Is Japan ready to recover its position as the world’s finest technological innovator?

Dr Samuel Barbosa Da Cunha - AI Development

Is Japan ready to recover its position as the world’s finest technological innovator?

For many people, the idea that Japan is a technological innovator is still prevalent. Images of a high-tech daily life as people live in futuristic cities with every automated convenience hold strong. And while some cities, such as Tokyo, are extremely tech-forward, everyday life for most people in Japan is rather more low-tech.

However, there is another digital revolution underway for Japan. Since the tech heyday of the 1980s, Japan has actually lagged behind much of the rest of the world in terms of tech. But over the last few years, a corner has been turned and Japan is finally going back to the future.

Japan is at the beginning of a transformation into a technological innovator

Japan stands at the cusp of a tech revolution, with innovative developments encompassing many different sectors. One of the major sectors that is undergoing a profound change is financial services and banking. This is why investors are backing start-ups and other companies that are working on cashless payments and e-commerce.

Focus from investors is on this area of technological innovation, and this means new companies. The household names are of less interest to many investors as they are considered to be behind the times and not ready yet for a future that demands seamless online integration.

Usefully for investors, it’s possible to see the technological trajectory Japan will now take. This is because it’s largely already happened in much of the developed world. So, if we look at the US, the UK and places like Korea and China we can already see the layout of the innovations that will be more prevalent in Japan in the short term.

In other words, the technological innovations that have been so widespread in much of the richest countries in the world, are now unrolling in Japan. Investors looking for opportunities in Japan, therefore, should look out for forward-thinking, innovative, flexible companies that are showing signs of solutions for ecommerce and online financial services. Avoiding the traditional big names could pay off for investors as they tend to be lagging behind in terms of technological innovation.

Investors are focusing on small start-ups rather than big names

Back in the day, maybe 20 years ago or more, investment in Japan would automatically centre on big names. The kinds of banks and consumer electronic brand names that we all know. But are they really the future of Japan in today’s economic environment? Probably not.

In fact, it’s an entirely different kind of company that investors would do well to back. These may not be names that people in the UK will necessarily know, but they are where the opportunities truly lie in Japan.

Of course, this means there are impressive opportunities for stock selection here. Japan’s market has more than 4,000 listed companies, although there isn’t much coverage of them individually. Furthermore, various factors concerning Japan that people tend to think of as negative are actually positive for investors.

For example, Japan’s population has largely been declining since 2008. According to Japan’s Statistics Bureau, as of 1 October 2019, 28% of the population is older than 65. This is not a negative when it comes to stock picking, as if demand falls due to the population it shouldn’t matter. Rather than focusing on brands and companies that will obviously be impacted by this, the better approach is to focus on three or four companies that are clearly on a upward trajectory.

Tokyo is an innovation hotspot with lots of start-ups

Japan has become a positive region for tech start-ups and this business ecosystem is evolving fast. Tokyo remains the main start-up hub in Japan, with a global valuation of $25 billion. Support from the Japanese Government for the start-up ecosystem is strong, with the Start-up Ecosystem Consortium launched at the start of 2020.

This consortium supports and assists local start-ups by working together across the private sector, Governmental support and research universities and institutions. In many cases, this is where overseas investors are getting in on the act too.

Japan’s tech strengths in 2021 lie in Fintech and advanced manufacturing and robotics. As the biggest manufacturer of industrial robots, Japan makes more than half of the entire global supply.

3 companies that are surging ahead as technological innovators

Here are just a few of the many Japanese tech start-ups that offer investment opportunities.

  1. Paidy, Minato, Japan

Founded by Russell Cummer and Lee Smith, Paidy is an online consumer platform that allows customers to pay without inputting credit card details. Instead, they use their email address, phone number and name to go through the instant checkout. They buy online and then pay every month through a consolidated bill.

In 2019, Paidy introduced the first ecommerce ‘buy now pay later’ service. And in November 2020, the company launched 3-Pay, which allows consumers to pay in three instalments for each purchase – a first for Japan.

Paidy is backed by 24 investors, including the likes of Goldman Sachs and PayPal. Its latest funding round was in April 2020 and raised $162 million. The pandemic increased interest in the platform for consumers who don’t want to use a credit card for essential online purchases.

  1. MoneyTree, Tokyo, Japan

This Fintech data platform was first launched in 2012. Moneytree provides data management services and open banking services. A personal finance app and a cloud-based accounting service help to bring institutions and people together.

The finance app from Moneytree is accredited by the International Organisation for Standardisation (ISO) certificate and has won many awards since launch. A key leader in the early adoption and development of open banking, Moneytree has raised $23.6 million over seven rounds from 20 investors.

  1. Kyash, Tokyo, Japan

Launched in 2015 by Shinichi Takatori, Kyash is a mobile banking fintech start-up aimed at helping consumers access financial services more easily. Consumers can access a digital wallet app offering full-stack banking technology, online payment apps and prepaid cards that can be used at retailers who accept Visa.

It’s the first Visa card in the country that has a contactless function. Kyash has 17 investors and has raised $68.9 million over four funding rounds.

These are just three of the exciting Japanese tech start-ups that are offering innovative and impressive tech for consumers and businesses. It seems that Japan is back to its technological best, and I think we will see more evidence of this over the next few years.