Japan FinTech Observer #113

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

When I joined an investment bank in 2000, we had afternoon fruit baskets. These disappeared after the internet bubble burst, and even before 9/11 happened. A few years later, fruit baskets made a comeback, only to be gone for good shortly after. We were joking at the time that it would be easier to put up signs reading "Good Times" and "Bad Times", whatever the case might be. Maybe someone at the White House could pick up the idea to signal whether tariffs are on or off? Black and white smoke would be an alternative also.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Headline Asia has closed its Asia Fund V at USD 145 million; MUFG invests in gprnt; MUFG and Mitsubishi UFJ Morgan Stanley Securities (MUMSS) have launched MUMSS’ subsidiary, MUFG Morgan Stanley Credit Solutions
• Insurance: Tokio Marine Holdings reported high growth for the fiscal year ending in March 2025; Resolution Life has entered into a reinsurance agreement with Anshin Life; Sony Life Insurance might sell the government bonds it holds, to avoid write downs in the event domestic interest rates keep rising
• Banking: MUFG has entered into a partnership with Sakana AI; Mizuho's investor presentation turned out much more positive than its conservative earnings announcement; Credit Saison's financial results for fiscal year 2024 demonstrate a period of significant growth and strategic evolution; Seven & I Holdings is considering selling 20% of Seven Bank to Itochu; credit union Iwaki Shinkumi is accused of faking accounts, loans to conceal plight; there is focus on the interest rate risk in the banking book of regional banks
• Payments: the Bank of Japan has published its "Second Interim Report on CBDCs"; PayPay will begin offering the virtual Visa card, "PayPay Balance Card"; Digital Garage and au Financial Services have jointly developed the next-generation payment platform "NESTA"; JPYC will cease issuing the prepaid payment instrument "JPYC Prepaid" and needs to completed the registration required for issuing electronic payment instruments
• Capital Markets: the latest Bank of Japan "Bond Market Survey" shows a deteriorating functioning of the bond market
• Asset Management: Mizuho and Mercer Japan will jointly offer Outsourced Chief Investment Officer (OCIO) services
• Digital Assets: if Remixpoint's new fiscal year forecast comes out as expected, the company will generate at least 80% of its operating profit from cryptocurrency holdings
• The Last Word: I have never bought rice

Venture Capital & Private Markets

• Headline Asia has closed its fifth and largest fund to date, Headline Asia Fund V, at USD 145 million; the fund will support a new generation of founders building in high-growth sectors including e-commerce, logistics, FinTech, IP and artificial intelligence—domains where Asia is setting new global standards; Headline Asia is a partner-led firm with long-standing operations in Japan, Taiwan, and Southeast Asia, helping early-stage companies evolve from local success to regional leadership; listen to our podcast interview with Akio Tanaka via the eXponential Finance Podcast page
• Mitsubishi UFJ Financial Group and its consolidated subsidiary, MUFG Bank, have entered into an investment agreement with Greenprint Technologies, a company that operates digital platform for sustainability reporting and data; as a result of this agreement, MUFG has become one of the seed round investors; established in October 2023, Gprnt is an entity to propel PJ Greenprint, a project initiated by the Monetary Authority of Singapore (MAS) in 2020, to deliver advanced capabilities to facilitate Singapore’s national-level sustainability reporting and data requirements
• Mitsubishi UFJ Financial Group (MUFG) and Mitsubishi UFJ Morgan Stanley Securities (MUMSS) have launched MUMSS’ subsidiary, MUFG Morgan Stanley Credit Solutions, as previously announced in February; Japan’s private credit market is considered to have high potential as both a new alternative financing option to traditional syndicated bank loans, and as a new alternative asset class for investment and financing for investors

