Annual Report
2012Japan Finance Organization for Municipalities

Annual Report 2012

Japan Finance Organization for Municipalities

ProfileName
Establishment
Governing Law
Address
President and CEO
Capital
Number of Employees
Outstanding Loan Amountas of March 31, 2012
Outstanding Bond Amountas of March 31, 2012
Ratings(March 31, 2012)

Japan Finance Organization for Municipalities (JFM)
August 1, 2008 (Reorganized on June 1, 2009)
Japan Finance Organization for Municipalities Law(Law No. 64 of May 30, 2007)
Shisei Kaikan, 1-3 Hibiya Koen, Chiyoda-ku, Tokyo
Yuji Watanabe¥16.6 billion
89 (as of April 2012)¥22,387.4 billion¥18,224.9 billion
S&P: AAMoody’s: Aa3
R&I: AA+

Forward-looking statements including JFM’s plan in this booklet are based on information available for JFM at this timeand involve potential risks and uncertainties. Actual results, therefore, may differ from those described in this booklet
due to changes in a variety of factors, such as market trends, economic conditions and regulations. Accordingly,
readers are advised to use their own discretion and exercise great caution when making investment decisions.
Information contained in this Annual Report is, in general, current as of March 31, 2012, unless otherwise indicated.

Review and Plan-------------- 05
Review of Operations for Fiscal 2011----------------- 06
TOPICS
・事業概況 ------- 0605
1. Lending Operations--------------------------------

Appendices / JFM Data

3.機構債券の特徴-------------------------------- 41
4.資金調達実績の推移 --------------------------- 42

Financial Section

Operations
Ⅰ章 業務の紹介------------------------ 21
Lending Operations----------------------------------------------- 22
21
1.
Outline----------------------------------------------22
貸付業務 -------------------------------------------- 22
2.
Rates of Loans---------------------------- 24
概要 -------------------------------------------1.Interest
22
3. Credit Check System------------------------------ 25
2.貸付利率 --------------------------------------- 24
4. Trends in Lending Operations-------------------- 26
3.貸付の審査体制-------------------------------- 25
5. Lending Operations by Business Type---------- 30
4.貸付実績の推移-------------------------------- 26
Local Government Support Operations--------------- 37
5.貸付対象事業の紹介 --------------------------- 30
1. Basic Policy----------------------------------------- 37
地方支援業務 --------------------------------------- 37
2. Outline----------------------------------------------- 37
1.基本姿勢--------------------------------------- 39
37
Fundraising
Operations--------------------------------地方支援業務の概要
2.Issue--------------------------- 39
37
1.
Type------------------------------------------資金調達業務--------------------------------------- 40
39
2. Basic Policy----------------------------------------機構債券の種類
1.Feature-------------------------------- 41
39
3.
of JFM Bonds----------------------------4.
in Fundraising--------------------------Operations---------------- 42
資金調達の基本姿勢
2.Trends
40

Management
Structure
Ⅱ章
業務運営体制------4343
Profileof
JFM-------------------------------------------機構の基本的な仕組み ------------------------------44
44
1.1.Outline
of・資金調達業務等の基本的な流れ
JFM Operations-----------------------貸付業務-----4444
2. Capital----------------------------------------------- 45
2.出資金 ------------------------------------------ 45
Corporate Governance---------------------------------- 46
ガバナンス（企業統治）------------------------------- 46
1. Corporate Governance---------------------------- 46
1.ガバナンス -------------------------------------- 46
2. Internal Control over Financial Reporting-------- 48
2.財務報告に係る内部統制 ----------------------- 48
3. Internal Audits--------------------------------------- 49
3.内部監査 ---------------------------------------- 49
General Account and Management Account-------- 50
一般勘定と管理勘定---------------------------------5250
Risk
Management--------------------------------------リスク管理
52
1. Overall ------------------------------------------Risk Management------------------------- 52
リスク管理全般
1.
--------------------------------52
2. Management of Specific Risks------------------- 53
2.個別リスク管理---------------------------------5853
Compliance---------------------------------------------Disclosure-----------------------------------------------コンプライアンス（法令等遵守）---------------------59
58
JFM’s
Role in Local ---------------------------------Government Finance------------ 60
ディスクロージャー
59
1.
Japanese
Local
Government
System-----------60
地方債制度における機構の役割 --------------------- 60
2.1.Local
Government Finance
Program------------- 60
日本の地方自治制度---------------------------60
3.2.Local
Allocation
Tax-----------------------------61
地方財政と地方財政計画 ----------------------- 60
4. Local Government Borrowings-------------------- 61
3.地方交付税とは --------------------------------- 61
5. Safety of Local Government Borrowings-------- 61
4.地方債とは -------------------------------------- 61
6. Local Government Borrowing Program---------- 63
5.地方債の安全性--------------------------------- 61
7. JFM Funds in Local Government Borrowing
6.地方債計画 ------------------------------------- 63
Program--------------------------------------------- 63
7.地方債の資金と地方公共団体金融機構資金の役割 --- 63

Management Structure

平成23年度事業実績------------------------------- 1006
2. Earthquake
Responses---------------------------貸付業務の実績
1.Fundraising-------------------------------06
3.
Operations--------------------------- 12
東日本大震災への対応
2.
-----------------------10
4. Financial Review------------------------------------ 15
3.資金調達業務の実績--------------------------12
Management
Plan for Fiscal
2012--------------------- 17
1.
Lending
Operations-------------------------------17
決算の概況
4.
------------------------------------ 15
2. Fundraising
Operations---------------------------平成
24年度の経営計画---------------------------- 18
17
3.
Risk
Management
andInternal
Control---------20
1.貸付規模 --------------------------------------- 17
4.
Government
Support Operations---------- 20
資金調達計画
2.Local---------------------------------18
5. Transfer to the National Treasury of Interest Rate
3.リスク管理及び内部統制 ----------------------- 20
Volatility Reserves within Management
4.地方支援業務の展開 --------------------------- 20
Account---------------------------------------------- 20
5.国庫納付 --------------------------------------- 20

CONTEN T S

Operations

President and02
President
andCEO's
CEOMessage-----------------------s Message
Management Philosophy------------------------------理事長メッセージ----------------------------------- 04
02
経営理念 -------------------------------------------- 04

Review and Plan

Annual Report 2012

Financial Section
Ⅲ章 機構の財務状況------- 65
Financial Statements--------------------------------------66
65
Report of Independent Auditors---------------------- 105
財務諸表 --------------------------------------------- 66
参考情報 --------------------------------------------- 94
Appendices/ JFM Data-107
Appendices---------------------------------------------- 108
JFM
Data-----------------------------------------------参考資料
・機構データ ----11497
Organization
History---------------------------------- 114
参考資料--------------------------------------------98
Organization
Structure------------------------------115
機構データ -----------------------------------------119
Directors
and Corporate Auditors/Address-------- 117
沿革 ----------------------------------------------119
組織図 --------------------------------------------120
役員・所在地 --------------------------------------121

Japan Finance Organization for Municipalities Annual Report 201201

President and CEO’s Message

President and CEO’s Message
Review of Fiscal 2011
Fiscal 2011 star ted immediately af ter theGreat East Japan Earthquake, which caused
unprecedented disaster. Restoration andreconstruction efforts have been made inareas affected by the disaster. Meanwhile, thesituation surrounding the Japanese economy
has been extremely severe owing to the impactsof the European financial crisis and the yen
subsequently reaching new highs.
Under these circumstances, based on ourpolicy to do all that we can to support local
governments’ restoration and reconstruction
efforts in the disaster-struck areas, we have
responded in various ways to meet local
governments’ needs.
We believe that we can play an importantrole in ensuring safety and comfort for local
areas, given that JFM funds were secured fordisaster prevention and mitigation businesses
nationwide in light of the earthquake.
In the year under review, we lent a
total of around ¥1.8 trillion to fund watersupply, sewerage, hospital, and other social
infrastructure projects. We will continue to be a
key source of funding for local governments.
Also during the term, we made our firstissue of international bonds without government
guarantees based on our Euro MTN program.
We think it makes our funding more stable withfavorable terms to issue international bonds
flexibly.

Initiatives in Fiscal 2012
Efforts to accelerate a recover y from theGreat East Japan Earthquake and rebuild thedomestic economy will be a key challenge forJapan in fiscal 2012.
JFM’s funds under the Local Government

02

Japan Finance Organization for Municipalities Annual Report 2012

Borrowing Program for fiscal 2012 are ¥2.174
trillion, up 14.8% from the previous year. This
amount is the largest since our establishment.
Our planned bond issuance for fiscal 2012is also our largest ever. We believe that thisgrowth reflects the increasingly important role
we play in local government funding as well as
our presence in the market. We will responsibly
make further efforts to meet the expectationsof local governments.
In light of JFM’s favorable operating
position, it was decided that some of JFM’s
reserves for interest rate volatility within theManagement account would be attributed to
the Japanese national government and that
this part would be transferred to the Japanesenational government’s special account for local
allocation tax. A transfer of ¥1 trillion is projected
over three years from fiscal 2012 through fiscal
2014. In fiscal 2012, JFM has transferred ¥350
billion to the national treasury. Through thismove, we believe that we can extensively
contribute to overall local government finances
as a joint entity for local governments.

Of Local Governments, by Local
Governments, for Local Governments
Efforts are underway throughout Japan torebuild from the disaster. As a joint entity of
local governments, by local governments and for
local governments, JFM funds diverse projects
and seeks to accommodate regional needs.
JFM also is marshaling its entire management
and staff in concerted efforts to accomplish
its mission of supporting local governments
projects that are essential to daily lives.
We ask for your continued understanding
and support for our endeavors.

Yuji Watanabe
President and CEO,Japan Finance Organization
for Municipalities
June 2012Management Philosophy
The Japan Finance Organization for Municipalities (JFM), as “a joint
fundraising organization of local governments, by local governments
and for local governments,” set forth the following three policies as
its management philosophy.

Ensure Corporate Governance Befitting a Joint
Organization of Local Governments
To establish a system for the responsible and autonomous management by local
governments and ensure corporate governance through appropriate risk
management and checks/audits by the Supervisory Committee and external
accounting auditors.

Proactively Address Local Governments’
Financial Needs
To proactively provide meticulous services, mainly through supplying long-termand low-interest funds, to address the local governments' financial needs andthe changes in the environment surrounding the local government funding.

Gain the Solid Confidence of the Capital Markets
To gain the solid confidence of the capital markets by maintaining our soundfinancial standing through appropriate risk management and fulfilling
accountability through proper disclosure to the capital markets, thereby raisingfunds at advantageous terms in a stable manner. To contribute to the sounddevelopment of the capital markets as a core issuer in the public bond market.

