Corporate & Government Ratings & Research
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Media Contact: Kyota Narimatsu
Tel: (81) 3-4550 -8411
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S&P: Japan Finance Organization for Municipal Enterprises Rated 'AA/A-1+',
Replacing Old JFM
SINGAPORE (Standard & Poor's) Sept. 26, 2008--Standard & Poor's Ratings Services said today it assigned 'AA'
long-term rating and 'A-1+' short-term rating on Japan Finance Organization for Municipal Enterprises (new JFM).
The outlook is stable.
"The ratings on Japan Finance Organization for Municipal Enterprises reflect the organization's robust public policyrole as the primary public financial institution supplying long-term, low-cost financing for public projects," said
Standard & Poor's credit analyst Takahira Ogawa.
These projects include road building, water supply, and sewerage works that are undertaken by municipal
enterprises, divisions of local governments, and public enterprises established by local governments.
The ratings also incorporate the support that the new JFM receives from the local and regional governments (LRGs)
in Japan, including capital injections and managerial support. The new organization is wholly owned and controlled
by all LRGs in Japan.
"Despite the change of ownership to LRGs from 100% ownership by the central government, Standard & Poor's
expects the new JFM would receive similar level of timely support from the LRGs in Japan as the Japan FinanceCorp. for Municipal Enterprises (old JFM) used to enjoy from the central government," Mr. Ogawa said.
The new JFM was established by capital contributions from all local and regional governments in Japan on Aug. 1,
2008, to take over the assets and liabilities of the old JFM from Oct. 1, 2008. The previous organization will beabolished the same day. This is a part of the reform and restructuring of Japan's public sector financial institutions,which was approved by the cabinet in December 2005. The old JFM has no nonperforming loans (NPLs).
Nevertheless, there is a risk of NPLs in the new JFM's loan portfolio going forward due to the growing gap between
the financially strong and weaker local governments. If the legal framework for Japan local government financial
systems becomes more laissez-faire, it could also adversely affect the asset quality of financially weaker local
governments, which, in turn, could hurt the organization's asset quality. The possibility of such a change in the next
few years, however, is rather remote, given the political stalemate in Japan and weak near-term macroeconomiccondition.
Based on the budget approved by parliament, the old and the new JFM are planning to extend a total of ¥1,338
billion (US$12.2 billion; old JFM US$690 billion and the new JFM ¥648 billion) for fiscal 2008 (ending March 31,2009). This is 5% less than the previous year's budget of ¥1,414 billion (US$12.0 billion), reflecting the structuralreform plan for public financial institutions to reduce their total size of assets and ongoing fiscal consolidation of
local governments in Japan. The new JFM plans to issue a total of ¥420 billion (US$4.0 billion) guaranteed bonds
to satisfy 16% of the ¥2,572 billion (US$24.3 billion) funding needs for the latter half of fiscal 2008. The rest will
be financed by recovery of the funds from maturing loans and stand-alone bonds. There is no international bondissue planned in fiscal 2008.

A Japanese-language version of this media release is available on Standard & Poor's Research Online atwww.researchonline.jp, or via CreditWire Japan on Bloomberg Professional at SPCJ <GO>. Complete ratings
information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's
credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action
can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in theleft navigation bar, select Find a Rating, then Credit Ratings Search.

Analytical Contact:
Takahira Ogawa, Singapore(65) 6239 6342
takahira_ogawa@standardandpoors.com

Media Contact:
Kyota Narimatsu(81) 3-4550-8411
tokyo_pressroom@standardandpoors.com

Kumiko Kakimoto, Tokyo(81) 3 4550 8705
kumiko_kakimoto@standardandpoors.com
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