Welcome to the thirty-fifth edition of the Japan FinTech Observer, or the “Japan as a Global Financial Center” Observer, as we like to call it this week, as the the new Open Financial Ecosystem Index (OFEX) has ranked Tokyo fourth, the best rating on any Finance/FinTech/Innovation survey we have seen in a while.

Adding to our cheer is the momentum security token issuances and trading are gaining in Japan, both on the “Progmat” platform, recently spun out of MUFG Trust and Banking and positioned as national infrastructure, and on its competitor “Boostry”. Also, the Osaka Digital Exchange (ODX) announced that after operating for a year and a half as a traditional Equity PTS, it will commence security token trading on December 25. Looks like this Global Financial Center is closing out the year on a high note.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: gumi Cryptos Capital led the USD 4.5m investment round in Panoptic; web3 company BLOCKSMITH has raised funds from SBI Group, Headline Asia, J-CAM Corporation and others; Rakuten Capital participates in the USD 8m Series A for Baaz Bikes
• Banking: more highlights from MUFG’s fiscal half-year earnings presentation; the Financial Services Agency (FSA) will ease restrictions on banks investing in companies that are more than 10 years old
• Insurance: the FSA puts an end to Big Motor’s fraud scandal — and its non-life insurance license
• Payments: SBI Holdings has concluded a Memorandum of Understanding with Circle to bring the USDC stablecoin to Japan; Korea’s Toss Payments expands on-site payment in 42 countries through Alipay+, including Japan
• ESG: Leading Japanese climate tech company Asuene expands to the US; MUFG publishes its Asia Transition White Paper, focusing on Thailand and Indonesia, where its partner banks are located
• Capital Markets & Asset Management: Japan’s Mizuho Financial Group has sought to establish a securities company in China; Fintokei had a successful launch in Japan as a trading education and evaluation provider (with real money pay-outs!); Mirae Asset Global Investments (Hong Kong) launched the Global X Japan Global Leaders ETF; Tokai Tokyo-backed global private market exchange ADDX has listed a deep-value equity fund, managed by Aggregate Asset Management (AAM)
• Digital Assets: The Osaka Digital Exchange (ODX) will commence the operation of “START”, their Proprietary Trading System (PTS) for security tokens, on December 25; Hitachi, JPX Market Innovation & Research, Nomura, and BOOSTRY, are cooperating towards the issuance of a “Digitally Tracked Green Bond”; Okasan Securities Group, Okasan Securities, Mizuho Securities, Mizuho Bank and Mitsubishi UFJ Trust and Banking Corporation will conduct a public offering of the “Okasan Securities Group 100th Anniversary Commemorative Security Token Bond”; Final Fantasy creator Square Enix will sell Symbiogenesis NFTs in three rounds over the coming week
• The Last Word: High growth in university-developed ventures

Unlike Z/Yen’s Global Financial Centers Index (GFCI), which saw Tokyo sliding from an all-time high third position in March 2020 to 20th in September 2023, the new Open Financial Ecosystem Index (OFEX), presented during the past week by the Institut Louis Bachelier and the Center for Financial Studies, has Tokyo ranked as #4 behind only New York, Chicago, and London

Venture Capital & Private Equity

• gumi Cryptos Capital led the USD 4.5m investment round in Panoptic; today, derivatives are dominant offchain, but options can generally only be found on the largest of assets; for users that want to trade options onchain, a viable option (no pun intended) hasn’t existed until now; Panoptic has architected an options protocol that solves these liquidity and settlement issues, but also offers benefits to buyers and sellers only available using this type of structure on-chain
• Web3 company BLOCKSMITH has raised funds from SBI Group, Headline Asia, J-CAM Corporation and others through the issue of SAFE-type share options as part of an angel round; for the first time, capital has come from outside the company, and the funding is part of the company’s efforts to strengthen its capital structure and finances in preparation for a listing
• Rakuten Capital participates in the USD 8m Series A for Baaz Bikes, the Delhi-based electric bike and battery startup, a round led by BIG Capital, a Singapore-based investor

Banking

• As we summarized in last week’s edition of the Japan FinTech Observer, MUFG blew through expectations, achieving 71% of net profits guidance for the year in only the first half; we offer a few more highlights from the earnings call in this week’s edition, including a preview of the next medium-term business plan (MTBP, see above)
• The Financial Services Agency (FSA) will ease restrictions on banks investing in companies that are more than 10 years old, making it easier for startups operating in industries that take longer to develop commercial products to gain access to capital, according to the Nikkei; at present, banks are only allowed to hold stakes of over 5% in companies that are less than 10 years old through subsidiaries specializing in investment; the Financial Services Agency is expected to amend the Banking Act by June 2024 after soliciting opinions from the public

Insurance

• The Financial Services Agency (FSA), through the Kanto Local Finance Bureau, has issued orders to Big Motor, BM Holdings, and BM Hanaten (collectively referred to as “BM Group”) for administrative dispositions pursuant to the Insurance Business Act; their registrations as a non-life insurance agency shall be revoked as of November 30, 2023

Payments

• SBI Holdings has concluded a Memorandum of Understanding with Circle, a global financial technology firm and the issuer of USDC, the world’s largest regulated stablecoin, to circulate USDC stablecoins, establish a banking relationship and promote the use of Circle’s Web3 Services in Japan
• Korea’s Toss Payments expands on-site payment in 42 countries through Alipay+; utilizing barcodes and QR codes, the service is available in the US, Japan, Australia, the UK, Singapore, and more

