Japan FinTech Observer #70

Welcome to the seventieth edition of the Japan FinTech Observer.

Toyota’s board has approved a tender offer to buy back its own shares, and MUFG plans to tender a 0.42% stake in Toyota versus its total cross-shareholdings of 1.68%, and SMBC plans to tender a 0.36% stake versus its total holding of 1.44%. If all tendered shares are taken up, depending on the original acquisition price (which is not public), the realization of gains will contribute somewhere around three to six percent to each bank’s full year profit guidance, all in the second quarter. The banks will have capital to invest into more profitable ventures, and/or return it to shareholders. On the other side, Toyota announced that it will dispose a third of its MUFG stake (0.44% out of 1.32%) and it entire holdings of SMBC (0.52%).

Then, the Bank of Japan’s Monetary Policy Meeting is coming up on Tuesday and Wednesday. As announced in the June MPM, the BOJ will provide a detailed plan on how it will reduce its Japanese Government Bond purchases over the next year or two. Currently running at JPY 6trn per month, some analysts assume a halving over a two year period, for example through a reduction of JPY 500bn per quarter in year one, and JPY 250bn in year two. The key question will be whether the BOJ will raise the policy rate at the same time, from 0 to 0.1% to 0 to 0.25%? Most of the analysts we follow expect the rate hike during this meeting (although swap rates on Friday indicated only a 50% likelihood), but diverge on their projection for a second rate hike (this year vs. early next year). Given that this BOJ leadership has been relatively aggressive in terminating its negative interest rate policy earlier in the year, we side with the majority and see a rate hike this week, especially as there remains a risk of the economy turning weaker, eliminating the opportunity for further normalization.

Otherwise, here is what we are going to cover this week:

• Venture Capital & Private Markets: Toshiba will make a corporate venture capital investment in Quantonation II; HIRAC FUND has invested in Return Helper, a provider of cross-border e-commerce return services; JAFCO Group has invested in MDP; Sumitomo Mitsui Banking Corporation has established a private credit fund in Europe; Blackstone’s first-ever private equity fund for Japanese individual investors raised $1.2 billion
• Banking: MUFG has held its Investor Day; Sumitomo Mitsui Financial Group has begun a proof-of-concept experiment using avatar customer service; Sustainable Lab has entered into a business partnership with Gunma Bank; Credit Saison has committed USD 100m each to its expansion into Mexico and Brazil; Sumitomo Mitsui Financial Group’s US digital bank, Jenius Bank, has now launched its mobile app
• Payments: Digital Garage has launched the “cars Smart Card Payment powered by DGFT Invoice Card Payment”; Infcurion will provide its international brand card issuing platform “Xard” for “AD YELL”
• Capital Markets: Toyota has launched its tender offer for its own shares with mega banks planning to offer some of their holdings; Alpaca and and Citadel Securities have extended their strategic partnership in Japan; Toho Bank Group and Nomura Holdings, have concluded a definitive agreement for a comprehensive business alliance in financial instruments intermediary services; Baton Systems has completed bi-directional integration with the Japan Securities Clearing Corporation; the Tokyo Stock Exchange will launch a study group on small-size investments
• Asset Management: SBI Holdings and Franklin Templeton will form a joint venture asset management company in Japan; WealthNavi has reached 1.3 trillion yen in assets under management; former Macquarie Group quantitative hedge fund chief Nick Bird is starting a new Japan strategy
• Digital Assets: Cryptocurrency exchange Gate.io is leaving Japan; Nomura’s Laser Digital plans to launch an Ethereum fund with staking; Digital Asset Markets has signed a Memorandum of Understanding with Ava Labs to support the issuance of RWA tokens; Mitsui Knowledge Industry has signed a memorandum of understanding with SettleMint to develop the domestic market for blockchain solutions; leading gaming blockchain Oasys has announced the beta launch of Oasys Spring, an innovative smart contract deployment tool
• The Last Word: Municipalities “at risk of extinction”

