Fiscal 2017
(1 April 2017 to 31 March 2018)

Japan Finance Organization for Municipalities

Financial Statements

Japan Finance Organization for Municipalities

Contents
Balance Sheets
Statements of Income
Statements of Appropriation of Profit[General account/Management account]1
2

Notes to Financial Statements

3
5
7
8

Independent Auditor’s Report

40

Statements of Changes in Net Assets
Statements of Cash FlowsFinancial Statements

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

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

Fiscal 2017(31 March 2018)

Item

Fiscal 2016(31 March
2017)

AmountFiscal 2017(31 March 2018)
AmountAssetsLiabilities

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

Bonds (Notes 7 and 8)

Securities(Note 17)

166,000

170,000

1,600,904

Borrowed money (Note 9)

170,500

159,500

1,502,025

Cash andbank deposits

861,226

747,767

7,041,792

Cash collateral received
for financial instruments

111,159

12,260115,453

Cash collateral
paid for financial
instruments

24,32756,277529,965

Other liabilities

8,379

6,692

63,026

Other assets

10,616

9,783

92,129Reserve for bonuses (Note 10)

55

57

542

Tangible fixed
assets (Note 6)

2,602

2,549

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

8

8

77

Intangible fixed
assets (Note 6)

1,473

1,211

11,412

Reserve for retirement
benefits (Notes 10 and 13)

45

47

449

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

17

24

227

Fund for lending rate
reduction

920,287920,287

8,666,424

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

8,666,424

Reserves under special laws

3,379,138

3,105,003

29,240,072

Reserve for interest rate
volatility (Note 11)

1,980,000

2,200,000

20,717,582

Management account reserve forinterest rate volatility (Note 11)

1,358,120

870,453

8,197,129

Reserve for interest rate reduction

41,01734,550325,361

24,545,185

24,488,401

230,609,303

Capital16,602

16,602

156,343

Retained earnings

165,779

191,890

1,807,051

General account surplus
reserve

165,779

191,890

1,807,051

Valuation, translation
adjustments and others

5,035

5,268

49,617

Management accountsurplus reserve

53,666

53,666505,378

Total net assets

241,082

267,427

2,518,389

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

Net Assets

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

See notes to financial statements.

1

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

Fiscal 2016
(1 April 2016 to
31 March 2017)

Fiscal 2017
(1 April 2017 to 31 March 2018)

AmountAmountIncome¥376,497¥347,476$3,272,213

372,787

343,305

3,232,934

Fees and commissions

103

98

927

Other operating income

36

46

435

3,569

4,026

37,917

3,557

4,011

37,778

12

14

139

216,284

195,499

1,841,039

208,872

187,970

1,770,132

Fees and commissions

313

300

2,829

Other operating expenses

3,874

3,934

37,047

General and administrative expenses

3,223

3,295

31,031

Ordinary income

160,213

151,976

1,431,174

Special gains

427,323

626,467

5,899,495

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

620,000

5,838,591

Reversal of reserve for interest rate reduction

7,323

6,467

60,904

559,658

752,332

7,084,774

Provision for reserve for interest rate volatility (Note 11)

220,000

220,000

2,071,758

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

139,658

132,332

1,246,183

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

400,000

3,766,833¥27,878¥26,111$245,895

Interest income

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

Special losses

Net income
See notes to financial statements.

2

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

1 Profit available for appropriation¥27,878

Net income¥27,878

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

27,87827,878

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

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

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

26,111

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

1 Profit available for appropriation$245,895

Net income$245,895

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve

245,895

245,895

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

3

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

1 Profit available for appropriation¥-

Net income¥-

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve--

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

1 Profit available for appropriation¥-

Net income¥-

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve--(Thousands of U.S. dollars)

1 Profit available for appropriation$-

Net income$-

Accumulated deficit brought forward-

2 Profit appropriatedSurplus reserve-

See notes to financial statements.

4-

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

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

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

Net income-

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

-

-

-

-

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

CapitalBalance as of 1 April 2016
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March2017

5

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

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

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

Net income-

26,111

26,111

26,111--

26,111

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

233

-

233

-

26,111

26,111

26,111

233-

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

CapitalBalance as of 1 April 2017
Changes duringaccounting period

Net changes duringaccounting period
Balance as of 31 March
2018(For the year ended 31 March 2018)(Thousands of U.S. dollars)

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

Total
net
assets$156,343$1,561,156$1,561,156$1,717,499$47,415$505,378$2,270,292

Net income-

245,895

245,895

245,895--

245,895

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

2,202

-

2,202

-

245,895

245,895

245,895

2,202-

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

CapitalBalance as of 1 April 2017
Changes duringaccounting period

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

6

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

Fiscal 2016
(1 April 2016 to
31 March 2017)

Fiscal 2017
(1 April 2017 to 31 March 2018)

AmountAmountⅠ Cash flows from operating activities

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

0

0

1

11

2

23

8

6

58

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

277,268

286,997

2,702,680

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

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

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

3,557

4,011

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

-

-

-

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

Ⅵ Cash and cash equivalents at beginning of year

711,611

861,226

8,110,241

Ⅶ Cash and cash equivalents at end of year

¥861,226¥747,767$7,041,792

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

Proceeds from redemption of securities
Purchases of securities
Purchases of tangible fixed assets
Purchases of intangible fixed assets
Net cash provided by investing activities
Ⅲ Cash flows from financing activities

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

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

equivalents

See notes to financial statements.

