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Review of Operations for Fiscal 2017

1

Lending Operations

Review and Plan

In fiscal 2017, JFM provided loans totaling USD 16.3 billion, which was below the initial plan by USD
75 million, mainly as a result of actual lending underperforming plan in water supply business.
General account-related loans totaled USD 4.7 billion, or 29% of the total lending volume, mainly
represented by disaster management and mitigation and special municipal mergers. Municipal
enterprise-related loans were USD 6.3 billion (39%), of which sewerage and water supply businesses
were the main contributors, followed by loans for temporary financial countermeasures funding* in theamount of USD 5.3 billion (33%).
Note: Represents local government funding to cover shortfalls in local government revenue sources pursuant to the provisions of the
Local Government Finance Law (Law No. 109 of 1948, as amended).

Lending Operations by Business in Fiscal 2017
Number ofLoans Made

Business

Loan Amount (USD in millions)% of total

General Account-related Loans
Public Projects, etc.

729

709

4.3

Public Housing

197

201

1.2

National Disaster Prevention

81

76

0.5

Educational Facilities Development

282

175

1.1

Social Welfare Facilities Development

228

170

1.0

General Waste Dispoal

118

133

0.8

2

8

0.0

120

102

0.6

General Service Facilities Development
General Projects
Regional Revitalization

259

106

0.7

Disaster Prevention

294

162

1.0

Local Road Development

448

415

2.5

525

961

5.9

Disaster Management and Mitigation

Special Municipal Mergers

1,487

1,278

7.8

Optimization of the Public Facilities

61

157

1.0

Proper Management of Public Facilities and Infrastructures

9

9

0.1

4,840

4,662

28.6

Subtotal
Municipal Enterprise–related Loans

1,148

1,433

8.8

Industrial Water Supply

Water Supply

97

106

0.7

Transportation

38

208

1.3

Electricity and Gas Supply

43

48

0.3

Port Facilities

30

29

0.2

Hospitals and Elderly Care Services

478

1,412

8.7

Markets and Slaughterhouses
Sewerage
Tourism and Others
Subtotal
Refinancing Loans for Facilities Affected by Earthquake
Temporary Financial Countermeasures Funding
Total
Note: Totals may not add up due to rounding.

JFM ANNUAL REPORT 2018 | 12

54

93

0.6

2,043

3,002

18.4

16

8

0.0

3,947

6,341

38.9

8

0

0.0

641

5,307

32.5

9,436

16,310100.0

FY2017 Loans Extended by Business Type
General Account-related Loans

29％ (USD 4.7 bn)

Others2% (USD 0.3 bn)
Total

16.3 bn

1% (USD 0.2 bn)
Hospitals and Elderly
Care Services

9% (USD 1.4 bn)

Municipal Enterpriserelated Loans

Water Supply

9% (USD 1.4 bn)

39％ (USD 6.3 bn)

Sewerage

18% (USD 3.0 bn)

8% (USD 1.3 bn)
Public Projects, etc.

6% (USD 1.0 bn)
Disaster Management and
Mitigation

4% (USD 0.7 bn)
Others

Review and Plan

USD

Transportation

Special Municipal Mergers

11% (USD 1.7 bn)
Temporary Financial Countermeasures Funding

33％ (USD 5.3 bn)
Operations

FY2017 Loans Extended by Borrower Type
Local Government Associations

3％ (USD 0.4 bn)

USD

16.3 bn

Prefectures

23％ (USD 3.8 bn)
Cities, Special
Wards of Tokyo,
Towns and Villages

Government-designated Cities

10％ (USD 1.6 bn)

Management Structure

Total

64％ (USD 10.5 bn)
JFM’s Role in
Local Government FinanceNote: Totals may not add up due to rounding.

Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 13

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Review of Operations for Fiscal 2017

2

Funding Operations

1. Overview*1
Review and Plan

In fiscal 2017, JFM raised a total of USD 19.8 billion including USD 12.5 billion in JFM bonds (nongovernment guaranteed), and USD 7.2 billion in government-guaranteed bonds for the repayment ofexisting bonds issued by Japan Finance Corporation for Municipal Enterprises (the “Predecessor”). And,
with the aim of diversifying funding source, JFM raised USD 0.1 billion through long-term bank loans.
With regard to JFM bonds, a total of USD 7.8 billion was raised by the regular issuance of 5-year, 10year, 20-year and 30-year domestic bonds, as well as opportunistic issuances through JFM’s Flexible
Issuance Programme (“FLIP”) and the MTN Programme.
As for domestic public offerings, a total of USD 5.7 billion was issued in the fiscal year. In order tocope with highly volatile market condition through the period, JFM increased 5-year and 10-year of theregular issuance and FLIP from the initial plan by utilizing the budget of Open Issuance scheme.
In overseas offerings, JFM issued USD denominated benchmark bonds in 5-year tenor (USD 1.0 billion)
in April 2017, followed by the second issuance of 3-year bonds (USD 1 billion) in September 2017. In
addition to these successful public offerings, JFM issued a total of USD 123 million equivalent Uridashi
and private placement bonds in four tranches. Through these activities, the total volume of internationalbonds issued for fiscal 2017 amounted to USD 2.1 billion*2.
The private placements with the pension funds for local government officials were totaled USD 4.7
billion which consisted of 10-year and 20-year bonds.
As a result, JFM’s outstanding bonds were USD 193.8 billion, including the Predecessor’s bonds towhich JFM succeeded. Outstanding long-term bank loans totaled USD 1.5 billion as of 31 March 2018.
Notes: 1. Issued amounts are calculated based on issue prices.
2. Includes an offering of AUD and NZD denominated bonds, converted at the exchange rate at the time of pricing.
Flexible Issuance Programme (“FLIP”)
FLIP is JFM’s unique framework for domestic bond issuance which is similar to the MTN programme in some ways. JFM issues
domestic bonds under the FLIP, in order to meet both the needs of investors in the domestic market and the borrowing needs of local
governments in a timely and flexible manner. FLIP permits minimum and maximum issue sizes of JPY 3 billion (USD 28.3 million) and
JPY 20 billion (USD 188.3 million), respectively.

Funding in Fiscal 2017
1. JFM Bonds (Non-government Guaranteed)(1) Domestic and Overseas Offerings(2) Private Placements with Pension Funds for
Local Government Officials

Type of Bonds

Plan (Initial)

Achieved

Type of Bonds

Plan

Achieved

Domestic Public Offerings

USD 5.2 bn

USD 5.7 bn

10-year

USD 2.2 bn

USD 2.2 bn

10-year

USD 2.0 bn

USD 2.0 bn

20-year

USD 2.5 bn

USD 2.5 bn

20-year

USD 0.9 bn

USD 0.9 bn

Total

USD 4.7 bn

USD 4.7 bn

USD 0.3 bn

5-year

USD 0.2 bn

30-year

USD 0.2 bn

USD 0.2 bn

Opportunistic Issuance

USD 1.9 bn

USD 2.3 bn

Overseas Offerings - MTN

USD 1.9 bn

USD 2.1 bn

Open Issuance*1

USD 0.8 bn

-

Total

USD 7.9 bn

USD 7.8 bn

Notes: 1. Details of issuance such as tenor, issue size and issue market will be determined as necessary based on the lending
status, market conditions and other factors.

JFM ANNUAL REPORT 2018 | 14

2. Government-guaranteed Domestic Bonds

3. Long-term Bank Loans

Plan

Achieved

Type of Bonds

Plan

Achieved

10-year

USD 5.7 bn

USD 5.7 bn

Long-term Bank Loans

USD 0.1 bn

USD 0.1 bn

4-year

USD 1.5 bn

USD 1.5 bn

Total

USD 7.2 bn

USD 7.2 bn

Review and Plan

Type of Bonds

2. Issue Spreads

Management Structure

Note: See pages 106-109 for the terms of issuances in fiscal 2017.

Operations

In the domestic market, JFM bonds had been priced under the low interest rate environment on theback of the introduction of BOJ’s QQE with yield curve control during fiscal 2017.
In October 2017, the premium of JFM 10-year domestic bonds over respective JGB yield curve recorded
at 17.0 bps, which was the widest level since our establishment or October 2008, due to the weak
investors’ demands deteriorated by JGB yields lowering, while the premium over major municipal bonds
was remained at 1.0 bps. The premium over JGB yield curve had tightened in February in parallel withtightening of municipal bonds and recorded at 16.0 bps. The yield of JFM 10-year bonds had beenhovering around 0.20% during fiscal 2017.
5-year bonds, as substitutes for JGB, had captured solid investor demands while 20-year and 30-yearbonds had been supported by strong demands looking for relatively higher yields under low JGB yield
market throughout the year.
JFM’s international bonds have been issued based on investor demands and market conditions byreferring to credit spreads observed in the international primary and secondary markets at the time ofpricing.

Issue Conditions of JFM 10-Year Domestic Bonds
Spread over JGB yield curve (bps, LHS)*
Yield on JFM bonds (%, RHS)

18
16

(%)
0.50

Spread over major local government bonds (bps, LHS)

17.0

0.45

17.0 17.0 17.0
16.0 16.0

15.0 15.0 15.0 15.0 15.0

14

15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0
13.5

0.35

13.5
12.5 12.5 12.5

12

0.30
0.255 0.250

0.250
0.240
0.190

0.225
0.200 0.205 0.205

0.125

0.220

0.20

0.200

0.155

6

0.25
0.215

0.235

0.230

0.15

0.165

0.115

4

0.10
0.090 0.090

2
0

0.080

1.0

1.0

Apr

May

Jun

0.060
1.0 1.0JulAug

0.075 0.075

1.5

0.5

0.5

0.5

0.5

Sep

Oct

Nov

Dec

Jan

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

FY2016FY2017

Note: Spreads over the JGB curve are theoretical values calculated by JFM.

JFM ANNUAL REPORT 2018 | 15

0.05
0.00
Appendix / JFM Data

1.0

Financial Section

10
8

0.40

JFM’s Role in
Local Government Finance

(bps)
20

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Review of Operations for Fiscal 2017

3

Financial Review

1. Income Statement
Review and Plan

In fiscal 2017, JFM’s income was USD 3.3 billion, a decrease of USD 0.3 billion from the previous year.
This decrease was mainly due to a decrease in interest income caused by a decrease in the averageinterest rate on loans as a result of redemptions of loans made in the past with relatively high interest
rates. The decrease in interest income was partially offset by a decrease in interest expenses caused bya decrease in the average interest rate on bonds as a result of the maturity of bonds issued in the pastwith relatively high interest rates.
Pursuant to the relevant laws, a portion of the revenue generated by the refinancing of bonds andborrowed money of JFM* is to be directed into the reserves for interest rate volatility. As a result of suchprovisions as well as other factors, net income remains similar level to the previous year at USD 245.9
million.
*This revenue is calculated based on the difference between JFM’s funding rates at the time the loans were made and the current
refinancing rates.

2. Balance Sheet
As of 31 March 2018, JFM’s total assets amounted to USD 233.1 billion, down USD 0.3 billion from theprevious year. This mainly resulted from a decrease in cash and bank deposits by USD 1.1 billion.
Total liabilities were down USD 0.5 billion to USD 230.6 billion. This decrease primarily reflected an
decrease of USD 4.6 billion in management account reserve for interest rate volatility.
Total net assets were USD 2.5 billion, up USD 0.2 billion. This mainly reflected net income of USD 0.2
billion in the general account being recorded as the general account surplus reserve.
Financial highlights since fiscal 2015 are on the next page.

JFM ANNUAL REPORT 2018 | 16

Financial Highlights
1. Income Statement(USD Millions)
FY2015FY2016FY2017

YoY

3,842

3,546

3,272

-273

Expenses

2,251

2,037

1,841

-196

Ordinary Income

1,591

1,509

1,431

-78

284

263

246

-17

Net Income(USD mm)
4,000

Review and Plan

IncomeIncomeExpenses

3,000

Operations

Ordinary Income

2,000
1,000
0

FY2015

2016

2017(USD Millions)
End of FY2015

End of FY2016

End of FY2017

YoY

Total Assets

232,069

233,414233,128

-287

Loans

222,851

223,373

223,827

454

Others

Bonds
Cash collateral received forfinancial instruments

9,218

10,041

9,300

-741

230,033

231,144

230,609-535

186,455

187,923

191,021

3,098

1,220

1,047

115

-931

8,666

8,666

8,666

-

32,45931,822

29,240-2,582

16,574

18,646

20,7182,072

15,43012,7908,197-4,592

455

386

325

-61

Others

1,233

1,686

1,566

-119

Total Net assets

2,036

2,270

2,518

248

Reserve for interest rate
volatility
Management account reservefor interest rate volatility
Reserve for interest rate
reduction(USD mm)240,000

Total Assets
Total Liabilities

230,000

Appendix / JFM Data

220,000
220,000
210,000

Financial Section

Fund for lending rate reduction
Reserves under special laws

JFM’s Role in
Local Government FinanceTotal Liabilities

Management Structure

2. Balance SheetFY20152016

2017

Note: Totals may not add up due to rounding.

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Management Plan for Fiscal 2018

1

Lending Operations

Review and Plan

JFM’s lending plan is formulated based on the amount of local government borrowing for which theconsent or approval is scheduled to be given by the Minister for Internal Affairs and Communications or
the respective prefectural governors, under the Local Government Borrowing Programme (the “LGBP”).
Based on the LGBP, JFM plans to extend loans in the amount of USD 16.8 billion in fiscal 2018, USD 0.3
billion or 1.8% decrease from fiscal 2017.

Lending Plan

Planned Amount

FY2018FY2017YoY

USD 15.6 bn

USD 16.4 bn-4.6%

JFM Funds in Local Government Borrowing Programme
FY2018FY2017YoY

USD 16.8 bn

USD 17.1 bn-1.8%

General Account-related Loans

USD 4.7 bn

USD 4.7 bn-0.7%Municipal Enterprise-related Loans

USD 6.9 bn

USD 6.9 bn

0.0%

Temporary Financial Countermeasures Funding

USD 5.1 bn

USD 5.4 bn-4.9%

JFM Funds

Notes: 1. The amount of JFM funds in the LGBP does not match JFM’s lending plan due to the timing for consent or approval being
different from when JFM loans will actually be extended.
2. See page 56 for more information on JFM funds in the LGBP.

2

Funding Operations

In order to raise funds for lending operations, JFM primarily issues non-government guaranteed bonds
through domestic public offerings and overseas offerings. For fiscal 2018, JFM plans to issue USD 9.0
billion of JFM bonds through these methods.
In addition, private placements with pension funds for local government officials are projected toamount to USD 4.6 billion in fiscal 2018. In addition to issuing JFM bonds, JFM plans to raise USD 0.5 bn
through long-term bank loans.
As for government-guaranteed bonds, JFM plans to issue USD 3.8 billion during fiscal 2018.

JFM ANNUAL REPORT 2018 | 18

Funding Plan for FY2018
1. JFM Bonds (Non-government Guaranteed)(1) Domestic and Overseas Offerings
FY2018 (Plan)

FY2017 (Achieved)

Domestic Public Offerings

USD 5.7 bn

USD 5.7 bn

10-year

USD 2.1 bn

USD 2.0 bn

20-year

USD 0.9 bn

USD 0.9 bn

5-year

USD 0.2 bn

USD 0.3 bn

30-year

USD 0.2 bn

USD 0.2 bn

Opportunistic Issuance

USD 2.2 bn

USD 2.3 bn

USD 2.4 bn

USD 2.1 bn

Overseas Offerings - MTN

Total

USD 1.0 bn-

USD 9.0 bn

USD 7.8 bn

Notes: 1. Subject to change depending on lending status, market conditions and other factors.
2. For Open Issuance, details of issuance such as tenor, issue size and issue market will be determined as necessary basedon the lending status, market conditions and other factors.

Operations

Open Issuance

Review and Plan

Type of Bonds(2) Private Placements with Pension Funds for Local Government Officials
10-year20-year
Total

FY2018 (Plan)

FY2017 (Achieved)

USD 2.1 bn

USD 2.2 bn

USD 2.5 bn

USD 2.5 bn

USD 4.6 bn

USD 4.7 bn

2. Government-guaranteed Domestic Bonds
Type of Bonds
10-year

USD 2.5 bn

USD 5.7 bn

6-year

USD 1.3 bn-

4-year

-USD 1.5 bn

USD 3.8 bn

USD 7.2 bn

FY2018 (Plan)

FY2017 (Achieved)

USD 0.5 bn

USD 0.1 bn

Total

3. Long-term Bank Loans
Type of Loans
Long-term Bank Loans

3

Scheduled Payment to the National Treasury

JFM ANNUAL REPORT 2018 | 19

Appendix / JFM Data

In accordance with the Article 19 of the Supplementary Provisions of the Law, a portion of JFM’s
management account reserve for interest rate volatility is being attributed to the Japanese national
government over a period of three years from fiscal 2017 through fiscal 2019, with the aim of transferring
up to USD 8.5 billion over this period. In fiscal 2017, USD 3.8 billion was transferred to the nationaltreasury by JFM and, in fiscal 2018, USD 3.8 billion is scheduled to be transferred to the nationaltreasury to secure financial resources of the local allocation tax.
Furthermore, it has been also determined that an additional amount of up to USD 14.1 million fromfiscal 2018 through fiscal 2023 shall be attributed to the government.

Financial Section

FY2017 (Achieved)
JFM’s Role in
Local Government Finance

FY2018 (Plan)

Management Structure

Type of Bonds

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Lending Operations

JFM’s primary objective is to contribute to the sound operation of the local
government financing and to improve the welfare of local residents by providing longterm funding at low interest rates to local governments.

1

OutlineAs public funds included in the LGBP, JFM loans are offered to local governments which have theconsent or approval of the Minister for Internal Affairs and Communications or the respective prefectural
governors.

Operations

1. Eligible Borrowers
JFM provides loans exclusively to local governments.

2. Types of Loans
JFM classifies general loans into the following three categories depending on the term.

• Long-Term Loans	Loans provided to local governments that have the consent or approval, and mature in orafter the second fiscal year.
• Pre-Consent or Pre-Approval Loans	Bridge loans to cover the period up to the disbursement of Long-Term Loans for projects forwhich the consent or approval is assured.
• Short-Term Loans	Loans to be repaid with revenues in the same fiscal year.

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3. Lending Scopes and Maturities of Loans
JFM lends mainly to the following local government businesses with respective loan maturities.

Fixed Lending Rate

Business Type

Public Projects, etc.*2

Educational andSocial Welfare
Facilities Projects

Unsubsidized
Projects

Grace Period
for Principal
Repayment

Maturity

Grace Period
for Principal
Repayment

Within (Years)
20

Within (Years)
5

Within (Years)
20

Within (Years)
5

25

5

25

5

Educational Facilities Development*2

25

3

25

3

Social Welfare Facilities Development

20

3

20

3

General Waste Disposal

15

3

15

3

General Projects*2

30

5

30

5

Regional Revitalization

30

5

30

5

Disaster Prevention

30

5

30

5

Local Road Development

20

5

20

5

Special Municipal Mergers

30

5

30

5

Disaster Management and Mitigation

30

5

30

5

Public Facilities Optimization

30

5

30

5

Anti-depopulation Measure Project

30

5

40

5

Water Supply

30

5

40

5

Industrial Water Supply

30

5

40

5

Transportation*2

30

5

40

5

Electricity Supply*2

30

5

30

5

25

5

25

5

Port Facilities*2

30

5

40

5

Hospitals*2

30

5

30

5

Markets

30

5

40

5

Slaughterhouses

30

5

30

5

Sewerage

30

5

40

5

–

–

30

3

–

–

20

3

Prefectures and GovernmentTemporary Financial
Designated Cities
Countermeasures Funding
Cities, Towns and Villages

Financial Section

Notes: 1. Adjustable lending rates are reviewed depending on the maturity of the loan every 5 years, every 10 years or every 15
years or 20th, or 30th anniversary of the initial disbursement. Lending rates for Temporary Financial Countermeasures
Fundings are reviewed every 5 years or 10 years.
2. Figures represent maximum maturities and grace period for principal payment.

JFM’s Role in
Local Government Finance

Gas Supply

Management Structure

Municipal
Enterprise-related Loans

Maturity

Operations

General Account-related Loans

Public Housing

Adjustable Lending Rate*1

Review and Plan

Loans for Fiscal 2018

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 23

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Lending Operations

2

Loan Interest Rates

JFM sets standard lending rates, which are determined to balance its funding cost, and also offers
special lending rates at a discount to the standard rates by making use of its Fund for Lending Rate
Reduction.

1. Loan Interest Rates

Operations

JFM offers two types of loan interest rates: the standard lending rate and the special lending rate.
The standard lending rate is calculated in order to balance JFM’s funding cost with interest income
from its lending. Specifically, this rate is determined in a manner that the discounted present value of the
cash flows of the funds raised to make the loans equals the discounted present value of the cash flows to
be generated by those loans with their respective terms to maturity, grace period for principal repayment
and repayment methods.
The special lending rate is set at 0.35% per annum below the standard rate. At the end of fiscal 2017,
approximately 99% of outstanding JFM loans consisted of special interest rate loans.
The trends of JFM loan interest rates since April 2016 are shown below. The special lending rate has
been at the same level as the national government’s lending rates that are applicable to loans for specificpublic projects (the Fiscal Loan Fund). This is due to the floor rates of the special lending rates being set
equal to respective lending rates of the Fiscal Loan Fund which have identical terms on redemptions tothose of JFM loans.

Trends of Lending Rates
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%

Standard Lending Rate
Special Lending Rate = Fiscal Loan Fund interest rates

0.10%
0.00%

Jun

2016

Sep

Dec

Mar

Jun
2017

Sep

Dec

2018

Mar

Note: T he lending rates above represent a 30-year fixed rate loan with a 5-year grace period for semi-annually equal total payment.

JFM ANNUAL REPORT 2018 | 24

2. Lending Rate Reduction

0.15%

Reduction using investment gains

0.20%

Reduction using JFM’s own funds

Review and Plan

The interest rate differentials between the special lending rates and the standard lending rates
are covered by investment gains in the Fund for Lending Rate Reduction. The fund is comprised of
payments by local governments of a portion of the proceed they earn from municipally operated racing
in accordance with the Local Government Finance Law, and also JFM’s own funds.

0.20%

Reduction
0.35%

General Account-related Loans(excluding public housing)Temporary Financial
Countermeasures Funding
Municipal Enterprise-related Loans• Water supply • Transportation• Hospitals • Sewerage • Electricity supply

JFM’s Role in
Local Government FinanceNotes: 1. The minimum interest rates for JFM loans are set at the same level as the interest rates of the Fiscal Loan Fund provided by
the national government.
2. The discount rates using the investment gains (0.15% or 0.20%) applicable to each business category are determined by
the Minister for Internal Affairs and Communications, pursuant to the Ministerial Ordinance on Finance and Accounting of
the Japan Finance Organization for Municipalities (Ordinance No. 87 of the Ministry of Internal Affairs and Communications,2008).

Management Structure

General Account-related Loans• Public housing
Municipal Enterprise-related Loans
SpecialLending Rate • Industrial water supply • Gas supply• Elderly care services • Markets• Slaughterhouses • Parking facilities

0.15%

Operations

Standard
Lending Rate(funding costs)

Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 25

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Lending Operations

3

Credit Check System

JFM conducts the following credit check process for all loans on the assumption that the details
and legality of each project as well as assurance of loan repayment have been confirmed during theconsultation and checking process to obtain the consent or approval for loans.
1) JFM checks the financial and operational status of local governments and municipal enterprises
to which it plans to lend, in light of the fiscal indicators as stipulated in the Law Relating to the
Financial Soundness of Local Governments of Japan (Law No. 94 of 2007). This credit checkprocess may include an interview of the staff of prefectures, cities, towns, and villages.

Operations2) JFM reviews loan applications submitted by local governments to determine if conditions are met.
The conditions include the consent or approval, any required resolution by the local government
assembly and budget appropriation for loans.
3) After a loan is disbursed, JFM conducts an onsite review to verify the use of funds and to check theoperational status of the project and the financial and operational status of the borrower.
1 Check of local

2 Verification at the timegovernments/municipal
enterprises applying
for loansof lending
Check of the loan
application documents•Check financial andoperational status•Conduct interviews

4•Verify the consent or approval
for the loan amount•Check the loan application
documents

3 Subsequent review
Disbursementof loans

Onsitecredit review•Check the status of loans
and projects•Check financial andoperational status

Trends in Lending Operations

1. Overview
In fiscal 2017, the lending volume amounted to USD 16.3 billion. At year-end, outstanding loans were
USD 223.8 billion.

