The Japanese fintech industry is one of the most developed in the world – attracting thousands of companies from the financial sector to enter the market and do business in the country.
Companies dealing in securities, such as brokerage firms, may find Japan especially attractive, thanks to its importance on the global equities and foreign exchange markets.
For this reason, traders in Japan are highly tech-savvy and have access to a wide range of software solutions, which means that any startup looking to tap into the Japanese market must offer plenty of value in terms of the software they provide.
Understanding the Japanese fintech ecosystem is important for new entrants on the market to avoid miscalculations and early losses.
Trading software and brokerage services in Japan
Japan is home to a lot of high-profile brokerage firms both local and international and their clients have access to some of the most widespread trading platforms in the world, such as cTrader, which is especially popular among Japanese forex traders.
Trading software provided to Japanese clients can be divided into two categories:
- Built-in software from brokerage firms – charting tools, trading platforms, economic calendars, etc
- Third-party software – trading algorithms, advanced watchlists, etc
Algorithmic and high-speed trading are both popular in Japan, which boosts liquidity on the country’s capital markets.
Third-party software providers have a better chance at disrupting the financial ecosystem of Japan, due to an already well-established lineup of financial institutions that exist in the country and that have decades of operating experience.
Trading regulations in Japan
Any fintech company looking to enter the Japanese market should note the existing regulations and security protocols that exist in the country.
The Financial Services Agency of Japan is the regulatory body tasked with overseeing the equities, commodities and foreign exchange markets in the country.
The FSA authorizes and supervises every brokerage firm operating in Japan and ensures the stability of the country’s financial system.
Fintech companies, especially those engaged in algorithmic and high-frequency trading, should note that the country has tight regulations that are in compliance with the EU’s MiFID protocol, which are divided into two core obligations for HFT firms:
- System development and risk management obligations
- Obligation to provide information to authorities, such as the submission of business reports and notification regarding the engagement in high-fre trading activities
Compliance with these requirements are mandatory for any company looking to provide high-frequency trading services in Japan.
Third-party trading software in Japan
Considering the saturation of the brokerage market in Japan, fintech companies may be seeking to provide third-party solutions to clients in the country.
Some great opportunities present on the Japanese market include the following services:
- Advanced charting subscriptions – brokerage firms typically provide basic charting tools to their clients. Providing advanced charting services and redrawal options can fill a niche market
- HFT – for firms that have the necessary expertise and capital to comply with the rules and guidelines set out by the FSA, high-frequency trading solutions can help fill some of the high demand that exists for such algorithms, especially on the FX market
- Data analytics software – sophisticated traders benefit greatly from data analytics in the research process. Therefore, there is solid demand for analytical tools that make the process of data gathering more efficient
Challenges facing fintech startups entering Japan
Japan is a highly developed economy, which poses some unique challenges for fintech startups entering the market, as a developed economy also means market saturation.
With a lucrative financial sector and an active investment hub, the Japanese market is highly competitive, which places entry barriers for new entrants.
Furthermore, the complex regulations facing brokerage firms and financial software providers can make it difficult for newly formed companies to get a foothold in the Japanese market.
For startups to be successful in Japan, corporate cultural differences should also be considered, especially when partnering with businesses based in the country, such as brokerage firms and other financial institutions.
