FROM SCIENTIFIC FOUNDERS

02 STORY UTEC Tsutomu
Watanabe

Data will change the future of economics

UTEC Partner Professor of Economics, University
of Tokyo.
Founder & Technical
Advisor, Nowcast Inc.

PROLOGUE

"Nowcast" is a venture from the University of Tokyo that calculates economic statistics such as the consumer price index through big data analysis and sends such information at a high frequency, close to real time. Nowcast is able to convey the "now" of the economy like a thermometer. Nowcast develops "Nikkei CPINOW", which provides a daily price index using big data, the "Point of Sales (POS)” data. In addition to its use in government monetary policy, Nowcast supports asset management and economic research operations of more than 230 Japanese and international financial institutions, governments, government-affiliated financial institutions, and hedge funds. Furthermore, Nowcast also compiles the consumption statistics "JCB Consumption NOW" that utilizes big data of credit card members. Nowcast provides multifaceted analysis by industry and sales type, and provide statistics to know the "now" of consumer activities. This is attracting increasing attention as a convenient index for stock investments and as a new source of information to grasp economic trends. Nowcast was founded by Professor Tsutomu Watanabe, Graduate School of Economics, the University of Tokyo. How did Professor Watanabe connect his knowledge of economics to his successful business? We follow Nowcast’s journey with UTEC Partner Noriaki Sakamoto.

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SECTION01 : The start was a wish to give achievements in research back to society

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SECTION01

The start was a wish to give achievements in research back to society

Sakamoto:
What led you to start Nowcast?
Watanabe:
The daily price index provided by Nowcasting today was not created with the intention of starting a business. It was created as a pure research project with the intent of giving back to society, but eventually led to commercialization as it developed. I am a researcher in macroeconomics. In this field, I have mainly studied "price" and "monetary policy", and the project on prices that I had been researching since 2006 is the predecessor of the “Nikkei CPI NOW” provided by Nowcast.

When the project was opened to the public as the "University of Tokyo Daily Price Index" in the Japan Society for the Promotion of Science Basic Research S "Elucidation of Long-term Deflation", it was noticed by many people and very well received. The University of Tokyo Daily Price Index utilizes POS data to render high-precision price index that is extremely close to the actual state of consumption. Moreover, it can compute the price index more frequently (price of one day can be announced the day after) than the monthly consumer price index (CPI) by the Statistics Bureau of the Ministry of Internal Affairs and Communications. At the time, Abenomics and the Bank of Japan had started the "another dimension monetary easing" to get out of deflation and this called for even further attention to the project. “Nikkei CPI Now” started as a pure research project and the idea of giving back to society. So strange that this led to a high recognition of the technology from society, the founding of Nowcast, and the commercialization of the index.x

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SECTION02

Innovative use of data was what led to the founding of the company.

Sakamoto:
UTEC’s investment strategy has 3 pillars. First is that the company is based on prominent/innovative science/technology. The second is that the company has a strong team. The third is that the company challenges global issues of mankind. UTEC invests in start-ups like Nowcast that fulfil these investment criteria. Could you elaborate on the inception of the Tokyo University Daily Price Index, the predecessor to Nowcast’s Nikkei CPINOW?
Watanabe:
Looking back, it was our idea to bring new ways to use data into economics research. At the time, I was working on the University of Tokyo Daily Price Index project and thinking of creating and researching my own analysis method to write a highly original publication. I collected data on various prices, but the focus was on creating a new price index using POS data from supermarkets. POS data is now called "big data" in consumer activities, but when I started my research there was no such word, it was just called "business data". The data was "collected" as part of the business of the company and was not utilized. By combining these data and our knowledge of economics, we were able to generate good research and fortunately, turn it into a business.
Sakamoto:
Nowcast is also a very rare venture in the sense that it spun out from the research in economics. Is there a field in economics that is particularly good for starting a business?
Watanabe:
Many ventures are spun out from the natural sciences, while there are few entrepreneurs who spin out ventures from research in social sciences such as economics and the humanities.
In the context of economics, various data are also starting to be used, for example in development economics, which explores development strategies to elucidate the causes of poverty in developing countries. If the statistics of the target country are not organized, it becomes difficult to quantify the level of development, but now these statistics can be collected using satellites and various other sensors. I believe that the combination of rapidly advancing data science and machine learning with knowledge in the humanities and social sciences has the potential to create new successful ventures.