04

Japan Finance Organization for Municipalities Annual Report 2012

Review and Plan

Review and Plan

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Japan Finance Organization for Municipalities Annual Report 201205

Review and Plan

Review of Operations for Fiscal 2011
1. Lending Operations
1. Fiscal 2011 lending operations
In fiscal 2011, JFM provided loans totaling ¥1,804.1 billion. The loans for Extraordinary Financial
Countermeasures Funding were ¥737.8 billion, which accounted for 41% of the total, followed by the
Sewerage business in the amount of ¥319.6 billion, which represented 18% of the total. In addition,loans were made for the Special Municipal Merger Business and other General Account–related
businesses/projects in the amount of ¥396.1 billion, which accounted for 22% of the total. Loansfor Municipal Enterprise-related projects were ¥588.6 billion, which made up 33% of the total. The
proportion of loans for Municipal Enterprise-related projects has been relatively small, as lending has
increased for the Special Municipal Merger Business and other General Account–related businesses/
projects as well as for Extraordinary Financial Countermeasures Funding that became eligible for JFM
lending in fiscal 2009.
Loans with the standard lending rate stood at ¥4.1 billion, which accounted for 0.2% of the total,
while loans with the special lending rate at a discount on the standard rate (0.3 percentage point
below the standard rate) and the extra-special lending rate (0.35 percentage point below the standardrate) totaled ¥1,800 billion, representing 99.8% of the total.
Results of Lending Operations by Business in Fiscal 2011
Item
General Account–Related Loans
Public Projects, etc.
Public Housing
Emergency Disaster Prevention/Mitigation
Projects
Social Welfare Facilities Construction
General Projects
Regional Revitalization Projects
Disaster Prevention Projects
Local Road Construction Projects
Special Municipal Merger Projects
Subtotal
Municipal Enterprise–Related Loans
Water Supply
Industrial Water Supply
Transportation

Number of Loans Amount (millions of yen)loans made% of total

Loan interest rate types

3
111

136
16,055

1

2

150
69
111
237
1,265
681
2,628

14,454
8,458
8,898
27,236
132,880
187,971
396,0880.8
0.5
0.5 Extra-special lending rates
1.5
7.4
10.4
22.0

1,001
62
38

136,651
9,708
43,815

Electricity Supply/Gas Supply

34

4,014

Port Facilities

42

2,898

Hospitals/Elderly Care Services

297

60,736

43
1,954

9,080
319,583

Markets/Slaughterhouses
Sewerage

0.0

4

2,088

3,475

588,573

7.6 Extra-special lending rates
0.5 Special lending rate
2.4 Extra-special lending rates
Extra-special and special lending
0.2
rates (see note 2)
0.2 Standard lending rates
Extra-special and special lending
3.4
rates (see note 2)
0.5 Special lending rates
17.7 Extra-special lending rates
Standard and special lending rates
0.1(see note 3)
32.6

459

59,1633.3 (see note 4)964

22,523

1.2 (see note 4)

Tourism Facilities and others
Subtotal
Refinancing Loans for Municipal Enterpriserelated Projects
Refinancing Loans for Facilities Affected by
Quake
Extraordinary Financial Countermeasures
Funding
Total

0.0 Extra-special lending rate
0.9 Special lending rate971

737,775

8,497

1,804,122

40.9 Extra-special lending rates
100.0

Notes: 1. Totals may not add up exactly because of rounding off for each line item.
2. E xtra-special lending rates apply for electricity supply and hospitals, while special lending rates apply forgas supply and elderly care services.
3. With tourism and other businesses (tourism facilities, industrial waste disposal, and parking facilities),
standard rates apply for tourism facilities and industrial waste disposal, while special rates apply for parking
facilities.
4. With refinancing loans for municipal enterprise-related projects and refinancing loans for disaster-affectedfacilities, rates for refinancing operations apply.

06

Japan Finance Organization for Municipalities Annual Report 2012

Review of Operations for Fiscal 2011
Review and Plan

Refinancing loans for municipal
enterprise-related projects

Refinancing loans for disaster-affected facilities

OthersTransportation2%
2%

Hospitals

3%

Water supply
Municipal
enterpriserelated loans

8%

3% 1%

Special municipal
merger projects

10%

1%
3%

22%

Local road
construction projects

7%5%

Generalaccountrelated
loans

Others33%

Total: ¥1,804.1 billion
Sewerage

18%

41%
41%

Extraordinary financial
countermeasures funding

Japan Finance Organization for Municipalities Annual Report 201207

Review and Plan

Review of Operations for Fiscal 2011

General account-related loans were ¥34.7 billion higher than a year earlier. In fiscal 2011, JFM made¥22.5 billion in refinancing loans for disaster-affected facilities to secure advanced redemption ofproperty damage from the Great East Japan Earthquake. Municipal enterprise-related loans were
down ¥49.6 billion and extraordinary financial countermeasures funding decreased ¥28.5 billion, foran overall decline of ¥28.8 billion.
(Millions of yen)
Loans
Item
General Account–Related Loans
Public Projects, Etc.
Public Housing
Emergency Disaster Prevention/
Mitigation Projects
Social Welfare Facilities
Construction
General Projects
Regional Revitalization Projects
Disaster Prevention Projects
Local Road Construction Projects
Special Municipal Merger Projects
Subtotal
Municipal Enterprise–Related
Loans
Water Supply
Industrial Water Supply
Transportation
Electricity Supply/Gas Supply
Port Facilities
Hospitals/Elderly Care Services
Markets/Slaughterhouses
Sewerage
Tourism Facilities and Others
Subtotal
Refinancing Loans for MunicipalEnterprise-related Projects
Refinancing Loans for Facilities
Affected by Quake
Extraordinary Financial
Countermeasures Funding
Total

Fiscal 2011
Fiscal
2011

Fiscal2011

Preceding
year*

Total

136
21

16,033

136
16,055

2

-

1,158

13,296

Fiscal2011

Preceding
year*

Total

15

16,220

16,235

6

(187)

(180)

2

-

-

-

-

-

-

14,454

1,217

Precedingyear*-

13,237

-

Total

1,217

(59)

-

6,243
6,243
221
9,763
9,984
918 17,681 18,598
635 125,556 126,191
10,921 172,016 182,937
13,926 347,479 361,405

236
(346)
(66)
1,535
1,443

2,215
(1,321)
8,983
6,755
3,499
33,240

8,638
6,689
5,034
34,683

108,793 27,858 136,651 110,312 27,987 138,299
8,570
1,139
9,708
8,596
1,317
9,913
32,840 10,975 43,815 38,844 11,174 50,018
3,213
802
4,014
4,970
83
5,053
146
2,752
2,898
35
3,923
3,958
51,976
8,761 60,736 50,093
3,614 53,708
5,484
3,595
9,080
2,457
1,458
3,914
101,614 217,969 319,583 106,223 266,022 372,245
2,088
2,088
1,070
1,070
312,635 275,938 588,573 321,529 316,648 638,177(1,519)(129)(1,648)

(26)

(178)

(205)

(6,004)(199)(6,203)(1,757)719(1,039)

111
1,883
3,027
(4,609)(8,894)(1,171)

8,458
8,458
457
8,442
8,898
572 26,664 27,236
569 132,311 132,880
12,456 175,515 187,971
15,369 380,719 396,088

2,215(1,086)(1,060)
5,147
7,028
2,137
5,166
(48,053) (52,662)
1,018
1,018
(40,710) (49,604)

59,163-59,16367,077-

67,077(7,914)-(7,914)

22,523-22,523

-

-

-

-

-

-

436,779 300,996 737,775 569,839 196,398 766,236 (133,060) 104,598(28,461)

846,470 957,652 1,804,122 972,371 860,524 1,832,895 (125,901)(28,773)* The year when local government obtained consent or approval.
Note: Totals may not add up exactly because of rounding off for each line item.

08

ChangeFiscal 2010

Japan Finance Organization for Municipalities Annual Report 2012

97,128

Review of Operations for Fiscal 2011
Review and Plan

Cities and special wards of Tokyo represented the largest proportion of loans, with their amount of¥1,030.1 billion accounting for 57% of the total. Next were prefectures, with ¥412.5 billion, or 23% of
the total, and government-designated cities, with ¥195.4 billion, or 11% of the total.
Lending Operations by Borrowers
1% Local Government Associations¥24.9 billion

Towns and Villages¥141.2 billion
8%

Prefectures¥412.5 billion

23%

Total
¥1,804.1
billion
18,041億円
Cities and Special
Wards of Tokyo¥1,030.1 billion

57%

11%

Government-designated
Cities¥195.4 billion

2. Prepayment without Penalty
In a provision effective from fiscal 2007 to fiscal 2009, the national government took measures
to reduce local governments’ debt burden in the amount of ¥5 trillion, of which the Predecessor
implemented such measures in the amount of about ¥1,270 billion in fiscal 2007 and 2008. However,in light of the severe stagnation of local economies, the national government has decided to extend
this provision by three years as part of its fiscal 2010 local government finance measures.
This measure allows local governments, if they establish a financial soundness plan or a public
enterprise management reform plan and carry out thorough administrative and management reforms,
to make a prepayment without penalty on ¥1.1 trillion in public funds (loans from the former TrustFund Bureau, the former Postal Life Insurance and the Predecessor) for a three-year period from fiscal
2010. The Prepayment without Penalty measure is intended to reduce local governments’ burden on
debt with high interest rates.
Responding to the national government’s decision to reduce local governments’ debt burdens,
JFM will accept a prepayment without penalty on a total of up to ¥320 billion in loans (including
refinancing) over the three-year period from fiscal 2010 through fiscal 2012 for local governments
endorsed by the national government on condition that such municipalities implement administrativeand management reforms. JFM allowed prepayment without penalty on loans of approximately ¥130.2
billion in fiscal 2010 and ¥98.7 billion in fiscal 2011, of which ¥67.1 billion and ¥59.2 billion were forrefinancing loans for municipal enterprise-related projects, respectively.
For fiscal 2012, JFM plans to allow prepayment without penalty on loans of approximately ¥90
billion, of which ¥30 billion is for refinancing loans for municipal enterprise-related projects.

Japan Finance Organization for Municipalities Annual Report 201209

Review and Plan

Review of Operations for Fiscal 2011

2. Earthquake Responses
As a joint entity of local governments, by local governments and for local governments, while maintaining
management discipline, we have implemented measures to address the Great East Japan Earthquake
based on our policy to do all that we can to support local governments’ restoration and reconstruction
efforts in the disaster-struck areas.
We have taken concrete measures below.

