Japan accomplishments, and providing an outlook into the next year

The Last Word: Bankruptcies on the rise

Corporate bankruptcies in Japan have significantly increased during November 2024. The number of bankruptcies has risen for the third consecutive month, and total debt is sharply higher compared to the same month last year. This trend is driven by a combination of factors including rising costs, labor shortages, and lingering effects of the COVID-19 pandemic. The data indicates a potential return to pre-pandemic levels of bankruptcies, possibly exceeding 10,000 cases annually.

From an overall economic perspective, there are many "zombie companies" that can hardly generate sufficient returns to pay the interest on their loans, even at the historically depressed levels. The small steps that the Bank of Japan has taken this year in policy normalization already put an additional burden on these companies. There is a need, however, to weed out these zombie companies to make space for new, more productive enterprises in a process of "creative destruction". For Japan to achieve its targets for the startup ecosystem, there is no alternative.

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