Review
and
Plan

Review and Plan

1

Review of Operations for Fiscal 2016

Lending Operations

In fiscal 2016, JFM provided loans totaling USD 15.4 billion, which exceeded the initial plan by USD 0.3
billion, mainly as a result of actual lending surpassing plan in national disaster prevention and special
municipal mergers.
General account-related loans totaled USD 4.3 billion, or 28% of the total lending volume, mainly
represented by national disaster prevention and special municipal mergers. Loans for temporary
financial countermeasures funding* were USD 5.2 billion (34%), followed by municipal enterprise-relatedloans in the amount of USD 5.8 billion (38%), of which sewerage and water supply businesses were themain contributors.
Note: Represents local government funding to cover shortfalls in local government revenue sources pursuant to the provisions of the
Local Government Finance Law (Act No. 109 of 1948, as amended).

Lending Operations by Business in Fiscal 2016
Number ofLoans Made

Business

Loan Amount (USD in millions)% of total

General Account-related Loans
Public Projects, etc.

608

463

3.0

Public Housing

170

186

1.2

National Disaster Prevention

502

513

3.3

Educational Facilities Development

140

56

0.4

Social Welfare Facilities Development

135

98

0.6

General Waste Dispoal

78

78

0.5

General Projects

107

168

1.1

Regional Revitalization

177

79

0.5

Disaster Prevention

244

127

0.8

Local Road Development

375

328

2.1

486

922

6.0

Disaster Management and Mitigation

Special Municipal Mergers

1,283

1,285

8.3

Optimization of the Public Facilities

15

21

0.1

1

1

0.0

4,321

4,322

28.1

Subtotal
Municipal Enterprise–related Loans

1,187

1,366

8.9

Industrial Water Supply

Water Supply

123

118

0.8

Transportation

41

290

1.9

Electricity and Gas Supply

60

75

0.5

Port Facilities

26

26

0.2

Hospitals and Elderly Care Services

477

1,098

7.1

Markets and Slaughterhouses

62

139

0.9

1,946

2,710

17.6

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 2017 | 12

14

8

0.1

3,936

5,830

37.9

8

1

0.0

639

5,243

34.1

8,904

15,396100.0

FY2016 Loans Extended by Business Type

2% (USD 0.4 bn)

28％ (USD 4.3 bn)

Total

USD

Transportation

15.4 bn

2% (USD 0.3 bn)
Hospitals and Elderly
Care Services

7% (USD 1.1 bn)

Municipal Enterpriserelated Loans

Water Supply

9% (USD 1.4 bn)

38％ (USD 5.8 bn)

18% (USD 2.7 bn)

6% (USD 0.9 bn)
Public Projects, etc.

3% (USD 0.5 bn)
Disaster Management and
Mitigation

8% (USD 1.3 bn)
Others11% (USD 1.7 bn)
Temporary Financial Countermeasures Funding

34％ (USD 5.2 bn)

Operations

SewerageSpecial Municipal Mergers

Review and Plan

General Account-related Loans

Others

FY2016 Loans Extended by Borrower Type

2％ (USD 0.3 bn)
Total

USD

15.4 bn

Prefectures

24％ (USD 3.7 bn)

63％ (USD 9.7 bn)
Note: Totals may not add up due to rounding.

Government-designated Cities

11％ (USD 1.7 bn)

JFM’s Role in
Local Government Finance

Cities, Special
Wards of Tokyo,
Towns and Villages

Management Structure

Local Government Associations

Financial Section
Appendix / JFM Data

JFM Annual Report 2017 | 13

Review
and
Plan

Review and Plan

2

Review of Operations for Fiscal 2016

Funding Operations

1. Overview*1
In fiscal 2016, JFM raised a total of USD 18.4 billion including USD 12.6 billion in JFM bonds (nongovernment guaranteed), and USD 5.4 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 0.4 billion through long-term bank loans.
With regard to JFM bonds, a total of USD 8.8 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 6.2 billion was issued in the fiscal year. In order tocope with highly volatile market condition through the period, JFM increased 5-year, 20-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 1.5
billion) in April 2016, followed by the second issuance of 7-year bonds (USD 1 billion) in October 2016. In
addition to these successful public offerings, JFM issued a total of USD 133 million equivalent Uridashi
Bonds in two tranches (USD 53 million and AUD 106 million) targeting Japanese retail investors. Throughthese activities, the total volume of international bonds issued for fiscal 2016 amounted to USD 2.6
billion*2.
The private placements with the pension funds for local government officials were totaled USD 3.8
billion which consisted of 10-year and 20-year bonds.
As a result, JFM’s outstanding bonds were USD 178.2 billion, including the Predecessor’s bonds towhich JFM succeeded. Outstanding long-term bank loans totaled USD 1.5 billion as of 31 March 2017.
Notes: 1. Issued amounts are calculated based on issue prices.
2. Includes an offering of AUD denominated Uridashi 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 26.8 million) and
JPY 20 billion (USD 178.5 million), respectively.

Funding in Fiscal 2016
1. JFM Bonds (Non-government Guaranteed)(1) Domestic and Overseas Offerings
Type of Bonds

Plan (Initial)

Achieved

Domestic Public Offerings(2) Private Placements with Pension Funds for
Local Government Officials
Type of Bonds

Plan

Achieved

USD 5.4 bn

USD 6.2 bn

10-year

USD 1.7 bn

USD 1.7 bn

10-year

USD 2.1 bn

USD 2.1 bn

20-year

USD 2.1 bn

USD 2.1 bn

20-year

USD 1.1 bn

USD 1.2 bn

Total

USD 3.7 bn

USD 3.8 bn

5-year

USD 0.2 bn

USD 0.3 bn

30-year

USD 0.2 bn

USD 0.2 bn

Opportunistic Issuance

USD 1.8 bn

USD 2.4 bn

Overseas Offerings - MTN

USD 2.0 bn

USD 2.6 bn

Open Issuance*2

USD 1.2 bn

-

Total

USD 8.5 bn

USD 8.8 bn

Notes: 1. Figures in Plan (Initial) column show initially planned amounts. In November 2016, the above plan was revised to a total of
USD 8.7 billion.
2. 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 2017 | 14

3. Long-term Bank Loans

Type of Bonds

Plan

Achieved

Type of Bonds

Plan

Achieved

10-year

USD 2.1 bn

USD 2.1 bn

Long-term Bank Loans

USD 0.3 bn

USD 0.4 bn

8-year

USD 1.1 bn

USD 1.1 bn

6-year

USD 1.8 bn

USD 1.8 bn

4-year

USD 0.4 bn

USD 0.4 bn

Total

USD 5.4 bn

USD 5.4 bn

Operations

2. Issue Spreads

Issue Conditions of JFM 10-Year Domestic Bonds
(bps)
18

Spread over major local government bonds (bps, LHS)
Spread over JGB yield curve (bps, LHS)*
15.0 15.0

15.0 15.0 15.0 15.0 15.0 15.0

1412.5 12.5 12.5

0.592

9.0

0.6

0.519 0.529

0.529

100.465

0.8
0.7

13.5

13.5

13.0

(%)
0.9

9.5

9.5

9.5

0.491 0.491
9.5 0.505

8

0.5

0.484

0.4

0.385

0.3
0.240 0.230

2
0

0.190

0.190
2.5

Apr

0.120
0.5

0.5

0.5

0.5

May

Jun

Jul

Aug

0.090 0.090 0.080

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

FY20150.060
1.0 1.0
Jul

Aug

0.115
0.075 0.075
0.000
0.5 0.5 0.5
Sep

Oct

FY2016

Note: Spreads over the JGB curve are theoretical values calculated by JFM.
JFM Annual Report 2017 | 15

0.2

0.155

0.125

Nov

1.5
0.5
Dec

Jan

1.0

1.0

Feb

Mar

0.1
0.0

Appendix / JFM Data

6
4

Financial Section

Yield on JFM bonds (%, RHS)

16.0 16.0 16.0 16.0 16.0

16JFM’s Role in
Local Government FinanceNote: See pages 106-109 for the terms of issuances in fiscal 2016.

Management Structure

In the domestic market, the pricing method of JFM 10-year domestic bonds was changed from “Spread
Pricing” to “Coupon-based Pricing” on the back of the introduction of Quantitative and Qualitative
Monetary Easing with Negative Interest Rate by the Bank of Japan on January 2016, pushing 10-year
JGB yield into negative territory. The Coupon-based Pricing method has been adopted to the 10-yeardomestic bonds from April 2016 to July 2016 and the Spread Pricing has returned back after August
2016 with setting minimum interest rate. The premium of JFM 10-year domestic bonds over respective
JGB yield curve had tightened from 15.0 bps recorded in August 2016, and the premium recorded at
12.5 bps in October 2016 and then widened from January 2017 and peaked at 15.0 bps in February
2017.
5-year bonds, as substitutes for JGB, had captured solid investor demands while 20-year and 30year bonds were supported by strong demands looking for relatively higher yields under low JGB yield
market throughout the year. After the introduction of the negative interest rate policy, yield for JFM
domestic 10-year and 20-year bonds hit record low at 0.060% and 0.180% respectively in July 2016 and5-year bonds also hit record low at 0.001% in October 2016.
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.

12

Review and Plan

2. Government-guaranteed Domestic Bonds

Review
and
Plan

Review and Plan

3

Review of Operations for Fiscal 2016

Financial Review

1. Income Statement
In fiscal 2016, JFM’s income was USD 3.4 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 249
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 2017, JFM’s total assets amounted to USD 221.2 billion, up USD 1.3 billion from theprevious year. This mainly resulted from an increase in outstanding loans by USD 0.5 billion due to theamount of new loans for local governments exceeding that of loans repaid.
Total liabilities were up USD 1.1 billion to USD 219.1 billion. This increase primarily reflected anincrease of USD 1.4 billion in outstanding bonds as a result of the issue amount exceeding theredemption amount which was partially offset by a decrease of USD 0.6 billion in the reserves under
special laws reflecting USD 1.8 billion of the payment to the national treasury.
Total net assets were USD 2.2 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 2014 are on the next page.

JFM Annual Report 2017 | 16

1. Income Statement(USD Millions)
FY2014FY2015FY2016

YoY

Income

3,878

3,641

3,360

-281

Expenses

2,267

2,133

1,930

-203

Ordinary Income

1,611

1,508

1,430

-78

276

269

249

-21

Net Income

Operations(USD mm)
4,000

IncomeExpenses

3,000

Review and Plan

Financial Highlights

Ordinary Income

2,000
1,000

FY20142015

2016

2. Balance Sheet(USD Millions)
End of FY2014

End of FY2015

End of FY2016

YoY

218,869

219,932

221,207

1,275

Loans

209,171

211,196

211,691

495

Others

Bonds
Cash collateral received forfinancial instruments

9,698

8,736

9,516

780

217,321

218,003

219,056

1,053

174,412

176,704

178,095

1,392

1,626

1,156

992

-164

8,213

8,213

8,213

-

32,201

30,76130,157-604

13,744

15,707

17,671

1,963

17,952

14,62312,121-2,502

505

431

366

-65

Others

869

1,169

1,598

429

Total Net assets

1,548

1,929

2,152

222

Reserve for interest rate
volatility
Management account reservefor interest rate volatility
Reserve for interest rate
reduction(USD mm)220,500

Financial Section

Fund for lending rate reduction
Reserves under special laws

JFM’s Role in
Local Government FinanceTotal Assets

Total Liabilities

Management Structure0

Total Assets
Total Liabilities
Appendix / JFM Data

215,500

210,500

FY20142015

2016

Note: Totals may not add up due to rounding.

JFM Annual Report 2017 | 17

Review
and
Plan

Review and Plan

1

Management Plan for Fiscal 2016

Lending Operations

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 15.5 billion in fiscal 2017, USD 0.4
billion or 3.0% increase from fiscal 2016.

Lending Plan

Planned Amount

FY2017FY2016YoY

USD 15.5 bn

USD 15.1 bn

3.0%

JFM Funds in Local Government Borrowing Programme
FY2017FY2016YoY

USD 16.2 bn

USD 16.2 bn-0.2%

General Account-related Loans

USD 4.5 bn

USD 4.5 bn

0.3%

Municipal Enterprise-related Loans

USD 6.6 bn

USD 6.8 bn

-3.0%

-

USD 0.01 bn-100.0%

USD 5.1 bn

USD 5.0 bn

3.2%

JFM Funds

Refinancing Loans for Facilities Affected by Earthquake
Temporary Financial Countermeasures Funding

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 2017, JFM plans to issue USD 7.5
billion of JFM bonds through these methods.
In addition, private placements with pension funds for local government officials are projected toamount to USD 4.5 billion, an increase of USD 0.8 bn from the initially projected amount in fiscal 2016. In
addition to issuing JFM bonds, JFM plans to raise USD 0.1 billion through long-term bank loans.
As for government-guaranteed bonds, JFM plans to issue USD 6.8 billion, which includes USD 3.6
billion of scheduled payment to the national treasury during fiscal 2017 from a portion of JFM’s reserves
for interest rate volatility maintained in the management account.