7

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

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

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

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

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

4. Payment to the National Treasury of a Portion of JFM’s Management Account Reserve for Interest Rate Volatility
In accordance with the Supplementary Provisions of the Law, a portion of JFM’s management account reserve forinterest rate volatility is being attributed to the Japanese national government over a period of three years from fiscal
2015 through fiscal 2017, with the aim of transferring up to 600 billion yen over this period. Furthermore, it has been
also determined that an additional amount of up to 800 billion yen from fiscal 2017 through fiscal 2019 shall be
attributed to the government.
In fiscal 2017, 400 billion yen (3,766,833 thousand U.S. dollars) was transferred to the national treasury by JFM,
pursuant to Article 14 of the Supplementary Provisions of the Law for fiscal 2017 (Ordinance No. 2 of the Ministryof Internal Affairs and Communications, and the Ministry of Finance, 2017). And, in fiscal 2018, 400 billion yen isscheduled to be transferred to the national treasury by JFM, pursuant to Article 14 of the Supplementary Provision of
the Law for fiscal 2018 (Ordinance No. 2 of the Ministry of Internal Affairs and Communications, and the Ministry of
Finance, 2018).
JFM obtained the approval of the Minister of Health, Labour and Welfare, dated 1 October 2014, for the transfer
to the Japanese national government of the payment obligation of the substitutional portion of the Employees’
Pension Fund established under the Japanese Welfare Pension Insurance Law. Furthermore, on 22 September 2017,
JFM completed the transfer of the total amount of the refund (minimum policy reserve) to the Japanese national
government. There will be no impact on JFM’s profit or loss in conjunction with this because Clause 46 of “Guidanceon Accounting Standard for Retirement Benefits” (Accounting Standards Board of Japan Guidance No. 25) has been
applied.

5. Financial Instruments(1) Status of financial instruments(a) Policy for financial instruments
In order to maintain a sound and good financial standing as well as the solid confidence of capital markets,
JFM needs to appropriately manage various risks including interest rate risk.
JFM adopts an integrated risk management approach to appropriately respond to various risks while
endeavoring to further advance its risk analysis and management.
Accordingly, JFM has developed a system for appropriate risk management, including the establishment of
the Integrated Risk Management Committee, which supervises JFM’s overall risk management, and the Risk
Management Office, which monitors the risks in each department. The content of risk management can thenbe appropriately reflected in management decisions.
(b) Details and risks of financial instruments
JFM makes loans to local governments. The maximum term to maturity is 40 years, but the majority of thefunds for these loans are raised mainly through issuance of 10-year bonds. Therefore, a large duration gap iscreated between lending and funding, and JFM is exposed to the interest rate risk associated with bond and10

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

11

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

12

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

Fair value

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

166,000

166,000-(3) Cash and bank deposits

861,226

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

24,327

24,327-

Total assets

24,771,575

26,816,832

2,045,257(1) Bonds

19,955,593

20,859,021

903,427(2) Borrowed money

170,500

173,095

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

111,159

111,159-

20,237,252

21,143,276

906,023

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

13

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

Fair value

Difference¥23,768,240¥25,641,198¥1,872,958(2) Securities
held-to-maturity securities

170,000

170,000-(3) Cash and bank deposits

747,767

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

56,27756,277-

Total assets

24,742,285

26,615,243

1,872,958(1) Bonds

20,284,520

21,100,871

816,350(2) Borrowed money

159,500

161,601

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

12,26012,260-20,456,280

21,274,733

818,452

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities(Thousands of U.S. dollars)Book value(1) Loans

Fair value

Difference$223,827,481$241,465,286$17,637,805(2) Securities
held-to-maturity securities

1,600,904

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

7,041,792

7,041,792-

529,965

529,965-

Total assets

233,000,142

250,637,947

17,637,805(1) Bonds

191,021,008

198,708,651

7,687,643

1,502,025

1,521,815

19,790115,453

115,453-

192,638,486

200,345,919

7,707,433

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

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

Note 1. Method for calculating fair value of financial instruments and items related to marketable securities and derivativetransactions
Assets(1) Loans
The fair value of loans is calculated by discounting future cash flows assuming prepayment at the discount rate
calculated using the Japanese government bond rates as of 31 March 2017 and 2018.
(2) Securities
All bonds are held until maturity, and the fair value of treasury discount bills is the market price.
Since all negotiable certificates of deposit are short-term, the fair value approximates the book value. As a result,the book value is deemed to be the fair value.

