Japan FinTech Observer #170

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

What a night 😢 After witnessing first Japan, and then Germany exit the World Cup, your opportunistic author shifted his allegiance to our friendly Dutch neighbors, only to.....well, as you see, I will likely have to switch colors again very soon. In any case, congratulations to the winners, and all the best for the rest of the tourney!

The Cabinet Office has published its new growth plan (explained in the Economics section and in "The Last Word"), the Japanese Yen has decisively moved beyond 162 at the time of writing, there were a series of stablecoin announcement, and we will address questions we have received regarding the impact of the Bank of Japan's policy rate hike on Bank earnings.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: SMBC secures strategic stake in carbon removal developer Deep Sky to drive Japanese DAC market; Coreline Ventures launches dedicated follow-on fund 'Coreline Strategy Fund I' backed by Resona Bank; MUFG to consolidate Indian startup investment functions under Dragon Funds, and eyes new USD 600m vehicle
• Insurance: Hokan Group analyzes "Japan's 2026 Insurance Business Act Reform: Market Implications"
• Banking: Japanese banks chase aggressive profit growth; Bank Negara Malaysia slaps AEON Credit with RM520,000 fine over sanctions screening failures
• Payments: The Digital Yen Blueprint - Navigating Japan’s multi-stage transition to a CBDC ecosystem; Japanese card giant SMCC adopts Hyundai Card AI; SBI Group and Startale launch Japan’s first trust bank-based Yen stablecoin; Ripple and SBI Group secure regulatory nod to launch RLUSD stablecoin in Japan; Nomura partners with Circle to advance blockchain-based digital finance and stablecoin integration
• Capital Markets: Japan’s bond market faces behind-the-curve fears and seasonal inversion in ultra-long yields
• Digital Assets: SBI Holdings to fully acquire bitbank, creating Japan’s largest crypto asset platform by assets
• The Last Word: New Technology-Based Nation

Venture Capital & Private Markets

• SMBC secures strategic stake in carbon removal developer Deep Sky to drive Japanese DAC market: Sumitomo Mitsui Banking Corporation (SMBC) has completed a strategic investment in Montreal-based carbon removal project developer Deep Sky Corporation to accelerate the deployment of climate technologies in Japan; the financial terms of the transaction were not disclosed; Deep Sky operates as a tech-agnostic project developer focused on extracting atmospheric carbon dioxide for permanent underground storage; led by CEO Alexandra Petre, the firm has raised $130 million in funding to date, backed by a roster of institutional investors including Investissement Québec, Brightspark Ventures, Whitecap Venture Partners, OMERS Ventures, BDC Climate Fund, Breakthrough Energy Catalyst, BMO, and the National Bank of Canada

New Funds

• Coreline Ventures launches dedicated follow-on fund 'Coreline Strategy Fund I' backed by Resona Bank: Coreline Ventures, a Silicon Valley-based venture capital firm specializing in seed and early-stage investments, has established a new vehicle dedicated exclusively to follow-on investments: Coreline Strategy Fund I; Resona Bank has joined the vehicle as a limited partner; the newly formed fund will operate in parallel with Coreline’s flagship vehicle, Coreline I, which has been active since January 2025 and primarily targets net-new seed and early-stage investments in Japan and the United States; in contrast, Coreline Strategy Fund I is structured with the strict objective of providing concentrated, follow-on capital to further accelerate the growth of existing portfolio companies; its primary investment targets will be early- and middle-stage startups, with a particular focus on Japan
• MUFG to consolidate Indian startup investment functions under Dragon Funds, and eyes new USD 600m vehicle: Mitsubishi UFJ Financial Group (MUFG) and its consolidated subsidiary, MUFG Bank, have announced a strategic restructuring of their Indian investment operations; the group will consolidate the operating functions of the MUFG Ganesha Fund—an investment quota dedicated to Indian startups—under Mars Equity and its managed "Dragon Funds"; Mars Equity is a wholly owned subsidiary of MUFG Bank; by integrating Ganesha’s equity investment processes and portfolio management into the Dragon Funds platform, MUFG aims to streamline its operations and strengthen its deployment of growth capital to mid- and late-stage global technology firms, with a continuing core focus on India

Banking

Now that the Bank of Japan has raised its policy rate by another quarter point to 1%, the banks have generally upped their deposit rates for current accounts by 0.1% (the typical 40% pass-through), and might face short-term pressure as the deposit rates get adjusted faster than lending rates, in particular mortgages, which historically follow a semi-annual cycle. Once this adjustment is done, e.g. in September/October for payments starting in January, the impact on the current fiscal year will be limited.