JFM Annual Report 2017 | 18

1. JFM Bonds (Non-government Guaranteed)(1) Domestic and Overseas Offerings
Type of Bonds

FY2017 (Plan)

FY2016 (Achieved)

Domestic Public Offerings

USD 4.9 bn

USD 6.2 bn

10-year

USD 1.9 bn

USD 2.1 bn

20-year

USD 0.9 bn

USD 1.2 bn

5-year

USD 0.2 bn

USD 0.3 bn

USD 0.2 bn

USD 0.2 bn

USD 1.8 bn

USD 2.4 bn

USD 1.8 bn

USD 2.6 bn

Overseas Offerings - MTN
Open Issuance
Total

USD 0.8 bn-

USD 7.5 bn

USD 8.8 bn(2) Private Placements with Pension Funds for Local Government Officials
FY2017 (Plan)

FY2016 (Achieved)

10-yearType of Bonds

USD 2.1 bn

USD 1.7 bn

20-year

USD 2.4 bn

USD 2.1 bn

USD 4.5 bn

USD 3.8 bn

Total

Type of Bonds

FY2017 (Plan)

FY2016 (Achieved)

10-year

USD 5.4 bn

USD 2.1 bn

8-year

-USD 1.1 bn

6-year

-USD 1.8 bn

4-yearTotal

USD 1.4 bn

USD 0.4 bn

USD 6.8 bn

USD 5.4 bn

FY2017 (Plan)

FY2016 (Achieved)

USD 0.1 bn

USD 0.4 bn

JFM’s Role in
Local Government Finance

2. Government-guaranteed Domestic Bonds

Management Structure

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

30-yearOpportunistic Issuance

Review and Plan

Funding Plan for FY2017

3. Long-term Bank Loans
Long-term Bank Loans

3

Financial Section

Type of Loans

Scheduled Payment to the National Treasury

JFM Annual Report 2017 | 19

Appendix / JFM Data

In accordance with the Supplementary Provisions of the Law, a portion of JFM’s management accountreserve for interest rate volatility is being attributed to the Japanese national government over a periodof three years from fiscal 2015 through fiscal 2017, with the aim of transferring up to USD 5.4 billion overthis period. Furthermore, it has been also determined that an additional amount of up to USD 7.1 billion
from fiscal 2017 through fiscal 2019 shall be attributed to the government.
In fiscal 2016, USD 1.8 billion was transferred to the national treasury by JFM and, in fiscal 2017, USD
3.6 billion is scheduled to be transferred to the national treasury to secure financial resources of the local
allocation tax for regional revitalization.

Operations

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

OutlineOperations

As 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.

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.

JFM Annual Report 2017 | 22

Review and Plan

3. Lending Scopes and Maturities of Loans
JFM lends mainly to the following local government businesses with respective loan maturities.
Loans for Fiscal 2017
Fixed Lending Rate

Business Type

Educational andSocial Welfare
Facilities Projects

Unsubsidized
Projects

Grace Period
for Principal
Repayment

Within (Years)
20

Within (Years)
5

Within (Years)
20

Within (Years)
5

25

5

25

5

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

Water Supply

30

5

40

5

Industrial Water Supply

30

5

40

5

Transportation

30

5

40

5

Electricity Supply*2

30

5

30

5

Gas Supply

25

5

25

5

Port Facilities

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

Prefectures and GovernmentDesignated Cities

–

–

30

3

Cities, Towns and Villages

–

–

20

3

*2

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 FinanceTemporary Financial
Countermeasures Funding

Maturity

Educational Facilities Development*2*2

Municipal
Enterprise-related Loans

Grace Period
for Principal
Repayment

Management Structure

General Account-related Loans

Public Housing

Maturity

Operations

Public Projects, etc.*2

Adjustable Lending Rate*1

Appendix / JFM Data

JFM Annual Report 2017 | 23

Operations

2

Lending Operations

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 2016,
approximately 99% of outstanding JFM loans consisted of special interest rate loans.
The trends of JFM loan interest rates since April 2015 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
1.40%

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

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%

Jun

2015

Sep

Dec

Mar

Jun
2016

Sep

Dec

2017

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 2017 | 24

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.

Reduction using investment gains

0.20%

Reduction using JFM’s own funds

0.20%

Reduction
0.35%Standard
Lending Rate(funding costs)

0.15%

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

Operations

0.15%

Review and Plan

2. Lending Rate Reduction

Financial Section
Appendix / JFM Data

JFM Annual Report 2017 | 25

Operations

3

Lending Operations

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.

Operations

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 (Act No. 94 of 2007). This credit checkprocess may include an interview of the staff of prefectures, cities, towns, and villages.
2) 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

governments/municipal
enterprises applying
for loans•Check financial andoperational status•Conduct interviews

4

2 Verification at the timeof lending
Check of the loan
application documents•Verify the consent or approval
for the loan amount•Check the loan application
documents

3 Subsequent review
Onsitecredit review

Disbursementof loans•Check the status of loans
and projects•Check financial andoperational status

Trends in Lending Operations

1. Overview
JFM’s annual lending volume has dropped since fiscal 2013 due mainly to decrease in the budgetof Disaster management and mitigation and Temporary financial countermeasures funding while thevolume had risen from fiscal 2010 to fiscal 2013 as a result of the expansion of its lending scope tooverall general account-related loans, the introduction of the Great East Japan Earthquake-related loans,and so on.
In fiscal 2016, the lending volume amounted to USD 15.4 billion. At year-end, outstanding loans were
USD 211.7 billion.
Annual Lending Volume

Outstanding Loans(USD bn)
25(USD bn)
220

20
16.4 16.1 16.8
15

210

19.0
17.2 16.6

15.4

190

5

180

JFM Annual Report 2017 | 26

211.2 211.7

202.3
199.8
200 198.4

100
FY2010 2011 2012 2013 2014 2015 2016

209.2
206.0

0
FY2010 2011 2012 2013 2014 2015 2016

In fiscal 2016, loans for temporary financial countermeasures funding were USD 5.2 billion, accounting
for the largest share of lending, at 34% of the total. Ranked next were USD 2.7 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 15.4 billion. Cities,
Special Wards of Tokyo, Towns and Villages represented the highest share at 63% of the total, followedby prefectures at 24% and government-designated cities at 11%.

Total
FY (USD bn) Water Supply Hospitals
7
3
5
172012 16.8

Sewerage

General Account-related Loans
27

12014 17.2

722015 16.6

822016 15.4

9

2

4

16
5

33
18

6

18
7

38

2

28

35

2

28

34

3

28

18

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.

Local Government Associations

2％ (USD 0.3 bn)
Total

USD

15.4 bn

Prefectures

24％ (USD 3.7 bn)

63％ (USD 9.7 bn)
Note: Totals may not add up due to rounding.

Government-designated Cities

11％ (USD 1.7 bn)

Financial Section

Cities, Special
Wards of Tokyo,
Towns and Villages

JFM’s Role in
Local Government Finance

FY2016 Loans Extended by Borrower

Management Structure

7

Others437

Temporary Financial Countermeasures Funding
33
6

Transportation2013 19.0

Operations

Long-Term Loans Extended by Business

Review and Plan

2. Annual Lending Volume by Business and Borrower

Appendix / JFM Data

JFM Annual Report 2017 | 27

Operations

Lending Operations

3. Outstanding Loans by Business and Borrower

Operations

At the end of fiscal 2016, the outstanding loans were USD 211.7 billion, of which the seweragebusiness accounted for the largest share at 33%, followed by temporary financial countermeasuresfunding at 21% and water supply at 15%.
There was a total of 2,165 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 20% and governmentdesignated cities at 17%. Local government associations and corporations represented the remaining
3%.

Outstanding Loans by Business (as of 31 March 2017)
Public Housing

1% (USD 2.8 bn)

Industrial Water Supply

1% (USD 1.8 bn)

Others7% (USD 15.7 bn)

Disaster Management
and Mitigation

3% (USD 6.1 bn)

Total

USD

Sewerage

33% (USD 69.6 bn)

Hospitals

4% (USD 8.0 bn)

211.7 bn 4

Special Municipal Mergers% (USD 8.7 bn)

Transportation

5% (USD 10.1 bn)

Temporary Financial
Countermeasures Funding

21% (USD 44.2 bn)
Water Supply

Three Special Projects*1

15% (USD 31.1 bn)

6％ (USD 13.6 bn)*1 Development projects for local roads, rivers and other waterways, and high school building.

Outstanding Loans by Borrower (as of 31 March 2017)
Local Government Corporations

0.2% (USD 0.4 bn)[21]

Local Government Associations

3% (USD 5.7 bn)

Total

USD
[2,165]Prefectures

20% (USD 42.7 bn)
[47]

[361]

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

60% (USD 126.7 bn)[1716]*Figures in square brackets represent the number of borrowers.

Note: Totals may not add up due to rounding.

JFM Annual Report 2017 | 28

Government-designated
Cities17% (USD 36.2 bn)[20]

Lending Operations by Business

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.

Review and Plan

5

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

2.0

1,300

1,200

Loan Amount

1.0

1,100

0.5

1,000

0

FY2012 13

14

15

16

900

Transportation Business(USD bn)

0.5(Number of loans)

100

Loan Amount

0.4

Financial Section

At the end of fiscal 2015, the transportation projects managed by local governments totaled 87
projects and public transportation is used by approximately 4.2 billion people annually (11.63 million
people on an average daily basis).
In fiscal 2016, loans extended to the transportation business amounted to USD 0.3 billion.

JFM’s Role in
Local Government Finance

Shiramizu Raw Water Reservoir (Ishigaki City, Okinawa Prefecture)

Management Structure

Number of Loans

1.5

Operations

At the end of fiscal 2015, the water supply coverage was 97.9% of the population. The water supply
business (including small-scale water supply) operated by local governments totaled 2,081 projects andprovided about 18.1 billion cubic meters of water annually for approximately 124.4 million people.
In fiscal 2016, loans extended to the water supply business amounted to USD 1.4 billion.

80
Number of Loans

60

0.2

40

0.1

20

0

FY2012 13

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

JFM Annual Report 2017 | 29

14

15

16

0

Appendix / JFM Data

0.3

Operations

Lending Operations

Hospitals BusinessAt the end of fiscal 2015, hospital projects managed by local governments totaled 637 with 812
hospitals, which included 780 general hospitals and 32 mental hospitals.
In fiscal 2016, loans extended to the hospitals business (including those run by local independentadministrative institutions) totaled USD 1.1 billion.
(USD bn)

1.2(Number of loans)
Loan AmountOperations

1.0

600
500

Number of Loans

0.8

400

0.6

300

0.4

200

0.2

100

0

Uwajima City Hospital (Ehime Prefecture)

FY2012 13

14

15

16

0

Sewerage BusinessAt the end of fiscal 2015, the sewerage system covered 89.9% 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 15.1 billion cubic meters serving
areas with a population of nearly 104 million people.
In fiscal 2016, loans extended to the sewerage business totaled USD 2.7 billion.
(USD bn)(Number of loans)

4.0

2,200
Number of Loans
Loan Amount

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

JFM Annual Report 2017 | 30

3.0

2,100

2.0

2,000

1.0

1,900

0

FY2012 13

14

15

16

1,800

(USD bn)

8.0

(Number of loans)

1,000

Number of Loans
Loan Amount

6.0

800

4.0

600

2.0

400

0

FY2012 13

14

15

16

Operations

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.
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 iscal 2016, loans ex tended for tempor ar y f inancial
countermeasures funding amounted to USD 5.2 billion.

Review and Plan

Temporary Financial Countermeasures Funding

200

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

JFM Annual Report 2017 | 31

Operations

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 2017 | 32

Basic Funding Policy

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
to volatile market conditions and shift in investor demands on the back of growing uncertainty overmonetary policy of major central banks and, political and economic situation all over the world.

Management Structure

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.

Operations

1. Diversification of Funding Methods

Review and Plan2

2. Proactive Disclosure and Investor Relations

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.

Appendix / JFM Data

JFM Annual Report 2017 | 33

Operations

3

Funding Operations

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.
Operations•	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.
•	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, as well as some local government associations.
•	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 2017)

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 2017)

JFM Annual Report 2017 | 34

Trends in Funding Operations

Outstanding Bonds and Bank Loans

26.7
25
20

23.3

9.2

2.7
2.7

0.4
2.7
3.2

18.6
5.6

17.9

18.4

0.1
2.7

0.3

2.6

3.4

FY2012

2013

0

179.6

7.6

2014

100

91.9

83.0

118.7

0.4
3.8

50

2.6

6.2

6.2

2015

2016

48.4

0

FY2012

75.6

63.0

2013

2014

85.9

2015

96.6

2016

Government-guaranteed Domestic Bonds

Management AccountLong-term Bank Loans

General AccountJFM bonds (domestic bonds)
Non-government guaranteed bonds

JFM Annual Report 2017 | 35

Appendix / JFM Data

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

Financial Section

8.7

9.0

99.7

111.1
5.4

6.4

1.6

5

174.1 175.3 177.9

150
11.4

15
10

167.1

JFM’s Role in
Local Government Finance(USD bn)
200(USD bn)
30

Management Structure

Funding Volume

Operations

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.
Since JFM commenced its operations in fiscal 2008, JFM has issued JFM bonds. In recent years, theissuance of JFM bonds has been increasing, and this trend is expected to continue for the future. On theother hand, the issuance volume of government-guaranteed bonds has been gradually decreasing.
In fiscal 2016, JFM raised a total of USD 18.4 billion, nearly same volume from the previous year. Thiswas mainly result of a increase in the amount of JFM bonds issued during fiscal 2016, which was offset
by decrease in issuing government guaranteed bonds.
As of 31 March 2017, outstanding bonds were USD 178.1 billion. Outstanding long-term bank loans
totaled USD 1.5 billion. The total amount of outstanding bonds and long-term bank loans was USD
179.6 billion, which was comprised of USD 96.6 billion in the general account and USD 83.0 billion in
the management account. And this is the first time since JFM’s establishment on 2008 that the volume
of outstanding debt in the general account exceeds that of the management account as a result of thetrend the management account has been decreasing while the general account has been increasing.

Review and Plan

4

Management
Structure

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

Management StructureMembers: (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

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 2017 | 38

3. Audits by Corporate Auditors

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

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.

Management Structure

2. Supervisory Committee

Operations

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.

Review and Plan

1. Representative Board

4. Audits by External Accounting Auditors

JFM Annual Report 2017 | 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.