Venture Capital & Private Markets

• Toshiba will make a corporate venture capital investment in Quantonation II, a fund operated by Quantonation Ventures, a leading quantum technology investment fund based in Europe and the US; Toshiba has committed to invest in Quantonation II, with the aim of accelerating research and development of quantum technology and advancing the practical application of quantum-based services through collaboration with Quantonation and the companies in its portfolio
• HIRAC FUND, operated by Money Forward Venture Partners, a group company of Money Forward, has invested in Return Helper, a provider of cross-border e-commerce return services; HIRAC FUND is a venture capital fund that invests primarily in seed and early-stage startups aiming to solve social issues through technology. The current HIRAC FUND №2 Investment Limited Liability Partnership has a fund size of about JPY 9bn
• JAFCO Group has invested in MDP as a strategic partner through funds it manages (JAFCO BO7 Investment Limited Partnership and JAFCO SV7-S Investment Limited Partnership); MDP has established a unique position in the digital promotions domain by integrating digital coupons and advertising campaign systems with its consulting capabilities
• Sumitomo Mitsui Banking Corporation, a subsidiary of Sumitomo Mitsui Financial Group has established a private credit fund in Europe; Sumitomo Mitsui DS Asset Management, which is also a SMBC Group company, is participating in the fund as an LP investor, and SMDAM will develop optimal investment products to investors both in Japan and abroad leveraging the expertise of SMBC Group; the fund will focus on direct, senior-secured loan investments to middle-market businesses in Europe operating in resilient sectors less affected by economic trends; the fund size is €450m, and SMBC Group will provide finance-related advisory services to the fund
• Blackstone’s first-ever private equity (PE) fund for Japanese individual investors raised $1.2 billion just four months after its launch, adding to signs that people in the Asian nation are warming to alternative assets; the dollar-denominated Blackstone Private Equity Strategies Investment Trust reached that amount — equivalent to about ¥188 billion — at the end of June, according to figures from the Japan Securities Dealers Association
• Senior Managing Director, Direct Investing, Private Capital, Cindy Yan, shares insights on how the market has evolved and why Japan is an attractive investment market for Ontario Teachers’ Pension Plan

Banking

Source: SBI Sumishin Net Bank

• Japan’s Banking Act does not have a requirement to maintain physical branches, so pure-bred digital banks have a long history in this country; above graph compares the share price performance of two examples of banks that IPO’ed last year, namely SBI Sumishin Net Bank and Rakuten Bank, with the mega banks
• MUFG has held its Investor Day, with a detailed review of the new Medium-Term Business Plan (MTBP) by business line; we have summarized the key points from the presentation; in the domestic retail business, it is noteworthy that key initiatives planned directly address the competitive situation vis-a-vis SMBC’s all-in-one financial app “Olive”, which has just crossed three million registered users; MUFG will renew its own app and include ecosystem services, and it will modernize its credit card offering, including its loyalty point program
• Following recent news that Mizuho Bank and Sumitomo Mitsui Trust Bank have participated in an investment round totaling ¥3.7 billion by avatarin, an ANA Holdings startup, in order to collaborate on the creation of industry-specific AI services where people and AI coexist, we also note that Sumitomo Mitsui Financial Group has begun a proof-of-concept experiment using avatar customer service for a portion of its corporate call center operations; in September 2023, SMBC Group signed a basic agreement with AVITA to begin exploring collaboration using AI technologies such as avatars and generative AI, and has been considering potential applications in various operations and service
• Sustainable Lab, developer and provider of Japan’s largest non-financial data platform “TERRAST”, has entered into a business partnership with Gunma Bank to launch new services for SMEs, promoting ESG management and information disclosure; this scoring service, jointly developed by Sustainable Lab, evaluates and scores a company’s overall SDGs/ESG initiatives and allows for benchmarking against other companies in the same industry
• Credit Saison has committed USD 100m each to its expansion into Mexico and Brazil
• Sumitomo Mitsui Financial Group’s US digital bank, Jenius Bank, has now launched its mobile app for both iOS and Android devices

Payments

• Digital Garage has launched the “cars Smart Card Payment powered by DGFT Invoice Card Payment,” a B2B payment service to support the cash flow of automotive businesses using “cars MANAGER”, a shared marketing automation service for the automotive industry provided by cars; the payment service is based on “DGFT Invoice Card Payment”, a service that DG has been developing since 2022; this project is part of the group strategy “DG FinTech Shift” and aims to further expand DG’s payment services for the B2B market
• Infcurion will provide its international brand card issuing platform “Xard” for “AD YELL”, a Web advertising fee installment payment service (BNPL) to be launched in August 2024 by Bankable, a group company of Digital Holdings; “AD YELL” allows businesses to split and pay their web advertising expenses in four installments, and supports both invoice and corporate card payments