Extension ofprincipal and interest
repayment dateGiven that the Great East Japan Earthquake occurred immediately
before the regular repayment date of March 22, 2011, we extended
the principal and interest repayment date to September 20, 2011,
which is the next regular repayment date, for 32 local governmentsthat had a difficulty with the repayment procedure due to thetemporary malfunction of their administrative or financial system
and/or damage to public infrastructure because of the disaster, inthe total amount of principal and interest of over ¥7.2 billion. Theinterest and principal of loans, for which we extended the due dateof payment, had been redeemed in full by the extended date.

Revised lending
conditions

The loan maturity for the disaster-related public housing business
was extended to a maximum of 30 years from 25 years.

Refinancing
loans for facilities
affected by quake
against advanced
redemption

In principle, we decided not to require prepayment of loans for
public facilities that suffered tsunami and other damage.
However, if the whole or a part of the properties obtained byusing loans at interest rates higher than current market rates arelost owing to natural disasters, we accept prepayment in orderto reduce interest rate burden of borrowers and provided lending
against refinancing loans to allocate financial resources for advanced
redemption.
○Fiscal 2011

[Loans redeemed before maturity]
Amount: ¥33 billion (3 prefectures, 22 municipalities and 1 corporategroup)
Average redemption period: 13.49 years
Average rate: 2.56%[Refinancing loans]Amount: ¥22.5 billion
Average redemption period: 11.07 years
Average rate: 0.86%

10Japan Finance Organization for Municipalities Annual Report 2012

Review of Operations for Fiscal 2011
Review and Plan

Support forunderfundedmunicipal enterprises

We provided loans to municipal enterprises so they could float
funds and overcome projected shortfalls owing to fee reductions
or exemptions or business suspensions due to the earthquake.
○Fiscal 2011¥1.13 billion (3 municipalities)

Disaster reliefloans and loans formother and child andwidows welfare

Subletting loans (local governments issue bonds to raise funds
for businesses of corporate groups other than local governments)
became eligible for JFM lending. We decided to offer loans for
local governments’ disaster relief and mother and child and widows
welfare. The grace period is 8 years rather than 5 years.

Nationwide
promotion of
Emergency Disaster
Prevention/Mitigation
Projects

As a lesson of the Great East Japan Earthquake, we provide lending
against quick-impact Disaster Prevention/Mitigation Projects, thatneed to be undertaken urgently nationwide. (fiscal 2012 planned
loan amount ¥84.8 billion)

Japan Finance Organization for Municipalities Annual Report 201211

Review and Plan

Review of Operations for Fiscal 2011

3. Fundraising Operations
1. Amount Raised
The face value of JFM bonds issued in fiscal 2011 was ¥1,011.9 billion. This amount included ¥400
billion in 10-year bonds, ¥170 billion in 20-year bonds, ¥80 billion in five-year bonds, ¥293.5 billion
in Flexible Insurance Program (FLIP) bonds, and ¥68.4 billion (after conversion into yen) in foreign
currency denominated bonds through the Euro Medium-Term Note Program. Another ¥300 billion
in 10-year private placement bonds were issued, these being underwritten by the Pension Fund
Association for Local Government Officials, while ¥30 billion in long-term borrowing was made.
(References)• FLIP issuances by maturity category were ¥103.0 billion for 3–9 years, ¥181.5 billion for 11–19 years, and ¥9.0
billion for 21–30 years.
• JFM used the Euro Medium-Term Note Program to issue USD, AUD and NZD denominated bonds.

Further, JFM issued government-guaranteed bonds of ¥512.86 billion in 10-year bonds and ¥200
billion in 6-year bonds to refinance the Predecessor’s bonds.
As a result, as of the end of fiscal 2011, the outstanding balance of JFM’s bonds amounted to¥18,194.9 billion, including the Predecessor’s bonds that JFM assumed. The outstanding balance oflong-term borrowing totaled ¥30 billion.
Fundraising Operations for FY2011(Billions of yen)

(Breakdown)
10-year bonds
6-year bonds

512.86200

10-year bonds
6-year bonds

Borrowings 30
Private placement bondsthat are underwritten by thePension Fund Association
for Local Government Officials 300

10-yearbonds

10-year bonds
400
20-year bonds
170

FLIP 293.5

JFM bonds

Government-guaranteed
domestic bonds
712.86

Public offeringbonds
1,011.95-year bonds
80

EMTN 68.4** Converted into yen (figures rounded off)

References:
FLIP is JFM’s own framework for issuing bonds with various maturities and amounts to accommodate investor
needs flexibly and swiftly.
■Bond maturities: 3–30 years (except for 5-, 10-, and 20-year fixed-rate bullet bonds)■ Amount per bond issue: At least ¥3 billion

12Japan Finance Organization for Municipalities Annual Report 2012

Review of Operations for Fiscal 2011
Review and Plan

2. Issue terms
Investor demand for bonds with high ratings rose after the Great East Japan Earthquake interrupted issues ofelectric company bonds. Since April 2011, we have therefore issued 10-year bonds that offer spreads to JGBs
similar to those with local governments. The spreads on our 20-year and 5-year bonds were also similar to thoseof local governments as of March 2012.

⑴Terms for Issuing 10-Year JFM Bonds
(%)

14
(bp)

Spread over benchmark JGBs
(basis points)

2.4

12

Spread over JGB yield curve (basis points)*
JFM bonds (%)
2.0

10

1.6

8

1.2

6

0.8

4

0.4

2

0
Spread overbenchmark JGBs
(basis points)
Spread over JGB
yield curve (bp)*

JFM bonds (%)

2010
Apr May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2011
Jan Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2012
Jan Feb

Mar

8.0

8.0

5.0

6.0

7.0

5.0

8.0

10.0

7.0

8.0

8.0

5.0

10.0

7.0

4.0

3.5

4.5

2.5

3.5

4.5

2.5

3.5

4.5

2.5

7.0

5.0

5.0

5.0

5.0

5.0

7.0

7.5

7.0

7.0

6.0

5.0

9.0

5.0

4.0

2.5

2.5

2.5

2.5

2.5

2.5

2.5

2.5

2.5

1.465 1.380

1.278 1.174

1.093 1.164 0.976 1.066

1.274 1.280 1.365 1.340 1.418 1.208

1.178 1.149

1.034 1.048 1.025 1.035

1.067 0.991 1.035 1.010* Spread over JGB yield curve ratios are theoretical values calculated by JFM.

Japan Finance Organization for Municipalities Annual Report 201213

Review and Plan

Review of Operations for Fiscal 2011⑵Terms for Issuing 20-Year JFM Bonds
(%)

14
(bp)

Spread over benchmark JGBs
(basis points)
Spread over JGB yield curve (basis points)*

2.4

12

JFM bonds (%)

2.0

10

1.6

8

1.2

6

0.8

4

0.4

2

0
Spread overbenchmark JGBs
(basis points)
Spread over JGB
yield curve (bp)*

JFM bonds (%)

2010
Apr May

Jun

Jul

Aug

8.0

7.0

9.0

9.0

8.0

6.0

9.0

9.0

2.202

2.043 1.927 1.752

Sep

Dec

2011
Jan Feb

12.0

11.0

12.0

14.0

12.0

11.0

12.0

13.5

1.851

2.092 2.132

2.187

Oct

Nov

Mar

Apr

May

Jun

Jul

Dec

2012
Jan Feb

7.0

7.0

7.0

7.0

7.0

7.0

Aug

Sep

Oct

10.0

7.0

7.0

10.0

7.0

7.0

2.030

1.846

1.870 1.781

Nov

Mar

1.840 1.800* Spread over JGB yield curve ratios are theoretical values calculated by JFM.

⑶Terms for Issuing 5-Year JFM Bonds
(%)
2.0

10
(bp)

Spread over benchmark JGBs
(basis points)
Spread over JGB yield curve (basis points)*

1.6

8

JFM bonds (%)
1.2

6

0.8

4

0.4

2

0
Spread overbenchmark JGBs
(basis points)
Spread over JGB
yield curve (bp)*

JFM bonds (%)

2010
Apr May

7.0

Jun

Jul

Aug

Sep

5.0

Oct

Nov

9.0

Dec

2011
Jan Feb

8.0

Mar

Apr

May

7.0

Jul

3.5

Aug

Sep

Oct

Nov

4.0

Dec

2012
Jan Feb

3.5

5.0

5.0

8.0

6.0

5.0

2.5

2.5

2.5

0.525

0.423

0.424

0.639

0.510

0.435

0.385

0.384

* Spread over JGB yield curve ratios are theoretical values calculated by JFM.

14

Jun

Japan Finance Organization for Municipalities Annual Report 2012

Mar

Review of Operations for Fiscal 2011
Review and Plan

4. Financial Review
1. Profit/loss statement
In fiscal 2011, JFM’s income declined ¥28.1 billion from a year earlier to ¥511.8 billion. This reflected
declining long-term interest rates throughout the year, which led to lower interest income.
Expenses decreased ¥10.6 billion, to ¥281.7 billion, as interest expenses declined for the same
reasons as those affecting income.
Ordinary income was thus down ¥17.5 billion, to ¥230.0 billion, but still solid.
Pursuant to the relevant laws, part of the income generated by refinancing loans is provided to
the Management Account reserve for interest rate volatility. As a result of such provisions and othermeasures, net income was ¥21.6 billion, up ¥5.5 billion.

2. Assets, liabilities and net assets
As of March 31, 2012, JFM’s total assets amounted to ¥23,340.7 billion, up ¥113.9 billion from a year
earlier. Assets increased mainly because loans to local governments increased ¥155.5 billion with loan
amount exceeding collections on loans.
JFM’s total liabilities were up ¥89.6 billion from a year earlier at ¥23,247 billion as of March 31,
2012. Although bonds declined ¥150.4 billion due to redemption amounts exceeding issue amounts,
the increase was mainly because the total of the reserve for interest rate volatility and the Management
Account reserve for interest rate volatility increased ¥221.0 billion.
At year-end, total net assets were ¥93.6 billion, up ¥24.3 billion from a year earlier. This was
because ¥15.5 billion in net income of the General Account was posted as a General Account surplus
reserve, while ¥6.1 billion in net income of the Management Account was posted as a Management
Account surplus reserve.
Financial highlights since fiscal 2009 are as follows.