14

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

Fair value

Difference

-

-

-

-

Sub total---

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

Sub total

166,000

166,000-¥166,000¥166,000-

Total

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

Fair value

Difference

-

-

-

-

Sub total---

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

Sub total

170,000

170,000-¥170,000¥170,000-

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

Fair value

Difference

-

-

-

-

Sub total---

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

Sub total

1,600,904

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

-

Total

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

15

Liabilities(1) Bonds
The fair value of bonds issued by JFM that have a market price is based on the market price. The fair value ofbonds without a market price is calculated by discounting the future cash flows using the interest rate that would
be applied when issuing similar bonds with the same total principal and interest and payment term.
Deferral hedge accounting is used for currency swaps, and the fair value of foreign currency-denominated bonds
is thus calculated using the total of the fair value of that bond and the fair value of the swap transaction.
Hedge accounting is used for interest rate swaps, and the fair value of floating rate bonds is thus calculated bydetermining the present value using the total of the corresponding interest rate swap accounted for together withthe principal and interest and discounting the future cash flows using the interest rate that would be applied whenissuing a similar bond.
(2) Borrowed money
The fair value of long-term borrowed money is calculated by discounting the future cash flows using the interest
rate that would presumably be applied when issuing bonds with the same total principal and interest and payment
term.
On the other hand, the book value is used as the fair value of short-term borrowed money since both values areapproximately equal as a result of each loan period being short term.
(3) Cash collateral received for financial instruments
Cash collateral is associated with derivative transactions. The book value is used as the fair value of cash collateral
received for financial instruments since both values are approximately equal as a result of each deposit period
being short term.
Derivative transactions
Transactions for which hedge accounting is applied
For derivative transactions for which hedge accounting is applied, the contractual amount or the amount equivalent
to the principal in the contract under each hedge accounting method as of 31 March 2017 is as follows:(Millions of yen)Hedge
accounting
methodContract amountType ofderivativetransactions

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts--¥55,000¥55,000(*1)

Foreign currencydenominatedbonds

1,519,932

1,519,932(*2)

Foreign currencydenominateddeposits

210,000-(*2)¥1,784,932¥1,574,932

Total

16

Method for
calculating fair
value

Fair
value

Of which
1 year or
more

-

-

Based on prices
provided by
the counterparty
financial institution

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

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

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

Foreign currencydenominatedbonds

1,411,742

1,117,763(*2)

Foreign currencydenominateddeposits

140,000-(*2)¥1,586,742¥1,152,763

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

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

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts--$329,598$329,598(*1)

Foreign currencydenominatedbonds

13,294,496

10,526,075(*2)

Foreign currencydenominateddeposits

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

Total

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

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

17

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

As of 31 March 2017
(Millions of yen)After
20 years
through
30 years

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

Within1 yearLoans

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

After
10 years
through
20 years

Securities
held-tomaturity
securities

166,000

-

-

-

-

-

-

-

-

Deposits

861,226

-

-

-

-

-

-

-

-

As of 31 March 2018
(Millions of yen)After
20 years
through
30 years

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

Within1 yearLoans

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

After
10 years
through
20 years

Securities
held-tomaturity
securities

170,000

-

-

-

-

-

-

-

-

Deposits

747,767

-

-

-

-

-

-

-

-

(Thousands of U.S. dollars)After
20 years
through
30 years

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

Within1 yearLoans

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

After
10 years
through
20 years

Securities
held-tomaturity
securities

1,600,904

-

-

-

-

-

-

-

-

Deposits

7,041,792

-

-

-

-

-

-

-

-

18

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

As of 31 March 2017
After
10 years
through
20 years

After
20 years
through
30 years

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

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

25,000After
2 years
through
3 years

80,000After
3 years
through
4 years

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

55,500-

As of 31 March 2018
After
10 years
through
20 years

After
20 years
through
30 years

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

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

80,000After
2 years
through
3 years

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

1,000

After
5 years
through
10 years-

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

After
20 years
through
30 years

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

Within1 year
Bonds
Borrowed
money

After
1 yearthrough
2 years

753,367After
2 years
through
3 years

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

9,417

After
5 years
through
10 years-

645,070-

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

Increaseduringthe year

Buildings¥1,181¥0-¥1,182

¥409

¥47

¥773

Land

1,659

-

-

1,659

-

-

1,659

395

-

-

395

225

70

169

3,236

0

-

3,237

634

118

2,602

2,440

273

¥21

2,692

1,219

501

1,472

0

4

4

0

-

-

0

¥2,440¥277¥25¥2,692¥1,219¥501¥1,473

Type of assets

Balance asof 31 March2017(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2017

Balance asof 1 April
2016(Acquisition
costs)

Decreaseduringthe year

Balance asof 31 March
2017(Net bookvalue)

Tangible fixed assets

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

19

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

Increaseduringthe year

Buildings¥1,182¥2-¥1,185

¥442

¥33

¥742

Land

1,659

-

-

1,659

-

-

1,659

395

48

¥4

439

292

71

147

3,237

51

4

3,284

735

105

2,549

2,692

261

23

2,930

1,750

554

1,180

0

79

48

31

-

-

31

¥2,692¥341¥71¥2,962¥1,750¥554¥1,211

Type of assets

Balance asof 31 March2018(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2018

Balance asof 1 April
2017(Acquisition
costs)

Decreaseduringthe year

Balance asof 31 March
2018(Net bookvalue)

