Japan Finance Organization for Municipalities
Annual Report 2009This report was prepared in accordance with the universal design concept to facilitate legibility for as many
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Annual Report 2009
Japan Finance Organization for Municipalities

Profile
Name

Japan Finance Organization for Municipalities (JFM)

Governing Law

The Japan Finance Organization for Municipalities Law
August 1, 2008

Establishment(JFM commenced operations on October 1, 2008, succeeding to
the assets and liabilities of the former Japan Finance Corporation for
Municipal Enterprises. On June 1, 2009, the name was changed toJapan Finance Organization for Municipalities from Japan Finance
Organization for Municipal Enterprises.)President and CEO

Yuji Watanabe

Number of Employees

79 (as of April 2009)

Address

Shisei Kaikan, 1-3 Hibiya Koen, Chiyoda-ku, Tokyo

URL

http://www.jfm.go.jp

Outstanding Loan Balance¥22,215.2 billion (as of the end of fiscal 2008)

Outstanding Bond Balance¥18,998.9 billion (as of the end of fiscal 2008)

Capital¥16.6 billion (contributed by all local governments in Japan)

Ratings

S&P : AA (stable)
Moody’s : Aa2 (stable)
R&I : AAA (negative)(As of July 22, 2009)

Forward-looking statements including JFM’s plan in this booklet are based on information available
for JFM at this time and involve potential risks and uncertainties. Actual results, therefore, may differ
from those described in this booklet due to changes in a variety of factors, such as market trends,
economic conditions and regulations. Accordingly, readers are advised to use their own discretionand exercise great caution when making investment decisions.
The translation of the Japanese yen amounts into U.S.Dollars is included solely for the convenienceof readers outside Japan, using the prevailing exchange rate as of March 31, 2009, which was¥98.50 to US$1.

Japan Finance Organization for Municipalities

Annual Report2009
CO N T E N T S

Message from the President and CEO .. 2Management Philosophy .................. 4

Organization Profile ................5Internal Management System ...43

Profile of JFM ...................................................... 6

Risk Management
1.Overall Risk Management(1)Integrated Risk Management and Risk
Management System ................................ 44

Capital ............................................................... 8
Corporate Governance
1.Representative Board ..................................... 92.Supervisory Committee .................................10
3.Audit by External Auditors .............................10
JFM Organization ...............................................11
Establishment and Reorganization of JFM
1.Reform of Policy-based Finance andEstablishment of JFM ......................................12
2.Reorganization of JFM ................................ 15(2)Characteristics of JFM’s Risks and Interest Rate
Risk Management ...................................... 44
2.Individual Risk Management(1)Credit Risk ................................................ 45(2)Market Risk .............................................. 46(3)Liquidity Risk ............................................. 47(4)Operational Risk ....................................... 48
Internal Control over Financial Reporting.............. 49

Operations Overview .............17
Lending Operations
1.Target of Loans..............................................18
2.Type of Loans .............................................. 20
3.Loan Interest Rates........................................ 20
4.Loan Maturity .............................................. 22
5.Credit Review System ................................... 23
6.Interest Rate Reduction by Utilizing the Fund for
Improvement of Operations of Municipalities .... 23
7.Overview of Lendig Operations ...................... 24
8.Lending Operations in Fiscal 2008................ 26
9.Overview of Entrusted Loans in Fiscal 2008 ... 32
10.Plan of Lending Operations for Fiscal 2009 ... 32
Local Government Support Operations
1.Basic Policy .................................................. 33
2.Specific Action Plan ..................................... 33
3.Projects Planned for Fiscal 2009 ................... 34
Fund-Raising Operations
1.Type of JFM Bonds ....................................... 35
2.Basic Stance on Issuance of JFM Bonds ......... 36
3.Characteristics of JFM Bonds......................... 37
4.Trend of Fund-Raising Operations .................. 38
5.Fund-Raising Operations in Fiscal 2008......... 39
6.Plan of Fund-Raising Operations for Fiscal 2009 ... 42

Internal Audits .................................................... 50
Compliance ........................................................51
Disclosure ......................................................... 52

Financial Section.....................53
Financial Statements ............................................ 54
Report of Independent Auditors .............................73
Supplementary Information ...................................74

Appendices / JFM data ..........79
Appendices
Results of Lending Operations in Fiscal 2008 ...... 80
Long-term Loans Outstanding at the End of
Fiscal 2008 ......................................................81
Long-term Loans Outstanding at the End of
Fiscal 2008 (Breakdown by Prefecture) .............. 82
Basics of Local Government Finance andJFM’s Role .................................................... 84
JFM Data
Organization History ..................................... 88
Executive Officers and Corporate Auditors ....... 89

Japan Finance Organization for Municipalities DISCLOSURE 20091

Message from the President and CEO

Review of Fiscal Year 2008
Japan Finance Organization for Municipalities (JFM) wasestablished on August 1, 2008, with capital contributed by
all local governments in Japan, as “a joint fund-raisingorganization of local governments, by local governments,and for local governments,” with the aim of contributing to
the sound fiscal management of local governments and thepromotion of the welfare of local residents by providing
long-term and low-interest funds for local governments.
On October 1, JFM commenced operations, succeeding
to the assets and liabilities of the former Japan FinanceCorporation for Municipal Enterprises (hereinafter, “theformer JFM”), which was abolished as part of the reform ofpolicy-based finance. During fiscal 2008, JFM made loans
to local governments and raised the necessary funds. Since
JFM succeeded to the financial foundation from the former
JFM, I believe we were able to make a good start in ouroperations.
I would like to express my sincere appreciation to all theparties concerned.

Reorganization from Japan Finance Organization
for Municipal Enterprises to Japan Finance
Organization for Municipalities
Shortly after we began operations, the proposal for the“creation of a financial organization jointly owned by
local governments for the purpose of providing long-termand low-interest funds for local governments (generalaccount)” was incorporated into the economic policy
package put together by the national government andthe ruling party on October 30, 2008. As a result of
deliberations on this proposal within the national
government, a bill, which included the provisions for
expansion of JFM’s scope of lending and a change inthe organization name, was submitted to the Diet, andwas passed in March 2009.

2

Japan Finance Organization for Municipalities DISCLOSURE 2009

As a result, on June 1, 2009, Japan Finance Organization for Municipal Enterprises was reorganized as
Japan Finance Organization for Municipalities, and thescope of lending was expanded to include the generalaccount of local governments, in addition to municipal
enterprises as in the past. Moreover, we have improved
the terms of lending, including extension of loan maturity
and increased application of special interest rates.
As an organization owned jointly by local governments,
JFM can now operate more independently than theformer JFM, and as a result of the expansion of scopeof lending, we are now able to respond to the fundingneeds of local governments in a more timely andappropriate manner.

An organization of local governments, by local
governments, and for local governments
We believe JFM’s mission is to support local governments’ projects, which are closely related to local
residents’ daily lives, by providing long-term andlow-interest funds in a stable manner, and to address
new needs of local governments, adapting quickly tochanging times.

July 2009
Japan Finance Organization for Municipalities
President and CEO

To accomplish this mission, we have established thefollowing three objectives as the management philosophyof JFM.

1. Securing corporate governance befitting a joint
organization of local governments
2. Responding positively to the financial needs of local
governments
3. Gaining the solid confidence of capital markets

JFM’s management and staff will continue to work as one
to accomplish our mission. I look forward to your continued
understanding and support for our efforts.

Japan Finance Organization for Municipalities DISCLOSURE 20093

Management
Philosophy

Japan Finance Organization for Municipalities (JFM) is “a joint fundraising organization of local governments, by local governments,and for local governments,” and sets forth the following threeobjectives as the management philosophy.

1

Securing Corporate Governance Befitting a Joint
Organization of Local Governments
To secure a system under which local governments assume the responsibility
for autonomous and independent management, and ensure corporate
governance through appropriate risk management, and checks by theSupervisory Committee and external auditors.

2

Responding Positively to Financial Needs of Local
Governments
To closely follow up financial needs of local governments and the changes
in the environment for their fund-raising, and positively develop appropriate
services accordingly, and thus achieve the primary objective : the stablesupply of long-term and low-interest funds to local governments.

3

Gaining the Solid Confidence of Capital Markets
To gain solid confidence of capital markets by maintaining appropriate risk
management, sound financial standing, and proper disclosure of information
to capital markets to enable us to raise funds at advantageous terms in astable manner; and to contribute to the sound development of capital markets
as a core issuer in the public bond market.

4

Japan Finance Organization for Municipalities DISCLOSURE 2009

Organization Profile
Operations Overview

Profile of JFM ........................................................... 6
Capital ................................................................... 8

Financial Section

Corporate Governance
1.Representative Board ........................................... 92.Supervisory Committee ....................................... 10
3.Audit by External Auditors ................................... 10Internal Management System

Organization Profile

JFM Organization .....................................................11
Establishment and Reorganization of JFM
1.Reform of Policy-based Finance andEstablishment of JFM ........................................... 12
2.Reorganization of JFM ........................................ 15

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 20095

Organization Profile Profile of JFM

Basic Flow of Lending and Fund-Raising Operations

Outstanding Bond
Balance ¥18.9 trillion

Japan Finance
Organization
for Municipalities(JFM)

Capital Markets

Fund-Raising
JFM Bonds
public offering bonds
with/without government
guarantee and private
placement bonds

Contribution of Proceedsfrom Municipally
Operated Racing

Capital & Management
Participation
Outstanding Loan Balance¥22.2 trillion

Loans
Reserve for Interest
Rate Volatility, etc.

Long-term, Low-interest¥3.4 trillion

Fund for
Improvement of
Operations ofMunicipalities

Part of proceeds frommunicipally operated racing(horse racing, bicycle racing,motorcycle racing,speedboat racing)¥0.9 trillion

Reduction of Interest
Rates by Using
Investment Income

Borrowers
Local
Governments
Municipal
Enterprises
water supply,
sewerage,transportation,
public housing,hospitals, etc.

General
Account

Local Government
Support Operations
Support for local
governments’ fund-raisingin capital markets(Figures are as of the end of fiscal 2008)

6

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Joint Fund-Raising Organization for Local Governments

Financial Section

JFM primarily issues 10-year bonds to raise funds to make long-term loans to local governments,
which creates a significant maturity gap between funding and lending. To cope with the risk of interest
rate fluctuations associated with bond refinancing, JFM maintains the necessary financial foundation
including reserves for interest rate fluctuations (Reserve for Interest Rate Volatility).
At the time of the establishment of JFM, we succeeded to the Reserve for Losses on Refinance ofBonds, which the former JFM held for the same purpose, in the full amount of approximately ¥3.4
trillion (US$35.3 billion). Thus, JFM has a financial foundation that allows it to secure the continuity ofoperations into the future.

Internal Management System

Solid Financial Foundation

Operations Overview

As a general rule, each local government is supposed to raise its own funds in capital markets orfrom private financial institutions, but it is also necessary to provide a safety net function so that
local governments with weaker fiscal power do not experience difficulty in raising funds. Moreover,
improvements to local governments’ social infrastructure require a long period of time to recoup thecapital expenditures and to equalize the burden across generations, and thus it is often desirable toraise long-term funds. However, while the number of local governments endeavoring to raise funds incapital markets for longer terms of 20 and 30 years has been increasing, a 10 years or shorter terms
are still common.
Because of this, we issue JFM bonds (primarily 10-year maturity) to raise funds in capital markets
and thus ensure a stable supply of long-term (average of about 25 years) and low-interest funds tolocal governments, thereby fulfilling our duty of complementing individual local governments’ fundraising in capital markets.
As a rule, JFM Bonds are not guaranteed by the national government. However, those bonds,
which we issue to refinance the bonds originally issued by the former JFM with government guarantee,
will continue to be guaranteed by the national government.

Reduction of Interest Rates by Utilizing Fund for Improvement of Operations ofMunicipalities

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

JFM also succeeded to the Fund for Improvement of Operations of Municipalities (formerly, the Fundfor Improvement of Operations of Municipal Enterprises) from the former JFM. This fund is comprised ofcontributions made by local governments, who operate racing (horse racing, bicycle racing, motorcycle
racing and speedboat racing) and contribute to the fund a portion of the resulting earnings. The investment
income of the fund is used to reduce interest rates on loans made to local governments.

7

Organization Profile Capital

The former JFM was a special semi-governmental corporation whose capital was contributed entirelyby the national government. In contrast, JFM was established by local governments themselves as anautonomously managed organization and thus is capitalized solely by local governments.
At the time of its establishment, JFM received contributions in the amount of ¥16.6 billion (US$168.5
million) from all local governments (prefectures, government-designated cities, cities, special wards ofTokyo, towns and villages – 1,857 in total at that time).

Capital Contribution by Type of Local Government

Towns and Villages¥1.09 billion (6.5%)

Cities and Special Wards of Tokyo(excluding Government-designated Cities)

Prefectures¥6.4 billion (38.5%)¥6.42 billion (38.7%)

Cities and Special
Wards of Tokyo

Government-designated Cities¥2.7 billion (16.3%)¥9.12 billion(55.0%)*Note: Total of contribution amounts does not add up exactly due to rounding off.

8

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile Corporate Governance
Organization Profile

JFM secures responsible corporate governance through the participation of external experts in the Representative Board and the Supervisory Committee, and external auditors’ audit.

Corporate Governance System
Operations Overview

Representative Board
Members: (1) Prefectural governor, city mayor, and town/village mayor elected by the three associations of local governments*(2) External experts elected by the three associations of local governments*
Full Number of Members: six (three from (1) above, and three from (2) above)
Term of Office: three years
Appointment anddismissal of President
and CEO

Appointment of members

Supervisory Committee

External Auditors

President and CEO/
Deputy President

Report on budgets,business plans,medium-term plans, etc.

Audit

(

certified public accountants
or an audit corporation)

Approval of changes to the articles of association anddemand for correction of illegal activities

National Government*Three associations of local governments are National Governors’ Association, Japan Association of City Mayors and National Associationof Towns and Villages.

1.Representative Board(Representatives of Local Governments)* Yuichiro Ito(Governor of Kagoshima Prefecture)

Tamio Mori

(Mayor of Nagaoka City, Niigata Prefecture)

Fumio Yamamoto(Mayor of Soeda Town, Fukuoka Prefecture)*Chairperson(Representatives of External Experts)
Junko Obata(Dean, Sophia Law School)

Naohiko Jinno(Professor, Kwansei Gakuin University)

Tomijiro Morita(Vice Chairman, Nippon Keidanren (Japan Business Federation) and
Chairman of the Board, The Dai-ichi Mutual Life Insurance Company)

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Representative Board (as of June 3, 2009)

Financial Section

As JFM is an organization managed autonomously by local governments, the Representative Board,which is comprised of representatives of local governments, is the supreme decision-making body of
JFM.
Furthermore, to maximize the externality and transparency of the Board, three members, who areexperts in local administration and finance, economics, finance, law or accounting, are selected,
in addition to the same number of members who represent prefectural governors, city mayors, andtown/village mayors, respectively.
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. To fulfill
its supervisory function, the Board also has the authority to order the President and CEO to report on
the organization’s business, assets and liabilities, and to correct illegal activities.

Internal Management System

Members: External experts
Full Number of Member: six
Term of Office: two years

Consultation andsuggestions

Decisions on important matters
including budget, business plans,medium-term plans, etc.

9

2.Supervisory Committee
Local governments are the founders of JFM, who is a lender of funds, and are also its borrowers. In
consideration of this situation, and in order to secure transparency and externality in the management ofJFM, and establish responsible corporate governance, the Supervisory Committee was established
as a committee for deliberation comprised of external experts.
The Supervisory Committee is comprised of experts in local administration and finance, economics,
finance, law, or accounting, and other experts in the academic world, and all are appointed by the
Representative Board.
The Supervisory Committee has the function of monitoring the operations of JFM, and can offer
its opinion on important matters related to the operations of the organization including budgets,settlement of accounts, business plans, etc. The Committee can also, if deemed necessary, request
the President to report on those matters. The President has the duty of reporting the Committee’s
opinions to the Representative Board and respecting those opinions.

Supervisory Committee Members (as of June 3, 2009)*Chairperson
Osamu Kurihara

Mari Nishino(Counsel, Nishimura & Asahi)(Professor Emeritus, Meiji University)

Izumi Kuwano*Yoshitsugu Hayashi(Chairperson,Yufuin Hot Spring Tourism Association; Representative Director and President, Tamanoyu Corporation)(Professor, Kwansei Gakuin University)

Seiji Dezuka(Chairperson, Naigaijoseichosakai)

Seizo Wakabayashi(Certified Public Accountant, Dezuka Accounting Office)

3.Audit by External Auditors
As JFM raises funds in capital markets, proper disclosure of information and external checks on
accounting procedures are essential in order to earn the confidence of the markets and raise funds
at low cost.
From this point of view, JFM is required to have its financial statements and a report on settlementof accounts audited not only by a corporate auditors, but also by external auditors (certified public
accountants or an audit corporation) appointed by the Representative Board.

10

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile JFM Organization
Organization Profile

The organization of JFM consists of the Representative Board, executive officers reporting to theRepresentative Board, such as President and CEO, Deputy President, Senior Executive Directors,
Corporate Auditors, and four departments, eleven divisions and offices, and an internal auditor.

… Secretariat, personnel

Corporate
Planning… Corporate planning, budget control, matters

Risk Management … Integrated risk management, ALM operations,systems management

Representative Board

ResearchPresident and CEO
Deputy President
Senior Executive
Directors… Support operations for local governments’fund-raising, public relations, research study,
disclosure of information and protection of
personal information
General Affairs

Administration
Department… Budgets, settlement of accounts, matters related

Finance… Fund-raising planning, fund-raising operations

Internal Auditor

Funding
Administration

to contributions from municipally operated
racing, accounting, receipts and disbursements,
external audit, disclosure of financial status… Funding administration and management of fundinvestment

Lending
Management… Planning and control of lending operations,

Loan
Administration…Lending operations (excluding municipal

Credit Researchand Analysis…Credit analysis, credit management, periodic

calculation and setting of interest rates, lending
operations (excluding those operations
performed by Loan Administration Division)enterprises with the exception of public housing),
management of loan receivables, collection of loan
principal and interest, entrusted loan operations

on-site credit review

Appendices / JFM Data

Loan
Department

benefits

Financial Section

Finance
Department… General affairs including compensation andAccounting

Corporate
Auditors

Supervisory
Committee

related to the Representative Board andSupervisory Committee, communication andcoordination with other organizations

Internal Management System

Corporate
Planning
Department

Personal andSecretariat

Operations Overview

As of June 1, 2009…………………………Internal audit

Japan Finance Organization for Municipalities Annual Report 200911

Organization Profile Establishment andReorganization of JFM

1.Reform of Policy-based Finance and Establishment of JFM(1) Reform of Special Public Institutions and Policy-based Finance
The “General Principles of Administrative Reform,” which was approved by the cabinet on
December 1, 2000, stipulated that the overall business and organization of all special public
institutions should be reviewed thoroughly in light of internal and external changes in society
and the economy. Following these principles, the “Basic Law on Special Public Institutions” waspassed in 2001, and the “Reorganization and Rationalization Plan for Special Public Institutions”
was approved by the cabinet in December of the same year.
The above plan stipulated that eight government financial institutions, including the former
JFM, would be subject to complete review based on the principles: (1) complement of private
business; (2) minimization of fiscal expenditures; and (3) integration and rationalization of both
institutions and operations. The Council on Economic and Fiscal Policy undertook this issue forfurther deliberations.
The Council on Economic and Fiscal Policy proceeded with deliberations in 2002 and,considering the financial and economic conditions at that time, set forth the following three-stepplan for carrying out the reform in the report titled “On the Reform of Policy-based Finance”
in December of the same year: (1) utilize policy-based finance for financial stability during theperiod of concentrated disposal of non-performing loans through fiscal 2004 year-end; (2) use
the period from fiscal 2005 to fiscal 2007 to prepare for transition to the final step; and (3) moveswiftly to the new system from fiscal 2008.

