In many big card markets, a credit card is a lending product with a payments feature attached. In Japan, the center of gravity is different, and once you see that, a lot of this market starts making sense.
Start with how people actually pay. Most Japanese card spend is paid in full every month, pulled straight from the cardholder’s bank account. Revolving credit exists, but it is not the center of the market. Plenty of US cardholders pay in full too, so the deeper difference is the issuer P&L. The US has a large revolver base, and interest income is a major part of issuer economics, often roughly half of revenue, with revolvers helping fund rewards and acquisition. In Japan that engine is much smaller, so issuers lean harder on interchange and fee income: annual fees, installment fees, merchant-side economics.
That puts a lot of weight on interchange, and the rates show it. Mastercard's rate table for Japan has the catch-all retail category at 2.45% for a basic consumer card and 3.20% at the top tier. The EU capped consumer credit interchange at 0.30% a decade ago. Australia finalized a cut to 0.30% taking effect this October. So Japan's std rate for general retail sits at roughly 8x what the capped markets allow.
One thing that surprised me: the networks publish standard interchange tables in most major markets, but Japan was the holdout. Until late 2022, no standard rates were disclosed here at all, even though the JFTC counted more than 60 countries where they were. So when the regulators finally moved, they didn't cap. They got Visa, Mastercard, and UnionPay to publish their Japan rates and bet that merchants would negotiate from there. Merchants who push do shave a bit off, but small merchants still pay around 3% all-in.
The rate table is worth a read. Railways start at 0.60%. C-stores & supermarkets at 0.85% on the base tiers. A flat 1.50% small-business rate that doesn't move with card tier. Then 2.45% and up for everything else. The networks are using interchange to buy acceptance in specific verticals while keeping the general rate high.
You can see the result in what people use. Credit is 83% of Japan's cashless spend. Debit is 3.4%, partly because a card that is paid in full from your bank account every month already does what debit does, plus points. And the growth at the small-merchant end is happening on QR codes. PayPay charges 1.98%, or 1.60% on a subscription, against that 3% card rate. The cheap rail showed up outside the card system.
None of this reduces to a single mechanism. But the dependency is real: when interchange funds the issuer, a cap isn't a haircut, it's a threat to the model. That's a large part of why Japan went with disclosure instead of caps, and why the pressure on cost here is coming from new rails rather than regulation.