Tangible fixed assets

Other tangible fixed assets
Total tangible fixed assets
Intangible fixed assets
Software
Other intangible fixed assets
Total intangible fixed assets(Thousands of U.S. dollars)

Increaseduringthe year

Buildings$11,135$26-$11,161$4,170$316$6,990Land

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

Other tangible fixed assets

3,721

460

$40

4,141

2,753

672

1,388

30,486486

40

30,932

6,923

988

24,00925,3592,461

225

27,595

16,483

5,220

11,112

1

751

452

300

-

-

300

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

Balance asof 31 March2018(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2018

Balance asof 1 April
2017(Acquisition
costs)

Decreaseduringthe year

Balance asof 31 March
2018(Net bookvalue)

Tangible fixed assets

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

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

20

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

Balance
as of 1
April 2016

Balance as of 31
March 2017

Couponrate (%)

Maturity

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

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

0.005
to 1.500

10Y

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

9/26/20132/24/2017

300,000

420,100

0.001
to 0.576

8Y

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

9/27/201110/28/2016

1,129,991

1,330,732(200,000)

0.001
to 0.400

6Y

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

5/28/20126/30/2016

330,000

150,126(110,000)

0.001
to 0.249

4Y

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

1/13/2011

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

4.0

10Y

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

3/20/20152/19/2016

50,00025,000(25,000)

0.030
to 0.100

2Y

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

8/19/2013

20,000

-

0.170

3Y

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

5/26/201110/21/2016

235,000

190,000(60,000)

0.001
to 0.510

5Y

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

8/20/2012

20,00020,0000.446

7Y

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

6/18/20093/21/2017

2,515,000

2,755,000

0.060
to 1.648

10Y

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

1/31/20131/22/2014

50,00050,0001.161
to 1.334

15Y

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

6/25/20093/21/2017

1,065,000

1,195,000

0.180
to 2.266

20Y

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

6/26/201410/21/2016

15,00035,0000.569
to 1.864

30Y

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

7/22/20091/27/2017

1,819,772

2,029,401(62,000)

0.001
to 2.334

2Y
to 40Y

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

2/1/20117/25/2014

35,00035,000Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

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

1/12/20121/30/2017

943,766

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

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

1/17/20127/22/2013

125,073

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

Floating
rate

5Y
to 7Y

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

7/31/20093/28/2017

2,180,000

2,330,000

0.069
to 1.53

10Y

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

11/24/20153/28/2017

34,00075,5000.069
to 0.511

10Y

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

11/24/20153/28/2017

51,500134,000

0.190
to 1.154

20Y

21

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

4/21/20163/28/2017

Bonds issued by JFM - Sub-total-

150,000

0.190
to 0.778

20Y-

14,947,564

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

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

10/16/20085/25/2009

561,735

562,0101.3
to 1.6

10Y

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

11/25/20085/28/2009

139,986

139,991

1.59
to 1.77

10Y

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

1/26/20094/30/2009

84,961

84,9642.07
to 2.29

20Y

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

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y

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

906,684

906,967--

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

4/20/20066/19/2008

1,469,826

808,536(587,650)

1.4
to 2.0

10Y

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

6/22/20057/18/2007

184,771

184,793

1.6
to 2.2

15Y

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

8/9/19996/25/2008

343,017

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

1.9
to 5.75

10Y
to 20Y

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

7/4/20066/16/2008

399,985

159,997(110,000)

1.77
to 2.07

10Y

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

7/30/20026/16/2008

569,760

569,784

1.03
to 2.58

20Y

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

1/29/20049/20/2006

189,885

189,891

2.39
to 2.95

30Y

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

10/31/2002

20,00020,000(20,000)

Floating
rate

15Y

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

2/14/20036/9/2004

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

28Y

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

9/13/2006

20,000-Floating
rate

10Y

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

7/26/20067/31/2008

715,500

382,000(255,000)

1.59
to 2.18

10Y

Bonds issued by the Predecessor - Sub-total-

3,945,385

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

-

-

Total

-

¥19,799,634¥19,955,593(1,773,824)--

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

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

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

Balance
as of 1
April 2016

Balance as of 31
March 2017

Couponrate (%)

Maturity

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

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

0.005
to 1.500

10Y

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

9/26/20132/24/2017

420,100

420,0860.001
to 0.576

8Y

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

9/27/201110/28/2016

1,330,732

1,130,594(320,000)

0.001
to 0.400

6Y

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

6/24/20132/26/2018

150,126

200,3360.001
to 0.249

4Y

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

1/13/2011

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

4

10Y

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

2/19/2016

25,000

-

0.03

2Y

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

4/19/201210/20/2017

190,000

160,000(45,000)

0.001
to 0.360

5Y

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

8/20/2012

20,00020,0000.446

7Y

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

6/18/20093/19/2018

2,755,000

2,970,000

0.06
to 1.648

10Y

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

1/31/20131/22/2014

50,00050,0001.161
to 1.334

15Y

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

6/25/20091/26/2018

1,195,000

1,295,000

0.18
to 2.266

20Y

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

6/26/201410/20/2017

35,00055,0000.569
to 1.864

30Y

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

7/22/20092/27/2018

2,029,401

2,206,530(167,500)