Insurance

• Tokio Marine Holdings reported high growth for the fiscal year ending in March 2025; adjusted net income (excluding capital gains from sales of business-related equities) rose to JPY 608.9bn in FY2024, +JPY 27.9bn vs full year projections released in February (+6% YoY) mainly due to the positive impact of JPY appreciation on Japan P&C results
• Resolution Life has closed a further reinsurance transaction in Japan, its first block transaction since the announcement of Nippon Life’s proposed acquisition of Resolution Life; Resolution Life has entered into a reinsurance agreement with Anshin Life, a domestic life insurance subsidiary of Tokio Marine Holdings, a global insurance holding company with a leading position in Japan's insurance industry
• Sony Life Insurance will take measures, including the sale of government bonds it holds, to avoid write downs in the event domestic interest rates keep rising; they are very concerned about the risk of a further rise in ultra-long-term bond yields, and that they will “take measures such as selling bonds as necessary” to avoid impairment, said Ryoji Inaba , senior vice president and general manager, head of investment planning division at Sony Life Insurance in an interview

Generative AI and the Japanese Economy: the Digital Deficit and Economic Security

Naoyuki Fukuda at the Japan Research Institute has recently published a paper titled "Generative AI and the Japanese Economy: Reducing the Digital Deficit and Ensuring Economic Security".

Key Takeaways and Arguments

• Generative AI presents both significant opportunities and challenges for Japan.
• Japan needs to reduce its reliance on foreign AI technology and promote the development of domestic AI capabilities.
• The Japanese government should incentivize private sector investment in AI and support the development of a robust AI ecosystem.
• Japan should focus on developing specialized AI models tailored to specific industries.
• The development of domestic cloud computing infrastructure is crucial for data security and economic security.
• Attracting and nurturing AI talent is essential for Japan's long-term success in the AI field.
• By pursuing these strategies, Japan can transform itself from an AI consumer to an AI exporter.

Banking

• Mitsubishi UFJ Financial Group (MUFG) and its consolidated subsidiary, MUFG Bank, have entered into a partnership agreement with Sakana AI, an AI R&D company, and have retained Ren Ito, COO of Sakana AI, as AI Advisor; under the partnership agreement, MUFG Bank and Sakana AI will establish a long-term strategic technology partnership for a period of more than three years; initially, they will apply the expertise of Sakana AI’s The AI Scientist to automate the creation of internal and external documents that require complex thinking and advanced specialized knowledge
• When Mizuho released its earnings announcement on May 15, the market response was rather muted, however, following the investor presentation on May 20, Mizuho's stock price experienced a notable increase. How did management convince the market?
• Credit Saison's financial results for fiscal year 2024 demonstrate a period of significant growth and strategic evolution; the company achieved record-high consolidated operating profit, reflecting strong performance across its core business segments and the positive impact of specific accounting factors; overall, the company's diverse business model, expansion into new markets, and focus on digital transformation contributed to its solid financial standing and set the stage for continued growth in the future
• The Nikkei leaked that Seven & i Holdings will offload about 20% of Seven Bank to ITOCHU Corporation, for the former to focus on the convenience store business, and the latter to make steps into the financial business (and replace Family Mart ATMs with the Seven Bank model); Seven & I had to issue a press release to say that no decison has been made; once the board meeting has taken place, this transaction should become formalized
• Credit union accused of faking accounts, loans to conceal plight: Iwaki Shinkumi is suspected of using the names of depositors--including a dead client--to create bogus accounts and extend fake loans to conceal its financial difficulties; Iwaki Shinkumi’s head office would select the name of a real depositor, create a seal in the depositor’s name without gaining permission, and then forge documents to open a fake account under that name; the address and other information of the depositor were genuine; loan procedures were carried out at the credit union’s branches using documents forged by the head office and people in charge of lending; loans worth several million yen to several tens of millions of yen were sent to each fake account
• In a January 2025 report, the Nikko Research Center analyzed the public disclosures of interest rate risk in the banking book of 99 regional banks - 10 internationally operating banks, 53 regional banks excluding the internationally operating banks, and 36 second-tier regional banks