Japan Finance Organization for Municipalities Annual Report 201215

Review and Plan

Review of Operations for Fiscal 2011

Financial Highlights
1. Profit and Loss(Millions of yen)

Fiscal 2009

Fiscal 2010

Fiscal 2011

Income558,528

539,997

511,805(28,192)

Expenses

308,357

292,428

281,749(10,678)

Ordinary income

250,170

247,569

230,055(17,513)

8,866

16,074

21,632

5,558

Net income

2. Assets, Liabilities, and Net Assets

(Millions of yen)

Fiscal 2009
Total assets

Fiscal 2010

Fiscal 2011

Change23,184,998

23,226,787

23,340,707

113,919Loans

22,030,227

22,231,856

22,387,411

155,554

Others1,154,771

994,931953,296(41,635)

23,124,384

23,157,405

23,247,010

89,605

18,534,475

18,327,190

18,176,696(150,493)

906,939915,823

919,871

4,047

Reserve under the
special law

3,664,927

3,896,421

4,104,844

208,422

Reserve for interest
rate volatility

440,000

660,000

880,000

220,000

Management accountreserve for interest
rate volatility

3,111,043

3,136,532

3,137,557

1,024

Reserve for interest
rate reduction

113,883

99,88987,287(12,601)

Others

18,042

17,96945,59827,62960,61369,382

93,69624,314

Total liabilities
Bonds
Fund for improvementof operations ofmunicipalities

Total net assets

Note: Totals may not match because of truncation.

16

ChangeJapan Finance Organization for Municipalities Annual Report 2012

Management Plan for Fiscal 2012
Review and Plan

Management Plan for Fiscal 2012
1. Lending Operations
JFM’s lending plan is formulated based on the amounts of local government borrowings for which theconsent or approval is scheduled to be given by the Minister for Internal Affairs and Communications
or prefectural governors under the Local Government Borrowing Program (LGBP). In light of theGreat East Japan Earthquake, however, loans for emergency disaster prevention and mitigation andrefinancing loans for facilities affected by quake to allocate financial resources for advanced redemption
are now booked under the LGBP for fiscal 2012, and are thus subject to JFM lending. A JFM fund of¥2,174 billion has thus been earmarked in LGBP for fiscal 2012, up ¥281 billion from a year earlier.
JFM's planned loans for fiscal 2012 are thus ¥1,801.0 billion.
■Loan Amounts Planned by JFMPlanned Loan Amounts(Billions of yen)

Fiscal 2012
(A)

Fiscal 2011
(B)

Change(C)=(A)−(B)

Percentage change(C)/(B)*

1,801.0

1,843.1(42.1)(2.3％)■JFM Fund under Local Government Borrowing Program

(Billions of yen)

Fiscal 2012
(A)

Fiscal 2011
(B)

Change(C)=(A)−(B)

Percentage change(C)/(B)*

2,174.0

1,893.0

281.0

14.8％

General Account–Related
Loans

620.3

460.8

159.5

34.6%

Municipal EnterpriseRelated Loans

790.0

742.2

47.8

6.4％

Refinancing Loans for
Municipal EnterpriseRelated Projects

30.0

30.0

0

0.0％

Refinancing loans for
Disaster-Affected Facilities

15.0

―

15.0

―

Extraordinary Financial
Countermeasures Funding

718.7

660.0

58.7

8.9％

JFM Fund〔Breakdown〕* Amount in the Local Government Borrowing Program and loan plan amounts are not the same, so the timing ofobtaining consent or approval and providing loans may differ.

Local Government Borrowing Program
Funding Components

Underwritten by banks and other institutions
Public offerings on market
JFM funds
Predecessor funds
Fiscal loan fund(Billions of yen)

20,00015,897.6
14,184.4

15,00012,477.6

13,734.0
5,099.6

4,747.4

10,0003,400.0
1,123.0210.0
3,240.003,910.0

3,529.1

4,504.6
3,670.0

5,000

14,030.1

FY2008

1,833.0

4,300.0
2,159.0

3,934.0

4,339.0

2009

2010

4,200.0
1,893.0

4,440.0

2,174.0

3,731.0

3,887.0

2011

2012

Japan Finance Organization for Municipalities Annual Report 201217

Review and Plan

Management Plan for Fiscal 2012

2. Fundraising Operations
To raise funds for lending operations, JFM mainly issues public offering bonds in the capital markets.
In fiscal 2012, JFM plans to issue ¥1,100 billion in JFM bonds (public offering bonds). This will include¥450 billion in 10-year bonds, ¥160 billion in 20-year bonds, ¥80 billion in 5-year bonds, ¥280 billion
in FLIP and spot bonds and ¥130 billion in EMTNs. In addition, private placement bonds that areunderwritten by the Pension Fund Association for Local Government Officials are projected to beissued in the amount of ¥300 billion (10-year bonds).
JFM issues government-guaranteed bonds to refinance the existing bonds with a government
guarantee to manage the Predecessor’s assets that JFM assumed. For fiscal 2012, JFM plans to issue¥1,030 billion in government-guaranteed bonds, consisting of ¥490 billion in 10-year bonds, ¥320
billion in 6-year bonds and ¥220 billion in 4-year bonds, taking into account that funds are needed
to transfer ¥350 billion in JFM’s reserves for interest rate volatility within the Management accountto the national treasury.
Note: This plan may change according to lending operations, the market climate, or other developments.

■Annual Bond Issuance Plans

1. JFM Bonds(1) Public Offering Bonds
Bond TypeFiscal 2012 (plan)

Fiscal 2011

10-Year Bonds

Around ¥450 billion¥400 billion

20-Year Bonds

Around ¥160 billion¥170 billion

5-Year Bonds

Around ¥80 billion¥80 billion

FLIP and Spot Bonds

Around ¥280 billion¥293.5 billion (1)Euro Medium-Term Notes

Around ¥130 billion¥68.4 billion (2)¥1,100 billion¥1,011.9 billion

Total* Could change depending on lending conditions, market climate, and other factors.
Notes: 1. FLIP only in fiscal 2011.
2. Converted into yen (figures rounded off).

(2) Private Placement Bonds Underwritten by the Pension Fund Association for Local
Government Officials
Bond TypeFiscal 2012 (plan)

Fiscal 2011¥300 billion¥300 billion

10-Year Bonds

18

Japan Finance Organization for Municipalities Annual Report 2012

Management Plan for Fiscal 2012
Review and Plan

2. Government-Guaranteed Bonds
Bond TypeFiscal 2012 (plan)

Fiscal 2011

10-Year Bonds¥490 billion¥512.86 billion

6-Year Bonds¥320 billion¥200 billion

4-Year Bonds¥220 billion─¥1,030 billion¥712.86 billion

Total○Spot Bonds
These bonds have maturities of other than 10, 20 and 5 years, and are issued through lead managers. The
first issuance is planned for fiscal 2012.
○FLIP (Flexible Issuance Program)

The FLIP program accommodates investor needs via prescribed brokerages through flexible bond issues
under certain frameworks with varying amounts and maturities.

Japan Finance Organization for Municipalities Annual Report 201219

Review and Plan

Management Plan for Fiscal 2012

3. Risk Management and Internal Control
To maintain a sound and healthy financial standing and maintain the solid confidence of capital
markets, JFM appropriately manages various risks, including interest rate risks, and manages andevaluates internal controls over its financial reports to ensure appropriate financial statements.

4. Local Government Support Operations
JFM provides support for local governments to effectively raise funds in the capital markets in responseto changes in the environment surrounding local government borrowings. JFM’s local government
support operations cover four core areas—training for local government staff, research, administrative
support for fundraising, and information services. JFM has strengthened its support structure toaccommodate the diverse needs of local governments, such as increasing requests for advice onfund management, training, and administrative support.

5. Transfer to the National Treasury of Interest Rate
Volatility Reserves within Management AccountIn accordance with Article 14 of the Supplementary Provisions to the Japan Finance Organization for
Municipalities Law (Law No. 64, 2007), it was decided that part of JFM’s reserves for interest rate
volatility within the Management account would be attributed to the Japanese national government
over a period of three years from fiscal 2012 through fiscal 2014, with the aim of transferring ¥1 trillion
over this period. In fiscal 2012, ¥350 billion has been so transferred to the national treasury by JFM,
based on an ordinance pursuant to Article 14 of the Supplementary Provisions to the JFM Law for
fiscal 2012 (Ordinance No. 2 of the Ministry of Internal Affairs and Communication, and the Ministryof Finance, 2012).

20

Japan Finance Organization for Municipalities Annual Report 2012

Operations

Operations

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Japan Finance Organization for Municipalities Annual Report 201221

Operations

Lending Operations• Provide loans as “Public Funds” as designated in the Local Government
Borrowing Program.
• Offer loans for which local governments have approval or consent of ministerof governor.
• Provide long-term and low-interest funds to local governments to efficiently
and effectively complement their fundraising in capital markets, thereby
contributing to the sound fiscal management of local governments, as wellas the promotion of the welfare of people.
• Offer low-interest funds based on reduced rates from the Fund for the
Improvement of the Operations of Municipalities.
• Conduct necessary and appropriate credit checks for all loans.

1. Outline
1. Loan Recipient Bodies
JFM provides loans exclusively to local governments.

2. Lending Scope
Loans for the following municipal organizations.

Municipal Enterprise–Related Loans• Water Supply• Industrial Water Supply• Transportation• Electricity Supply• Gas Supply• Port Facilities• Hospitals• Elderly Care Services• Markets• Slaughterhouses• Sewerage• Tourism Facilities• Parking Facilities• Industrial Waste• Public Housing*

General Account–Related Loans• Public Projects, etc.
• Emergency Disaster Management and
Mitigation Projects• Projects for Creating Educational Facilities**• Social Welfare Facilities Construction• General Projects• Regional Revitalization• Disaster Prevention• Local Road Construction• Special Municipal Mergers

Extraordinary Financial
Countermeasures Funding

Refinancing loans for municipal-related projects and refinancing loans for disaster-affected facilities are alsoavailable.
Notes: * The Public Housing business is defined as “Municipal Enterprises” in the Japan Finance Organization for
Municipalities Law.
** Projects for creating educational facilities became eligible for funding from fiscal 2012.

22

Japan Finance Organization for Municipalities Annual Report 2012

Lending Operations

3. Types of Loans
JFM loans are classfied into three types.

Operations

Long-Term Loans are provided to local governments that have consent or approval,
and mature in at least two fiscal years. Loans with Pre-Approval are bridge loans to cover
the period up to the disbursement of Long-Term Loans for projects for which consent orapproval is assured. Short-Term Loans are to be repaid within the same fiscal year.

In addition, there are Entrusted Loans that are entrusted by Japan Finance Corporation.

4. Maturities of Loans
The loan maturities for major business categories are as follows.
Loans for Fiscal 2012
Fixed Lending Rate

Business Type

Maturity

General Account–Related Loans

Public Projects, etc.