0.001
to 2.334

2Y
to 40Y

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

2/1/20117/25/2014

35,00035,000Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

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

3/1/20121/30/2018

1,211,337

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

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

5/22/20127/22/2013

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

Floating
rate

5Y
to 7Y

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

7/31/20093/26/2018

2,330,000

2,480,000

0.069
to 1.53

10Y

23

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

11/24/20153/26/2018

75,500159,000

0.069
to 0.511

10Y

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

11/24/20153/26/2018

134,000

248,500

0.19
to 1.154

20Y

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

4/21/20163/26/2018

150,000

300,000

0.19
to 0.778

20Y

Bonds issued by JFM - Sub-total-

16,480,031

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

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

10/16/20085/25/2009

562,010562,285(422,500)

1.3
to 1.6

10Y

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

11/25/20085/28/2009

139,991

139,996(80,000)

1.59
to 1.77

10Y

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

1/26/20094/30/2009

84,96484,9672.07
to 2.29

20Y

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

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y

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

906,967

907,249(502,500)--

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

4/19/20076/19/2008

808,536

221,115(221,120)1.4
to 1.9

10Y

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

6/22/20057/18/2007

184,793

184,815

1.6
to 2.2

15Y

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

8/9/19996/25/2008

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

1.9
to 5.75

10Y
to 20Y

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

7/30/20076/16/2008

159,997

49,999(50,000)

1.77
to 2.02

10Y

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

7/30/20026/16/2008

569,784

569,809

1.03
to 2.58

20Y

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

1/29/20049/20/2006

189,891

189,897

2.39
to 2.95

30Y

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

10/31/2002

20,000-Floating
rate

15Y

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

2/14/20036/9/2004

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

28Y

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

5/28/20077/31/2008

382,000

127,000(127,000)

1.59
to 2.03

10Y

Bonds issued by the Predecessor - Sub-total-

2,568,595

1,474,304(475,290)

-

-

Total

-

¥19,955,593¥20,284,520(1,804,268)

-

-

24

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

Balance
as of 1
April 2016

Balance as of 31
March 2017

Couponrate (%)

Maturity

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

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

0.005
to 1.500

10Y

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

9/26/20132/24/2017

3,956,118

3,955,990

0.001
to 0.576

8Y

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

9/27/201110/28/2016

12,531,621

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

0.001
to 0.400

6Y

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

6/24/20132/26/2018

1,413,755

1,886,583

0.001
to 0.249

4Y

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

1/13/2011

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

4

10Y

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

2/19/2016

235,427

-

0.03

2Y

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

4/19/201210/20/2017

1,789,246

1,506,733(423,769)

0.001
to 0.360

5Y

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

8/20/2012

188,342

188,342

0.446

7Y

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

6/18/20093/19/2018

25,944,063

27,968,735

0.06
to 1.648

10Y

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

1/31/20131/22/2014

470,854

470,854

1.161
to 1.334

15Y

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

6/25/20091/26/2018

11,253,414

12,195,122

0.18
to 2.266

20Y

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

6/26/201410/20/2017

329,598

517,9390.569
to 1.864

30Y

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

7/22/20092/27/2018

19,111,040

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

0.001
to 2.334

2Y
to 40Y

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

2/1/20117/25/2014

329,598

329,598

Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

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

3/1/20121/30/2018

11,407,264

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

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

5/22/20127/22/2013

701,243

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

Floating
rate

5Y
to 7Y

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

7/31/20093/26/2018

21,941,802

23,354,365

0.069
to 1.53

10Y

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

11/24/20153/26/2018

710,990

1,497,316

0.069
to 0.511

10Y

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

11/24/20153/26/2018

1,261,889

2,340,145

0.19
to 1.154

20Y

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

4/21/20163/26/2018

1,412,562

2,825,1250.19
to 0.778

20Y

Bonds issued by JFM - Sub-total-

155,193,814

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

-

-

25

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

10/16/20085/25/2009

5,292,501

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

1.3
to 1.6

10Y

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

11/25/20085/28/2009

1,318,314

1,318,360(753,367)

1.59
to 1.77

10Y

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

1/26/20094/30/2009

800,120

800,148

2.07
to 2.29

20Y

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

4/30/20095/26/2009

1,130,050

1,130,050

1.69
to 1.73

10Y

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

8,540,985

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

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

4/19/20076/19/2008

7,614,054

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

1.4
to 1.9

10Y

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

6/22/20057/18/2007

1,740,217

1,740,427

1.6
to 2.2

15Y

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

8/9/19996/25/2008

2,101,159

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

1.9
to 5.75

10Y
to 20Y

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

7/30/20076/16/2008

1,506,706

470,853(470,854)

1.77
to 2.02

10Y

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

7/30/20026/16/2008

5,365,711

5,365,944

1.03
to 2.58

20Y

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

1/29/20049/20/2006

1,788,223

1,788,281

2.39
to 2.95

30Y

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

10/31/2002

188,342-

Floating
rate

15Y

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

2/14/20036/9/2004

286,939

266,503(20,435)