Management
Structure2

Corporate GovernanceInternal Control over Financial Reporting

Pursuant to the Ministerial Ordinance on Finance and Accounting of the Japan Finance Organization
for Municipalities, JFM has a system of internal control over financial reporting to ensure the reliabilityof its financial statements, and also maintains and implements this system appropriately. In accordancewith the Ordinance, JFM prepares the Internal Control Report, 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.
In the fiscal 2016 Internal Control Report, JFM viewed its internal controls on financial reporting
as effective. In the Auditors’ Report on Internal Controls, the accounting auditors gave their opinion(unqualified audit opinion pursuant to Ministerial Ordinance Article 32, Paragraph 5, Clause 1) that, in allmaterial respects, evaluation results of JFM’s internal controls over financial reporting were in conformity
with the standards of evaluation for internal controls over financial reporting generally accepted inJapan.

Management Structure

3Internal Audit

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 2017 | 40

Internal
Auditors

Management
Structure

General Account and Management AccountBegan operations on
1 October 2008

Reorganized on
1 June 2009

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
Succeeded to assets
and liabilities

Established on
1 June 1957

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

Abolished(and its capital returned to
the national government)

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 30.3 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 19.6 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.

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

General AccountFinancial Section

Predecessor

JFM’s Role in
Local Government FinanceSpecial governmental institution(wholly owned by the national government)

Management Structure

Japan Finance
Organization for
Municipal Enterprises

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 19.6 bn)
Management Account

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

FY2008-2017
JPY 220 bn (USD 2.0 bn)
transferred each year

Management Account Reservefor Interest Rate Volatility

JFM Annual Report 2017 | 41

Appendix / JFM Data

Reserve for Losseson the Refinancingof Bonds
JPY 3.4 tn(USD 30.3 bn)

Management
Structure

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 2017 | 42

Management
Structure

Risk Management

Overall Risk Management

Review and Plan

1

1. Risk Management System

Operations

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.

Risk Management System

President and CEO

Senior Executive
Director in Charge

ALM Committee

Risk Management
OfficeLoan
Department

Administration
Department

JFM’s Role in
Local Government Finance

Finance
Department

Management Structure

Integrated Risk
Management
Committee

2. Characteristics of JFM’s Risks

Appendix / JFM Data

JFM Annual Report 2017 | 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.

Management
Structure2

Risk Management

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 2017). 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 2017 | 44

Review and Plan

As of 31 March 2017, JFM’s total outstanding loans stood at USD 211.7 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 2017.

2) Credit risk associated with market transactions

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.

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

JFM Annual Report 2017 | 45

Management
Structure

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
Management Structure

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.

JFM Annual Report 2017 | 46

• JFM maintains reserves to prepare for interest rate risk associated with bond refinancing.
At the end of fiscal 2016, the total amount of the reserves stood at USD 30.2 billion, which
consisted of USD 17.7 billion in the general account and USD 12.5 billion in the management
account.

(2) Controlling funding duration – Utilizing its FLIP and Open Issuance scheme, JFM aims tocontrol the funding duration by carefully choosing maturities of bonds to be issued.
• At the end of fiscal 2016, the duration gap in the general account was 1.19 years, staying
within the management target.

Appendix / JFM Data

JFM Annual Report 2017 | 47

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 2015 through fiscal 2017, withthe aim of transferring up to USD 5.4 billion yen over this period. Furthermore, it has been
also determined that an additional amount of up to USD 7.1 billion yen from fiscal 2017
through fiscal 2019 shall be attributed to the government. The amount of transfer is to bewithin the amount which the Minister for Internal Affairs and Communications and the Ministerof Finance deem as an amount exceeding the requisite amount of reserve necessary for thesmooth operation of JFM’s management account at the time of transfer and in the future,
in light of JFM’s financial condition. JFM transferred USD 2.7 billion in fiscal 2015, USD
1.8 billion in fiscal 2016 while USD 3.6 billion is planned to be transferred to the nationaltreasury in fiscal 2017. Even after these transfers, JFM does not expect the transfers to havea material 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 12.5 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.

Management Structure(1) Lowering lending duration – Lending rates for loans for temporar y f inancial
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.

Operations• 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 2013, in which
the duration gap is maintained below two years. In order to implement the managementtarget, JFM takes the following measures:

Review and Plan

Managing interest rate risk associated with bond refinancing

Management
Structure

Risk Management

Maturity Ladder (JFM Loans, Bonds and Bank Loans)
General Account(as of 31 March 2017)

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

Management Account(as of 31 March 2017)

20,00015,00010,0005,000
USD mmManagement Structure• Lending duration 8.53 years • Funding duration 7.34 years • Duration gap 1.19 years (YoY change: -0.11 years)

0-5,000Interest 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

36

37

38

39

40

41

• Lending duration 5.87 years • Funding duration 4.44 years • Duration gap 1.43 years (YoY change: -0.24 years)
JFM as a whole• Lending duration 7.37 years • Funding duration 6.01 years • Duration gap 1.36 years (YoY change: -0.20 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 2017 | 48

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.

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

4. Operational Risk

Operations

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.

Review and Plan

3. Liquidity Risk

Financial Section

5. Contingency Measures

JFM Annual Report 2017 | 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.

Management
Structure1

Compliance

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 2017 | 50

Management
Structure

Disclosure

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.

2

Review and Plan

1

Materials for Disclosure
Operations

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

1. Materials for Disclosure Pursuant to Laws and Regulations• Budgets, business plans, funding plans, and medium-term plans on income and expenditures• Management plan
• Funding plan
• Brochure• Annual Report• JFM News magazine

Japan Finance Organization for Municipalities

Financial Section

JFM

JFM’s Role in
Local Government Finance2. Other Documents for DisclosureManagement 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)

Japan Finance Organization for Municipalities

REPORT 2016

Website (http://www.jfm.go.jp/en/)
Annual Report

JFM Annual Report 2017 | 51

Appendix / JFM Data

ANNUAL REPORT 2016

ANNUALh t t p: / / w w w . j f m . g o . j p/

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,
Towns and Villages

Number of Japanese Local Governments

JFM’s Role in
Local Government FinancePrefectures
Cities, special wards, etc.

47
1,741

Government-designated cities

20

Cities771

Special wards

23

Towns

744

Villages

183

Total

1,788
(as of 1 April 2017)

JFM Annual Report 2017 | 52

Local Government Finance Programme
Local Government Finance Programme(Initial Plan for FY2017)

Annual Expenditure(USD 785.4 bn)

Annual Revenue(USD 785.4 bn)

Local TaxUSD 371.9 bn

Local Allocation Tax
USD 149.8 bn
Local Government
Bonds and Loans
USD 82.2 bn

Management Structure- Social welfare- Education- Fire defense- Infrastructure, etc.

Operations

OthersUSD 181.5 bn
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 2017, local
government finance will total JPY 88.0 trillion (USD
785.4 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.

Review and Plan

2

Financial Section
Appendix / JFM Data

JFM Annual Report 2017 | 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.

JFM’s Role in
Local Government Finance4

Local Government Borrowings

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 2017).

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 2017 | 54

2) Issuance restriction

Operations

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 government

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

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:

6

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 Structure3) Supervision of financial soundness

Local Government Borrowing Programme
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’s budget making. The LGBP plays the following crucial
roles in terms of local government finance.

1) 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 2017 | 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.

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
FY2016FY2017
Share

Publicly Offered Bonds

USD 33 bn

USD 34 bn

33%

Other Private Sectors

USD 26 bn

USD 28 bn

27%

JFM

USD 16 bn

USD 16 bn

16%

National Government

USD 25 bn

USD 26 bn

25%

USD 100 bn

USD 104 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 2012, JFM funds have accounted for around 16% of the LGBP. JFM plays a major role inJapanese local government finance, making a substantial contribution to project implementation andfinancial management of local governments.

JFM’s Role in
Local Government Finance

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

(%)

180

18
16.1

160
140
120
100
80

15.9
122
30.3

39.6

60
40

15.6

15.8

16
14

116
28.7

38.0

109
26.5

35.7

100

104

25.9

28.1

32.9

34.1

25.3

25.6

12
10
8
6

Other Private Sectors
Publicly Offered Bonds
National Government
JFM
JFM Ratio

4

32.9

30.8

29.2

19.4

18.3

17.6

16.2

16.2

FY2013

2014

2015

2016

2017

20
0

16.1

2
0

Source: The Ministry of Internal Affairs and Communications

JFM Annual Report 2017 | 56

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

Financial Statements
Balance Sheets
Statements of Appropriation of Profit[General account/Management account]
Statements of Changes in Net Assets

60
62

Notes to Financial Statements

64
65

Independent Auditor’s Report98Statements of Cash Flows

Appendix / JFM Data

Statements of Income

58
58
59

Financial
SectionFinancial Statements

Balance Sheets(As of 31 March 2016 and 2017)
Item

Fiscal 2015
(31 March
2016)(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2016(31 March 2017)

Item

Fiscal 2015
(31 March
2016)

AmountFiscal 2016(31 March 2017)
AmountAssetsLiabilities

Loans (Note 3) ¥23,664,512 ¥23,720,021 $211,691,404

Bonds (Notes 7 and 8)

Securities(Note 17)

235,000

166,000

1,481,481

Borrowed money (Note 9)

120,500

170,500

1,521,642

Cash andbank deposits

711,611

861,226

7,686,092

Cash collateral received
for financial instruments

129,509111,159

992,049

Cash collateral
paid for financial
instruments

16,277

24,327217,108

Other liabilities

10,345

8,379

74,786

Other assets

11,55010,616

94,745Reserve for bonuses (Note 10)

52

55

492

Tangible fixed
assets (Note 6)

2,720

2,602

23,231

Reserve for bonuses
for directors and corporate
auditors (Note 10)

7

8

72

Intangible fixed
assets (Note 6)

1,700

1,473

13,146

Reserve for retirement
benefits (Notes 10 and 13)

33

45

404

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

9

17

160

Fund for lending rate
reduction

920,287920,287

8,213,187

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

8,213,187

Reserves under special laws

3,446,803

3,379,138

30,157,416

Reserve for interest rate
volatility (Note 11)

1,760,000

1,980,000

17,670,683

Management account reserve forinterest rate volatility (Note 11)

1,638,462

1,358,120

12,120,669

Reserve for interest rate reduction

48,34141,017366,064

24,427,184

24,545,185

219,055,646

Capital16,602

16,602

148,167

Retained earnings

137,900

165,779

1,479,511

General account surplus
reserve

137,900

165,779

1,479,511

Valuation, translation
adjustments and others

8,018

5,035

44,935

Management accountsurplus reserve

53,666

53,666478,948

Total net assets

216,187

241,082

2,151,561

Total liabilities¥19,799,634 ¥19,955,593 $178,095,438

Financial Section

Net Assets

Total assets¥24,643,371 ¥24,786,267 $221,207,207 Total liabilities and net assets ¥24,643,371 ¥24,786,267 $221,207,207

See notes to financial statements.

JFM Annual Report 2017 | 58

(For the years ended 31 March 2016 and 2017)
Item

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

Fiscal 2015
(1 April 2015 to
31 March 2016)

Fiscal 2016
(1 April 2016 to 31 March 2017)

AmountAmount372,787

3,326,978

Fees and commissions

108

103

927

Other operating income

0

36

327

3,005

3,569

31,855

2,993

3,557

31,747

12

12

108

239,039

216,284

1,930,248

230,505

208,872

1,864,100

Fees and commissions

324

313

2,795

Other operating expenses

4,405

3,874

34,582

General and administrative expenses

3,803

3,223

28,771

Ordinary income

168,933

160,213

1,429,839

Special gains

528,211427,323

3,813,686

Reversal of management account reserve forinterest rate volatility (Note 11)520,000

420,000

3,748,327

Reversal of reserve for interest rate reduction

8,211

7,323

65,359666,947

559,658

4,994,721

Provision for reserve for interest rate volatility (Note 11)

220,000

220,000

1,963,409

Provision for management account reserve forinterest rate volatility (Note 11)146,947

139,658

1,246,394

Payment to national treasury (Notes 4 and 11)

300,000

200,000

1,784,918¥30,197¥27,878$248,804

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

404,858

Interest income

JFM’s Role in
Local Government Finance$3,360,087

Management Structure¥376,497

Operations¥407,972

Review and Plan

Statements of Income

Appendix / JFM Data

JFM Annual Report 2017 | 59

Financial
SectionFinancial Statements

Statements of Appropriation of Profit [General account](For the year ended 31 March 2016)(Millions of yen)

1 Profit available for appropriation¥30,197

Net income¥30,197

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

30,19730,197

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(Thousands of U.S. dollars)

1 Profit available for appropriation$248,804

Net income$248,804

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

248,804

248,804

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 2017 | 60

(For the year ended 31 March 2016)(Millions of yen)

1 Profit available for appropriation¥-

Net income

Review and Plan

Statements of Appropriation of Profit [Management account]¥-

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve-

Operations

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--

Management Structure

Net income(Thousands of U.S. dollars)

1 Profit available for appropriation$$-

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve-

See notes to financial statements.

-

JFM’s Role in
Local Government Finance

Net income

Financial Section
Appendix / JFM Data

JFM Annual Report 2017 | 61

Financial
SectionFinancial Statements

Statements of Changes in Net Assets(For the year ended 31 March 2016)(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¥107,703¥107,703¥124,305¥(4,482)¥53,666¥173,489

Net income-

30,19730,19730,197--30,197

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

12,500-12,500-30,19730,19730,197

12,500-42,697¥16,602¥137,900¥137,900¥154,502¥8,018¥53,666¥216,187

CapitalBalance as of 1 April 2015
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March
2016

Financial Section
JFM Annual Report 2017 | 62

(For the year ended 31 March 2017)(Millions of yen)¥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

Balance as of 1 April 2016
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March2017(Thousands of U.S. dollars)$148,167$1,230,707$1,230,707$1,378,874$71,561$478,948$1,929,383

Net income-

248,804

248,804

248,804--

248,804

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

(26,626)-(26,626)-

248,804

248,804

248,804(26,626)-

222,178$148,167$1,479,511$1,479,511$1,627,678$44,935$478,948$2,151,561

CapitalBalance as of 1 April 2016
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March2017
See notes to financial statements.