(2) Priority Policy for Administrative Reform and the Administrative Reform Promotion Law
In 2005, the discussions on the reform of policy-based finance restarted and the Council on
Economic and Fiscal Policy proceeded with deliberations. On November 29 of the same year,
the Council on Economic and Fiscal Policy compiled the “Basic Policy on the Reform of Policybased Finance” that included the goals of reducing by half the ratio of outstanding amountof policy-based finance to GDP in fiscal 2008, and consolidating the government financial
institutions. In addition, in the area of the former JFM, the above policy stipulated that the former
JFM should be abolished, and the function of joint bond issuance for local governments, which
did not require the policy-based finance scheme, should be performed in a new structure thatwould utilize capital markets.
On the same day, the national government and the ruling party agreed to the above policy
and set forth certain transitional measures to secure the necessary financial foundation in
preparation for the abolition of the former JFM.
The content of the above was also included in the “Priority Policy for Administrative Reform,”
which was approved by the cabinet on December 24 of the same year, and under the provisionsof the “Administrative Reform Promotion Law,” which was submitted to the Diet in March andwas passed in May 2006, the abolition of the former JFM was set for fiscal 2008.

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Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile(3) Proposals from the Six Associations of Local Governments

Internal Management System
Financial Section* The Six Associations of Local Governments are National Governors’ Association, National Association of Chairpersonsof Prefectural Assemblies, Japan Association of City Mayors, National Association of Chairpersons of City Councils,
National Association of Towns & Villages, National Association of Chairmen of Town and Village Assemblies

Operations Overview

Regarding the structure after the abolition of the former JFM, the six associations of local
governments* made a proposal to establish a joint organization of local governments as a
joint fund-raising organization on a national basis, at the “Conference on Local Government
Finances between the Minister for Internal Affairs and Communications and the Six Associationsof Local Governments” held on May 17, 2006. Furthermore, on June 7, the six associations oflocal governments submitted the “Opinions about Promotion of Decentralization of Power” inaccordance with the provisions of the Local Autonomy Act, and contained therein was a proposal
for “establishment of a joint organization for raising funds for local governments as a whole.”
Based on these discussions, on June 27 of the same year, the Headquarters for the Promotion of
the Reform of Policy-based Finance and the Headquarters for Administrative Reform set forth theplan titled “System Design for Policy-based Financial Reforms,” which provided that the former
JFM would be abolished in fiscal 2008 and a new organization for raising funds would beestablished jointly by local governments themselves. Additionally, it stipulated that the national
government would not provide any new capital or guarantee and would not become involved inany respect under the new structure, and that the existing assets and liabilities of the former JFM
would, after the due diligence process, be appropriately transferred to and managed by the neworganization.”
Subsequently, from August 2006, the six associations of local governments continued to giveconsideration to this issue. On October 31, at the “Conference on Local Government Finances
between the Minister for Internal Affairs and Communications and the Six Associations of Local
Governments,” the “Local Governments’ Proposal” for the design of the new system was submitted.
The proposal included the following provisions: capital contribution by all local governments;
corporate governance by a representative board comprised of prefectural governors, city mayors,
and town/village mayors and a managerial discipline committee (provisional name) comprised ofexternal experts; succession to the full amount of reserves, as the financial foundation; and local
governments jointly assuming responsibility for management of the new organization.

(4 ) Establishment of JFM

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

As a result of internal deliberations on the Local Governments’ Proposal, the national government
approved the provisions for “establishment of a new organization after abolition of the former JFM”
and “securing financial foundation for the new organization after the abolition of the former JFM,”
which were incorporated in the fiscal 2007 local government fiscal measures. Included therein
was the transfer to the new organization of the Reserve for Losses on Refinance of Bonds in the fullamount of approximately ¥3.4 trillion (US$35.3 billion) at the time of transition, in order to ensure
the stable operations of the new organization in the future, as well as appropriate management of theoutstanding bonds issued by the former JFM. The Japan Finance Organization for Municipal Enterprises

13

Bill, which incorporated the above provisions, was approved by the cabinet in February andbecame law in May 2007.
In November 2007, the six associations of local governments established a committee topromote JFM. The committee was comprised of the heads of the six associations of local
governments, and met five times to nominate the President and CEO, to prepare the articles ofassociation and business plan, and to solicit for capital contributions.
On June 24, 2008, authorization to establish the new organization was received from
the Minister for Internal Affairs and Communications. On July 29, capital of ¥16,602.1 million(US$168.5 million) was paid up by all the local governments, and on August 1, JFM wasformally established and registered.

(5) Subsequent Events after the Establishment of JFM
On October 1, 2008, the former JFM was abolished, and on the same day, JFM began
operations, succeeding to the assets and liabilities of the former JFM. Shortly thereafter, on
October 30, the national government and the ruling party set forth the “Measures to Counter
Difficulties in People’s Daily Lives,” which was incorporated in the economic policy package.
Included therein were support measures for local governments such as emergency grants of¥600 billion (US$6,091.4 million) to revitalize local areas. Out of the ¥600 billion, ¥300
billion (US$3,045.7 million) was to come from JFM, and in particular, the Management
Account Reserve for Interest Rate Volatility.
This contribution to local areas was based on Article 14 of the supplementary provisionsof the Japan Finance Organization for Municipal Enterprises Law, and also resulted fromprojections that a sound financial foundation would be maintained for smooth managementof the assets of the former JFM, even if the payment were made to the national treasury.
JFM’s supplementary budget including this payment to the national treasury was approvedat the fourth Representative Board meeting in January 2009, and the payment to the nationaltreasury was made in March of the same year.

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Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

2.Reorganization of JFM(1) Background of the Reorganization
Operations Overview
Internal Management System

The “Measures to Counter Difficulties in People’s Daily Lives,” which was approved by the national
government and the ruling party in October 2008, included the proposal, as a support measure for
local governments, that “establishment of a joint financial institution which could provide long-termand low-interest funds for local governments (general account) should be considered.” At therequest of the Minister for Internal Affairs and Communications, the Local Public Finance Council
brought this matter under deliberation, and in December 2008 made a proposal to expand
JFM’s function to create a joint financial institution that could autonomously lend funds to local
governments, including the general account.
Based on this proposal, and as a result of deliberations within the national government, a billthat would revise part of the Local Allocation Tax Law was submitted to the Diet. The bill included
provisions that the scope of lending operations of JFM should be expanded to support local governments in raising long-term and low-interest funds for the general account, and that the nameof the organization should be changed to Japan Finance Organization for Municipalities. The bill
was passed and was subsequently promulgated on March 31, 2009 and became effective on
June 1. As a result, “Japan Finance Organization for Municipal Enterprises” was reorganized as“Japan Finance Organization for Municipalities.”(2 ) Specific Details of the Changes

The organization’s name has been changed to “Japan Finance
Organization for Municipalities.”

Financial Section

The organization’s name has been changed.

The scope of lending has been expanded.
The scope of lending has been expanded to include thegeneral account, in addition to municipal enterprises, whichhave been the primary target of lending.

The maximum term to maturity has been extended to 30 years,
and the extra special interest rates will be applied for funding
for the general account.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

The terms of lending have been improved.

15

[1] Name Change
The name of the organization has been changed from “Japan Finance Organization for
Municipal Enterprises” to “Japan Finance Organization for Municipalities” to reflect thefact that we can now provide funds not only for projects of municipal enterprises, butalso for overall operations of local governments, as a result of the expansion of the scopeof lending to include the general account. The abbreviation remains “JFM” as previously
used.

[2] Expansion of the Scope of Lending
The main target of lending used to be municipal enterprises, while lending for generalaccount-related projects was limited to the three categories of local road construction,
improvement of rivers and other waterways, and high school construction.
Now, with the inclusion of the general account into the scope of lending, JFM can respondto the financing needs of local governments in a more timely and appropriate manner. JFM
can also respond flexibly to extraordinary financial countermeasure funding needs of local
governments to cover shortfalls caused by disruption in domestic and international financial
systems, or changes in economic conditions.
In fiscal 2009, specific targets of lending include independent general account-related
projects initiated autonomously by local governments, such as regional revitalization
projects, disaster prevention projects and special municipal merger projects, in addition to
the existing three special projects. As for extraordinary financial countermeasure funding,which is expected to increase rapidly, JFM plans to lend mainly to cities, towns and villages,
which are likely to face difficulties in raising long-term funds.

[3] Improved Lending Terms
As a joint organization of local governments, JFM is now able to act more flexibly than theformer JFM, in setting loan maturities and interest rates. At the time of the reorganization,
the maximum term to maturity was extended from 28 years to 30 years. The extra special
interest rates will be applied to loans for general account-related projects including theexisting three special projects. JFM will endeavor to continue responding appropriately to
local governments’ needs.

16

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile
Operations Overview
Financial Section

Lending Operations
1.Target of Loans ............................................... 18
2.Type of Loans ................................................. 20
3.Loan Interest Rates ........................................... 20
4.Loan Maturity ................................................. 22
5.Credit Review System ...................................... 23
6.Interest Rate Reduction by Utilizing the Fund for
Improvement of Operations of Municipalities ...... 23
7.Overview of Lending Operations......................... 24
8.Lending Operations in Fiscal 2008.................... 26
9.Overview of Entrusted Loans in Fiscal 2008 ...... 32
10.Plan of Lending Operations for Fiscal 2009 ... 32

Internal Management System

Operations Overview

Local Government Support Operations
1.Basic Policy .................................................... 33
2.Specific Action Plan ......................................... 33
3.Projects Planned for Fiscal 2009 ....................... 34

Appendices / JFM Data

Fund-Raising Operations
1.Type of JFM Bonds .......................................... 35
2.Basic Stance on Issuance of JFM Bonds .............. 36
3.Characteristics of JFM Bonds ............................ 37
4.Trend of Fund-Raising Operations...................... 38
5.Fund-Raising Operations in Fiscal 2008 ............. 39
6.Plan of Fund-Raising Operations for Fiscal 2009.... 42

Japan Finance Organization for Municipalities Annual Report 200917

Operations Overview Lending Operations•Provide loans as “Public Funds” as designated in the Local

Government Bond/Loan Program.
•Provide long-term and low-interest funds for local governments

to efficiently and effectively complement their fund-raising in
capital markets, and by doing so contribute to the sound fiscal
management of local governments as well as the promotionof the welfare of local residents. Also, conduct necessary andappropriate credit reviews for all loans.

1.Target of Loans
The recipients of JFM loans are limited to local governments.
The former JFM provided loans for a total of 21 projects and local government corporations.
At JFM, on the other hand, the total was reduced to 18 projects (lending to local government
corporations was discontinued).
As JFM is now able to provide loans for the general account in addition to municipal enterprises, which have been the main targets of lending, JFM will respond to a wide range offinancing needs of local governments in a more timely and appropriate manner.
Specifically, under the fiscal 2009 Local Government Bond/Loan Program, independent
general account-related projects that local governments initiate autonomously, such as regional
revitalization, disaster prevention, and special municipal merger projects, are now eligible forJFM loans.
Additionally, JFM plans to make loans for extraordinary financial countermeasures funding.

18

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Trend of Scope of Lending
Japan Finance Organization
for Municipal Enterprises

Japan Finance Corporation
for Municipal Enterprises

Japan Finance Organization
for Municipalities

Municipal Enterprise-Related Projects

Water Supply
Transportation• Hospitals • Sewerage• Public Housing• Industrial Water Supply• Electricity Supply • Gas Supply• Ports Facilities• Elderly Care Services• Markets • Slaughterhouses• Tourism Facilities• Parking Facilities• Industrial Waste Processing

Municipal Enterprise-Related Projects
Water Supply
Transportation• Hospitals • Sewerage• Public Housing• Industrial Water Supply• Electricity Supply • Gas Supply• Ports Facilities• Elderly Care Services• Markets • Slaughterhouses• Tourism Facilities• Parking Facilities• Industrial Waste Processing

•

•

•

•

•

General Account-Related Projects
Local Road Construction• Improvement of Rivers and Other Waterways• High School Construction•

Toll Roads
Residential Land Development• Urban Redevelopment••

Ineligible•

Local Government Road Corporation
Local Government Land Development Corporation

General Projects*1
2• Regional Revitalization Projects*• Disaster Prevention Projects*3• Special Municipal Merger Projects*4• Local Road Construction Projects*5, etc.
•

Extraordinary Financial
Countermeasures Funding*6

Loans to Local Government Corporations•

General Account-Related Projects

General Account-Related Projects
Local Road Construction• Improvement of Rivers and Other Waterways• High School Construction•

Ineligible

Regional*2
Revitalization Projects

Regional revitalization projects represent basic infrastructure development projects conducted by
local governments for regional revitalization.

Disaster*3
Prevention Projects

Disaster prevention projects represent those implemented by local governments to promote creationof safe communities that are well prepared for natural disasters.

*4 Special Municipal
Merger Projects

These projects represent those intended to promote autonomous mergers among cities, towns andvillages across the nation, including construction projects implemented by local governments thatmerged under the provisions of the Municipal Merger Law, projects undertaken by local government that merged under the leadership of prefectural governments as stipulated in the provisions of
the new Municipal Merger Law, and transportation infrastructure projects for merged local governments conducted by prefectural governments.

Local Road
*5
Construction Projects

Former local road construction projects (construction of local roads as community roads) thatwere eligible for our loans have been reclassified as new local road construction projects in thefiscal 2009 Local Government Bond/Loan Program.

*6 Extraordinary Financial
Countermeasures Funding

This represents the fund-raising by local governments to cover shortfalls in the local allocation tax
pursuant to the provisions of the Local Finance Law.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

General projects represent those stipulated as eligible under Article 5 of the Local Finance Law
and, at the same time, not covered under other specific projects in the Local Government
Bond/Loan Program. The projects which were previously eligible for our loans, including
improvement of rivers and other waterways (small and medium-sized river improvement) and highschool construction (reconstruction of old high school buildings) are now classified as generalprojects in the Local Government Bond/Loan Program as of fiscal 2009.

Financial Section*1 General Projects

Internal Management System

Water Supply
Transportation• Hospitals • Sewerage• Public Housing• Industrial Water Supply• Electricity Supply • Gas Supply• Ports Facilities• Elderly Care Services• Markets • Slaughterhouses• Tourism Facilities• Parking Facilities• Industrial Waste Processing

Municipal Enterprise-Related Projects•

Operations Overview

General Loans19

2.Type of Loans
JFM’s loans consist of two types: (1) general loans to local governments; and (2) entrusted loans
to local governments, which are entrusted by the Japan Finance Corporation, which is a policybased financial institution wholly owned by the national government.
Loans are further classified into three types by loan term: “Long-Term Loans”; “Pre-Consent(Approval) Loans,” which are provided as bridge loans to cover the period up to disbursement ofloans for projects for which consent (approval) is assured; and “Short-term Loans” for temporary
financing to be repaid within the same fiscal year.

3.Loan Interest Rates
Loan interest rates consist of three types: standard interest rate; special interest rate; and extraspecial interest rate.
1. Standard Interest Rate
The standard interest rate represents the rate at which the discounted present value of cash
flows of the fund raised by JFM to make loans equals the discounted present value of cash
flows generated by those loans with their respective terms to maturity, grace periods andrepayment methods.
2. Special Interest Rate
The special interest rate is set at a discount on the standard rate (0.3% below standardrate)for projects that are particularly important to the livelihood of residents.
3. Extra-Special Interest Rate
The extra-special interest rate is set at a further discount on the standard rate (0.35% below
standard rate) for special projects of great urgency and necessity to respond appropriately
to the issues of the regional community.
The trend of fiscal 2008 loan interest rates is shown in the next page. During this period,
extra-special interest rates were at the same level as the rates of the Fiscal Loan Fund provided
by the national government.

20

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile■ Trend of Loan Interest Rates in Fiscal 2008
Month/Year

June ’08

July ’08

August ’08

September ’08

Interest Rate
Reset Date

Apr.17

May 22

Jun.19Jul.17Aug.21

Sep.19Standard
Interest Rate

2.40％

2.35％

2.40％

2.45％

→

→

SpecialInterest Rate

2.10％

2.20％

2.30％

2.20％

2.15％

→

Extra-Special
Interest Rate

2.10％

2.20％

2.30％

2.20％

2.10％

→

Interest Rateof Fiscal Loan
Fund

2.10％

2.20％

2.30％

2.20％

2.10％

→

January ’09

February ’09

March ’09

Month/Year

October ’08

November ’08 December ’08

Oct.28Nov.20

Dec.17Jan.22

Feb.19Mar.19Standard
Interest Rate

2.25％

2.35％

2.30％

2.05％

2.10％

→

SpecialInterest Rate

2.10％

→

2.00％

1.80％

1.90％

→

Extra-Special
Interest Rate

→

→

2.00％

1.80％

1.90％

→

Interest Rateof Fiscal Loan
Fund

→

→

2.00％

1.80％

1.90％

→

*The ﬁgures for April 2008 through September 2008 are those of the former JFM. The ﬁgures for October 2008 throughMarch 2009 represent those of JFM. In both cases, the ﬁgures are ﬁxed interest rates for loans with 28-year maturity and5-year grace period. The interest rates of the Fiscal Loan Fund are based on the same conditions.

Financial Section

Interest Rate
Reset Date

Internal Management System

May ’08

Operations Overview

April ’08

*There are some cases where special interest rates and extra-special interest rates are the same as the minimum interest rates
are set at the level equal to the interest rates of the Fiscal Loan Fund with the same conditions.

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200921

4.Loan Maturity
The loan maturity, which is set according to the purpose of the loan, was previously 28 years
at the maximum (25 years on average). As a result of the review of the loan maturity for eachpurpose, which was conducted at the time of the reorganization of JFM, the maximum term tomaturity was set at 30 years for fiscal 2009 loans with consent (approval). The new loan maturities
for major purposes are shown below.
Loans with Consent (Approval)
from Fiscal 2009

Loans with Consent (Approval)
up to Fiscal 2008
Loan Purpose
by Project

Fixed Interest Rate

Fixed Interest Rate

Adjustable Interest
Rate*

Maturity

Grace
PeriodMaturity

Grace
PeriodMaturity

Grace
PeriodMaturity

Grace
PeriodPublicHousing

20

5

20

5

25

5

25

5

Water supply

28

5

28

5

30

5

30

5

Transportation

28

5

28

5

30

5

30

5

Hospitals

28

5

28

5

30

5

30

5

Sewerage

28

5

28

5

30

5

30

5

Industrial Water
Supply

25

5

25

5

30

5

30

5

Electricity Supply

25

5

28

5

30

5

30

5

Gas Supply

20

3

20

3

25

5

25

5

Port Facilities

18

5

28

5

20

5

30

5

Markets

20

5

20

5

25

5

25

5

Slaughterhouses

18

3

18

3

20

5

20

5

*Reviewed every 10 years.

