Jun. 2015

Enhance Corporate GovernanceTransform managerial mindset for higher business performance
Government initiatives to dateFormulated Japan’s Stewardship Code requiring institutional investors to promote sustainablegrowth of companies through investment and dialogue•

A total of 184 institutional investors, including the Government Pension Investment Fund (GPIF), have expressed acceptance of the code
(as of end of Feb. 2015)

Revised the Companies Act to encourage introduction of outside directors [Established in Jun. 2014]
Created systems that encourage business restructuring through tax benefits•

Industry Competitiveness Enhancement Act came into force in Jan. 2014

Examples of Private Sector Action

Significant increase in companies appointing outside directors
 Proportion of listed companies with independent outside directors(1st section of the TSE): 2013: 47% → 2014: 61%
 Companies appointing outside directors for the first time included Toyota Motor, Canon, Toray, andNippon Steel & Sumitomo Metal



Japan Exchange Group and the Nikkei established (Jan. 2014) “JPX Nikkei Index 400,” a new index comprising
companies attractive to investors.
 Mitsubishi Hitachi Power Systems (Established in Feb. 2014) :Major business restructurings utilizing the Industry
Competitiveness Enhancement Act

Further Government Reforms
 Draft Japan’s Corporate Governance CodeDivision and integration of the thermal power plant businesses ofMitsubishi Heavy Industries and Hitachi. Net sales to reachapproximately 1.2 trillion
Strengths:
Small and mid-sizedgas turbines
Sales channels in
Europe and Africa• Publication of Japan’s Corporate Governance Code (took effect since Jun. 2015)• Promoting the exercise of healthy entrepreneurship and seeking to secure “growth-oriented governance”
to enhance earnings power and capital efficiency

 Enhancing financial institutions' functions for supporting businesses

Strengths:
Large gas turbines
Sales channels inSoutheast Asia and the
Middle East1

Revitalize Private Sector Investment
Create a world-leading business environment
Government initiatives to date Introduced tax reductions of JPY 1 trillion for capital investment and the like
 Abolished special corporate tax for reconstruction from Great East Japan Earthquake one year aheadof schedule [Effective corporate tax rate lowered by 2.4%pt in Apr. 2014]

Examples of Private Sector Action
 Recovery in capital expenditure levels
 FY2013: JPY 68.1 trillion (+4.9% YoY) FY2014: JPY 68.6 trillion (+0.8% YoY) [target value: JPY 70 trillion in FY2015]

 About 120,000 applications filed for capital investment tax reductions during 2014 Jan.-Dec. period
 Private companies have renovated and expanded domestic plants
Komatsu:
Awazu Assembly Plant completed May 2014
Renovation of domestic construction
machine plant, including 90% reductionin power purchase, and doubling ofarea productivity.

Further Government Reforms

Toshiba:
No. 5 Fabrication Facility at Yokkaichi Operations
completed summer 2014
Doubling of domestic investment in thesemiconductor field to JPY 200 billion during FY2014
to facilitate mass productionof a new type of memory
for smartphones.

 Pro-growth corporate tax reform will be initiated.

 Reduce the percentage level of effective corporate tax rate down to the twenties in several years
 The effective corporate tax rate was lowered by 2.51% from Apr. 2015.
 The alternative revenue sources will be secured.

2

Labor Market Reform
Allow flexible and diverse work styles that meet the needs of workers
Government initiatives to date
 Achieve fundamental policy change from excessive employment stability to labor fluidity(e.g.)

Employment Adjustment FundLabor Movement Support Fund

¥117.5bn (FY13)¥0.2bn (FY13)¥54.5bn (FY14)¥30.1bn (FY14)

 Spread and promoted model cases of 'diversified regular employment'

Scale of funds tobe reversed in
FY2015

Examples of Private Sector Action
 Rare briskness in the labor market in recent years

 Jobs-to-applicants rate: 1.17x (Apr. 2015) Unemployment rate: 3.3% (Apr. 2015)
 Wage increase rate:• Average monthly amount +2% or more (highest in 15 years)• Summer bonus +3.1% (highest in 23 years)

 More companies introducing system of 'diversified regular employment'
 Fast Retailing (UNIQLO): Introduced “local regular employee” system allowing shorter working
hours close to home (Approx. 16,000 part-time workers to be made regular employees).