Grace Period
for Principal

Adjustable Lending Rate
(Note)
Maturity

Grace Period
for Principal

Within (Years) Within (Years) Within (Years) Within (Years)
20
5
20
5

Public Housing

25

5

25

5

Emergency Disaster Management and
Mitigation Projects

10

2

–

–

Projects for Creating
Educational Facilities

25

3

25

3

Social Welfare Facilities
Construction

20

3

20

3

General Projects

20

5

20

5

Educationaland Social
WelfareFacilities
Projects

Self-Funded
Projects

Regional Revitalization Projects

30

5

30

5

Disaster Prevention Projects

30

5

30

5

Local Road Construction
Projects

20

5

20

5

Special Municipal Merger
Projects

30

5

30

5

–

–

30

3
3

Prefectures andExtraordinary Financial Government-DesignatedCountermeasures
CitiesFunding
Cities, Towns and Villages

–

–

20

Water Supply

30

5

30

5

Industrial Water Supply

30

5

30

5

Transportation

30

5

30

5

Electricity Supply

30

5

30

5

25

5

25

5

Municipal
Gas Supply
Enterprise–Related
Port Facilities
Loans
Hospitals

20

5

30

5

30

5

30

5

Markets

25

5

25

5

Slaughterhouses

20

5

20

5

Sewerage

30

5

30

5

Note: Lending rates are reviewed every 10 years.

Japan Finance Organization for Municipalities Annual Report 201223

Operations

Lending Operations

2. Interest Rates of Loans
1. Interest Rates of Loans
Loan interest rates consist of two types: standard lending rate and JFM special lending rate (see note
below).
The standard lending rate represents the rate at which the discounted present value of the cash
flows of the funds raised to make the loans equals the discounted present value of the cash flows
to be generated by those loans with their respective terms to maturity, grace period for principal andrepayment methods.
The JFM special lending rate at a discount on the standard rate (0.35 percentage point below thestandard rate) is applied to residential infrastructure reinforcement projects and Extraordinary Financial
Countermeasures Funding.
Loan interest rate trends since JFM’s establishment are shown below. The JFM special lending
rate has been at the same level as the rates of the Fiscal Loan Fund provided by the national
government.
Note: For fiscal 2012, the former special lending rate (0.3 percentage point below the standard rate) and the extraspecial lending rate (0.35 percentage point below the standard rate) were integrated into the new JFM special
lending rate. The former special and extra-special lending rates are applied to loans approved or consented inprevious fiscal years.

2.30%
2.20%
2.10%
2.00%
1.90%
1.80%
1.70%
1.60%

JFM Special Lending Rate = Fiscal Loan Fund interest rates

Standard Lending Rate
1.50%

Jun

Aug Oct
2009

Dec

Feb

Apr

Jun
2010

Aug

Oct

Dec

Feb

Apr

Jun
2011

Aug

Oct

Dec

Feb Mar2012

Notes: 1. The lending rates above represent fixed interest rates of a 30-year maturity loan with a 5-year grace period
for principal.
2. Because the minimum interest rates of JFM special lending rate are set to the same level as the interest
rates for the Fiscal Loan Fund provided by the national governments, both rates are the same.

24

Japan Finance Organization for Municipalities Annual Report 2012

Lending Operations

2. Lending Rate Reduction

0.15%

Reduction using funds such as
investment gains

0.20%

0.20%

Reduction using JFM’s own funds

0.15%

Reduction
0.35%Standard
Lending Rate(fundraisingcosts)

General Account-Related Loans• Public housing
JFM Special Municipal Enterprise–Related Loans
Lending Rate • Industrial water supply • Gas supply• Elderly care services • Markets• Slaughterhouses • Parking facilities

Operations

The interest rate differentials between JFM special lending rates and standard lending rates arecompensated for by investment gains in the Fund for the Improvement of the Operations of Municipalities,
which includes contributions of a portion of the proceeds from municipally operated racing and JFM’s
own funds.
From the viewpoint of equal profit sharing among all local governments, local governments that
operate various races (horse, bicycle, motorcycle and speedboat) contribute a portion of the earnings
to the Fund for the Improvement of the Operations of Municipalities, the investment gains from which
is used to reduce interest rates of loans.

General Account-Related Loans(excluding Public housing)
Extraordinary Financial
Countermeasures Funding
Municipal Enterprise-Related Loans• Water supply • Transportation• Hospitals • Sewerage • Electricity supply

Notes: 1. The minimum interest rates for JFM loans are set at the same level as the interest rates of the Fiscal Loan
Fund, which is provided by the national government with the same repayment terms.
2. The Minister of Internal Affairs and Communications determines the scope of reductions using investment
gains pursuant to the Ministerial Ordinance on Finance and Accounting of the Japan Finance Organization
for Municipalities (Ordinance No. 87 of the Ministry of Internal Affairs and Communications, 2008).

3. Credit Check System
JFM conducts the following necessary and appropriate credit scrutiny for all loans on the assumptionthat the details, legality and probability of repayment of each project have been confirmed during theconsultation and checking process to obtain consent and approval for loans.
1) Check the financial and operational status of local governments and municipal enterprises to which
JFM plans to lend in light of the fiscal indicators as stipulated in the Act on Assurance of Sound
Financial Status of Municipalities. If necessary, interview the staff of prefectures in charge of cities,
towns and villages within their respective areas.
2) Review loan applications submitted by local governments to determine if conditions are met such aswhether consent or approval was obtained for the loan, any required resolution of the local assemblyfor borrowing and appropriation in the budget.
3) After loans are made, JFM staff visit borrowers for which a loan was provided and conduct an onsite
credit review to verify the use of funds, the operational status of the project/business and the financial
and operational status of the borrower(s).
1) Check of Local
Governments/
Municipal
Enterprises Applying
for Loans• Check financial andoperational status• Conduct interviews2) Verification at the Timeof Lending
Check the loan
application document• Verify the consent orapproval for the loan
amount• Check the loan application
documents3) Subsequent Review
Conduct onsite
credit review
Disbursementof the Loan

• Check loans andlending businessstatus• Check financial andoperational status

Japan Finance Organization for Municipalities Annual Report 201225

Operations

Lending Operations

4. Trends in Lending Operations
1. Track Record of Lending Operations
Predecessor loans (long-term loans) declined after peaking at ¥2,136.9 billion in fiscal 1997, but they
have risen in recent years since becoming general account–related loans.
Loans totaled ¥1,804.1 billion, in fiscal 2011. Outstanding loans were ¥22,387.4 billion at yearend.

Loan Amount and Number(Billions of yen)
2,500

(Number)
25,000

Amount (Long-term loans)
2,000

20,0001,500

15,0001,000

10,0005,000

500

Number0

FY1957 62

67

72

77

82

87

92

97 2002

07

08

09

10

11

08

09

10

11

Outstanding Loan Balance(Billions of yen)
25,00020,00015,00010,000

5,000

0

26

FY1957 62

67

72

77

82

Japan Finance Organization for Municipalities Annual Report 20128792

97 2002

07

0

Lending Operations

2. Lending Operations by Business TypeOperations

As of March 31, 2012, the number of local governments with loans from JFM totaled 2,026, including
all prefectures. Cities and special wards of Tokyo had the highest balance, at ¥11,309.4 billion, which
accounted for 51% of the total. Next came government-designated cities, at ¥4,477.6 billion, or 20% of
the total. This was followed by prefectures, at ¥4,142.0 billion, or 18% of the total. Finally, the balanceof towns, villages, local government associations and others was ¥2,458.4 billion, representing 11%of the total.
Outstanding Loan Balance by Type of Borrower (as of March 31, 2012)(excluding entrusted loans)
Local Government
Associations¥661.6 billion (215)
Towns and Villages¥1,676.4 billion (927)

Local Government Corporations¥120.4 billion (33)Prefectures¥4,142 billion (47)

Total
¥22,387.4 billion(2,026)

Government-designated
Cities¥4,477.6 billion (19)Cities and Special Wards of Tokyo¥11,309.4 billion (785)Note: Figures in parentheses show the number of borrowers.

Japan Finance Organization for Municipalities Annual Report 201227

Operations

Lending Operations

3. Track Record of Lending Operations by Business Type
Water Supply and Electricity Supply were the primary businesses/projects for loans by the Predecessor
around 1960. The trend then changed, and the primary businesses/projects shifted to Water Supply
and Regional Development around 1970. Around 1980, the major businesses/projects for JFM loans
were Sewerage and Water Supply. Since around 1990, Sewerage and Three Types of Special Projects(Local Road Construction, Improvement of Rivers and Other Waterways and High School Construction)
have accounted for a high share of the total.
The General Account-related businesses and Extraordinary Financial Countermeasures Funding
became eligible for JFM loans in fiscal 2009, thereby significantly changing the breakdown bybusiness.
In fiscal 2011, loans for Extraordinary Financial Countermeasures Funding were ¥737.8 billion
accounted for the largest share of lending, at 41% of the total. Ranked next were ¥319.6 billion in
Sewerage business loans, representing 18% of the total, and ¥188 billion Special Municipal Merger
Business loans, for 10% of the total.
As of March 31, 2012, the outstanding loan balance was ¥22,387.4 billion, of which the Seweragebusiness accounted for the largest share, at 39%, followed by Water Supply, at 18% and the three
types of Special Projects, at 16% of the total.

■Long-Term Loans Made by Business Type (excluding entrusted loans)
Total
FY (Billions of yen)

Industrial
Water Supply

Water Supply
33％

1957

7.1

67

67.7

77

583.2

87

1,066.6

19

97

2,153.2

17

Transportation

5％

Electricity
Supply

7％
9

43
49

Transportation
5

7

36

3

Gas Supply Port Facilities
4％

31％
6

3
8

3

7％

Regional Development
23

Markets2

24

Hospitals

Other

9％

4％

Sewerage
4
9Public Housing
6
6

Three Types of Special Projects
23
7

5

Gas Supply
1

6

29

1

5

35

6

Hospitals
2007 1,126.3

14

1

6

5

1,108.8

14

1

5

6

08

12

4

39
41

General Account–Related Loans
32

4

2
2

16

17

13

18

Extraordinary Financial Countermeasures Funding
12
35

1

09

1,290.7

10

1,832.9

8

3

3

20

20

42

4

11

1,804.1

8

2 3

18

22

41

6

Notes: 1. Loans with pre-consent or approval are accounted for in the year when they are converted into long-termloans.
2. “Other” includes refinancing loans for municipal-related projects and refinancing loans for disaster-affectedfacilities.
3. Figures may not add up exactly due to rounding off.
4. General Account–Related Loans include loans for Public Housing and three types of Special Projects.