However, the discussion is shifting to the timing of the next policy rate hike, likely to be in December or January, and the terminal rate. Analysts at Vanguard, for example, see one more hike this year, and project two for 2027, putting Japan nearly on par with the Euro area.

The key point here is that most of the banks, in their forecasts for the fiscal year ending March 2027, as well as in their medium-term plans, have assumed a policy rate of 0.75% to 1%, while frequently stating the full-year impact a quarter point raise would have on their bottom line. Therefore, there is quite some headroom to adjust those medium-term plans upwards, which one would expect to happen alongside the mid-year earnings (rather than the first quarter). To highlight the discussion, we have collated all the bank forecasts and medium-term plans, and invited Gemini to the debate - the first bullet point below takes you to the AI-generated podcast.

• Japanese banks chase aggressive profit growth: For the latest episode of the Japan FinTech Observer podcast, we explore the positive outlook for Japanese banking institutions as they transition into new midterm strategic plans; analysts highlight that major and regional banks are significantly raising their profitability targets, with a specific focus on achieving higher Return on Equity (ROE) through 2029; this optimistic shift is fueled by rising domestic interest rates, expanding loan spreads, and a national movement from traditional savings to active asset management
• BNM slaps AEON Credit with RM520,000 fine over sanctions screening failures: Bank Negara Malaysia (BNM) has imposed an Administrative Monetary Penalty of RM520,000 on AEON Credit Service (M) Berhad for failing to comply with targeted financial sanctions regulations; the regulatory action follows an on-site supervisory examination by BNM, which revealed that the non-bank financial institution had onboarded a customer listed on the Domestic List of specified entities; under current anti-money laundering and counter-terrorism financing framework guidelines, reporting institutions are legally required to immediately reject positive matches against both the Domestic List and the United Nations Security Council Resolutions (UNSCR) List, as well as freeze their funds

Insurance

• Hokan Group analyzes "Japan's 2026 Insurance Business Act Reform: Market Implications"

Payments

• The Digital Yen Blueprint - Navigating Japan’s multi-stage transition to a CBDC ecosystem: The Ministry of Finance hosted the 11th "Expert Meeting on CBDC" on June 25, 2026, providing a moment of reflection on Japan's institutional readiness for a Central Bank Digital Currency (CBDC); between October 2020 and June 2026, the Bank of Japan (BoJ) and the Ministry of Finance (MoF) have methodically constructed a framework that moves toward a definitive "System Architecture"; this trajectory has evolved into a race for digital sovereignty; as global stablecoins and foreign CBDCs threaten to infringe upon domestic monetary boundaries, Japan’s June 2026 Progress Report—a cornerstone of the "Basic Policy on Economic and Fiscal Management and Reform"—signals a transition from "if" to "how" the nation will defend the yen’s status through strategic self-reliance
• Japanese card giant SMCC adopts Hyundai Card AI: An artificial intelligence platform developed in-house by Hyundai Card is reshaping the sales strategy of Sumitomo Mitsui Card Corporation; by segmenting customers' spending tendencies based on card payment data and precisely selecting marketing targets, it is delivering higher results than conventional methods; analysts say it demonstrates a new growth model in which a Korean financial firm exports AI and data technology overseas, moving beyond the simple sale of financial products