22

Adjustable Interest
Rate*

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

5.Credit Review System(1) Comprehend the financial and operational status of local governments and municipal enterprises to which JFM plans to lend byusing the fiscal indicators stipulated in the Law Relating to the Financial Soundness of Local Governments, and also, if necessary,conduct interviews with the staff in charge at local governments.

(3) After loans are made, conduct on-site credit reviews to verify
use of funds, operational status of projects, and financial andoperational status of borrowers.

•Comprehend financial and operational
status•Conduct interviews(2) Check at time of Lending•Verify consent (approval) for loan
•Review loan application documents

Execution of Loan

(3) Subsequent Review
Conduct on-site credit reviews

6.Interest Rate Reduction by Utilizing the Fund for Improvement of Operationsof Municipalities

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008
12.3

14.9

10.9

10.6

9.0

10.7

14.1

(8.1)*

847.5

855.8

860.6

867.6

873.9

884.3

899.7

894.7

Number of Local Governments Operating Racing

345

316

299

293

260

225

210

210

Number of Local Governments Making Contributions

225

213

212

205

190

180

161

142

*From ﬁscal 2008, each local government simultaneously begins making their entire contributions by the end of Novemberof the next year based on ﬁnancial results for the year. Because of this change, the amount of contributions for ﬁscal 2008,
the transitional year, shows a negative ﬁgure.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Item
Contributions of proceeds frommunicipally operated racing (unit: ¥ billion)
Fund for Improvement of Operations ofMunicipalities (unit: ¥ billion)

Financial Section

Sources of funds to compensate for the interest rate differentials between special interest rates,
extra-special interest rates, and standard interest rates include investment income on the Fund for
Improvement of Operations of Municipalities (formerly the Fund for Improvement of Operations of Municipal Enterprises), which is comprised of contributions of a portion of the proceeds from municipally
operated racing. Our own funds are also included as sources.
Local governments, who operate racing (horse racing, bicycle racing, motorcycle racing andspeedboat racing), contribute a portion of the resulting earnings to the Fund for Improvement of
Operations of Municipalities as a means of equal profit sharing. Investment income on this Fund isused to reduce interest rates on loans for projects closely related to residents’ daily lives.
The overview of contributions of proceeds from municipally operated racing is given below.

Internal Management System(2) Review loan applications submitted by local governments to determine
if conditions such as consent (approval) for the loan, resolution of thelocal assembly and appropriation in the budget are met.

(1) Review of Local Governments /Municipal Enterprises Applying
for Loans

Operations Overview

JFM conducts necessary and appropriate credit reviews for all loans
as follows, on the assumption that the content, legality, and probabilityof repayment of each project have been confirmed during the processof the consultation system for local government bonds and loans.

23

7.Overview of Lending Operations(1) Trend of Lending Operations
The outstanding loan balances of the former JFM reached ¥1 trillion (US$10.2 billion) in 1974, ¥5
trillion (US$50.8 billion) in 1981, ¥10 trillion (US$101.5 billion) in 1986, ¥20 trillion (US$203.0
billion) in 1997, ¥25 trillion (US$253.8 billion) in 2004, and in October 2008, JFM inherited theloan balance of ¥22.4586 trillion (US$228.0 billion) from the former JFM.
In fiscal 2008, we made long-term loans in the amount of ¥1.1088 trillion (US$11.3 billion),
which is the total amount of loans made by JFM and the former JFM. At the end of this fiscal year,
the outstanding loan balance was ¥22.2152 trillion (US$225.5 billion).
As of the fiscal 2008 year-end, the number of local governments borrowing from JFM totaled
2,079, including all prefectures. Cities and special wards of Tokyo had the highest balanceof ¥15.6463 trillion (US$158.8 billion) and accounted for 71% of the total outstanding loanbalance. Next came prefectures with a balance of ¥4.0312 trillion (US$40.9 billion) and an 18%
share of the total. Finally, towns, villages, local government associations and others had a balanceof ¥2.5378 trillion (US$25.8 billion) and accounted for 11% of the total balance.

(unit: ¥ billion)
26,000Trend of Outstanding Loan Balance

Outstanding Loan Balance
by Type of Borrower(As of March 31, 2009)(excluding entrusted loans)
Note: Figures in parentheses arenumbers of borrowers.

19,50013,000Local Government
Corporations¥ 0.1794 trillion

6,500

(39)
08
20
FY
07
20
FY
06
20
FY
05
20
FY 4
00
FY2 3
0
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
FY
57
19

FY

0

Loan Amount(unit: ¥ billion)
2,400

Trend of Loans Made
Loan Amount (Long-term loans)

Number of Loans
24,00021,0001,800

18,0001,500

15,0001,200

12,000900Prefectures¥4.0312 trillion(47)¥1.7088 trillion
(984)

Total
¥22.2152
trillion(2,079)9,000
Number of Loans

300

6,000
3,000

0

0
08
20
FY
07
20
FY
06
20
FY
05
20
FY
4
00
FY2 3
0
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
57
19
FY

FY

24

¥0.6495 trillion(210)
Towns and Villages

2,100

600

Local Government
Associations

Japan Finance Organization for Municipalities Annual Report 2009

Cities and Special Wards of Tokyo¥15.6463 trillion (799)Organization Profile(2) Trend of Lending Operations by Project Type

Outstanding Loan Balance by Project Type(As of March 31, 2009)

FY195733％

7.1

FY196224.2

FY1967

67.7

Industrial Water Supply

Water Supply

5％

7％

9

32

OthersGas
Port
Supply Facilities Hospitals

Electricity
SupplyTransportation

4％

31％

3

7％

9％

Residential Land
8
15

21

4％

Sewerage
6
6Internal Management System

Trend of Long-Term Loans Made by Project Type (excluding entrusted loans)
Total (unit: ¥ billion)

Operations Overview

entrusted loans)
Looking at our past lending operations by project (excluding
Note: Figures in parentheses are outstanding loanbalances in billions of yen
type, water supply, electricity supply and port facilities
Water Supply
Othersprojects were the primary targets of loans during theThree Special
3%(730.3) 20%(4,325.8)
mid-‘50s to mid-‘60s. The targets shifted to water Projects
Industrial Water
Supplysupply, regional development and sewerage projects 22%(4,966.7)
1%(281.0)
PublicHousingin the mid-‘60s to mid-‘70s, and from the mid-‘70s
3%(663.1)
Total
to the mid-‘80s, the major targets were sewerage,¥22,215.2
water supply and three types of special projects. Hospitals
billionRecently, sewerage and three types of special projects 3%(541.2)
accounted for a high share of the total.
SewerageTransportation
At fiscal 2008 year-end, the outstanding loan
41%(9,198.7)
7%（1,508.4)
balance was ¥22,215.2 billion (US$225.5 billion),and sewerage projects accounted for the largest share at 41.4%, followed by three types of special
projects at 22.4%, and water supply at 19.5% of the total.

Regional Development
3 3Markets
7
3 3

43

179.6

6

23

4

Toll Roads
5
18

9

11

10

Public Housing
FY1977

49

583.2

5

8

2

24

6

6

Three Special Projects
23

FY1982 1,185.9
19FY1992 1,206.8

18

FY1997 2,153.2

17

3
2
1

6

27

7
7

6

36
1

1

9

1

10
5

40

6

29

5

FY2002 1,733.0

14

1

7

FY2007 1,126.3

14

1

6

5

39

FY2008 1,108.8

14

1 5

6

41

25

6

23

7

19

7

35

36

3
2
2

6
23

6

16

17

13

18

Notes:1. Pre-consent (approval) loans are accounted for in the year when they are converted into long-term loans.
2. Others include refinancing for municipal enterprise-related projects.
3. Figures may not add up exactly due to rounding off.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

FY1987 1,066.6

3

Financial Section

FY1972943

25

8.Lending Operations in Fiscal 2008
(1) Results of Lending Operations
In fiscal 2008, we made loans in the total amount of ¥1,108.8 billion (US$11,256.6 million). The
loans for sewerage projects were ¥458.3 billion (US$4,652.5 million) and accounted for the highest
share of 41.3% of the total. Next came loans for water supply projects (including small-scale watersupply) in the amount of ¥150.9 billion (US$1,532.4 million) and a 13.6% share of the total. In
addition, loans for ¥143.4 billion (US$1,455.4 million), which accounted for 12.9% of the total,
were made for three types of special projects, primarily local road construction.

(2) Lending Operations by Project Type
[Water Supply Projects]
Water supply (including small-scale water supply) projects managed by local governments
totaled 2,277, and provided about 19.2 billion cubic meters of water annually for approximately 124.63 million people.
The total amount of loans that we made for these projects was ¥150.9 billion (US$1,532.4
million) in fiscal 2008.
Loan Amount(unit: ¥ billion)
400

Number of Loans
4,000

3,500

350
Loan Amount

300

2,500

250

2,000

200
150

Number of Loans

1,500
1,000

50

500

0

0

08
20
FY
07
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
57
19

FY

100

FY

Shirakawa water puriﬁcation plant(Arita Town, Saga Prefecture)

3,000

Note: Statistics of each project are those of ﬁscal 2007, and pictures include those of the projects for which our loans
were made in the past.

26

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile[Industrial Water Supply Projects]

Loan Amount(unit: ¥ billion)
40

Number of Loans
400

Loan Amount

20

200

FY

08
20
FY
07
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
FY
57
19

0

Ishikari Bay New Port Area (Hokkaido Prefecture)[Transportation Projects]

Loan Amount(unit: ¥ billion)
200

Number of Loans
2,000
High-speed railways

Financial Section

Transportation projects managed by local governments totaled 103, which were operated by 84
entities and used annually by about 4 billion people in total (11.06 million people on an average daily
basis). The number of passengers who used publicly managed transportation systems accounted for
25.6% of the total bus services and 72.1% of the total subway services on an annual basis.
The total amount of loans for these projects was ¥51 billion (US$517.5 million) in fiscal 2008.

Internal Management System

Number of Loans0

Operations Overview

Industrial water supply projects managed by local governments totaled 152 with 266 facilities
that provided approximately 4.8 billion cubic meters of water annually for 6,168 factories andother facilities.
The total amount of loans for these projects was ¥12 billion (US$121.8 million) in fiscal 2008.

General transportation
150

1,500

100

1,000

50

500
Number of Loans
0

08
20
FY
07
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
57
19
FY

City subway (Nagoya City)

FY

0

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Loan Amount27

[Electricity Supply and Gas Supply Projects]
Electricity supply projects managed by local
governments totaled 93 with 425 power plants,
which had a maximum power output of 3.44
million kW and generated 11.1 billion kWhannually. The 34 gas supply projects managed
by local governments provided 38.8 billion MJ
of gas for 0.97 million households annually.
The total amount of loans for these projects was¥1.3 billion (US$13.1 million) in fiscal 2008.

Taikoyama Wind Power Station (Kyoto Prefecture)[Port Facilities Projects]
Port facilities projects managed by local governments totaled 106, which included reclamation,
cargo-handling machines, sheds, warehouses,
lumberyards, tugboats, etc.
The total amount of loans for these projects was¥3.7 billion (US$37.9 million) in fiscal 2008.

Cargo-handling Machine (Kushiro City)[Hospital Projects]
Hospital projects managed by local governments totaled 667, which included 911 general
hospitals, one tuberculosis hospital and 45
mental hospitals.
The total amount of loans for these projects was¥68.3 billion (US$693.3 million) in fiscal 2008.

Miyagi Children’s Hospital (Miyagi Prefecture)

28

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile[Elderly Care Services Projects]

Operations Overview

Elderly care services projects managed by local
governments totaled 639. Loans were madefor construction of day-care centers, intensive
care nursing homes and other facilities for theelderly, and also for machines and equipment
required at those facilities.
The total amount of loans for these projects was¥1.6 billion (US$16.4 million) in fiscal 2008.
Intensive Care Nursing Home Seijuen(Shin-Hidaka Town, Hokkaido Prefecture)

Internal Management System[Market Projects]

Central Wholesale Market (Morioka City)

Financial Section

Market projects managed by local governments totaled 179, which handled 8.06 million
tons of vegetables, 2.84 million tons of fruit,4.45 million tons of seafood, and 0.82 million
tons of meat and other products. These projects
contributed to modernization of the distribution
system of daily commodities.
From the point of modernization of the
distribution system, local governments became
actively involved in construction and improvement of the markets.
The total amount of loans for these projects was¥694 million (US$7.0 million) in fiscal 2008.

[Slaughterhouse Projects]

Meat Distribution Center (Kanazawa City)

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Slaughterhouse projects managed by local
governments totaled 75, which processed 4.2
million head of cattle and other animals infiscal 2007.
The total amount of loans for these projects
was ¥46 million (US$0.5 million) in fiscal 2008.

29

[Tourism Facilities Projects (including industrial
waste processing projects)]
Tourism facilities projects managed by local
governments included 160 recreation andaccommodation facilities, 64 ropeways, and180 other facilities (hot springs, castles, museums,
zoos, botanical gardens, etc.).
The total amount of loans for these projects
was ¥171 million (US$1.7 million) in fiscal 2008.
Asahiyama Zoo (Asahikawa City)[Parking Facilities Projects]
Parking facilities projects managed by local
governments totaled 236 with 684 facilities,
which had a total capacity of approximately
123,000 vehicles, serving an average of about
186,000 cars per day.
The total amount of loans for these projects was¥1.4 billion (US$13.8 million) in fiscal 2008.

A parking lot at Hashimoto Station (Sagamihara City)[Sewerage Projects]
Sewerage projects managed by local governments totaled 3,705, serving areas with apopulation of 96.72 million, or 74.8% of the total population at the end of fiscal 2007.
The total amount of loans for these projects was ¥458.3 billion (US$4,652.5 million) in
fiscal 2008, or 41.3% of long-term loans.
Loan Amount(unit: ¥ billion)
800
700
600

6,000

500

5,000

400

Loan Amount

300
200
100

4,000
3,000
2,000
1,000
0

08
20
FY
07
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
57
19

Japan Finance Organization for Municipalities Annual Report 2009

FY

30

0

Number of LoansFY

Shirone Central Sewage Puriﬁcation Center(Niigata City)

Number of Loans
8,000
7,000

Organization Profile[Public Housing Projects]

Operations Overview

Public housing constructed and managed by local
governments totaled approximately 2.18 million units
at fiscal 2007 year-end.
The total amount of loans for these projects was¥16.5 billion (US$167.9 million) in fiscal 2008.

Prefectural Housing Funaoka Estate (Kochi Prefecture)

The three special types of projects include local road construction (construction of local roads ascommunity roads), improvement of rivers and other waterways, and high school construction (reconstruction of old high school buildings). These projects were added to the scope of lending for theformer JFM in 1978.
The total amount of loans for these projects was ¥143.4 billion (US$1,455.4 million) in fiscal 2008.
■ Improvement of Rivers and Other Waterways Project

Ichikawa-Misato Minobu Road (Yamanashi Prefecture)

Sasaya Shinsui Park (Nihonmatsu City)■ High School Construction Project

Loan Amount(unit: ¥ billion)
800

Number of Loans
8,000

7,000

High Schools

600

Rivers6,000

500

Local Roads

5,000

Loan Amount

4,000

Numberof Loans

300

3,000

200

2,000

100

1,000

0
20
8

FY

07
20

2

0
20

0

FY

FY

97
19

9
19
2

FY

87
19

FY

FY

82
19

78
19

FY

FY

0

Appendices / JFM Data

700

400

Aomori Higashi High School (Aomori Prefecture)

Financial Section■ Local Road Construction ProjectInternal Management System[Three Special Projects]

Japan Finance Organization for Municipalities Annual Report 200931

9. Overview of Entrusted Loans in Fiscal 2008
JFM makes loans for public forest improvement projects and grasslands development projects,
which are entrusted to us by the Japan Finance Corporation.
The total amount of entrusted loans made in fiscal 2008 was ¥ 3,851 million (US$ 39.1 million).
The amounts of loans for public forest improvement projects and grasslands development projects
were ¥ 3,689 million (US$ 37.5 million) and ¥ 161 million (US$ 1.6 million), respectively.

Type of Project

Public Forest Improvement Grasslands Development
Total
Project
Project
Number ofAmountNumber ofAmountNumber ofAmount% of Total
Loans(Millions of Yen)
Loans
(Millions of Yen)
Loans
(Millions of Yen)％

Prefectures

55

2,248

1

6

56

2,254

58.5

Cities

115

968

3

69

118

1,037

26.9

Towns andVillages

81

473

9

86

90

560

14.5

251

3,689

13

161

264

3,851

100.0

Associations,
etc.
total

Note: Figures may not add up exactly due to rounding off.

The total outstanding balance of entrusted loans was ¥368,508 million (US$3,741.2 million) for
28,848 loans, which included ¥344,226 million (US$3,494.7 million) for 27,128 loans for publicforest improvement projects, and ¥ 24,282 million (US$246.5 million) for 1,720 loans for grasslands
development projects.

10.Plan of Lending Operations for Fiscal 2009
Based on the fiscal 2009 Local Governments Bond/Loan Program (Revised Version), which includes JFM
loans for ¥1,883 billion (US$19.1 billion), JFM plans to make general loans in the total amount of ¥1,429
billion (US$14.5 billion) for fiscal 2009. This includes loans for ¥279.8 billion (US$2.8 billion) for generalaccount-related projects, ¥300 billion (US$3.0 billion) for extraordinary financial countermeasures funding,and ¥849.2 billion (US$8.6 billion) for municipal enterprise-related projects.
Additionally, JFM plans to make entrusted loans in the amount of ¥4.1 billion (US$41.6 million).

32

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Operations Overview Local Government Support
Operations

1.Basic Policy

Collaboration/
Cooperation

Information

J FMInternal Management System

Universities,
Researchers

Capital Markets,
Investors

Operations Overview

JFM will provide support for local governments, to enable them to respond appropriately to thechanging environment for local government bonds including the prospective further liberalization of
the primary market, and also to efficiently raise funds in the capital market.
In preparation for the full implementation of the support operations, which are expected to startin fiscal 2011, JFM will establish a local government support network in conjunction with concerned
parties to fulfill its function of communicating various information, and also enhance its resources forthese operations, which includes the addition of experts from the private sector.
For the time being, JFM intends to thoroughly comprehend local governments’ needs, and implement
projects related to “Research and Study, and Information Service,” “Training for Local Government
Staff,” and “Administrative Support for Fund-Raising.