1.39
to 2.01

28Y

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

5/28/20077/31/2008

3,597,326

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

1.59
to 2.03

10Y

Bonds issued by the Predecessor - Sub-total-

24,188,677

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

-

-

Total

-

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

Notes: 1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as generalcollateral for JFM bonds in the amount of 20,284,520 million yen (191,021,008 thousand U.S. dollars) as of
31 March 2018.
2. Amounts in square brackets under “Balance as of 31 March 2018” for “Government-guaranteed bonds
issued by JFM (international)—Global U.S. dollar bonds (Series 1),” “Non-guaranteed bonds issued by JFM(international)— (Series 15, 31, 33-35, 40-62),” “Non-guaranteed bonds issued by JFM (international)— (Floater,
Series 29, 30, 32, 36, 38, 39)” and “Government-guaranteed bonds issued by the Predecessor (international)—
Euro-sterling bonds (Series 4), Global-yen bonds (Series 5), etc.” are denominated in foreign currencies.
3. Amounts in parentheses under “Balance as of 31 March 2018” are to be repaid within one year.
4. Annual schedule of redemption within five years after the fiscal year-end:26

As of 31 March 2017
Within 1 year
Bonds

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

After 2 years
through 3 years

After 3 years
through 4 years

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

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

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

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

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

As of 31 March 2018
Within 1 year
Bonds

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

$16,990,947

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

Balance as of
1 April 2016

Balance as of
31 March 2017

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

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

0.114

9/19/2017¥120,500¥145,500

0.550

9/26/20182/27/2026¥120,500¥170,500-

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

-

-

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

Balance as of
1 April 2017

Balance as of
31 March 2018

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

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

0.456

9/26/20183/26/2019

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

145,500

79,5000.541

3/9/20203/27/2028¥170,500¥159,500

-

Total

-

-

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

Balance as of
1 April 2017

Balance as of
31 March 2018

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

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

0.456

9/26/20183/26/2019

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

1,370,186

748,658

0.541

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

-

Total

27

-

-

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

As of 31 March 2017
(Millions of yen)
Within 1 year
Borrowed money¥25,000

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

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

As of 31 March 2017
(Millions of yen)
Within 1 year
Borrowed money¥80,000

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥10,000¥-¥1,000¥-(Thousands of U.S. dollars)Within 1 year
Borrowed money$753,367

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

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

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

Balanceas of
31 March
2017

Balanceas of
1 April 2016

Increaseduring the
year

¥52

¥55

¥52

¥-

¥55

Reserve for bonuses for directors andcorporate auditors

7

8

7

-

8

Reserve for retirement benefits

33

19

0

8

45

Reserve for retirement benefits for directors
and corporate auditors

9

10

-

1

17

Classification of reserve

Reserve for bonuses

Intended
purposeOther

Reserves as of 31 March 2018 consisted of the following:(Millions of yen)
Decrease during the year

Balanceas of
31 March
2018

Balanceas of
1 April 2017

Increaseduring the
year

¥55

¥57

¥55

¥-

¥57

Reserve for bonuses for directors andcorporate auditors

8

8

8

-

8

Reserve for retirement benefits

45

12

2

8

47

Reserve for retirement benefits for directors
and corporate auditors

17

7

-

1

24

Classification of reserve

Reserve for bonuses

28

Intended
purposeOther

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

Balanceas of
31 March
2018

Balanceas of
1 April 2017

Increaseduring the
year

$519

$542

$519

$-

$542

Reserve for bonuses for directors andcorporate auditors

76

77

76

-

77

Reserve for retirement benefits

426

119

20

76

449

Reserve for retirement benefits for directors
and corporate auditors

169

72

-

14

227

Classification of reserve

Reserve for bonuses

Intended
purposeOther

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

Balanceas of
1 April
2016

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

Management account reserve forinterest rate volatility

1,638,462

139,658

Total¥3,398,462¥359,658

Increase during the year

Decrease during the year

AmountprovidedAmountwithdrawn¥220,000¥220,000¥-

Balanceas of
31 March
2017¥1,980,000

420,000¥220,000

1,358,120¥420,000¥220,000¥3,338,120

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

Balanceas of
1 April2017

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

Management account reserve forinterest rate volatility

1,358,120

132,332

Total¥3,338,120¥352,332

Increase during the year

Decrease during the year

AmountprovidedAmountwithdrawn¥220,000¥220,000¥-

Balanceas of
31 March
2018¥2,200,000

620,000¥220,000

870,453¥620,000¥220,000¥3,070,453(Thousands of U.S. dollars)
Increase during the year