Stablecoins

• SBI Group and Startale launch Japan’s first trust bank-based Yen stablecoin: SBI Holdings, SBI Shinsei Bank, SBI Shinsei Trust Bank, SBI VC Trade, and Singapore-based Web3 infrastructure firm Startale Group have announced the launch of "JPYSC," the nation's first trust-based, Japanese yen-pegged stablecoin; issued by SBI Shinsei Trust Bank and distributed by SBI VC Trade, JPYSC represents Japan's first "Type 3 Electronic Payment Instrument" under the country's Payment Services Act; unlike earlier funds-transfer-type stablecoins, this trust-based structure exempts JPYSC from the standard 1 million yen remittance and accumulation limits, positioning it as a viable tool for high-volume transactions
• Ripple and SBI Group secure regulatory nod to launch RLUSD stablecoin in Japan: Blockchain enterprise provider Ripple, in partnership with Japanese financial conglomerate SBI Holdings and its subsidiary SBI VC Trade, has officially launched its U.S. dollar-denominated stablecoin, Ripple USD (RLUSD), in Japan; the launch follows official regulatory approval from the Japan Financial Services Agency (JFSA); under Japan's Payment Services Act, RLUSD has been categorized under a framework specifically tailored for foreign-issued stablecoins that fulfill strict domestic safety and regulatory compliance standards
• Nomura partners with Circle to advance blockchain-based digital finance and stablecoin integration: Nomura Holdings has signed a memorandum of understanding with Circle Internet Financial to develop and scale digital finance solutions across global markets, with a specific focus on Japan; the partnership will center on exploring the capabilities of on-chain finance—conducting financial transactions and settlements directly on blockchain networks; compared to traditional financial systems, this framework is designed to offer enhanced transparency, immediacy, and programmable automation; specifically, Nomura and Circle plan to investigate opportunities surrounding instant settlement using asset- and fiat-backed stablecoins, alongside optimizing fund transfers, capital markets transactions, and collateral management

Economics

• Japan outlines 2040 economic outlook under new growth strategy and annual JPY 10trn fiscal plan: Japan’s Cabinet Office has released its medium- to long-term economic and fiscal projections through fiscal year 2040; the report analyzes the macroeconomic impact of regular government outlays paired with a mechanical assumption of ¥10 trillion in annual real-term additional fiscal spending starting in FY2027; the baseline case and the two growth strategy projects have been published in tandem with the growth plan for 17 strategic fields across five clusters, a primer for which you find in "The Last Word" at the end of this newsletter

Capital Markets

• Japan’s bond market faces behind-the-curve fears and seasonal inversion in ultra-long yields: Japan’s benchmark 10-year government bond yield continues to hover at a elevated level of around 2.7%; despite recent volatility triggered by geopolitical tensions in the Middle East, shifts in the Bank of Japan’s (BOJ) policy stance, and the fiscal direction of the Takaichi administration, yields have resisted breaking above the 2.8% threshold; according to a June 26, 2026, report by Sony Financial Group Senior Economist Takayuki Miyajima, market analysts attribute this ceiling to the fact that the bond market's terminal rate assumptions have already largely priced in a level above 2%; pushing yields significantly higher from this point would require a sharper policy rate hike that explicitly exceeds the BOJ's inflation target—a scenario deemed unlikely at this stage; additionally, the stabilization of Middle East tensions and a Takaichi supplementary budget that turned out less expansionary than initially feared have helped cap the upside
• The Ministry of Finance - Japan has published its "JGB Newsletter" for June 2026

Digital Assets

• SBI Holdings to fully acquire bitbank, creating Japan’s largest crypto asset platform by assets: Following the signing of a Letter of Intent in May 2026, SBI Holdings' board of directors has approved a definitive agreement to turn cryptocurrency exchange bitbank into a wholly-owned subsidiary; the transaction will be executed through SBI’s specialized unit, SBICAH LLC, and involves a total acquisition cost of approximately ¥46.7 billion

The Last Word: New Technology-Based Nation

The Cabinet Office has published its plan for a high-growth economic model defined as the "New Technology-Based Nation." This framework represents a structural response to the existential bottlenecks of a chronic labor supply-constraint and escalating economic security risks, seeking a total realignment of national assets. By concentrating resources on frontier fields where Japan maintains a hardware-software "moat"—specifically through the fusion of AI with the nation’s abundant manufacturing and industrial robotics data—Japan aims to transition from a "challenge-advanced" nation into a "solution-advanced" global hub. Through frameworks such as the Asia Zero Emission Community (AZEC) and the strategic use of ODA/OSA (Official Security Assistance), Japan is positioning its modernization as the primary technological standard for the Indo-Pacific.