•All “information” on local government bonds

Collaboration/
Cooperation

National Government,
Japan Local Government
Bond Association,
Think Tanks

Supportinformation service,training for staff,
administrative support()

Information

Financial Section•“Personnel” with expertise in the system and administration of local
government bonds•“Know-how” of administration of local governments’ fund-raising

Local Governments

We will implement the following projects, making the best use of JFM’s unique nature as the organization which is directly connected with local governments and capital markets.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

2.Specific Action Plan33

(1) Research and Study, and Information Service
In cooperation with universities, JFM will conduct research on local governments’ fund-raisingand provide the results in plain language.
JFM will also provide local governments with information to help them deepen theirunderstanding of conditions of capital markets, including the local government bond market.
(2) Training for Local Government Staff
JFM will provide training for local government staff, so that they acquire not only basic
knowledge of local government administration and finance, financing, economics andaccounting, but also skills and know-how of practical business.
(3) Administrative Support for Fund-Raising
In cooperation with concerned parties, JFM will provide information on administration offund-raising by local governments, including investor relations and public offering of local
government bonds.

3.Projects Planned for Fiscal 2009
(1) Research and Study, and Information Service
The research projects include an analysis of the current conditions of private placement bonds
issued by local governments and underwritten by banks and other entities in Japan, and acontinuous fixed point observation and analysis of the current situation of local government
bond systems and joint local government bond issuance institutions in foreigh countries.
Information service includes providing information on the results of study of municipal
enterprises.

(2) Training for Local Government Staff
JFM will provide support for training sessions for local government staff given by local
government related entities, and also continue the on-the-job training program launchedin fiscal 2008, to enable local government staff to acquire administrative competence forfinance related operations.

(3) Administrative Support for Fund-Raising
JFM will hold joint investor relations meetings in Japan and abroad in conjunction withlocal government bond related entities and public offering bond issuing entities, and also
provide support for public offering bonds targeted individual investors.

34

Japan Finance Organization for Municipalities Annual Report 2009Operations Overview Fund-Raising Operations
Organization Profile

As a joint fund-raising organization for local governments, JFM raises funds in a stable manner toprovide local governments with low-interest and stable funds, while endeavoring to reduce the cost offund-raising.

Funds

MarketJFM•Issuance of public offering bonds
without government guarantee andprivate placement bonds

Financial Section•Issuance of government-guaranteedbonds to refinance existing
government-guaranteed bonds of theformer JFM

Internal Management System

Basically, JFM issues public offering bonds without government guarantee to raise funds for new lending
operations. JFM also issues private placement bonds which are underwritten by the Pension Fund Association for Local Government Officials.
JFM issues government-guaranteed bonds as well to refinance the former JFM bonds with government
guarantee to smoothly manage the former JFM’s assets that JFM has succeeded to.

Operations Overview

1.Type of JFM Bonds

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200935

2.Basic Stance on Issuance of JFM Bonds
JFM issues bonds to raise necessary funds in capital markets in a stable manner, maintaining thesolid confidence of capital markets by proactively disclosing information and thoroughly fulfilling
accountability. JFM also endeavors to issue bonds in a timely and flexible manner, responding tomarket conditions and needs.

(1) Diversification of Fund-Raising Methods
From the viewpoint of stable fund-raising, JFM primarily issues 10-year bonds, and alsoendeavors to issue bonds flexibly with various terms and structures including mid-term andextra-long-term bonds in response to market conditions and needs in order to expand theinvestor base.
JFM endeavors to issue bonds in a variety of markets to reduce the cost of fund-raising,taking advantage of the JFM brand recognition built up over many years from the time of theformer JFM, and closely monitoring conditions of domestic and overseas markets.

(2) Comprehensive Disclosure of Information
From the viewpoint of investor protection, JFM appropriately discloses information on its
operations, financial conditions, and risk management status.
Furthermore, JFM promotes positive investor relations activities, including meetings
with and visits to individual investors, in order to help investors correctly understandJFM’s management and bonds, and to secure solid confidence in JFM. JFM also publishes
a bond issuance plan every six months to help investors plan for investment.

(3) Contribution to the Sound Development of Capital Markets
While raising funds in a timely and flexible manner in response to the needs of capital
markets, and maintaining the basic policy of attaching great importance to capital markets,
JFM will further strengthen its role as a core issuer in the public bond market, and positively
contribute to the sound development of capital markets.

36

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

3.Characteristics of JFM Bonds•JFM has the status of a public organization itself.
• JFM is a joint fund-raising organization owned by local governments.
•As there has never been a case of a local government going into default, JFM’s assets can be said tobe highly stable.

•JFM bonds are highly liquid, and JFM takes an investor-oriented stance as an issuer.

JFM has received the highest grade credit rating in Japanese public sector bond issuers from Standard
and Poor’s (S&P), Moody’s Investors Service (Moody’s), and Rating and Investment Information, Inc.
(R&I). Furthermore, the risk weight for JFM is in the 10% category.

Internal Management System•JFM has a sound financial foundation, and under the Japan Finance Organization for Municipalities
Law, local governments have the ultimate obligation to repay JFM’s debts in the event of dissolution ofJFM, thus the redemption of JFM bonds is deemed assured.

Operations Overview

The bonds issued by JFM have the characteristics of “Super Local Government Bonds.” Based on thefollowing features, JFM bonds can be said to have extremely high credit quality and status at least
equal to those of local government bonds.

(As of July 22, 2009)

Financial Section

Blln^kKZmbg`!lheb\bm^]"

S&P : AA (Stable)
Moody’s : Aa2 (Stable)
R&I : AAA (Negative);BLKbldP^b`am

JFM Bonds: 10%

L^\nkbmr

The holders of JFM bonds have the right to be repaid from JFM assets ahead ofother creditors. This lien shall be subordinate to general liens stipulated in thecivil law. (Article 40, the Japan Finance Organization for Municipalities Law)

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

(For reference)
Government Guaranteed Bonds : 0%
Government Bonds : 0%
Local Government Bonds : 0%37

4.Trend of Fund-Raising Operations
The total amount of bonds issued reached a historic high of ¥2,678.4 billion (US$27.2 billion) in
1997. It has been showing a decreasing trend since then, and in fiscal 2008, the total amount ofbonds issued by JFM was ¥882.5 billion (US$9.0 billion), while the issue amount of the former JFM
bonds totaled ¥573.12 billion (US$5.8 billion).
3,000(unit: ¥ billion)
2,678.4
2,500
2,307.9
2,066.5
2,000
1,818.7

1,766.4
1,638.4

1,555.3
1,500

1,447.6
1,336.7

1,000

1,397.5

882.5
652.5

573.1

500
190.4
7.0 22.0

74.1

*2
08
20
FY
*1
08
20
FY
07
20
FY
06
20
FY
05
20
FY
04
20
FY
03
20
FY
02
20
FY
97
19
FY
92
19
FY
87
19
FY
82
19
FY
77
19
FY
72
19
FY
67
19
FY
62
19
FY
7
95
FY1

0

Private placement bonds
Public offering bonds without government guarantee
Foreign bonds with government guarantee
Domestic bonds with government guarantee*1.Former JFM*2.JFM

38

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

5.Fund-Raising Operations in Fiscal 2008

Public offering bonds without
government guarantee¥160 billion(former JFM)

(JFM)

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Domestic bonds withgovernment guarantee¥722.5 billion

Public offering bonds without
government guarantee¥150 billion

Financial Section

Foreign bonds withgovernment guarantee¥75 billion

Domestic bonds withgovernment guarantee¥221.1 billion

Internal Management System

Private Placement bonds¥127 billion

Operations Overview

In fiscal 2008, the total amount of bonds issued by JFM was ¥882.5 billion (US$8,959.4 million),and as for the former JFM bonds, the issue amount totaled ¥573.12 billion (US$5,818.5 million). The
total issue amount of JFM bonds was made up as follows: domestic bonds with government guarantee(10-year maturity) for ¥422.5 billion (US$4,289.3 million); domestic bonds with government guarantee(4-year maturity) for ¥300 billion (US$3,045.7 million); public offering bonds without government
guarantee (20-year maturity) for ¥50 billion (US$507.6 million yen); public offering bonds without
government guarantee (10-year maturity) for ¥80 billion (US$812.2 million); and public offering bonds
without government guarantee (5-year maturity) for ¥30 billion (US$304.6 million).
The total issue amount of the former JFM bonds was made up as follows : domestic bonds withgovernment guarantee (10-year maturity) for ¥221.12 billion (US$2,244.9 million); foreign bonds withgovernment guarantee (10-year maturity) for ¥75 billion (US$761.4 million); public offering bonds
without government guarantee (20-year maturity) for ¥100 billion (US$1,015.2 million); public offering bonds without government guarantee (10-year maturity) for ¥50 billion (US$507.6 million); andprivate placement bonds for ¥127 billion (US$1,289.3 million).
In fiscal 2008, the amount of domestic bonds with government guarantee issued by JFM totaled¥722.5 billion (US$7,335.0 million), which accounted for 22.9% of the total amount of all domestic
bonds with government guarantee (¥3,141.69 billion (US$31,895.3 million)) issued in the market.
Additionally, in fiscal 2008, the amount of domestic bonds with government guarantee issued
by the former JFM was ¥221.12 billion (US$2,244.9 million), which accounted for 7.0% of the total
amount of all bonds of this type issued in the market.
At the end of fiscal 2008, the outstanding balance of bonds issued by JFM and the former JFM was¥18,998.9 billion (US$192,882.3 million).

39

■ Fiscal 2008 Bond Issuance Summary : Bonds Issued by JFM (Total Issue Amount: ¥882.5 billion)
Type of Bond

Domestic Bond
with Government
Guarantee

Public Offering
Bond without
Government
Guarantee

10 years

1st

70

1.6

99.85

10 years

2nd

70

1.6

99.60

10 years

3rd

70

1.4

99.35

10 years

4th

70

1.3

99.15

10 years

5th

70

1.3

99.20

10 years

6th

72.5

1.3

99.30

4years

1st

300

0.7

99.94

Issue Amount Coupon Rate(unit: ¥ billion)(%)

Issue Price(¥)

Issue Date
October 16,
2008
November 18,
2008
December 15,
2008
January 22,
2009
February 18,
2009
March 17,2009
February 27,
2009

722.5

Maturity

Series20years

1st

50

2.07

99.88

10 years

1st

50

1.77

99.95

10 years

2nd

30

1.59

99.92

5years

1st

30

1.01

99.97

Total

40

Issue Price(¥)

Series

Total

Type of Bond

Issue Amount Coupon Rate(unit: ¥ billion)(%)

Maturity

Japan Finance Organization for Municipalities Annual Report 2009160

Issue Date
January 26,
2009
November 25,
2008
February 20,
2009
February 24,
2009Organization Profile■ Fiscal 2008 Bond Issuance Summary: Bonds Issued by Former JFM (Total Issue Amount: ¥573.12 billion)
Type of Bond

Domestic
Bond

Foreign
Bond

SeriesIssue Amount(unit: ¥ billion)

Coupon Rate(%)

Issue Price(¥,%)

10 years

884th

100

1.4

99.25

10 years

885th

50

1.7

99.60

10 years

886th

71.12

1.8

99.75

10 years

5th Global Yen

75

1.900

99.900June 25,
2008

Issue Date

Total

Public Offering Bond
without Government
Guarantee

296.12

Maturity

SeriesIssue Amount(unit: ¥ billion)

Coupon Rate(%)

Issue Price(¥)

20 years

24th

60

2.29

99.85

20 years

25th

40

2.50

99.98

10 years

30th

50

1.97

99.98

Total

Private Placement Bond

150

Maturity

SeriesIssue Amount(unit: ¥ billion)

Coupon Rate(%)

Issue Price(¥)

10 years

29th

40

1.59

100.0010 years

30th

50

1.91

100.0010 years

31th

37

1.78

100.00Total

April 25,
2008
June 16,
2008
June 16,
2008

Issue Date
April 30,
2008
May 30,2008
July 31,2008

Financial Section

Type of Bond

April 17,2008
May 22,2008
June 19,
2008

Internal Management System

Type of Bond

Issue Date

Operations Overview

Governmentguaranteed
Bond

Maturity

127

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200941

6.Plan of Fund-Raising Operations for Fiscal 2009
Basically, JFM issues public offering bonds without government guarantee to raise funds forlending operations. JFM also issues private placement bonds which are underwritten by thePension Fund Association for Local Government Officials. For fiscal 2009, JFM plans to issue
public offering bonds without government guarantee in the amount of ¥600 billion (US$6,091.4
million): ¥300 billion of 10-year bonds; ¥200 billion of 20-year bonds; and ¥100 billion of otherbonds. Additionally, private placement bonds (10-year maturity) will be issued in the amount of¥400 billion (US$4,060.9 million).
JFM issues government-guaranteed bonds to refinance the former JFM bonds with government
guarantee to smoothly manage the former JFM’s assets which JFM has succeeded to. For fiscal 2009,
JFM plans to issue government-guaranteed bonds in the amount of ¥820 billion (US$8,324.9 million).

42

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile
Operations Overview

Risk Management
1.Overall Risk management(1) Integrated Risk Management andRisk Management System .............................44

Financial Section(2) Characteristics of JFM’s Risks and Interest Rate
Risk Management .......................................44
2.Individual Risk Management(1) Credit Risk ..................................................45(2) Market Risk.................................................46(3) Liquidity Risk ...............................................47(4) Operational Risk .........................................48

Internal Management System

Internal Management System

Internal Control over Financial Reporting .......................49
Internal Audits .........................................................50

Appendices / JFM Data

Compliance ............................................................ 51
Disclosure ...............................................................52

Japan Finance Organization for Municipalities Annual Report 200943

Internal Management System Risk Management

1.Overall Risk Management(1) Integrated Risk Management and Risk Management System
In order to maintain a sound and good financial standing and earn
the solid confidence of capital markets, JFM needs to appropriately
manage various risks including interest rate risks.
In addition to checks by the Supervisory Committee and external
auditors, JFM adopts an integrated risk management approachinternally to appropriately respond to various risks while endeavoring
to further sophisticate risk analysis and management.
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, andthe Risk Management Office, which is independent of other departments. The content of risk management can then be appropriatelyreflected in management decisions.
Risk Management System
President and CEO

Integrated Risk
Management Committee

Senior Executive Director in charge

ALM Committee

Risk Management OfficeFinance Department

Loan Department

Administration
Department(2) Characteristics of JFM’s Risks and Interest Rate Risk Management
JFM raises funds by primarily issuing 10-year bonds, and makes loans with a maximum
maturity of 28 years (30 years from fiscal 2009) and with repayment of interest and principal
in equal installments. Because of this, a large maturity gap is created between lending andfunding, and JFM is exposed to the interest rate risk associated with bond refinancing.
For this reason, JFM has set aside reserves for interest rate fluctuations (Reserve for Interest
Rate Volatility), and has set up an ALM committee as a separate entity from the Integrated
Risk Management Committee to comprehensively analyze and manage JFM’s assets andliabilities in a timely and appropriate manner. Specifically, the medium- and long-term
management analysis and risk analysis and evaluation are conducted through scenario analysis,
VaR analysis, and duration analysis, among other methods. In addition, JFM endeavors tolower interest rate risk by narrowing the maturity gap between lending and funding through avariety of methods, such as issuing super-long-term bonds and utilizing interest rate swaps.

44

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

2.Individual Risk Management(1) Credit Risk

① Credit risk for loans
JFM makes loans exclusively to local governments, and does not expect any default on loans
made to local governments for the reasons outlined below. JFM and the former JFM havenever experienced any loan losses.

•Under the consultation system for local gobernment bonds and loans, credit reviews must include
checks on situations of local government debt servicing, and tax revenue and necessary revenue
sources to be secured. Additionally, under the Early Warning System, the local governments whosedebt servicing costs and 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.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

(Loans assets)
At the end of March 2009, JFM's total outstanding loans stood at ¥22,215.2 billion (US$
225.5 billion). The amount of outstanding loans made to local government road corporations
by the former JFM was ¥179.4 billion (US$1,821.7 million) which accounted for slightly lessthan 1% of the total loans.
JFM is not subject to the "Banking Law" or the "Financial Reconstruction Law," but performs
self-assessment of loans made to local government road corporations in accordance with the"Financial Inspection Manual" of the Financial Services Agency (FSA). All of these loans havebeen classified as normal assets based on the self-assessment.
The amount of loans made to local governments whose fiscal indicators exceeded the early
warning limits or the reconstruction limits accounted for slightly more than 1% of the total loans.

Financial Section•Under the Law Relating to the Financial Soundness of Local Governments, which was promulgatedin June 2007, 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 oversight of the national government with regard to redemption of local government
bonds and loans, and other operations.

Internal Management System•The national government includes local government debt servicing costs in the expenditure of
the Local Government Finance Program, and secures the total amount of local allocation tax
which balances local governments’ total expenditures including debt servicing costs and total
revenue. Thus, the national government effectively secures revenue sources for principal andinterest payments for local governments. The national government also secures revenue sources
for debt service for individual local governments by including a portion of local government
debt servicing costs in the Standard Financial Needs when calculating local allocation tax.

Operations Overview

Credit risk is the risk of loss arising from a credit event, such as deterioration in the financial
condition of a borrower, that causes an asset to lose value or become worthless. In addition tocredit risk associated with loans, market transactions also involve credit risk.

45

② Credit risk associated with market transactions
JFM is exposed to the risk of loss arising from a credit event, such as deterioration in thefinancial condition of a counter-party, which causes an asset to lose value or become
worthless. However, JFM appropriately manages credit risk of this type by constantly
monitoring counter-parties' financial standing and limiting them to financial institutions thatmeet the credit rating and other criteria.

(2) Market Risk
Market risk is the risk of loss 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
the risk 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 change risk.
①Interest rate risk
Interest rate risk is the risk of loss resulting from fluctuations in interest rates. Morespecifically, it is the risk of losses incurred or decrease in profits, which would arise fromfluctuations in interest rates when there is an interest rate or maturity gap between assets
and liabilities.
JFM makes loans to local governments. The maximum term to maturity is 28 years (30years from fiscal 2009) and the average maturity about 25 years. On the other hand,
the majority of the funds for these loans is raised mainly through issuance of 10-yearbonds, which creates interest rate risk associated with bond refinance.
Scheduled Redemption Amount of Loans and Bonds (As of the end of ﬁscal 2008)

3,000(unit: ¥ billion)
2,000

1,000

0

-1,000-2,000Bond coupon payment
Bond Principal Redemption
Loan Interest Receipt
Loan Principal Redemption
Gap between cash inflows and autflows.

-3,0002009 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38(Year)

As of the end of fiscal 2008
•Duration of lending: 7.71 years•Duration of fund-rasing: 4.76 years

46

Japan Finance Organization for Municipalities Annual Report 2009

•Duration gap: 2.95 years (0.02-year decrease from the previous year)

Organization Profile

JFM takes the following measures to address the interest rate risk resulting from a duration gap
between lending and fund-raising.

•As assets and liabilities in JFM’s General account are expected to expand, JFM carries out an ALM
analysis of this account in a timely and appropriate manner to further enhance the effectiveness of
its management of interest rate risk. JFM also endeavors to reduce its exposure to interest rate risk by
setting the following medium-term (end of fiscal 2013) management target, by continuously issuing
super-long bonds with maturities exceeding 10 years, and by utilizing interest rate swaps.

Operations Overview•JFM maintains necessary reserves for interest rate volatility to cope with the interest rate risk resulting
from a duration gap between lending and fund-raising. The amount of the above reserves stood at¥3,294.7 billion (US$33.4 billion) at the end of March 2009.