Annual Lending Volume

Outstanding Loans(USD bn)
25(USD bn)
240
230

20.0

20
17.0

17.8

18.1 17.5

16.2 16.3

220

15
210

222.9 223.4 223.8
220.7
217.4
213.5
210.8

10
200
5

190

0
FY2011 2012 2013 2014 2015 2016 2017

JFM ANNUAL REPORT 2018 | 26

0
FY2011 2012 2013 2014 2015 2016 2017

2. Annual Lending Volume by Business and Borrower

Review and Plan

In fiscal 2017, loans for temporary financial countermeasures funding were USD 5.3 billion, accounting
for the largest share of lending, at 33% of the total. Ranked next were USD 3.0 billion in the seweragebusiness, representing 18% of the total, and USD 1.4 billion in the water supply, for 9% of the total.
At year-end, the number of local governments with loans from JFM totaled USD 16.3 billion. Cities,
Special Wards of Tokyo, Towns and Villages represented the highest share at 64% of the total, followedby prefectures at 23% and government-designated cities at 10%.

Long-Term Loans Extended by Business
Total
FY (USD bn) Water Supply
2013 19.0
7
1 4

Sewerage

General Account-related Loans
33

16

7

2015 16.6

822016 15.4

9

2

7

18

2017 16.3

9

1

9

18

2

5

18

28

Transportation
6

18

28

35

2

28

34

3
33

29

2

3％ (USD 0.4 bn)
Total

USD

16.3 bn

Prefectures

23％ (USD 3.8 bn)
Cities, Special
Wards of Tokyo,
Towns and Villages

Note: Totals may not add up due to rounding.

Government-designated Cities

10％ (USD 1.6 bn)
Financial Section

64％ (USD 10.5 bn)

JFM’s Role in
Local Government Finance

Local Government Associations

Management Structure

Notes: 1. Pre-consent or pre-approval loans are accounted for in the year when they are converted into long-term loans.
2. “Others” includes refinancing loans for municipal enterprise-related projects, and refinancing loans for facilities andspecified local governments affected by earthquake.
3. Totals may not add up due to rounding.

FY2017 Loans Extended by Borrower

Operations

Temporary Financial Countermeasures Funding
38
2

Hospitals

2014 17.2

Others6

33

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 27

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Lending Operations

3. Outstanding Loans by Business and Borrower
At the end of fiscal 2017, the outstanding loans were USD 223.8 billion, of which the seweragebusiness accounted for the largest share at 32%, followed by temporary financial countermeasuresfunding at 22% and water supply at 14%.
There was a total of 2,169 local governments, local government associations and corporations withoutstanding JFM loans, including all prefectures. cities, special wards of Tokyo, towns and villages
accounted for the largest portion at 60% of the total, followed by prefectures at 21% and governmentdesignated cities at 17%. Local government associations and corporations represented the remaining
3%.

Outstanding Loans by Business (as of 31 March 2018)
Operations

Public Housing

1.2% (USD 2.8 bn)

Industrial Water Supply

0.8% (USD 1.8 bn)

Others

8.0% (USD 18.1 bn)

Disaster Management
and Mitigation

3.1% (USD 7.0 bn)
Total

USD

Hospitals

Sewerage

32.0% (USD 71.6 bn)

4.2% (USD 9.3 bn)

223.8 bn 4.3

Special Municipal Mergers% (USD 9.6 bn)

Transportation

4.6% (USD 10.2 bn)
Three Special Projects*1

5.1％ (USD 11.5 bn)

Temporary Financial
Countermeasures Funding

22.4% (USD 50.2 bn)
Water Supply

14.3% (USD 31.9 bn)*1 Development projects for local roads, rivers and other waterways, and high school building.

Outstanding Loans by Borrower (as of 31 March 2018)
Local Government Corporations

0.2% (USD 0.4 bn)[20]

Local Government Associations

2.6% (USD 5.9 bn)

Total

USD
[2,169]Prefectures

20.5% (USD 45.9 bn)
[47]

[367]

223.8 bn
Cities, Special Wards of Tokyo,
Towns and Villages

60.1% (USD 134.6 bn)[1715]*Figures in square brackets represent the number of borrowers.

Note: Totals may not add up due to rounding.

JFM ANNUAL REPORT 2018 | 28

Government-designated
Cities

16.6% (USD 37.1 bn)
[20]

5

Lending Operations by Business

Water Supply Business(USD bn)(Number of loans)

2.0

1.5

1,300

Loan AmountOperations

At the end of fiscal 2016, the water supply coverage was 97.9% of the population. The water supply
business (including small-scale water supply) operated by local governments totaled 2,041 projects andprovided about 18.1 billion cubic meters of water annually for approximately 124.4 million people.
In fiscal 2017, loans extended to the water supply business amounted to USD 1.4 billion.

Review and Plan

JFM provides loans to local government businesses specified in the LGBP that the national
government formulates each fiscal year.
The major JFM-funded businesses are as follows.

Number of Loans

1,200

1,100

0.5

1,000

Management Structure

1.0

Shiramizu Raw Water Reservoir (Ishigaki City, Okinawa Prefecture)
FY2013 14

15

16

17

900

Transportation Business(USD bn)(Number of loans)

0.5
0.4

100
Loan Amount80

Financial Section

At the end of fiscal 2016, the transportation projects managed by local governments totaled 86
projects and public transportation is used by approximately 4.3 billion people annually (11.82 million
people on an average daily basis).
In fiscal 2017, loans extended to the transportation business amounted to USD 0.2 billion.

JFM’s Role in
Local Government Finance0

Number of Loans

60

0.2

40

0.1

20

0

FY2013 14

Sendai City Subway Tozai Line (Sendai City, Miyagi Prefecture)

JFM ANNUAL REPORT 2018 | 29

15

16

17

0

Appendix / JFM Data

0.3

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Lending Operations

Hospitals BusinessAt the end of fiscal 2016, hospital projects managed by local governments totaled 635 with 792
hospitals, which included 760 general hospitals and 32 mental hospitals.
In fiscal 2017, loans extended to the hospitals business (including those run by local independentadministrative institutions) totaled USD 1.4 billion.
(USD bn)

1.6

Loan Amount

800

Operations

1.4

700

1.2 Number of Loans

600

1.0

500

0.8

400

0.6

300

0.4

200

0.2

100

0

Uwajima City Hospital (Ehime Prefecture)(Number of loans)

FY2013 14

15

16

17

0

Sewerage BusinessAt the end of fiscal 2016, the sewerage system covered 90.4% of the nation’s total population. There
were 3,639 projects involved, with a total annual sewerage processing capacity (combined storm waterand sewerage treatment, excluding river basin sewerage) of around 15.0 billion cubic meters serving
areas with a population of nearly 104 million people.
In fiscal 2017, loans extended to the sewerage business totaled USD 3.0 billion.
(USD bn)(Number of loans)

4.0

2,200
Loan Amount
Number of Loans

Sewage Sludge Gasification System in Kiyose Water Reclamation
Center (Tokyo)

JFM ANNUAL REPORT 2018 | 30

3.0

2,100

2.0

2,000

1.0

1,900

0

FY2013 14

15

16

17

1,800

Temporary Financial Countermeasures Funding(USD bn)

8.0(Number of loans)

1,000

Number of Loans

Loan Amount

6.0

800

4.0

600

2.0

400

FY2013 14

15

16

17

200

Operations

0

Review and Plan

Temporary financial countermeasures funding represents thefunding for local governments in order to cover general resource
shortfalls pursuant to the provisions of the Local Government
Finance Law No. 109 of 1957.
In order to secure the payments of the principal and interestof funds borrowed by local governments under temporar yfinancial countermeasures funding, the national government
includes the entire amount of such payments in the total amountof local allocation tax grants, which are to be allocated to local
governments in subsequent years.
In f isc al 2017, loans ex tende d for temp or ar y f inancial
countermeasures funding amounted to USD 5.3 billion.

Management Structure
JFM’s Role in
Local Government Finance
Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 31

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Funding Operations

As a joint funding organization for local governments, JFM raises funds in aconsistent manner to provide local governments with long-term and low-interest funds,
while endeavoring to focus on market fluctuations.

1Issue TypeOperations

JFM primarily issues non-government guaranteed bonds (i.e., JFM bonds) through public offeringsin order to raise funds for its lending operations. Private placements with the pension funds for local
government officials are also taken as a means of fund-raising.
JFM issues government-guaranteed bonds only for refinancing the existing government-guaranteedbonds of the Predecessor in order to manage the Predecessor’s assets to which JFM has succeeded.
In addition to issuing bonds, JFM raises money from long-term bank loans as a supplemental sourcefor overall funding operations.

JFM Bonds

To be issued by JFM without government guarantees. Under Article 40,
Paragraph 2 of the JFM Law, all holders of JFM bonds have a preferential
right to be paid prior to other unsecured indebtedness.

Domestic
Bonds
Public•Regular issuance of 5-year, 10-year, 20-year and 30-year bonds

Offerings•Opportunistic bond issuance (maturities except for 5-year, 10-year, 20-year and30-year)Private Placement with pension funds for local
government officials

International
Bonds

Bonds issued in international markets through the MTN Programme

Government-Guaranteed Bonds

To be issued only in the domestic market denominated in Japanese Yen forthe purpose of refinancing outstanding government guaranteed bonds
issued by the Predecessor.

Long-term Bank Loans

JFM utilises long-term bank loans as a complementary means of fundraising.

JFM ANNUAL REPORT 2018 | 32

2

Basic Funding Policy

1. Diversification of Funding Methods

While capturing funding opportunities in response to the needs of capital markets, JFM will further
strengthen its role as a leading public-sector bond issuer and be committed to contributing to the sounddevelopment of capital markets.

Financial Section

3. Contribution to the Sound Development of Capital Markets

JFM’s Role in
Local Government FinanceJFM proactively discloses information on its operations, financial conditions and risk management
status in order to support investment decisions by investors. In this context, JFM announces its annual
funding plan prior to the start of the new fiscal year and its second half-year funding plan in August.
In addition, JFM performs investor relations activities, including presentation meetings and/or oneon-one meetings with investors in both domestic and international markets. JFM thereby helps investors
correctly understand JFM’s management and bonds as well as strengthens market confidence toward
JFM.

Management Structure

2. Proactive Disclosure and Investor Relations

Operations

From the viewpoint of stable funding, JFM endeavors to issue bonds with various maturities andstructures, including medium-term and super-long-term bonds in response to the market environment
and market needs, in order to broaden its investor base, while also considering funding costs and risk
management.
JFM’s basic means of funding is the issuance of bonds. JFM accesses the domestic market throughthe regular issuance of 5-year, 10-year, 20-year and 30-year bonds, and also continues to takeadvantage of its Flexible Issuance Programme (FLIP) for opportunistic funding as well as long-term bankloans. JFM also utilizes the MTN Programme, being committed to the regular issuance of benchmark
bonds to the international investors and Uridashi bonds to Japanese retail investors. In addition to that,
JFM is going to issue private placement bonds in a flexible manner.

Review and Plan

To secure stable funding at fair value, JFM pursues diversified funding options and strives tobuild confidence in capital markets by proactively disclosing information and thoroughly fulfilling
responsibilities. JFM also endeavors to seek more flexible funding operations than ever in response tovolatile market conditions and shift in investor demands on the back of the change of monetary policy ofmajor central banks .

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 33

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Funding Operations

3

Features of JFM Bonds

JFM bonds are generally recognized as having high credit standing with the following features.

•	J FM’s assets can be deemed to be highly stable based on the fact that JFM lends
exclusively to local governments, and no local governments have ever defaulted.
•	JFM has a solid financial foundation, backed by its reserve for interest rate volatility and theFund for Lending Rate Reduction prescribed in the JFM Law.

Operations•	JFM is a joint funding organization established with a capital contribution from Japanese
local governments encompassing all prefectures, cities, special wards of Tokyo, governmentdesignated cities, towns and villages.
•	Under the JFM Law, local governments have an obligation to bear the costs necessary tosatisfy all JFM obligations in the event JFM is to be dissolved and its obligations remain
unpaid.

JFM has received the highest credit rating among the Japanese public-sector bond issuers fromStandard and Poor’s (S&P), Moody’s Investors Service (Moody’s) and Rating and Investment Information,
Inc. (R&I). The BIS risk weighting is 10% for JFM bonds denominated in yen.
In addition to JGBs and local government bonds, interest received by foreign investors (non-residents,
foreign corporations, etc.) on JFM’s domestic bonds in book-entry form as well as JFM’s internationalbonds (both of which include government-guaranteed bonds) shall be exempted from Japanese income
tax, subject to certain procedural requirements.

(As of 31 March 2018)

S&P: A+

Issuer Credit Rating

Moody’s: A1
R&I: AA+BIS Risk Weighting(denominated in yen)

JFM bonds:

For reference:

10%

Japanese Government Bonds: 0%
Japanese Government-Guaranteed Bonds: 0%
Local Government Bonds: 0%

All holders of JFM bonds (as well as JFM’s government-guaranteed bonds) have a

Preferential Rights
for JFM Bonds

preferential right to be paid prior to other unsecured indebtedness, and such preferential
right shall rank immediately after the general preferential rights as provided for in the
Civil Code of Japan (Law No. 89 of 1896, as amended). (Article 40, Paragraph 2 andParagraph 3 of the JFM Law)

Note: The risk weights are values for investors in Japan. For international bonds, the values are determined by respective authorities
in each country. (as of 31 March 2018)

JFM ANNUAL REPORT 2018 | 34

4

Trends in Funding Operations(USD bn)
195.3
200
189.5
183.8 185.0 187.7(USD bn)
30
28.0
25

150

12.1

19.4

20

10
5
0

0.4
2.8
3.2

5.9
0.1
2.8
2.6

9.5

FY2013

8.0

2014

6.8

19.3

3.6

105.2

87.6

84.4

117.3
5.7

7.2

0.5
0.3

97.0

100

0.1

4.0

4.7

1.6

2.6

6.5

6.5

5.7

2015

2016

2017

50

2.1

66.5

0

FY2013

90.7

79.7

2014

2015

101.9

2016

110.9

2017

Management AccountLong-term Bank Loans

General AccountFinancial Section

Government-guaranteed Domestic Bonds

Private placements with Pension Funds for Local
Government Officials
JFM bonds (international bonds)

JFM’s Role in
Local Government Finance

15

18.8

19.8

Management Structure

Outstanding Bonds and Bank Loans

Operations

Funding Volume

Review and Plan

JFM issues JFM bonds (non-government guaranteed bonds to be issued through domestic public
offerings or under the MTN Programme, or private placements with pension funds for local government
officials) and government-guaranteed bonds for the purpose of refinancing existing government
guaranteed bonds of the Predecessor. And, from the perspective of diversifying funding source, longterm bank loans are also an important for JFM’s funding operations.
In fiscal 2017, JFM raised a total of USD 19.8 billion, slightly increased from the previous year. This was
mainly result of an increase in the amount of government-guaranteed bonds and private placements withthe pension funds issued during fiscal 2017 while the issuance volume of JFM bonds was decreased.
As of 31 March 2018, outstanding bonds were USD 193.8 billion. Outstanding long-term bank loans
totaled USD 1.5 billion. The total amount of outstanding bonds and long-term bank loans was USD
195.3 billion, which was comprised of USD 110.9 billion in the general account and USD 84.4 billion in
the management account. Since the end of fiscal 2016 the volume of outstanding debt in the generalaccount exceeds that of the management account as a result of the trend the management account has
been decreasing while the general account has been increasing.

JFM bonds (domestic bonds)
Non-government guaranteed bonds

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 35

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Corporate GovernanceJFM ensures responsible corporate governance through the participation of external
experts on the Representative Board and the Supervisory Committee and audits byexternal accounting auditors.

1

Corporate GovernanceCorporate Governance System

Representative Board
Members: (1) Representatives at local governments*(2) External experts*
Number of Members: 6 (3 from (1) above and 3 from (2) above)
Term of Office: 3 years
Appointmentof members
Management Structure

Supervisory
Committee
Members: External experts
Number of Members: 6
Term of Office: 2 years

Appointment
and dismissal of
the President
and CEO

Appointment of
Accounting Auditors
and Corporate
Auditors

Decisions onimportant matters,
including budgets
and accounts

Accounting
Auditors

Consultation andpropositions

President and CEO,
Deputy President, etc.

Audits(Certified public
accountants or an
audit corporation)

AuditsCorporate Auditors
Budgetsubmissions

Approval of changes to thearticles of association
Demand for correction ofillegal activities

National Government*Elected by the national associations of prefectural governors, mayors of cities, and mayors of towns and villages.

JFM ANNUAL REPORT 2018 | 38

1. Representative Board

Review and Plan

As an organization autonomously managed by local governments, JFM has the Representative Board
as its supreme decision-making body.
To ensure independence and transparency, the Representative Board consists of one prefectural
governor, one city mayor, one town/village mayor and three members from among experts in local
administration, economics, finance, law or accounting.
The Representative Board has the authority to make decisions on important matters related to theoverall management of JFM, including budgets, settlement of accounts and business plans and to
appoint and dismiss the President and CEO as well as Corporate Auditors. As its supervisory function,
the Board is also authorized to obtain from the President and CEO information relating to JFM’soperations and financial condition , and to order the President and CEO to take corrective actions withrespect to any illegal or other inappropriate activities.

Operations

2. Supervisory Committee

4. Audits by External Accounting Auditors

JFM ANNUAL REPORT 2018 | 39

Appendix / JFM Data

As JFM raises funds in capital markets, the proper disclosure of information and external checks on
accounting procedures are essential in order to build market confidence toward JFM.
From this viewpoint, JFM has its financial statements audited not only by corporate auditors but also
by external accounting auditors (certified public accountants or an audit corporation) appointed by the
Representative Board.

Financial Section

The Corporate Auditors are responsible for auditing the accounts of JFM, and may, at their discretion,
submit reports to the Representative Board, the President and CEO and the Minister for Internal Affairs
and Communications.

JFM’s Role in
Local Government Finance

3. Audits by Corporate Auditors

Management Structure

JFM has focused on establishing highly transparent management that incorporates unbiased opinions
of external parties, and responsible corporate governance. To ensure such a governing structure, JFM
has the Supervisory Committee as a deliberative committee comprising external experts.
The Representative Board appoints the members of the Supervisory Committee from among experts
in local administration, economics, finance, law or accounting, and other experts in the academic world.
The Supervisory Committee has the function of monitoring the operations of JFM and may offer its
opinions on important matters such as JFM’s operations including budgets, settlement of accounts
and business plans. The Committee may also, if necessary, request that the President and CEO reporton those matters. The President and CEO must respect and report the Committee’s opinions to theRepresentative Board.

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Corporate Governance2Internal Control over Financial Reporting

Pursuant to the Ministerial Ordinance on Finance and Accounting of the Japan Finance Organization
for Municipalities, JFM has set up a system which is similar to the internal control reporting system under
the Financial Instruments and Exchange Law in Japan. In accordance with the system, JFM prepares theInternal Control Report to evaluate the effectiveness of internal control over financial reporting to ensure
the reliability of its financial statements, the base date of which is the end of the fiscal year (March 31),and it is audited by the external auditors and released together with the financial statements.
As for the Internal Control Report in which JFM viewed its internal controls on financial reporting
as effective as of the end of fiscal 2017, the accounting auditors gave their opinion (unqualified audit
opinion pursuant to Ministerial Ordinance Article 32, Paragraph 5, Clause 1) that, in all material respects,
evaluation results of JFM’s internal controls over financial reporting were in conformity with the standardsof evaluation for internal controls over financial reporting generally accepted in Japan.

3Internal Audit

Management Structure

An internal auditor, who is independent from other departments, divisions and offices, examines andassesses the appropriateness and effectiveness of JFM’s internal control systems, thereby helping
ensure reliable financial reporting and appropriate and efficient operations.
On completing this task, the internal auditor submits a report to the president and CEO.
If the internal auditor identifies deficiencies, related divisions and offices must immediately take therequired corrective actions. The internal auditor will then submit to the president and CEO an internal
audit report that includes the progress of corrective actions.
The internal auditor also performs follow-up audits and reports the results to the president and CEO
as necessary.

Internal Audit System

President and CEO
Deputy President

SeniorExecutive
Directors
Departments
DivisionsInternal Audits

JFM ANNUAL REPORT 2018 | 40

Internal
Auditors

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General Account and Management AccountBegan operations on
1 October 2008

Reorganized on
1 June 2009

Japan Finance
Organization for
Municipal Enterprises

Japan Finance
Organization for
Municipalities (JFM)

Established by capital
contributions only from Japanese local
governments

The lending scope was expanded tooverall general account-related loans

Japan Finance Corporation
for Municipal Enterprises(the “Predecessor”)

Management Structure

Succeeded to assets
and liabilities

Established on
1 June 1957

Abolished(and its capital returned to
the national government)

Special governmental institution(wholly owned by the national government)

General AccountFinancial Section

Japan Finance Organization for Municipalities (JFM)
Ensure a financial
foundation needed to sustain
the businesses into the future

JFM’s Role in
Local Government Finance

When JFM was founded, it succeeded to the Reserve for Losses on the Refinancing of Bonds in theamount of approximately JPY 3.4 trillion (USD 32.0 billion) to ensure its future stable management fromthe Predecessor.
Of this amount which was recorded in the management account, the JPY 2.2 trillion (USD 20.7 billion)needed to ensure the future continuity of JFM’s operations is being transferred to the general accountin equal installments over 10 years, with the remainder which is expected to remain in the management
account to ensure a sufficient financial foundation to appropriately manage the Predecessor’s bonds
and loans and prepare for the risk with refinancing bonds of the Predecessor.

Predecessor

Operations

Established on
1 August 2008

Review and Plan

Japan Finance Organization for Municipal Enterprises was established on 1 August 2008, with capital
contributed by all prefectures, cities, special wards of Tokyo, government-designated cities, towns andvillages, as well as some local government associations, to provide funds to local governments. JFM
commenced its operations after succeeding to the assets and liabilities of the Predecessor on 1 October
2008.
As a result of the reorganization on 1 June 2009, JFM’s lending scope was extended to overall generalaccount-related loans.
Under the JFM Law, JFM requires managing loans and bonds issued since JFM began its operationsin the general account of JFM, whereas loans and operations carried over from the Predecessor areadministered in the separate account known as the management account of JFM.
With regard to the management account, JFM issues government-guaranteed bonds solely for the
purpose of refinancing government-guaranteed bonds of the Predecessor.

Reserve for JPY 2.2 tn
Interest Rate Volatility (USD 20.7 bn)
Management Account

Ensure a financial foundationthat can withstandthe refinancing risk posed by thegovernment-guaranteed bonds, etc.

FY2008-2017
JPY 220 bn (USD 2.1 bn)
transferred each year

Management Account Reservefor Interest Rate Volatility

JFM ANNUAL REPORT 2018 | 41

Appendix / JFM Data

Reserve for Losseson the Refinancingof Bonds
JPY 3.4 tn(USD 32.0 bn)

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General Account and Management AccountUnder the JFM Law, if any assets remain when the asset management operations of the Predecessor
are completed and the management account is closed, those assets shall be returned to the nationaltreasury.
Even before the management account is closed, in the event that the businesses of JFM aredetermined to have been executed smoothly in light of the condition of the management of JFM, theMinister for Internal Affairs and Communications and the Minister of Finance shall, if the management
account reserve for interest rate volatility and the management account surplus reserve are determined
to exceed the amount necessary for the smooth operation of the asset management operations of thePredecessor in the future, cause the amount that is determined to be in excess to belong to the nationaltreasury (Article 14 of the Supplementary Provisions of the JFM Law).
In accordance with this provision, JFM has transferred a portion of its reserve for interest rate volatility
within the management account to the national treasury to secure financial resources of the local
allocation tax for regional revitalization.

Management Structure
JFM ANNUAL REPORT 2018 | 42

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Risk Management

1

Overall Risk Management

1. Risk Management System

President and CEO

Integrated Risk
Management
Committee
ALM Committee

Risk Management
OfficeLoan
Department

Administration
Department

2. Characteristics of JFM’s Risks

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 43

Financial Section

JFM lends to local governments with the maximum maturity of 40 years while JFM raises funds
primarily by issuing 10-year bonds. Among other risks, JFM considers the interest rate risk associatedwith bond refinancing as its major risk (the risk of the negative margin caused by the interest payable
exceeding the interest receivable).
To address such interest rate risk, JFM maintains reserves for interest rate fluctuations (the Reservefor Interest Rate Volatility) and has set up the ALM Committee to comprehensively analyze and manage
JFM’s assets and liabilities in a timely and appropriate manner.
The ALM Committee conducts medium-term and long-term management and risk analysis throughscenario, Value at Risk, duration, and other analyses. JFM reflects the findings in its bond issuance plansand other aspects of management and endeavors to lower interest rate risk.

JFM’s Role in
Local Government Finance

Finance
Department

Management Structure

Senior Executive
Director in Charge

Operations

Risk Management System

Review and Plan

JFM adopts an integrated risk management approach to respond to various risks, while pursuing for ahigher level of risk analysis and management.
Accordingly, JFM has developed a system for appropriate risk management, including theestablishment of the Integrated Risk Management Committee, which supervises JFM’s overall risk
management, and the Risk Management Office to ensure comprehensive risk management. Risk
management can then be appropriately reflected in management decisions.