28Japan Finance Organization for Municipalities Annual Report 2012

Lending Operations

Outstanding Loan Balance by Business Type (as of March 31, 2012)

Others6% (1,258.6)

Operations

Water Supply
18% (3,988.3)

Extraordinary Financial
Countermeasures
Funding
9% (1,951.5)
Industrial Water Supply
1% (236.5)

Three Types ofSpecial Projects
16% (3,697.9)

Total¥22,387.4
billionTransportation
6% (1,359.8)

Public Housing
2% (518.3)

Hospitals
3% (608.1)
Sewerage
39% (8,768.4)
Note: Figures in parentheses are outstanding loan balances in billions of yen.

Japan Finance Organization for Municipalities Annual Report 201229

Operations

Lending Operations

5. Lending Operations by Business TypeJFM provides loans to projects in the Local Government Borrowing Program that the national government
formulates every year as stipulated in Article 5-3, Section 6 of the Local Finance Law.
Note: The number of projects for each type of business is for fiscal 2010. The pictures are examples
of loan projects and may not represent projects for which loans were generated in fiscal 2011.

Sewerage Business
The Sewerage Business managed by local governments covered 72.2% of people in cities and towns
with populations of less than 50,000, or 86.9% of the nation’s total population, at the end of fiscal
2010.
There were 3,637 projects involved, with a total annual sewerage processing capacity (combined
storm water and sewerage treatment, with river basin sewerage excluded) of around 14.9 billion cubic
meters serving areas with a population of 100.26 million people at the end of fiscal 2010.
Loans extended to these projects totaled ¥319.6 billion in fiscal 2011.
(Billions of yen)

(Number of loans)

800

8,000

700

500

6,000
5,000

Loan Amount400

Shimizu Area Rural Community Sewerage(Ibigawa Town, Gifu Prefecture)

7,000

Number of Loans

600

4,000

300

3,000

200

2,000

100

1,000

0
FY 1957 62 67 72 77 82 87 92 97 2002 07 08 09 10

110

Special Municipal Merger Projects
The Special Municipal Merger Projects represents projects implemented by merged local governments
based on the municipal construction plan, projects that are necessitated due to the merger ofmunicipalities based on the prefecture’s vision and transportation infrastructure projects conductedby prefectural governments in merged municipalities. These projects became subject to loans in fiscal
2009. For water supply, sewerage, and hospital projects, outlays from general accounts for merger
expenditures and fundraising for municipal promotion are also eligible for loans.
Loans extended to Special Municipal Merger Projects amounted to ¥188.0 billion in fiscal 2011.
(Billions of yen)200

(Number of loans)
1,000

Loan Amount
150

800
600

100

Number of
Loans

Vicinity of Terasho Station on
JR Kusatsu Line

50

0

30

Japan Finance Organization for Municipalities Annual Report 2012

400
200

FY 2009 10 110Lending Operations

Water Supply Business(Number of loans)
4,000(Billions of yen)
400
350

3,500
Loan Amount

300

2,500

200

2,000

100

Oigawa Wide Area Waterworks
Association (Shizuoka Prefecture)

3,000

250

150

Operational
Operations
Overview

The Water Supply Business served 97.5% of the population as of the end of fiscal 2009.
The Water Supply Business (including small-scale water supply) managed by local governments
totaled 2,152 projects and provided about 18.8 billion cubic meters of water annually for approximately
124.94 million people.
The total amount of loans extended to the Water Supply Business was ¥136.7 billion in fiscal
2011.

1,500

Number of
Loans

1,000

50

500

0
FY 1957 62 67 72 77 82 87 92 97 2002 07 08 09 10 110

Local Road Construction Projects
These are projects carried out by local governments without government subsidy to build prefectural,municipal, farm and forest roads. Former local road construction projects (construction of local roads
as community roads) that were eligible for our loans were reclassified as the Local Road Construction
Business in the fiscal 2009 Local Government Borrowing Program.
Loans extended to these projects amounted to ¥132.9 billion in fiscal 2011.
(Billions 貸付件数
of
yen)
貸付額
800
Loan Amount
700
Number of Loans
600(Number of loans)
3,000
2,500
2,000

500
400

1,500

300

1,000

200

Town Road Uchiike-Minakuchi Line
(Hino Town, Shiga Prefecture)

500

100

0
0
FY 1978 82 87 92 97 2002 07 08 09 10 11

Hospitals Business
Hospital Projects managed by local governments totaled 654 with 883 hospitals, which included
846 general hospitals, one tuberculosis hospital and 36 mental hospitals.
Loans extended to these projects (including those run by local independent administrative
institutions) totaled ¥57.4 billion in fiscal 2011.
(Billions of
yen)
貸付件数
貸付額

(Number of loans)
450

140

400

120
100
80
60
40
20

Mie Prefectural Mental Medical Center(Mie Prefecture)

Number of Loans

350
300

Loan Amount

250
200
150
100
50

0
0
FY 2002 07 08 09 10 11

Japan Finance Organization for Municipalities Annual Report 201231

Operations

Lending Operations

Transportation Business
The Transportation Business managed by local governments totaled 98 projects, which were operated
by 80 entities, and public transportation is used annually by about 4 billion people (10.83 million people
on an average daily basis).
The total amount of loans extended to the Transportation Business was ¥43.8 billion in fiscal
2011.
(Billions of yen)
150

(Number of loans)
300

100

200
Loan Amount

50

City Loop Line Tramway(Toyama City, Toyama Prefecture)

Number of Loans

1000FY 1957 62 67 72 77 82 87 92 97 2002 07 08 09 10 110

Extraordinary Financial Countermeasures Funding
This represents the fundraising for local governments to cover general resource shortfalls pursuant to
the provisions of the Local Finance Law.
To cover some of these shortfalls, local governments procure funding by issuing Extraordinary Financial
Countermeasures Funds with all amount treated as the Local Allocation Tax in the subsequent year.
Loans extended to these projects amounted to ¥737.8 billion in fiscal 2011.

(Billions of yen)
800
600
400
200
0

(Number of loans)
1,000
800

Number of
Loans
Loan
AmountFY 2009 10 11

600
400
200

Other Businesses
Public Projects, Etc.
Local governments are engaged in various public projects which are essential to daily lives. JFM offers
loans to the road construction projects which receive grants for social infrastructure.
Loans extended to public projects totaled ¥100 million in fiscal 2011.

32

Japan Finance Organization for Municipalities Annual Report 2012

Lending Operations

Operational
Operations
Overview

Public Housing Business
Public housing constructed and managed by local governments
totaled approximately 2.17 million units at the end of fiscal
2010.
The total amount of loans extended to the Public Housing
Business was ¥16.1 billion in fiscal 2011.

City Housing Karo Estate(Tottori City, Tottori Prefecture)

Social Welfare Facilities Projects
This covers social welfare facility projects for the elderly and children.
Loans extended to these projects totaled ¥14.5 billion in fiscal 2011.

General Projects
General Projects represent those stipulated as eligible under
Article 5 of the Local Finance Law (Law No. 109 of 1948) and,at the same time, are not covered under other specific projects
in the Local Government Borrowing Program. The projects
eligible for loans include river (small- and medium-sized river)
improvement projects and high school construction (such as
for reconstructing high school facilities built 15 years earlier).
Loans extended to General Projects for fiscal 2011
amounted to ¥8.5 billion.

Aomori Higashi High School(Aomori Prefecture)

Regional Revitalization Projects
These initiatives include funding for Green Government Reforms that aim to enhance the local leadershipand wealth of regional communities, as well as infrastructural projects for areas that are important forcommunity living but which have not been sufficiently covered.
Loans extended to these projects amounted to ¥8.9 billion in fiscal 2011.

Disaster Prevention Projects
Disaster Prevention Projects represent those implemented by local governments to promote thedevelopment of disaster-resistant, secure and safe communities.
Loans extended to the Disaster Prevention Projects amounted to ¥27.2 billion in fiscal 2011.

Japan Finance Organization for Municipalities Annual Report 201233

Operations

Lending Operations

Industrial Water Supply Business
The Industrial Water Supply Business managed by local
governments totaled 152 projects with 260 facilities thatprovided approximately 4.6 billion cubic meters of water
annually for 6,118 factories and other facilities.
The total amount of loans extended to the Industrial Water
Supply Business was ¥9.7 billion in fiscal 2011.

Ikuta Water Purification Plant(Kawasaki City, Kanagawa Prefecture)

Electricity Supply and Gas Supply Business
The Electricity Supply Business managed by local governments
totaled 63 projects with 348 power plants, which had amaximum power output of 2.75 million kW and generated 9.4
billion kWh annually. Local governments operate 30 gas supply
businesses, which provide 38.6 billion MJ of gas extended to
0.89 million households annually.
The total amount of loans for the Electricity Supply and
Gas Supply Business was ¥4.0 billion in fiscal 2011.
Jinemon-yosui Power Generating Station(Toyama Prefecture)

Port Facilities Business
The Port Facilities Business managed by local governments
totaled 101 projects, which included reclamation, cargohandling machines, sheds, warehouses, lumberyards andtugboats.
The total amount of loans extended to the Port Facilities
Business was ¥2.9 billion in fiscal 2011.
Gantry Cranes at Fukuoka Island-City
Container Terminal(Fukuoka City, Fukuoka Prefecture)

Elderly Care Services Business
The Elderly Care Services Business managed by local
governments totaled 598 projects. JFM made loans for theconstruction of daycare centers, intensive care nursing homes
and other facilities for the elderly, which are run on nursingcare benefits, and for the machines and equipment requiredat those facilities.
The total amount of loans extended to the Elderly Care
Services Business was ¥3.4 billion in fiscal 2011.
Mutagawaraguchi Welfare Facility“Otozure”(Hagi City, Yamaguchi Prefecture)

34

Japan Finance Organization for Municipalities Annual Report 2012

Lending Operations

Operational
Operations
Overview

Markets Business
The Markets Business managed by local governments totaled
175 projects, which handled 7.36 million tons of vegetables,
2.43 million tons of fruit, 3.81 million tons of seafood and0.78 million tons of meat and other products annually. These
projects contributed to the modernization of the distribution
system of daily commodities.
The total amount of loans extended to the Markets
Business was ¥8.2 billion in fiscal 2011.

Central Wholesale Market(Morioka City, Iwate Prefecture)

Slaughterhouse Business
The Slaughterhouse Business managed by local governments
totaled 73 projects, which processed 4.17 million cattle in fiscal
2009.
The total amount of loans extended to the Slaughterhouse
Business was ¥0.8 billion in fiscal 2011.