Further Government Reforms* This system will apply for those who satisfy fixed annual income conditions (for example, no less than 10 million yen annually), have clearly defined responsibility
and possess high skill levels

 Developing a highly foreseeable system to resolve labor conflicts which is globally accepted

Revisions to
the working
hours system

 Flex-time system: Ensure that temporary reduction in hours worked does not result in
decreased payment by taking a paid leave Discretionary Working System: Revise labor coverage and the formal process Develop a new system based on evaluation of work rather than working hours

3Promote an Active Role for Women in the Workplace
Enhance women on stage, mother-friendly working environment
Government initiatives to date

 Secured childcare services for another 0.4 million children by the end of FY2017• “Zero Childcare Waiting-list Project” formulated in April 2013
• Number of childcare arrangements will have increased for another 0.19 million children by the end of FY2014.
 Increased childcare leave benefits: 2/3 of base salary prior to leave (Before, 1/2 of base salary prior to leave)• Legislation came into force in April 2014 ‘Website visualizing women in executive and management positions’ was launched.
• Data from 1,232 companies (around 30% of listed companies) listed on Cabinet website

Examples of Private Sector Action
 Increased number of female employees• Number of female employees has increased by 0.78 million since the start of the Abe administration

 Increased number of female executives(26.53mil. (Dec. 2012)→ 27.31mil. (Apr. 2015))• Proportion of women in managerial positions: 6.9% (Jun. 2012) → 8.3% (Jun. 2014)
Nomura Trust &Banking
Chie Shimpo, President(Appointed April 2014)

Further Government Reforms

Mizuho Bank
Atsumi Arima,
Executive Officer(Appointed April
2014)

Sumitomo Mitsui
Banking
Teiko Kudo,
Executive Officer(Appointed April
2014)

Honda Motor
Hideko Kunii, Outside
Director(Appointed June 2014)

 Secure after-school care services for another 0.3 million elementary school kids to meet needs
by the end of FY2019.
 Allow foreign home support staff in National Strategic Special Zones
 Oblige companies to specify the proportion of women in executive posts in Annual Securities Report• Due to come into force in Mar. 2015

4

Stimulate Innovation through Science Technology
Speed up commercialization of innovative technology
Government initiatives to dateEnhanced the administrative power of the Council for Science and Technology Policy (authority to review scienceand technology budgets).
•



Revised Cabinet Office Establishment Act came into force in May 2014

Established cross-ministerial Strategic Innovation Program (SIP), and high risk, high impact research anddevelopment (Impulsing PAradigm Change through disruptive Technologies Program (ImPACT))•

Allocations for each in FY14 budget (¥ 50.0bil.) and FY13 supplementary budget (¥ 55.0bil.)]

Examples of Private Sector Action

Selection of 12 program managers to promote innovative themes of ImPACT (Jun. 2014)•

Dr. Masashi Sahashi at Tohoku University;
Developed advanced magnetic memory chip•Dr. Goda Keisuke at Tokyo University;
Developed technology to search for rare cells

If put to practical use…

If put to practical use…

Reduce power consumption ofa smartphone by 99%

Continuous use withoutcharge for 1 month

Make it possible to produce low-cost
biofuel with Super Euglena

discovered
Super Euglena

Low-cost
biofuelCompanies are stepping up investment in R&D• Japanese automakers are increasing investment in new fields such as fuel-cell vehicles, with research anddevelopment expenditures reaching a record high (approximately JPY 2.5 trillion planned for FY2014)

Further Government Reforms

Establish an “Innovation National System” that fundamentally enhances “bridging” function from seeds tocommercialization
・ Build infrastructure to allow researchers to hold concurrent posts at universities, research institutes, and other organizations