The 17 Strategic Pillars of Prioritization

The government has identified 17 strategic fields categorized into five core clusters, prioritized based on their capacity to leverage legacy strengths into future market dominance:

• Digital, AI, and Connectivity: Includes AI/Semiconductors (focusing on Physical AI—implementing AI in robotics to solve labor shortages), Vertical AI (domain-specific applications utilizing manufacturing data), Information/Telecommunications (All-Photonics Networks (APN), 5G/6G), and Quantum Technology.
• Infrastructure, Mobility, and Defense: Encompasses the Defense Industry (Dual-use technology), Aerospace (Satellites and next-gen aircraft), Marine/Shipbuilding, and Port Logistics (Cyber ports/automated warehousing).
• Green Transformation (GX) and Materials: Focuses on Materials (Permanent magnets/green steel), Resource/Energy Security (Perovskite solar/hydrogen), Fusion Energy, and Advanced Bio-manufacturing.
• Bio-Medical and Social Resilience: Includes Drug Discovery/Advanced Medical Tech, Food Tech (Smart agriculture), and Disaster Prevention/Land Resilience.
• Content and Intellectual Property: A critical cluster including Game, Anime, and Manga, focusing on the transition from IP creation to global distribution and the capture of the mobile/PC gaming markets (valued at over ¥25 trillion globally).

The Triple Imperative

Investment prioritization is governed by three rigorous criteria that define the "strategic intelligence" for leaders:

1. Economic Security Risk Reduction: Mitigating dependence on foreign supply chains by securing domestic production of "choke-point" technologies.
2. Global Market Capture Potential: Identifying high-growth opportunities—such as the ¥200 trillion "flying car" market or the ¥350 trillion digital health sector—where Japan can establish "indispensability."
3. Technological Innovation: Prioritizing "game-changers" like Agentic AI and All-Photonics Networks (APN), with a specific goal of North American market capture to set international standards.

Achieving these goals necessitates a radical overhaul of the financial and human capital ecosystems.

1. Financial Architecture: Enhancing Investment Predictability and Potential

Investment predictability is the bedrock of industrial modernization. The transition from "stop-and-go" spending to long-term strategic frameworks is designed to de-risk private sector participation and catalyze long-range R&D.

New Investment Frameworks

The government has established two distinct investment "slots" to provide long-term fiscal visibility. Crucially, these are managed separately from standard Primary Balance (PB) targets only if they are supported by clear redemption sources.

Unlocking Risk Money and Market Potential

To catalyze the deep-tech ecosystem, the SBIR (Small Business Innovation Research) System has been reinvented. The "Strategic Product/Technology Government Implementation Acceleration Program" shifts from passive subsidies to Anchor Tenancy, where the government acts as a primary customer. This provides startups with early-stage revenue and the operational data sets required for international scaling.

Simultaneously, the Public-Private Strategic Investment Liaison Forum is driving financial market reforms. This includes regulatory relief for corporate bond issuance—specifically the exemption of bond manager requirements—to lower capital entry barriers for "Middle Market" enterprises.

Growth-Oriented Corporate Governance: The Fiduciary Shift

A pivotal structural reform is the "Growth Investment Guidance." Revisions to the Companies Act and the Corporate Governance Code will now require boards to justify resource allocation toward human capital and R&D as a fiduciary duty. The era of liquidity preservation is ending; the new mandate is the active deployment of capital toward long-term value creation.

2. Labor Market Reform: Solving the Supply Constraint through Reskilling

In a "Labor Supply-Constraint Society," productivity and fluidity are existential requirements. The workforce must be moved from legacy sectors into the 17 strategic fields through a state-backed reskilling architecture.