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Risk Management

2

Management of Specific Risks

1. Credit Risk
Credit risk is the risk of loss arising from deterioration in the financial condition of a borrower andother situations, which could cause an asset to lose value or become worthless. Loans and financialtransactions involve credit risk.

1) Credit risk associated with loans
JFM lends exclusively to local governments. Local government bonds and loans have a zero risk
weighting under the regulations of the Bank for International Settlements (as of 31 March 2018). For thereasons outlined below, JFM believes it is unlikely that any of its borrowers will default those loans. In
fact, JFM and its Predecessor have never experienced any loan losses.

Management Structure• Financial sources for the payment of the principal and interest of local government bonds
and loans are secured through the following mechanisms. First, local governments canobtain local tax revenues pursuant to their right to impose tax. Second, in addition to such
local tax revenues, local allocation tax grants are allocated as follows: (i) the national
government includes certain local government debt servicing costs, i.e., expenditures for thepayment of the principal and interest of certain local government bonds and loans including
those issued or borrowed with consents or approvals, in the amount of “expenditures” inthe Local Government Finance Programme formulated by the national government; and (ii)the total amount of local allocation tax grants is calculated so that the total amount of local
government expenditures, including such debt servicing costs, is equivalent to the total
amount of the local government revenues, in the Local Government Finance Programme. Thus,
the national government effectively secures revenue sources for the payment of principal
and interest of such local governments bonds and loans in terms of the total amount. Whencalculating the amount of local allocation tax grants to be allocated to an individual local
government, a part of the “expenditures” for the payment of the principal and interest of such
local government bonds and loans are included.
• Before issuing a loan, JFM checks the financial and operational status of the local
government, including its debt servicing costs, tax revenues and necessary funds. In
addition, when reviewing the ability of a local government to repay the loan, where such local
government’s expenditures exceed the revenue generated by local taxes, JFM takes into
account the local allocation tax grants from the national government described above.
• The Early Correction Measure requires certain local governments, such as those whosedebt servicing costs or financial deficits exceed specified levels, to obtain approval from the
Minister for Internal Affairs and Communications or their respective prefectural governors
in cases where they issue additional bonds or borrow additional loans. In addition, local
governments whose fiscal indicators exceed certain early warning limits must make theirown efforts toward achieving fiscal soundness, and local governments whose fiscal
indicators exceed certain “reconstruction limits” must take necessary actions to restore fiscal
soundness under the oversight of the national government with regard to redemption of local
government bonds and loans, and other operations. This system facilitates the maintenanceof the credit standing of local government bonds and loans.

JFM ANNUAL REPORT 2018 | 44

As of 31 March 2018, JFM’s total outstanding loans stood at USD 223.8 billion. The amount of loans
outstanding made to local governments whose fiscal indicators exceeded the early warning limits or
the reconstruction limits accounted for less than 0.03% in aggregate of total loans outstanding as of 31
March 2018.

Operations

JFM is, however, exposed to the risk of loss arising from credit events, such as deterioration in thefinancial condition of a counterparty, which causes an asset to lose value or become worthless. JFM
works to appropriately manage credit risk of this type by constantly monitoring counterparties’ financial
standings and taking measures including suspension of new deals and cancellation of transactions withcounterparties that have come to poor credit standings. Moreover, JFM limits counterparties to financial
institutions that meet the credit rating and other criteria, and conducts transactions within the credit lines
for each counterparty in order to diversify risks.
In addition, JFM entered into the ISDA Master Agreement and the CSAs (Credit Support Annexes) withits derivatives counterparties to reduce the credit risk resulting from fluctuations in the value of derivativetransactions.

Review and Plan

2) Credit risk associated with market transactions

Management Structure
JFM’s Role in
Local Government Finance
Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 45

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Risk Management

2. Market Risk
Market risk is the risk of losses resulting from changes in the value of assets and liabilities due tofluctuations in risk factors such as interest rates, securities prices and foreign exchange rates, or therisk of loss resulting from changes in earnings generated from assets and liabilities. Market risk includes
interest rate risk, foreign exchange risk, inflation risk and price fluctuation risk.

1) Interest rate risk

• Interest rate risk associated with bond refinancing
JFM is exposed to the interest rate risk resulting from a duration gap between lending and funding. To
address such risk, JFM takes measures described on page 47.

• Interest rate risk associated with a gap in lending and funding schedules
JFM generally raises funds required to finance a loan by issuing bonds prior to the loan disbursements.
Proceeds from bond issuances may not be earmarked for a particular loan. Thus, fluctuations ininterest rates in the period where lending and funding schedules differ affect the profitability of loans(“pipeline” risk). In order to hedge against pipeline risk, JFM utilizes interest rate swaps.
Management Structure
JFM ANNUAL REPORT 2018 | 46

Managing interest rate risk associated with bond refinancing• As assets and liabilities in the general account are expected to expand as a result of anincrease in loans and fund-raising, JFM carries out an ALM analysis of this account in orderto further enhance the effectiveness of its interest rate risk management. Furthermore, JFM
has established a medium-term management target of five years from fiscal 2018, in which
the duration gap is maintained below two years. In order to implement the managementtarget, JFM takes the following measures:

Review and Plan

• JFM maintains reserves to prepare for interest rate risk associated with bond refinancing.
At the end of fiscal 2017, the total amount of the reserves stood at USD 28.9 billion, which
consisted of USD 20.7 billion in the general account and USD 8.2 billion in the management
account.

(1) Controlling lending duration – Lending rates for loans for temporar y financial
countermeasures funding, which account for approximately 40% of JFM’s outstandingloans in the general account, are revised every 5 years or 10 years depending on loans.
In addition, JFM will revise its lending rate by 30th year at the latest for its loans withmaturities longer than 30 years, while maturities of the loans were extended to be a
maximum of 40 years from April 2015.

Operations(2) Extending funding duration – Utilizing its FLIP and Open Issuance scheme, JFM aims toextend the funding duration by carefully choosing maturities of bonds to be issued e.g.,continuously issuing long-dated bonds with maturities over 10 years.

Management Structure• At the end of fiscal 2017, the duration gap in the general account was 1.15 years, staying
within the management target.

Financial Section• Pursuant to Article 14 of the Supplementary Provisions of the JFM Law, a portion of JFM’s
management account reserve for interest rate volatility is being attributed to the Japanesenational government over a period of three years from fiscal 2017 through fiscal 2019, withthe aim of transferring up to USD 8.5 billion over this period. Furthermore, it has been also
determined that an additional amount of up to USD 14.1 million from fiscal 2018 through fiscal
2023 shall be attributed to the government. The amount of transfer is to be within the amountwhich the Minister for Internal Affairs and Communications and the Minister of Finance deemas an amount exceeding the requisite amount of reserve necessary for the smooth operationof JFM’s management account at the time of transfer and in the future, in light of JFM’s
financial condition. Even after these transfers, JFM does not expect the transfers to have amaterial effect on JFM’s business, results of operations or financial condition, due primarily
to sufficient amount of the reserve for this account.

JFM’s Role in
Local Government Finance• In the management account, which manages assets transferred from the Predecessor, JFM
maintains USD 8.2 billion of the management account reserve for interest rate volatility as
described above. As no new lending from the management account has been made since
October 2008, JFM expects that the interest rate risk in the management account will decline
overall as the size of the account declines over time.

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 47

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Risk Management

Maturity Ladder (JFM Loans, Bonds and Bank Loans)
General Account(as of 31 March 2018)

14,00012,00010,0008,000
6,000
USD mm

4,000
2,000
0

-2,000-4,000Interest Receipt (Lending)-6,000Principal Redemption (Lending)-8,000Principal Redemption (Funding)-10,000

Interest Payment (Funding)-12,000

Gap-14,000

FY2017 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46• Lending duration 8.30 years • Funding duration 7.15 years • Duration gap 1.15 years (YoY change: -0.04 years)(as of 31 March 2018)

15,00010,0005,000
USD mmManagement StructureManagement Account
20,0000-5,000Interest Receipt (Lending)Principal Redemption (Lending)-10,000

Principal Redemption (Funding)Interest Payment (Funding)Gap-15,000-20,000

FY2017

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

• Lending duration 5.59 years • Funding duration 4.51 years • Duration gap 1.08 years (YoY change: -0.35 years)
JFM as a whole• Lending duration 7.25 years • Funding duration 6.04 years • Duration gap 1.21 years (YoY change: -0.15 years)

2) Foreign exchange and other risks
Various risks associated with bond principal and interest payments are generally hedged by swap
transactions. These risks include foreign exchange risk related to foreign currency denominated bonds
and interest rate risk related to floating rate bonds. JFM’s investments of surplus funds are exposed to
the risk of losses on the sale of securities resulting from price declines and the risk of realized losses
on foreign currency denominated deposits resulting from fluctuations in foreign exchange rates.
Accordingly, in principle, JFM reduces the price fluctuation risk by holding investments until maturity andhedges foreign exchange risk by using forward foreign exchange contracts.

JFM ANNUAL REPORT 2018 | 48

3. Liquidity Risk

Review and Plan

Liquidity risk is the risk that JFM would incur losses because of difficulty in funding, or because offunding at far higher interest rates than under ordinary conditions. It also includes the risk that JFM
would incur losses because of the inability to conduct market transactions or because of transactions at
prices far more unfavorable than under normal conditions due to market disruption or other situations.
However, JFM’s current exposure to liquidity risk is low because loans are made based on a pre-set
schedule, and the daily cash and liquidity management is carried out. Moreover, JFM has entered into
overdraft agreements with a wide range of financial institutions to prepare for unexpected fund shortfalls,
and invests surplus funds only in short-term financial products.
In addition, JFM has implemented a policy to maintain a certain amount of liquid assets so that, in theevent of market disruption, JFM may continue to timely make its payments of interest and principal on thebonds and other dent securities.

Operations

4. Operational Risk

1) Administrative risk

2) Systems risk
Systems risk is the risk of the confidentiality, integrity and availability of information assets being
impaired as a result of computer system inadequacies or the fraudulent use of computer systems.
JFM has established and implemented the Systems Risk Management Policy and the Systems Risk
Management Standard to appropriately manage systems risk and ensure smooth business operations.

JFM’s Role in
Local Government Finance

Administrative risk is the risk of loss resulting from the neglect or inadequacy of attention by
management and employees to properly conduct administrative work, accidents and/or violation oflaws caused by them in the course of the administrative work process. JFM endeavors to mitigate its
exposure to administrative risk by preparing operational manuals, holding educational seminars andtraining sessions, and reducing operational workload through systematization.

Management Structure

Operational risk is the risk of loss resulting from inadequate operation processes, inadequate activities
by management and staff, and inadequate computer systems, or from external events.

Financial Section

5. Contingency Measures

JFM ANNUAL REPORT 2018 | 49

Appendix / JFM Data

JFM has prepared the Contingency Plan to minimize the scope of losses and the impact on operations
and restore normal operations promptly and efficiently in the event that computer systems break down
or cannot be used due to unexpected incidents, disasters or malfunctions. Furthermore, in order toprepare for a contingency, JFM has a backup server outside JFM so that its business operations can becontinued.

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Compliance1

Basic Policy

JFM has prepared the Compliance Rules to ensure that operations are conducted in accordance withlaws and regulations and indicate what actions management and staff should take when a breach oflaws or regulations is identified. The rules include the following basic policy on compliance.

• Management and employees must be aware of JFM’s social responsibility and public mission
and realize that a breach of laws or regulations would cause a great hindrance to JFM’sbusiness operations, such as a loss in credibility of JFM as a whole. Management and staff
must also observe laws and regulations and fulfill their duties with integrity and fairness.
• Management and employees must strive to earn the trust of society by appropriately
disclosing information on JFM’s operations.

Management Structure2Compliance System

Based on the Compliance Rules, JFM has the Compliance Committee.
JFM’s deputy president serves as the chairman of the committee, with senior executive directors anddepartment heads serving as committee members. The committee deliberates on important complianceissues, such as the formulation, revision and abolition of compliance-related rules and regulations andthe preparation of guidelines and action plans for compliance.
JFM has also established the compliance division to oversee compliance arrangements. This unit
deploys compliance-based initiatives (providing system guidance and training or producing manuals) in
keeping with the committee’s guidelines.

Compliance System

President and CEO
Appointment
Compliance Committee
Instruction

ReportCompliance Division (Administration Department)
Instruction and training

ReportDirectors and Employees

JFM ANNUAL REPORT 2018 | 50

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Disclosure

1

Basic Stance on Information Disclosure

From the viewpoint of investor protection, JFM strives to ensure the transparency of JFM’s
management by disclosing information on its financial conditions and other relevant information.
Review and Plan

2

Materials for Disclosure

The following materials are available on JFM’s website (www.jfm.go.jp/en/).

Management Structure• Financial statements• Business reports and statement of accounts (in Japanese only)• Explanatory documents based on Article 36, Paragraph 3 of the JFM Law (Documents corresponding
to annual securities reports specified in the Financial Instruments and Exchange Act and the Internal
Control Report) (in Japanese only)

Operations

1. Materials for Disclosure Pursuant to Laws and Regulations

2. Other Documents for Disclosure
JFM’s Role in
Local Government Finance• Budgets, business plans, funding plans, and medium-term plans on income and expenditures• Management plan
• Funding plan
• Brochure• Annual Report• JFM News magazine

Financial Section

Annual Report

JFM ANNUAL REPORT 2018 | 51

Appendix / JFM Data

Website (http://www.jfm.go.jp/en/)JFM’s Role in Local Government Finance1

Japanese Local Government System

Local governments are responsible for extensive areas of public administration for the welfare of
citizens.
While the national government focuses on administrative affairs for the state as a member of theinternational community, local governments engage in administration that relates to the daily lives ofcitizens. Local governments are responsible for social welfare, education, fire defense, and infrastructuresuch as road and waterways.
Japanese local government system adopts a two-tier system with prefectures serving broader
geographic areas, and cities, special wards of Tokyo, as well as government-designated cities, towns
and villages providing local services.

National Government
Prefectures
Local Government

Cities, Special Wards of Tokyo,
Towns and Villages

Number of Japanese Local Governments

Prefectures

47

JFM’s Role in
Local Government Finance

Cities, special wards of Tokyo, etc.

1,741

Government-designated cities

20

Cities771

Special wards of Tokyo

23

Towns

744

Villages

183

Total

1,788
(as of 1 April 2018)

JFM ANNUAL REPORT 2018 | 52

2

Local Government Finance Programme
Local Government Finance Programme(Initial Plan for FY2018)

Annual Expenditure(USD 829.7 bn)

Annual Revenue(USD 829.7 bn)- Social welfare- Education- Fire defense- Infrastructure, etc.

Operations

Local TaxUSD 396.2 bn

Review and Plan

Local Allocation Tax
USD 154.7 bn
Local Government
Bonds and Loans
USD 86.8 bn
OthersUSD 191.9 bn

Management Structure

Note: The above programme includes Great East Japan
Earthquake related budgets.
JFM’s Role in
Local Government Finance

Each local government is unique in terms of its
natural and historic situations, industrial structures,
population sizes, and other attributes. As a result,each local government handles diverse administration.
The term “local government finance” collectively refers
to funding for individual local governments engaging insuch administration. Just as with national finance, local
government finance plays a major role in the nation’s
economy and the lives of citizens. In fiscal 2018, local
government finance will total JPY 88.1 trillion (USD
829.7 billion) (based on the Local Government Finance
Programme (the “LGFP”).
Because local governments engage in numerous
activities that closely relate to residents, they need toprovide stable public services regardless of regional
dif ferences stemming from var ying populations,industry densities, and/or tax revenue fluctuations
over years. Accordingly, the national government
formulates the LGFP each fiscal year based on
assessments of the scales of local government financeand forecasts of overall revenues and expenditures.
In response to annual national budget plans, thenational government balances the total amount of local
government revenues and expenditures in the LGFP.
Under this Programme, revenue sources for all local
governments, including local allocation tax grants aswell as bonds and loans to be issued or borrowed, aresecured so that local governments can ensure uniform
public service standards.

Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 53

JFM’s Role in Local Government Finance3

Local Allocation Tax

Local governments would ideally cover the expenditures necessary to provide public services with
their local tax revenues. In reality, however, tax revenues are distributed unevenly. In order to adjust
disparities and secure funds for local governments that have low tax revenues, the national government
distributes Local Allocation Tax, which comprises certain percentages of national taxes, including
personal and corporate income taxes and consumption taxes. Local Allocation Tax is an importantsource of funds for local governments to maintain an appropriate level of public services.

Local Allocation Tax System
Example: City A
Standard
Financial
Requirements*1

Shortage—Standard
Local
Tax revenue*2

Allocation Tax= Local for
City A

Notes: 1. Standard financial requirements are the amount of funds necessary to provide standard public services. The requirements
are calculated for each local government according to the standard specified by the Ministry of Internal Affairs andCommunications.
2. Local governments have taxation rights in Japan, but there are regional imbalances in tax revenues.

4

Local Government Borrowings

JFM’s Role in
Local Government Finance

Local government borrowings are bonds and loans to be issued by local governments for securing
necessary external funds, and mature no earlier than the first fiscal year. In principle, a local government
should cover expenditures with its revenues other than local government borrowings. However, local
governments can finance through borrowings in the case that it is desirable to share costs with future
residents such as for constructions of facilities, or that large temporary expenses are required due todisasters.

5

Security of Local Government Borrowings

The following framework secures principal and interest payments of local government borrowings. On
the back of this framework, the BIS risk weighting for local government borrowings is 0%, based on thestandardized approach (as of 31 March 2018).

1) Secured funds for repayments of local government borrowings
The national government effectively secures revenue sources for repayments of local government
borrowings from both macro and micro perspectives.

JFM ANNUAL REPORT 2018 | 54

Note: In (ii), (iii) and (iv) above, only the local government borrowings to which the consent or approval has been given arecovered.

Review and Plan(i) Local tax revenues are secured by taxation rights of local governments(ii) The national government includes repayments of local government borrowings (i.e., principal andinterest payments) in the amount of expenditures in the LGFP(iii) The total amount of Local Allocation Tax grants is set aside so that the total amount of local
government expenditures, including the principal and interest payments, is equivalent to the total
amount of local government revenues in the LGFP(iv) In the calculation of Local Allocation Tax grants to be allocated to an individual local government, aportion of the principal and interest payments are included in the Standard Financial Requirementsof an individual local government2) Issuance restriction
Operations

Local governments with a real debt payment ratio of 18% or higher, or those with a real deficit ratio
exceeding specified levels, are restricted from additional borrowings under the Local Government
Finance Law.

3) Supervision of financial soundness

6

Local Government Borrowing Programme1) Consent (approval) based on LGBP

2) Secured funding sources for local government borrowings
The national government balances the amount of local government funding needs and the amount offunding sources, and specifies funding sources for each business under the LGBP.

JFM ANNUAL REPORT 2018 | 55

Appendix / JFM Data

The LGBP specifies the total scheduled amount of local government borrowings including the amountby business type. Typically, the consent or approval for local government borrowings is given based on
the LGBP.

Financial Section

The LGBP is an annual plan that the national government prepares for local government funding. The
LGBP is closely linked to the national government budget-making. The LGBP plays the following crucial
roles in terms of local government finance.

JFM’s Role in
Local Government Finance(i) Specified fiscal indicators to be disclosed(ii) Local governments with those fiscal indicators exceeding certain early warning limits to restore
fiscal soundness through their own efforts(iii) Local governments with those fiscal indicators exceeding certain reconstruction limits to takenecessary actions under the supervision of the national government or the respective prefectural
governments, in order to restore their fiscal soundness

Management Structure

The Law Relating to the Financial Soundness of Local Governments of Japan, which was promulgatedin June 2007, requires local governments the following measures in order to securely manage their fiscal
soundness:JFM’s Role in Local Government Finance

7

JFM Funds in Local Government Borrowing Programme

The sources for local government funding are classified into national government funds, JFM funds
and private funds.

Local Government Borrowing Programme
FY2017FY2018
Share

Publicly Offered Bonds

USD 36 bn

USD 36 bn

33%

Other Private Sectors

USD 30 bn

USD 31 bn

28%

JFM

USD 17 bn

USD 17 bn

15%

National Government

USD 27 bn

USD 26 bn

24%

USD 110 bn

USD 110 bn

100%

1. Private Funds

2. Public Funds
Total

Note: The figures above are the planned numbers originally published by the Ministry of Internal Affairs and Communications andnot the actual numbers.

Since fiscal 2014, JFM funds have accounted for around 15-16% of the LGBP. JFM plays a major rolein Japanese local government finance, making a substantial contribution to project implementation andfinancial management of local governments.

LGBP Volume by Funding Source (Initial Plan)(USD bn)(%)

JFM’s Role in
Local Government Finance

18

180
160
140
120
100

15.8

122
40.1

16.1

115
37.7

16.1

16

15.6

15.3

110

110

34.7

36.0

36.0

27.4

29.6

30.5

26.7

27.0

26.5

106

60
40
20
0

27.9

12
10
8

80
30.3

14

6

Other Private Sectors
Publicly Offered Bonds
National Government
JFM
JFM Ratio

4

32.5

30.8

19.3

18.6

17.1

17.1

16.8

FY2014

2015

2016

2017

2018

2
0

Source: The Ministry of Internal Affairs and Communications

JFM ANNUAL REPORT 2018 | 56

Financial Section

Review and Plan
Operations
Management Structure
JFM’s Role in
Local Government Finance

Balance Sheets
Statements of Income

Statements of Changes in Net Assets

60
62

Notes to Financial Statements

64
65

Independent Auditor’s Report97Statements of Cash Flows

Appendix / JFM Data

Statements of Appropriation of Profit[General account/Management account]

58
58
59

Financial Section

Financial Statements

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Financial Statements

Balance Sheets(As of 31 March 2017 and 2018)
Item

Fiscal 2016(31 March
2017)(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2017(31 March 2018)

Item

Fiscal 2016(31 March
2017)

AmountFiscal 2017(31 March 2018)
AmountAssetsLiabilities

Loans (Note 3) ¥23,720,021 ¥23,768,240 $223,827,481

Bonds (Notes 7 and 8)

Securities(Note 17)

166,000

170,000

1,600,904

Borrowed money (Note 9)

170,500

159,500

1,502,025

Cash andbank deposits

861,226

747,767

7,041,792

Cash collateral received
for financial instruments

111,159

12,260115,453

Cash collateral
paid for financial
instruments

24,32756,277529,965

Other liabilities

8,379

6,692

63,026

Other assets

10,616

9,783

92,129Reserve for bonuses (Note 10)

55

57

542

Tangible fixed
assets (Note 6)

2,602

2,549

24,009Reserve for bonuses
for directors and corporate
auditors (Note 10)

8

8

77

Intangible fixed
assets (Note 6)

1,473

1,211

11,412

Reserve for retirement
benefits (Notes 10 and 13)

45

47

449

Reserve for retirement
benefits for directors andcorporate auditors (Note 10)

17

24

227

Fund for lending rate
reduction

920,287920,287

8,666,424

Basic fund for lending rate
reduction (Note 12)920,287920,287

8,666,424

Reserves under special laws

3,379,138

3,105,003

29,240,072

Reserve for interest rate
volatility (Note 11)

1,980,000

2,200,000

20,717,582

Management account reserve forinterest rate volatility (Note 11)

1,358,120

870,453

8,197,129

Reserve for interest rate reduction

41,01734,550325,361

24,545,185

24,488,401

230,609,303

Capital16,602

16,602

156,343

Retained earnings

165,779

191,890

1,807,051

General account surplus
reserve

165,779

191,890

1,807,051

Valuation, translation
adjustments and others

5,035

5,268

49,617

Management accountsurplus reserve

53,666

53,666505,378

Total net assets

241,082

267,427

2,518,389

Total liabilities¥19,955,593 ¥20,284,520 $191,021,008

Net Assets
Financial Section

Total assets¥24,786,267 ¥24,755,829 $233,127,692 Total liabilities and net assets ¥24,786,267 ¥24,755,829 $233,127,692

See notes to financial statements.

JFM ANNUAL REPORT 2018 | 58

Statements of Income(For the years ended 31 March 2017 and 2018)

IncomeFiscal 2016
(1 April 2016 to
31 March 2017)

Fiscal 2017
(1 April 2017 to 31 March 2018)

AmountAmount343,305

3,232,934

Fees and commissions

103

98

927

Other operating income

36

46

435

3,569

4,026

37,917

3,557

4,011

37,778

12

14

139

216,284

195,499

1,841,039

208,872

187,970

1,770,132

Fees and commissions

313

300

2,829

Other operating expenses

3,874

3,934

37,047

General and administrative expenses

3,223

3,295

31,031

Ordinary income

160,213

151,976

1,431,174

Special gains

427,323

626,467

5,899,495

Reversal of management account reserve forinterest rate volatility (Note 11)420,000

620,000

5,838,591

Reversal of reserve for interest rate reduction

7,323

6,467

60,904

559,658

752,332

7,084,774

Provision for reserve for interest rate volatility (Note 11)

220,000

220,000

2,071,758

Provision for management account reserve forinterest rate volatility (Note 11)

139,658

132,332

1,246,183

Payment to national treasury (Notes 4 and 11)200,000

400,000

3,766,833¥27,878¥26,111$245,895

Other income
Contributions from fund for lending rate reduction(Note 12)
OthersExpenses
Interest expenses

Special losses

Net income
See notes to financial statements.

