Japan FinTech Observer #143

Welcome to the one hundred forty-third edition of the Japan FinTech Observer.

We have done it! Not only is the Bank of Japan the only major central bank to raise its policy rate this year, it has done so twice. Well done, Ueda-san & team, leading us further down the path to normalization. With consumer prices, in particular food, still running hot, there is certainly room for further hikes in 2026, even if the "underlying" inflation is (again) expected to cool down towards the target range of 2%.

MUFG's capital market strategists expect "Bank of Japan policy normalization to continue in 2026, albeit more slowly than anticipated months ago, with benchmark policy rates projected at 1% by YE 2026. Higher JGB yields, in turn, encourage repatriation flows back to Japan, the largest overseas buyer base of USTs. Continued unwind of the yen carry trade and a structurally stronger JPY in 2026 will have the impact of raising global term premia and steepening global yield curves, including in the US Treasury market."

This week also saw the last Diet session of the calendar year, as well as an avalanche of draft and final reports from the various working groups, all getting their work out for review and/or public comment. As always, we have picked those that seemed the most important to us, like the semi-annual report of the Bank of Japan to the Diet, the changes to the Payment Services Act, and the AI Basic Policy.

Before we go:

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Smooth secures ¥2.85 Billion in Series B first close to expand rental BNPL platform; Nomura arranges USD 500m financing for Mexico's Plata; SBI Holdings' Fund invests in Vietnamese InsurTech Saladin Consulting and Technology; MUFG invests in Shriram Finance, a leading Non-Banking Financial Company in India
• Banking: SBI Sumishin Net Bank's renaming, capital restructuring & strategic collaboration; MUFG Bank integrates Private AI’s de-identification technology to bolster ‘OCEAN’ big data platform
• Payments: TMN taps DeCurret DCP for digital currency push in Japan’s distribution sector; SBI Holdings and Startale Group partner to develop a compliant Yen stablecoin for the global market; Startale taps M0 infrastructure for Soneium-native stablecoin USDSC; Japan Post Bank to terminate "Yucho Pay" in 2026; JCB taps IBM to overhaul core systems - targets 20% efficiency gain in strategic AI shift
• Capital Markets: Mizuho to acquire shares of Avendus Capital Private Limited; PayPay IPO postponed to first quarter 2026
• The Last Word: Artificial Intelligence Policy

Venture Capital & Private Markets

• Smooth secures ¥2.85 Billion in Series B first close to expand rental BNPL platform: Smooth, a FinTech startup disrupting the Japanese real estate market with its initial-cost installment payment service, has successfully completed the first close of its Series B funding round; the company has raised a total of approximately ¥2.85 billion (approx. USD 19.5 million), comprising both third-party equity allocation and debt financing facilities; the Series B first close consists of approximately ¥1.58 billion in equity capital and ¥1.27 billion in debt financing; the equity round was led by the Maezawa Fund, an investment vehicle established by ZOZO founder Yusaku Maezawa
• Nomura arranges USD 500m financing for Mexico's Plata: Plata, the Mexican financial technology company, has secured a new financing of up to US$500 million arranged by Nomura Securities International, the largest funding to date for a Mexican digital financial services company; the transaction also sets an important precedent: it marks the first time a Japanese top-tier investment bank participates in a financing of this scale within Mexico's digital financial sector, reflecting the growing international interest in Plata and in Mexico's financial system
• SBI Holdings' Fund invests in Vietnamese InsurTech Saladin Consulting and Technology: SBI Holdings has taken the role of lead investor in the Series A funding round for Saladin Consulting and Technology, a technology startup based in Vietnam; this investment was executed through the SBI-NTU-Kyobo Digital Innovation Fund, a Singapore-based fund managed by the SBI Group; the funding round also attracted participation from several other existing and new investors, including Monk’s Hill Ventures, Peak XV Partners, and ICMG Ventures, highlighting growing interest in the company's potential
• MUFG invests in Shriram Finance, a leading Non-Banking Financial Company in India: MUFG Bank, a consolidated subsidiary of Mitsubishi UFJ Financial Group, has entered into an investment agreement with Shriram Finance, a leading non-banking financial company (NBFC) in India, and its major shareholders, Shriram Ownership Trust and Shriram Capital, to subscribe to a preferential allotment of 20% in equity shares in Shriram Finance; the total investment amount is expected to be approximately INR 396.2 billion (JPY 682.3 billion), and the completion of this investment is subject to approvals from relevant regulatory authorities; upon completion of the Investment, Shriram Finance will become an equity method affiliate of both MUFG and MUFG Bank, and MUFG plans to appoint two directors to the board of Shriram Finance

Report on Currency and Monetary Control: Recent Economic Developments and Policy Decisions by the Bank of Japan

In December 2025, the Bank of Japan (BOJ) submitted its semi-annual "Report on Currency and Monetary Control" to the Diet, covering the developments in the first half of fiscal year 2025 (April through September). The report offers a comprehensive detailed account of the Japanese economy’s performance, financial market behavior, and the central bank’s strategic policy maneuvers during a period characterized by significant transitional pressures. As Japan continues to navigate the complex path of monetary normalization, the six-month period under review was defined by a moderate economic recovery amidst external headwinds—specifically the imposition of trade tariffs by the United States—and a definitive shift in the BOJ’s balance sheet management, including the reduction of Japanese Government Bond (JGB) purchases and the commencement of the disposal of Exchange-Traded Funds (ETFs).