University reforms (strengthening the functions of universities, establishing the system enabling universities to be
victorious in global competition, etc)
Create effective measures to prevent leakage of trade secrets (E.g., alleviation of burden of proof on victims)•

A bill will be submitted at the next ordinary Diet session

5

Proactively Develop Agriculture
Empower leaders who are ready and willing to act
Government initiatives to date

Decided to review rice production regulations, which lasted for more than 40 years

Established “Public intermediate organization for farmland consolidation’’

Helped develop the "sixth industry" by leveraging the Agriculture, forestry and fisheries Fund Corporation for
Innovation, Value Chain and Expansion Japan (A-FIVE)• Eliminating production volume targets by 2018

• Established in every prefectures as of November 2014

• Investing in 49 entities as of Feb. 2014

Examples of Private Sector ActionMore companies entering the agricultural businessIris Ohyama– Established agricultural joint venture with Butai Farm
– Drawing on expertise in the manufacture and wholesale of consumer goods to begin milling and selling rice
– Launched plant operations in Jul. 2014

Record exports of agricultural, forestry and marine products and food (2014: +11.1% YoY, JPY 611.7 billion)
Sub-funds of A-FIVE:
able to invest totally JPY 74.3 billion (of which more than JPY 37.15 billion was from private sector, as of Dec. 22nd 2014)• Mizuho Bank: Set up 12 funds nationwide with regional banks to support seafood processing and dairy food companies

Further Government Reforms

Notes:
1. Administrative bodies set up in municipalities to authorize farmland sales and leases
2. Corporations that can own farmland

Agricultural Committees１: Prioritizing functionality in farmland consolidation and reforming committee selection system

Agricultural Production Corporations２:
Enabling non-farmers (including corporation) to invest more (the limit for voting rights will rise up from 1/4 to 1/2.)

Agricultural Cooperatives: First drastic reforms in 60 years to encourage regional agricultural cooperatives’ ingenuity

6

Stimulate Healthcare Industry and Providing Quality Services
Government initiatives to dateEstablished a new headquarter institution that strategically manages R&D in the field of medicine

Established a new legal framework to accelerate commercialization of regenerative medicine (Nov. 2014)• ‘Headquarters for Healthcare and Medical Strategy Promotion’ and ‘Japan Agency for Medical Research and Development’ (AMED)(Law enacted May 2014)• Introducing fast-track approval system and making it possible to commission external engineers to culture and process cells

Removed gray zones in relation to the healthcare industry• Created a new system which ensures the legality of businesses operating in ‘gray areas’ (Jan. 2014)

Examples of Private Sector Action

Expansion of new health-care service• Healthy Life Compass(provides health-care service to notify the results in a simple test by self-blood collection) :Since it was ensured by “ the System to Remove Gray Zone Areas” that the service doesn’t violate the Medical Practitioners Act(Feb. 2014) , the number of its stores considerably has increased (Feb. 2014 : 84 → Oct. 2014 : 229)

 Active investment in the field of regenerative medicine• SanBio (developing and marketing regenerative therapies): Transferred headquarter function from California to Tokyo andreversed the parent-subsidiary relationship in Jan. 2014

Further Government Reforms

Flow for medical treatment requested by patients

 Creation of non-profit holding company system• Creation of expedited scheme for the mixed medical treatment system,
requested by patients, to expand options for patients when selecting
medical treatments (diagram on right)• Confirming safety and efficacy and shortening assessment period(From current six months, to around six weeks*)*in case of treatments without precedents

Application by clinicalresearch hospital orother medical
institution familiar topatient

Two weeks
to approval
Clinical researchhospital review

Treatments without
precedents
Application by clinicalresearch hospital(including
collaborating medical
institution)

Six weeks toapproval
Government
review

Treatment by clinical researchhospital or other medical
institution familiar to patient Considerable expansion of the system for mixed use of medical
treatments covered and not covered by public insurance