Financial Section

372,787

Interest income

JFM’s Role in
Local Government Finance$3,272,213

Management Structure¥347,476

Operations¥376,497

Review and Plan

Item

(Millions of yen) (Thousands of U.S. dollars)

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 59

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Financial Statements

Statements of Appropriation of Profit [General account](For the year ended 31 March 2017)(Millions of yen)

1 Profit available for appropriation¥27,878

Net income¥27,878

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

27,87827,878

Statements of Appropriation of Profit [General account](For the year ended 31 March 2018)(Millions of yen)

1 Profit available for appropriation¥26,111Net income¥26,111

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

26,111

26,111(Thousands of U.S. dollars)

1 Profit available for appropriation$245,895

Net income$245,895

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

245,895

245,895

Notes: 1. Profit was appropriated at the end of the fiscal year in accordance with the provisions of Article 39, Section 1 of the Japan Finance
Organization for Municipalities Law (Law No. 64 of 2007; hereinafter the “Law”).
2. Surplus reserve appropriated was posted as general account surplus reserve on the balance sheets.
See notes to financial statements.

Financial Section
JFM ANNUAL REPORT 2018 | 60

Statements of Appropriation of Profit [Management account](For the year ended 31 March 2017)(Millions of yen)

1 Profit available for appropriation¥¥-

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve--(For the year ended 31 March 2018)(Millions of yen)

1 Profit available for appropriation¥-

Net income

Operations

Statements of Appropriation of Profit [Management account]

Review and Plan

Net income¥-

Accumulated deficit brought forward-

Surplus reserve--(Thousands of U.S. dollars)

1 Profit available for appropriation$-

Net income$-

Accumulated deficit brought forward

Management Structure

2 Profit appropriated-Surplus reserve-

See notes to financial statements.

-

JFM’s Role in
Local Government Finance

2 Profit appropriatedFinancial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 61

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Financial Statements

Statements of Changes in Net Assets(For the year ended 31 March 2017)(Millions of yen)

Valuation,translation
Stockholders’ equity
adjustments
and others Management
account
Retained earnings
Unrealized
surplusgain/
Total
reserve
GeneralTotal
stockholders’ (loss) fromaccount
retainedhedging
equitysurplusearnings
instruments
reserve

Total
net
assets¥16,602¥137,900¥137,900¥154,502¥8,018¥53,666¥216,187

Net income-

27,87827,87827,878--27,878Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

(2,983)-(2,983)-27,87827,87827,878(2,983)-24,894¥16,602¥165,779¥165,779¥182,381¥5,035¥53,666¥241,082

CapitalBalance as of 1 April 2016
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March2017

Financial Section
JFM ANNUAL REPORT 2018 | 62

(For the year ended 31 March 2018)(Millions of yen)

Total
net
assets¥16,602¥165,779¥165,779¥182,381¥5,035¥53,666¥241,082

Net income-

26,111

26,111

26,111--

26,111

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

233

-

233

-

26,111

26,111

26,111

233-

26,345¥16,602¥191,890¥191,890¥208,492¥5,268¥53,666¥267,427

CapitalBalance as of 1 April 2017

Review and Plan

Valuation,translation
Stockholders’ equity
adjustments
and others Management
account
Retained earnings
Unrealized
surplusgain/
Total
reserve
GeneralTotal
stockholders’ (loss) fromaccount
retainedhedging
equitysurplusearnings
instruments
reserve

Changes duringaccounting period(For the year ended 31 March 2018)(Thousands of U.S. dollars)$1,561,156$1,561,156$1,717,499$47,415$505,378$2,270,292

Net income-

245,895

245,895

245,895--

245,895

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

2,202

-

2,202

-

245,895

245,895

245,895

2,202-

248,097$156,343$1,807,051$1,807,051$1,963,394$49,617$505,378$2,518,389

Balance as of 1 April 2017
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March2018
See notes to financial statements.

JFM ANNUAL REPORT 2018 | 63

Appendix / JFM Data

$156,343

CapitalFinancial Section

Total
net
assets

JFM’s Role in
Local Government Finance

Valuation,translation
Stockholders’ equity
adjustments
and others Management
account
Retained earnings
Unrealized
surplusgain/
Total
reserve
GeneralTotal
stockholders’ (loss) fromaccount
retainedhedging
equitysurplusearnings
instruments
reserve

Management Structure

Balance as of 31 March2018

Operations

Net changes duringaccounting period

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Financial Statements

Statements of Cash Flows(For the years ended 31 March 2017 and 2018)
Item(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2016
(1 April 2016 to
31 March 2017)

Fiscal 2017
(1 April 2017 to 31 March 2018)

AmountAmountⅠ Cash flows from operating activities

Net income
Depreciation and amortization
Interest income
Interest expenses
Increase in reserve for bonuses
Increase in reserve for bonuses for directors
and corporate auditors
Increase in reserve for retirement benefits
Increase in reserve for retirement benefits for
directors and corporate auditors
Decrease in fund for lending rate reduction
Increase in reserve for interest rate volatility
Decrease in management account reserve forinterest rate volatility
Decrease in reserve for interest rate reduction
Net (increase)/decrease in loans
Net increase/(decrease) in bonds
Net increase/(decrease) in borrowed money
Interest received
Interest paid
Others¥27,878
619(372,787)
208,8722¥26,111659(343,305)
187,9702$245,895
6,210(3,232,934)
1,770,132
23

0

0

1

11

2

23

8

6

58

(3,557)220,000(4,011)
220,000(37,778)
2,071,758(80,341)(87,667)(825,575)(7,323)(55,509)
153,549
50,000373,725(208,543)(29,336)(6,467)(48,218)
326,799(11,000)
344,134(187,420)(130,597)(60,904)(454,076)
3,077,497(103,588)
3,240,738(1,764,954)(1,229,846)

277,268

286,997

2,702,680

585,400(516,400)
(2)
(208)

612,000(616,000)
(51)
(416)

5,763,255(5,800,924)(485)(3,920)68,789(4,467)(42,074)(200,000)(400,000)(3,766,833)

3,557

4,011

37,778(196,442)(395,988)(3,729,055)

-

-

-

149,615(113,458)(1,068,449)

Ⅵ Cash and cash equivalents at beginning of year

711,611

861,226

8,110,241

Ⅶ Cash and cash equivalents at end of year

¥861,226¥747,767$7,041,792

Net cash provided by operating activities
Ⅱ Cash flows from investing activities

Proceeds from redemption of securities
Purchases of securities
Purchases of tangible fixed assets
Purchases of intangible fixed assets
Financial Section

Net cash provided by investing activities
Ⅲ Cash flows from financing activities

Payment to national treasury
Revenue from contributions made frommunicipally operated racing
Net cash used in financing activities
Ⅳ Effect of exchange rate changes on cash andcash equivalents

Ⅴ Net increase/(decrease) in cash and cash

equivalents

See notes to financial statements.

JFM ANNUAL REPORT 2018 | 64

Notes to Financial Statements
1. Basis of Presentation

JFM’s Role in
Local Government Finance
Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 65

Management Structure(1) Securities
Held-to-maturity securities are carried at amortized cost (straight-line method).
(2) Derivative transactions
Derivative transactions are carried at fair value with changes in unrealized gain or loss charged or credited toincome, except for those which meet the criteria for hedge accounting.
(3) Depreciation and amortization(a) Tangible fixed assets
Depreciation of tangible fixed assets is calculated by the straight-line method based on the estimated useful
lives and the residual value determined by management. The estimated useful lives of major items are as
follows:   Buildings: 23 to 47 years   Others: 2 to 19 years(b) Intangible fixed assets
Amortization of intangible fixed assets is calculated by the straight-line method based on the estimated useful
lives and the residual value determined by management. Software for internal use owned by JFM is amortizedover 5 years.
(4) Deferred assets
Bond issuance costs are expensed in full when incurred.
(5) Translation of assets and liabilities denominated in foreign currencies into Japanese yen
Monetary assets and liabilities denominated in foreign currencies, for which foreign currency swaps or foreignexchange forward contracts are used to hedge the risk of foreign currency fluctuation, are translated at thecontracted rate as these swap contracts or the forward contracts qualify for deferral hedge accounting.
(6) Reserves(a) Reserve for possible loan losses
JFM has never experienced any loan losses. Accordingly, no reserve for possible loan losses has been
maintained.
(b) Reserve for bonuses
The reserve for bonuses is provided for payment of bonuses to employees, in the amount of estimatedbonuses, which are attributable to the fiscal year.
(c) Reserve for bonuses for directors and corporate auditors
The reserve for bonuses for directors and corporate auditors is provided for payment of bonuses to directors
and corporate auditors, in the amount of estimated bonuses, which are attributable to the fiscal year.
(d) Reserve for retirement benefits
The reserve for retirement benefits is provided for payment of retirement benefits to employees, in the amountdeemed accrued at the fiscal year-end, based on the projected retirement benefit obligation and fair value ofplan assets at the fiscal year-end. The reserve for retirement benefits and pension expenses are calculatedusing the simplified method, which assumes JFM’s retirement benefit obligation to be equal to the benefits
payable if all eligible employees voluntarily terminated their employment at the fiscal year-end.
(e) Reserve for retirement benefits for directors and corporate auditors
The reserve for retirement benefits for directors and corporate auditors is provided for payment of retirement
benefits to directors and corporate auditors, in the amount deemed accrued at the fiscal year-end based on
the internal policies.

Operations

2. Summary of Significant Accounting Policies

Review and Plan

Japan Finance Organization for Municipalities (hereinafter, “JFM”) has prepared financial statements in accordancewith the Japan Finance Organization for Municipalities Law (Law No. 64, 2007; hereinafter the “Law”), the ordinances
based on the Law and other regulations applicable to JFM and accounting principles generally accepted in Japan,
which are different in certain respects as to the application and disclosure requirements of International Financial
Reporting Standards.
Since JFM does not have any subsidiaries or affiliates, it does not prepare consolidated financial statements.
Amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial
statements do not necessarily agree with the sum of the individual amounts.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate as of 31 March 2018, the final day of the fiscal year, which was¥106.19 to U.S. $1. This translation should not be construed as a representation that all amounts shown could be
converted into U.S. dollars at such rate.

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Financial Statements

Financial Section(7) Hedge accounting(a) Hedge accounting method
Interest rate swaps used to hedge the risk of interest rate fluctuations that qualify for hedge accounting andmeet specific matching criteria are not measured at fair value, but the differential paid or received under theswap agreements is recognized and included in interest expense or income. If swap contracts or forward
contracts used to hedge the risk of foreign currency fluctuation qualify for deferral hedge accounting, the foreign
currency-denominated assets and liabilities are translated at the contracted rate.
(b) Hedging instruments and hedged items(ⅰ) Hedging instruments・・・Interest rate swaps
Hedged items・・・・・・・・・Bonds and long-term borrowed money(ⅱ) Hedging instruments・・・Currency swaps
Hedged items・・・・・・・・・Foreign currency-denominated bonds(ⅲ) Hedging instruments・・・Foreign exchange forward contracts
Hedged items・・・・・・・・・Foreign currency-denominated bank deposits(c) Hedging policy
JFM uses hedging instruments as a means of hedging exposure to interest rate risk and foreign exchange risk.
Hedged items are identified by each individual contract.
As a means of hedging foreign exchange fluctuation risks associated with the receipt of interest and principalof foreign currency-denominated bank deposits, a foreign exchange forward contract is entered into at the timeof each deposit by JFM.
(d) Assessment of hedge effectivenessJFM ensures hedging instruments and hedged items have the same major terms when entering into hedgetransactions to offset market fluctuation risks associated with bonds and long-term borrowed money.
Accordingly, JFM deems these to be highly effective and thus does not assess effectiveness. Moreover, aperiodic assessment of hedge effectiveness for interest rate swaps and currency swaps and forward contracts
that qualify for deferral hedge accounting is omitted when the exceptional accrual method is applied.
(8) Cash and cash equivalents
Cash and cash equivalents in the statements of cash flows consist of “Cash and bank deposits” on the balance
sheets.
(9) Fund for lending rate reduction
In accordance with the provisions of Article 46, Section 1 of the Law, JFM has established the fund for lending
rate reduction to reserve contributions as stipulated in Article 32-2 of the Local Government Finance Law (Law No.
109, 1948). Also, pursuant to the provisions of Article 46, Section 5 of the Law, income arising from the investmentof the fund (hereinafter, “investment income”) is used to reduce interest rates of the loans to municipalities, andif there is any surplus in the investment income after this interest rate reduction process, the surplus amount is
added to the fund. Further, pursuant to the provisions of Article 46, Section 6 of the Law, if there is any shortfall
after the interest rate reduction process, the shortfall is covered by withdrawal of the fund within the limits of thetotal of the additional portion to the fund made up to the previous fiscal year and the contributions made in themost current fiscal year.
(10) Reserve for interest rate volatility and management account reserve for interest rate volatility
The reserve for interest rate volatility is set aside to prepare for interest rate risk associated with refinancing of
JFM bonds (excluding the bonds issued by the former Japan Finance Corporation for Municipal Enterprises;
hereinafter, the “Predecessor”) pursuant to the provisions of Article 38, Sections 1 and 3 of the Law, and Article
9, Sections 8 and 10 of the Supplementary Provisions of the Law, and is calculated and accounted for based on
the provisions of Article 34 of the Ministerial Ordinance on Finance and Accounting of Japan Finance Organization
for Municipalities (Ordinance No. 87 of the Ministry of Internal Affairs and Communications, 2008; hereinafter,“Ordinance on Finance and Accounting”) and Articles 22 and 23 of the Government Ordinance on preparation of
relevant government ordinances and provisional measures for the abolishment of the Japan Finance Corporation
for Municipal Enterprises Law (Government Ordinance No. 226, 2008; hereinafter, “Preparation Ordinance”).
The management account reserve for interest rate volatility is set aside to manage interest rate risk associatedwith refinancing of bonds issued by the Predecessor pursuant to the provisions of Article 9, Sections 9 and 10,
and Article 13, Sections 5 and 7 of the Supplementary Provisions of the Law, and is calculated and accounted forbased on the provisions of Articles 1 through 3 of the Ministerial Ordinance on the operations of the Management
Account at Japan Finance Organization for Municipal Enterprises (Ordinance No. 2 of the Ministry of Internal
Affairs and Communications, and the Ministry of Finance, 2008; hereinafter, “Management Account Operations
Ordinance”) and Articles 3 and 5 of the Supplementary Provisions of the above ordinance.
(11) Reserve for interest rate reduction
Reserve for interest rate reduction is set aside to reduce interest rates on the loans made by the Predecessor
to local governments pursuant to the provisions of Article 9, Section 13, and Article 13, Section 8 of the
Supplementary Provisions of the Law, and Article 26, Sections 1, 3 and 4 of the Preparation Ordinance, andis calculated and accounted for based on the provisions of Article 5 of the Management Account Operations
Ordinance.

JFM ANNUAL REPORT 2018 | 66

(12) Management account surplus reserve
Profits generated in the management account are accounted for as the management account surplus reserve
separately from retained earnings in accordance with the provisions of Article 13, Section 8 of the Supplementary
Provisions of the Law and Article 26, Section 2 of the Preparation Ordinance.
(13) Consumption taxes
National and local consumption taxes are accounted for using the tax exclusion method.

5. Financial Instruments

JFM ANNUAL REPORT 2018 | 67

Appendix / JFM Data

(1) Status of financial instruments(a) Policy for financial instruments
In order to maintain a sound and good financial standing as well as the solid confidence of capital markets,
JFM needs to appropriately manage various risks including interest rate risk.
JFM adopts an integrated risk management approach to appropriately respond to various risks while
endeavoring to further advance its risk analysis and management.
Accordingly, JFM has developed a system for appropriate risk management, including the establishment of
the Integrated Risk Management Committee, which supervises JFM’s overall risk management, and the Risk
Management Office, which monitors the risks in each department. The content of risk management can thenbe appropriately reflected in management decisions.
(b) Details and risks of financial instruments
JFM makes loans to local governments. The maximum term to maturity is 40 years, but the majority of thefunds for these loans are raised mainly through issuance of 10-year bonds. Therefore, a large duration gap iscreated between lending and funding, and JFM is exposed to the interest rate risk associated with bond and

Financial Section

JFM obtained the approval of the Minister of Health, Labour and Welfare, dated 1 October 2014, for the transfer
to the Japanese national government of the payment obligation of the substitutional portion of the Employees’
Pension Fund established under the Japanese Welfare Pension Insurance Law. Furthermore, on 22 September 2017,
JFM completed the transfer of the total amount of the refund (minimum policy reserve) to the Japanese national
government. There will be no impact on JFM’s profit or loss in conjunction with this because Clause 46 of “Guidanceon Accounting Standard for Retirement Benefits” (Accounting Standards Board of Japan Guidance No. 25) has been
applied.

JFM’s Role in
Local Government FinanceIn accordance with the Supplementary Provisions of the Law, a portion of JFM’s management account reserve forinterest rate volatility is being attributed to the Japanese national government over a period of three years from fiscal
2015 through fiscal 2017, with the aim of transferring up to 600 billion yen over this period. Furthermore, it has been
also determined that an additional amount of up to 800 billion yen from fiscal 2017 through fiscal 2019 shall be
attributed to the government.
In fiscal 2017, 400 billion yen (3,766,833 thousand U.S. dollars) was transferred to the national treasury by JFM,
pursuant to Article 14 of the Supplementary Provisions of the Law for fiscal 2017 (Ordinance No. 2 of the Ministryof Internal Affairs and Communications, and the Ministry of Finance, 2017). And, in fiscal 2018, 400 billion yen isscheduled to be transferred to the national treasury by JFM, pursuant to Article 14 of the Supplementary Provision of
the Law for fiscal 2018 (Ordinance No. 2 of the Ministry of Internal Affairs and Communications, and the Ministry of
Finance, 2018).

Management Structure

4. Payment to the National Treasury of a Portion of JFM’s Management Account Reserve for Interest Rate Volatility

Operations

There are no bankrupt loans, non-accrual loans, past due loans (three months or more), or restructured loans. Since
JFM has never experienced loan losses in the past, it does not record a reserve for possible loan loss.
Bankrupt loans represent loans to borrowers as defined in Article 96, Section 1, Clause 3 (a) through (e) and
Clause 4 of the Enforcement Ordinance of the Corporate Income Tax Law (Government Ordinance No. 97, 1965), andon which accrued interest is not accounted in revenue as there is no expectation of collection of either principal orinterest because they are past due for a considerable period of time or for other reasons (excluding loans on which
bad debts are written off; hereinafter, “Non-accrual loans”).
Non-accrual loans represent loans on which accrued interest is not accounted in revenue, excluding loans tobankrupt borrowers and loans with grace periods for interest payments to assist in corporate reorganization or to
support business.
Past due loans (three months or more) represent loans on which payment of principal or interest is in arrears formore than three months, calculated from the day following the contractual due date, excluding bankrupt loans andnon-accrual loans.
Restructured loans represent loans, given certain favorable terms and conditions, such as reduction or exemptionof interest, grace periods for interest or principal payments, and debt waivers, to assist borrowers in corporate
rehabilitation or to support business, excluding bankrupt loans, non-accrual loans and past due loans (three months
or more).

Review and Plan

3. Loans

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Financial Statements

Financial Section

long-term borrowed money refinancing.
JFM has set aside reserves for interest rate fluctuations (the reserve for interest rate volatility), and has set up
the ALM Committee separately from the Integrated Risk Management Committee to comprehensively analyze
and manage JFM’s assets and liabilities in a timely and appropriate manner. At the meeting, medium- and longterm management analysis as well as risk analysis and evaluation are conducted through scenario analysis,
VaR analysis, and duration analysis, among other methods. In addition, JFM reflects the findings in its bondissuance plans and other aspects of management and endeavors to reduce interest rate risk.
(c) Risk management for financial instruments(ⅰ) Credit risk
Credit risk is the risk of loss arising from a credit event, such as deterioration in the financial condition of aborrower, which causes an asset to lose value or become worthless. In addition to credit risk associatedwith loans, market transactions also involve credit risk.
A. Credit risk on loans
JFM extends loans exclusively to local governments. Local governments have a zero Bank ofInternational Settlements (BIS) risk weighting and JFM does not expect any default on loans made to
local governments for the reasons outlined below. JFM and the Predecessor have never experienced any
loan losses.
• T he Japanese national government includes principal and interest payments of local government
bonds and loans in the expenditure of the Local Government Finance Program, and secures thetotal amount of local allocation tax which balances local governments’ total expenditures including
principal and interest payments, and total revenue. Thus, the national government effectively securesrevenue sources for principal and interest payments by local governments. The national government
also secures revenue sources for principal and interest payments by individual local governments by
including a portion of such principal and interest in the Standard Financial Needs when calculating local
allocation tax.
• Under the consultation system for local government bonds and loans, credit reviews must include
checks on the repayment status of local governments, and tax revenue and necessary revenue sources
to be secured. Additionally, under the Early Warning System, the local governments whose principal
and interest payments or financial deficits exceed a certain level must apply for approval to issue bonds
or obtain loans, so that the credit standing of local government bonds and loans is maintained.
• Under the Law Relating to the Financial Soundness of Local Governments, which was promulgatedin June 2007 (Law No. 94), local governments whose fiscal indicators exceed the early warning limits
must make their own efforts toward achieving fiscal soundness, and local governments whose fiscal
indicators exceed the reconstruction limits must take necessary actions to restore their finances under
the supervision of the national government or the respective prefectural governments with regard toredemption of local government bonds and loans, and other operations.
• JFM is not subject to the “Banking Law” (1981, No. 59) or the “Financial Reconstruction Law” (1998,
No. 132) but performs self-assessment of loans in accordance with the “Financial Inspection Manual”
of the Financial Services Agency (FSA).
B. Credit risk on transactions
JFM is exposed to the risk of loss arising from credit events, such as deterioration in the financial
condition of a counterparty, which causes an asset to lose value or become worthless. However,JFM appropriately manages credit risk of this type by constantly monitoring counterparties’ financial
standing, taking measures including suspension of new deals and cancellation of transactions in caseof a deterioration of their credit standings. Moreover, JFM limits counterparties to financial institutions
that achieve a certain credit rating and other criteria, and conducts transactions within the credit lines
for each counterparty in order to diversify risks. In addition, JFM enters into ISDA (International Swaps
and Derivatives Association) Master Agreements and CSA (Credit Support Annex) with all derivatives
counterparties to reduce credit risk.
(ⅱ) Market risk
Market risk is the risk of loss resulting from changes in the value of assets and liabilities due to fluctuations
in risk factors such as interest rates, securities prices and foreign exchange rates, or the risk of loss resulting
from changes in earnings generated from assets and liabilities. Market risk includes interest rate risk, foreignexchange risk, inflation risk and price change risk.
A. Interest rate risk
Interest rate risk is the risk of losses incurred or a decrease in profits due to fluctuations in interest rates
when there is an interest rate or duration gap between assets and liabilities. The interest rate risk at JFM
includes the interest rate risk associated with bond and borrowed money refinancing and pipeline risk.
- Interest rate risk associated with bond and borrowed money refinancing
JFM makes loans to local governments. The maximum term to maturity is 40 years, but the majority of
the funds for these loans are raised mainly through issuance of 10-year bonds, which creates interest
rate risk associated with bond refinancing. JFM takes the following measures to address the interest

JFM ANNUAL REPORT 2018 | 68

Operations
Management Structure
JFM’s Role in
Local Government Finance
Financial Section
Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 69

Review and Planrate risk resulting from a duration gap between lending and funding.
• JFM maintains necessary reserves to cope with the interest rate risk resulting from a duration gap
between lending and funding.
• As assets and liabilities in JFM’s general account will expand as a result of lending to local governments
and funding, JFM carries out an ALM analysis of this account in a timely and appropriate manner tofurther enhance the effectiveness of its management of interest rate risk. In order to reduce exposure tointerest rate risk, JFM has established a medium-term management target for five years from fiscal 2013,
in which the duration gap is to be maintained below approximately two years.
• To achieve its objective, JFM has taken measures to decrease the duration gap by issuing longer than
10-year bonds to extend the duration on liabilities while pursuing the best bond conditions with flexible
funding operations.
• JFM’s lending for temporary financial countermeasures funding accounts for approximately 40% of theoverall outstanding loans in the general account with the same maturities as loans to other businesses
with a maximum maturity of 30 years. However, the interest rates for temporary financial countermeasuresfunding are revised every 5 or 10 years. In addition, JFM will revise its lending rate by the 30th year at thelatest for its loans with maturities longer than 30 years, which also contributes to moderate the duration
on assets (lending).
• The management account, which manages assets related to loans extended by the Predecessor, iscurrently exposed to greater interest rate risk than the general account. To address such risk, JFM
contributes to the required reserves for interest rate volatility as described above. In accordance with
Article 14 of the Supplementary Provisions of the Law, a portion of JFM’s reserve for interest rate volatility
within the management account is to be transferred to the Japanese national government. The transfer
is scheduled to occur over a period of three years from fiscal 2015 through fiscal 2017, with the aim oftransferring up to 600 billion yen, and over a period of three years from fiscal 2017 through fiscal 2019,with the aim of transferring up to 800 billion yen as well.
- Pipeline risk
JFM is also exposed to pipeline risk, whereby losses would be incurred or profits decreased as a result ofinterest rate fluctuations during the time from when JFM raises money until the point at which the money
is loaned to local governments. JFM, in principle, uses swap transactions to hedge against pipeline risk.
B. Foreign exchange and other risks
Various risks associated with bond principal and interest payments are hedged by swap transactions.
These risks include foreign exchange risk related to foreign currency-denominated bonds and interest
rate risk related to floating rate bonds.
JFM’s investments of surplus funds are exposed to the risk of losses on the sale of securities resulting
from price declines and the risk of realized losses on foreign currency-denominated deposits resulting
from fluctuations in foreign exchange rates. Accordingly, in principle, JFM minimizes the risk of pricefluctuation by holding investments until maturity, and hedges foreign exchange risk by using foreignexchange contracts.
C. Quantitative information on market risk
Loans, bonds and long-term borrowed money are primarily affected by interest rate risk, which is a majorrisk variable among the market risks.
With respect to loans, bonds and long-term borrowed money in the general account, JFM establishesa management target for the duration gap in order to manage interest rate risk appropriately. With regard
to the quantitative analysis of interest rate risk, while JFM does not have a management target for thequantitative figures, it reports the results of calculating the quantitative information to the ALM Committee
and tracks the status of the interest rate risk.
With respect to these financial instruments in the general account, based on an assumption that therisk variables, except for interest rate risk, hold steady, for an indicative interest rate as of 31 March2018 that is 10 basis points higher than the actual rate, it is assumed that the fair value of the net
amount (assets side), after offsetting such financial instruments with the financial liabilities, would
decline by 42,454 million yen (399,793 thousand U.S. dollars). In contract, for an indicative interest
rate as of 31 March 2018 that is 10 basis points lower than the actual rate, it is assumed that thefair value of the net amount (assets side), after offsetting such financial instruments with the financial
liabilities, would increase by 43,181 million yen (406,639 thousand U.S. dollars). These basis pointvalues are used in the financial statements from fiscal 2017 instead of the outlier ratio in accordancewith amendments to guidelines issued by FSA in Japan.
With respect to loans and bonds in the management account, JFM raises funds by the issuanceof bonds as necessary in order to manage existing loans until their redemption. For this reason, while
JFM reports the calculation results of the quantitative information regarding the interest rate risk to the
ALM Committee and confirms the status of interest rate risk as is the case in the general account,
JFM does not establish a management target or use the quantitative analysis for the management
account.