The Integrated Reskilling Model

The government is facilitating a "one-stop" system managed by the MHLW, METI, and MEXT triad to bridge the gap between ministerial policy and industrial needs:

• Skill Standardization: Defining sector-specific competencies for the 17 strategic fields.
• Certification and Funding: Programs certified by the respective ministries become eligible for professional education subsidies, significantly reducing the cost of workforce transformation for both the enterprise and the individual.

Removing Barriers: The Social Infrastructure of Productivity

To maximize the talent pool, the government is addressing the "economic loss" caused by domestic burdens:

• Flexible Working: Reforming labor hour legislation to prioritize employee health and choice, enabling agile work in high-tech RD environments.
• Domestic Infrastructure: Establishing a national qualification (Skill Test) for housework support services. Coupled with tax incentives for babysitting, this is a strategic move to reduce career interruptions and minimize the macro-economic loss associated with the domestic burden.

3. Supply Chain Resilience: Strengthening SMEs and Cyber Defenses

The "Investment and Wage Hike Cycle" is the engine for distributing growth. Strengthening the "Earning Power" of Small and Medium-sized Enterprises (SMEs) is essential for maintaining a resilient national supply chain.

Empowering the Middle Market and SMEs

1. Wage and Tax Synergy: Subsidies are now linked to actual wage increase performance, ensuring that government support rewards firms that contribute to the virtuous cycle of growth.
2. Public Procurement and Price Pass-through: The "Accelerated Plan for Price Pass-through" targets 100% implementation of low-bid price investigation systems by government-affiliated entities by FY2027. This prevents the margin erosion that has historically stifled SME innovation.
3. Consolidation and Succession: Recognizing the demographic risk, a new qualification system for SME M&A/Business Succession supporters is being established. This facilitates the consolidation of the supply chain into more competitive, scalable units.

The Cybersecurity Mandate: Active Defense

As Japan integrates Physical AI and APN connectivity, security is now a prerequisite for market participation.

• Active Defense: A new framework for proactive cyber defense, involving mandatory incident reporting and enhanced public-private information sharing.
• Unified Standards: Mandatory security standards are being enforced across four critical infrastructure sectors: Telecommunications, Finance, Electricity, and Gas. Compliance with these standards is increasingly a baseline for government procurement and high-level defense contracts.

4. Conclusion: Strategic Roadmap for Organizational Leaders

The synchronization of sectoral technological goals with deep structural reforms marks the end of "business as usual" in Japan. For organizational leaders, the macro-structural environment now dictates a move toward aggressive capital deployment and human capital development.

Strategic Imperatives for Leaders

1. Benchmark Board Evaluations against "Growth Investment Guidance": Align corporate governance to provide the rigorous justifications for R&D and human capital investment now required under the revised Companies Act.
2. Capitalize on Government Anchor Tenancy: Align R&D roadmaps with the "Strategic Product/Technology Government Implementation Acceleration Program" to secure the state as a first-mover customer.
3. Internalize the MHLW/METI/MEXT Reskilling Standards: Leverage ministerial-certified training to access subsidies for transitioning the workforce toward the 17 strategic fields.
4. Strategize for Supply Chain Consolidation: Utilize the new M&A/Business Succession support qualifications to stabilize and strengthen the partner ecosystem.
5. Adopt Proactive Cybersecurity Protocols: Align internal security architecture with the unified "Active Defense" standards to maintain eligibility for critical infrastructure and defense-related opportunities.

The Future Outlook

By integrating capital flow, labor mobility, and robust supply chain defenses, Japan is positioning itself as the world’s leading "solution-advanced" hub. These reforms provide the roadmap to transition from a period of demographic challenge to a future where Japan’s technological mastery provides the definitive answers to the global challenges of the 21st century.

Please follow us to read more about Finance & FinTech in Japan, like hundreds of readers do every day. Our short weekly digest, the “Japan FinTech Observer”, is published on LinkedIn, Medium, Substack & Paragraph, or on our own FinTech Observer website. Only the latter provides you with the option to subscribe to individual news stories as they are published.

Should you wish to further discuss the Japanese (or Asian) FinTech ecosystem, you may book a consultation via Intro - all proceeds flow towards covering the operating cost of the Tokyo FinTech Association, and research for the Japan FinTech Observer.