(1) Keep the “outlier ratio” below approximately 20%(2) Keep a duration gap below approximately 2 years.

Financial Section② 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-denominatedbonds, interest rate risk related to floating rate notes, and risk of fluctuations in the amounts ofprincipal and interest of inflation-indexed bonds.
JFM’s policy for investing surplus funds gives priority to short-term financial products withstable returns, such as Treasury Bills, which creates little price change risk. Additionally, foreignexchange risk related to foreign currency-denominated bank deposits is hedged by foreignexchange contracts.

Internal Management System

Notes: 1.“Outlier ratio” is the ratio of “decline in economic value” as a result of interest rate shocks to net assets
including reserves for interest rate volatility.
2.“Decline in economic value” is the decline of present value after interest rate shocks (an upward anddownward 200 bp parallel shift of the yield curve).

(3) Liquidity Risk

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Liquidity risk is the risk that JFM will incur losses because it finds it difficult to secure the necessary funds
or is forced to obtain funds at far higher interest rates than under normal conditions due to a mismatch
between the maturities of assets and liabilities or an unexpected outflow of funds (funding liquidityrisk). It also includes the risk that JFM will 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 basedon a quarterly plan for fund management. Moreover, JFM has entered into overdraft agreementswith several financial institutions to prepare for the unexpected, and invests surplus funds only inshort-term financial products.

47

(4) Operational Risk
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.
①Administrative risk
Administrative risk is the risk of loss resulting from the neglect by management and staff
to properly conduct administrative work, accidents caused by them and violation of laws
conducted 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 and reducing operational workload throughsystematization.
②Systems risk
Systems risk is the risk that the confidentiality, integrity and availability of information
assets will be impaired as a result of computer system inadequacies or the fraudulent useof computer systems.
JFM has established and implemented the “Systems Risk Management Policy” and the“Systems Risk Management Standard” to appropriately manage systems risk and ensuresmooth business operations.
JFM has also prepared the “Contingency Plan” to minimize the scope of losses andthe impact on operations and restore normal operations promptly and efficiently in theevent that computer systems break down or cannot be used due to unexpected accidents,
disasters or malfunctions.
③Other risks
In addition to the aforementioned risks, JFM appropriately identifies and addresses otherrisks, such as legal risk, personnel risk, physical asset risk and reputation risk.

48

Japan Finance Organization for Municipalities Annual Report 2009Operations Overview

Pursuant to the “Ministerial Ordinance on Finance and Accounting of Japan Finance Organization
for Municipal Enterprises” (Ordinance No.87 of the Ministry of Internal Affairs and Communications,2008; hereinafter, “Ordinance”), JFM intends to establish the system of internal control over financial
reporting to ensure the reliability of its financial statements, and also intends to maintain and implement
this system appropriately. In accordance with the Ordinance, from fiscal 2009 JFM will prepare theInternal Control Report whose base data is the end of the fiscal year. This report will be audited by
the external auditors and released together with financial statements.
The system of internal control over financial reporting will be established to further strengthen JFM’sorganizational foundation. JFM will maintain and implement this system effectively and efficiently toensure the reliability of financial statements which summarize financial information on JFM’s operations.

Organization Profile

Internal Management System Internal Control Over
Financial Reporting

Internal Management System
Financial Section
Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200949

Internal Management System Internal Audits

Internal audits are performed by the internal auditor, who is independent from other departments,
divisions and offices, to examine and assess appropriateness and effectiveness of the internal
control systems of JFM. Additionally, internal audits are intended to contribute to ensuring appropriate
and efficient operations, and are conducted according to the following procedure.

1. Internal audits are performed by the internal auditor.
2. The internal auditor examines and assesses the following items.
a. Are operations of each division or office conducted in accordance with laws, regulations andmanuals？
b. Are job execution systems efficient？
c. Are risk management systems functioning appropriately and efficiently？
d. Are systems for managing, conveying and sharing information functioning effectively？
3. The internal auditor reports the results of an internal audit to the President and CEO when it is completed.
4. If deficiencies are identified by the internal auditor, the related divisions and offices are required to takenecessary corrective actions immediately.
The internal auditor submits to the President and CEO an internal audit report which includes thestatus of corrective actions. The internal auditor also performs follow-up audits and reports the results to
the President and CEO.

50

Japan Finance Organization for Municipalities Annual Report 2009

Internal Management System Compliance
Organization Profile

1.Basic Policy(1) Management and staff must be aware of JFM’s social responsibility and public mission, and realize that abreach of laws or regulations would cause a great hindrance to JFM’s business operations, such as a loss incredibility of JFM as a whole. Management and staff must also observe laws and regulations, and fulfill theirduties with integrity and fairness.

2.Compliance System
Based on the Compliance Rules, JFM has established the Compliance Committee.
JFM’s Deputy President serves as the chairman of the committee, with senior executive directors
and department heads serving as the committee members. The committee deliberates on importantcompliance issues, such as preparation and review of the Compliance Rules, and preparation of
guiding principles and action plans of compliance.

JFM distributes to management and staff the updated compliance manuals which include points tonote for compliance actions and related laws and regulations. JFM also gives seminars on complianceand lends educational videos to divisions and offices.

Financial Section

3.Compliance Activities

Internal Management System(2) Management and staff must strive to earn the confidence of society by appropriately disclosing information on
JFM’s operations.

Operations Overview

JFM has prepared the “Compliance Rules” to ensure that operations are conducted in accordancewith laws and regulations, and to show what actions management and staff should take when abreach of laws or regulations is identified. The rules include the basic policy on compliance, which is
given below.

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200951

Internal Management System Disclosure

From the viewpoint of investor protection, JFM strives to ensure the transparency of managementof JFM by disclosing information on its financial conditions and other relevant information.

Disclosure System
Pursuant to the provisions of Article 36 Section 3 of the Japan Finance Organization for Municipalities
Law, after submitting financial statements to the Minister for Internal Affairs and Telecommunications,
JFM promptly publishes financial statements in an official gazette. JFM also opens the following
materials to the public: financial statements, business reports, statements of accounts and otherexplanatory materials on business operations, and assets and liabilities (documents similar to financial
reports). Additionally, JFM has established the disclosure system based on its disclosure rules toappropriately respond to requests for disclosure of information.

Disclosure Materials
JFM discloses a wide range of information, offering thefollowing disclosure materials.
① Disclosure materials required by law
Financial statements
Business reports
Statements of accounts② Other disclosure materials
Annual report
Disclosure booklet③ Additional disclosure materials
Pamphlets
Web site (http://www.jfm.go.jp/)

PamphletWeb site(http://www.jfm.go.jp/)

52

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile
Operations Overview

Report of Independent Auditors...................... 73

Supplementary Information
Balance Sheet(As of the Day of Succession and theEnd of Fiscal 2008)...................................74
Balance Sheet[General Account] ................................... 75
Statement of Income[General Account] ................................... 76
Balance Sheet[Management Account] ............................ 77
Statement of Income[Management Account] ............................ 77
Results of Self-Assessment as of the
End of Fiscal 2008 .................................. 78
Classification of Outstanding Loans at the End
of Fiscal 2008 under the Law Relating to the
Financial Soundness of Local Governments .... 78

Financial Section

Financial Statements
Balance Sheet ......................................... 54
Statement of Income ................................ 55
Appropriation of Profit[General Account/Management Account] ... 56
Statement of Changes in Net Assets ........... 57
Statement of Cash Flows ........................... 58
Notes to Financial Statements .................... 59

Internal Management System

Financial Section

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200953

Financial Section Financial Statements■ Balance Sheet (As of March 31, 2009)(Millions of Yen) (Thousands of US dollars)

Item

AmountItem

AssetsAmountLiabilities

Loans (Note 3)￥ 22,215,288 $ 225,535,921

Bonds (Note 5 and 6)￥ 18,978,163 $ 192,671,714
19,756200,578

Reserve for bonuses (Note 7)

47

485

203,570

Reserve for directors’ bonuses (Note 7)

7

81

3,010

30,560Reserve for retirement benefits

202

2,058

842

8,558

Reserve for retirement benefits
for directors and corporate auditors

51

519

Fund for improvement of operationsof municipal enterprises

894,675

9,083,004

Basic fund for improvement ofoperations of municipal enterprises

892,875

9,064,728

1,800

18,276

Reserve under special laws

3,423,622

34,757,593

Reserve for interest rate volatility

220,000

2,233,503

Management account reserve forinterest rate volatility (Note 8)

3,074,728

31,215,519

Reserve for interest rate reduction

128,894

1,308,571

Total liabilities

23,316,529

236,716,032

Capital16,602

168,549

Retained earnings

1,295

13,153General account surplus reserve

1,295

13,153

Management account surplus reserve

35,190357,261

Total net assets

53,087538,963

Securities (Note 15)874,832

8,881,550

Other liabilities

Cash and bank deposits

255,5912,594,836

Other assets

20,051

Tangible fixed assets (Note 4)
Intangible fixed assets (Note 4)(Note 7 and 10)(Note 7)(Note 9)Additional fund for improvement ofoperations of municipal enterprises(Note 9)(Note 8)Net Assets

Total assets

54￥ 23,369,616 $ 237,254,995

Japan Finance Organization for Municipalities Annual Report 2009

Total liabilities and net assets￥ 23,369,616 $ 237,254,995

Organization Profile■ Statement of Income (From August 1, 2008 through March 31, 2009)(Millions of Yen) (Thousands of US dollars)

Amount291,288

2,957,240

Fees and commissions

33

342

Other income

884

Expenses

160,632

1,630,790

Interest expenses

155,235

1,575,992

Fees and commissions

134

1,366

Other operating expenses

2,233

22,673General and administrative expenses

1,203

12,218Other expenses

1,826

18,541

Transfer to fund for improvement of operations ofmunicipal enterprises (Note 9)

1,800

18,27626

265

Ordinary income

130,697

1,326,876

Special gains

307,872

3,125,611

Reversal of management account reserve for interest
rate volatility (Note 8)

300,000

3,045,685

7,872

79,926

Special losses

418,144

4,245,125

Provision for management account reserve for interest
rate volatility (Note 8)

118,144

1,199,440

Payment to national treasury (Note 8)

300,000

3,045,685

Net income￥ 20,425$ 207,362

Interest income

Others

Reversal of reserve for interest rate reduction

Financial Section$ 2,957,666

Internal Management System￥ 291,330

IncomeOperations Overview

Item

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200955

■ Appropriation of Profit [General Account] (March 31, 2009)(Millions of Yen)

1,295

Ⅰ Profit to be appropriated

1,295

Net income
Accumulated deficit brought down−

Ⅱ Profit appropriated1,295

Surplus reserve

1,295(Thousands of US dollars)

13,153

Ⅰ Profit to be appropriated

13,153

Net income
Accumulated deficit brought down−

Ⅱ Profit appropriated

13,153

Surplus reserve

13,153

Notes:1. Profit was appropriated at the end of this fiscal year in accordance with the provisions of Article 39, Section 1 of the Japan Finance Organization for Municipal Enterprises Law (Law
No. 64 , 2007).
2. Surplus reserve appropriated was posted as General account surplus reserve on the Balance Sheet.

■ Appropriation of Profits [Management Account] (March 31, 2009)(Millions of Yen)

19,129ⅠProfit to be appropriated19,129Net income
Accumulated deficit brought down−

Ⅱ Profit appropriated19,129Surplus reserve

19,129(Thousands of US dollars)

194,209

ⅠProfit to be appropriated194,209

Net income
Accumulated deficit brought down−

Ⅱ Profit appropriatedSurplus reserve

194,209

194,209

Notes:1. Profit was appropriated at the end of this fiscal year in accordance with the provisions of Article 13, Section 8 of the supplementary provisions of the Japan Finance Organization for
Municipal Enterprises Law (Law No.64, 2007).
2. Surplus reserve appropriated was posted as Management account surplus reserve on the Balance Sheet.

56

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile■ Statement of Changes in Net Assets (From August 1, 2008 through March 31, 2009)(Millions of Yen)

Stockholders’ equity

CapitalManagement
Total
account surplus Total net assets
stockholders’reserveequityTotal retained
earnings

−

−

−

−

−

−

16,602−−

16,602−

16,602

Succession to assets and liabilities
of Japan Finance Corporation for
Municipal Enterprises

−

−

−

−

16,06016,060Net income

−

1,295

1,295

1,295

19,12920,425

Net changes during accounting period

16,602

1,295

1,295

17,89735,19053,087

Balance at March 31, 2009

16,602

1,295

1,295

17,89735,19053,087

Balance at end of previous fiscal year
Changes during accounting period
Contribution to capital(Thousands of US dollars)

Stockholders’ equity
Retained earnings
CapitalManagement
Total
account surplus Total net assets
stockholders’reserveequity

−

−

−

−

−

−

168,549−−

168,549−

168,549

Succession to assets and liabilities
of Japan Finance Corporation for
Municipal Enterprises

−

−

−

−

163,052

163,052

Net income−

13,153

13,153

13,153

194,209207,362

Net changes during accounting period

168,549

13,153

13,153

181,702357,261

538,963

Balance at March 31, 2009

168,549

13,153

13,153

181,702357,261

538,963

Changes during accounting period
Contribution to capital

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Total retained
earnings

Financial Section

General accountsurplus reserve

Balance at end of previous fiscal year

Internal Management System

General accountsurplus reserve

Operations Overview

Retained earnings

57

■ Statement of Cash Flows (From August 1, 2008 through March 31, 2009)(Millions of Yen) (Thousands of US dollars)

Item

AmountⅠ Cash flows from operating activities￥ 20,425$ 207,362

123

1,253

Interest income(291,288)(2,957,240)

Interest expenses

155,235

1,575,991

Decrease in reserve for bonuses

(5)

(58)

Increase in reserve for directors’ bonuses

671

Increase in reserve for retirement benefits

10

105

Increase in reserve for retirement benefits for directors and corporate auditors

26

269

Increase in fund for improvement of operations of municipal enterprises

1,800

18,276

Increase in management account reserve for interest rate volatility

118,144

1,199,440

Decrease in reserve for interest rate reduction(7,872)(79,926)

Net increase/decrease in loans

243,369

2,470,753

Net increase/decrease in bonds(363,477)(3,690,123)

Interest received

289,975

2,943,913

Interest paid

(151,043)(1,533,439)

(40)

(416)

15,388156,231

Proceeds from redemption of securities

2,895,550

29,396,447

Purchases of securities(2,422,893)(24,597,907)

(20)

(206)

472,635

4,798,334

Payment to national treasury(300,000)(3,045,685)

Refund of contributions made from municipally operated racing(10,479)(106,387)

Proceeds from contribution to capital

16,602

168,549

Others (Note 12)(16,455)(167,056)

Net cash provided by financing activities(310,332)(3,150,579)−−

177,692

1,803,986−−

Ⅶ Net increase in cash by succession to assets and liabilities

77,898790,850

Ⅷ Cash and cash equivalents at end of year

255,5912,594,836

Net income
Depreciation and amortization

OthersNet cash provided by operating activities
Ⅱ Cash flows from investing activities

Purchases of intangible fixed assets
Net cash provided by investing activities
Ⅲ Cash flows from financing activities

Ⅳ Effect of exchange rate changes on cash and cash equivalents
Ⅴ Net increase in cash and cash equivalents
Ⅵ Cash and cash equivalents at beginning of year

58

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile■Notes to Financial Statements
1. Basis of Presentation(1)Securities
As for security valuation, 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 to operations,
except for those which meet the criteria for hedge accounting.

Financial Section(3)Depreciation(a)Tangible fixed assets
Depreciation of tangible fixed assets is calculated by the straight-line method based on the estimated useul lives and theresidual value determined by management. The estimated useful lives of major items are as follows:
Buildings: 20 to 41 years
Others: 2 to 19 years(b)Intangible fixed assets
Depreciation of intangible fixed assets is calculated by the straight-line method based on the estimated useul lives and theresidual value determined by management. Software for internal use owned by JFM is depreciated over 5 years.

Internal Management System

2. Signsficant Accounting Policies

Operations Overview

Japan Finance Organization for Municipalities (hereinafter, “JFM”) has prepared financial statements pursuant to thefollowing law and ministerial ordinances:•The Japan Finance Organization for Municipal Enterprises Law (Law No. 64, 2007; hereinafter,“Law”), which was
subsequently amended by the provisions of Article 5 of the Law on the partial provision of Local Allocation Tax Law(Law No. 10, 2009).
•The Ministerial Ordinance on Finance and Accounting of Japan Finance Organization for Municipal Enterprises(Ordinance No.87 of the Ministry of Internal Affairs and Communications, 2008), which was subsequently amendedin accordance with the provisions of Article 2 of the Ministerial Ordinance on preparation for relevant ministerial
ordinances of the Ministry of Internal Affairs and Communications for partial enforcement of the Law on partial
revision of the Local Allocation Tax Law (Ordinance No.49 of the Ministry of Internal Affairs and Communications, 2009; hereinafter, “Preparation Ministerial Ordinance”).
•The Ministerial Ordinance on Finance and Accounting of Japan Finance Organization for Municipalities amended inaccordance with the provisions of Article 2 of the Preparation Ministerial Ordinance where applied to the financial
statements with respect to the year ended March 31, 2009 in accordance with the supplementary provisions ofArticle 2, Section 1 of the Preparation Ministerial Ordinance.
Since JFM does not have any subsidiaries or affiliates, it does not prepare consolidated financial statements.
Amounts less than one million yen have been omitted. As a result, the totals in Japanese yen shown in thefinancial 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 March 31, 2009, the final business day of the fiscal year, which was¥98.50 to US$1.

(4)Deferred assets
Bond issuance costs are expensed in full when incurred.

(6)Reserves(a)Reserve for possible loan losses
JFM has never experienced any loan losses. Accordingly, no reserve for loan losses has been maintained.
(b)Reserve for bonuses
Reserve for bonuses is provided for payment of bonuses to employees, in the amount of estimated bonuses, which are
attributable to the fiscal year.
(c)Reserve for directors’ bonuses
Reserve for directors’ bonuses is provided for payment of bonuses to directors, in the amount of estimated bonuses, which
are attributable to the fiscal year.
(d)Reserve for retirement benefits

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

(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 foreign exchange
forward contracts are used to hedge the foreign currency fluctuation, are translated at the contracted rate as the swap
contracts or the forward contracts qualify for deferral hedge accounting.