Capital Markets

• Unwinding of cross-shareholdings: Sumitomo Mitsui Financial Group, Sumitomo Mitsui Banking Corporation and SMBC Nikko Securities have decided to tender a part of the common shares of TOYOTA held by SMBC Group in the tender offer for own shares by TOYOTA, which was resolved at the meeting of the Board of Directors of TOYOTA on Tuesday; if all the shares tendered by SMBC Group were purchased by TOYOTA, it would reduce the former’s holdings from 1.44% to 1.08% of TOYOTA
• Alpaca, an API-focused brokerage that operates a modern infrastructure for stocks, ETFs, and options trading and serves hundreds of financial services businesses globally, and Citadel Securities, a leading global market maker, have extended their strategic partnership in Japan to jointly leverage their expertise in brokerage infrastructure, trade execution and clearing, and record keeping for U.S. Stocks and Options trading; Alpaca has partnered with Citadel Securities for trade execution services since 2019, and today Alpaca’s infrastructure serves businesses from 30 different countries globally
• The Toho Bank and its wholly owned subsidiary, Toho Securities, and Nomura Securities, a wholly owned subsidiary of Nomura Holdings, have concluded a definitive agreement for a comprehensive business alliance in financial instruments intermediary services as previously announced on August 30, 2023; Nomura Securities will succeed to the customer accounts and rights and obligations related to a portion of the registered financial institution business, such as the over-the-counter sales of public bonds and investment trusts by Toho Bank, and the customer accounts of Toho Securities through a company split (absorption-type company split)
• Baton Systems has completed bi-directional integration with the Japan Securities Clearing Corporation through its Baton Core-Collateral ecosystem; the move will enable JSCC’s clearing member clients using the Core-Collateral platform to have direct access to the largest central counterparty in Asia; users of Baton’s Core-Collateral are now able to automate and expedite the movement of cash and securities across 13 CCPs; this can be done via a single platform which also consolidates and normalises real-time updates related to required margin, sources of collateral, and eligibility profiles
• The Tokyo Stock Exchange will launch a study group on small-size investments in October

Asset Management

• SBI Holdings and Franklin Templeton have signed a definitive agreement to form a joint venture asset management company in Japan; under the terms of the agreement, SBI will hold a 51% stake in the Joint Venture and Franklin Templeton will hold a 49% stake; the joint venture will offer a range of investment products and services to Japanese investors, including ETFs, digital assets, and other innovative investment products; the parties expect the transaction to close in the first half of 2025
• WealthNavi, the provider of “WealthNavi,” the top Japanese robo-advisor in terms of assets under management and number of users, has reached 1.3 trillion yen in assets under management (AUM) as of early July 2024, nearly eight years after the official release in July 2016
• Former Macquarie Group quantitative hedge fund chief Nick Bird is starting a new Japan strategy, tapping renewed interest in Asia’s second-largest economy; the strategy is expected to begin trading as early as next month with about $100 million, said Bird, who now runs his own Hong Kong-based firm OQ Funds Management; it can accommodate double the amount, with that capacity already taken up by its two investors

Digital Assets

• Cryptocurrency exchange Gate.io is leaving Japan; as of July 22, 2024, the company has suspended the opening of new accounts for customers residing in Japan, and will unwind its domestic business in close co-operation with the FSA
• Nomura’s Laser Digital plans to launch an Ethereum fund with staking by early September with support from Galaxy Digital and crypto startup Dinero; it will be open to so-called accredited investors such as hedge funds and private investment offices, rather than retail buyers
• Digital Asset Markets has signed a Memorandum of Understanding with Ava Labs, developer of the Avalanche blockchain; Digital Asset Markets plans to support the issuance of RWA tokens, such as Zipangcoin issued by Mitsui & Co. Digital Commodities, and conduct distribution business through Crypto asset exchanges, with further plans to develop on-chain utilization technology for personal information, which is the last one-mile problem for the social infrastructure of blockchain
• Mitsui Knowledge Industry has signed a memorandum of understanding with SettleMint to develop the domestic market for blockchain solutions; SettleMint provides a blockchain development platform, and Mitsui Knowledge Industry will conduct technical verification and marketing activities to domestic companies with the aim of commercializing the solution in the future; Settlemint opened its Japan office in 2023 after years of co-operating in Europe with its investor Fujitsu
• Leading gaming blockchain Oasys has announced the beta launch of Oasys Spring, an innovative smart contract deployment tool designed to transform dApp development within its ecosystem; the GUI-based tool marks a significant step towards creating a more accessible and developer-friendly environment via AI scanning

The Last Word: Municipalities “at risk of extinction”

In April, Japan’s Population Strategy Council released its “2024 Report on the Sustainability of Local Governments,” which analyzed the current state and challenges faced by municipalities based on newly projected regional populations. NLI Research picked up that theme in a recent article.

The report defines “municipalities at risk of extinction” as those projected to experience a decline of over 50% in their female population aged 20–39 by 2050, compared to the actual figures from the 2020 national census.

The data paints a stark picture for Akita Prefecture, where every municipality except for Akita City is grappling with a drastic decrease in its young female population. The analysis reveals seven prefectures where over 70% of municipalities are labeled as “at risk of extinction.” These are Akita, Aomori, Yamagata, Iwate, Wakayama, Kochi, and Fukushima prefectures, indicating a widespread crisis across the Tohoku region, with the exception of Miyagi Prefecture.

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.