The report highlights that while the domestic economy showed resilience, supported by wage growth and robust corporate profits, the global economic landscape presented heightened uncertainties. The BOJ maintained the uncollateralized overnight call rate at approximately 0.5 percent throughout the period, despite growing internal debate regarding the necessity of further rate hikes to address inflationary pressures. The period also marked a historic turning point in the Bank’s asset management, with the finalization of a detailed plan for Quantitative Tightening (QT) regarding sovereign debt and the establishment of guidelines for offloading risk assets accumulated during the era of aggressive monetary easing.

Banking

• The report of the Financial System's Council Working Group on "Strengthening Regional Financial Capabilities": released on December 18, 2025, the final report of the Financial Services Agency’s "Working Group on Strengthening Regional Financial Capabilities" outlines a comprehensive strategy to fortify Japan's regional banking sector against the headwinds of severe demographic decline and economic contraction; the document argues that for regional economies to survive, local financial institutions must evolve beyond their traditional lending roles to become multifaceted hubs of consulting, human resources support, and digital transformation; the working group emphasizes that while regional banks currently maintain sufficient soundness, the disparity in performance is widening, particularly among credit unions and credit associations, necessitating urgent structural and legislative reforms
• SBI Sumishin Net Bank's renaming, capital restructuring & strategic collaboration: NTT DOCOMO, Sumitomo Mitsui Trust Bank, and SBI Sumishin Net Bank have decided to change the latter's trade name to "DOCOMO SMTB Net Bank" effective Monday, August 3, 2026; this name change is subject to approval by the relevant authorities; additionally, with the aim of further growth of SBI Sumishin Net Bank and strengthening the partnership between DOCOMO and Sumitomo Mitsui Trust Bank in joint management, a capital restructuring of SBI Sumishin Net Bank will be implemented on Thursday, December 25, 2025; furthermore, collaborative initiatives aimed at creating new value by leveraging each company's management resources will be launched iteratively
• MUFG Bank integrates Private AI’s de-identification technology to bolster ‘OCEAN’ big data platform: MUFG Bank has formally adopted a data de-identification solution provided by Toronto-based Private AI to enhance its proprietary big data infrastructure, "OCEAN"; the strategic move is designed to accelerate the bank’s utilization of unstructured data while maintaining rigorous privacy governance; by automatically detecting and redacting Personally Identifiable Information (PII) and sensitive data with high precision before it enters the "OCEAN" data lake, MUFG aims to enable safe, cross-sectional data analysis
• The Bank of Japan Institute for Monetary and Economic Studies (IMES) has published "Towards a Macroeconomic Model of Banking Crises"

Payments

• Amendments of the Payment Services Act released for public comment: Released on December 16, 2025, following the passage of the amendment law in June, these documents outline a sophisticated regulatory framework that touches upon stablecoins, crypto-asset intermediaries, and cross-border fund transfers; the regulator has opened a public consultation period extending through January 19, 2026, signaling a final opportunity for stakeholders to influence the technical standards that will govern the next generation of Japanese FinTech; the released materials, comprising a high-level summary of the reforms and a granular "New-Old Comparison Table" of the enforcement orders, as well as 30+ individual revisions, reveal a two-pronged strategy by the Japanese government; on one hand, the administration is striving to liberalize the market by allowing more flexible asset management for stablecoin issuers and easing capital burdens for high-tier funds transfer providers; on the other hand, it is tightening the screws on the burgeoning intermediary sector, mandating strict domestic asset retention and imposing rigorous disclosure requirements to prevent capital flight and protect retail investors
• TMN taps DeCurret DCP for digital currency push in Japan’s distribution sector: Transaction Media Networks (TMN) and digital currency operator DeCurret DCP have launched a strategic collaboration aimed at developing new settlement services for the distribution sector utilizing the digital currency DCJPY; the partnership seeks to integrate TMN’s established payment gateway infrastructure with DeCurret’s blockchain-based platform to accelerate the practical adoption of tokenized deposits in retail and wholesale environments
• SBI Holdings and Startale Group partner to develop a compliant Yen stablecoin for the global market: SBI Holdings and Startale Group have signed a Memorandum of Understanding (MOU) to jointly develop and launch a regulated Japanese yen-denominated stablecoin in compliance with Japan’s financial regulations; through this Project, SBI Holdings and Startale will combine Startale’s blockchain technology and product expertise including the issue of stablecoin with SBI’s extensive financial infrastructure and regulatory leadership to build a trusted digital yen as a trust-based Type 3 Electronic Payment Instrument, which is not subject to the ¥1 million limit on domestic remittances and fund balance in Japan
• Case Study - Startale taps M0 infrastructure for Soneium-native stablecoin USDSC: Startale, the Web3 fintech company and core developer behind the Soneium blockchain, has launched the Startale USD (USDSC), a new digital dollar designed to anchor the ecosystem’s financial infrastructure; the issuance leverages the stablecoin-as-a-service platform M0 to manage backend liquidity and compliance
• Japan Post Bank to terminate "Yucho Pay" in 2026: Japan Post Bank has officially announced that it will be discontinuing the Yucho Pay service; while the service has been running since 2019, the bank has decided to wind down operations over the next year; previously, Uniqlo announced that it would be shutting down "UNIQLO Pay," the QR code payment feature on its official smartphone app, the "UNIQLO app," in January 2026, so this makes Japan Post Bank the second operator to terminate its payment service
• JCB taps IBM to overhaul core systems - targets 20% efficiency gain in strategic AI shift: JCB, Japan’s only international payment brand, has entered into a strategic AI partnership with IBM Japan to fundamentally restructure its core system development; by integrating IBM’s Generative AI platform, watsonx, JCB aims to transition away from traditional labor-intensive development models, positioning AI as a central "joint development partner" to drive cost reductions and accelerate speed-to-market