59

Reserve for retirement benefits is provided for payment of retirement benefits to employees, in the amount deemed accrued at the
fiscal year-end, based on the projected retirement benefit obligation and fair value of plan assets at the fiscal year-end.
(e)Reserve for retirement benefits for directors and corporate auditors
Reserve for retirement benefits for directors and corporate auditors is provided for payment of retirement benefits to directors andcorporate auditors, in the amount deemed accrued at the fiscal year-end based on the internal policies.
(7)Hedge accounting(a)Hedge accounting method
If swap contracts or forward contracts used to hedge the foreign currency fluctuation qualify for deferral hedge accounting, foreign
currency-denominated assets and liabilities are translated at the contracted rate. Interest rate swaps which qualify for hedge
accounting and meet specific matching criteria are not measured at market value, but the differential paid or received under theswap agreements is recognized and included in interest expense or income.
(b)Hedging instruments and hedged items(ⅰ)Hedging instrument ・・・ Currency swap
Hedged items ・・・・・・ Payment of interest and principle of foreign currency-denominated bonds(ⅱ)Hedging instrument ・・・ Interest rate swap
Hedged items ・・・・・・ Payment of interest and principle of inflation-indexed bonds, and payment of interest of floating ratebonds(ⅲ)Hedging instrument ・・・ Foreign exchange forward contract
Hedged items ・・・・・・ Receipt of interest and principal of foreign currency-denominated bank deposits(c)Hedging policy
JFM uses hedging instruments as a means of hedging exposure to foreign exchange risk on foreign currencydenominated bonds, and interest rate risk on inflation-indexed bonds and floating rate bonds. The terms and notional amountsof these hedging instruments are set within those of the underlying transactions.
(d)Assessment of hedge effectivenessA periodic assessment of hedge effectiveness for currency swaps is omitted since major terms of the hedging instruments andthe underlying transactions are the same and the foreign currency fluctuations are therefore expected to be fully hedged at the
beginning and throughout the hedging periods.
A periodic assessment of hedge effectiveness for interest rate swaps is omitted when the exceptional accrual method is applied.
(8)Cash and cash equivalents
Cash and cash equivalents in the Statement of Cash Flows consist of “Cash and bank deposits” on the Balance Sheet.
(9)Fund for improvement of operations of municipal enterprises
In accordance with the provisions of Article 46, Section 1 of the Law, JFM has established the Fund for improvement of operationsof municipal enterprises to reserve contributions as stipulated in Article 32-2 of the Local Finance Law (Law No. 109, 1948). Also,
pursuant to the provisions of Article 46, Section 5 of the Law, income arising from the investment of the Fund (hereinafter, “investment income”) is used to reduce interest rates of the loans to municipalities, and if there is any surplus in the investment income
after this interest rates 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 rates reduction process, the shortfall is covered by withdrawal of theFund within the limits of the total of the additional portion to the Fund made up to the previous fiscal year and the contributions
made in the relative fiscal year.
As for the current fiscal year, JFM refunded the contributions in accordance with the provisions of Article 2, Section 7 of the
supplementary provisions of the Enforcement Ordinance of the Local Finance Law (Government Ordinance No. 267, 1948), which
was subsequently amended by the Government Ordinance on partial revision of the Enforcement Ordinance of the Local Finance
Law (Government Ordinance No. 398, 2007).
(10)Reserve for interest rate volatility and Management account reserve for interest rate volatility
Reserve for interest rate volatility is set aside to prepare for interest rate risk associated with refinancing of our bonds (excluding thebonds issued by the former Japan Finance Corporation for Municipal Enterprises) pursuant to the provisions of Article 38, Sections 1
and 3 of the Law, and Article 9, Section 8 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 MunicipalEnterprises (Ordinance No. 87 of the Ministry of Internal Affairs and Communications, 2008) and Article 22 of the Government
Ordinance on preparation of relevant government ordinances and provisional measures for the abolishment of the Japan FinanceCorporation for Municipal Enterprises Law (Government Ordinance No. 226, 2008; hereinafter, “Preparation Ordinance”).
Management account reserve for interest rate volatility is set aside to prepare for interest rate risk associated with refinancing of thebonds issued by the former Japan Finance Corporation for Municipal Enterprises 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 for based on the provisionsof Articles 1 through 3 of the Ministerial Ordinance on the operations of the Management Account at Japan Finance Organization for

60

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Municipal Enterprises (Ordinance No. 2 of the Ministry of Internal Affairs and Communication, and the Ministry of Finance, 2008;
hereinafter, “Management Account Operations Ordinance”) and Articles 3 and 5 of the supplementary provisions of the above
ordinance.

(12)Management account surplus reserve
Profits generated in the Management account are accounted for as Management account surplus reserve separately fromretained 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-excluded method.

Operations Overview(11)Reserve for interest rate reduction
Reserve for interest rate reduction is set aside to reduce interest rates on the loans made by the former Japan Finance Corporation for Municipal Enterprises 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.

3. Loans

Internal Management System

There are no bankrupt loans, non-accrual loans, past due loans (3 months or more), or restructured loans. Since JFM has neverexperienced loan losses in the past, it does not account for loan loss reserves.
Bankrupt loans represent loans to borrowers as defined in Articles 96, Section 1, Clause 3 (a) through (e) and Clause
4 of the Enforcement Ordinance of the Corporate Income Tax Law (Government Ordinance No. 97, 1965), and on which
accrued interest is not accounted in revenue as there is no expectation of collection of either principal or interest 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 to bankrupt
borrowers and loans with grace for interest payment to assist in corporate reorganization or to support business.
Past due loans (3 months or more) represent loans on which payment of principal or interest is in arrears for more than 3months, calculated from the day following the contractual due date, excluding bankrupt loans and non-accrual loans.
Restructured loans represent loans which are given certain favorable terms and conditions, such as reduction or exemptionof interest, grace for interest or principal payment, and debt waiver, to assist borrowers in corporate rehabilitation or to
support business, excluding bankrupt loans, non-accrual loans and past due loans (3 months or more).

4. Tangible and Intangible Fixed Assets(Millions of Yen)

Type of assets

Increaseduring the
year

−

551
2,403
91
3,045

−

910
20
931

−

−
−
−
−
−
−

−
−
−

−
−

551
2,403
91
3,045
910
20
931

21

21

−

−

13
35

13
35

88

88

−

−

88

88

529
2,403
77
3,010
822
20
842

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Tangible fixed assets
Buildings
Land
Other tangible fixed assets
Total tangible fixed assets
Intangible fixed assets
Software
Other intangible fixed assets
Total intangible fixed assets

Decrease Balance Accumulated depreciation Depreciation Balance
during the at March 31,
during the at March 31, at March 31, 2009 or
2009
year
accumulated amortization
2009
year

Balance at endof previous
fiscal year

Financial Section

Tangible and intangible fixed assets at March 31, 2009 consisted of the following:61

(Thousands of US dollars)

Type of assets

Decrease Balance
during the at March 31,
2009
year

Balance at endof previous
fiscal year

Increaseduring the
year

−

5,595
24,398925
30,918

−

9,246
206
9,452

−

Tangible fixed assets
Buildings
Land
Other tangible fixed assets
Total tangible fixed assets
Intangible fixed assets
Software
Other intangible fixed assets
Total intangible fixed assets

−
−
−
−
−
−

−
−
−

−
−

Accumulated depreciation Depreciation Balance
during the at March 31,
at March 31, 2009 or
2009
year
accumulated amortization

5,595
24,398925
30,918
9,246
206
9,452

221

221

−

−

137
358

137
358

894

894

−

−

894

894

5,374
24,398788
30,560
8,352
206
8,558

Notes: 1. “Increase during the year” includes the amount of the fixed assets inherited from the former Japan Finance Corporation for Municipal Enterprises on October 1, 2008,
in accordance with the provisions of Article 10, Sections 1 and 2 of the supplemental provisions of the Law.
2. Accumulated depreciation of tangible fixed assets amounted to 35 million yen (358 thousand dollars) as of March 31, 2009.

5. 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 for
18,978,163 million yen (192,671,714 thousand dollars).

6. Bonds
Bonds at March 31, 2009 consisted of the following:(Millions of Yen) (Thousands of US dollars)

Type of bondDate of issue

Coupon rate(%)

Government-guaranteed bond (domestic)
1st 4-year JFM bond

2/27/2009￥ 299,827$ 3,043,934

Government-guaranteed bonds (domestic)
1st-6th JFM bonds

10/16/2008-3/17/2009

420,057

4,264,545

Public offering bond without government guarantee
1st 5-year JFM bond

2/24/2009

29,991

304,481

Public offering bonds without government guarantee
1st-2nd JFM bonds

11/25/2008-2/20/2009

79,952

811,701

1/26/2009

49,940507,013−
4/28/1999-6/19/2008
6/22/20057/18/2007

879,769
10,999,234(1,782,750)

Public offering bond without government guarantee
1st 20-year JFM bond
JFM bonds – Sub-total
Government-guaranteed bonds (domestic)
775th-886th former JFM bonds
Government-guaranteed (domestic)
1st-5th 15-year former JFM bonds

Government-guaranteed bonds (foreign)
5/7/1999
13th Eurodollar former JFM bond - 5th Global Yen former-6/25/2008
JFM bond
Public offering bond without government guarantee
1st 5-year former JFM bond

2/29/2008(Continuted)

62

Outstanding amountat March 31, 2009

Japan Finance Organization for Municipalities Annual Report 2009

184,615
1,125,217(81,740)[US dollars 3,900,000 thousand][Euro 900,000 thousand][Pound sterling 150,000 thousand]

129,950

Maturity

0.7
1.3
〜1.6

4Y
10Y

1.01
1.59

〜1.77

2.07

8,931,674−
111,667,358 0.5〜2.0(18,098,985)
1.6
1,874,266
〜2.2

5Y
10Y
20Y
−
10Y
15Y

11,423,523 1.350
10Y(829,848) 〜6.000 〜20Y
1,319,291

1.14

5Y

Organization Profile(Millions of Yen) (Thousands of US dollars)

Date of issue

Public offering bonds without government guarantee
1st-30th former JFM bonds

12/26/2001-6/16/2008
7/30/2002-6/16/2008
1/29/2004-9/20/2006

Public offering bonds without government guarantee
1st-25th 20-year former JFM bonds
Public offering bonds without government guarantee
1st-10th 30-year former JFM bonds
Public offering bond without government guarantee
1st floating rate former JFM bondPublic offering bonds without government guarantee
1st-2nd inflation-indexed former JFM bonds

Public offering bond without government guarantee
1st CMS-linked floating rate former JFM bondPrivate placement bonds
A series 52nd – Special No.1 series 31st former
JFM bonds

Coupon rate(%)

￥ 1,279,743$ 12,992,317

569,587

5,782,612

189,842

1,927,339

20,000203,046

40,000406,091

10/31/2002
3/2/2005-7/19/2005
2/14/2003-6/9/2004

0.64

〜2.07

1.03

〜2.58

2.39

〜2.95

Floating

47,830(2,170)9/13/2006

20,000203,045

7/30/1999-7/31/2008

3,492,373(522,253)

−

Total

−

18,098,393(2,388,913)￥ 18,978,163(2,388,913)

10Y
20Y
30Y
15Y

1.248
〜1.408
485,584 1.39
〜2.01
(22,030)

Former JFM bonds - Sub-total

Maturity

10Y
28Y

1.894

10Y

35,455,568 0.67
〜2.18
(5,302,063)

10Y

183,740,040(24,252,926)$ 192,671,714(24,252,926)

−

−

−

−

Within 1 year

After 1 year through 2 years

After 2 years through 3 years

After 3 years through 4 years

After 4 years through 5 years

2,244,370

2,176,130

2,030,560

2,160,070

2,388,913(Thousands of US dollars)Within 1 year

After 1 year through 2 years

After 2 years through 3 years

After 3 years through 4 years

After 4 years through 5 years

22,785,482

22,092,690

20,614,822

21,929,645

24,252,926

Financial Section

Notes:1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as general collateral for JFM bonds for 18,978,163 million yen(192,671,714 thousand dollars).
2. Amounts posted in brackets “[ ]” in the column of “Outstanding amount at March 31, 2009” for “Government-guaranteed bond (foreign) - 13th Eurodollar former
JFM bond - 5th Global Yen former JFM bond” are denominated in foreign currencies.
3. Amounts posted in parentheses “( )” in the column of “Outstanding amount at March 31, 2009” are the amounts to be repaid within one year.
4. The repayment schedule for the five years from the end of this fiscal year is as follows.
(Millions of Yen)

Internal Management System

Public offering bonds without government guarantee
1st-3rd former JFM bonds with scheduled repayment

Outstanding amountat March 31, 2009

Operations Overview

Type of bond

7. Reserves(Millions of Yen)

Type of reserve
Reserve for bonuses
Reserve for directors’ bonuses
Reserve for retirement benefits
Reserve for retirement benefits for
directors and corporate auditors

Balance at endof previous fiscal
year

Decrease during
Decrease during
Increase
the year (forthe year (Others)
during the year
intended purposes)

Balance at
March 31, 2009

ー
ー
ー

101
8
202

53
0
ー

ー
ー
ー

47
7
202

ー

51

ー

ー

51

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Reserves at March 31, 2009 consisted of the following:63

(Thousands of US dollars)

Type of reserve

Decrease during
Decrease during
the year (forthe year (Others)
intended purposes)

Balance at endof previous fiscal
year

Increaseduring the year

ー
ー
ー

1,028
90
2,058

543
9
ー

ー
ー
ー

485
81
2,058

ー

519

ー

ー

519

Reserve for bonuses
Reserve for directors’ bonuses
Reserve for retirement benefits
Reserve for retirement benefits for
directors and corporate auditors

Balance at
March 31, 2009

8. Reserve for Interest Rate Volatility(1)Reserve for interest rate volatility at March 31, 2009 consisted of the following:(Millions of Yen)

Type of reserve
Reserve for interest rate volatility
Management account reserve forinterest rate volatility
Total

Increase during the year

Balance at
end of previous
fiscal year

Decrease during the year

Amountprovidedー

220,000

ー

3,374,728

ー

3,594,728

Amountwithdrawn

220,000

220,000

ー

220,000

Balance at
March 31, 2009

300,000ー

3,074,728

300,000ー

3,294,728(Thousands of US dollars)

Type of reserve
Reserve for interest rate volatility
Management account reserve forinterest rate volatility
Total

Increase during the year

Balance at
end of previous
fiscal year

Decrease during the year

Amountprovidedー2,233,503

ー

34,261,204

ー

36,494,707

Amountwithdrawn

2,233,503

2,233,503

ー

2,233,503

Balance at
March 31, 2009

3,045,685

ー

31,215,519

3,045,685

ー

33,449,022(2)During this fiscal year, Management account reserve for interest rate volatility was reversed in the amount of 300,000 million yen(3,045,685 thausand dollars) and paid to the national treasury in accordance with the Ministerial Ordinance on determination of theamount attributable to the national government for fiscal 2008 pursuant to the provisions of Article 14 of the supplementary provisionsof the Law (Ordinance No.1 of the Ministry of Internal Affairs and Communications, and the Ministry of Finance, 2009).

9. Fund for Improvement of Operations of Municipal Enterprises
Fund for improvement of operations of municipal enterprises at March 31, 2009 consisted of the following:(Millions of Yen)

Type of fund
Basic fund for improvement ofoperations of municipal enterprises
Additional fund for improvement ofoperations of municipal enterprises
Total

64

Increase during the year
Balance at end ofAmountprevious fiscal year Amount of reservetransferred

Decrease during the year
AmountOtherswithdrawn

Balance at
March 31, 2009

ー903,354

ーー

10,479892,875

ー

ー

1,800

ー

ー

1,800

ー

903,354

1,800

ー

10,479894,675

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile(Thousands of US dollars)

Type of fund

Increase during the year
Balance at endof previous fiscal
AmountAmount of reserveyear
transferredー

9,171,115

ーー

106,387

9,064,728

ーー

18,276ーー

18,276

ー

9,171,115

18,276

ー

106,387

9,083,004

10. Reserve for Employee Retirement Benefits(1)Outline of retirement benefits system employedJFM has a defined benefit plan that contributes to the Employees’ Pension Fund and offers lump-sum payments upon retirement.
(2)Projected benefit obligation
Projected benefit obligation
Plan assets
Reserve for employee retirement benefits

316 million yen (3,210 thousand dollars)
113 million yen (1,152 thousand dollars)
202 million yen (2,058 thousand dollars)(3)Pension expenses
Pension expenses
Pension expenses related to lump-sum payments upon retirement
Pension expenses related to the Employees’ Pension Fund

14 million yen (143 thousand dollars)
2 million yen (22 thousand dollars)
11 million yen (121 thousand dollars)Internal Management System

Notes:1. “Amount of reserve” of “Basic fund for improvement of operations of municipal enterprises” represents the amount that JFM inherited from the former Japan FinanceCorporation for Municipal Enterprises in accordance with the provisions of Article 9, Section 11 of the supplementary provisions of the Law.
2. The full amount of “Others” posted in “Decrease during the year” for “Basic fund for improvement of operations of municipal enterprises” represents the amount which
was refunded in accordance with the provisions of Article 2, Section 7 of the supplementary provisions of the Enforcement ordinance of the Local Finance Law, which
was subsequently amended by the Government Ordinance.
3. “Amount transferred” posted in “Increase during the year” for “Additional fund for improvement of operations of municipal enterprises” represents the amounttransferred to Additional fund for improvement of operations of municipal enterprises pursuant to the provisions of Article 46, Section 5 of the Law.

Operations Overview

Basic fund for improvement ofoperations of municipal enterprises
Additional fund for improvement ofoperations of municipal enterprises
Total

Decrease during the year
Balance at
AmountOthers March 31, 2009
withdrawn(4)Basis of calculation of projected benefit obligation
Projected benefit obligation is calculated by the simple method.

Net income of General account was 1,295 million yen (13,153 thousand dollars), while net income of Management accountwas 19,129 million yen (194,209 thousand dollars).

12. Cash Flows(1)“Others” in Ⅲ Cash flows from financing activities section
This represents capital of the former Japan Finance Corporation for Municipal Enterprises contributed by the national
government, and expenses related to Other Liabilities on the Balance Sheet of Succeeded Assets and Liabilities.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

(2)Significant non-cash transaction
On October 1, 2008, JFM succeeded to assets and liabilities of the former Japan Finance Corporation for MunicipalEnterprises in accordance with the provisions of Article 9, Section 1 and Article 10, Sections 1 and 2 of the supplementaryprovisions of the Law.