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Teamwork: The combination of different expertises

Sakamoto:
From the perspective of a "strong team", it is important to know what to do with the business, but also who to do it with. What are Nowcast's strengths as a team?
Watanabe:
I think our strength lies in the fact that we are able to define roles appropriately so that each member can fully demonstrate their capability. My current title in Nowcast is founder and technical advisor. For example, if one is after the academic explanation of the knowledge of economics used in Nowcast, it is my turn to shine. I'm the only one in this company who can be trusted that the indexes we offer are academically sound and accurate, and that the longer one uses the index the more accurate it will become. On the other hand, I don't have the know-how to make management decisions or negotiate with customers, so I keep my distance in this area. In teamwork, we value that each member is assigned to a role where they can fully demonstrate their expertise.
Sakamoto:
In August 2016, Nowcast was integrated with Finatext, a Fintech venture from the University of Tokyo, and Ryota Hayashi of Finatext became CEO. In other words, the founder and CEO are different people, and yet the teamwork is going well.
Watanabe:
The purpose of my company is to spread the use of price indices using big data to the world. In extreme terms, it would have been also fine with me if the University of Tokyo's Daily Price Index spread to the public as a form of social return of my research. However, university research has little contact with society, and therefore difficult to spread into society. That's why I chose to start a business. Now that Finatext and Nowcast have merged, Nowcast is being used by increasingly more people and fulfilling the vision that I had for the index. As long as the purpose is achieved, I am indifferent about how it is achieved. This is why I do not interfere with the business management of the company. If I did, I would risk making the wrong decisions.

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Computer science will innovate the academic field of economics.

Sakamoto:
Next, I would like to ask about the "global issues" that Nowcast will challenge. Currently, computer science such as machine learning is developing rapidly, but is there a possibility that the computer science will change the state of the world economy and solve unsolved economic problems?
Watanabe:
Absolutely. In my paper Novel and Topical Business News and Their Impacts on Stock Market Activity (*), I reported that news articles with novelty and topicality affect stock prices. Specifically, we conducted validation using a dataset consisting of more than 9 million articles of English-language business news and minute-by-minute stock price data from the New York Stock Exchange and NASDAQ stock markets from 2003 to 2014. We found that price fluctuations, volumes traded, and the number of trades provided a significant response to news stories with novelty and topicality. The idea of trying to find a correlation between business news and stock prices has been around for about 20 years. However, back then, it was not possible to know when the Reuters news would come out in the order of seconds or even minutes. Also, the “natural language processing" technology for analysing the news article was immature. Natural language processing researchers and economists did not work hand in hand then.

Today, research methods that combine computer science and social science knowledge have been realized, and new truths have been clarified. This is a great achievement in research, and considered to be an advance in the study of economics.

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FINAL SECTION

FINAL SECTION

Conveying the value of entrepreneurship as an educator

Sakamoto:
For you, how did UTEC support Nowcast?
Watanabe:
In addition to the investment, I think UTEC provided us with two major supports: the support for the big management and the small management of the company. Supporting big management means that UTEC understood my intentions very well and set a direction for the company. That is why I think that even though there was a business integration with Finatext, we continued grow without changing our policy. The other small management support was that UTEC helped us with the day-to-day operations of the company. It was encouraging UTEC had advised many of the management staff at Nowcast in order to compile various contracts and perform customer acquisition. As for me, my relationship with UTEC dates back to when I started thinking about starting a business. At the time, I had consulted colleagues at the university or a person who worked for a major company, but I was suffering because I could not get a definitive answer from them. UTEC had, from the very beginning offered very practical advice. I think that it was the accumulation of such advice that led to our relationship of trust. If there was no UTEC at the University of Tokyo, and if it wasn't Mr. Sakamoto and Mr. Goji’s encouragement to start a business, I probably would not have founded Nowcast.
Sakamoto:
How did starting a company affect your research?
Watanabe:
After starting the business, it became possible to receive various feedbacks and suggestions from those who used our service. Of course, I received feedback about the University of Tokyo's Daily Price Index from the beginning but now I was able to receive feedback from a broader society. For example, companies that have accumulated data would come to us and ask "Could you use the data in a new way?". I'm an economist, so of course I always have societal impact in my mind. I think that the ability to get feedback from a wide range of people in society is very positive to economic research. Furthermore, I am a faculty member of the university so I teach alongside my research. I teach individuals one on one to large classrooms of students, and in doing so I become close to the students I teach, and get a lot of questions about their lives and their careers. It is in these times, that I feel my entrepreneurial experience is really relevant to answer some of their questions. Currently, more and more students who graduate from the Faculty of Economics at the University of Tokyo are thinking about starting a business. I feel that the more talented and confident students are, the stronger the tendency to want to become an entrepreneur. However, even if the student is willing to start a business, they often find it hard to consult their parents nor do they have anyone with reliable entrepreneurship experience around them. This is where I come in as they can actively consult with me. I am their supervisor who interacts with them on an everyday basis. In this sense, my experience of as an entrepreneur has become very useful. In fact, many of the students around me start a venture immediately after graduating from undergraduate school, or transfer into a venture company after several years at a large corporation. So, I think I am having a positive impact on their lives. I feel that I am making a contribution to creating a start-up ecosystem by impacting the decisions of young people who will support the future of Japan, opening their eyes to options other than the conventional path of working in government offices or large corporations.