Japan - Country Commercial Guide
Financial Technology
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Overview 

According to the March 2023 Global Financial Center Index (“GFCI33”) published by Z/Yen Group, Tokyo ranked as the twenty-first largest global financial center after New York, London, Singapore, Hong Kong, San Francisco, Los Angeles, Shanghai, Chicago, Boston, Seoul, Washington D.C., Shenzhen, Beijing, Paris, Sydney, Amsterdam, Frankfurt, Munich, Luxembourg, and Zurich.  The GFCI33 considered the following factors: human capital, business, finance, infrastructure, and reputation.   Tokyo’s low rank is in stark contrast to Japan’s position as the world’s third-largest economy. 

Both Japan’s central government and the Tokyo Metropolitan government are keen to revitalize Tokyo’s position in the international financial market.  The Japan Financial Services Agency (“FSA”) and the Tokyo Metropolitan government have dedicated teams to attract foreign financial services companies interested in expanding their businesses in Japan.  U.S. financial technology (“FinTech”) companies, or those companies that combine software and technology to deliver financial services, can benefit from these opportunities to enter or expand their presence in Japan.   

In 2016, Japan’s central bank, the Bank of Japan (“BOJ”), established a FinTech center to promote the sector’s sustainable growth with careful consideration of digital currency.  In October 2020, seven international central banks, including the BOJ and the Bank for International Settlements (“BIS”), published the Central Bank Digital Currency Report to assess the feasibility of central bank digital currencies (“CBDCs”) in assisting central banks in achieving their public policy objectives.  Although the BOJ has not officially indicated any plans to issue CBDCs, in April 2021, the BOJ initiated two parts of proof-of-concept studies to determine whether CBDCs’ essential functions are technically feasible in Japan – specifically digital issuances and remittances.  The first CBDC proof-of-concept phase concluded in March 2022; the second CBDC proof-of-concept phase incorporating various “peripheral functions” to CBDCs was completed in March 2023.  The BOJ is now preparing to conduct a pilot study in which private businesses and consumers will participate.  In this pilot study, the BOJ will build an experimental system and run performance tests from the perspective of confirming the end-to-end processing flow of the CBDC system.  The BOJ has invited private business operators to participate in the CBDC Forum, where pilot studies will be conducted and broadly discuss and study issues and countermeasures for connecting to external systems.  60 organizations applied to be the forum members, and the BOJ started discussing the implementation of the pilot study.   

These studies and the possibility of Japanese CBDCs are important for Japan and its FinTech industry in that they would accelerate the digitalization of payment.  Japanese banks – including megabanks Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group – have actively adopted FinTech into their businesses by partnering with FinTech firms.  Specifically, for U.S. FinTech companies interested in entering the Japanese market, the possibility of CBDCs could impact opportunities in payment, settlement, and blockchain technologies.  

According to KPMG’s Pulse of FinTech H1’23 Report, 2022 global FinTech investment reached $209.3 billion, including venture capital and private equity investments as well as mergers and acquisitions (M&A).  The Asia Pacific region’s total FinTech investment reached $52.2 billion – or roughly 25 percent of global FinTech investment.  The payments space remains the strongest fintech subsector globally.   

The Fintech Association of Japan has 125 venture company’s members, however, Japan has only a few FinTech unicorns, including Liquid and Opn Co.  One of the reasons why there are few unicorn companies in Japan is the small amount of venture capital investment.

Leading Sub-Sectors 

The following are Japan’s active and growing FinTech sub-sectors. 

Digital Payments 

Until recently, Japan lagged behind other countries in cashless systems.  However, with the government of Japan’s (“GOJ’s”) push for digitalization amid surges in Japanese COVID-19 infections, more Japanese residents have grown accustomed to using cashless payments.  Such means of cashless payments include mobile payments using QR codes or barcodes such as d-Barai, au Pay, Rakuten Pay, PayPay, LINE Pay, and Merupay.  According to the Ministry of Economy, Trade, and Industry (“METI”), the ratio of cashless payment rose to 36 percent in 2022 from 26.8 percent in 2019, although most cashless payments in Japan continue to be made by credit cards. 

Buy Now, Pay Later (“BNPL”) 

Although Japan has only a few BNPL payment providers, the number of eCommerce stores that accept BNPL payment is increasing.  This payment service is popular among younger Japanese consumers that do not or cannot obtain credit cards.   

