Financial Innovation and Risk Management in Japan

Purpose: The aim of the study was to investigate the Financial Innovation and Risk Management. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Japan has seen a surge in financial innovation driven by fintech startups and digitalization efforts by traditional banks. However, this innovation comes with regulatory challenges and risks that must be managed. Regulatory frameworks are being updated to address new risks like cybersecurity threats. There's also a growing focus on corporate governance, risk culture, and sustainability integration. Unique Contribution to Theory, Practice and Policy: Option pricing theory, capital asset pricing model (CAPM) & modern portfolio theory (MPT) may be used to anchor future studies on the financial innovation and risk management. Foster a culture of innovation within financial institutions by promoting collaboration between risk management professionals and product development teams. Establish regulatory sandboxes and innovation hubs to facilitate responsible experimentation with financial innovations while maintaining regulatory oversight.