Japan FinTech Observer #93

Happy new year, and welcome to the ninety-third edition of the Japan FinTech Observer.

With January 6 being the first trading day of the year, and also the first workday for many, the past week surely has been quiet. Still, the narrative for the next Bank of Japan Monetary Policy Meeting on January 23 & 24 has been shifting slowly. While about four weeks ago, a "December or January hike" seemed close to certain, there is an equal split opinion of a "January or March hike" evolving.

The two reasons cited by the BOJ for standing pat in December, first, the need for additional information regarding domestic wage developments, and second, uncertainty over economic policy under a Trump administration (with the inauguration on January 20), still hold, so Ueda's dovish December comments leave the market guessing the timing. Regardless, end-2025 BOJ policy rate forecasts remain firmly in the 0.75% to 1% range.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: a venture-capital fund headed by former Japanese national soccer team player Keisuke Honda has raised about ¥15.3 billion ($98 million)
• Insurance: Sompo Institute Plus has published a research report analyzing the relationship between population decline and the availability of various services in Japanese cities
• Banking: two regional banking mergers have been concluded on January 1; Mizuho Financial Group and NTT DATA will develop a "Mizuho-Specialized Model" based on NTT's large language model "tsuzumi"
• Payments: LINE Pay Taiwan has become the first global LINE service to be officially listed on a stock exchange, joining the Taiwan Stock Exchange (TWSE) at a unicorn valuation
• Capital Markets: Japan is considering revisions to its disclosure rules for strategic shareholdings; the Bank of Japan has published a summary of the discussions held with representatives from commercial banks, securities firms, and buy-side institutions regarding the Japanese government bond market; JSCC sets monthly and yearly IRS clearing records
• The Last Word: The Japanification of China

Too pessimistic?

While we talking heads can talk endlessly about the timing of the next Bank of Japan rate hike, and a "virtuous cycle between wages and prices", the stark reality remains that prices have far, far outpaced wages to date, resulting in more hardship (much of that also under the surface) for lower-middle class families and beyond.

Price increases for rice and other foodstuffs have been far in excess of the headline inflation numbers, which obviously hits those hardest who pay a larger percentage of their income for food. The Engel's coefficient as published by Nikkei Asia demonstrates that even in comparison to its OECD peers, Japanese have been the highest spenders on food for ten years now.

Labor shortages result first and foremost in "everyone chipping in" and working even longer hours to make up for the shortfall, especially in small- and medium-sized companies, before there is a material change in income. So that's why regular Japanese are not quite as optimistic (yet) as the Economist you see on CNBC.

Venture Capital & Private Markets

• A venture-capital fund headed by former Japanese national soccer team player Keisuke Honda has raised about ¥15.3 billion ($98 million), according to a document seen by Bloomberg; SMBC Group, Nomura and SBI Holdings are among at least 20 companies that invested in Honda’s X&KSK Fund, according to the document; SBI Holdings and SBI Shinsei Bank have parked a combined ¥2 billion in the fund, making them the biggest shareholders

Insurance

• Sompo Institute Plus, the think tank of the Sompo Group, has published a research report analyzing the relationship between population decline and the availability of various services (both private and public) in Japanese cities; it uses data on the number of stores and facilities per city to estimate "thresholds" at which service levels might decrease due to population loss

Banking

• Two regional banking mergers have been concluded on January 1: first, Aichi Bank and Chukyo Bank, both subsidiaries under Aichi Financial Group, have combined to form Aichi Bank, now the only regional bank in the prefecture next to Nagoya Bank; second, Aomori Bank and Michinoku Bank, both subsidiaries under Proclea Holdings, merged to form Aomori Michinoku Bank, with the combined entity responsible for more than 70% of the prefectures lending, according to Nikkei
• Mizuho Financial Group and NTT DATA have signed a joint research agreement to develop a "Mizuho-Specialized Model" based on NTT's large language model (LLM) "tsuzumi"; this aims to build a customized generative AI model that reflects Mizuho's unique culture and know-how, pursuing something beyond a general financial model that is uniquely "Mizuho"
• Hiroshima Banking Reborn: Hirogin Holdings is revitalizing Hiroshima through trusting relations with the regional community

Payments

• At the end of 2024, LINE Pay Taiwan became the first global LINE service to be officially listed on a stock exchange, joining the Taiwan Stock Exchange (TWSE) at a unicorn valuation
• Its parent entity, LY Corporation, submitted its most recent remediation reports to the Ministry of Information and Communications (MIC) and the Personal Information Protection Commission (PPC); the work on the cybersecurity measures and separation of networks from Naver and Naver Cloud is progressing, although quite a few of the remediation items extend to March 2026, in particular for non-Japanese subsidiaries
• The progress to date appears to sufficiently placate the regulator so that LY Corporation is allowed to further integrate its services; the next milestone will be the integration of Corporate IDs across LINE and Yahoo!Japan, so that retail customers across those multiple platforms can be uniquely identifies; the rollout of these features is expected for mid-year

Capital Markets

• Japan is considering revisions to its disclosure rules for strategic shareholdings (also referred to as "policy-held shares", i.e. shares held for reasons other than pure investment), as outlined by the Financial Services Agency (FSA) in November; these revisions aim to enhance transparency and address concerns about companies reclassifying strategic shareholdings as purely investment-oriented without substantially altering the nature of their holdings; the proposed amendments, which are subject to public consultation, will require expanded disclosures regarding changes in the purpose of shareholding
• The Bank of Japan has published a summary of the discussions held with representatives from commercial banks, securities firms, and buy-side institutions (collectively referred to as "market participants") regarding the Japanese government bond (JGB) market; the meetings, held in early December 2024, covered topics such as recent market trends, JGB market functioning and liquidity, BOJ operations, and inflation-indexed bonds
• In related news, the Japan Securities Clearing Corporation (JSCC) has announced that the monthly clearing volume for its interest rate swap transactions (IRS) reached a record-breaking 1,060 trillion yen in December 2024, surpassing the 1,000 trillion yen mark for the first time; furthermore, the yearly clearing volume of 2024 also achieved an unprecedented high of 8,272 trillion yen, doubling the previous record of 4,025 trillion yen set in 2023

The Japanification of China

When catching up on my reading over the holidays, a Barclays article published in November caught my attention. Titled "Is China having its ‘big bazooka’ moment?", it posits that Chinese growth has slowed in 2024 and the outlook for 2025 does not look much better.

A property bust and an anticipated soaring number of those aged over 65 in the coming decade are among factors depressing the economic outlook. But the authorities have announced a series of measures designed to manage debt and revive growth. However, turning the Chinese economy around might require even more support.

The authors present a "Japanification Index", originally introduced by Japanese economist Takatoshi Ito, and expanded by Barclays Investment Bank to include China by replacing the harder to estimate GDP gap (the difference between the real growth rate and the potential growth rate) by the working age population gap instead.

By this measure, China has fallen further into "Japanification" while Japan has started to pull itself out, with the paths of the two countries crossing.

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