JFM Annual Report 2017 | 63

Appendix / JFM Data

Total
net
assetsFinancial Section

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

JFM’s Role in
Local Government Finance(For the year ended 31 March 2017)Management Structure¥16,602

CapitalOperations

Total
net
assets

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Financial
SectionFinancial Statements

Statements of Cash Flows(For the years ended 31 March 2016 and 2017)
Item(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2015
(1 April 2015 to
31 March 2016)

Fiscal 2016
(1 April 2016 to 31 March 2017)

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/(decrease) in reserve for retirement
benefits
Increase/(decrease) 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¥30,197564(404,858)
230,5052¥27,878
619(372,787)
208,8722$248,804
5,528(3,326,978)1,864,100
21

0

0

2

(8)

11

102

(13)

8

78

(2,993)220,000(3,557)220,000(31,747)
1,963,409(73,052)(80,341)(717,015)(8,211)(226,882)
254,060
35,000405,693(229,067)(56,171)(7,323)(55,509)
153,549
50,000373,725(208,543)(29,336)(65,359)(495,397)
1,370,366
446,229
3,335,346(1,861,169)(261,814)

174,764

277,268

2,474,506

2,756,000(2,321,000)
(10)
(347)

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

5,224,453(4,608,657)(19)(1,858)434,642

68,789613,919(300,000)(200,000)(1,784,917)

2,993

3,557

31,747(297,006)(196,442)(1,753,170)

-

-

-

312,400

149,615

1,335,255

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

Financial Section

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

Ⅵ Cash and cash equivalents at beginning of year399,211711,6116,350,837

Ⅶ Cash and cash equivalents at end of year

¥711,611¥861,226$7,686,092

See notes to financial statements.

JFM Annual Report 2017 | 64

1. Basis of Presentation

Operations

Japan Finance Organization for Municipalities (hereinafter, “JFM”) has prepared financial statements in accordance with
the Japan Finance Organization for Municipalities Law (Law No. 64 of 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 2017, the final day of the fiscal year, which was¥112.05 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.

Review and Plan

Notes to Financial Statements

2. Summary of Significant Accounting Policies

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

JFM Annual Report 2017 | 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.

Financial
SectionFinancial 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
of 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 of 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 2017 | 66

Review and Plan

(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.

3. Loans

5. Financial Instruments

Appendix / JFM Data

JFM Annual Report 2017 | 67

Financial Section(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 andlong-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.

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 2016, 200,000 million yen (1,784,918 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 2016 (Ordinance No. 1 of the
Ministry of Internal Affairs and Communications, and the Ministry of Finance, 2016).
In fiscal 2017, 400 billion yen is scheduled to be 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 Ministry of Internal Affairs andCommunications, and the Ministry of Finance, 2017).

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 of 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).

Financial
SectionFinancial Statements

Financial Section(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.
• The 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” (Law No. 59 of 1981) or the “Financial Reconstruction Law” (Law
No. 132 of 1998) 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
rate 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,

JFM Annual Report 2017 | 68

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

JFM Annual Report 2017 | 69

Review and Planin 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, such as the “outlier
ratio,” to the ALM Committee and tracks the status of the interest rate risk.
The “outlier ratio” is calculated by dividing JFM’s “decline in economic value” as a result of hypotheticalinterest rate shocks by JFM’s net assets, including the reserve for interest rate volatility in the generalaccount and the fund for lending rate reduction. The “decline in economic value” is the largest possible
loss in net present market value of its loans and bonds and long-term borrowed money that JFM would
suffer following a hypothetical 200 basis point increase or decrease in market interest rates.
The outlier ratio is calculated based on the following conditions.
• Future cash flows
With respect to loans, future cash flows regarding such loans are calculated based on the type ofinterest rate of the loans. In addition, the advanced redemption in the future is not expected by JFM.
With respect to fixed-rate bonds and long-term borrowed money, future cash flows regarding such
fixed-rate bonds and long-term borrowed money are calculated based on the redemption schedule.
With respect to floating rate bonds hedged by interest rate swaps, that qualify for hedge accounting
and meet specific matching criteria, future cash flows corresponding to such floating rate bonds arecalculated in a manner similar to fixed-rate bonds.
• Indicative interest rate
For the assessment of loans, bonds and long-term borrowed money, the corresponding interest rate ofJapanese government bonds as of 31 March 2017 is used.
• Calculation of outlier ratio
Based on an assumption that risk variables, except for interest rate risk, are fixed as of 31 March
2017, the outlier ratio is calculated by dividing the change in fair value in the case where the indicativeinterest rate (government bonds) rises across-the-board by 200 basis points (2.00%) or the change
in fair value in the case such rate falls across-the-board by 200 basis points (2.00%), whichever isgreater, by net assets including the reserve for interest rate volatility and the fund for lending rate

Financial
SectionFinancial Statements

reduction.
JFM calculates the outlier ratio reflecting a rise of 200 basis points of the indicative interest rate as
JFM understands that the change in fair value in the case of rising interest rates would be greater thanthat in the case of falling interest rates.
JFM monitors the movement of the outlier ratio on a regular basis, and the calculation as of 31
March 2017 is as follows.
Information on the outlier ratio as of 31 March 2017 is as follows:(Millions of yen) (Thousands of U.S. dollars)
Outlier
ratio(a)=-(b)/(e)Generalaccount

22.5%[-2.6%]

Change in fair value in the case of 200 basis points rise in interest rates
Total(b)=(c)+(d)

Loans
(c)

Bonds and long-termborrowed money(d)

Net assets including
reserve for interest rate
volatility and the fund for
lending rate reduction (e)¥(694,839) $(6,201,152) ¥(2,222,001) $(19,380,442) ¥+1,527,162 $+13,629,290 ¥3,087,703 $27,556,475[+18,531] [+165,381][(57,156)][(510,094)][+75,687][+675,475] [+244,894] [+2,185,578]

Note: Amounts posted in square brackets indicate the change from 31 March 2016.

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.
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 2017 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 23,175 million yen (206,827 thousand U.S. dollars). On the contrary, for an indicative interest
rate as of 31 March 2017 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 23,473 million yen (209,487 thousand U.S. dollars).

Financial Section(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.

JFM Annual Report 2017 | 70

(Millions of yen)Book value(1) Loans

Fair value

Difference¥26,360,218¥2,695,705

235,000

235,000-(3) Cash and bank deposits

711,611711,611-(4) Cash collateral paid for financial instruments

16,277

16,277-

Total assets

24,627,400

27,323,106

2,695,705(1) Bonds

20,984,649

1,185,014

120,500

124,0173,517(3) Cash collateral received for financial instruments

129,509

129,509-

20,049,644

21,238,176

1,188,532

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

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¥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

170,500

173,095

2,595

111,159

111,159-

20,237,252

21,143,276

906,023

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

Financial Section(2) Borrowed money(3) Cash collateral received for financial instruments

JFM’s Role in
Local Government Finance¥23,720,021

Management Structure

19,799,634(2) Borrowed money

Operations¥23,664,512(2) Securities
held-to-maturity securities

Review and Plan

(2) Items related to fair value of financial instruments
The book value, fair value and difference between them as of 31 March 2016 are as follows:

Appendix / JFM Data

JFM Annual Report 2017 | 71

Financial
SectionFinancial Statements(Thousands of U.S. dollars)Book value(1) Loans

Fair value

Difference$211,691,404$229,944,482$18,253,078(2) Securities
held-to-maturity securities

1,481,481

1,481,481-(3) Cash and bank deposits

7,686,092

7,686,092-

217,108

217,108-

Total assets

221,076,085

239,329,163

18,253,078(1) Bonds

178,095,438

186,158,157

8,062,719

1,521,642

1,544,807

23,165992,049

992,049-

180,609,129

188,695,013

8,085,884

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

Note 1. Method for calculating fair value of financial instruments and items related to marketable securities and derivativetransactions
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 2016 and 2017.
(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.
As of 31 March 2016
(Millions of yen)
Type
Securities with fair values
exceeding the balance sheet
amountFinancial Section

Securities with fair values that
do not exceed the balance sheet
amountBook value

Fair value

Difference

-

-

-

-

Sub total---

Negotiable certificatesof deposit¥235,000¥235,000-

Sub total

235,000

235,000-¥235,000¥235,000-

Total

JFM Annual Report 2017 | 72

As of 31 March 2017Type
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(Thousands of U.S. dollars)
Type
Securities with fair values
exceeding the balance sheet
amountTotal

Fair value

Difference

-

-

-

-

Sub total---

Negotiable certificatesof deposit$1,481,481$1,481,481-

Sub total

1,481,481

1,481,481-$1,481,481$1,481,481-(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.

(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.

JFM Annual Report 2017 | 73

Appendix / JFM Data

(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.

Financial Section

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.

JFM’s Role in
Local Government Finance(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.

Management Structure

Securities with fair values that
do not exceed the balance sheet
amountBook value

Operations-

Review and Plan

(Millions of yen)

Financial
SectionFinancial Statements

Derivative transactions
Transactions for which hedge accounting is applied
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 2016 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--¥75,000¥75,000(*1)

Foreign currencydenominatedbonds

1,302,474

1,302,474(*2)

Foreign currencydenominateddeposits

173,000-(*2)¥1,550,474¥1,377,474

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

Based on prices
provided by
the counterparty
financial institution-

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 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

-

-

¥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

JFM Annual Report 2017 | 74

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)

Contract 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--$490,852$490,852(*1)

Foreign currencydenominatedbonds

13,564,768

13,564,768(*2)

Foreign currencydenominateddeposits

1,874,163-(*2)$15,929,783$14,055,620

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

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.

As of 31 March 2016
(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¥1,667,182 ¥1,669,864 ¥1,679,686 ¥1,665,312 ¥1,623,644 ¥6,749,347 ¥6,987,580 ¥1,615,733¥6,159Securities
held-tomaturity
securities

235,000

-

-

-

-

-

-

-

-

Deposits

711,611

-

-

-

-

-

-

-

-

Financial SectionAfter
20 years
through
30 yearsWithin1 year

JFM’s Role in
Local Government Finance

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

Management StructurePrimary
hedged items

Operations

Type ofderivativetransactions

Review and Plan

Hedge
accounting
methodAppendix / JFM Data

JFM Annual Report 2017 | 75

Financial
SectionFinancial Statements

As of 31 March 2017
(Millions of yen)After
1 yearthrough
2 yearsAfter
20 years
through
30 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

Within1 yearLoans

After
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

Securities
held-tomaturity
securities

166,000

-

-

-

-

-

-

-

-

Deposits

861,226

-

-

-

-

-

-

-

-

(Thousands of U.S. dollars)After
1 yearthrough
2 yearsAfter
20 years
through
30 years

After
30 years
through
40 years$15,042,919 $15,291,139 $15,411,532 $15,186,187 $14,665,264 $59,744,060 $61,513,754 $14,696,486$140,063

Within1 yearLoans

After
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

Securities
held-tomaturity
securities

1,481,481

-

-

-

-

-

-

-

-

Deposits

7,686,089

-

-

-

-

-

-

-

-

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

As of 31 March 2016
After
1 yearthrough
2 yearsAfter
10 years
through
20 years

After
20 years
through
30 years

After
30 years
through
40 years¥1,847,228 ¥1,773,824 ¥1,804,268 ¥2,055,327 ¥1,896,753 ¥7,955,991 ¥2,292,940¥174,000¥10,000--

Within1 year
Bonds(Millions of yen)

Financial Section

Borrowedmoney-

25,000After
2 years
through
3 yearsAfter
3 years
through
4 years

30,000After
4 years
through
5 years

10,000After
5 years
through
10 years-

55,500-

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)

25,000After
1 yearthrough
2 years

80,000After
2 years
through
3 yearsAfter
3 years
through
4 years

10,000After
4 years
through
5 years-

JFM Annual Report 2017 | 76

After
5 years
through
10 years-

55,500-(Thousands of U.S. dollars)

Bonds
Borrowed
money

After
1 yearthrough
2 yearsAfter
20 years
through
30 years

After
30 years
through
40 years$15,830,656 $16,102,353 $18,369,723 $17,418,594 $19,500,869 $66,576,131 $22,813,655$1,325,301$232,039--

223,115After
2 years
through
3 years

713,967After
3 years
through
4 years

89,246After
4 years
through
5 years-After
5 years
through
10 years-

495,314-

Review and PlanAfter
10 years
through
20 yearsWithin1 year

6. Tangible and Intangible Fixed Assets(Millions of yen)

¥1,176¥5-¥1,181

¥361

¥60

¥819

Land

1,659

-

-

1,659

-

-

1,659

388

6

-

395

154

70

240

3,224

11

-

3,236

516

131

2,720

2,121

356

¥37

2,440

740

432

1,700

0

58

58

0

-

-

0

¥2,121¥414¥95¥2,440¥740¥432¥1,700

Balance asof 31 March
2016(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

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

Land

1,659

-

-

1,659

395

-

-

395

3,236

0

-

3,237

2,440

273

¥21

0

4

4

¥2,440¥277¥25Type of assets

Balance asof 31 March2017(Acquisition
costs)

Decreaseduringthe yearAccumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2017

Balance asof 31 March
2017(Net bookvalue)

Tangible fixed assets

Other tangible fixed assets
Total tangible fixed assets

¥409

¥47

¥773

-

-

1,659

225

70

169

634

118

2,602

2,692

1,219

501

1,472

0

-

-

0

¥2,692¥1,219¥501¥1,473Financial Section

Balance asof 1 April
2016(Acquisition
costs)

JFM’s Role in
Local Government Finance

Buildings

Decreaseduringthe yearManagement Structure

Increaseduringthe yearType of assets

Balance asof 31 March
2016(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2016

Balance asof 1 April
2015(Acquisition
costs)

Operations

Tangible and intangible fixed assets as of 31 March 2016 consisted of the following:

Intangible fixed assets
Software
Other intangible fixed assets

JFM Annual Report 2017 | 77

Appendix / JFM Data

Total intangible fixed assets

Financial
SectionFinancial Statements(Thousands of U.S. dollars)
Balance asof 1 April
2016(Acquisition
costs)

Increaseduringthe year

Buildings$10,546$6-$10,552

Land

14,814--

14,813

Other tangible fixed assets

3,528

-

-

3,528

28,888

6-

28,893

21,782

2,442

$191

0

36

36

$21,782$2,478$227

Type of assets

Balance asof 31 March2017(Acquisition
costs)

Decreaseduringthe yearAccumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2017

Balance asof 31 March
2017(Net bookvalue)

Tangible fixed assets

Total tangible fixed assets$3,652$422$6,900--14,813

2,010

632

1,518

5,662

1,054

23,231

24,033

10,887

4,472

13,1460--

0$24,033$10,887$4,472$13,146

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

7. Assets Pledged as Collateral
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 19,799,634 million yen and 19,955,593 million yen (178,095,438 thousand U.S. dollars)
as of 31 March 2016 and 2017, respectively.

