Japan FinTech Observer #92

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

We would like to express our gratitude for your support and enthusiasm in growing our subscriber count by 44% this year, and wishing you a fulfilling year of the snake.

The Nikkei closed the year up 19.22%, setting a new year-end record by breaking the previous mark set 35 years ago. After closing above 40,000 on Friday for the first time since July 19, the index gave up some gains to miss that mark on the last trading day of the year (Monday, December 30). For USD-benchmarked investors, the TOPIX and Nikkei performance comes out to a mere 5 to 6 percent, however, making them rank one of the worst among major global equity indices.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Gojo & Company, on a path to become Japan's next FinTech unicorn, has expanded into Georgia with the acquisition of 16.8% stake in JSC Credo Bank; Nomura Capital Partners invests in Tap, a leading solution vendor specializing in property management systems; InsurTech IB has raised approximately 100 million yen in funding from TSE-listed Trade Works and Seibu Shinkin Capital
• Banking: FSA sanctions AEON Bank for AML/CFT deficiencies; SMFG infuses USD 350m into Indian NBFC arm
• Payments: the Bank of Japan has published the minutes of the Eighth Meeting of the Liaison Council on Central Bank Digital Currency; the 7th meeting of the Financial System Council's Working Group on Payment Services was held, reviewing a draft of the working group's report to be published in 2025; the Regulatory Reform Promotion Council held its 22nd session, discussing easing measures for digital wage payments
• Capital Markets: MUFG Bank will acquire 100% of shares of various overseas securities subsidiaries; Sumitomo Mitsui Financial Group is looking to expand its alliance with Jefferies Financial Group
• Asset Management: WealthNavi raises operating profit forecast by 52%
• Digital Assets: Identification of North Korean cyber actors responsible for USD 308m DMM Bitcoin hack; SMBC Nikko Securities and Nonagon Capital have agreed to a strategic partnership; Borderless LLC supported and completed the first DAO LLC fundraising in Japan
• The Last Word: Korea's nominal GDP passes Japan's

eXponential Finance Podcast

The simpler way to pay in Japan....while doing good

In this episode of the eXponential Finance Podcast, we explore the challenges foreign residents face when opening bank accounts in Japan. Declan Somers, Chief Executive Officer of Mobal Communications, the owner of MobalPay, shares his unique journey to & from Japan to Ireland, working in telecoms, and their impactful work in Malawi.

The discussion dives into the features and impact of their mobile pay product, how it aids the foreign community in Japan, and their charitable coffee business supporting Malawian children.

Key topics include the transition from physical SIM cards to eSIMs, the integration of point systems for payments, and the growing importance of Asian residents in Japan. Declan also addresses fraud prevention, the benefits of prepaid cards, and the significance of trust and physical presence in financial services

The episode is available on Apple Podcasts, Spotify, Amazon Music, YouTube, and many other major platforms.

Venture Capital & Private Markets

• Gojo & Company, on a path to become Japan's next FinTech unicorn, has expanded into Georgia with the acquisition of 16.8% stake in JSC Credo Bank, the country’s fifth-largest commercial bank; Credo transformed from a microfinance organization into a full-fledged bank after obtaining a banking license in 2017; Gojo will support Credo to continue pursuing its mission of supporting Georgia’s micro, small and medium entrepreneurs and their employees to create a better future by offering affordable financial services
• Nomura Capital Partners invests in Tap, a leading solution vendor specializing in property management systems (PMS) for hotels and inns for nearly 40 years since its founding in 1987; highly valued for its customizable and stable maintenance systems, the company has built solid relationships with major hotel chains in Japan, significantly contributing to enhancing the value of hospitality services
• IB has raised approximately 100 million yen in funding from TSE-listed Trade Works and Seibu Shinkin Capital, for a total amount raised of approximately 430 million yen; "Hokenbo," the insurance management app provided by IB, is a free app that allows users to manage and share insurance and mutual aid policies by uploading insurance certificates for themselves and their families

Banking

• FSA sanctions AEON Bank for AML/CFT deficiencies: The Financial Services Agency has issued a business improvement order to AEON Bank pursuant to Article 26, Paragraph 1 of the Banking Act; the Bank left at least 14,639 transactions detected by the transaction monitoring system unaddressed without determining whether they constituted suspicious transactions during June to November 2023 and July to September 2024
• SMFG infuses USD 350m into Indian NBFC arm: Sumitomo Mitsui Financial Group (SMFG) has made a significant capital investment of ₹3,000 crore in SMFG India Credit Corporation (SMICC) through a rights issue, demonstrating its strategic commitment to expanding its Indian operations; of this investment, ₹300 crore has been allocated to its wholly-owned subsidiary, SMFG India Home Finance; as of September 30, 2024, SMFG India Credit reported assets under management of ₹49,800 crore, representing a 25% year-over-year growth; this follows an earlier capital injection of ₹1,300 crore in April, marking the largest combined annual investment to date
• The Bank of Japan (BOJ) and the Financial Services Agency (FSA) jointly conducted a cybersecurity self-assessment (CSSA) for regional financial institutions in Japan to assess their cybersecurity management posture and identify areas for improvement; the report serves as a detailed analysis and provides insights into the overall cybersecurity landscape of these institutions

Payments

The Bank of Japan has published the minutes of the Eighth Meeting of the Liaison Council on Central Bank Digital Currency, held on November 25, 2024, which included statements of opinion by various stakeholders