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Financial Statements

With respect to these financial instruments in the management account, based on an assumptionthat the risk variables, except for interest rate risk, hold steady, for an indicative interest rate as of 31
March 2018 that is 10 basis points higher than the actual rate, it is assumed that the fair value of the
net amount (assets side), after offsetting such financial instruments with the financial liabilities, would
decline by 15,157 million yen (142,735 thousand U.S. dollars). In contract, for an indicative interest rate
as of 31 March 2018 that is 10 basis points lower than the actual rate, it is assumed that the fair valueof the net amount (assets side), after offsetting such financial instruments with the financial liabilities,
would increase by 15,352 million yen (144,571 thousand U.S. dollars).
(ⅲ) Liquidity risk
Liquidity risk is the risk that JFM would incur losses due to difficulties in securing the necessary funds or
the necessity of obtaining funds at far higher interest rates than under normal conditions as a result ofa mismatch between the maturities of assets and liabilities or an unexpected outflow of funds (funding
liquidity risk). It also includes the risk that JFM would incur losses because it is unable to conduct market
transactions or is forced to conduct transactions at far more unfavorable prices than under normal
conditions due to market disruption or other difficult situations (market liquidity risk).
JFM’s exposure to liquidity risk is extremely low because loans are made to local governments according
to a pre-set schedule, and the daily cash and liquidity management is carried out based on a quarterly planfor fund management. Moreover, JFM has entered into overdraft agreements with several financial institutions
to prepare for the unexpected events, and invests surplus funds only in short-term financial products.
In addition, JFM has implemented a plan to secure liquidity support assets in advance in order to prepare
for potential market disruption which may prevent JFM from securing the necessary funds for scheduledbond principal and interest payments.
(ⅳ) Supplemental remarks on fair value of financial instruments
In addition to the amount based on the market price, the fair value of illiquid financial instruments includes
a value that has been rationally calculated. Since certain assumptions were made when calculating the fairvalue, the value may differ in the event that the assumptions change.
(2) Items related to fair value of financial instruments
The book value, fair value and difference between them as of 31 March 2017 are as follows:(Millions of yen)Book value(1) Loans

Fair value

Difference¥23,720,021¥25,765,279¥2,045,257(2) Securities
held-to-maturity securities

166,000

166,000-(3) Cash and bank deposits

861,226

861,226-(4) Cash collateral paid for financial instruments

24,327

24,327-

Total assets

24,771,575

26,816,832

2,045,257(1) Bonds

19,955,593

20,859,021

903,427

Financial Section(2) Borrowed money

170,500

173,095

2,595(3) Cash collateral received for financial instruments

111,159

111,159-

20,237,252

21,143,276

906,023

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

JFM ANNUAL REPORT 2018 | 70

The book value, fair value and difference between them as of 31 March 2018 are as follows:(Millions of yen)Book value(1) Loans

Fair value

Difference¥25,641,198¥1,872,958(2) Securities
held-to-maturity securities

170,000

170,000-(3) Cash and bank deposits

747,767

747,767-(4) Cash collateral paid for financial instruments

56,27756,277-

Total assets

24,742,285

26,615,243

1,872,958(1) Bonds

21,100,871

816,350

159,500

161,601

2,101(3) Cash collateral received for financial instruments

12,26012,260-20,456,280

21,274,733

818,452

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

Operations

20,284,520(2) Borrowed money

Review and Plan

¥23,768,240(Thousands of U.S. dollars)Book value

Difference$241,465,286$17,637,805(2) Securities
held-to-maturity securities

1,600,904

1,600,904-(3) Cash and bank deposits

7,041,792

7,041,792-

529,965

529,965-

Total assets

233,000,142

250,637,947

17,637,805(1) Bonds

191,021,008

198,708,651

7,687,643

1,502,025

1,521,815

19,790115,453

115,453-

192,638,486

200,345,919

7,707,433

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

(4) Cash collateral paid for financial instruments(2) Borrowed money(3) Cash collateral received for financial instruments
Total liabilities

Assets(1) Loans
The fair value of loans is calculated by discounting future cash flows assuming prepayment at the discount rate
calculated using the Japanese government bond rates as of 31 March 2017 and 2018.

JFM ANNUAL REPORT 2018 | 71

Appendix / JFM Data

(2) Securities
All bonds are held until maturity, and the fair value of treasury discount bills is the market price.
Since all negotiable certificates of deposit are short-term, the fair value approximates the book value. As a result,the book value is deemed to be the fair value.

Financial Section

Note 1. Method for calculating fair value of financial instruments and items related to marketable securities and derivativetransactions

JFM’s Role in
Local Government Finance$223,827,481

Management Structure(1) Loans

Fair value

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As of 31 March 2017
(Millions of yen)
Type
Securities with fair values
exceeding the balance sheet
amountSecurities with fair values that
do not exceed the balance sheet
amountBook value

Fair value

Difference

-

-

-

-

Sub total---

Negotiable certificatesof deposit¥166,000¥166,000-

Sub total

166,000

166,000-¥166,000¥166,000-

Total

As of 31 March 2018
(Millions of yen)
Type
Securities with fair values
exceeding the balance sheet
amountSecurities with fair values that
do not exceed the balance sheet
amountBook value

Fair value

Difference

-

-

-

-

Sub total---

Negotiable certificatesof deposit¥170,000¥170,000-

Sub total

170,000

170,000-¥170,000¥170,000-

Total(Thousands of U.S. dollars)
Type
Securities with fair values
exceeding the balance sheet
amountSecurities with fair values that
do not exceed the balance sheet
amountBook value

Fair value

Difference

-

-

-

-

Sub total---

Negotiable certificatesof deposit$1,600,904$1,600,904-

Sub total

1,600,904

1,600,904-$1,600,904$1,600,904

-

Total

Financial Section(3) Cash and bank deposits
The book value is used as the fair value for deposits without maturities. Since all deposits with maturities are shortterm, the fair value approximates the book value. As a result, the book value is deemed to be the fair value.
(4) Cash collateral paid for financial instruments
Cash collateral is associated with derivative transactions. The book value is used as the fair value of cash collateral
paid for financial instruments since both values are approximately equal as a result of each deposit period being
short term.

JFM ANNUAL REPORT 2018 | 72

For derivative transactions for which hedge accounting is applied, the contractual amount or the amount equivalent
to the principal in the contract under each hedge accounting method as of 31 March 2017 is as follows:(Millions of yen)Hedge
accounting
methodContract amountPrincipal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more

-

-

-

¥55,000¥55,000(*1)

Foreign currencydenominatedbonds

1,519,932

1,519,932(*2)

Foreign currencydenominateddeposits

210,000-(*2)¥1,784,932¥1,574,932

Based on prices
provided by
the counterparty
financial institution

Financial Section

Primary
hedged items

JFM’s Role in
Local Government Finance

Type ofderivativetransactions

Management Structure

Derivative transactions
Transactions for which hedge accounting is applied

Operations(3) Cash collateral received for financial instruments
Cash collateral is associated with derivative transactions. The book value is used as the fair value of cash collateral
received for financial instruments since both values are approximately equal as a result of each deposit period
being short term.

Review and Plan

Liabilities(1) Bonds
The fair value of bonds issued by JFM that have a market price is based on the market price. The fair value ofbonds without a market price is calculated by discounting the future cash flows using the interest rate that would
be applied when issuing similar bonds with the same total principal and interest and payment term.
Deferral hedge accounting is used for currency swaps, and the fair value of foreign currency-denominated bonds
is thus calculated using the total of the fair value of that bond and the fair value of the swap transaction.
Hedge accounting is used for interest rate swaps, and the fair value of floating rate bonds is thus calculated bydetermining the present value using the total of the corresponding interest rate swap accounted for together withthe principal and interest and discounting the future cash flows using the interest rate that would be applied whenissuing a similar bond.
(2) Borrowed money
The fair value of long-term borrowed money is calculated by discounting the future cash flows using the interest
rate that would presumably be applied when issuing bonds with the same total principal and interest and payment
term.
On the other hand, the book value is used as the fair value of short-term borrowed money since both values areapproximately equal as a result of each loan period being short term.

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 73

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Financial Statements

For derivative transactions for which hedge accounting is applied, the contractual amount or the amount equivalent
to the principal in the contract under each hedge accounting method as of 31 March 2018 is as follows:(Millions of yen)Hedge
accounting
methodContract amountType ofderivativetransactions

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts--¥35,000¥35,000(*1)

Foreign currencydenominatedbonds

1,411,742

1,117,763(*2)

Foreign currencydenominateddeposits

140,000-(*2)¥1,586,742¥1,152,763

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

Based on prices
provided by
the counterparty
financial institution-(Thousands of U.S. dollars)Hedge
accounting
methodContract amountFinancial Section

Type ofderivativetransactions

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more

-

-

-

$329,598$329,598(*1)

Foreign currencydenominatedbonds

13,294,496

10,526,075(*2)

Foreign currencydenominateddeposits

1,318,392-(*2)$14,942,486$10,855,673

Based on prices
provided by
the counterparty
financial institution-(*1) Since interest rate swaps for which hedge accounting is applied are accounted for together with the bondbeing hedged, the fair value is presented together with the fair value of the relevant bond.
(*2) Since currency swaps and foreign exchange contracts for which deferral hedge accounting is applied areaccounted for together with the foreign currency-denominated bond or foreign currency-denominated deposit
being hedged, the fair value is presented together with the fair value of the relevant hedged item.

JFM ANNUAL REPORT 2018 | 74

Note 2. The repayment schedule for monetary claims and securities with maturities is as follows:

As of 31 March 2017
(Millions of yen)

Loans

After
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

After
30 years
through
40 years¥1,685,559 ¥1,713,372 ¥1,726,862 ¥1,701,612 ¥1,643,242 ¥6,694,321 ¥6,892,616 ¥1,646,741¥15,694

Securities
held-tomaturity
securities

166,000

-

-

-

-

-

-

-

-

Deposits

861,226

-

-

-

-

-

-

-

-

(Millions of yen)

Loans

After
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

After
30 years
through
40 years¥1,728,937 ¥1,758,517 ¥1,760,017 ¥1,719,241 ¥1,642,751 ¥6,624,170 ¥6,814,112 ¥1,694,676¥25,815

Securities
held-tomaturity
securities

170,000

-

-

-

-

-

-

-

-

Deposits

747,767

-

-

-

-

-

-

-

-

After
20 years
through
30 years

After
30 years
through
40 years$16,281,550 $16,560,104 $16,574,227 $16,190,236 $15,469,923 $62,380,361 $64,169,063 $15,958,907$243,110

Within1 yearLoans

After
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

1,600,904

-

-

-

-

-

-

-

-

Deposits

7,041,792

-

-

-

-

-

-

-

-

Financial Section

Securities
held-tomaturity
securities

JFM’s Role in
Local Government Finance(Thousands of U.S. dollars)Management StructureAfter
20 years
through
30 yearsWithin1 yearOperations

As of 31 March 2018

Review and PlanAfter
20 years
through
30 yearsWithin1 yearAppendix / JFM Data

JFM ANNUAL REPORT 2018 | 75

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Financial Statements

Note 3. The repayment schedule for bonds and borrowed money is as follows:

As of 31 March 2017
After
10 years
through
20 years

After
20 years
through
30 years

After
30 years
through
40 years¥1,773,824 ¥1,804,268 ¥2,058,327 ¥1,951,753 ¥2,185,072 ¥7,459,855 ¥2,556,270¥148,500¥26,000--

Within1 year
Bonds
Borrowed
money(Millions of yen)After
1 yearthrough
2 years

25,000After
2 years
through
3 years

80,000After
3 years
through
4 years

10,000After
4 years
through
5 years-After
5 years
through
10 years-

55,500-

As of 31 March 2018
After
10 years
through
20 years

After
20 years
through
30 years

After
30 years
through
40 years¥1,804,268 ¥2,078,327 ¥2,069,865 ¥2,345,072 ¥2,094,780 ¥6,960,448 ¥2,736,600¥175,500¥26,000--

Within1 year
Bonds
Borrowed
money(Millions of yen)After
1 yearthrough
2 years

80,000After
2 years
through
3 years

10,000After
3 years
through
4 years-After
4 years
through
5 years

1,000

After
5 years
through
10 years-

68,500-(Thousands of U.S. dollars)After
10 years
through
20 years

After
20 years
through
30 years

After
30 years
through
40 years$16,990,947 $19,571,782 $19,492,091 $22,083,740 $19,726,725 $65,547,115 $25,770,788$1,652,698$244,844--

Within1 year
Bonds
Borrowed
money

After
1 yearthrough
2 years

753,367After
2 years
through
3 years

94,171After
3 years
through
4 years-After
4 years
through
5 years

9,417

After
5 years
through
10 years-

645,070-

6. Tangible and Intangible Fixed Assets
Tangible and intangible fixed assets as of 31 March 2017 consisted of the following:(Millions of yen)

Increaseduringthe year

Buildings¥1,181¥0-¥1,182

¥409

¥47

¥773

Land

1,659

-

-

1,659

-

-

1,659

395

-

-

395

225

70

169

3,236

0

-

3,237

634

118

2,602

2,440

273

¥21

2,692

1,219

501

1,472

0

4

4

0

-

-

0

¥2,440¥277¥25¥2,692¥1,219¥501¥1,473

Type of assets
Financial Section

Balance asof 31 March2017(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2017

Balance asof 1 April
2016(Acquisition
costs)

Decreaseduringthe year

Balance asof 31 March
2017(Net bookvalue)

Tangible fixed assets

Other tangible fixed assets
Total tangible fixed assets
Intangible fixed assets
Software
Other intangible fixed assets
Total intangible fixed assets

JFM ANNUAL REPORT 2018 | 76

Tangible and intangible fixed assets as of 31 March 2018 consisted of the following:(Millions of yen)

Buildings¥1,182¥2-¥1,185

¥442

¥33

¥742

Land

1,659

-

-

1,659

-

-

1,659

395

48

¥4

439

292

71

147

3,237

51

4

3,284

735

105

2,549

2,692

261

23

2,930

1,750

554

1,180

0

79

48

31

-

-

31

¥2,692¥341¥71¥2,962¥1,750¥554¥1,211

Decreaseduringthe year

Balance asof 31 March
2018(Net bookvalue)

Tangible fixed assets

Other tangible fixed assets
Total tangible fixed assets

Review and Plan

Increaseduringthe yearType of assets

Balance asof 31 March2018(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2018

Balance asof 1 April
2017(Acquisition
costs)

Intangible fixed assets

Total intangible fixed assets

Operations

Software
Other intangible fixed assets(Thousands of U.S. dollars)$11,135$26-$11,161$4,170$316$6,990Land

15,630--15,630--15,630

Other tangible fixed assets

3,721

460

$40

4,141

2,753

672

1,388

30,486486

40

30,932

6,923

988

24,00925,3592,461

225

27,595

16,483

5,220

11,112

1

751

452

300

-

-

300

$25,360$3,212$677$27,895$16,483$5,220$11,412

Balance asof 31 March
2018(Net bookvalue)

Tangible fixed assets

Total tangible fixed assets
Intangible fixed assets
Software
Other intangible fixed assets
Total intangible fixed assets

Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as general collateral for
JFM bonds in the amount of 19,955,593 million yen and 20,284,520 million yen (191,021,008 thousand U.S. dollars)
as of 31 March 2017 and 2018, respectively.

Financial Section

7. Assets Pledged as Collateral

JFM’s Role in
Local Government Finance

Buildings

Decreaseduringthe yearManagement Structure

Increaseduringthe yearType of assets

Balance asof 31 March2018(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2018

Balance asof 1 April
2017(Acquisition
costs)

Appendix / JFM Data

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Financial Statements

8. Bonds
Bonds as of 31 March 2017 consisted of the following:(Millions of yen)

Financial Section

Type of bondDate of
issue

Balance
as of 1
April 2016

Balance as of 31
March 2017

Couponrate (%)

Maturity

Government-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-94)

6/15/20093/15/2017¥3,945,290¥4,186,197

0.005
to 1.500

10Y

Government-guaranteed bonds issued by JFM(domestic) 8-year bonds (Series 1-7)

9/26/20132/24/2017

300,000

420,100

0.001
to 0.576

8Y

Government-guaranteed bonds issued by JFM(domestic) 6-year bonds (Series 1-20)

9/27/201110/28/2016

1,129,991

1,330,732(200,000)

0.001
to 0.400

6Y

Government-guaranteed bonds issued by JFM(domestic) 4-year bonds (Series 1-7)

5/28/20126/30/2016

330,000

150,126(110,000)

0.001
to 0.249

4Y

Government-guaranteed bonds issued by JFM(international) Global U.S. dollar bonds (Series 1)

1/13/2011

83,17083,170[USD 1,000 million]

4.0

10Y

Non-guaranteed bonds issued by JFM(domestic) 2-year bonds (Series 2-3)

3/20/20152/19/2016

50,00025,000(25,000)

0.030
to 0.100

2Y

Non-guaranteed bonds issued by JFM(domestic) 3-year bonds (Series 1)

8/19/2013

20,000

-

0.170

3Y

Non-guaranteed bonds issued by JFM(domestic) 5-year bonds (Series 5-20)

5/26/201110/21/2016

235,000

190,000(60,000)

0.001
to 0.510

5Y

Non-guaranteed bonds issued by JFM(domestic) 7-year bonds (Series 1)

8/20/2012

20,00020,0000.446

7Y

Non-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-94)

6/18/20093/21/2017

2,515,000

2,755,000

0.060
to 1.648

10Y

Non-guaranteed bonds issued by JFM(domestic) 15-year bonds (Series 1-3)

1/31/20131/22/2014

50,00050,0001.161
to 1.334

15Y

Non-guaranteed bonds issued by JFM(domestic) 20-year bonds (Series 1-58)

6/25/20093/21/2017

1,065,000

1,195,000

0.180
to 2.266

20Y

Non-guaranteed bonds issued by JFM(domestic) 30-year bonds (Series 1-3)

6/26/201410/21/2016

15,00035,0000.569
to 1.864

30Y

Non-guaranteed bonds issued by JFM(domestic) FLIP bonds (Series F1-F20, F22F31, F33-F39, F41-F52, F54-F210, F212-F243,
F245-F354)

7/22/20091/27/2017

1,819,772

2,029,401(62,000)

0.001
to 2.334

2Y
to 40Y

Non-guaranteed bonds issued by JFM(domestic) FLIP bonds (Floater, Series F53,
F211, F244)

2/1/20117/25/2014

35,00035,000Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

Non-guaranteed bonds issued by JFM(international)(Series 2, 3, 7, 14-16, 19, 28, 31, 33-35, 40-56)

1/12/20121/30/2017

943,766

1,211,337[USD 9,781 million][AUD 566 million][NZD 105 million][EUR 1,000 million](188,136)

Non-guaranteed bonds issued by JFM(international)(Floater, Series 1, 4-6, 8-13, 17, 18, 20-27, 29,
30, 32, 36, 38, 39)

1/17/20127/22/2013

125,073

74,465[USD 757 million][AUD 100 million](34,088)

Floating
rate

5Y
to 7Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series A1-A86)

7/31/20093/28/2017

2,180,000

2,330,000

0.069
to 1.53

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series B1-B17)

11/24/20153/28/2017

34,00075,5000.069
to 0.511

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series C1-C17)

11/24/20153/28/2017

51,500134,000

0.190
to 1.154

20Y

JFM ANNUAL REPORT 2018 | 78

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series D1-D12)

4/21/20163/28/2017

Bonds issued by JFM - Sub-total

16,480,031(679,224)--

Government-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 10-year bonds (Series 1-8)

10/16/20085/25/2009

561,735

562,0101.3
to 1.6

10Y

Non-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 10-year bonds (Series 1-4)

11/25/20085/28/2009

139,986

139,991

1.59
to 1.77

10Y

Non-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 20-year bonds (Series 1, 2)

1/26/20094/30/2009

84,961

84,9642.07
to 2.29

20Y

Non-guaranteed bonds issued by Japan Finance
Organization for Municipal Enterprises (domestic)
Private placements with pension funds for local
government officials (Series A1, A2)

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y

Bonds issued by Japan Finance Organization
for Municipal Enterprises - Sub-total-

906,684

906,967--

Government-guaranteed bonds issued by thePredecessor (domestic)
10-year bonds (Series 862-886)

4/20/20066/19/2008

1,469,826

808,536(587,650)

1.4
to 2.0

10Y

Government-guaranteed bonds issued by thePredecessor (domestic)
15-year bonds (Series 1-5)

6/22/20057/18/2007

184,771

184,793

1.6
to 2.2

15Y

Government-guaranteed bonds issued by thePredecessor (international)
Euro-sterling bonds (Series 4), Global-yen
bonds (Series 5), etc.