8. Bonds
Bonds as of 31 March 2016 consisted of the following:(Millions of yen)

Financial Section

Type of bondDate of
issue

Balance
as of 1
April 2015

Balance as of 31
March 2016

Couponrate (%)

Maturity

Government-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-82)

6/15/20093/14/2016¥3,444,382¥3,945,290

0.020
to 1.500

10Y

Government-guaranteed bonds issued by JFM(domestic) 8-year bonds (Series 1-5)

9/26/20131/29/2016

200,000

300,000

0.173
to 0.576

8Y

Government-guaranteed bonds issued by JFM(domestic) 6-year bonds (Series 1-17)

9/27/201110/30/2015

1,009,984

1,129,991

0.122
to 0.400

6Y

Government-guaranteed bonds issued by JFM(domestic) 4-year bonds (Series 1-6)

5/28/20128/29/2013

330,000

330,000(220,000)

0.093
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 1-3)

2/19/20142/19/2016

75,00050,000(25,000)

0.030
to 0.135

2Y

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

8/19/2013

20,00020,000(20,000)

0.170

3Y

Non-guaranteed bonds issued by JFM(domestic) 5-year bonds (Series 1-18)

5/25/201010/19/2015

305,000

235,000(80,000)

0.110
to 0.639

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 1-82)

6/18/20093/17/2016

2,260,000

2,515,000

0.120
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 1-50)

6/25/20093/17/2016

930,000

1,065,000

0.530
to 2.266

20Y

JFM Annual Report 2017 | 78

15,000

15,0001.864

30Y

Non-guaranteed bonds issued by JFM(domestic) FLIP bonds (Series F1-F20, F22F31, F33-F39, F41-F52, F54-F210, F212-F243,
F245-F310)

7/22/20091/28/2016

1,562,643

1,819,772(58,000)

0.045
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

755,784

943,766[USD 7,435 million][AUD 460 million][NZD 105 million][EUR 1,000 million](16,200)

0.875
to 5.092

3Y
to 10Y

Floating
rate

5Y
to 7Y

125,073

125,073[USD 1,348 million][NZD 40 million][AUD 120 million](50,608)

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series A1-A74)

7/31/20093/24/2016

1,880,000

2,180,000

0.080
to 1.53

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series B1-B5)

11/24/20153/24/2016-

34,0000.080
to 0.511

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series C1-C5)

11/24/20153/24/2016-

51,5000.412
to 1.154

20Y

Bonds issued by JFM - Sub-total-

13,101,039

14,947,564(469,808)--

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

10/16/20085/25/2009

561,461

561,735

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

139,981

139,986

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

84,95884,9612.07
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-

906,401

906,684--

Government-guaranteed bonds issued by
the Predecessor (domestic)
10-year bonds (Series 850-886)

4/21/20056/19/2008

2,383,168

1,469,826(661,750)

1.2
to 2.0

10Y

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

6/22/20057/18/2007

184,749

184,771

1.6
to 2.2

15Y

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

8/9/19996/25/2008

472,614343,017[GBP 150 million][USD 1,000 million](120,000)

1.9
to 5.75

10Y
to 20Y

Non-guaranteed bonds issued by
the Predecessor (domestic)
10-year bonds (Series 15-30)

6/20/20056/16/2008

589,966

399,985(240,000)

1.33
to 2.07

10Y

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

7/30/20026/16/2008

569,735

569,760

1.03
to 2.58

20Y

JFM Annual Report 2017 | 79

Appendix / JFM Data

1/17/20127/22/2013

Financial Section

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

JFM’s Role in
Local Government Finance

1/12/20122/12/2016

Management Structure

Non-guaranteed bonds issued by JFM(international)(Series 2, 3, 7, 14-16, 19, 28, 31, 33-35, 40-52)

Operations

6/26/2014

Review and Plan

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

Financial
SectionFinancial Statements

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

1/29/20049/20/2006

189,879

189,885

2.39
to 2.95

30Y

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

10/31/2002

20,00020,000Floating
rate

15Y

Non-guaranteed bonds issued by
the Predecessor (domestic)
Inflation-indexed bonds (Series 2)

7/19/2005

20,000

-

0.45

10Y

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

2/14/20036/9/2004

34,81032,640(2,170)1.39
to 2.01

28Y

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

9/13/2006

20,00020,000(20,000)

Floating
rate

10Y

Non-guaranteed bonds issued by thePredecessor (domestic) Private placements withpension fund associations for local government
officials (Series Special No.1-15–No.1-31)

5/25/20057/31/2008

1,050,500

715,500(333,500)

1.32
to 2.18

10Y

Bonds issued by the Predecessor - Sub-total-

5,535,423

3,945,385(1,377,420)

-

-

Total

-

¥19,542,864¥19,799,634(1,847,228)--

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 19,799,634 million yen as of 31 March 2016.
2. Amounts in square brackets under “Balance as of 31 March 2016” for “Government-guaranteed bonds
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, 40-52),” “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 2016” are to be repaid within one year.

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

20,00020,000

0.446

7Y

JFM Annual Report 2017 | 80

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

943,766

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

0.875
to 5.092

3Y
to 10Y

Floating
rate

5Y
to 7Y

1/17/20127/22/2013

125,073

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

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

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

4/21/20163/28/2017-

150,000

0.190
to 0.778

20Y

Bonds issued by JFM - Sub-total-

14,947,564

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 2.215Y

JFM Annual Report 2017 | 81

Appendix / JFM Data

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

Financial Section

1/12/20121/30/2017

JFM’s Role in
Local Government FinanceNon-guaranteed bonds issued by JFM(international)(Series 2, 3, 7, 14-16, 19, 28, 31, 33-35, 40-56)

Management Structure

2,515,000

Operations

6/18/20093/21/2017

Review and Plan

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

Financial
SectionFinancial Statements

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

8/9/19996/25/2008

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

343,017

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

1.9
to 5.75

10Y
to 20Y

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)--

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$35,210,086$37,360,086

0.005
to 1.500

10Y

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

9/26/20132/24/2017

2,677,376

3,749,2200.001
to 0.576

8Y

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

9/27/201110/28/2016

10,084,709

11,876,241(1,784,917)

0.001
to 0.400

6Y

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

5/28/20126/30/2016

2,945,114

1,339,819(981,705)

0.001
to 0.249

4Y

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

1/13/2011

742,258

742,258[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

446,229

223,115(223,115)

0.030
to 0.100

2Y

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

8/19/2013

178,492

-

0.170

3Y

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

5/26/201110/21/2016

2,097,278

1,695,672(535,475)0.001
to 0.510

5Y

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

8/20/2012

178,492

178,492

0.446

7Y

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

6/18/20093/17/2017

22,445,337

24,587,238

0.060
to 1.648

10Y(Thousands of U.S. dollars)

Financial Section

JFM Annual Report 2017 | 82

446,229

446,2291.161
to 1.334

15Y

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

6/25/20093/21/2017

9,504,685

10,664,882

0.180
to 2.266

20Y

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

6/26/201410/21/2016

133,869

312,3610.569
to 1.864

30Y

Non-guaranteed bonds issued by JFM (domestic)
FLIP bonds (Series F1-F20, F22-F31, F33-F39,
F41-F52, F54-F210, F212-F243, F245-F354)

7/22/20091/27/2017

16,240,717

18,111,570(553,324)

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

312,361

312,361

Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

1/17/20127/22/2013

1,116,233

664,569[USD 757 million][AUD 100 million](304,224)

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

19,455,600

20,794,288

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

303,436

673,806

0.069
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

459,616

1,195,895

0.190
to 1.154

20Y

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

4/21/20163/28/2017-

1,338,688

0.190
to 0.778

20Y

Bonds issued by JFM - Sub-total-

133,400,844

147,077,476(6,061,802)--

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

10/16/20085/25/2009

5,013,261

5,015,712

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

1,249,325

1,249,369

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

758,249

758,275

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

1,070,950

1,070,950

1.69
to 1.73

10Y

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

8,091,785

8,094,306--

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

4/20/20066/19/2008

13,117,593

7,215,853(5,244,534)

1.4
to 2.0

10Y

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

6/22/20057/18/2007

1,649,008

1,649,207

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

3,061,286

1,991,273[GBP 150 million][USD 1,000 million](1,068,987)

1.9
to 5.75

10Y
to 20YJFM Annual Report 2017 | 83

Appendix / JFM Data

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

Financial Section

8,422,727

JFM’s Role in
Local Government Finance

1/12/20121/30/2017

10,810,686[USD 9,781 million][AUD 566 million][NZD 105 million][EUR 1,000 million](1,679,042)

Management Structure

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

Operations

1/31/20131/22/2014

Review and Plan

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

Financial
SectionFinancial Statements

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

7/4/20066/16/2008

3,569,705

1,427,909(981,705)

1.77
to 2.07

10Y

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

7/30/20026/16/2008

5,084,874

5,085,095

1.03
to 2.58

20Y

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

1/29/20049/20/2006

1,694,649

1,694,703

2.39
to 2.95

30Y

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

10/31/2002

178,492

178,492(178,492)

Floating
rate

15Y

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

2/14/20036/9/2004

291,299

271,932(19,366)

1.39
to 2.01

28Y

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

9/13/2006

178,492-

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

6,385,542

3,409,192(2,275,770)

1.59
to 2.18

10Y

Bonds issued by the Predecessor - Sub-total-

35,210,940

22,923,656(9,768,854)

-

-

Total

-

$176,703,569$178,095,438(15,830,656)--

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
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:

Financial Section
JFM Annual Report 2017 | 84

As of 31 March 2016

Bonds

¥1,847,228

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥1,773,824¥1,804,268¥2,055,327¥1,896,753

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$16,102,353$18,369,723$17,418,594$19,500,869

As of 31 March 2017
Within 1 year
Bonds

¥1,773,824(Millions of yen)

Bonds

$15,830,656

Operations(Thousands of U.S. dollars)Within 1 year

Review and Plan

Within 1 year

(Millions of yen)
After 1 year
through 2 years

9. Borrowed Money(Millions of yen)Classification of borrowed money

Balance as of
1 April 2015

Balance as of
31 March 2016

Averageinterest rate (%)

Repayment
date

-

-

-

-

Long-term borrowed money(repayment within 1 year)

-

-

-

-

¥85,500¥120,500

0.593¥85,500¥120,500-

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

9/19/20172/27/2026-

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

-

-

-

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

-

-

Financial Section

Short-term borrowed money

JFM’s Role in
Local Government Finance

Short-term borrowed money

Management Structure

Borrowed money as of 31 March 2016 consisted of the following:(Thousands of U.S. dollars)
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)-

223,1150.114

9/19/2017$1,075,413$1,298,527

0.550

9/26/20182/27/2026$1,075,413$1,521,642-

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

JFM Annual Report 2017 | 85--

Appendix / JFM DataClassification of borrowed money

Financial
SectionFinancial Statements

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 2016
(Millions of yen)
Within 1 year
Borrowed money¥-

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥25,000¥30,000¥10,000¥-

As of 31 March 2017
(Millions of yen)
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¥-¥-(Thousands of U.S. dollars)Within 1 year
Borrowed money$223,115

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years$713,967$89,246$-$-

10. Reserves
Reserves as of 31 March 2016 consisted of the following:(Millions of yen)
Decrease during the year

Balanceas of
31 March
2016

Balanceas of
1 April 2015

Increaseduring the
year

¥50

¥52

¥50

¥-

¥52

Reserve for bonuses for directors andcorporate auditors

7

7

7

-

7

Reserve for retirement benefits

41

3

3

8

33

Reserve for retirement benefits for directors
and corporate auditors

22

6

18

1

9

Classification of reserve

Reserve for bonuses

Intended
purpose

Other

Financial Section

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

Balanceas of
31 March
2017

Balanceas of
1 April 2016

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

JFM Annual Report 2017 | 86

Intended
purposeOtherDecrease during the year

Balanceas of
31 March
2017

Increaseduring the
year

$471

$492

$471

$-

$492

Reserve for bonuses for directors andcorporate auditors

70

72

70

-

72

Reserve for retirement benefits

301

178

2

73

404

Reserve for retirement benefits for directors
and corporate auditors

82

94

-

16

160

Reserve for bonuses

Intended
purpose

Other

Operations

Balanceas of
1 April 2016

Classification of reserve

Review and Plan(Thousands of U.S. dollars)

11. Reserve for Interest Rate Volatility
Reserve for interest rate volatility as of 31 March 2016 consisted of the following:(Millions of yen)Classification of reserve