Payments

• NTT DOCOMO Finance's business line contribution to group revenue is just over 7%, but growing rapidly, with a FY25 forecast increase of 15% vs. 2% top line growth for the group; the Platinum card had a successful launch, and the integration with Monex Securities, Inc is progressing well
• The Bank of Japan's Second Interim Report on CBDCs emphasizes that while there are no immediate plans to issue a CBDC, it is crucial to prepare for it; the discussion builds on previous "Intermediate Arrangements" and involves a joint task force with various government ministries and the Bank of Japan; we have summarized the key points from the Japanese document, and also published an explainer video
• PayPay will begin offering the virtual card "PayPay Balance Card," which can be issued on the PayPay app and used at online credit card member merchants; the "PayPay Balance Card" can be used at domestic online shopping and content websites that accept Visa credit cards, with payment amounts immediately deducted from the "PayPay Balance" and "PayPay Points" in the "PayPay" app; additionally, "PayPay Balance Card" transactions are eligible for "PayPay Step" counting and point rewards, which are regular benefits of "PayPay"; this means that at online shops where "PayPay" is not yet available, users can still earn "PayPay Points" advantageously by using the "PayPay Balance Card," just like when making payments with their regular "PayPay Balance"
• Digital Garage (DG) and its subsidiary handling payment services, DG Financial Technology (DGFT), have been jointly developing the next-generation payment platform "NESTA" with au Financial Services; the implementation of "NESTA" into the payment processing system for au/UQ mobile communication fees will begin within 2025; this joint development is being promoted as part of the business alliance between DGFT and au Financial Services concluded in May 2024; initially, KDDI Corporation will implement "NESTA" in the payment processing system for au/UQ mobile communication fees
• JPYC announced that their previously issued prepaid payment instrument "JPYC Prepaid" will be treated as an electronic payment instrument starting June 1, 2025, following the required transition period after the amended Payment Services Act took effect on June 1, 2023; JPYC has not yet completed the registration required for issuing electronic payment instruments, and therefore must discontinue new issuance of "JPYC Prepaid" based on the Cabinet Office Ordinance provisions of the amended Payment Services Act

Capital Markets

• The Bank of Japan has published its "Bond Market Survey" for May 2025, and the feedback on the degree of bond market functioning is deteriorating; the Bank is to publish its JGB buying plan for the period starting April 2026 at June's Monetary Policy Meeting, after having taken a survey of market participants
• The Bank of Japan has also published a new working paper: "Skewed Interest Rate Expectations and Effects of Central Banks' Market Operations: Empirical Findings Using Granular Transaction Data"
• Asset Value Investors have published a paper titled "The Corporate Governance Wave in Japan: Capitalising on change"

Asset Management

• Mizuho Financial Group, Mercer Japan, and Mercer Investments Japan have entered into a strategic collaboration to offer Outsourced Chief Investment Officer (OCIO) services in Japan; under the strategic collaboration, Mizuho will provide comprehensive OCIO services to valued clients in Japan including pension funds and educational institutions with Mercer, a global leader in portfolio solutions, investment research, consulting, and OCIO services, through Asset Management One, an asset management subsidiary of Mizuho

Digital Assets

• Remixpoint's Multi-Coin Treasury: While the Metaplanet story is widely understood by now, especially since it is largely a replication of the (Micro-)Strategy "Bitcoin Treasury" model, Remixpoint is only now getting traction in the public's mind; in addition to Bitcoin, Remixpoint also holds Ripple, Ethereum, Doge, and Solana

The Last Word: I have never bought rice

In the most recent episode of "Foot in Mouth", featuring senior Japanese political leaders, (now former) Agriculture, Forestry and Fisheries Minister Taku Eto said he has never bought rice during a speech in Saga on Sunday, May 18: “I have never bought rice. Supporters have given me plenty. I have [so much rice] that I could even sell some.” This statement gave Eto a boost in popularity with a population that has seen rice prices approximately double over the past twelve months.

People close to Eto told us that he is going to take some time off to travel to Washington to learn how to more effectively exploit positions of power by getting bags of cash instead of rice (Editor's note: nobody told us that).

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