Treatments withprecedents
Requests from patient• Enabling integrated management of multiple medical and social welfare
corporations to provide medical and nursing careand living support services

7

Stimulate the Financial and Capital Markets
Change mindset from savings to investment
Government initiatives to date

Launched a Japanese version of Individual Savings Account (NISA) (8.2 mil. accounts (worth JPY 3 trillion) set up as of Jun. 2014)



Recommendations on public and quasi-public asset management (Nov. 2013)

Set up tax scheme to incentivize investments in corporate venture funds (Industrial competitiveness Enhancement Act enacted

Jan. 2014)

Established a system to promote use of security-based crowd-funding* (Law amendments in May 2014)• A scheme in which emerging and growing companies and investors are connected via the Internet so that funds are collected from a large
number of fund providers who each contribute a small amount.

Examples of Action


GPIF efforts toward revision of investment strategy (the world's largest public pension fund, worth around JPY 130 trillion)
•
•
•



GPIF decided to invest in infrastructure assets under co-investment agreement with Development Bank of Japan (DBJ) and a Canadianpublic pension fund (Feb. 2014)
Employment of new equity index (including the JPX-Nikkei Index 400) for passive investments (Apr. 2014)
Acceptance of Japan’s Stewardship Code (May 2014)

Municipalities began supporting start-ups employing crowd-funding•

Osaka Prefecture: Undertaking PR, cultivating promising projects, and providing business planning support:More than 2,000 individuals have invested a total of around JPY 90 million since Jul. 2013 operational launch

Further Government Reforms
 Revised GPIF's basic portfolio (policy asset mix*)* Long-term asset allocations determined by GPIF
(Oct. 2014)
 Reinforcing GPIF's governance structures• Appointment of multiple full-time members
to the investment committee• Securing highly-skilled investment professionals

Website run with Osaka Prefecture

Government Pension Investment Fund (GPIF) asset allocation trend
Basic portfolio
Basic portfolio
（Ｎｅｗ）
（Ｏｌｄ）

Domestic bonds

35%（±10%）60%（±8%）Domestic stocks

25%(±9%)12%(±6%)

International bonds

15%(±４%)15%(±5%)International stocks

25%(±８%)25%(±5%)8

Decisive Electricity System Reforms
Broaden business entry opportunities and usage options
Government initiatives to date Embarked on first fundamental reforms of the electricity system in around 60 years• 1st Step: Expand use of the national-wide grid
– To allow more flexibility in balancing power needs between regions (Law enacted November 2013 , to be implemented from2015)

• 2nd Step: Complete liberalization of retail electricity entry– To allow consumers to choose their supplier and charging system (Law enacted June 2014, to be implemented from 2016)

 Shortened environmental assessment period for thermal power facilities upgrades ( 3 years => 1 year)

Examples of Private Sector Action
 Active power retailing competition beyond regions and industrial sectors•

Kansai Electric: Through subsidiary, entered corporate power retailing business in metropolitan areas in Apr. 2014•

JX Nippon Oil & Energy: Looking to enter consumer power retailing business Number of companies entering power retailing business x1.8 in 1 year 7months
 Five major electric utilities announced plans to add around 11 mil. kw in thermal generating capacity

Further Government Reforms
 3rd Step of the electricity system reforms (bill submitted in 2015, with law enacted no later than 2020)• Legal separation of electricity generators and distributors to ensure fair usage• Elimination of retail price regulation (full liberalization of retail price)9

Integration with Global Economy
Expand cross-border movements of human talents, goods, and funds
Government initiatives to datePromoted economic partnerships (participation in the TPP negotiations, Signed the Japan-Mongolia EPA,

launch of negotiations for the Japan-Turkey EPA, entry into force of the Japan-Australia EPA (in January 2015))

Prime Minister and other Cabinet members conducted sales pitches (Up from 25 cases in 2012, to 67 in 2013)
Relaxed visa requirements for 10 countries, primarily for visitors from ASEAN countries (July 2013 - June 2014)
Added 30,000 international landing slots in a year at Haneda Airport (increased from 60,000 to 90,000 in March 2014)

Examples of Private Sector Action


Record new outward foreign direct investment(Key infrastructural project orders in 2013)
U.K.