Reserve for interest rate volatility¥1,540,000¥220,000¥220,000¥-

Management account reserve forinterest rate volatility

2,011,515

146,947

146,947

520,000

220,000

1,638,462

Total¥3,551,515¥366,947¥366,947¥520,000¥220,000¥3,398,462

Increase during the year

Decrease during the year

AmountprovidedAmountwithdrawn¥1,760,000(Millions of yen)
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(Thousands of U.S. dollars)
Increase during the year

Decrease during the year

Classification of reserve

Balanceas of
1 April2016

AmountprovidedAmountwithdrawn

Reserve for interest rate volatility$15,707,274$1,963,409

Management account reserve forinterest rate volatility

14,622,602

1,246,394

Total$30,329,876$3,209,803$1,963,409$17,670,683

3,748,327$1,963,409

12,120,669$3,748,327$1,963,409$29,791,352

Notes: The “decrease during the year” for the “management account reserve for interest rate volatility” in the amount of
420,000 million yen (3,748,327 thousand U.S. dollars) partly consists of 200,000 million yen (1,784,918 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 2016 (Ordinance No. 1 of the Ministry of Internal Affairs andCommunications, and the Ministry of Finance, 2016).
JFM Annual Report 2017 | 87

Appendix / JFM Data

$1,963,409$-

Balanceas of
31 March
2017

Financial Section

Classification of reserve

JFM’s Role in
Local Government FinanceReserve for interest rate volatility as of 31 March 2017 consisted of the following:

Management Structure

Balanceas of
31 March
2016

Balanceas of
1 April2015

Financial
SectionFinancial Statements

12. Fund for Lending Rate Reduction
Fund for lending rate reduction as of 31 March 2016 consisted of the following:(Millions of yen)Classification of fund

Basic fund for lending rate
reduction
Total

Balanceas of
1 April
2015

Balanceas of
31 March
2016

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn¥920,287¥2,993¥-¥2,993¥-¥920,287¥920,287¥2,993¥-¥2,993¥-¥920,287

OthersFund for lending rate reduction as of 31 March 2017 consisted of the following:(Millions of yen)Classification of fund

Basic fund for lending rate
reduction
Total

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

Balanceas of
1 April
2016

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

Classification of fund

Basic fund for lending rate
reduction
Total

Balanceas of
1 April
2016

Balanceas of
31 March
2017

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn$8,213,187$31,747$-$31,747$-$8,213,187$8,213,187$31,747$-$31,747$-$8,213,187

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.
Financial Section
JFM Annual Report 2017 | 88

13. Reserve for Retirement Benefits(c) Profit and loss associated with employee retirement benefits
Pension expenses calculated based on the simplified method: 19 million yen (177 thousand U.S. dollars)

Financial Section(b) Retirement benefit obligation, plan assets, and reconciliation of retirement benefit asset and liability
Funded retirement benefit obligation:
298 million yen (2,662 thousand U.S. dollars)
Plan assets:(288) million yen ((2,571) thousand U.S. dollars)
10 million yen(91 thousand U.S. dollars)
Balance:Unfunded retirement benefit obligation:
35 million yen(313 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:
45 million yen(404 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
45 million yen(404 thousand U.S. dollars)
45 million yen(404 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:

JFM’s Role in
Local Government Finance

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(301 thousand U.S. dollars)
19 million yen(178 thousand U.S. dollars)
Pension expenses:
Employee retirement benefits paid:
0 million yen(2 thousand U.S. dollars)
Contributions to the defined benefit plan:
8 million yen(73 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
45 million yen(404 thousand U.S. dollars)Management Structure(c) Profit and loss associated with employee retirement benefits
Pension expenses calculated based on the simplified method: 3 million yen

Operations(b) Retirement benefit obligation, plan assets, and reconciliation of retirement benefit asset and liability
Funded retirement benefit obligation:
291 million yen(287) million yen
Plan assets:
3 million yen
Balance:Unfunded retirement benefit obligation:
30 million yen
33 million yen
Net liability for retirement benefits in the balance sheet:33 million yen
Reserve for retirement benefits at the end of the fiscal year:
Net liability for retirement benefits in the balance sheet:33 million yen

Review and Plan

As of and for the year ended 31 March 2016
(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Employees’ Pension Fund and offers lump-sum payments
upon retirement of employees. The reserve for retirement benefits and pension expenses are calculated using thesimplified 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: 41 million yen
3 million yen
Pension expenses:
Employee retirement benefits paid:
3 million yen
7 million yen
Contributions to the defined benefit plan:
33 million yen
Reserve for retirement benefits at the end of the fiscal year:

14. Net Income by Account(For the year ended 31 March 2017)
Net income of the general account was 27,878 million yen (248,804 thousand U.S. dollars), while there was no net
income of management account.

JFM Annual Report 2017 | 89

Appendix / JFM Data

(For the year ended 31 March 2016)
Net income of the general account was 30,197 million yen, while there was no net income of management
account.

Financial
SectionFinancial Statements

15. Information by Account (Balance sheets)
Balance sheets of general account and management account as of 31 March 2016 were as follows:(Millions of yen)
Item

Generalaccount

Management
account¥12,374,835¥11,289,676

OffsetTotal(Assets)
Loans¥23,664,512

Securities

235,000

235,000

Cash and bank deposits

711,611711,611

Cash collateral paid for financial instruments

16,277

Other assets

4,096

16,277
7,453

11,550

Tangible fixed assets

2,720

2,720

Intangible fixed assets

1,700

1,700

Due from general accountTotal assets

746,916¥(746,916)

13,346,241

12,044,046(746,916)

9,504,061

10,295,573

24,643,371(Liabilities)
Bonds

19,799,634

Borrowed money

120,500

120,500

Cash collateral received for financial instruments

129,509

129,509

Other liabilities

2,342

8,003

10,345Reserve for bonuses

52

Reserve for bonuses for directors and corporate
auditors

7

7

Reserve for retirement benefits

33

33

Reserve for retirement benefits for directors andcorporate auditors

99Fund for lending rate reduction
Basic fund for lending rate reduction

920,287920,287920,287920,287

Due to management account746,916

Reserves under special laws

1,760,000

Reserve for interest rate volatility

3,446,803

1,760,000

Management account reserve for interest rate
volatility
Reserve for interest rate reduction
Total liabilities(746,916)
1,686,803

13,183,720

1,760,000
1,638,462

1,638,462

48,341

48,341

11,990,380(746,916)

24,427,184

Financial Section(Net Assets)
Capital16,602

16,602Retained earnings

137,900

137,900

137,900

137,900

General account surplus reserve
Valuation, translation adjustments and others

8,018Management account surplus reserve
Total net assets
Total liabilities and net assets

8,018
53,666

53,666

162,52153,666

216,187¥13,346,241¥12,044,046

JFM Annual Report 2017 | 90¥(746,916)¥24,643,371

Balance sheets of general account and management account as of 31 March 2017 were as follows:

Item

Generalaccount

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

OffsetTotal

Review and Plan

(Millions of yen)

(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
10,616

Tangible fixed assets

2,602

2,602

Intangible fixed assets

1,473

1,473

Due from general accountTotal assets

671,876¥(671,876)

14,698,408

10,759,735(671,876)

10,654,660

9,300,933

Operations

6,551

24,786,267(Liabilities)
Bonds

19,955,593

170,500

170,500

Cash collateral received for financial instruments

111,159

111,159

Other liabilities

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

Basic fund for lending rate reduction

920,287920,287920,287920,287

Due to management account671,876

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)

JFM’s Role in
Local Government FinanceFund for lending rate reduction

Management Structure

Borrowed money

24,545,185(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

JFM Annual Report 2017 | 91

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

Generalaccount

Management
account$121,719,898$89,971,506

OffsetTotal(Assets)
Loans$211,691,404

Securities

1,481,481

1,481,481

Cash and bank deposits

7,686,092

7,686,092

Cash collateral paid for financial instruments

217,108

Other assets

36,272

Tangible fixed assets

23,231Intangible fixed assets

13,146Due from general account

217,108
58,473

94,74523,231
13,146

5,996,220$(5,996,220)

131,177,228

96,026,199(5,996,220)

Bonds

95,088,445

83,006,993

Borrowed money

1,521,642

Total assets

221,207,207(Liabilities)

Cash collateral received for financial instruments

992,049

Other liabilities

21,261

178,095,438
1,521,642
992,049

53,52574,786

Reserve for bonuses

492

492

Reserve for bonuses for directors and corporate
auditors

72

72

Reserve for retirement benefits

404

404

Reserve for retirement benefits for directors andcorporate auditors

160

160

Fund for lending rate reduction
Basic fund for lending rate reduction

8,213,187

8,213,187

8,213,187

8,213,187

Due to management account5,996,220

Reserves under special laws

17,670,683

Reserve for interest rate volatility

30,157,416

17,670,683

Management account reserve for interest rate
volatility
Reserve for interest rate reduction
Total liabilities(5,996,220)
12,486,733

129,504,615

17,670,683
12,120,669

12,120,669

366,064

366,064

95,547,251(5,996,220)

219,055,646(Net Assets)
CapitalRetained earnings
Financial Section

General account surplus reserve
Valuation, translation adjustments and others

148,167

148,167

1,479,511

1,479,511

1,479,511

1,479,511

44,935

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

44,935478,948

478,948

1,672,613

478,948

2,151,561$131,177,228$96,026,199$(5,996,220)$221,207,207

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.

JFM Annual Report 2017 | 92

16. Information by Account (Statements of income)

Review and Plan

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.

Statements of income of general account and management account from 1 April 2015 through 31 March 2016 wereas follows:(Millions of yen)
Item
Income¥139,456¥281,436

133,391

271,466

OffsetTotal¥(12,920)¥407,972
404,858

Fees and commissions

108

Other operating income

0

0

3,005

3,005

2,993

2,993

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

108

12

12

740

(740)

0

(0)

Interest on fund for lending rate reduction

2,209(2,209)Interest on due from general account

28

(28)

9,941

(9,941)

109,259

142,699(12,920)

93,171

137,334

Fees and commissions

145

179

324

Other operating expenses

2,347

2,057

4,405

General and administrative expenses

3,624

178

Expenses
Interest expenses

Transfer to management account for fund for
lending rate reduction

230,505

3,803

28

(28)

9,941

(9,941)

Interest on due to general account0(0)Administrative fee for management account

740

(740)

Interest on fund for lending rate reduction

2,209(2,209)30,197

138,736-

168,933

220,000

528,211(220,000)

528,211

Ordinary income
Special gains
Transfer from management account

220,000(220,000)
520,000

520,000

Reversal of reserve for interest rate reduction

8,211

8,211

Provision for reserve for interest rate volatility

220,000

666,947

146,947

Transfer to general account

220,000

Payment to national treasury

300,000

JFM Annual Report 2017 | 93-

146,947(220,000)
300,000-¥30,197

Appendix / JFM Data

¥30,197

666,947
220,000

Provision for management account reservefor interest rate volatility

Net income(220,000)

220,000

Financial Section

Reversal of management account reserve forinterest rate volatility
Special losses

JFM’s Role in
Local Government FinanceInterest on due to management account239,039Management StructureInterest on due from management accountTransfer from general account for fund for
lending rate reduction

Operations

Interest income

General account Management accountFinancial
SectionFinancial Statements

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
Others103

12Interest on due from 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

3,223

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

Special gains
Transfer from management account

(30)

9,044

(9,044)683(683)

27,878132,334-

160,213220,000

427,323(220,000)

427,323

220,000

Reversal of management account reserve forinterest rate volatility

Provision for reserve for interest rate volatility(220,000)
420,000

Reversal of reserve for interest rate reduction
Special losses

420,000

7,323
220,000

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

JFM Annual Report 2017 | 94

559,658
220,000

Provision for management account reservefor interest rate volatility

Net income

208,87230

Administrative fee for management accountOrdinary income

216,284-

139,658(220,000)
200,000-¥27,878

Item
IncomeInterest income

General account Management account$1,231,457$2,215,719

1,192,251

2,134,727

OffsetTotal$(87,089)$3,360,087
3,326,978927

Other operating income

327

327

31,85531,85531,74731,747

Contributions from fund for lending rate
reduction
OthersInterest on due from management account

108

108

6,097

Interest on due from general accountTransfer from general account for fund for
lending rate reduction
Expenses

927(6,097)276(276)

80,716(80,716)(87,089)

1,034,684
1,011,596

Fees and commissions

1,318

1,477

2,795

Other operating expenses

20,327

14,25534,582

General and administrative expenses

27,512

1,259

28,771

Interest on due to management accountTransfer to management account for fund for
lending rate reduction(276)

80,716(80,716)

Transfer from management account

6,097(6,097)

248,804

1,181,035-

1,429,839

1,963,409

3,813,686(1,963,409)

3,813,686

1,963,409

Reversal of management account reserve forinterest rate volatility

3,748,327

Reversal of reserve for interest rate reduction
Special losses
Provision for reserve for interest rate volatility(1,963,409)

65,3591,963,409

4,994,721

65,359(1,963,409)

1,963,409

Transfer to general account1,963,409

Payment to national treasury

1,784,918$-

1,246,394(1,963,409)
1,784,918$-$248,804

Financial Section

1,246,394$248,804

4,994,721
1,963,409

Provision for management account reservefor interest rate volatility

Net income

3,748,327

JFM’s Role in
Local Government FinanceSpecial gains

1,864,100

276

Administrative fee for management accountOrdinary income

1,930,248
Management Structure

982,653
852,504

Interest expenses

Operations

Fees and commissions
Other income

Review and Plan(Thousands of U.S. dollars)

Appendix / JFM Data

JFM Annual Report 2017 | 95

Financial
SectionFinancial Statements

17. Fair Value of Marketable Securities
Marketable held-to-maturity securities as of 31 March 2016 consisted of the following:(Millions of yen)Book value
Negotiable certificatesof deposit¥235,000Fair value

Difference¥235,000

Unrealized gains Unrealized losses---

Marketable held-to-maturity securities as of 31 March 2017 consisted of the following:(Millions of yen)Book value
Negotiable certificatesof deposit¥166,000Fair value

Difference¥166,000

Unrealized gains Unrealized losses---(Thousands of U.S. dollars)Book value
Negotiable certificatesof deposit$1,481,481

Fair value$1,481,481

Difference

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.”Financial Section
JFM Annual Report 2017 | 96--

18. Information on Derivative Transactions
Review and Plan
Operations
Management Structure
JFM’s Role in
Local Government Finance
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.