Financial Section

11. Net Income by Account65

13. Information by Account (Balance Sheet)
Balance sheet of General account and Management account at March 31, 2009 was as follows:(Millions of Yen)

Item

General account

Assets
Loans
Securities
Cash and bank deposits
Other assets
Tangible fixed assets
Intangible fixed assets
Due from general account475,313874,832
255,591
2,543
3,010
842

Due from management account for fund for improvement ofoperations of municipal enterprises

892,875

Total assets

2,505,009

22,966,816

159,884
2,908
47
7
202

18,818,279
16,848

Liabilities
Bonds
Other liabilities
Reserve for bonuses
Reserve for directors’ bonuses
Reserve for retirement benefits
Reserve for retirement benefits for directors and corporate
auditors

Offset21,739,974

22,215,288
874,832
255,591
20,051
3,010
842

17,5081,209,333

Total(1,209,333)(892,875)(2,102,209)

23,369,616
18,978,163
19,756
47
7
202

51

51

Fund for improvement of operations of municipal enterprises
Basic fund for improvement of operations of municipal enterprises

894,675
892,875

894,675
892,875

Additional fund for improvement of operations of municipal
enterprises

1,800

1,800

Due to management account

1,209,333

Due to general account for fund for improvement of operationsof municipal enterprises
Reserve under special laws
Reserve for interest rate volatility
Management account reserve for interest rate volatility
Reserve for interest rate reduction
Total liabilities
Net Assets
CapitalRetained earnings
General account surplus reserve
Management account surplus reserve
Total net assets
Total liabilities and net assets

66

Management
account

Japan Finance Organization for Municipalities Annual Report 2009

(1,209,333)
892,875

220,000
220,000

2,487,111(892,875)

3,203,622
3,074,728
128,894
22,931,626(2,102,209)

3,423,622
220,000
3,074,728
128,894
23,316,529(2,102,209)

16,602
1,295
1,295
35,19053,08723,369,616

16,602
1,295
1,295
17,8972,505,009

35,19035,19022,966,816

Organization Profile(Thousands of US dollars)

General accountManagement
account

OffsetTotal

Assets
Loans
Securities
Cash and bank deposits
Other assets
Tangible fixed assets
Intangible fixed assets

4,825,515
8,881,550
2,594,836
25,82330,5608,558

Due to management account25,431,570

233,165,649

1,623,194
29,528
485
81
2,058
519
9,083,004
9,064,728

191,048,520
171,050(21,342,224)

18,276

12,277,496(12,277,496)
9,064,728

2,233,503
2,233,503(9,064,728)

32,524,090
31,215,519
1,308,571
232,808,388(21,342,224)

34,757,593
2,233,503
31,215,519
1,308,571
236,716,032(21,342,224)

168,549
13,153
13,153357,261
538,963
237,254,995

168,549
13,153
13,153
181,70225,431,570

357,261
357,261
233,165,649

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

25,249,868

237,254,995
192,671,714
200,578
485
81
2,058
519
9,083,004
9,064,728

18,276

Due to general account for fund for improvement of operationsof municipal enterprises
Reserve under special laws
Reserve for interest rate volatility
Management account reserve for interest rate volatility
Reserve for interest rate reduction
Total liabilities
Net Assets
CapitalRetained earnings
General account surplus reserve
Management account surplus reserve
Total net assets
Total liabilities and net assets(9,064,728)

Financial Section

Additional fund for improvement of operations of municipal
enterprises

9,064,728(12,277,496)

Internal Management System

Total assets
Liabilities
Bonds
Other liabilities
Reserve for bonuses
Reserve for directors’ bonuses
Reserve for retirement benefits
Reserve for retirement benefits for directors and corporate auditors
Fund for improvement of operations of municipal enterprises
Basic fund for improvement of operations of municipal enterprises

225,535,921
8,881,550
2,594,836
203,570
30,5608,558

177,747

12,277,496

Due from general accountDue from management account for fund for improvement ofoperations of municipal enterprises

220,710,406

Operations Overview

Item

67

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 operationsof the assets that JFM inherited from the former Japan Finance Corporation for Municipal Enterprises (management of the assets of the former Japan Finance Corporation for Municipal Enterprises).
Management account is separated from the other account (General account) pursuant to the provisions of Article 13, Section 3 of the supplementary provisions of the Law.

2. General account surplus reserve and Management account surplus reserve“Net income” of General account is posted as “General account surplus reserve” in accordance with the 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 the Law.

3. Due from General account and Due to Management account
These figures represent the amount of funds lent between General account and Management account pursuant to the provisions of Article 13, Section 4 of the supplementary provisions of the Law.

4. Due to General account for Fund for improvement of operations of municipal enterprises and Due from Management account for Fund for improvement of operations of municipal
enterprises
These figures represent the amount of cash received for “Fund for improvement of operations of municipal enterprises,” which was lent to Management account from General account pursuant to theprovisions of Article 9, Section 12 of the supplementary provisions of the Law.

68

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

14. Information by Account (Statement of Income)Statement of income of General account and Management account from August 1, 2008 through March 31, 2009
was as follows:

General accountManagement
account

Offset

Total

Income17,807

298,791(25,269)

291,330

Interest income

5,016

286,271

Item

Fees and commissions

33

Other income

6

Administrative fee for management account

33
1

8

571

(571)

12,179(12,179)
2,154(2,154)

Transfer from general account for fund for improvement ofoperations of municipal enterprises

10,363(10,363)

16,512

169,389(25,269)

Interest expenses

572

154,662

155,235

Fees and commissions

0

134

134

Other operating expenses

485

1,747

2,233

General and administrative expenses

1,109

94

1,203

Other expenses

1,826

1,826

Transfer to fund for improvement of operations of municipal
enterprises

1,800

1,800

26

26

Expenses

OthersInterest on due to management account

2,154(2,154)

Transfer to management account for fund for improvement ofoperations of municipal enterprises

10,363(10,363)

Administrative fee for management accountInterest on fund for improvement of operations of municipal
enterprises(571)

12,179(12,179)
130,697

Special gains

307,872

307,872

Reversal of management account reserve for interest rate volatility

300,000

300,000

7,872

7,872

Special losses

418,144

418,144

Provision for management account reserve for interest rate volatility

118,144

118,144

Payment to national treasury

300,000

300,000

19,12920,425

Reversal of reserve for interest rate reduction

Net income

1,295Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

129,401

Ordinary income

1,295

571

160,632

Financial Section

Interest on due from general accountInternal Management System

Interest on fund for improvement of operations of municipal
enterprises

291,288

Operations Overview(Millions of Yen)69

(Thousands of US dollars)

General accountManagement
account

Offset

Total

Income180,790

3,033,415(256,539)

2,957,666

Interest income

50,9282,906,312

Item

Fees and commissions

342

Other income

69

Administrative fee for management accountInterest on fund for improvement of operations of municipal enterprises

342
15

84

5,797

(5,797)

123,654(123,654)Interest on due from general account

21,878(21,878)

Transfer from general account for fund for improvement of operations ofmunicipal enterprises

105,210(105,210)

167,637

1,719,692(256,539)

5,814

1,570,178

1,575,992

4

1,362

1,366

Other operating expenses

4,927

17,746

22,673General and administrative expenses

11,263955

12,218Other expenses

18,541

18,541

Transfer to fund for improvement of operations of municipal enterprises

18,276

18,276265

265

Expenses
Interest expenses
Fees and commissions

OthersInterest on due to management account

21,878(21,878)

Transfer to management account for fund for improvement of operations of municipal enterprises

105,210(105,210)

Administrative fee for management accountInterest on fund for improvement of operations of municipal enterprises

13,153

5,797(5,797)

123,654(123,654)

1,630,790

1,313,723

1,326,876

Special gains

3,125,611

3,125,611

Reversal of management account reserve for interest rate volatility

3,045,685

3,045,685

79,92679,926

Special losses

4,245,125

4,245,125

Provision for management account reserve for interest rate volatility

1,199,440

1,199,440

Payment to national treasury

3,045,685

3,045,685

194,209207,362

Ordinary income

Reversal of reserve for interest rate reduction

Net income

70

2,957,240

Japan Finance Organization for Municipalities Annual Report 2009

13,153

Organization Profile

15. Market Value of Marketable Securities(1) Marketable held-to-maturity securities at March 31, 2009 consisted of the following:

Balance sheet amount
193,958
411,873605,832

Market value
193,954411,865
605,819

Net unrealized gains (losses)
(4)
(8)
(12)

Unrealized gains-(Thousands of US dollars)

Financial bills
Treasury discount bills
Total

Balance sheet amount
1,969,125
4,181,461
6,150,586

Market value
1,969,078
4,181,373
6,150,451

Net unrealized gains (losses)
(47)
(88)
(135)

Unrealized gains-

Unrealized losses
(47)
(88)
(135)

Operations Overview

Financial bills
Treasury discount bills
Total(Millions of Yen)
Unrealized losses
(4)
(8)
(12)

Notes:1. Market value is based on market prices at the end of the fiscal year.
2. “Unrealized gains” and “Unrealized losses” are components of Net unrealized gains (losses).

(Millions of Yen) (Thousands of US dollars)

Negotiable certificate of deposits

Amount￥ 269,000$ 2,730,964

16. Derivative Information

Appendices / JFM Data

Japan Finance Organization for Municipalities Annual Report 2009

Financial Section(1)Types of derivative transactions
Derivative transactions conducted by JFM are interest rate swaps for interest rate related transactions, and currency swaps
for currency related transactions.
(2)Policies and purposes of derivative transactions
JFM uses interest rate swaps and currency swaps 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 fund raising operations. Currency swaps are used
to hedge exposure to foreign exchange risk associated with issuance of foreign currency-denominated bonds.
Hedge accounting is applied to interest rate swaps and currency swaps.
(a)Hedge accounting method
If derivatives used to hedge the foreign currency fluctuation qualify for deferral hedge accounting, foreign currencydenominated assets and liabilities are translated at the contracted rate. Interest rate swaps which qualify for hedge
accounting and meet specific matching criteria are not measured at market value, but the differential paid or received
under the swap agreements is recognized and included in interest expense or income.
(b)Hedging instruments and hedged items(ⅰ) Hedging instrument ・・・・ Currency swap
Hedged items ・・・・・・・ Payment of interest and principal of foreign currency-denominated bonds(ⅱ) Hedging instrument ・・・・ Interest rate swap
Hedged items ・・・・・・・ Payment of interest and principal of inflation-indexed bonds, and payment of interest of
floating rate bonds(ⅲ) Hedging instrument ・・・・ Foreign exchange forward contract
Hedged items ・・・・・・ ・ Receipt of interest and principal of foreign currency-denominated bank deposits(c)Hedging policy
JFM uses hedging instruments as a means of hedging exposure to foreign exchange risk on foreign currency-denominated bonds and interest rate risk on inflation-indexed bonds and floating rate bonds. The terms and notional amountsof these hedging instruments are set within those of the underlying transactions.
(d)Assessment of hedge effectivenessA periodic assessment of hedge effectiveness for currency swaps is omitted since major terms of the hedging instruments and the underlying transactions are the same and the foreign currency fluctuations are therefore expected to be
fully hedged at the beginning and throughout the hedging periods.
A periodic assessment of hedge effectiveness for interest rate swaps 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

Internal Management System(2) Securities with no available market value at March 31, 2009 were as follows:71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 market risk on underlying transactions.
Regarding credit risk, JFM limits counterparties to the financial institutions with high credit standing, constantly monitors their 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 the approval of
persons in charge in accordance with the operational guidelines which specify transaction authority.
Additionally, the total amount of derivative transactions, the status of risks and the credit risk on counterparties are reported to
executive officers periodically.
(5)Supplementary information on market value of transactions
Since hedge accounting is applied to all the derivatives transactions conducted by JFM, description of the above is not includedin Notes.

17. Succession to Assets and Liabilities
Shown below are assets and liabilities that JFM inherited from the former Japan Finance Corporation for Municipal Enterprisesin accordance with the provisions of Article 9, Section 1 and Article 10, Sections 1 and 2 of the supplementary provisions of the Law, andManagement account surplus reserve is also shown based on Article 21 of the Preparation Ordinance.

Balance Sheet of Succeeded Assets and Liabilities (As of October 1, 2008)(Millions of Yen) (Thousands of US dollars)

Item

AmountItem

AssetsAmountLiabilities

Loans￥ 22,458,657$ 228,006,674

Securities

Bonds
Other liabilities￥ 19,339,289$ 196,337,962

1,347,000

13,675,127

32,108

325,976

Cash and bank deposits

77,898790,850

Reserve for bonuses

54

552

Other assets

17,179174,412Reserve for retirement benefits

217

2,204

Tangible fixed assets

3,045

30,918903,354

9,171,115

Intangible fixed assets

654

6,645

903,354

9,171,115

3,613,350

36,683,765

Fund for improvement of operations ofmunicipal enterprises
Basic fund for improvement of operationsof municipal enterprises
Reserve under special laws
Reserve for interest rate volatility
Management account reserve for interest
rate volatility
Reserve for interest rate reduction

220,000

2,233,502

3,256,583

33,061,765

136,767

1,388,498

Total liabilities

23,888,375

242,521,574

16,060163,052

16,060163,052￥ 23,904,435$ 242,684,626

Net Assets
Management account surplus reserve
Total net assets
Total assets￥ 23,904,435$ 242,684,626

Total liabilities and net assets

Note: “Other liabilities” includes liabilities for 16,455 million yen (167,056 thousand dollars) that is related to repayment of the capital of the former Japan Finance Corporation for
Municipal Enterprises contributed by the national government.

72

Japan Finance Organization for Municipalities Annual Report 2009

Financial Section Report of Independent Auditors
Organization Profile
Operations Overview
Internal Management System
Financial Section
Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200973

Financial Section Supplementary Information■ Balance Sheet (As of the Day of Succession and the End of Fiscal 2008)(Millions of Yen)

Day of Succession(As of October 1, 2008)

End of Fiscal 2008
(As of March 31, 2009)

AssetsLoans

22,458,657

22,215,288

Securities

1,363,550

874,832

Cash and bank deposits

77,924

255,591

Other assets

17,20520,051

Tangible fixed assets

3,045

3,010

Intangible fixed assets

654

842

23,921,038

23,369,616

19,339,289

18,978,163

32,10919,756

Reserve for bonuses

54

47

Reserve for directors’ bonusesー7Reserve for retirement benefits

217

202

Reserve for retirement benefits for directors and corporate auditors

ー51

Fund for improvement of operations of municipal enterprises

903,354894,675

Basic fund for improvement of operations of municipal enterprises

903,354892,875

ー

1,800

Reserve under special laws

3,613,350

3,423,622

Reserve for interest rate volatility

220,000

220,000

Management account reserve for interest rate volatility

3,256,583

3,074,728

Reserve for interest rate reduction

136,767

128,894

23,888,375

23,316,529

16,602

16,602Retained earnings

ー

1,295

General account surplus reserve

ー

1,295

16,06035,19032,66253,08723,921,038

23,369,616

Total assets
Liabilities
Bonds
Other liabilities

Additional fund for improvement of operations of municipal enterprises

Total liabilities
Net Assets
CapitalManagement account surplus reserve
Total net assets
Total liabilities and net assets

Note: The balance sheet as of the day of succession (October 1, 2008) includes JFM capital contributed by local governments and other items, and assets and liabilities that JFM inheritedfrom the former Japan Finance Corporation for Municipal Enterprises on October 1,2008.

74

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile■ Balance sheet【 General Account】 (As of March 31, 2009)(Millions of Yen)

Item

AmountAmountLiabilities

Loans

475,313

Bonds

159,884

Securities

874,832

Other liabilities

Cash and bank deposits

255,591

Reserve for bonuses

47

2,908

2,543

Reserve for directors’ bonuses

7

Tangible fixed assets

3,010

Reserve for retirement benefits

202

Intangible fixed assets

842

Reserve for retirement benefits for directors
and corporate auditors

51

Due from management account for fund for
improvement of operations of municipal enterprises

892,875

Fund for improvement of operations ofmunicipal enterprises

894,675

Basic fund for improvement of operations ofmunicipal enterprises

892,875

Additional fund for improvement ofoperations of municipal enterprises

1,800

Due to management account

1,209,333

Reserve under special laws

220,000

Reserve for interest rate volatility

220,000
2,487,111

Net Assets

2,505,009

16,602Retained earnings

1,295

General account surplus reserve

1,295

Total net assets

17,897

Total liabilities and net assets

2,505,009

Note: "Management account" is used to conduct management of the assets of the former Japan Finance Corporation for Muncipal Enterprises (administration, collection andother related operations of the assets that JFM inherited from the former Japan Finance Corporation for Municipal Enterprises). "General account" is used to conduct all
operations except "Management account" operations described above.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Total assets

CapitalFinancial Section

Total liabilities

Internal Management System

Other assets

Operations Overview

AssetsItem

75

■ Statement of Income【 General Account】 (From August 1,2008 through March 31, 2009)(Millions of Yen)

Item
IncomeInterest income

17,807
5,016

Fees and commissions

33

Other income

6

Administrative fee for management accountInterest on fund for improvement of operations ofmunicipal enterprises
Expenses571
12,17916,512

Interest expenses

572

Fees and commissions

0

Other operating expenses

485

General and administrative expenses

1,109

Other expenses

1,826Transfer to fund for improvement of operations ofmunicipal enterprises

1,800

Others76

Amount26

Interest on due to management account2,154

Transfer to management account for fund for
improvement of operations of municipal enterprises

10,363

Ordinary income

1,295

Net income

1,295Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile■ Balance sheet【 Management Account】 (As of March 31, 2009)
Item

AmountAmountLiabilities

Other assets

21,739,974
17,508Due from General account

1,209,333

Loans

18,818,279
16,848

Bonds
Other liabilities
Due to general account for fund improvement ofoperations of municipal enterprises
Reserve under special laws
Management account reserve for interest rate volatility
Reserve for interest rate reduction
Total liabilities

892,875
3,203,622
3,074,728
128,894
22,931,626

Management account surplus reserve
Total net assets

22,966,816

Total assets

Total liabilities and net assets

35,19035,19022,966,816■ Statement of Income【 Management Account】 (From August 1, 2008 through March 31, 2009)(Millions of Yen)

Item

AmountIncomeInterest income
Other income

Expenses
Interest expenses
Fees and commissions
Other operating expenses
General and administrative expenses
Administrative fee for management accountInterest on fund for improvement of operations of municipal enterprises
Special gains
Reversal of management account reserve for interest rate volatility
Reversal of reserve for interest rate reduction
Special losses
Provision for management account reserve for interest rate volatility
Payment to national treasury
Net income

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

Ordinary income

Financial Section

Interest on due from general accountTransfer from general account for fund for improvement of operations of municipal enterprises

298,791
286,271
1
2,154
10,363
169,389
154,662
134
1,747
94
571
12,179129,401
307,872
300,000
7,872
418,144
118,144
300,000
19,129Internal Management System

Net Assets

Operations Overview

Assets

Item(Millions of Yen)77

■ Results of Self-Assessment as of the End of Fiscal 2008
Classification of borrowers
under self-assessment(Millions of Yen)

Problem assets based on
the Financial Reconstruction Law

Risk-monitored loans
under the Banking Law

Bankrupt borrowers

0Bankrupt loans

0Bankrupt and quasi-bankrupt assets

0Effectively bankrupt borrowers0

Non-accrual

Potentially bankrupt borrowers

Doubtful assets

0

Substandard assets

0

0

0

Past due loans (3 months or more) 0
Restructured loans 00

Borrowers requiring caution

27,108 (0.12%)
Normal borrowers

Normal assets

152,458 (0.69%)

22,231,941 (100%)

Non-classified (Local governments)

22,052,375 (99.19%)
Total

Total

22,231,941

Total

22,231,941

0Notes:1. Assets classified under self-assessment and the Financial Reconstruction Law include loans and accrued interest on loans, while risk-monitored loans under the Banking Law include
loans only. (Amounts shown are those outstanding at the end of fiscal 2008.)
2. A figure in parentheses represents a share of each category.

■ Classification of Outstanding Loans at the End of Fiscal 2008 under the Law Relating to the Financial

Soundness of Local Governments
The table below shows outstanding loans to local governments at the end of fiscal 2008, which were classified under
the Law Relating to the Financial Soundness of Local Governments.