ESG

• Leading Japanese climate tech company Asuene announces a significant milestone in its global expansion strategy with the establishment of its second overseas subsidiary, Asuene USA, headquartered in Los Angeles, California; in November 2022, Asuene took its first step beyond Japanese borders, establishing Asuene APAC in Singapore
• The MUFG Asia Transition White Paper aims to contribute to decarbonization in Asia by specifically focusing on the power sector in Thailand and Indonesia, where MUFG’s Partner Banks are located; the paper assesses the market environment and decarbonization challenges in both these countries and proposes tangible solutions which could contribute to decarbonization in Asia, from a financial institution’s perspective

Capital Markets & Asset Management

• Japan’s Mizuho Financial Group has sought to establish a securities company in China, becoming the latest foreign firm to make inroads into China’s onshore securities market with a fully-owned entity; the China Securities Regulatory Commission has received the application from the securities arm of the third-largest Japanese banking group, according to a filing record issued on the regulator’s website
• Fintokei launched in Japan in April this year as a trading education and evaluation provider, and is now expanding into the European market, where Fintokei’s backers, Purple Holdings & Purple Technology, are based; Fintokei’s simulated trading offers real money payouts, reminding us of the legal structure of a pachinko parlor
• Mirae Asset Global Investments (Hong Kong) launched the Global X Japan Global Leaders ETF (3150), which is trading on the Hong Kong Stock Exchange (“HKEX”); the ETF closely corresponds to the performance of the FactSet Japan Global Leaders Index, allowing investors to gain direct exposure to a portfolio of leading Japanese companies, which is rare in the Hong Kong financial market
• Tokai Tokyo-backed global private market exchange ADDX has listed a deep-value equity fund, managed by Aggregate Asset Management (AAM), that uses machine learning to optimise investment strategy and returns; AAM is chaired by renowned Singaporean diplomat and geopolitical analyst Kishore Mahbubani, who formerly served as Singapore’s Permanent Representative to the United Nations and President of the United Nations Security Council

Digital Assets

• The Osaka Digital Exchange (ODX) will commence the operation of “START”, their Proprietary Trading System (PTS) for security tokens, on December 25, 2023; ODX was established in April 2021, and launched its equity PTS in June 2022; in early November 2023, the ODX accepted equity participations by Cboe Worldwide Holdings, a subsidiary of Cboe Global Markets, Virtu Investments, a subsidiary of Virtu Financial, and Optiver PSI, a subsidiary of Optiver Holding
• Hitachi, JPX Market Innovation & Research, Nomura, and BOOSTRY, are cooperating towards the issuance of a “Digitally Tracked Green Bond” utilizing digital technologies to improve the transparency of data needed for green investment and the efficacy of gathering that data; the bond will have a corporate bond-type security token scheme that utilizes a Green Tracking Hub jointly developed by Hitachi and JPXI allowing investors to easily view the bond’s environmental effect, and a blockchain provided by BOOSTRY
• Okasan Securities Group, Okasan Securities, Mizuho Securities, Mizuho Bank and Mitsubishi UFJ Trust and Banking Corporation will conduct a public offering of the “Okasan Securities Group 100th Anniversary Commemorative Security Token Bond”, utilizing the digital asset issuance/management platform “Progmat” as the first project in the five companies’ collaboration in the security token business
• Final Fantasy creator Square Enix will sell Symbiogenesis NFTs in three rounds over the coming week; five hundred character NFTs will be launched for Chapter 1 of Symbiogenesis, with the initial auction introducing ten unique NFT characters to the ecosystem; the second auction will feature 90 additional characters, and the final round will contribute 400 NFT characters to the game

Other Media

• Goldman Sachs, “Japan’s stock market is forecast to have a transformational year in 2024”
• Pitchbook, “The Role Banks Play in the Japanese Venture Market”
• Mazars, “The New Qualified Invoice System in Japan”
• Ministry of Finance, “JGB Newsletter November 2023”
• Korea Blockchain Week 2023, “Cryptocurrency Adoption in Japan: Trends and Predictions”

The Last Word: High growth in university-developed ventures

University-developed venture businesses (VBs) are expected to become leading players in providing innovations to the economy and society thanks to the innovative research being undertaken at universities and other institutions. The number of university-developed VBs related to Japanese universities and colleges of technology has grown to 3,782, up by 477 from 3,305 in FY2021, according to the data uncovered in the Survey on University-Developed Venture Businesses conducted by the Ministry of Economy, Trade and Industry (METI), showing a record-high for both the number of VBs and the number they had increased by.

From FY2016 to FY2022, this amounts to an approximate doubling of such VBs, which we would consider a huge success story by any measure, but especially considering that the previous decade pretty much flat-lined. Please consider now that the Japanese government’s five-year startup plan seeks to increase funding by more than 10x to JPY 10trn annually, create 100,000 new startups (equating to a 7x to 10x on the number of startups), and 100 new unicorns. Clearly, the magic potion that is required (freshly printed yen) needs to wipe out the favorite phrase in fund investing, “past performance is not indicative of future results”.

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