Decrease during the year

Classification of reserve

Balanceas of
1 April2017

AmountprovidedAmountwithdrawn

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

Management account reserve forinterest rate volatility

12,789,537

1,246,183

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

Balanceas of
31 March
2018$20,717,582

5,838,591

2,071,758

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

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

29

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

Basic fund for lending rate
reduction
Total

Balanceas of
1 April
2016

Balanceas of
31 March
2017

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

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

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

Basic fund for lending rate
reduction
Total

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

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

Balanceas of
1 April
2016

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

Classification of fund

Basic fund for lending rate
reduction
Total

Balanceas of
1 April
2016

Balanceas of
31 March
2017

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

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

Others

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

30

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

19 million yen

As of and for the year ended 31 March 2018
(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Corporate Pension Fund and offers lump-sum payments
upon retirement of employees and a defined contribution plan. The reserve for retirement benefits and pension
expenses are calculated using the simplified method.
(2) Defined benefit plan(a) Reconciliation of outstanding amounts of reserve for retirement benefits:
Reserve for retirement benefits at the beginning of the fiscal year: 45 million yen(426 thousand U.S. dollars)
Pension expenses:
12 million yen(119 thousand U.S. dollars)
Employee retirement benefits paid:
2 million yen(20 thousand U.S. dollars)
Contributions to the defined benefit plan:
8 million yen(76 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
47 million yen(449 thousand U.S. dollars)(b) Retirement benefit obligation, plan assets, and reconciliation of retirement benefit asset and liability
Funded retirement benefit obligation:
190 million yen (1,790 thousand U.S. dollars)
Plan assets:(181) million yen ((1,712) thousand U.S. dollars)
Balance:8 million yen(78 thousand U.S. dollars)
Unfunded retirement benefit obligation:
39 million yen (371 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:47 million yen(449 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
47 million yen(449 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:47 million yen(449 thousand U.S. dollars)(c) Profit and loss associated with employee retirement benefits
Pension expenses calculated based on the simplified method:

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

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

31

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

Generalaccount

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

OffsetTotal(Assets)
Loans¥23,720,021

Securities

166,000

166,000

Cash and bank deposits

861,226

861,226

Cash collateral paid for financial instruments

24,327

Other assets

4,064

Tangible fixed assets

2,602

Intangible fixed assets

1,473

Due from general accountTotal assets

24,327
6,551

10,6162,602
1,473

671,876¥(671,876)

14,698,408

10,759,735(671,876)

10,654,660

9,300,933

24,786,267(Liabilities)
Bonds
Borrowed money

170,500

Cash collateral received for financial instruments

111,159

Other liabilities

2,382

19,955,593
170,500
111,159

5,997

8,379

Reserve for bonuses

55

55

Reserve for bonuses for directors and corporate
auditors

8

8

Reserve for retirement benefits

45

45

Reserve for retirement benefits for directors andcorporate auditors

17

17

920,287920,287

Fund for lending rate reduction
Basic fund for lending rate reduction

920,287

Due to management account671,876

Reserves under special laws

1,980,000

Reserve for interest rate volatility

1,399,138

3,379,138

1,980,000

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

920,287(671,876)

14,510,991

1,980,000
1,358,120

1,358,120

41,01741,017

10,706,069(671,876)

24,545,185(Net Assets)
Capital16,602

16,602Retained earnings

165,779

165,779

165,779

165,779

General account surplus reserve
Valuation, translation adjustments and others

5,035Management account surplus reserve
Total net assets
Total liabilities and net assets

5,035
53,666

53,666

187,416

53,666

241,082¥14,698,408¥10,759,735

32¥(671,876)¥24,786,267

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

Generalaccount

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

OffsetTotal(Assets)
Loans¥23,768,240

Securities

170,000

170,000

Cash and bank deposits

747,767

747,767

Cash collateral paid for financial instruments

56,277

Other assets

4,029

Tangible fixed assets

2,549

Intangible fixed assets

1,211

Due from general accountTotal assets

56,277
5,753

9,783
2,549
1,211

658,396¥(658,396)

15,788,248

9,625,977(658,396)

11,621,637

8,662,882

24,755,829(Liabilities)
Bonds
Borrowed money

159,500

Cash collateral received for financial instruments

12,260

Other liabilities

2,267

20,284,520
159,500
12,260

4,425

6,692

Reserve for bonuses

57

57

Reserve for bonuses for directors and corporate
auditors

8

8

Reserve for retirement benefits

47

47

Reserve for retirement benefits for directors andcorporate auditors

24

24

920,287920,287

Fund for lending rate reduction
Basic fund for lending rate reduction

920,287

Due to management account658,396

Reserves under special laws

2,200,000

Reserve for interest rate volatility

920,287(658,396)
905,003

3,105,003

2,200,000

2,200,000

Management account reserve for interest rate
volatility

870,453

870,453

Reserve for interest rate reduction

34,55034,550Total liabilities

15,574,486

9,572,311(658,396)

24,488,401(Net Assets)
Capital16,602

16,602Retained earnings

191,890

191,890

191,890

191,890

General account surplus reserve
Valuation, translation adjustments and others

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

5,268
53,666

53,666

213,761

53,666

267,427¥15,788,248¥9,625,977

33¥(658,396)¥24,755,829

(Thousands of U.S. dollars)
Item

Generalaccount

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

OffsetTotal(Assets)
Loans$223,827,481

Securities

1,600,904

1,600,904

Cash and bank deposits

7,041,792

7,041,792

Cash collateral paid for financial instruments

529,965

Other assets

37,943

Tangible fixed assets

24,009Intangible fixed assets

11,412

Due from general accountTotal assets

529,965
54,186

92,12924,00911,4126,200,173$(6,200,173)