Capital Markets

• The Third "Market System Working Group" on Insider Trading & Market Manipulation: Japan’s Financial Services Agency took a decisive step toward tightening the reins on capital market misconduct today as the Financial System Council’s Market System Working Group convened to finalize its draft report; in a session characterized by broad consensus among legal experts, academics, and industry representatives, the council outlined a comprehensive regulatory overhaul designed to modernize Japan’s insider trading rules and significantly stiffen financial penalties for market manipulation; the meeting, which effectively concluded the group's current deliberations, signals an imminent legislative push to enhance market transparency and align Japan’s enforcement capabilities with global standards
• Mizuho to acquire shares of Avendus Capital Private Limited: Mizuho Securities, a consolidated subsidiary of Mizuho Financial Group, has entered into an agreement with the majority shareholder of Avendus Capital Private Limited to acquire over 60% of the shares of Avendus, subject to regulatory approvals; after completion of the acquisition, Avendus will become a consolidated subsidiary of Mizuho Securities; as India’s largest investment bank and a full-service financial services firm, Avendus offers services in institutional equities, wealth management, and asset management, bringing together a comprehensive suite of capabilities to serve clients throughout their financial journey
• SoftBank is racing to close a $22.5 billion funding commitment to OpenAI by year-end through an array of cash-raising plans, including a sale of some investments, and could tap its undrawn margin loans borrowed against its valuable ownership in chip firm Arm Holdings; PayPay's initial public offering, originally expected this month, was pushed back due to the 43-daylong U.S. government shutdown, which ended in November; PayPay's market debut, likely to raise more than $20 billion, is now expected in the first quarter of next year
• The NLI Research Institute has published "Investors' Trading Trends in the Japanese Stock Market: An Analysis for November 2025"
• Amova Asset Management has published its "Japan Equity Outlook 2026"

The Last Word: Artificial Intelligence Policy

NEDO's Strategic Analysis: the Untapped Potential of Proprietary Enterprise Data in AI

The rapid emergence of Generative AI represents a monumental technological leap, but the long-term trajectory of its advancement now faces a critical threat: an impending data exhaustion problem. The vast, publicly accessible datasets that fueled the current generation of models are finite and are being consumed at an unsustainable rate. The core thesis of this analysis is that the solution to this bottleneck lies not in finding more public data, but in unlocking the immense, untapped potential of proprietary enterprise data. This will be achieved through a new infrastructure paradigm known as "data spaces." The linked post provides a strategic analysis of this challenge, outlines the data space framework as the definitive solution, and quantifies the multi-trillion-yen market opportunity it is poised to create, based on the New Energy and Industrial Technology Development Organization's (NEDO's) document published earlier in 2025.

Policy Briefing: The Artificial Intelligence Basic Plan

Japan's new AI Basic Plan, released as a draft on December 19, is framed as a national "counteroffensive" designed to reverse a perceived lag in artificial intelligence investment and utilization. The strategy directly confronts long-standing domestic challenges—including population decline, labor shortages, and stagnant wages—by positioning AI as a core engine for economic and social revitalization. Acknowledging that it has fallen behind global competitors, Japan recognizes that the global competitive landscape for AI is shifting. The market is beginning to evaluate the creation of specific, high-value applications more than the sheer scale of investment in foundation models, presenting a critical opportunity.

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