8/9/19996/25/2008

343,017

223,122[GBP 150 million][USD 1,000 million](119,780)

1.9
to 5.75

10Y
to 20Y

Non-guaranteed bonds issued by thePredecessor (domestic)
10-year bonds (Series 20-30)

7/4/20066/16/2008

399,985

159,997(110,000)

1.77
to 2.07

10Y

Non-guaranteed bonds issued by thePredecessor (domestic)
20-year bonds (Series 1-25)

7/30/20026/16/2008

569,760

569,784

1.03
to 2.58

20Y

Non-guaranteed bonds issued by thePredecessor (domestic)
30-year bonds (Series 1-10)

1/29/20049/20/2006

189,885

189,891

2.39
to 2.95

30Y

Non-guaranteed bonds issued by thePredecessor (domestic)
Floating rate bonds (Series 1)

10/31/2002

20,00020,000(20,000)

Floating
rate

15Y

Non-guaranteed bonds issued by thePredecessor (domestic)
Bonds with scheduled repayment (Series 1-3)

2/14/20036/9/2004

32,64030,470(2,170)1.39
to 2.01

28Y

Non-guaranteed bonds issued by thePredecessor (domestic)
CMS-linked floating rate bonds (Series 1)

9/13/2006

20,000-Floating
rate

10Y

Non-guaranteed bonds issued by thePredecessor (domestic) Private placements withpension funds for local government officials(Series Special No.1-20–No.1-31)

7/26/20067/31/2008

715,500

382,000(255,000)

1.59
to 2.18

10Y

Bonds issued by the Predecessor - Sub-total-

3,945,385

2,568,595(1,094,600)

-

-

Total

-

¥19,799,634¥19,955,593(1,773,824)--

Notes: 1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as generalcollateral for JFM bonds in the amount of 19,955,593 million yen (178,095,438 thousand U.S. dollars) as of
31 March 2017.
2. Amounts in square brackets under “Balance as of 31 March 2017” for “Government-guaranteed bonds
JFM ANNUAL REPORT 2018 | 79

Appendix / JFM Data

14,947,564

Financial Section-

JFM’s Role in
Local Government Finance

20Y

Management Structure

0.190
to 0.778

Operations

150,000

Review and Plan

-

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issued by JFM (international)—Global U.S. dollar bonds (Series 1),” “Non-guaranteed bonds issued by JFM(international)— (Series 2, 3, 7, 14-16, 19, 28, 31, 33-35, 40-56),” “Non-guaranteed bonds issued by JFM(international)— (Floater, Series 1, 4-6, 8-13, 17, 18, 20-27, 29, 30, 32, 36, 38, 39)” and “Governmentguaranteed bonds issued by the Predecessor (international)—Euro-sterling bonds (Series 4), Global-yen
bonds (Series 5), etc.” are denominated in foreign currencies.
3. Amounts in parentheses under “Balance as of 31 March 2017” are to be repaid within one year.
4. Annual schedule of redemption within five years after the fiscal year-end:

Bonds as of 31 March 2018 consisted of the following:(Millions of yen)

Financial Section

Type of bondDate of
issue

Balance
as of 1
April 2016

Balance as of 31
March 2017

Couponrate (%)

Maturity

Government-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-106)

6/15/20093/14/2018¥4,186,197¥4,792,105

0.005
to 1.500

10Y

Government-guaranteed bonds issued by JFM(domestic) 8-year bonds (Series 1-7)

9/26/20132/24/2017

420,100

420,0860.001
to 0.576

8Y

Government-guaranteed bonds issued by JFM(domestic) 6-year bonds (Series 1-20)

9/27/201110/28/2016

1,330,732

1,130,594(320,000)

0.001
to 0.400

6Y

Government-guaranteed bonds issued by JFM(domestic) 4-year bonds (Series 5-10)

6/24/20132/26/2018

150,126

200,3360.001
to 0.249

4Y

Government-guaranteed bonds issued by JFM(international) Global U.S. dollar bonds (Series 1)

1/13/2011

83,17083,170[USD 1,000 million]

4

10Y

Non-guaranteed bonds issued by JFM(domestic) 2-year bonds (Series 3)

2/19/2016

25,000

-

0.03

2Y

Non-guaranteed bonds issued by JFM(domestic) 5-year bonds (Series 9-22)

4/19/201210/20/2017

190,000

160,000(45,000)

0.001
to 0.360

5Y

Non-guaranteed bonds issued by JFM(domestic) 7-year bonds (Series 1)

8/20/2012

20,00020,0000.446

7Y

Non-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-106)

6/18/20093/19/2018

2,755,000

2,970,000

0.06
to 1.648

10Y

Non-guaranteed bonds issued by JFM(domestic) 15-year bonds (Series 1-3)

1/31/20131/22/2014

50,00050,0001.161
to 1.334

15Y

Non-guaranteed bonds issued by JFM(domestic) 20-year bonds (Series 1-65)

6/25/20091/26/2018

1,195,000

1,295,000

0.18
to 2.266

20Y

Non-guaranteed bonds issued by JFM(domestic) 30-year bonds (Series 1-5)

6/26/201410/20/2017

35,00055,0000.569
to 1.864

30Y

Non-guaranteed bonds issued by JFM (domestic)
FLIP bonds (Series F1-F6, F8-F20, F22-F29,F31,
F33-F37, F39, F41-F52, F54-F153, F155-F164,
F166-F169, F171-F210, F212-F243, F245-F401)

7/22/20092/27/2018

2,029,401

2,206,530(167,500)

0.001
to 2.334

2Y
to 40Y

Non-guaranteed bonds issued by JFM (domestic)
FLIP bonds (Floater, Series F53, F211, F244)

2/1/20117/25/2014

35,00035,000Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

Non-guaranteed bonds issued by JFM(international)(Series 15, 31, 33-35, 40-62)

3/1/20121/30/2018

1,211,337

1,257,266[USD 9,825 million][AUD 516 million][NZD 58 million][EUR 1,000 million](273,832)

Non-guaranteed bonds issued by JFM(international)(Floater, Series 29, 30, 32, 36, 38, 39)

5/22/20127/22/2013

74,46540,376[USD 330 million][AUD 100 million](20,146)

Floating
rate

5Y
to 7Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds
for local government officials (Series A1-A98)

7/31/20093/26/2018

2,330,000

2,480,000

0.069
to 1.53

10Y

JFM ANNUAL REPORT 2018 | 80

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series C1-C29)

11/24/20153/26/2018

134,000

248,500

0.19
to 1.154

20Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series D1-D24)

4/21/20163/26/2018

150,000

300,000

0.19
to 0.778

20Y

Bonds issued by JFM - Sub-total-

16,480,031

17,902,966(826,478)--

Government-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 10-year bonds (Series 1-8)

10/16/20085/25/2009

562,010562,285(422,500)

1.3
to 1.6

10Y

Non-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 10-year bonds (Series 1-4)

11/25/20085/28/2009

139,991

139,996(80,000)

1.59
to 1.77

10Y

Non-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 20-year bonds (Series 1, 2)

1/26/20094/30/2009

84,96484,9672.07
to 2.29

20Y

Non-guaranteed bonds issued by Japan Finance
Organization for Municipal Enterprises (domestic)
Private placements with pension funds for local
government officials (Series A1, A2)

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y

Bonds issued by Japan Finance Organization
for Municipal Enterprises - Sub-total-

906,967

907,249(502,500)--

Government-guaranteed bonds issued by thePredecessor (domestic) 10-year bonds (Series
874-886)

4/19/20076/19/2008

808,536

221,115(221,120)1.4
to 1.9

10Y

Government-guaranteed bonds issued by thePredecessor (domestic) 15-year bonds (Series 1-5)

6/22/20057/18/2007

184,793

184,815

1.6
to 2.2

15Y

Government-guaranteed bonds issued by thePredecessor (international) Euro-sterling bonds(Series 4), Global-yen bonds (Series 5), etc.

8/9/19996/25/2008

223,122103,366[GBP 150 million][USD 1,000 million](75,000)

1.9
to 5.75

10Y
to 20Y

Non-guaranteed bonds issued by the Predecessor(domestic) 10-year bonds (Series 27-30)

7/30/20076/16/2008

159,997

49,999(50,000)

1.77
to 2.02

10Y

Non-guaranteed bonds issued by the Predecessor(domestic) 20-year bonds (Series 1-25)

7/30/20026/16/2008

569,784

569,809

1.03
to 2.58

20Y

Non-guaranteed bonds issued by the Predecessor(domestic) 30-year bonds (Series 1-10)

1/29/20049/20/2006

189,891

189,897

2.39
to 2.95

30Y

Non-guaranteed bonds issued by the Predecessor(domestic) Floating rate bonds (Series 1)

10/31/2002

20,000-Floating
rate

15Y

Non-guaranteed bonds issued by thePredecessor (domestic) Bonds with scheduled
repayment (Series 1-3)

2/14/20036/9/2004

30,47028,300(2,170)1.39
to 2.01

28Y

Non-guaranteed bonds issued by thePredecessor (domestic) Private placements withpension funds for local government officials(Series Special No.1-24–No.1-31)

5/28/20077/31/2008

382,000

127,000(127,000)

1.59
to 2.03

10Y

Bonds issued by the Predecessor - Sub-total-

2,568,595

1,474,304(475,290)

-

-

Total

-

¥19,955,593¥20,284,520(1,804,268)--

JFM ANNUAL REPORT 2018 | 81

Appendix / JFM Data

10Y

Financial Section

0.069
to 0.511

JFM’s Role in
Local Government Finance

159,000

Management Structure

75,500Operations

11/24/20153/26/2018

Review and Plan

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for
local government officials (Series B1-B29)

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Financial Statements(Thousands of U.S. dollars)
Type of bondDate of
issue

Balance
as of 1
April 2016

Balance as of 31
March 2017

Couponrate (%)

Maturity

Government-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-106)

6/15/20093/14/2018$39,421,769$45,127,651

0.005
to 1.500

10Y

Government-guaranteed bonds issued by JFM(domestic) 8-year bonds (Series 1-7)

9/26/20132/24/2017

3,956,118

3,955,990

0.001
to 0.576

8Y

Government-guaranteed bonds issued by JFM(domestic) 6-year bonds (Series 1-20)

9/27/201110/28/2016

12,531,621

10,646,905(3,013,467)

0.001
to 0.400

6Y

Government-guaranteed bonds issued by JFM(domestic) 4-year bonds (Series 5-10)

6/24/20132/26/2018

1,413,755

1,886,583

0.001
to 0.249

4Y

Government-guaranteed bonds issued by JFM(international) Global U.S. dollar bonds (Series 1)

1/13/2011

783,219783,219[USD 1,000 million]

4

10Y

Non-guaranteed bonds issued by JFM(domestic) 2-year bonds (Series 3)

2/19/2016

235,427

-

0.03

2Y

Non-guaranteed bonds issued by JFM(domestic) 5-year bonds (Series 9-22)

4/19/201210/20/2017

1,789,246

1,506,733(423,769)

0.001
to 0.360

5Y

Non-guaranteed bonds issued by JFM(domestic) 7-year bonds (Series 1)

8/20/2012

188,342

188,342

0.446

7Y

Non-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-106)

6/18/20093/19/2018

25,944,063

27,968,735

0.06
to 1.648

10Y

Non-guaranteed bonds issued by JFM(domestic) 15-year bonds (Series 1-3)

1/31/20131/22/2014

470,854

470,854

1.161
to 1.334

15Y

Non-guaranteed bonds issued by JFM(domestic) 20-year bonds (Series 1-65)

6/25/20091/26/2018

11,253,414

12,195,122

0.18
to 2.266

20Y

Non-guaranteed bonds issued by JFM(domestic) 30-year bonds (Series 1-5)

6/26/201410/20/2017

329,598

517,9390.569
to 1.864

30Y

Non-guaranteed bonds issued by JFM (domestic)
FLIP bonds (Series F1-F6, F8-F20, F22-F29,F31,
F33-F37, F39, F41-F52, F54-F153, F155-F164,
F166-F169, F171-F210, F212-F243, F245-F401)

7/22/20092/27/2018

19,111,040

20,779,083(1,577,361)

0.001
to 2.334

2Y
to 40Y

Non-guaranteed bonds issued by JFM (domestic)
FLIP bonds (Floater, Series F53, F211, F244)

2/1/20117/25/2014

329,598

329,598

Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

Financial Section

Non-guaranteed bonds issued by JFM(international)(Series 15, 31, 33-35, 40-62)

3/1/20121/30/2018

11,407,264

11,839,779[USD 9,825 million][AUD 516 million][NZD 58 million][EUR 1,000 million](2,578,703)

Non-guaranteed bonds issued by JFM(international)(Floater, Series 29, 30, 32, 36, 38, 39)

5/22/20127/22/2013

701,243

380,231[USD 330 million][AUD 100 million](189,718)

Floating
rate

5Y
to 7Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds
for local government officials (Series A1-A98)

7/31/20093/26/2018

21,941,802

23,354,365

0.069
to 1.53

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series B1-B29)

11/24/20153/26/2018

710,990

1,497,316

0.069
to 0.511

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series C1-C29)

11/24/20153/26/2018

1,261,889

2,340,145

0.19
to 1.154

20Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series D1-D24)

4/21/20163/26/2018

1,412,562

2,825,1250.19
to 0.778

20Y

Bonds issued by JFM - Sub-total-

155,193,814

168,593,715(7,783,018)--

JFM ANNUAL REPORT 2018 | 82

1.3
to 1.6

10Y

Non-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 10-year bonds (Series 1-4)

11/25/20085/28/2009

1,318,314

1,318,360(753,367)

1.59
to 1.77

10Y

Non-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 20-year bonds (Series 1, 2)

1/26/20094/30/2009

800,120

800,148

2.07
to 2.29

20Y

Non-guaranteed bonds issued by Japan Finance
Organization for Municipal Enterprises (domestic)
Private placements with pension funds for local
government officials (Series A1, A2)

4/30/20095/26/2009

1,130,050

1,130,050

1.69
to 1.73

10Y

Bonds issued by Japan Finance Organization
for Municipal Enterprises - Sub-total-

8,540,985

8,543,646(4,732,084)--

Government-guaranteed bonds issued by thePredecessor (domestic) 10-year bonds (Series
874-886)

4/19/20076/19/2008

7,614,054

2,082,262(2,082,306)

1.4
to 1.9

10Y

Government-guaranteed bonds issued by thePredecessor (domestic) 15-year bonds (Series 1-5)

6/22/20057/18/2007

1,740,217

1,740,427

1.6
to 2.2

15Y

Government-guaranteed bonds issued by thePredecessor (international) Euro-sterling bonds(Series 4), Global-yen bonds (Series 5), etc.

8/9/19996/25/2008

2,101,159

973,408[GBP 150 million](706,281)

1.9
to 5.75

10Y
to 20Y

Non-guaranteed bonds issued by the Predecessor(domestic) 10-year bonds (Series 27-30)

7/30/20076/16/2008

1,506,706

470,853(470,854)

1.77
to 2.02

10Y

Non-guaranteed bonds issued by the Predecessor(domestic) 20-year bonds (Series 1-25)

7/30/20026/16/2008

5,365,711

5,365,944

1.03
to 2.58

20Y

Non-guaranteed bonds issued by the Predecessor(domestic) 30-year bonds (Series 1-10)

1/29/20049/20/2006

1,788,223

1,788,281

2.39
to 2.95

30Y

Non-guaranteed bonds issued by the Predecessor(domestic) Floating rate bonds (Series 1)

10/31/2002

188,342-

Floating
rate

15Y

Non-guaranteed bonds issued by thePredecessor (domestic) Bonds with scheduled
repayment (Series 1-3)

2/14/20036/9/2004

286,939

266,503(20,435)

1.39
to 2.01

28Y

Non-guaranteed bonds issued by thePredecessor (domestic) Private placements withpension funds for local government officials(Series Special No.1-24–No.1-31)

5/28/20077/31/2008

3,597,326

1,195,969(1,195,969)

1.59
to 2.03

10Y

Bonds issued by the Predecessor - Sub-total-

24,188,677

13,883,647(4,475,845)

-

-

Total

-

$187,923,476$191,021,008(16,990,947)--

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 83

Financial Section

Notes: 1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as generalcollateral for JFM bonds in the amount of 20,284,520 million yen (191,021,008 thousand U.S. dollars) as of
31 March 2018.
2. Amounts in square brackets under “Balance as of 31 March 2018” for “Government-guaranteed bonds
issued by JFM (international)—Global U.S. dollar bonds (Series 1),” “Non-guaranteed bonds issued by JFM(international)— (Series 15, 31, 33-35, 40-62),” “Non-guaranteed bonds issued by JFM (international)— (Floater,
Series 29, 30, 32, 36, 38, 39)” and “Government-guaranteed bonds issued by the Predecessor (international)—
Euro-sterling bonds (Series 4), Global-yen bonds (Series 5), etc.” are denominated in foreign currencies.
3. Amounts in parentheses under “Balance as of 31 March 2018” are to be repaid within one year.
4. Annual schedule of redemption within five years after the fiscal year-end:

JFM’s Role in
Local Government Finance

5,295,088(3,978,717)

Management Structure

5,292,501

Operations

10/16/20085/25/2009

Review and Plan

Government-guaranteed bonds issued by Japan
Finance Organization for Municipal Enterprises(domestic) 10-year bonds (Series 1-8)

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As of 31 March 2017
Within 1 year
Bonds

¥1,773,824(Millions of yen)
After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥1,804,268¥2,058,327¥1,951,753¥2,185,072

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥2,078,327¥2,069,865¥2,345,072¥2,094,780

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years$19,571,782$19,492,091$22,083,740$19,726,725

As of 31 March 2018
Within 1 year
Bonds

¥1,804,268(Millions of yen)(Thousands of U.S. dollars)Within 1 year
Bonds

$16,990,947

9. Borrowed Money
Borrowed money as of 31 March 2017 consisted of the following:(Millions of yen)Classification of borrowed money

Balance as of
1 April 2016

Balance as of
31 March 2017

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

Long-term borrowed money(repayment within 1 year)-¥25,000

0.114

9/19/2017¥120,500¥145,500

0.550

9/26/20182/27/2026¥120,500¥170,500-

Long-term borrowed money(excluding repayment within 1 year)
Total

-

-

Borrowed money as of 31 March 2018 consisted of the following:(Millions of yen)Classification of borrowed money

Balance as of
1 April 2017

Balance as of
31 March 2018

Averageinterest rate (%)

Repayment
date

Financial Section

Short-term borrowed money

-

-

-

Long-term borrowed money(repayment within 1 year)¥25,000¥80,000

0.456

9/26/20183/26/2019

Long-term borrowed money(excluding repayment within 1 year)

145,500

79,5000.541

3/9/20203/27/2028¥170,500¥159,500

-

Total

-

-

(Thousands of U.S. dollars)
Classification of borrowed money

Balance as of
1 April 2017

Balance as of
31 March 2018

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

Long-term borrowed money(repayment within 1 year)$235,427$753,367

0.456

9/26/20183/26/2019

Long-term borrowed money(excluding repayment within 1 year)

1,370,186

748,658

0.541

3/9/20203/27/2028$1,605,613$1,502,025

-

Total

JFM ANNUAL REPORT 2018 | 84--

Notes: 1. Average interest rates are calculated by dividing the total amount of interest paid by the total amount ofprincipal multiplied by repayment years.
2. Annual schedule of repayments within five years after the fiscal year-end:

As of 31 March 2017

Within 1 year
Borrowed money¥25,000

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥80,000¥10,000¥-¥-

Review and Plan

(Millions of yen)

As of 31 March 2017
(Millions of yen)

Borrowed money¥80,000

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥10,000¥-¥1,000¥-Operations

Within 1 year

(Thousands of U.S. dollars)Within 1 year
$753,367

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years$94,171$-$9,417$-

10. Reserves
Reserves as of 31 March 2017 consisted of the following:(Millions of yen)
Decrease during the year

Increaseduring the
year

¥52

¥55

¥52

¥-

¥55

Reserve for bonuses for directors andcorporate auditors

7

8

7

-

8

Reserve for retirement benefits

33

19

0

8

45

Reserve for retirement benefits for directors
and corporate auditors

9

10

-

1

17

Classification of reserve

Reserve for bonuses

Intended
purpose

Other(Millions of yen)
Decrease during the year

Balanceas of
31 March
2018

Increaseduring the
year

¥55

¥57

¥55

¥-

¥57

Reserve for bonuses for directors andcorporate auditors

8

8

8

-

8

Reserve for retirement benefits

45

12

2

8

47

Reserve for retirement benefits for directors
and corporate auditors

17

7

-

1

24

Classification of reserve

Reserve for bonuses

JFM ANNUAL REPORT 2018 | 85

Intended
purposeOther

Appendix / JFM Data

Balanceas of
1 April 2017

Financial Section

Reserves as of 31 March 2018 consisted of the following:

JFM’s Role in
Local Government Finance

Balanceas of
31 March
2017

Balanceas of
1 April 2016

Management Structure

Borrowed money

After 1 year
through 2 years

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Financial Statements(Thousands of U.S. dollars)
Decrease during the year

Balanceas of
31 March
2018

Balanceas of
1 April 2017

Increaseduring the
year

$519

$542

$519

$-

$542

Reserve for bonuses for directors andcorporate auditors

76

77

76

-

77

Reserve for retirement benefits

426

119

20

76

449

Reserve for retirement benefits for directors
and corporate auditors

169

72

-

14

227

Classification of reserve

Reserve for bonuses

Intended
purposeOther

11. Reserve for Interest Rate Volatility
Reserve for interest rate volatility as of 31 March 2017 consisted of the following:(Millions of yen)Classification of reserve

Balanceas of
1 April
2016

Reserve for interest rate volatility¥1,760,000¥220,000

Management account reserve forinterest rate volatility

1,638,462

139,658

Total¥3,398,462¥359,658

Increase during the year

Decrease during the year

AmountprovidedAmountwithdrawn¥220,000¥220,000¥-

Balanceas of
31 March
2017¥1,980,000

420,000¥220,000

1,358,120¥420,000¥220,000¥3,338,120

Reserve for interest rate volatility as of 31 March 2018 consisted of the following:(Millions of yen)Classification of reserve

Balanceas of
1 April2017

Reserve for interest rate volatility¥1,980,000¥220,000

Management account reserve forinterest rate volatility

1,358,120

132,332

Total¥3,338,120¥352,332

Increase during the year

Decrease during the year

AmountprovidedAmountwithdrawn¥220,000¥220,000¥-

Balanceas of
31 March
2018¥2,200,000

620,000¥220,000

870,453¥620,000¥220,000¥3,070,453

Financial Section(Thousands of U.S. dollars)
Increase during the year

Decrease during the year

Classification of reserve

Balanceas of
1 April2017

AmountprovidedAmountwithdrawn

Reserve for interest rate volatility$18,645,824$2,071,758

Management account reserve forinterest rate volatility

12,789,537

1,246,183

Total$31,435,361$3,317,941$2,071,758$2,071,758$-

Balanceas of
31 March
2018$20,717,582

5,838,591

2,071,758

8,197,129$5,838,591$2,071,758$28,914,711

Notes: The “decrease during the year” for the “management account reserve for interest rate volatility” in the amount of
620,000 million yen (5,838,591thousand U.S. dollars) partly consists of 400,000 million yen (3,766,833 thousand
U.S. dollars) of the payment to the national treasury in accordance with an ordinance pursuant to Article 14 of
the Supplementary Provisions of the Law for fiscal 2017 (Ordinance No. 1 of the Ministry of Internal Affairs andCommunications, and the Ministry of Finance, 2017).
JFM ANNUAL REPORT 2018 | 86

12. Fund for Lending Rate Reduction
Fund for lending rate reduction as of 31 March 2017 consisted of the following:(Millions of yen)Classification of fund

Total

Balanceas of
31 March
2017

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn¥920,287¥3,557¥-¥3,557¥-¥920,287¥920,287¥3,557¥-¥3,557¥-¥920,287

Others

Review and Plan

Basic fund for lending rate
reduction

Balanceas of
1 April2016

Fund for lending rate reduction as of 31 March 2018 consisted of the following:(Millions of yen)

Basic fund for lending rate
reduction

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn¥920,287¥4,011¥-¥4,011¥-¥920,287¥920,287¥4,011¥-¥4,011¥-¥920,287

OthersBalanceas of
31 March
2017(Thousands of U.S. dollars)

Classification of fund

Total

Balanceas of
31 March
2017

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn$8,666,424$37,778$-$37,778$-$8,666,424$8,666,424$37,778$-$37,778$-$8,666,424

Others

Notes: 1. The “amount of reserve” in the “increase during the year” for the “basic fund for lending rate reduction”
represents the payment of the amount stipulated in Article 46, Section 1 of the Law and received inaccordance with Article 46, Section 2 of the Law.
2. The “amount withdrawn” in the “decrease during the year” for the “basic fund for lending rate reduction”
represents the payment of the amount reduced in the fund for interest rate reduction pursuant to theprovisions of Article 46, Section 6 of the Law.