Meat Trading Center(Kanazawa City, Ishikawa Prefecture)

Tourism Facilities Business(including the Industrial Waste Disposal Business)
The Tourism Facilities Business managed by local
governments totaled 366 projects, including 136 recreation
and accommodation facilities, 61 ropeways and 169 otherfacilities (e.g., hot springs, castles, museums, zoos, botanicalgardens).
The total amount of loans extended to the Tourism Facilities
Business was ¥0.1 billion in fiscal 2011.
Asahiyama Zoo(Asahikawa City, Hokkaido Prefecture)

Parking Facilities Business
The Parking Facilities Business managed by local governments
totaled 232 projects with 695 facilities, which had a total
capacity of approximately 124,000 vehicles, serving an averageof about 170,000 cars per day.
The total amount of loans extended to the Parking Facilities
Business was ¥2.0 billion in fiscal 2011.

Underground Parking Lot at the East Exitof Kawaguchi Station (Kawaguchi City,
Saitama Prefecture)
Japan Finance Organization for Municipalities Annual Report 201235

Operations

Lending Operations

New Lending Businesses in Fiscal 2012
Emergency Disaster Management and
Mitigation Projects
These projects must be undertaken urgently nationwide in viewof lessons from the Great East Japan Earthquake.
Loans earmarked for fiscal 2012 total ¥84.8 billion.

Educational Facilities Development Projects
These are projects that local governments undertake
autonomously to develop facilities and acquire and clear landfor high schools (except those designated for general projects)
and kindergartens and other facilities, and to engage in largescale remodelings of mandatory educational facilities.
Loan allocations for these projects in fiscal 2012 are ¥300
million.

General Projects
Initiatives newly eligible for loans under this category are regional general development funding projects(interest-free loans of local governments that support private sector entities engaging in regional
development) and investments, loans, and contributions (disaster assistance loans).
Loan allocations for these projects in fiscal 2012 are ¥9.7 billion.

36

Japan Finance Organization for Municipalities Annual Report 2012

Local Government Support Operations

Operational
Operations
Overview

Harnessing its financial knowledge and experience gained in the capital markets,in partnership with related organizations, JFM provides support for local
governments to effectively raise funds in the capital markets.

1. Basic Policy
JFM is a joint fundraising organization of local governments that raises funds in the capital markets
and as a core lender of public funds to local governments.
Harnessing its financial knowledge and experience gained in the capital markets, JFM provides
support for local governments so that they can efficiently raise funds in the capital markets.
JFM works in partnership with the national government, think tanks, universities, researchers andrelated agencies, thereby offering the support that local governments need.

Fundraising

CapitalMarkets

Local
Governments

SupportFundraising

JFM

Lending

2. Outline
JFM assists local governments according to their needs in support operations in four core areas—
training for local government staff, research, administrative support for fundraising and information
services.

1. Training for Local Government Staff
We provide seminars not only on the basic knowledge of local finances, financing and accounting but
also on fundraising-related administrative skills and knowledge.

Japan Finance Organization for Municipalities Annual Report 201237

Operations

Local Government Support Operations

Cosponsoring Seminars (for short-term intensive training)
In cooperation with the Japan Intercultural Academy of Municipalities and the Japan Academy for
Municipal Personnel, JFM holds seminars specializing in basic knowledge for local government staffers
to enhance their fundraising and management skills.
Lectures on Demand
JFM dispatches its staff to local governments to give lectures catered to the region’s situation and thelevel of the audience.
Textbooks on the Administrative Process for Fundraising
JFM publishes basic textbooks on fundraising.

2. Surveys and Research
JFM conducts comprehensive research into regional finance, covering such areas as the significanceand roles of funding for local governments and local government finance, sharing its findings with local
governments.
Surveys and Research
JFM conducts surveys and research that may be difficult for individual local governments to handle.
Holding Forums
JFM cosponsors forums with the University of Tokyo.

3. Administrative Support for Fundraising
JFM staff with financial knowledge and work experience at private financial institutions work as financial
advisers to municipalities to meet their specific needs.
Dispatching Financial Advisors for Municipalities
We offer professional advice to address questions and concerns about fundraising.
Onsite Administrative Support—Administrative Support for Issuance of Local Government
Borrowings Publicly Offered in Markets with Participation of Residents
Through onsite support for the issuance of bonds publicly offered to residents, JFM dispatches municipal
financial advisers to provide meticulous support to local governments making their first public offersof bonds to local residents. JFM also provides support for public relations and other costs related tobond issuance.

4. Information Services
JFM provides local governments raising funds with useful economic and financial data, financial
knowledge and applied techniques through its website, public relations magazines, training, and otherchannels.

38

Japan Finance Organization for Municipalities Annual Report 2012

Fundraising Operations

Operational
Operations
Overview

As a joint fundraising organization for local governments, JFM raises funds
in a stable manner to provide local governments with low-interest and stable
funds, while endeavoring to reduce the fundraising costs.

1. Issue Type
Basically, JFM issues public offering bonds without a government guarantee to raise funds for lending
operations. Private placement bonds that are underwritten by the Pension Fund Association for Local
Government Officials are also used for lending operations.
JFM issues government-guaranteed bonds only for refinancing the existing government-guaranteedbonds of the Predecessor in order to manage the Predecessor’s assets that JFM has assumed.

Funds

FinancialMarkets• JFM bonds• Public offering bonds• Private placement bonds that are underwritten by
the Pension Fund Association for Local Government Ofﬁcials• Issuance of government-guaranteed bonds to reﬁnance existing
government-guaranteed bonds of the Predecessor

JFM

Note: JFM bonds are bonds without a government guarantee issued by JFM. Under Article 40, Paragraph
2, of the Japan Finance Organization for Municipalities Law, JFM bonds and government-guaranteedbonds are secured by general collateral and are repaid in preference to other general debts.

Japan Finance Organization for Municipalities Annual Report 201239

Operations

Fundraising Operations

2. Basic Policy
To raise funds at low cost and in a stable manner, JFM promotes the diversification of fundraising methods
and strives to gain solid confidence in the capital markets by proactively disclosing information andthoroughly fulfilling accountability. JFM also endeavors to issue bonds in a flexible manner, responding
to the market environment and market needs.

1. Diversification of Fundraising Methods
From the viewpoint of stable fundraising, JFM endeavors to issue bonds flexibly with various maturities
and structures including medium-term and super-long-term bonds in response to the market environment
and market needs in order to expand the investor base, while also considering risk management.
Our basic means for fundraising is the issuance of bonds. With regard to 10-year bonds, inparticular, JFM endeavors to ensure continuous investor demand through regular issuance. JFM also
strives to meet market needs and loan needs in a timely and flexible manner by issuing bonds under
the Flexible Issuance Program (FLIP) and the Euro Medium-Term Note (EMTN) Program, as well as
borrowing money as necessary.
JFM endeavors to issue bonds in a variety of markets to reduce the cost of fundraising, closely
monitoring the domestic and international markets.

2. Thoroughly Disclosing and Explaining Information
JFM helps investors by properly disclosing information on its operations, financial conditions, and risk
management status.
JFM actively promotes investor relations activities, including explanatory meetings for and visits toinvestors, to help investors correctly understand JFM’s management and JFM’s bonds, and to securesolid confidence in JFM. For issuing bonds in international markets, we conduct investor relations forforeign investors. JFM also publishes a bond issuance plan every six months to help investors planfor investment.

3. Contribution to the Sound Development of the Capital Markets
While raising funds in a flexible and dynamic manner in response to the needs of the capital markets,and maintaining the basic policy of placing great importance on the capital markets, JFM will further
strengthen its role as a leading issuer in the market and positively contribute to the sound developmentof the capital markets.
Reference
Outline of FLIP
This is JFM’s proprietary system for issuing bonds flexibly and quickly to meet investors’ needs, including in termsof maturities and amounts.
· Bond maturities: 3–30 years (except for 5-, 10-, and 20-year fixed-rate bullet bonds)· Amount per bond issue: At least ¥3 billion

40

Japan Finance Organization for Municipalities Annual Report 2012

Fundraising Operations

3. Feature of JFM Bonds
Operational
Operations
Overview

JFM bonds with the following features are recognized as having high credit standing and status—ashigh as that of local government borrowings—and have become known as “Super Local Government
Borrowings” in Japan.

· JFM is a public fundraising organization established jointly by local governments throughout
Japan.
· Given that JFM borrowers are local governments, and no local governments have experienced
default, JFM’s assets can be deemed to be highly stable.
· JFM has a solid and sound financial foundation, exemplified by the reserve for interest rate
volatility.
· Under the Japan Finance Organization for Municipalities Law, local governments have theobligation to bear all of the cost to satisfy the obligation for which JFM is liable in the event
JFM is to be dissolved and its obligations remain unpaid.

JFM has received the highest credit rating among the Japanese public-sector bond issuers fromStandard and Poor’s (S&P), Moody’s Investors Service (Moody’s) and Rating and Investment Information,
Inc. (R&I). Furthermore, the risk weighting for JFM is 10% for yen-denominated bonds and 20% forbonds denominated in foreign currencies.
In addition to JGBs and local government borrowings, interest received by foreign investors(non-residents, foreign corporations, etc.) on JFM’s domestic bonds in book-entry form and JFM’s
international bonds (both of which include the bonds with government guarantee) shall be exemptedfrom Japanese income tax, subject to certain procedural requirements.
* The risk weightings are values for investors in Japan. For foreign investors, values are determined by respective
countries’ authorities. The risk weighting for government-guaranteed bonds is 0% for either yen-denominated bonds
or bonds denominated in foreign currencies (as of March 31, 2012).
* The tax exemption rule shall apply to the interest and other profit on JFM’s domestic bonds to be issued in bookentry form by March 31, 2013, for which the calculation period starts on or after June 1, 2010, and to the interest
and other profit on JFM’s international bonds (both of which bonds include these with government guarantee).

Credit Rating

S&P : AA-
Moody's : Aa3
R&I : AA+(as of March 31, 2012)

BIS Risk Weighting

JFM bonds :10% (denominated in yen)
20% (denominated in foreign currencies)

General Collateral

A holder of the JFM bonds (including government guaranteed bonds) shallhave the right to receive repayment of his or her own claim from the propertyof JFM in preference to other general creditors (see Article 40, Paragraph 2, of
the Japan Finance Organization for Municipalities Law). Article 40, Paragraph 3of the same law provides that this statutory lien shall rank next to the general
statutory lien (ippan sakidori tokken) provided in the Civil Code.