148,679,238

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

109,441,925

81,579,083

233,127,692(Liabilities)
Bonds
Borrowed money

191,021,008

1,502,025

Cash collateral received for financial instruments

115,453

Other liabilities

21,3501,502,025
115,453
41,67663,026

Reserve for bonuses

542

542

Reserve for bonuses for directors and corporate
auditors

77

77

Reserve for retirement benefits

449

449

Reserve for retirement benefits for directors andcorporate auditors

227

227

8,666,424

8,666,424

Fund for lending rate reduction
Basic fund for lending rate reduction

8,666,424

Due to management account

6,200,173

Reserves under special laws

20,717,582

Reserve for interest rate volatility

8,522,490

29,240,072

20,717,582

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

8,666,424(6,200,173)

146,666,227

20,717,582
8,197,129

8,197,129

325,361

325,361

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

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

156,343

156,343

1,807,051

1,807,051

1,807,051

1,807,051

Valuation, translation adjustments and others

49,617

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

49,617505,378505,378

2,013,011

505,378

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

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

34

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

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

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

133,591

239,196

OffsetTotal¥(9,758)¥376,497
372,787

Fees and commissions

103

Other operating income

36

36

3,569

3,569

3,557

3,557

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

103

12

12

683

Interest on due from general account

(683)
30

(30)

9,044

(9,044)

110,106

115,936(9,758)95,523

113,349

Fees and commissions

147

165

313

Other operating expenses

2,277

1,597

3,874

General and administrative expenses

3,082

141

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

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

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

27,878132,334-

160,213220,000

427,323(220,000)

427,323

220,000(220,000)
420,000

Reversal of reserve for interest rate reduction
Provision for reserve for interest rate volatility

420,000

7,323
220,000

559,658

7,323(220,000)

220,000
139,658

Transfer to general account

220,000

Payment to national treasury

200,000¥27,87835

559,658
220,000

Provision for management account reservefor interest rate volatility

Net income

3,223
(30)

Reversal of management account reserve forinterest rate volatility
Special losses

208,87230

Administrative fee for management account216,284-

139,658(220,000)
200,000-¥27,878

Statements of income of general account and management account from 1 April 2017 through 31 March 2018 wereas follows:(Millions of yen)
Item
IncomeInterest income

General account Management account¥137,907¥218,401

133,064

210,240

Fees and commissions

98

Other operating income

46

Other income
Contributions from fund for lending rate
reduction

4,024

Total

¥(8,832)

12

98
46
1

4,026
4,011

1

673

Interest on due from general account¥347,476
343,305

4,011

OthersAdministrative fee for management accountOffset

14
(673)

24

(24)

8,134

(8,134)

111,795

92,536(8,832)

98,47589,495

Fees and commissions

155

144

300

Other operating expenses

1,885

2,048

3,934

General and administrative expenses

3,119

175

3,295

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

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

187,970

24

(24)

8,134

(8,134)

Administrative fee for management account673

195,499(673)

Ordinary income

26,111

125,864-

151,976

Special gains

220,000

626,467(220,000)

626,467

Transfer from management account

220,000(220,000)

Reversal of management account reserve forinterest rate volatility

620,000

620,000

Reversal of reserve for interest rate reduction

6,467

6,467

Special losses
Provision for reserve for interest rate volatility

220,000

752,332

132,332

Transfer to general account

220,000

Payment to national treasury

400,000¥26,11136

752,332
220,000

Provision for management account reservefor interest rate volatility

Net income(220,000)

220,000¥-

132,332(220,000)
400,000¥-¥26,111(Thousands of U.S. dollars)
Item
IncomeInterest income

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

1,253,083

1,979,851

Fees and commissions

927

Other operating income

435

Other income
Contributions from fund for lending rate
reduction
OthersAdministrative fee for management account37,899OffsetTotal$(83,176)

3,232,934
927
435

18

37,917

37,778
121

37,77818

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

139(6,340)

229

(229)

76,607(76,607)

1,052,789

871,426(83,176)

927,349

842,783

Fees and commissions

1,469

1,360

2,829

Other operating expenses

17,756

19,29137,047

General and administrative expenses

29,3791,652

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

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

1,770,132

31,031229(229)

76,607(76,607)

Administrative fee for management account

6,340

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

1,185,279-

1,431,174

2,071,758

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

5,899,495

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

Reversal of management account reserve forinterest rate volatility

5,838,591

5,838,591

Reversal of reserve for interest rate reduction

60,90460,904

Special losses
Provision for reserve for interest rate volatility

2,071,758

7,084,774

1,246,183

Transfer to general account2,071,758

Payment to national treasury

3,766,833$245,895

37

7,084,774
2,071,758

Provision for management account reservefor interest rate volatility

Net income(2,071,758)

2,071,758$-

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

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

Difference¥166,000

Unrealized gains Unrealized losses---

Marketable held-to-maturity securities as of 31 March 2018 consisted of the following:(Millions of yen)Book value
Negotiable certificatesof deposit¥170,000Fair value

Difference¥170,000

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

Fair value$1,600,904

Difference

Unrealized gains Unrealized losses-

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

38

-

-

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

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