JFM’s Role in
Local Government Finance

Basic fund for lending rate
reduction

Balanceas of
1 April
2016

Management Structure

Total

Increase during the year

Balanceas of
1 April
2016

Operations

Classification of fundFinancial Section
Appendix / JFM Data

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Financial Statements

13. Reserve for Retirement Benefits
As of and for the year ended 31 March 2017
(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Corporate Pension Fund and offers lump-sum payments
upon retirement of employees and a defined contribution plan. The reserve for retirement benefits and pension
expenses are calculated using the simplified method.
(2) Defined benefit plan(a) Reconciliation of outstanding amounts of reserve for retirement benefits:
Reserve for retirement benefits at the beginning of the fiscal year: 33 million yen
19 million yen
Pension expenses:
Employee retirement benefits paid:
0 million yen
8 million yen
Contributions to the defined benefit plan:
45 million yen
Reserve for retirement benefits at the end of the fiscal year:(b) Retirement benefit obligation, plan assets, and reconciliation of retirement benefit asset and liability
Funded retirement benefit obligation:
298 million yen(288) million yen
Plan assets:
10 million yen
Balance:Unfunded retirement benefit obligation:
35 million yen
45 million yen
Net liability for retirement benefits in the balance sheet:
45 million yen
Reserve for retirement benefits at the end of the fiscal year:
Net liability for retirement benefits in the balance sheet:
45 million yen(c) Profit and loss associated with employee retirement benefits
Pension expenses calculated based on the simplified method:

19 million yen

As of and for the year ended 31 March 2018
(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Corporate Pension Fund and offers lump-sum payments
upon retirement of employees and a defined contribution plan. The reserve for retirement benefits and pension
expenses are calculated using the simplified method.
(2) Defined benefit plan(a) Reconciliation of outstanding amounts of reserve for retirement benefits:
Reserve for retirement benefits at the beginning of the fiscal year: 45 million yen(426 thousand U.S. dollars)
12 million yen(119 thousand U.S. dollars)
Pension expenses:
Employee retirement benefits paid:
2 million yen(20 thousand U.S. dollars)
Contributions to the defined benefit plan:
8 million yen(76 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
47 million yen(449 thousand U.S. dollars)

Financial Section(b) Retirement benefit obligation, plan assets, and reconciliation of retirement benefit asset and liability
Funded retirement benefit obligation:
190 million yen (1,790 thousand U.S. dollars)
Plan assets:(181) million yen ((1,712) thousand U.S. dollars)
8 million yen(78 thousand U.S. dollars)
Balance:Unfunded retirement benefit obligation:
39 million yen (371 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:47 million yen(449 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
47 million yen(449 thousand U.S. dollars)
47 million yen(449 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:(c) Profit and loss associated with employee retirement benefits
Pension expenses calculated based on the simplified method:

12 million yen(119 thousand U.S. dollars)

14. Net Income by Account(For the year ended 31 March 2017)
Net income of the general account was 27,878 million yen, while there was no net income of management
account.
(For the year ended 31 March 2017)
Net income of the general account was 26,111 million yen (245,895 thousand U.S. dollars), while there was no net
income of management account.

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15. Information by Account (Balance sheets)
Balance sheets of general account and management account as of 31 March 2017 were as follows:(Millions of yen)
Item

Management
account¥13,638,714¥10,081,307

OffsetTotal(Assets)
Loans¥23,720,021

Securities

166,000

166,000

Cash and bank deposits

861,226

861,226

Cash collateral paid for financial instruments

24,327

Other assets

4,064

24,327
6,551

10,616

Tangible fixed assets

2,602

2,602

Intangible fixed assets

1,473

1,473
671,876¥(671,876)

14,698,408

10,759,735(671,876)

10,654,660

9,300,933

24,786,267(Liabilities)
Bonds

19,955,593

Borrowed money

170,500

170,500

Cash collateral received for financial instruments

111,159

111,159

2,382

5,997

8,379

Reserve for bonuses

55

55

Reserve for bonuses for directors and corporate
auditors

8

8

Reserve for retirement benefits

45

45

Reserve for retirement benefits for directors andcorporate auditors

17

17

Fund for lending rate reduction
Basic fund for lending rate reduction

920,287920,287920,287920,287

671,876

Reserves under special laws

1,980,000

Reserve for interest rate volatility(671,876)
1,399,138

1,980,000

Management account reserve for interest rate
volatility
Reserve for interest rate reduction
Total liabilities

3,379,138

1,980,000

14,510,991

1,358,120

1,358,120

41,01741,017

10,706,069(671,876)

24,545,185

JFM’s Role in
Local Government FinanceDue to management accountManagement Structure

Other liabilities

Operations

Due from general accountTotal assets

Review and Plan

Generalaccount(Net Assets)
16,602

16,602

165,779

165,779

165,779

165,779

General account surplus reserve
Valuation, translation adjustments and others

5,035

5,035

Management account surplus reserve
Total net assets
Total liabilities and net assets

53,666

53,666

187,416

53,666

241,082¥14,698,408¥10,759,735¥(671,876)

Financial Section

CapitalRetained earnings¥24,786,267
Appendix / JFM Data

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Financial Statements

Balance sheets of general account and management account as of 31 March 2017 were as follows:(Millions of yen)
Item

Generalaccount

Management
account¥14,806,412¥8,961,827

OffsetTotal(Assets)
Loans¥23,768,240

Securities

170,000

170,000

Cash and bank deposits

747,767

747,767

Cash collateral paid for financial instruments

56,277

Other assets

4,029

56,277
5,753

9,783

Tangible fixed assets

2,549

2,549

Intangible fixed assets

1,211

1,211

Due from general accountTotal assets

658,396¥(658,396)

15,788,248

9,625,977(658,396)

11,621,637

8,662,882

24,755,829(Liabilities)
Bonds
Borrowed money

159,500

Cash collateral received for financial instruments

12,260

Other liabilities

2,267

20,284,520
159,500
12,260

4,425

6,692

Reserve for bonuses

57

57

Reserve for bonuses for directors and corporate
auditors

8

8

Reserve for retirement benefits

47

47

Reserve for retirement benefits for directors andcorporate auditors

24

24Fund for lending rate reduction
Basic fund for lending rate reduction

920,287920,287920,287920,287

Due to management account658,396

Reserves under special laws

2,200,000

Reserve for interest rate volatility(658,396)
905,003

3,105,003

2,200,000

2,200,000

Management account reserve for interest rate
volatility

870,453

870,453

Reserve for interest rate reduction

34,55034,550Total liabilities

15,574,486

9,572,311(658,396)

24,488,401(Net Assets)

Financial Section

Capital16,602

16,602Retained earnings

191,890

191,890

191,890

191,890

General account surplus reserve
Valuation, translation adjustments and others

5,268Management account surplus reserve
Total net assets
Total liabilities and net assets

5,268
53,666

53,666

213,761

53,666

267,427¥15,788,248¥9,625,977

JFM ANNUAL REPORT 2018 | 90¥(658,396)¥24,755,829

(Thousands of U.S. dollars)
Item

Generalaccount

Management
account$139,433,213$84,394,268

OffsetTotal(Assets)
Loans$223,827,481

1,600,904

1,600,904

Cash and bank deposits

7,041,792

7,041,792

Cash collateral paid for financial instruments

529,965

Other assets

37,943

Tangible fixed assets

24,009Intangible fixed assets

11,412529,965
54,186

11,412

Due from general accountTotal assets

92,12924,009$(6,200,173)

148,679,238

90,648,627(6,200,173)

109,441,925

81,579,083

233,127,692

Borrowed money

191,021,008

1,502,025

Cash collateral received for financial instruments

115,453

Other liabilities

21,3501,502,025
115,453
41,67663,026542

542

Reserve for bonuses for directors and corporate
auditors

77

77

Reserve for retirement benefits

449

449

Reserve for retirement benefits for directors andcorporate auditors

227

227

Basic fund for lending rate reduction

8,666,424

8,666,424

8,666,424

8,666,424

Due to management account

6,200,173

Reserves under special laws

20,717,582

20,717,582

Management account reserve for interest rate
volatility
Reserve for interest rate reduction
Total liabilities

29,240,072

20,717,582

146,666,227

8,197,129

8,197,129

325,361

325,361

90,143,249(6,200,173)

230,609,303(Net Assets)
CapitalRetained earnings
General account surplus reserve

156,343
1,807,051

1,807,051

1,807,051

49,61749,617

Management account surplus reserve
Total net assets
Total liabilities and net assets

505,378505,378

2,013,011

505,378

2,518,389$148,679,238$90,648,627$(6,200,173)$233,127,692

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Appendix / JFM Data

Notes: 1. General account and management accountIn accordance with the provisions of Article 13, Section 1 of the Supplementary Provisions of the Law,
management account is used to conduct administration, collection and other related operations of the assetsthat JFM inherited from the Predecessor (management of the assets of the Predecessor).
Management account is separated from the other account (general account) pursuant to the provisions ofArticle 13, Section 3 of the Supplementary Provisions of the Law.
2. General account surplus reserve and management account surplus reserve“Net income” of the general account is posted as “General account surplus reserve” in accordance withthe provisions of Article 39, Section 1 of the Law, while “Net income” of management account is posted
as “Management account surplus reserve” in accordance with the provisions of Article 13, Section 8 of the
Supplementary Provisions of the Law.

Financial Section

Valuation, translation adjustments and others

156,343
1,807,051

JFM’s Role in
Local Government FinanceReserve for interest rate volatility(6,200,173)
8,522,490

Management Structure

Reserve for bonuses

Fund for lending rate reduction

Operations

6,200,173(Liabilities)
Bonds

Review and Plan

Securities

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3. Due from general account and due to management account
These amounts represent funds lent between the general account and management account pursuant to theprovisions of Article 13, Section 4 of the Supplementary Provisions of the Law.

16. Information by Account (Statements of income)Statements of income of general account and management account from 1 April 2016 through 31 March 2017 wereas follows:(Millions of yen)
Item

General account Management accountIncomeInterest income¥137,984¥248,271

133,591

239,196

OffsetTotal¥(9,758)¥376,497
372,787

Fees and commissions

103

Other operating income

36

36

3,569

3,569

3,557

3,557

Other income
Contributions from fund for lending rate
reduction
Others10312Administrative fee for management account

12

683

Interest on due from general account

(683)
30

(30)

9,044

(9,044)

110,106

115,936(9,758)95,523

113,349

Fees and commissions

147

165

313

Other operating expenses

2,277

1,597

3,874

General and administrative expenses

3,082

141

Transfer from general account for fund for
lending rate reduction
Expenses
Interest expenses

Interest on due to management accountTransfer to management account for fund for
lending rate reduction
Ordinary income
Special gains
Transfer from management account

9,044(9,044)683(683)

27,878132,334-

160,213220,000

427,323(220,000)

427,323

Reversal of management account reserve forinterest rate volatility(220,000)
420,000

Reversal of reserve for interest rate reduction

559,658

7,323(220,000)

220,000

Financial Section

139,658

Transfer to general account

220,000

Payment to national treasury

200,000¥27,878

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559,658
220,000

Provision for management account reservefor interest rate volatility

Net income

420,000

7,323
220,000

Provision for reserve for interest rate volatility

3,223
(30)

220,000

Special losses

208,87230

Administrative fee for management account216,284-

139,658(220,000)
200,000-¥27,878

Statements of income of general account and management account from 1 April 2017 through 31 March 2018 wereas follows:(Millions of yen)
Item
Interest income¥137,907¥218,401

133,064

210,240

Fees and commissions

98

Other operating income

46

Other income
Contributions from fund for lending rate
reduction
OthersAdministrative fee for management account

4,024

OffsetTotal¥(8,832)

343,305
98
46

1

4,026

4,011
12

4,011
1

673

14
(673)

24

(24)

8,134

(8,134)

111,795

92,536(8,832)

98,47589,495

Fees and commissions

155

144

300

Other operating expenses

1,885

2,048

3,934

General and administrative expenses

3,119

175

3,295

Transfer from general account for fund for
lending rate reduction
Expenses
Interest expenses

Transfer to management account for fund for
lending rate reduction

187,970

24

(24)

8,134

(8,134)

Administrative fee for management account

673

(673)

Ordinary income

26,111

125,864-

151,976

Special gains

220,000

626,467(220,000)

626,467

Transfer from management account

220,000(220,000)
620,000

620,000

Reversal of reserve for interest rate reduction

6,467

6,467

Provision for reserve for interest rate volatility

220,000

752,332

132,332

Transfer to general account

220,000

Payment to national treasury

400,000¥-

132,332(220,000)
400,000¥-¥26,111

Financial Section¥26,111752,332
220,000

Provision for management account reservefor interest rate volatility

Net income(220,000)

220,000

JFM’s Role in
Local Government Finance

Reversal of management account reserve forinterest rate volatility
Special losses

Management StructureInterest on due to management account

195,499

Operations

Interest on due from general account¥347,476

Review and Plan

IncomeGeneral account Management accountAppendix / JFM Data

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Financial Statements(Thousands of U.S. dollars)
Item

General account Management accountIncomeInterest income$1,298,684$2,056,705

1,253,083

1,979,851

Fees and commissions

927

Other operating income

435

Other income

37,899Contributions from fund for lending rate
reduction

OffsetTotal$(83,176)

3,232,934
927
435

18

37,917

37,778Others121

Administrative fee for management account37,77818

6,340Interest on due from general account$3,272,213

139(6,340)

229

(229)

76,607(76,607)

1,052,789

871,426(83,176)

927,349

842,783

Fees and commissions

1,469

1,360

2,829

Other operating expenses

17,756

19,29137,047

General and administrative expenses

29,3791,652

Transfer from general account for fund for
lending rate reduction
Expenses
Interest expenses

Interest on due to management accountTransfer to management account for fund for
lending rate reduction
Ordinary income
Transfer from management account

31,031(229)

76,607(76,607)
6,340

Special gains

1,770,132229

Administrative fee for management account

1,841,039(6,340)245,895

1,185,279-

1,431,174

2,071,758

5,899,495(2,071,758)

5,899,495

2,071,758(2,071,758)

Reversal of management account reserve forinterest rate volatility

5,838,591

5,838,591

Reversal of reserve for interest rate reduction

60,90460,904

Special losses

2,071,758

Provision for reserve for interest rate volatility

7,084,774

1,246,183

Transfer to general account2,071,758

Payment to national treasury

3,766,833$245,895

Financial Section
JFM ANNUAL REPORT 2018 | 94

7,084,774
2,071,758

Provision for management account reservefor interest rate volatility

Net income(2,071,758)

2,071,758$-

1,246,183(2,071,758)
3,766,833$-$245,895

17. Fair Value of Marketable Securities
Marketable held-to-maturity securities as of 31 March 2017 consisted of the following:(Millions of yen)Book value¥166,000

Difference¥166,000

Unrealized gains Unrealized losses---

Marketable held-to-maturity securities as of 31 March 2018 consisted of the following:

Review and Plan

Negotiable certificatesof deposit

Fair value(Millions of yen)Book value¥170,000

Difference¥170,000

Unrealized gains Unrealized losses---(Thousands of U.S. dollars)Book value$1,600,904

Difference$1,600,904

Unrealized gains Unrealized losses-

Notes: 1. The balance sheet amount for negotiable certificates of deposit is the fair value.
2. Difference is the net amount of “unrealized gains” and “unrealized losses.”-

Management Structure

Negotiable certificatesof deposit

Fair value

Operations

Negotiable certificatesof deposit

Fair value

JFM’s Role in
Local Government Finance
Financial Section
Appendix / JFM Data

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Financial Statements

18. Information on Derivative Transactions

Financial Section(1) Types of derivative transactions
Derivative transactions entered into by JFM are interest rate swaps for interest rate related transactions, andcurrency swaps and foreign exchange forward contracts for currency related transactions.
(2) Policies and purposes of derivative transactions
JFM uses interest rate swaps, currency swaps and foreign exchange forward contracts as a means of hedging
exposure to interest rate and foreign exchange fluctuation risks, and does not enter into derivatives for speculative
purposes.
Interest rate swaps are used to hedge exposure to interest rate risk on funding activities. Currency swaps andforeign exchange forward contracts are used to hedge exposure to foreign exchange risk associated with issuanceof foreign currency-denominated bonds and foreign currency-denominated deposits.
Hedge accounting is applied to interest rate swaps, currency swaps and foreign exchange contracts.
(a) Hedge accounting method
Interest rate swaps used to hedge the risk of interest rate fluctuations that qualify for hedge accounting andmeet specific matching criteria are not measured at fair value, but the differential paid or received under theswap agreements is recognized and included in interest expense or income. If swap contracts or forward
contracts used to hedge the risk of foreign currency fluctuation qualify for deferral hedge accounting, the foreign
currency-denominated assets and liabilities are translated at the contracted rate.
(b) Hedging instruments and hedged items(ⅰ) Hedging instruments: Interest rate swaps
Hedged items: Bonds and long-term borrowed money(ⅱ) Hedging instruments: Currency swaps
Hedged items: Foreign currency-denominated bonds(ⅲ) Hedging instruments: Foreign exchange forward contracts
Hedged items: Foreign currency-denominated bank deposits(c) Hedging policy
JFM uses hedging instruments as a means of hedging exposure to interest rate risk and foreign exchange risk.
Hedged items are identified by each individual contract.
As a means of hedging foreign exchange fluctuation risks associated with the receipt of interest and principalof foreign currency-denominated bank deposits, a foreign exchange forward contract is entered into at the timeof each deposit by JFM.
(d) Assessment of hedge effectivenessJFM ensures hedging instruments and hedged items have the same major terms when entering into hedgetransactions to offset market fluctuation risks associated with bonds and long-term borrowed money.
Accordingly, JFM deems these to be highly effective and thus does not assess effectiveness. Moreover, aperiodic assessment of hedge effectiveness for interest rate swaps and currency swaps and forward contracts
that qualify for deferral hedge accounting is omitted when the exceptional accrual method is applied.
(3) Risks on derivative transactions
Major risks on derivative transactions are market risk and credit risk. Market risk is the risk of future revenue
fluctuations due to market value changes. Credit risk is the risk of losses incurred when counterparties are unable
to fulfill their contracts due to bankruptcy or other reasons.
As for derivative transactions used for hedging purposes, market risk is offset by the corresponding change inthe underlying hedged items.
JFM enters into ISDA Master Agreements and CSA with financial institutions, which are its derivative transactions
counterparties, to reduce credit risk. Moreover, JFM constantly monitors restructuring costs of the transactions andthe counterparties’ credit profiles, and deals with multiple counterparties.
(4) Risk management system for derivative transactions
Execution and management of derivative transactions are conducted by the Finance Department of JFM with theapproval of persons in charge in accordance with the operational guidelines which specify transaction authority
and limits on the transaction amount.
Additionally, the total amount of derivative transactions, the status of risks, the assessed fair value, and the credit
risk on counterparties are regularly reported to the Integrated Risk Management Committee.

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Independent Auditor’s Report

Review and Plan

Operations

Management Structure

JFM’s Role in
Local Government Finance

Financial Section

Appendix / JFM Data

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Review and Plan
Operations
Management Structure
JFM’s Role in
Local Government FinanceMembers of the Representative Board and theSupervisory Committee
Redemption of Loans in Fiscal 2017
Outstanding Loans by Business
Outstanding Loans by Borrower
Outstanding International Bonds

JFM Data
Organization History
Organization Chart
Directors and Corporate Auditors/Contact Information
JFM ANNUAL REPORT 2018 | 99

111
111
112
113

Appendix / JFM Data

Bond Issuance in Fiscal 2017

100
100
101
102
106
109

Financial Section

100

Appendix

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Members of the Representative Board and the Supervisory Committee
The Representative Board members of JFM as of 1 August 2018 are as follows:
Name

Title

BackgroundToshizo Ido

ChairmanGovernor, Hyogo prefecture

Masataka Matsuura

Deputy Chairman

Mayor, Matsue City, Shimane prefecture

Yasuomi Araki

Deputy Chairman

Mayor, Kashima Village, Kumamoto prefecture

Junko Obata

MemberProfessor, Sophia University Law School

Naohiko Jinno

MemberProfessor Emeritus, The University of Tokyo

Isao Sumihiro

MemberChairman of The Hiroshima Bank, Ltd.

The Supervisory Committee members of JFM as of 1 August 2018 are as follows:
Name

Title

Background

Takahiro Mitani

Chairman

Chaiman, Tanshi Association

Yutaka Suzuki

Deputy Chairman

Professor Emeritus, Aoyama Gakuin University

Tomoko Seiichi

MemberProfessor, Seinan Gakuin University

Yasuharu Yoneda

MemberProfessor Emeritus, Shinshu University

Hitomi Tamaoki

MemberChief Executive officer of Tsumugi Co., Ltd.

Masanori Kamizaki

MemberDirector, General Administration Department, Jiji Press, Ltd

Redemption of Loans in Fiscal 2017
Principal
Classification

Interest

Number ofloans

Amount(USD millions)

Number ofloans

Amount(USD millions)

438,356

15,717495,623

3,226

427

86

427

7

438,783

15,803496,050

3,233

General loans

299

53

20

0

Loans to local
government corporations

3

1

-

-

Subtotal

302

54

20

0

Redemption of loans with pre-consent or pre-approval

-

-

-

-

Redemption of short-term loans

-

-

-

-

439,085

15,856

496,070

3,233

General loans
Regular redemption ofLoans to local
long-term loans
government corporations
Subtotal

Prepayment oflong-term loans

Appendix / JFM Data

Total
Note: Totals may not add up due to rounding.

JFM ANNUAL REPORT 2018 | 100

Outstanding Loans by Business(as of 31 March 2018)
Loan Amount (USD millions)% of total

3,994

2,767

1.2

National Disaster Prevention

1,294

1,465

0.7

Educational Facilities Development

892

531

0.2

Social Welfare Facilities Development

1,154

946

0.4

General Waste Proposal

240

283

0.1

General Projects

686

678

0.3

Regional Revitalization

1,246

597

0.3

Disaster Prevention

1,863

1,469

0.7

Local Road Development*1

23,10815,613

7.0

Special Municipal Mergers

4,693

9,569

4.3

Disaster Management and Mitigation

7,323

6,956

3.1

Others

1,986

854

0.4

51,70345,901

20.5

Water Supply

53,74531,914

14.3

Transportation

956

10,208

4.6

4,082

9,512

4.2

122,899

71,621

32.0

2,281

1,786

0.8

887

757

0.3

1,004

472

0.2

Markets and Slaughterhouses

726

894

0.4

Tourism and Others

241

222

0.2

186,821

127,386

56.9

Temporary Financial Countermeasures Funding

6,767

50,173

22.4

Total

245,291

223,460

99.8

185

367

0.2

245,476

223,827

100.0

General Account-related
Loans

Subtotal

Hospitals and Elderly Care Services
Sewerage
Municipal Enterpriserelated Loans

Industrial Water Supply
Electricity and Gas
Port Facilities

Subtotal

Local Government Road Corporation, Toll Roads*2
Grand Total

Notes: 1. Includes the former development projects for local roads.
2. No loans will be extended to local government road corporations by JFM. The outstanding loans shown above was extended by thePredecessor.
3. Totals may not add up due to rounding.

JFM ANNUAL REPORT 2018 | 101

Appendix / JFM Data

Public Housing

Financial Section

1.9

JFM’s Role in
Local Government Finance

4,171Management Structure

3,224

Operations

Public Projects, etc.

Review and Plan

Number ofLoans Made

Business

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Appendix

Outstanding Loans by Borrower(as of 31 March 2018)
Cities and Special Wardsof TokyoPrefectures
BorrowerTowns and Villages

Number of Loan Amount Number of Loan Amount Number of Loan Amount
Loans Made (USD millions) Loans Made (USD millions) Loans Made (USD millions)

Hokkaido

286

4,346

5,174

6,575

8,017

1,906

Aomori

198

347

1,988

2,378

1,382

436

Iwate

243

537

2,690

2,388

755

294

Miyagi

354

1,245

4,615

3,914

2,594

486

Akita

203

206

4,622

2,457

1,096

113

Yamagata

224

764

2,720

1,592

1,900

334

Fukushima

425

793

3,570

2,397

3,008

520

Ibaraki

483

1,317

6,596

4,244

1,381

400

Tochigi

267

611

3,196

2,044

789

246

Gunma

262

396

3,441

1,842

1,788

336

Saitama

253

2,377

6,249

6,308

1,696

508

Chiba

399

997

5,079

6,548

853

241

Tokyo

118

1,285

2,107

2,915

176

51

Kanagawa

220

1,987

3,078

8,153

1,114

406

Niigata

268

501

8,156

4,490

952

186

Toyama

265

292

3,750

2,887

546

225

Ishikawa

162

306

2,780

1,920

1,237

418

Fukui

236

371

2,172

1,448

842

124

Yamanashi

150

377

2,926

1,075

1,024

143

Nagano

244

341

4,178

2,566

3,134

600

Gifu

217

1,513

4,301

2,022

1,256

355

Shizuoka

342

537

5,032

3,478

756

244

Aichi

259

2,209

5,193

6,101

865

233

Mie

405

1,426

4,013

2,885

1,061

267

Appendix / JFM Data
JFM ANNUAL REPORT 2018 | 102

Local Government Road
Corporations

Number of Loan Amount Number of Loan Amount
Loans Made (USD millions) Loans Made (USD millions)

Total
Number ofLoans Made

Loan Amount(USD millions)% of Total

13,778

13,100

5.9

110

136

-

-

3,678

3,297

1.5

226

180

-

-

3,914

3,399

1.5

129

74

-

-

7,692

5,718

2.6

8

2

-

-

5,929

2,778

1.2

159

65

-

1

5,003

2,757

1.2

193

195

3

1

7,199

3,906

1.7

261

237

1

-

8,722

6,198

2.8

12

31

7

2

4,271

2,934

1.3

212

277

-

-

5,703

2,850

1.3

315

179

7

2

8,520

9,373

4.2

403

395

5

11

6,739

8,192

3.7

31

163

-

-

2,432

4,415

2.0

64

582

-

-

4,476

11,127

5.0

161

140

-

-

9,537

5,317

2.4

145

134

8

1

4,714

3,539

1.6

27

32

-

-

4,206

2,677

1.2

71

33

-

-

3,321

1,975

0.9

156

58

-

-

4,256

1,653

0.7

178

144

6

2

7,740

3,653

1.6

11

11

-

-

5,785

3,900

1.7

75

89

7

3

6,212

4,351

1.9

92

34

40

181

6,449

8,759

3.9

32

50

-

-

5,511

4,627

2.1

Financial Section-

JFM’s Role in
Local Government Finance-Management Structure

272

Operations

301

Review and Plan

Local Government
Associations

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 103

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Appendix

Cities and Special Wardsof TokyoPrefectures
BorrowerTowns and Villages

Number of Loan Amount Number of Loan Amount Number of Loan Amount
Loans Made (USD millions) Loans Made (USD millions) Loans Made (USD millions)

Shiga

195

731

4,214

2,229

587

135

Kyoto

196

341

3,571

4,567

1,072

273

Osaka

110

1,507

5,608

13,502

936

332

Hyogo

325

4,112

7,853

9,118

2,045

814

Nara

277

1,062

2,371

1,758

1,921

571

Wakayama

107

451

1,670

2,029

1,419

538

Tottori

330

741

1,268

1,010

1,811

435

Shimane

279

944

2,601

1,967

296

78

Okayama

277

935

4,566

3,435

1,262

275

Hiroshima

426

1,746

4,292

4,527

887

275

Yamaguchi

421

524

4,243

2,580

600

116

Tokushima

189

440

1,388

1,131

804

262

Kagawa

228

237

2,077

1,160

864

230

Ehime

91

223

2,254

1,879

608

229

Kochi

146

885

1,573

1,307

730

228

Fukuoka

97

1,279

4,861

8,457

2,181

986

Saga

61

342

1,600

1,522

637

284

Nagasaki

145

549

2,728

2,602

681

177

Kumamoto

155

583

2,701

1,927

1,583

443

Oita

99

225

2,215

1,359

181

64

Miyazaki

150

677

2,010

1,409

714

182

Kagoshima

177

1,312

2,289

1,605

810

239

Okinawa

235

966

1,528

1,488

862

235

11,19945,892

167,107

155,195

61,713

16,471

Total

Note: Totals may not add up due to rounding.