Appendix / JFM Data

JFM Annual Report 2017 | 97

Financial
SectionIndependent Auditor’s Report

Financial Section
JFM Annual Report 2017 | 98

Appendix / JFM Data
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 2016
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 2017 | 99

111
111
112
113

Appendix / JFM Data

Bond Issuance in Fiscal 2016

100
100
101
102
106
109

Financial Section

100

AppendixAppendix
JFM Data

Appendix

Members of the Representative Board and the Supervisory Committee
The Representative Board members of JFM as of 1 August 2017 are as follows:
Name

Title

BackgroundToshizo Ido

ChairmanVice Chairman, National Governors' Association
Governor, Hyogo prefecture

Gaku Kamiya

Deputy Chairman

Chairman, Finance committee of Japan Association of City Mayors
Mayor, Anjo City, Aichi prefecture

Yasuomi Araki

Deputy Chairman

Chairman, National Association of Towns & Villages
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 2017 are as follows:
Name

Title

BackgroundYoshitsugu Hayashi

ChairmanProfessor, Kwansei Gakuin University

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.

Toshiki KomatsuMemberCorporate Director of Jiji Press, Ltd.

Redemption of Loans in Fiscal 2016
Principal
Classification

Interest

Number ofloans

Amount(USD millions)

Number ofloans

Amount(USD millions)433,701

14,710491,669

3,319

501

92

501

8

434,202

14,802

492,170

3,328

General loans

199

98

71

0

Loans to local
government corporations

-

-

-

-

Subtotal

199

98

71

0

Redemption of loans with pre-consent or pre-approval

-

-

-

-

Redemption of short-term loans

-

-

-

-

434,401

14,900492,241

3,328

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

Appendix / JFM Data

Prepayment oflong-term loans

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

JFM Annual Report 2017 | 100(as of 31 March 2017)
Number ofLoans Made

Business

Loan Amount (USD millions)% of total

4,212

2,818

1.3

National Disaster Prevention

1,215

1,358

0.6

Educational Facilities Development

613

354

0.2

Social Welfare Facilities Development

926

774

0.4

General Waste Proposal

124

145

0.1

General Projects

567

566

0.3

Regional Revitalization

999

494

0.2

Disaster Prevention

1,635

1,300

0.6

Local Road Development*1

25,28817,2108.1

Special Municipal Mergers

4,231

8,691

4.1

Disaster Management and Mitigation

5,919

6,052

2.9

Others

2,230

819

0.4

50,46043,93820.8

Water Supply

53,131

31,058

14.7

Transportation

940

10,129

4.8

3,810

8,197

3.9

122,741

69,650

32.9

2,293

1,752

0.8

908

748

0.4

1,056

505

0.2

Markets and Slaughterhouses

692

833

0.4

Tourism and Others

281

261

0.2

185,852

123,133

58.2

Temporary Financial Countermeasures Funding

6,127

44,190

20.9

Total

242,439

211,262

99.8

219

430

0.2

242,658

211,691

100.0

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 2017 | 101

Appendix / JFM Data

Public Housing

Financial Section

1.6

JFM’s Role in
Local Government Finance

3,357Management Structure

2,501

Operations

Public Projects, etc.

General Account-related
Loans

Review and Plan

Outstanding Loans by BusinessAppendix
JFM Data

Appendix

Outstanding Loans by Borrower(as of 31 March 2017)
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

284

4,001

5,116

6,355

7,975

1,842

Aomori

199

320

1,959

2,225

1,383

418

Iwate

234

522

2,681

2,258

719

261

Miyagi

361

1,215

4,647

3,730

2,566

462

Akita

205

214

4,570

2,328

1,108

117

Yamagata

229

725

2,677

1,547

1,891

317

Fukushima

412

713

3,545

2,317

2,988

499

Ibaraki

479

1,222

6,489

3,978

1,362

380

Tochigi

263

536

3,235

1,990

774

234

Gunma

273

418

3,425

1,730

1,764

329

Saitama

256

2,191

6,108

5,942

1,660

471

Chiba

400

843

4,933

5,869

834

221

Tokyo

123

1,332

2,033

2,736

180

49

Kanagawa

223

1,807

2,993

7,785

1,059

368

Niigata

268

471

8,145

4,355

926

179

Toyama

273

285

3,740

2,751

558

220

Ishikawa

167

279

2,766

1,880

1,219

402

Fukui

240

380

2,153

1,346

860

126

Yamanashi

151

388

2,959

1,040

1,041

144

Nagano

241

348

4,177

2,495

3,115

599

Gifu

217

1,426

4,288

1,953

1,215

325

Shizuoka

354

540

4,991

3,293

719

215

Aichi

274

2,098

5,163

5,882

866

226

Mie

396

1,319

3,976

2,656

1,054

249

Appendix / JFM Data
JFM Annual Report 2017 | 102

Local Government Road
Corporations

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

Review and Plan

Local Government
Associations

Total
Number ofLoans Made

Loan Amount(USD millions)% of Total

13,676

12,449

5.9

110

127

-

-

3,651

3,090

1.5

229

169

-

-

3,863

3,210

1.5

130

75

-

-

7,704

5,482

2.6

8

2

-

-

5,891

2,661

1.3

149

50

7

0

4,953

2,640

1.2

193

189

3

1

7,141

3,720

1.8

255

214

2

1

8,587

5,796

2.7

10

26

7

2

4,289

2,788

1.3

204

182

-

-

5,666

2,659

1.3

314

175

9

3

8,347

8,781

4.1

393

388

8

12

6,568

7,333

3.5

30

157

-

-

2,366

4,273

2.0

68

631

-

-

4,343

10,591

5.0

155

132

-

-

9,494

5,137

2.4

146

128

9

2

4,726

3,386

1.6

24

29

-

-

4,176

2,589

1.2

71

32

-

-

3,324

1,884

0.9

157

60

-

-

4,308

1,632

0.8

173

132

7

3

7,713

3,577

1.7

10

12

-

-

5,730

3,716

1.8

74

94

9

4

6,147

4,146

2.0

99

38

43

204

6,445

8,447

4.0

32

47

-

-

5,458

4,272

2.0

Financial Section-

JFM’s Role in
Local Government Finance-Management Structure

250

Operations

301

Appendix / JFM Data

JFM Annual Report 2017 | 103

Appendix
JFM Data

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

200

683

4,203

2,149

589

130

Kyoto

198

353

3,509

4,319

1,037

258

Osaka

112

1,277

5,450

12,665

923

310

Hyogo

322

3,881

7,694

8,613

1,968

758

Nara

273

944

2,317

1,618

1,841

522

Wakayama

113

388

1,616

1,830

1,362

502

Tottori

315

558

1,254

944

1,798

423

Shimane

274

899

2,541

1,910

297

73

Okayama

286

931

4,554

3,314

1,257

268

Hiroshima

415

1,618

4,280

4,484

883

267

Yamaguchi

419

473

4,241

2,475

584

114

Tokushima

189

443

1,351

1,024

785

247

Kagawa

229

206

2,079

1,102

839

203

Ehime

98

182

2,262

1,809

599

211

Kochi

139

807

1,509

1,241

700

185

Fukuoka

101

1,147

4,731

8,136

2,077

891

Saga

57

311

1,580

1,451

621

268

Nagasaki

144

516

2,719

2,478

650

165

Kumamoto

161

501

2,677

1,815

1,552

422

Oita

107

209

2,217

1,307

176

57

Miyazaki

151

652

2,018

1,358

713

178

Kagoshima

172

1,228

2,304

1,521

785

204

Okinawa

244

889

1,479

1,354

853

223

11,241

42,689165,354

147,356

60,725

15,530Total

Note: Totals may not add up due to rounding.

Appendix / JFM Data
JFM Annual Report 2017 | 104

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

5,103

3,017

1.4

24

46

9

5

4,777

4,981

2.4

222

672

15

35

6,722

14,960

7.1

447

538

36

24

10,467

13,814

6.5

26

55

-

-

4,457

3,139

1.5

81

69

-

-

3,172

2,788

1.3

28

26

-

-

3,395

1,950

0.9

67

35

-

-

3,179

2,917

1.4

110

177

-

-

6,207

4,690

2.2

11

15

17

52

5,606

6,436

3.0

114

75

-

-

5,358

3,137

1.5

3

1

-

-

2,328

1,715

0.8

21

49

-

-

3,168

1,561

0.7

16

12

-

-

2,975

2,214

1.0

10

91

-

-

2,358

2,323

1.1

259

209

26

79

7,194

10,461

4.9

99

102

-

-

2,357

2,132

1.0

15

33

7

2

3,535

3,193

1.5

37

26

5

0

4,432

2,764

1.3

-

-

-

-

2,500

1,573

0.7

11

10

-

-

2,893

2,197

1.0

18

27

-

-

3,279

2,980

1.4

54

28

-

-

2,630

2,493

1.2

5,119

5,687

219

430

242,658

211,692

100.0

Financial Section-

JFM’s Role in
Local Government Finance-Management Structure

54

Operations

111

Review and Plan

Local Government
Associations

Appendix / JFM Data

JFM Annual Report 2017 | 105

Appendix
JFM Data

Appendix

Bond Issuance in Fiscal 2016
1. JFM bonds(1) International bonds
SeriesNumberTenor(yr)FormatCurrency

Issue Size(in millions)

Coupon(%)

Issue Price(%)

Issue Date

Maturity Date

53

5

Global

USD

1,500

2.125

99.78013 Apr 201613 Apr 2021

54

7

Global

USD

1,000

2.13

99.30

25 Oct 2016

25 Oct 2023

55

5

Euro

USD

53

2.39

99.99

30 Jan 201728 Jan 2022

56

5

Euro

AUD

106

3.040

99.99030 Jan 201728 Jan 2022

(2) Domestic public offerings
Issue Size

SeriesNumber

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

Appendix / JFM Data

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

83

10

20

178

0.090

100

21 Apr 201628 Apr 2026

84

10

20

178

0.090

100

24 May 2016

28 May 2026

85

10

20

178

0.080

100

13 Jun 2016

26 Jun 2026

86

10

20

178

0.060

100

22 Jul 2016

28 Jul 2026

87

10

20

178

0.125

100

19 Aug 2016

28 Aug 2026

88

10

20

178

0.075

100

20 Sep 2016

28 Sep 2026

89

10

20

178

0.075

100

21 Oct 2016

28 Oct 2026

90

10

25

223

0.115

100

25 Nov 201627 Nov 2026

91

10

20

178

0.155

100

19 Dec 201628 Dec 2026

92

10

20

178

0.190

100

24 Jan 201728 Jan 2027

93

10

15

134

0.240

100

20 Feb 201726 Feb 2027

94

10

20

178

0.230

100

21 Mar 2017

26 Mar 2027

51

20

20

178

0.377

100

21 Apr 201628 Apr 2036

52

20

15

134

0.288

100

13 Jun 2016

27 Jun 2036

53

20

15

134

0.180

100

22 Jul 2016

28 Jul 2036

54

20

15

134

0.390

100

20 Sep 2016

26 Sep 2036

55

20

15

134

0.443

100

21 Oct 2016

28 Oct 2036

56

20

20

178

0.569

100

19 Dec 201626 Dec 2036

57

20

15

134

0.645

100

24 Jan 201728 Jan 2037

58

20

15

134

0.721

100

21 Mar 201727 Mar 2037

19

5

20

178

0.020

100

21 Apr 201628 Apr 2021

20

5

15

134

0.001

100

21 Oct 2016

28 Oct 2021

2

30

10

89

0.569

100

21 Apr 201627 Apr 2046

3

30

10

89

0.610

100

21 Oct 2016

26 Oct 2046

F311

3

3

27

0.015

100

27 Apr 201626 Apr 2019

F312

5

20

178

0.020

100

27 Apr 2016

27 May 2021

F313

6

3

27

0.030

100

27 Apr 2016

10 Nov 2021

F314

6

3

27

0.041

100

27 Apr 2016

26 Nov 2021

F315

6

6

54

0.041

100

27 Apr 201629 Nov 2021

JFM Annual Report 2017 | 106

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

F316

6

3

0.041

100

27 Apr 2016

30 Nov 2021

F317

7

20

178

0.068

100

27 Apr 2016

20 Mar 2023

F318

21

3

27

0.321

100

27 Apr 201628 Apr 2037

F319

25

3

27

0.385

100

27 Apr 2016

19 Mar 2041

F320

5

15

134

0.020

100

28 Apr 201626 Feb 2021

F321

6

3

27

0.036

100

28 Apr 201619 Nov 2021

F322

6

3

27

0.041

100

28 Apr 2016

26 Nov 2021

F323

6

3

27

0.041

100

28 Apr 201629 Nov 2021

F324

6

3

27

0.041

100

28 Apr 2016

30 Nov 2021

F325

6

6

54

0.030

100

28 Apr 201628 Apr 2022

F326

6

3

27

0.010

100

27 Jul 201615 Feb 2022

F327

6

3

27

0.009

100

27 Jul 201625 Feb 2022

F328

6

3

27

0.009

100

28 Jul 201628 Feb 2022

F329

6

3

27

0.010

100

27 Jul 2016

27 Jul 2022

F330

7

3

27

0.025

100

27 Jul 2016

27 Jul 2023

F331

7

3

27

0.025

100

28 Jul 2016

28 Jul 2023

F332

13

3

27

0.081

100

28 Jul 201620 Feb 2029

F333

23

3

27

0.183

100

27 Jul 2016

28 Jul 2039

F334

5

5

45

0.001

100

28 Jul 2016

27 Aug 2021

F335

6

5

45

0.023

100

27 Jul 201628 Feb 2022

F336

6

5

45

0.023

100

28 Jul 201628 Feb 2022

F337

6

3

27

0.023

100

29 Jul 201628 Feb 2022

F338

7

20

178

0.044

100

28 Jul 201620 Jun 2023

F339

17

6

54

0.130

100

28 Jul 201628 Feb 2033

F340

29

3

27

0.232

100

28 Jul 201626 Jan 2046

F341

40

10

89

0.485

100

28 Jul 2016

28 Jul 2056

F342

7

20

178

0.050

100

27 Oct 2016

27 Oct 2023

F343

12

3

27

0.115

100

27 Oct 2016

27 Oct 2028

F344

19

3

27

0.404

100

27 Oct 2016

19 Mar 2036

F345

40

3

27

0.779

100

27 Oct 2016

27 Oct 2056

F346

5

15

134

0.001

100

28 Oct 2016

26 Nov 2021

F347

5

7.5

67

0.001

100

28 Oct 201628 Jan 2022

F348

11

3

27

0.051

100

31 Oct 2016

31 May 2027

F349

19

3

27

0.406

100

31 Oct 2016

31 Mar 2036

F350

29

3

27

0.596

100

28 Oct 201627 Apr 2046

F351

40

3

27

0.771

100

28 Oct 2016

27 Oct 2056

F352

9

20

178

0.189

100

27 Jan 201719 Dec 2025

F353

15

3

27

0.427

100

27 Jan 201728 Jan 2032

F354

21

3

27

0.681

100

27 Jan 201718 Sep 2037

Note 1. 3m¥L+10bp

JFM Annual Report 2017 | 107

Appendix / JFM Data

27

Financial Section

Maturity Date

JFM’s Role in
Local Government Finance

Issue Date

Management Structure

Issue Price(%)