(Millions of Yen)

Local government classification

Number of local
governments

Local governments with fiscal indicators exceeding thereconstruction limits
Local governments with fiscal indicators exceeding theearly warning limits
Other local governments
Total

Share

Outstanding loans

Share

3

0.16%

5,112

0.02%

40

2.19%

259,823

1.21%

1,787

97.65%

21,121,394

98.76%

1,830

100.00%21,386,329

100.00%Notes:1. The outstanding loans above represent outstanding loans to local governments at the end of fiscal 2008, and do not include loans to local government associations and local
government corporations.
The amount of the category of "Non-classified (Local governments)" under self-assessment is larger than the total of "Outstanding loans" above, because the former includes
accrued interest and loans to local government associations.
2. If its fiscal indicators exceed any one or more of the reconstruction limits of the ratios, such as the real deficit ratio, consolidated real deficit ratio or real debt payment ratio, basedon financial results of fiscal 2007, this local government will be designated as a "local government with fiscal indicators exceeding the reconstruction limits".
3. If its fiscal indicators exceed any one or more of the early warning limits of the ratios, such as the real deficit ratio, consolidated real deficit ratio, real debt payment ratio or futureburden ratio, based on financial results of fiscal 2007, this local government will be designated as a "local government with fiscal indicators exceeding the early warning limits".

78

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile
Operations Overview

Appendices
Results of Lending Operations in Fiscal 2008 ........... 80
Long-term Loans Outstanding at the End of
Fiscal 2008 ........................................................ 81

Internal Management System

Appendices / JFM Data

Long-term Loans Outstanding at the End of
Fiscal 2008 (Breakdown by Prefecture) ................... 82

Financial Section

Basics of Local Government Finance and JFM’s Role .. 84
JFM Data
Organization History ............................................ 88
Executive Officers and Corporate Auditors .............. 89

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200979

Appendices Results of Lending Operations in Fiscal 2008

Project

Municipal
enterprise-relatedloans

Amount of loans made Year-on-year change(%)

133,552
17,387
12,001
2,174
48,796
414
878
3,738
68,285
1,615
694
46
84
88
0
1,363

-2.0
-13.6
41.3
-75.3
-8.8
-64.9
37.0
-21.9
-35.2
-36.9
-81.5
157.3
72.8
703.7
–
34.7

12.0
1.6
1.1
0.2
4.4
0.0
0.1
0.3
6.2
0.1
0.1
0.0
0.0
0.0
–
0.1

1,079
473
64
19
26
4
17
62
292
15
27
5
4
2
–
1

0

–

–

–

○ Sewerage(Sub-total)○ Public housing○ Local road construction○ Improvement of rivers andother waterways○ High school construction(Sub-total)
Refinancing for municipal
enterprise-related projects

458,268
749,381
16,539135,915

4.8
2.8
0.9
-18.2

41.3
67.6
1.5
12.3

4,037
6,127
86
928

5,254

-19.6

0.5

108

2,189
159,898

16.4
-16.3

0.2
14.4

6
1,128

199,224

-0.4

18.0

3,041

275

-95.7

0.0

1

1,108,777

-1.6

100.0

10,297(Note 2)Loans to local
government roadcorporations

Number of loans
made

Share

○ Water supply○ Small-scale water supply○ Industrial water supply○ Transportation○ Urban rapid transit railway○ Electricity supply○ Gas supply
Port facilities○ Hospitals○ Elderly care services○ Markets○ Slaughterhouses
Tourism facilities
Industrial waste processing○ Toll roads○ Parking facilities
Regional development(Note 1)

Generalaccount-related
loans

(%)

(Millions of Yen)

Toll roads
Total

Notes:1. “Regional development” projects are land creation projects for regional development that include the creation of coastal industrial lands and other lands along the shoreline, andpreparation of inland industrial lands, and lands for distribution parks, and lands for offices and shops, and housing lands. These projects also include the preparation of housingsites undertaken as land readjustment projects.
2. Relevant projects include water supply, industrial water supply, an urban rapid transit railway, and sewerage projects.
3. ○ designates the projects to which special interest rates or extra special interest rates are applied.
4. JFM’s scope of lending does not include toll road projects, urban redevelopment projects, or residential land development projects. Moreover, JFM does not lend to local
government road corporations.
5. The totals of the individual amounts may not add up exactly due to rounding off.
6. The figures in this table are the totals of the loans made by the former JFM from April to September 2008, and the loans made by JFM from October 2008 to March 2009.

80

Japan Finance Organization for Municipalities Annual Report 2009

ProjectNumber of loans madeAmount ofoutstanding loans(Millions of Yen)

Water supply
Industrial water supply
Transportation
Urban rapid transit railway
Electricity supply
Gas supply
Port facilities
Hospitals
Elderly care services
Markets
Slaughterhouses
Tourism facilities
Industrial waste processing
Toll roads
Parking facilities
Regional development (Note 1)
Sewerage(Sub-total)
Public housing
Local road construction
Improvement of rivers
and other waterways
High school construction(Sub-total)

Loans to local government
road corporations

Toll roads
Total

46,949
5,196
2,637
181
844
876
330
1,240
2,267
312
441
49
86
18
2
537

4,172,510
153,310
280,989
26,968
1,481,477
76,04648,354
115,189541,216
26,331
97,364
6,905
9,210
12,424
17
102,805

18.8
0.7
1.3
0.1
6.7
0.3
0.2
0.5
2.4
0.1
0.4
0.0
0.0
0.1
0.0
0.5

108

56,1960.3

118,688
180,761
5,307
30,7799,198,686
16,405,997
663,122
4,615,418

41.4
73.9
3.0
20.8

3,633

260,091

1.2

477
40,196

91,227
5,629,859

0.4
25.3

639

179,4330.8

221,596

22,215,288

100.0

Financial Section

General account-related
loans

(%)

Internal Management System

Municipal
enterprise-related
loans

Share

Operations Overview

Small-scale water supply

Organization Profile

Appendices Long-term Loans Outstandingat the End of Fiscal 2008

Notes:1. “Regional development” projects are land creation projects for regional development that include the creation of coastal industrial lands and other lands along theshoreline, and preparation of inland industrial lands, and lands for distribution parks, and lands for offices and shops, and housing lands. These projects also include
preparation of housing sites undertaken as land readjustment projects.

3. The totals of the individual amounts may not add up exactly due to rounding off.
4. The figures in this table are the totals of the outstanding loans made by the former JFM up to September 2008, and the outstanding loans made by JFM from October
2008 to March 2009.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

2. JFM’s scope of lending does not include toll road projects, urban redevelopment projects, or residential land development projects. Moreover, JFM does not lend to
local government road corporations.

81

Appendices Long-term Loans Outstanding at the End of
Fiscal 2008 (Breakdown by Prefecture)

Long-term loans
Prefecture
Number of loans

82

Amount of outstanding loans(Millions of Yen)

Share
(%)

Hokkaido

13,3201,232,974

5.6

Aomori

3,417

344,174

1.5

Iwate

3,508

358,111

1.6

Miyagi

6,666

579,513

2.6

Akita

5,881

274,761

1.2

Yamagata

4,793

325,892

1.5

Fukushima

6,611

433,481

2.0

Ibaraki

7,366

501,739

2.3

Tochigi

4,118

314,362

1.4

Gunma

5,368

319,850

1.4

Saitama

6,847

731,358

3.3

Chiba

5,725

690,782

3.1

Tokyo

2,074

459,587

2.1

Kanagawa

3,520

1,342,942

6.0

Niigata

9,216

594,087

2.7

Toyama4,191

324,700

1.5

Ishikawa

3,888

349,398

1.6

Fukui

3,217

200,314

0.9

Yamanashi

4,287

216,038

1.0

Nagano7,686

545,475

2.5

Gifu

5,339

340,147

1.5

Shizuoka

5,376

559,934

2.5

Aichi

6,139

1,080,012

4.9

Mie

4,955

376,564

1.7

Shiga

4,690

329,383

1.5

Kyoto

4,041

581,959

2.6

Osaka

5,653

1,578,623

7.1

Hyogo

9,224

1,205,716

5.4

Nara

3,952

273,530

1.2

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Long-term loans
Prefecture
Number of loans

Amount of outstanding loans(Millions of Yen)

Share
(%)

0.9

Tottori

3,267

179,692

0.8

Shimane2,765

278,723

1.3

Okayama

5,952

620,009

2.8

Hiroshima

5,437

732,731

3.3

Yamaguchi

5,136

329,659

1.5

Tokushima

2,023

143,897

0.6

Kagawa3,057

164,938

0.7

Ehime

2,884

248,791

1.1

Kochi

1,860

173,683

0.8

Fukuoka

5,812

1,076,997

4.8

Saga

2,085

179,754

0.8

Nagasaki

3,117

263,834

1.2

Kumamoto

4,265

319,453

1.4

Oita

2,262

192,257

0.9

Miyazaki

2,852

240,536

1.1

Kagoshima

3,168

258,228

1.2

Okinawa

2,231

149,296

0.7

Total

221,596

22,215,288

100.0

Financial Section

197,403

Internal Management System

2,355

Operations Overview

Wakayama

Notes:1. The figures in the table above include loans made to cities, special wards of Tokyo, towns, villages, local government associations, and local government corporations
that are located in each prefecture.
2. The totals of the individual amounts may not add up exactly due to rounding off.
3. The figures in this table are the totals of the outstanding loans made by the former JFM up to September 2008, and the outstanding loans made by JFM from October
2008 to March 2009.

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 200983

Appendices Basics of Local Government Finance andJFM’s Role

JFM formulates its lending program each fiscal year based on the Local Government Finance Program and the
Local Government Bond/Loan Program, which are prepared in parallel with the national budget.

Local Government System in Japan
Local governments are responsible for extensive areas of administration closely related to the daily livesof the citizens, including social welfare, public health, school education, social education, police and firefighting in their respective regions.
Local governments are comprised of prefectures, cities, towns and villages. Cities, towns and villages are
the basic units of local governments, and handle administrative issues related to their respective regions.
Prefectures are broader-based local governments.
Each local government has an assembly, which consists of popularly elected representatives, and is
granted certain legislative powers within its legal rights, in addition to the power to pass its budget. Local
governments are administered by directly elected governors and mayors.
As of March 31, 2009, there were 47 prefectures, 17 government-designated cities, 1,777 cities, towns
and villages, and 23 special wards of Tokyo.
JFM provides loans only for these local governments, and has never experienced any loan default cases.

Local Government Finance Program
As local governments play a significant role in the national economy, the national government must fulfill
its responsibility to provide local governments with the funds required to smoothly implement necessary
measures and policies.
To this end, the national government formulates the Local Government Finance Program each fiscal year
in parallel with the national budget to give an overall picture of the finances of local governments. Under thisprogram, the national government secures revenue sources for local governments in such a way that local
governments’ total expenditure and revenue are balanced.
An important source of funds that flows from the national government to local governments is the local
allocation tax grant. Under the local allocation tax system, the national government distributes a certain
percentage of national tax revenue to individual local governments so that they can maintain an appropriate
level of public services.
In fiscal 2008, the expenditure of local governments under the Local Government Finance Program
totaled ¥83.4 trillion (US$846.7 billion), and accounted for 15.0% of gross domestic expenditure (GDE).
Further, the local allocation tax grant for ¥15.4 trillion (US$156.4 billion) was distributed to local governments by the national government.

Local Government Bond / Loan Program
The national government also prepares the Local Government Bond/Loan Program each fiscal year, basedon the Local Government Finance Program, to give an overall picture of long-term debts of local

84

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Municipal Enterprises

Procedures for Local Governments’ Fund-raising

1.Local governments must consult with the Minister for Internal Affairs and Communications or theirrespective prefectural governors when they undertake bonds and loans.

3.As for local government bonds and loans to which consent has been given by the Minister forInternal Affairs and Communications or the respective prefectural governors, the national government
incorporates the payment of principals and interests of these local government debts into the Local
Government Finance Program. These debt services are also included in the computation of local
allocation tax grants.

Japan Finance Organization for Municipalities Annual Report 2009

Appendices / JFM Data

2.Local governments can borrow public funds, including JFM funds, only when they obtain consent from
the Minister for Internal Affairs and Communications or their respective prefectural governors throughthe consultation.

Financial Section

In principle, local government bonds and loans are approved as revenue sources for expenditures of
local governments only when they are used for the purposes specially stipulated by the Local Finance
Law and other related regulations, such as the expenses associated with municipal enterprises, andthe construction of public buildings and facilities. Additionally, the purposes and terms and conditionsof individual local government bonds and loans must be approved by the respective assembly.
To contribute to the sound fiscal management of local governments in undertaking bonds andloans, the following consultation system has been established.

Internal Management System

Local governments perform certain areas of services by utilizing the municipal enterprise structure
under which revenues are applied to expenses separately from the general account. Water supply
and sewerage projects are mainly operated by municipal enterprises.
As of the end of fiscal 2007, all the prefectures and 1,816 cities, towns and villages operated 9,210
municipal enterprises. Total expenditures of these municipal enterprises for fiscal 2007 totaled ¥20.4
trillion (US$207.4 billion).
The total capital expenditure of municipal enterprises in fiscal 2007 was ¥4.1 trillion (US$41.6
billion), of which ¥1.8 trillion (US$18.4 billion) was procured by borrowing, with ¥0.7 trillion (US$7.1
billion) coming from JFM.

Operations Overview

governments and to secure necessary revenue sources. The Local Government Bond/Loan Programsets the amounts of fund-raising by local governments by projects as well as procurement sources.
For fiscal 2009, the total amount of the Local Government Bond/Loan Program, or the total amountof new long-term debts of local governments is ¥14.6 trillion (US$148.1 billion). The breakdown ofprocurement sources is; JFM 12.9%, national government 29.2%, private sector 57.9%.

85

4.If a local government undertakes bonds and loans without obtaining consent from the Minister for Internal
Affairs and Communications or its respective prefectural governor, the head of the local government must
report it to its respective assembly in advance.
5.Local governments and municipal enterprises whose deficits exceed certain limits, and local governments
whose debt payment ratios exceed certain limits must obtain approval from the Minister for Internal Affairs
and Communications or their respective prefectural governors before undertaking local government bonds
and loans.

The Law Relating to the Financial Soundness of Local Governments
The Law Relating to the Financial Soundness of Local Governments, which was enacted and promulgated in June
2007, stipulates that local governments whose fiscal indicators exceed certain limits shall expeditiously restore
financial soundness. Under the Law, the ratios of fiscal soundness of local governments are disclosed, and therelevant local governments must map out their plans to restore fiscal soundness according to the ratios. The Law
is designed to ensure the fiscal soundness of local governments through administrative and fiscal measures that
help them execute their plans.
Under the Law, local governments with fiscal indicators exceeding the early warning limits or reconstruction
limits shall restore the fiscal soundness in a carefully planned way.

86

Japan Finance Organization for Municipalities Annual Report 2009

Organization Profile

Operations Overview

Internal Management System

Financial Section

Appendices / JFM Data

87

Japan Finance Organization for Municipalities Annual Report 2009

JFM Data

Organization History■ History of JFM
Fiscal 2008

Established based on the Japan Finance Organization for Municipal Enterprises Law (August 1, 2008).
Succeeded to the assets and liabilities of the former JFM and commenced operations (October 1, 2008).

Fiscal 2009

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

History of the former JFM
Fiscal 1957

Established based on the Japan Finance Corporation for Municipal Enterprises Law (June 1, 1957).

Fiscal 1960

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

Fiscal 1966

Started a lending program that applied special interest rates.

Fiscal 1967

Started receiving subsidies from the national treasury.

Fiscal 1970

Started the program of contributions of proceeds from municipally operated racing, and established the Fund for Improvementof Operations of Municipal Enterprises.

Fiscal 1972

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

Fiscal 1978

Included three special projects (general account-related projects, such as local road construction, improvement of rivers andother waterways, and high school construction) in the scope of lending.

Fiscal 1983

Started issuing foreign currency-denominated bonds.

Fiscal 1989

Established the Reserve for Losses on Refinance of Bonds.

Fiscal 1990

Started a lending program that applied extra special interest rates.
Based on the policy titled “Regarding Reorganization and Rationalization of Special Public Institutions,” which was approved by thecabinet on September 24, 1997, the following actions were taken.
・added a part-time senior executive director.
・established the Japan Finance Corporation for Municipal Enterprises Management Council.
・addressed the phased abolition of subsidies from the national treasury over a three-year period.
Stopped receiving subsidies from the national treasury, and established the Reserve for Interest Rate Reduction.
Started providing borrowers with the right to choose fixed or adjustable interest rates.
Established a compensation program for advanced repayments.
Started issuing public offering bonds without government guarantee.
The Basic Law on Special Public Institutions was passed, and the Reorganizations and Rationalization Plan for Special Public
Institutions was approved by the cabinet.

Fiscal 1998

Fiscal 2001

88

Fiscal 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.

Fiscal 2005

The “Priority Policy for Administrative Reform,” which included the proposal for abolition of the former JFM, a new structure
utilizing capital markets, and transitional measures to prepare for the abolition, was approved by the cabinet.

Fiscal 2006

The Administrative Reform Promotion Law was passed.
The Headquarters for the Promotion of the Reform of Policy-based Finance and the Headquarters for Administrative Reform set
forth the plan titled “System Design for Policy-based Financial Reforms.”
The six associations of local governments submitted the “Local Governments’ proposal” for the design of a new system after theabolition of the former JFM.

Fiscal 2007

Japan Finance Organization for Municipal Enterprises Law was passed.
The Law Relating to the Financial Soundness of Local Governments was passed.
Introduced the program that allowed advanced repayments without compensation in accordance with the national government’s
policy on reducing local governments’ debt service burden. The program ended in fiscal 2008.

Fiscal 2008

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

Japan Finance Organization for Municipalities DISCLOSURE 2009

■ Executive Officers and Corporate Auditors

Shuichi Kadowaki
Corporate Auditor

Yoji Ninomiya
Masamichi Fukunaga
Senior Executive Director Deputy President

Nadamu Takata
Corporate Auditor

Yuji Watanabe
Shinichiro Misono
Takao Kodama
President and CEO Senior Executive Director Senior Executive Director

President and CEO

Deputy President

Senior Executive Directors

Corporate Auditors

Yuji Watanabe

Masamichi Fukunaga

Shinichiro Misono
Yoji Ninomiya
Takao Kodama (part-time)

Shuichi Kadowaki
Nadamu Takata (part-time)■ Address
Shisei Kaikan, 1-3 Hibiya Koen, Chiyoda-ku, Tokyo
100-0012, Japan
Telephone: 81-3-3539-2696
Facsimile: 81-3-3539-2615
http://www.jfm.go.jp/(Photo credits: The Tokyo Institute for Municipal Research)

The logo represents the solidarity of local governments in the establishment and management of Japan
Finance Organization for Municipalities (JFM), with a single circle formed by three blocks that symbolize
the senses of “stability,*” ”trust*” and ”confidence*,” all of which are required for the execution of its
business operations. Furthermore, three lines extend outward radially from the inside “triangle” derived
from the “L” of local governments and the “公” of Chinese characters “地方公共団体” meaning local
governments, representing local governments and JFM making a great leap toward the future.
*“Stability” – providing long-term and low-interest funds in a stable manner.
*”Trust” – contributing to the sound fiscal management of local governments and the promotion of the welfare of local residents.
*”Confidence” – gaining the confidence of local governments and capital markets.

Japan Finance Organization for Municipalities
Annual Report 2009This report was prepared in accordance with the universal design concept to facilitate legibility for as many
people as possible, regardless of individual differences in color vision.

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Annual Report 2009
Japan Finance Organization for Municipalities