Appendix / JFM Data
JFM ANNUAL REPORT 2018 | 104

Local Government
Associations

Local Government Road
Corporations

Number of Loan Amount Number of Loan Amount
Loans Made (USD millions) Loans Made (USD millions)

Total
Number ofLoans Made

Loan Amount(USD millions)% of Total

3,162

1.4

26

57

8

4

4,873

5,241

2.3

291

685

14

28

6,959

16,054

7.2

440

529

28

15

10,691

14,589

6.5

31

56

-

-

4,600

3,447

1.5

89

78

-

-

3,285

3,096

1.4

32

26

-

-

3,441

2,212

1.0

74

36

-

-

3,250

3,026

1.4

111

168

-

-

6,216

4,812

2.2

13

16

16

47

5,634

6,611

3.0

111

71

-

-

5,375

3,290

1.5

3

-

-

-

2,384

1,834

0.8

21

50

-

-

3,190

1,677

0.7

16

10

-

-

2,969

2,341

1.0

10

90

-

-

2,459

2,509

1.1

269

227

25

68

7,433

11,016

4.9

100

105

-

-

2,398

2,253

1.0

15

32

6

2

3,575

3,362

1.5

38

25

4

-

4,481

2,978

1.3

-

-

-

-

2,495

1,649

0.7

12

9

-

-

2,886

2,276

1.0

19

26

-

-

3,295

3,181

1.4

54

28

-

-

2,679

2,717

1.2

5,272

5,902

185

368

245,476

223,828

100.0

Financial Section

5,121

JFM’s Role in
Local Government Finance-Management Structure-

Operations

67

Review and Plan

125

Appendix / JFM Data

JFM ANNUAL REPORT 2018 | 105

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Appendix

Bond Issuance in Fiscal 2017
1. JFM bonds(1) International bonds
SeriesNumberTenor(yr)FormatCurrency

Issue Size(in millions)

Coupon(%)

Issue Price(%)

Issue Date

Maturity Date

57

5

Global

USD

1,000

2.625

99.82320 Apr 201720 Apr 2022

58

10

Euro

AUD

22

3.418

100.000

26 Jun 201721 Jun 2027

59

3

Global

USD

1,000

2.000

99.7408 Sep 2017

8 Sep 2020

60

3

Euro

NZD

58

2.270

99.98020 Nov 201719 Nov 2020

61

5

Euro

USD

44

2.570

99.99030 Jan 201830 Jan 2023

62

5

Euro

AUD

28

2.760

99.99030 Jan 201830 Jan 2023

(2) Domestic public offerings
Issue Size

SeriesNumber

Tenor(yr)(JPY billions)(USD millions)

95

10

20

188

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

0.200

100

20 Apr 201728 Apr 2027

96

10

20

188

0.205

100

23 May 201728 May 2027

97

10

20

188

0.205

100

20 Jun 201728 Jun 2027

98

10

20

188

0.250

100

21 Jul 201728 Jul 2027

Appendix / JFM Data

99

10

20

188

0.225

100

18 Aug 201727 Aug 2027

100

10

20

188

0.165

100

22 Sep 201728 Sep 2027

101

10

15

141

0.235

100

20 Oct 201728 Oct 2027

102

10

20

188

0.200

100

17 Nov 201726 Nov 2027

103

10

15

141

0.220

100

21 Dec 201728 Dec 2027

104

10

15

141

0.255

100

26 Jan 201828 Jan 2028

105

10

15

141

0.250

100

20 Feb 201828 Feb 2028

106

10

15

141

0.215

100

19 Mar 2018

28 Mar 2028

59

20

15

141

0.669

100

20 Apr 201728 Apr 2037

60

20

20

188

0.616

100

20 Jun 201726 Jun 2037

61

20

15

141

0.673

100

21 Jul 201728 Jul 2037

62

20

20

188

0.592

100

22 Sep 201728 Sep 2037

63

20

10

94

0.616

100

20 Oct 201728 Oct 2037

64

20

10

94

0.616

100

21 Dec 201728 Dec 2037

65

20

10

94

0.635

100

26 Jan 201828 Jan 2038

21

5

20

188

0.010

100

20 Apr 201728 Apr 2022

22

5

10

94

0.020

100

20 Oct 201728 Oct 2022

4

30

10

94

0.946

100

20 Apr 201726 Apr 2047

5

30

10

94

0.973

100

20 Oct 201728 Oct 2047

F355

6

3

28

0.020

100

26 Apr 201728 Nov 2022

F356

7

10

94

0.040

100

26 Apr 201726 Apr 2024

F357

12

6

57

0.230

100

26 Apr 201719 Mar 2029

F358

13

3

28

0.285

100

26 Apr 201726 Apr 2030

F359

19

3

28

0.575

100

26 Apr 201719 Sep 2036

F360

21

3

28

0.623

100

26 Apr 201719 Mar 2038

JFM ANNUAL REPORT 2018 | 106

Issue Size

Tenor
(yr)

(JPY billions)(USD millions)

F361

5

6

0.010

100

27 Apr 201720 Jun 2022

F362

6

3

28

0.020

100

27 Apr 201718 Nov 2022

F363
F364

6

3

28

0.020

100

27 Apr 201724 Nov 2022

6

3

28

0.020

100

27 Apr 201725 Nov 2022

F365

6

3

28

0.020

100

27 Apr 201729 Nov 2022

F366

6

3

28

0.020

100

27 Apr 201728 Mar 2023

F367

6

8

75

0.020

100

27 Apr 201728 Apr 2023

F368

12

3

28

0.252

100

27 Apr 201727 Apr 2029

F369

15

3

28

0.408

100

27 Apr 201723 Sep 2032

F370

3

3

28

0.005

100

31 May 201730 Nov 2020

F371

6

3

28

0.050

100

27 Jul 201715 Feb 2023

F372

6

3

28

0.050

100

27 Jul 201717 Feb 2023

F373

6

3

28

0.050

100

27 Jul 201723 Feb 2023

F374

8

3

28

0.101

100

27 Jul 201730 May 2025

F375

9

10

94

0.195

100

27 Jul 201719 Jun 2026

F376

11

3

28

0.218

100

31 Jul 201725 Feb 2028

F377

13

3

28

0.340

100

27 Jul 201729 Jul 2030

F378

21

3

28

0.675

100

27 Jul 201726 Feb 2038

F379

21

3

28

0.671

100

27 Jul 201719 Mar 2038

F380

5

8

75

0.010

100

28 Jul 201728 Sep 2022

F381

6

3

28

0.050

100

28 Jul 201724 Feb 2023

F382

6

3

28

0.050

100

28 Jul 201727 Feb 2023

F383

6

3

28

0.050

100

28 Jul 201728 Feb 2023

F384

6

3

28

0.050

100

28 Jul 201730 May 2023

F385

11

3

28

0.222

100

31 Jul 201728 Feb 2028

F386

11

3

28

0.249

100

28 Jul 201728 Jul 2028

F387

15

3

28

0.414

100

28 Jul 201728 Jul 2032

F388

19

3

28

0.564

100

31 Jul 201731 Mar 2036

F389

28

20

188

0.874

100

30 Aug 201730 Aug 2045

F390

5

13

122

0.020

100

27 Oct 201727 Dec 2022

F391

6

3

28

0.037

100

27 Oct 201730 May 2023

F392

7

3

28

0.084

100

25 Oct 201720 May 2024

F393

9

10

94

0.204

100

25 Oct 201718 Sep 2026

F394

15

3

28

0.432

100

26 Oct 201728 Oct 2032

F395

19

3

28

0.615

100

26 Oct 201727 Mar 2037

F396

6

3

28

0.039

100

30 Oct 2017

26 May 2023

F397

6

3

28

0.041

100

27 Oct 201720 Jun 2023

F398

12

3

28

0.304

100

27 Oct 201719 Oct 2029

F399

5

13

122

0.040

100

31 Jan 2018

31 Mar 2023

F400

9

10

94

0.231

100

31 Jan 201829 Jan 2027

F401

2

20

188

0.001

100.002

27 Feb 201827 Feb 2020

Note 1. 3m¥L+10bp

JFM ANNUAL REPORT 2018 | 107

Appendix / JFM Data

57

Financial Section

Maturity Date

JFM’s Role in
Local Government Finance

Issue Date

Management Structure

Issue Price(%)

Operations

Coupon (%)

Review and Plan

SeriesNumber

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Appendix

2. Private placements with Pension Fund Association for Local Government Officials
SeriesNumberTenor(yr)Issue Size
(JPY billions)(USD millions)

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

A87

10

20

188

0.230

100

20 Apr 201720 Apr 2027

A88

10

20

188

0.235

100

23 May 2017

21 May 2027

A89

10

20

188

0.235

100

19 Jun 201718 Jun 2027

A90

10

10

94

0.280

100

21 Jul 201721 Jul 2027

A91

10

10

94

0.255

100

18 Aug 201718 Aug 2027

A92

10

10

94

0.195

100

22 Sep 201722 Sep 2027

A93

10

10

94

0.265

100

20 Oct 201720 Oct 2027

A94

10

10

94

0.230

100

21 Nov 201719 Nov 2027

A95

10

10

94

0.250

100

21 Dec 201721 Dec 2027

A96

10

10

94

0.285

100

26 Jan 201826 Jan 2028

A97

10

10

94

0.280

100

20 Feb 201818 Feb 2028

A98

10

10

94

0.245

100

26 Mar 201824 Mar 2028

B18

10

4

38

0.230

100

20 Apr 201720 Apr 2027

B19

10

3.5

33

0.235

100

23 May 2017

21 May 2027

B20

10

5

47

0.235

100

19 Jun 201718 Jun 2027

B21

10

8.5

80

0.280

100

21 Jul 201721 Jul 2027

B22

10

8.5

80

0.255

100

18 Aug 201718 Aug 2027

B23

10

5.5

52

0.195

100

22 Sep 201722 Sep 2027

B24

10

5.5

52

0.265

100

20 Oct 201720 Oct 2027

B25

10

8

75

0.230

100

21 Nov 201719 Nov 2027

B26

10

6

57

0.250

100

21 Dec 201721 Dec 2027

B27

10

13.5

127

0.285

100

26 Jan 201826 Jan 2028

B28

10

9

85

0.280

100

20 Feb 201818 Feb 2028

B29

10

6.5

61

0.245

100

26 Mar 201824 Mar 2028

C18

20

6.5

61

0.689

100

20 Apr 201720 Apr 2037

Appendix / JFM Data

C19

20

5.5

52

0.679

100

23 May 201722 May 2037

C20

20

7.5

71

0.636

100

19 Jun 201719 Jun 2037

C21

20

13

122

0.693

100

21 Jul 201721 Jul 2037

C22

20

14.5

137

0.646

100

18 Aug 201718 Aug 2037

C23

20

8

75

0.612

100

22 Sep 201718 Sep 2037

C24

20

7

66

0.636

100

20 Oct 201720 Oct 2037

C25

20

9.5

89

0.621

100

21 Nov 201720 Nov 2037

C26

20

7.5

71

0.636

100

21 Dec 201721 Dec 2037

C27

20

17.5

165

0.655

100

26 Jan 201826 Jan 2038

C28

20

10

94

0.640

100

20 Feb 201819 Feb 2038

C29

20

8

75

0.598

100

26 Mar 2018

26 Mar 2038

D13

20

20

188

0.689

100

20 Apr 201720 Apr 2037

D14

20

20

188

0.679

100

23 May 201722 May 2037

D15

20

20

188

0.636

100

19 Jun 201719 Jun 2037

D16

20

10

94

0.693

100

21 Jul 201721 Jul 2037

D17

20

10

94

0.646

100

18 Aug 201718 Aug 2037

D18

20

10

94

0.612

100

22 Sep 201718 Sep 2037

JFM ANNUAL REPORT 2018 | 108

Issue Size

Tenor
(yr)

(JPY billions)(USD millions)

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

D19

20

10

94

0.636

100

20 Oct 201720 Oct 2037

D20

20

10

94

0.621

100

21 Nov 201720 Nov 2037

D21
D22

20

10

94

0.636

100

21 Dec 201721 Dec 2037

20

10

94

0.655

100

26 Jan 201826 Jan 2038

D23

20

10

94

0.640

100

20 Feb 201819 Feb 2038

D24

20

10

94

0.598

100

26 Mar 2018

26 Mar 2038

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

Review and Plan

SeriesNumber

3. Government-guaranteed domestic bonds
Issue Size
(USD millions)

95

10

55

518

0.140

100.0017 Apr 201716 Apr 2027

96

10

50

471

0.110

100.0022 May 2017

21 May 2027

97

10

50

471

0.130

100.0014 Jun 201714 Jun 2027

98

10

50

471

0.160

100.0018 Jul 201716 Jul 2027

99

10

50

471

0.155

100.00

15 Aug 201713 Aug 2027

100

10

50

471

0.090

100.0019 Sep 201717 Sep 2027

101

10

50

471

0.170

100.0017 Oct 201715 Oct 2027

102

10

50

471

0.160

100.0015 Nov 201715 Nov 2027

103

10

50

471

0.155

100.0018 Dec 201717 Dec 2027

104

10

50

471

0.185

100.0023 Jan 201821 Jan 2028

105

10

50

471

0.195

100.0015 Feb 201815 Feb 2028

106

10

50

471

0.145

100.0014 Mar 2018

14 Mar 2028

8

4

60

565

0.001

100.2029 Jun 201729 Jun 2021

9

4

50

471

0.001

100.1627 Sep 201727 Sep 2021

10

4

50

471

0.001

100.1826 Feb 201825 Feb 2022

Outstanding International Bonds

JFM’s Role in
Local Government Finance(JPY billions)Management Structure

Tenor
(yr)

Operations

SeriesNumber

1. JFM bonds
SeriesNumberTenor(yr)FormatCurrency

15

7

Euro

USD

30

7

Euro

Issue Size(in millions)

CouponIssue Price(%)

Issue Date

Maturity Date20

2.400%

100

1 Mar 2012

1 Mar 2019

USD

130

3mL+70bp

100

6 Jun 2012

6 Jun 2019

5

Euro

USD

105

1.375%

99.95218 Apr 201318 Apr 2018

5

Euro

AUD

100

3mBBSW+83bp

100

21 May 2013

21 May 2018

38

5

Euro

USD

100

3mL+50bp

100

11 Jul 201311 Jul 2018

39

7

Euro

USD

100

3mL+65bp

100

22 Jul 201322 Jul 2020

40

5GlobalUSD

1,500

2.500%

99.855

12 Sep 201312 Sep 2018

41

5

Euro

AUD

110

4.200%

99.98

26 Nov 201326 Nov 201842

5

GlobalUSD

1,000

2.125%

99.892

6 Mar 2014

6 Mar 2019

43

10

Euro

AUD

85

5.092%

100

1 May 2014

1 May 2024

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Appendix / JFM Data

35
36

Financial Section(as of 31 March 2018)

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AppendixSeriesNumberTenor(yr)FormatCurrency

44

10

Euro

USD

45

7

Euro

EUR

47

10

Global

USD

1,000

48

10

Euro

AUD

70

49

7

Global

USD

1,000

50

5

Euro

USD

13

2.010%

Issue Size(in millions)

CouponIssue Price(%)

90

3.250%

99.055

1 May 2014

2 May 2024

1,000

0.875%

99.29322 Sep 2014

22 Sep 2021

2.375%

99.611

13 Feb 2015

13 Feb 2025

3.600%

100

18 Mar 201518 Mar 2025

2.000%

99.39121 Apr 2015

21 Apr 2022

99.99

21 Dec 201521 Dec 2020

Issue Date

Maturity Date

51

5

Euro

AUD

95

3.060%

99.99

21 Dec 201521 Dec 2020

52

5

GlobalUSD

500

2.125%

99.77412 Feb 2016

12 Feb 2021

53

5

GlobalUSD

1,500

2.125%

99.78

13 Apr 201613 Apr 2021

54

7

GlobalUSD

1,000

2.125%

99.29725 Oct 2016

25 Oct 2023

55

5

Euro

USD

53

2.390%

99.99

30 Jan 201728 Jan 2022

56

5

Euro

AUD

106

3.040%

99.99

30 Jan 201728 Jan 2022

57

5

GlobalUSD

1,000

2.625%

99.82320 Apr 201720 Apr 2022

58

10

Euro

AUD

22

3.418%

99.85

26 Jun 201721 Jun 2027

59

3

GlobalUSD

1,000

2.000%

99.74

8 Sep 2017

8 Sep 2020

60

3

Euro

NZD

58

2.270%

99.98

20 Nov 201719 Nov 2020

61

5

Euro

USD

44

2.570%

99.99

30 Jan 201830 Jan 2023

62

5

Euro

AUD

28

2.760%

99.99

30 Jan 201830 Jan 2023

Appendix / JFM Data
JFM ANNUAL REPORT 2018 | 110

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Organization History
History of JFM
The Japan Finance Organization for Municipal Enterprises (the Predecessor of JFM) was establishedpursuant to the Japan Finance Organization for Municipal Enterprises Law on 1 August 2008.
Succeeded the assets and assumed the liabilities of the Predecessor and commenced operations on 1
October 2008.

2009

Reorganized as the Japan Finance Organization for Municipalities based on the partial amendment of
the Japan Finance Organization for Municipal Enterprises Law (1 June 2009).

2011

Created a new special lending rate programme by integrating the existing special lending rate and theextra-special lending rate programmes.

2015

Introduced semi-annual principal and interest equal repayment method and semi-annual capital equal
repayment on JFM loans.

1966

Started a lending programme that applied special lending rates.

1967

Started receiving subsidies from the national treasury.

1970

Started a programme of contributions of the earnings from municipally operated racing and established
the Fund for Lending Rate Reduction.

1972

Started lending to local government road corporations and local government land development
corporations.

1978

Included the three types of special projects (in the general account-related business category) in thescope of lending.

1983

Started issuing foreign currency–denominated bonds.

1989

Established the Reserve for Losses on Refinancing of Bonds.

1990

Started a lending programme that applied extra-special lending rates.

1998

Based on the policy titled “Regarding Reorganization and Rationalization of Special Public Institutions,”
which was approved by the Cabinet on 24 September 1997, one part-time senior executive director wasadded; the Japan Finance Corporation for Municipal Enterprises Management Council was established;
and JFM addressed the phased abolition of subsidies from the national treasury over a three-year
period.

2001

Subsidies from the national treasury were abolished and the Reserve for Interest Rate Reduction wasestablished.
Started offering borrowers two interest rate options: fixed rates or adjustable rates.
Established the prepayment with penalty system. Started issuing FILP agency bonds.
The Special Public Institutions Reform Basic Law was passed, and the Reorganizations andRationalization Plan for Special Public Institutions was approved by the Cabinet.

2002

The policy titled the “Reform of the Four Highway-Related Public Corporations, International Hub
Airports and Policy-Based Finance Institutions” was approved by the Cabinet.

2005

The “Priority Policy for Administrative Reform,” which included the proposal for abolition of thePredecessor in fiscal 2008, a new structure utilizing capital markets, and transitional measures toprepare for the abolition, was approved by the Cabinet.

2006

The Administrative Reform Promotion Law was passed.
The Headquarters for the Promotion of the Reform of Policy-Based Finance and the Cabinet
Headquarters for the Promotion of Administrative Reform (HQPAR) set forth the plan titled “System
Design Regarding the Reform of Policy-Based Finance.
The six associations of local governments submitted the “Local governments’ draft proposal for
designing a new system after the abolition of the Predecessor.”

2007

The Japan Finance Organization for Municipal Enterprises Law was passed. The Act on Assurance ofSound Financial Status of Municipalities was passed.
Implemented prepayment without penalty and other measures in accordance with the national
government’s policy on reducing local governments’ debt service burden. The programme ended infiscal 2008.

2008

Dissolved based on the Japan Finance Organization for Municipal Enterprises Law (1 October 2008).

JFM ANNUAL REPORT 2018 | 111

Appendix / JFM Data

Started making loans entrusted by Agriculture, Forestry and Fisheries Finance Corporation.

Financial Section

1960

JFM’s Role in
Local Government Finance

Established pursuant to the Japan Finance Corporation for Municipal Enterprises Law (1 June 1957).

Management Structure

FY1957

Operations

History of the Predecessor

Review and Plan

FY2008

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Organization Chart
As of 1 April 2018
Personnel and Secretariat … Secretariat, personnel, human resources
development
Corporate Planning…

Corporate planning, budget control, mattersrelated to the Representative Board and theSupervisory Committee, ALM Planning, public
relations, communication and coordination withother organizations

Risk Management…

Integrated risk management, ALM operations

General Affairs…

General affairs including compensation andbenefits and legal review

Accounting…

Budget, settlement of accounts, matters related
to contributions from municipally operated
racing, accounting, receipts and disbursements, external audit

Information Systems
Management…

Information systems management

Finance…

Fund-raising planning, fund-raising operations,
IR, Rating

Corporate Planning
Department

Representative
Board

President and CEO
Deputy President
Senior Executive
Directors

Administration
Department

Corporate
Auditors
Supervisory Committee

Finance Department

Funding Administration … Funding administration and management offund investment

Loan Department

Lending Management … Planning and control of lending operations,calculation and setting of lending rates, lending
operations (excluding operations performed by
Loan Administration)
Loan Administration…

Lending operations (excluding municipal
enterprises with the exception of public
housing) management of loan receivables,
collection of loan principal and interest,
entrusted loan operations, investigations ofregional financial conditions

Research Planning…

Research and planning to enhance the local
government support operations, research offinancial situation

Local Government
Support Department

Financial Activities Support … Financial advisory services to local governments

Appendix / JFM Data

Credit Researchand Analysis……………………………………… Credit analysis, credit management

Internal Auditor……………………………………… Internal audit, internal control

JFM ANNUAL REPORT 2018 | 112

Directors and Corporate Auditors(As of 1 August 2018)

JFM’s Role in
Local Government Finance(Photo provided by The Tokyo Institute for Municipal Research)

Management Structure

Postal address: Shisei Kaikan, 1-3 Hibiya Koen,
Chiyoda-ku, Tokyo 100-0012, JapanTel:+81-3-3539-2697
Fax:+81-3-3539-2615
E-mail: funds-d@jfm.go.jp
Bloomberg ticker: JFM Govt

Operations

Contact Information

Review and Plan

President and CEO
Kinya Takino
Deputy President
Yutaka Endo
Senior Executive Directors Tsutomu Sakai, Eiichi Sugimura, Toru Nojima
Corporate Auditors
Koichi Kato, Masaaki Omori (part-time)

Financial Section
Appendix / JFM Data

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