Digital Banking  

The use ratio of online banking is also increasing in Japan.  The COVID-19 pandemic, shrinking bank branches, and the rise of online banks without retail outlets such as Rakuten Bank are fueling the growth of digital banking. 

Crowdfunding 

Crowdfunding that raises funds for a project through a large online group of people provides individuals and small businesses opportunities for early-stage financial support for their entrepreneurial concepts.  Japan has three types of crowdfunding: (1) purchase/reward crowdfunding, which is Japan’s most popular and highest growing form of crowdfunding; (2) donation crowdfunding; and (3) investment crowdfunding. 

Insurtech 

Insurtech uses technological innovations such as artificial intelligence (“AI”) to make current insurance procedures more efficient and allows insurance products to be priced more competitively.  Insurtech can help improve customer service by streamlining application procedures, automating and accelerating customer interactions, and enhancing simulations of insurance premiums.  Due to the COVID-19 pandemic, virtual commercial channels are being strengthened, and administrative procedures such as contract procedures and payment requests are being digitized and automated at a rapid pace. 

Regtech

Regtech (regulatory technology) manages regulatory processes within the financial industry using big data, artificial intelligence, and blockchain to reduce financial risk, increase regulatory compliance and prevent money laundering and fraud.  Japan is lagging behind in this area, and there are business opportunities for American companies.

Cryptocurrency Exchange 

There are currently 33 cryptocurrency exchanges in Japan.  In 2021, spot trading volume of cryptocurrency in Japan was $260 billion.  Japanese legal requirements for operating a cryptocurrency exchange are not onerous.  Cryptocurrency exchanges must register with the Japan Financial Services Agency (“FSA”) to trade a cryptocurrency in Japan.  

Non-Fungible Token (“NFT”) 

Non-fungible tokens (“NFTs”) are cryptographic assets that exist on a blockchain and cannot be traded or exchanged at equivalency like cryptocurrencies.  NFT technology can prove ownership of digital data.  By giving identification information to digital data using blockchain technology, it is possible to indicate the “owner” or the “uniqueness” of the data.  Currently art assets and real estate tracts are commercial areas in which NFTs are being used extensively.  

Although Japan’s NFT market size is still relatively small compared to other countries, it is rapidly expanding.  Since 2021, many Japanese firms have entered the NFT marketplace – including Rakuten, LINE, SBI, GMO Internet, and Coincheck.

Cybersecurity 

Security and Fraud Prevention Technologies and Solutions for Financial Services Corresponding to increases in higher numbers of Japanese FinTech and online transactions has been the increase in cybercrime incidents.  For U.S. companies interested in the Japanese FinTech space, you may want to carefully consider a Japanese partner or a Japanese-speaking agent to provide products and services to local Japanese FinTech or financial services companies.  In addition to facilitating delivery of the products and services, a Japanese agent can work with customers in Japan to ensure appropriate cybersecurity measures are followed. 

Opportunities 

Both Japan’s central government and the Tokyo Metropolitan government are keen to revitalize Tokyo’s position in the international financial market.  The Tokyo Metropolitan government has a dedicated team to attract foreign financial services companies interested in expanding their businesses in Tokyo.   

In addition, Osaka Prefecture and the City of Osaka are also eager to promote Osaka, Japan’s second-largest city, as a global financial city.  Osaka officials established the Osaka Global Finance One-Stop Support Center in December 2021 to help foreign financial services firms and investors to establish their businesses in Osaka.   U.S. FinTech companies may wish to explore these opportunities in Osaka for purposes of entering or expanding their presence in Japan. 

Fukuoka Prefecture, located in the south of Japan, also aims to attract international financial services firms, including FinTech firms, through industry-academia-government collaboration, and in 2021 signed a partnership agreement with the Fintech Association of Japan.  Fukuoka Prefecture aims to nurture and accumulate the FinTech industry. It has been implementing various measures such as holding business matching events and subsidizing part of the costs required when FinTech companies establish bases in Fukuoka Prefecture.

Resources 

Agencies of the Japanese government:

Tokyo Government Agencies 

Osaka Government Agencies 

FinTech Organizations 

Upcoming FinTech Events 

Commercial Service Japan  

For more information about Japan’s FinTech sector, please contact the U.S. Commercial Service at Office.Tokyo@trade.gov or Ms. Ms. Tamami Honda at Tamami.Honda@trade.gov.