Operations

Coupon (%)

Review and Plan

Issue Size

SeriesNumberAppendix
JFM Data

Appendix

2. Private placements with Pension Fund Association for Local Government Officials(1) Pension Fund Association for Local Government Officials
Issue Size

SeriesNumber

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

A75

10

20

178

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

0.100

100

21 Apr 201621 Apr 2026

A76

10

20

178

0.115

100

26 May 2016

26 May 2026

A77

10

20

178

0.105

100

20 Jun 201619 Jun 2026

A78

10

10

89

0.069

100

22 Jul 2016

22 Jul 2026

A79

10

10

89

0.105

100

19 Aug 201619 Aug 2026

A80

10

10

89

0.125

100

20 Sep 201618 Sep 2026

A81

10

10

89

0.105

100

21 Oct 2016

21 Oct 2026

A82

10

10

89

0.145

100

25 Nov 2016

25 Nov 2026

A83

10

10

89

0.185

100

19 Dec 201618 Dec 2026

A84

10

10

89

0.220

100

24 Jan 201722 Jan 2027

A85

10

10

89

0.270

100

20 Feb 201719 Feb 2027

A86

10

10

89

0.260

100

28 Mar 2017

26 Mar 2027

D1

20

20

178

0.382

100

21 Apr 201621 Apr 2036

D2

20

20

178

0.338

100

26 May 2016

26 May 2036

D3

20

20

178

0.293

100

20 Jun 201620 Jun 2036

D4

20

10

89

0.190

100

22 Jul 2016

22 Jul 2036

D5

20

10

89

0.432

100

19 Aug 201619 Aug 2036

D6

20

10

89

0.453

100

20 Sep 201619 Sep 2036

D7

20

10

89

0.463

100

19 Oct 201617 Oct 2036

D8

20

10

89

0.493

100

25 Nov 2016

25 Nov 2036

D9

20

10

89

0.589

100

16 Dec 201616 Dec 2036

D10

20

10

89

0.665

100

24 Jan 201723 Jan 2037

D11

20

10

89

0.778

100

20 Feb 201720 Feb 2037

D12

20

10

89

0.741

100

28 Mar 201727 Mar 2037

(2) Other pension funds and mutual aids for local government officials
Issue Size

SeriesNumber

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

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

B6

10

2

18

0.100

100

21 Apr 201621 Apr 2026

B7

10

B8

10

2

18

0.115

100

26 May 2016

26 May 2026

2.5

22

0.105

100

20 Jun 201619 Jun 2026

Appendix / JFM Data

B9

10

4

36

0.069

100

22 Jul 2016

22 Jul 2026

B10

10

5.5

49

0.105

100

19 Aug 201619 Aug 2026

B11

10

2.5

22

0.125

100

20 Sep 201618 Sep 2026

B12

10

2

18

0.105

100

21 Oct 2016

21 Oct 2026

B13

10

4

36

0.145

100

25 Nov 2016

25 Nov 2026

B14

10

2.5

22

0.185

100

19 Dec 201618 Dec 2026

B15

10

6

54

0.220

100

24 Jan 201722 Jan 2027

B16

10

5

45

0.270

100

20 Feb 201719 Feb 2027

B17

10

3.5

31

0.260

100

28 Mar 2017

26 Mar 2027

C6

20

4.5

40

0.382

100

21 Apr 201621 Apr 2036

C7

20

4.5

40

0.338

100

26 May 2016

26 May 2036

C8

20

5

45

0.293

100

20 Jun 201620 Jun 2036

JFM Annual Report 2017 | 108

Tenor(yr)(JPY billions)(USD millions)Issue Price(%)

Issue Date

Maturity Date

C9

20

12.1

108

0.190

100

22 Jul 2016

22 Jul 2036

C10

20

C11

20

8.9

79

0.432

100

19 Aug 201619 Aug 2036

4.5

40

0.453

100

20 Sep 201619 Sep 2036

C12
C13

20

4

36

0.463

100

19 Oct 201617 Oct 2036

20

6.5

58

0.493

100

25 Nov 2016

25 Nov 2036

C14

20

4.9

44

0.589

100

16 Dec 201616 Dec 2036

C15

20

14.6

130

0.665

100

24 Jan 201723 Jan 2037

C16

20

7.5

67

0.778

100

20 Feb 201720 Feb 2037

C17

20

5.5

49

0.741

100

28 Mar 201727 Mar 2037

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

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

83

10

20

178

0.020

100

18 Apr 201617 Apr 2026

84

10

20

178

0.020

100

23 May 2016

22 May 2026

85

10

20

178

0.010

100

25 Jun 201615 Jun 2026

86

10

20

178

0.005

100

19 Jul 201617 Jul 2026

87

10

20

178

0.010

100

16 Aug 2016

14 Aug 2026

88

10

20

178

0.010

100

14 Sep 2016

14 Sep 2026

89

10

20

178

0.005

100

18 Oct 201616 Oct 2026

90

10

20

178

0.005

100

21 Nov 2016

20 Nov 2026

91

10

20

178

0.085

100

14 Dec 201614 Dec 2026

92

10

20

178

0.115

100

19 Jan 201619 Jan 2027

93

10

20

178

0.174

100

15 Feb 201615 Feb 2027

94

10

20

178

0.145

100

15 Mar 2016

15 Mar 2027

6

8

60

535

0.001

100.1827 Sep 201627 Sep 2024

7

8

60

535

0.095

100

24 Feb 201624 Feb 2025

18

6

70

625

0.001

100.3230 May 2016

30 May 2022

19

6

70

625

0.001

100.6229 Jul 201629 Jul 2022

20

6

60

535

0.001

100.3

28 Oct 2016

28 Oct 2022

7

4

40

357

0.001

100.4

30 Jun 2016

30 Jun 2020

JFM’s Role in
Local Government Finance

Tenor
(yr)

Management Structure

SeriesNumberOperations

Coupon (%)

Review and Plan

Issue Size

SeriesNumberFinancial Section

Outstanding International Bonds
1. JFM bonds(as of 31 March 2017)
Tenor
(yr)

FormatCurrency

Issue Size(in millions)

CouponIssue Price(%)

Issue Date

Maturity Date

1

5

Euro

USD

105

3mL+73bp100

17 Jan 201217 Jan 2017

2

5

Euro

USD

40

2.035%

100

12 Jan 201212 Jan 2017

3

5

Euro

USD

57

2.00%

100

17 Jan 201217 Jan 2017

4

5

Euro

USD

35

3mL+75bp100

17 Jan 201217 Jan 2017

5

5

Euro

USD

30

3mL+75bp100

19 Jan 201219 Jan 2017

6

5

Euro

USD

51

3mL+70bp100

18 Jan 201218 Jan 2017

7

5

Euro

USD

20

2.00%

100

23 Jan 201223 Jan 2017

JFM Annual Report 2017 | 109

Appendix / JFM Data

SeriesNumberAppendix
JFM Data

AppendixSeriesNumberTenor(yr)FormatCurrency

Issue Size(in millions)

CouponIssue Price(%)

Issue Date

Maturity Date

8

5

Euro

USD

20

3mL+73bp100

23 Jan 201223 Jan 2017

9

5

Euro

USD

20

3mL+70bp100

19 Jan 201219 Jan 2017

10

5

Euro

USD

20

3mL+75bp100

18 Jan 201218 Jan 2017

40

3mNZD-BBRFRA+113bp

100

24 Jan 201224 Jan 2017

11

5

Euro

NZD

12

5

Euro

USD

20

3mL+69bp100

26 Jan 201226 Jan 2017

13

5

Euro

USD

20

3mL+70bp100

24 Jan 201224 Jan 2017

14

5

Euro

USD

25

1.84%

100

1 Mar 2012

1 Mar 2017

15

7

Euro

USD

20

2.40%

100

1 Mar 2012

1 Mar 2019

16

5

Euro

USD

25

1.8725%100

1 Mar 2012

1 Mar 2017

17

5

Euro

USD

30

3mL+70bp100

1 Mar 2012

1 Mar 2017

18

5

Euro

USD

25

3mL+70bp100

1 Mar 2012

1 Mar 2017

19

5

Euro

USD

20

1.89%

100

1 Mar 2012

1 Mar 2017

20

5

Euro

USD

40

3mL+70bp

100

6 Mar 2012

6 Mar 2017

21

5

Euro

USD

30

3mL+70bp

100

6 Mar 2012

6 Mar 2017

22

5

Euro

USD

25

3mL+70bp

100

6 Mar 2012

6 Mar 2017

23

5

Euro

USD

30

3mL+70.5bp

100

6 Mar 2012

6 Mar 2017

24

5

Euro

USD

30

3mL+70bp

100

8 Mar 2012

8 Mar 2017

25

5

Euro

USD

30

3mL+70bp

100

6 Mar 2012

6 Mar 2017

26

5

Euro

AUD

20

3mBBSW+115bp

100

13 Mar 2012

13 Mar 2017

27

5

Euro

USD

30

3mL+70bp

100

8 Mar 2012

8 Mar 2017

28

5

Euro

USD

20

1.85%

100

13 Mar 2012

13 Mar 2017

29

5

Euro

USD

327

3mL+65bp100

22 May 2012

22 May 2017

30

7

Euro

USD

130

3mL+70bp

100

6 Jun 2012

6 Jun 2019

31

5

Euro

USD

1,000

1.500%

100

12 Sep 201212 Sep 2017

32

5

Euro

USD

100

3mL+52bp100

7 Nov 2012

7 Nov 2017

33

5

Euro

USD

1,000

1.375%

99.544

5 Feb 2013

5 Feb 2018

34

5

Euro

AUD

100

3.65%

99.99

25 Mar 2013

23 Mar 2018

35

5

Euro

USD

105

1.375%

99.95218 Apr 201318 Apr 2018

Appendix / JFM Data

36

5

Euro

AUD

100

3mBBSW+83bp

100

21 May 2013

21 May 2018

37

1.5

Euro

USD

200

3mL+17bp100

28 May 201328 Nov 2014

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

4.20%

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

44

10

Euro

USD

90

3.250%

99.055

1 May 2014

2 May 2024

45

7

Euro

EUR

1,000

0.875%

99.29322 Sep 2014

22 Sep 2021

46

3

Euro

NZD

105

3.86%

99.98

20 Nov 2014

20 Nov 201747

10

GlobalUSD

1,000

2.375%

99.611

13 Feb 2015

13 Feb 2025

48

10

Euro

AUD

70

3.600%

100

18 Mar 201518 Mar 2025

49

7

GlobalUSD

1,000

2.000%

99.39121 Apr 2015

21 Apr 2022

50

5

Euro

USD

13

2.01%

99.99

21 Dec 201521 Dec 2020

51

5

Euro

AUD

95

3.06%

99.99

21 Dec 201521 Dec 2020

52

5

Global

USD

500

2.13%

99.77412 Feb 2016

12 Feb 2021

53

5

Global

USD

1,500

2.13%

99.78

13 Apr 201613 Apr 2021

54

7

Global

USD

1,000

2.13%

99.29725 Oct 2016

25 Oct 2023

55

5

Euro

USD

53

2.39%

99.99

30 Jan 201728 Jan 2022

56

5

Euro

AUD

106

3.040%

99.99

30 Jan 201728 Jan 2022

JFM Annual Report 2017 | 110

Appendix
JFM Data

JFM Data

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.

Operations

FY2008

Review and Plan

Organization History

History of the Predecessor

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 2017 | 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

Appendix
JFM Data

JFM Data

Organization Chart
As of 1 April 2017
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)

Local Government
Support Department

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

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 2017 | 112

(As of 1 July 2017)

President and CEO
Kinya Takino
Deputy President
Yutaka Endo
Senior Executive Directors Eiichi Sugimura, Toru Nojima, Junichi Yoshitake (part-time)
Corporate Auditors
Koichi Kato, Masaharu Hamakawa (part-time)

Review and Plan

Directors and Corporate Auditors

Operations

Contact Information

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

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

Financial Section
Appendix / JFM Data

JFM Annual Report 2017 | 113