High-speed trains

About ¥180
billion

Malaysia

High-efficiency coal-fired power
plant

About ¥130
billion• From JPY 9.8 trillion in 2012, to JPY 13.2 trillion in 2013

Japanese companies tripled infrastructure project orders received• From JPY 3.2 trillion in 2012, to JPY 9.3 trillion in 2013
FranceHeavy ion radiotherapy systems
About ¥20 billion(in terms of major projects grasped by the ministries concerned)• International High-Speed Rail Association (set up by four JR companies and manufacturers in April 2014):It aims to make advanced Shinkansen technologies such as crach avoidance into international standards and expand their export.

The number of foreign visitors to Japan in a year exceeded 10 million for the first time (10.36 million in 2013, +24% YoY)
・ The number of foreign visitors exceeded 13 million in 2014 (+29.4% YoY) , pushing the figure to the highest mark ever.
 Balance of payments in travel services achieved surplus for the first time in 44 years (April, 2014(since 1970 , Osaka Expo held))・ Total expenditure by inbound tourists to Japan is estimated at 2.03 trillion yen, surpassing 2013 (1.41 trillion yen), and will
be record-high.
Further Government Reforms

 Creating a strategy to facilitate longer stays of foreign visitors in Japan (permitting wealthy foreign visitors to stay for a
maximum of one year for sightseeing purposes (current: for 90 days))
 Doubling the number of tax-free shops across Japan to 10,000• Expanded the scope of tax exempt items for foreign visitors to all items , including foods, beverages, drugs, andcosmetics(from October 2014)

 Further relaxing visa requirements primarily for visitors from ASEAN countries※ (exempting visas for nationals ofIndonesia based on a system of preregistering e-passports, substantially relaxing visa requirements for nationalsof the Philippines and Vietnam, and starting issuing multiple-entry visas for nationals of India)* In addition, decided to issue multiple-entry visas for nationals of Brazil and relax visa requirements for multiple-entry visas for Chinese citizens

10Promote Public Private Partnerships (PPP) and Private Finance Initiatives (PFI)
Employ private capital and expertise for public capital
Government initiatives to date
 Enabled private enterprises to operate national government-administered airports
through concession agreements (the introduction of a public facility management rights scheme) (Law enacted in July 2013) Allowed the application of the “Solid Crossing Road System” to existing roads in order to rehabilitate
expressways under a collaboration with urban redevelopment. (Road Act revised in May 2014)

Examples of Private Sector Action

Image of outsourcing to private sector

Facilities
 Sendai Airport is in the process of choosing the private sector operator. ownership• 156 companies and organizations attended the briefing in May 2014
• Preferential negotiation rights to be granted in around Aug. 2015, operations
by private sector is scheduled to be started in Mar. 2016

Control
center Kansai International Airport and Osaka International Airport (Itami
Airport) is also in the process of choosing the private sector operator.

• 150 companies and organizations attended the briefing in Aug. 2014
• Preferential negotiation rights to be granted in around Aug. 2015, operations
by private sector is scheduled to be started in around Jan. 2016
• Estimated project worth : around JPY 2.2 Trillion.

Further Government Reforms

Government
Runwaysetc.

Privatesector
Airportbuildings
etc.

Government
Operations

Third
sectoretc.

Assignunchanged concessions Transfer
Government

Integrated
operations byprivate sector

 Setting priority areas and numerical targets of the projects through concession agreements
during the intensive period• The target of implementing JPY2-3 trillion worth of project by the end of FY2022 will be achieved by the end of
FY2016• Priority areas and numerical targets of projects : Airports (6), Water supply systems (6), Sewage (6), and Roads (1) Taking the legislative action to promote smooth privatizations of public infrastructure operations• Establishing a new civil servant secondment system that allows the civil servants with operational know-how to beseconded to the operators11