• On December 24, 2024, the 7th meeting of the Financial System Council's Working Group on Payment Services was held, reviewing a draft of the working group's report to be published in 2025; this covers diversification of methods for returning user funds in the event of the failure of a money transfer service provider, issues concerning remittance and settlement services, such as the regulation of collection agents, preventing the outflow of assets overseas in the event of the bankruptcy of cryptocurrency exchange operators, and issues related to payment methods, application of money lending regulations to advance payment services, and other issues
• The Regulatory Reform Promotion Council held its 22nd session on December 25, 2024, and was reviewing its comprehensive interim report, which also included measures to simplify the rules for digital wage payments in order to promote a cashless society; detailed discussion are to commence in the first half of FY2025, and the implementation is to proceed promptly once a conclusion is reached

Capital Markets

• MUFG Bank will acquire 100% of shares of the following overseas securities subsidiaries: MUFG Securities EMEA, MUFG Securities Asia, and MUFG Securities (Canada), currently owned by MUSHD, making them direct subsidiaries of MUFG Bank; the reorganization is scheduled for July 1, 2025, subject to the completion of necessary procedures, including approvals from the relevant regulatory authorities in Japan and abroad
• Sumitomo Mitsui Financial Group is looking to expand its alliance with Jefferies Financial Group, possibly working together in new areas such as equity trading to build up its global business, according to the bank’s chief executive officer; under the collaboration that started in 2021, Japan’s second-biggest lender has worked with Jefferies to compete in the US financial markets; the focus so far has been on ramping up underwriting of new stocks and bonds as well as advising on deal making; now Toru Nakashima, Sumitomo Mitsui’s CEO, is considering whether the two firms can also join forces in the share market
• The Ministry of Finance - Japan has released its “JGB Issuance Plan for FY2025"; the total amount is set at 176.9 trillion yen and decreases by 5.1 trillion yen compared with FY2024 (Initial); regarding market conditions, the market issuance by periodic auctions is set at 172.3 trillion yen; short-term and medium-term bonds are increased and super long–term bonds are decreased; prepare for the issuance of new floating-rate JGBs linked to short-term interest rates in order to meet investment demands from banks; considers to sell “JGBs for Retail Investors” to non-profit corporations and unlisted companies in order to expand stable holders

Asset Management

• WealthNavi raises operating profit forecast by 52%: WealthNavi has revised upwards its earnings forecasts for the fiscal year ending December 31, 2024, (FY2024) which was previously announced on August 9, 2024; note that in the interim, MUFG Bank has made a tender offer for all outstanding shares and stock acquisition rights of WealthNavi, a publicly traded robo-advisor company listed on the Tokyo Stock Exchange Growth Market. The offer period ends on January 20, 2025

Digital Assets

• Identification of North Korean cyber actors responsible for USD 308m DMM Bitcoin hack: The Federal Bureau of Investigation, Department of Defense Cyber Crime Center, and National Police Agency of Japan are alerting the public to the theft of cryptocurrency worth $308 million U.S. dollars from the Japan-based cryptocurrency company DMM by North Korean cyber actors in May 2024; the theft is affiliated with TraderTraitor threat activity, which is also tracked as Jade Sleet, UNC4899, and Slow Pisces; TraderTraitor activity is often characterized by targeted social engineering directed at multiple employees of the same company simultaneously
• SMBC Nikko Securities and Nonagon Capital have agreed to a strategic partnership, whereby SMBC Nikko will participate as a "Web3 Supporter" in the community service "Nonagon Connect" provided by Nonagon Capital, serving major corporations launching and driving their Web3 initiatives
• Borderless LLC supported and completed the first DAO LLC fundraising in Japan; Kaba DAO, a limited liability company-type DAO, successfully raised funds using Borderless services; participants acquired digital membership rights through self-funding on the Kaba DAO website and event booths; this innovative approach reduced the time and cost of traditional membership contribution processes by approximately 90%, enabling digital completion of contracts, identity verification, and payment procedures

The Last Word: Korea's nominal GDP passes Japan's

In 2022, South Korea's per capita GDP surpassed Japan's for the first time on record, reaching USD 34,822 compared to Japan's USD 34,112. This trend continued in 2023, with South Korea reaching USD 35,563 and Japan declining to USD 33,849, according to data released by the Japanese Cabinet Office. South Korea's figures benefited from retroactive revisions. This marks the first time South Korea has outpaced Japan in comparable statistics since these became available in 1980.

Japan's 2023 per capita GDP ranked 22nd among the 38 OECD member countries, its lowest position since 1980, and last among the G7 nations for the second consecutive year, falling below Italy's USD 39,003. Japan's nominal GDP in 2023 was 4.21 trillion US dollars, representing 4% of global GDP, and was surpassed by Germany's 4.52 trillion US dollars for the first time.

The yen's weakness against the dollar is a significant contributing factor to Japan's lower GDP figures in dollar terms. The Cabinet Office used an exchange rate of 140.50 yen per dollar for the 2023 report, and the average rate of 151.30 yen per dollar between January and November 2024 suggests a further decline in reported GDP. The Japan Center for Economic Research (JCER) projects that Taiwan will also overtake Japan in nominal GDP per capita in 2024.

Declining workforce productivity is another contributing factor, with Japan ranking 29th among OECD members at USD 56.80 per hour worked in 2023. JCER highlights the significant gap between Japan's labor productivity and that of South Korea and Taiwan, advocating for increased reskilling and digitization initiatives. Demographic factors, including an aging population with over half of households including individuals 65 or older, further complicate the situation, limiting the impact of corporate efforts like pay raises. Experts suggest that structural reforms addressing senior labor participation are crucial for long-term improvement in household income.

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