(For reference)
Government-Guaranteed Bonds: 0%
Government Bonds,
Local Government Borrowings: 0%

Japan Finance Organization for Municipalities Annual Report 201241

Operations

Fundraising Operations

4. Trends in Fundraising Operations
JFM issues JFM bonds (public offering bonds and private placement bonds that are underwritten by
the Pension Fund Association for Local Government Officials) and government-guaranteed bonds.
As for public offering bonds without a government guarantee, the Predecessor had issued FILP*
Agency bonds since fiscal 2001 and JFM has issued JFM bonds since JFM began operations in fiscal
2008.
In fiscal 2011, bond issuances totaled ¥2,024.765 billion. Borrowings were ¥30.0 billion.
*FILP : Fiscal Investment and Loan Program(Billions of yen)
3,000

2,678.4
2,500
2,307.9

2,285.7
2,150.8
Government-guaranteedinternational bonds

2,054.8
2,035.7
1,944.9

2,066.5

2,056.3
2,000

1,818.7
Government-guaranteed
domestic bonds
Private placement bondsthat are underwritten by
the Pension Fund Association
for Local Government Officials
FILP Agency bonds

1,638.4

1,555.3
1,455.6
1,397.4,

1,500

1,000

Long-term borrowing
JFM bonds(International bonds)

500

JFM bonds(Domestic bonds)
0
FY 1994

97

2000

01

02

03

* The amount for fiscal 2008 was a total of the Predecessor’s bonds
and the bonds of the Japan Finance Organization for Municipal Enterprises.

42

Japan Finance Organization for Municipalities Annual Report 2012

04

05

06

07

08*

09

10

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Management StructureManagement Structure

Disclosure�������������������������������������59
JFM’s Role in Local Government
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Japan Finance Organization for Municipalities Annual Report 201243

Management Structure

Profile of JFM
1. Outline of JFM Operations
Japan Finance
Organization for
Municipalities(JFM)

Financial Markets

Capitalized by all local
governments in Japan

Fundraising

Capital and Management Participation

Lending

Outstanding Bond
Account

Reserve forInterest Rate
Volatility, etc.

Outstanding Loan
Account¥18.2 trillion¥4.1 trillion¥22.4 trillion
Long term, Low interest

JFM bonds(public offering bonds)

Private placement
bonds that areunderwritten by thePension Fund
Association for Local
Government Officials
Governmentguaranteed bonds

Reduction ofLending Rates byUsing Investment
Gain

Local Governments

Capital¥16.6 billion

Borrowers

Fund for the
Improvement of
the Operationsof Municipalities¥0.9 trillion
Contribution ofproceeds frommunicipally
operated racing*

Local Government Support
Operations**(as of March 31, 2012)
Notes: * Portion of revenues from municipally operated racing (horse, bicycle, motorcycle and speedboat)** Support for local governments’ fundraising in capital markets

Joint Entity for Local Governments Owned by All Local Governments
JFM is a joint entity for local governments, capitalized solely by local governments in Japan under
the JFM law.
JFM loans are provided exclusively to the local governments, and local governments must haveconsent or approval from a relevant minister or relevant governor when they undertake borrowing
from JFM. Within this structure, JFM has never had a default since its establishment.

44

Japan Finance Organization for Municipalities Annual Report 2012

Profile of JFM

Joint Fundraising Organization for Local Governments
Given that it takes a long time to recoup the capital expenditures for improvements to local governments’social infrastructure and the burden should be shared across generations, long-term fundraising is
usually desirable. However, local governments generally raise funds in the capital markets for termsof 10 years or less.
Because of this, we raise funds by issuing the JFM bonds, which are public-offering bonds thatare not guaranteed by the national government. These bonds thus ensure a stable supply of long-termand low-interest funds to local governments, thereby providing valuable supplementary measures foreach local government’s fundraising in the capital markets.
The JFM law (Article 52, Paragraph 1, of the Japan Finance Organization for Municipal Enterprises
Law) obliges local governments have the obligation to bear all of the cost to satisfy the obligations
for which JFM is liable in the event JFM is to be dissolved and its obligations remain unpaid.
Management Structure

Sturdy Financial Foundation
JFM primarily issues 10-year bonds to raise funds and extends long-term (maximum maturity of 30
years) loans to local governments, which creates a maturity gap between funding and lending. To
cope with the interest rate fluctuation risk associated with the refinancing of bonds (a negative margin
caused by the interest payable exceeding the interest receivable), JFM maintains the necessaryfinancial foundation including the reserve for interest rate volatility.
Reduction of Lending Rates by Utilizing the Fund for the Improvement of
the Operations of Municipalities
JFM receives a portion of the earnings from various racing events (horse, bicycle, motorcycle andspeedboat) operated by local governments, which are directed to the Fund for the Improvement of
the Operations of Municipalities. The investment gains from the fund is used to lower interest rates
on loans provided for local governments.

2. CapitalGiven the fact that JFM was established by local governments as an autonomously managed
organization, capital participation is limited to local governments.
As of April 1, 2012, JFM had received capital in the amount of ¥16,602.1 million from Japan’s
1,790 local governments, i.e., all of the prefectures, cities, special wards, towns and villages, as well
as some local government associations.
Towns and villages¥1.05 billion (6.3%)

Cities and special wards of Tokyo(except for government-designated cities)¥6.31 billion (38.0%)

Cities and special wards of Tokyo
¥9.19 billion (55.3%)

CapitalContribution byType of Local
Government

Prefectures¥6.37 billion (38.4%)

Government-designated cities¥2.88 billion (17.3%)

Notes: 1. The total of contribution amounts does not add up exactly due to rounding off.
2. Towns and villages include regional affairs associations.

Japan Finance Organization for Municipalities Annual Report 201245

Management Structure

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

1. Corporate GovernanceCorporate Governance System
Representative Board
Members : (1) Representatives at local governments*(2) The external experts*
Number of Members: 6 (3 from (1) above and 3 from (2) above)
Term of Office: 3 years

Appointmentof members

Supervisory
Committee

Appointment
and dismissal of
the President
and CEO

Decisions onimportant matters,
including budgets
and accounts

Consultation andpropositions

Members: External experts
Full Number of Members: 6
Term of Office: 2 years

Accounting
audit

President and CEO,
Deputy President, etc.

Budgetsubmissions

Accounting
Auditors(Certified Public
Accountants or an
audit firm)

Approval of changes to the
Articles of Association
Demands to correct illegal
activities

National Government
Note: *elected by the National Association of the governors of prefectures, the mayors of cities, and thehead of villages and towns

1. Representative Board
As an organization autonomously managed by local governments, JFM has the Representative Board
as its supreme decision-making body.
To ensure independence and transparency, the Representative Board consists of one prefectural
governor, one city mayor, one town/village mayor and three members from among experts in local
administration, economics, finance, law or accounting.
The Representative Board has the authority to make decisions on important matters related to46

Japan Finance Organization for Municipalities Annual Report 2012

Corporate Governancethe overall management of JFM, including budgets, settlement of accounts and business plans. As
its supervisory function, the Board also has the authority to order the President and CEO to reporton the organization’s business, assets and liabilities, and to address illegal activities.

Representative Board (as of April 1, 2012)

Representatives at Local Governments
Yuichiro Ito* (Governor of Kagoshima Prefecture)
Tamio Mori (Mayor of Nagaoka City, Niigata Prefecture)
Tadahiko Fujiwara (Mayor of Kawakami Village, Nagano Prefecture)

External Experts
Junko Obata (Professor of Juris Doctor Program, Graduate School of Law, Sophia
University)
Isao Horiba (Professor, Aoyama Gakuin University)

Management Structure

Tomijiro Morita (President of the 21st Century Public Policy Institute and Special
Advisor of the Dai-Ichi Life Insurance Company)* denotes the Chairperson

2. Supervisory Committee
Given that JFM, a lender of funds, was founded by local governments, which are also its borrowers,
highly transparent management that incorporates the objective and unbiased opinions of external
parties and responsible corporate governance is vital. To establish such a managerial structure, theSupervisory Committee has been in place as a deliberative committee comprising external experts.
The Representative Board appoints the members of the Supervisory Committee from amongexperts in local administration, economics, finance, law or accounting, and other experts in theacademic world.
The Supervisory Committee has the function of monitoring the operations of JFM and may offer its
opinions on important matters related to JFM’s operations including budgets, settlement of accounts
and business plans, etc. The Committee may also, if necessary, request that the President and CEO
report on those matters. The President and CEO must respect and report the Committee’s opinions
to the Representative Board.

Supervisory Committee Members (as of April 1, 2012)
Yoshitsugu Hayashi*(Professor, Kwansei Gakuin University)
Tetsuya Kayamori(Director, JIJI PRESS LTD.)
Osamu Kurihara(Counsel, Nishimura & Asahi)
Yukiko Shinozaki(Representative Director, URBAN LIFE RESEARCH INSTITUTE)
Yutaka Suzuki(Professor, Graduate School of Professional Accountancy, Aoyama Gakuin
University, Certified Public Accountant)Mari Nishino(Professor Emeritus, Meiji University)* denotes the Chairperson

Japan Finance Organization for Municipalities Annual Report 201247

Management Structure

Corporate Governance

3. Audits by the External Accounting Auditors
As JFM raises funds in the capital markets, the proper disclosure of information and external checks
on accounting procedures are essential in order to earn the confidence of the markets and raise
funds at low cost.
From this viewpoint, JFM is required to have its financial statements and statement of accounts
audited not only by corporate auditors but also by external accounting auditors (Certified Public
Accountants or an audit corporation) appointed by the Representative Board.

2. Internal Control over Financial Reporting
Pursuant to the Ministerial Ordinance on Finance and Accounting of the Japan Finance Organization
for Municipalities (Ordinance No. 87 of the Ministry of Internal Affairs and Communications, 2008;
hereinafter the “Ordinance”), JFM is required to have a system of internal control over financial
reporting to ensure the reliability of its financial statements, and maintain and implement this systemappropriately. In accordance with the Ordinance, JFM prepares the Internal Control Report, the basedate of which is the end of the fiscal year (March 31), and it is audited by the external auditors andreleased together with the financial statements.
JFM has a system of internal control over financial reporting that it maintains and evaluates
effectively and efficiently to ensure the reliability of financial statements.
Specifically, JFM confirms the contents below and addresses deficiencies as needed.

• That overall organizational policies and procedures are disclosed and properly

maintained and managed• That proper assessments and responses are made to address the risks of misstatements

regarding important matters• That a mechanism is in place and properly managed to reduce the risks of misstatements

regarding important matters• That a mechanism is in place and properly managed to identify true and fair informationand inform the right parties in a timely manner• That a monitoring system is in place and properly managed• That information technology is properly handled

In the fiscal 2011 Internal Control Report, we viewed our internal control on financial reporting aseffective. In the Auditors’ Report on Internal Controls, the accounting auditors gave their opinion(unqualified audit opinion pursuant to Ministerial Ordinance Article 32, Paragraph 4, Clause 1) on thefiscal 2011 Internal Control Report as follows: “We consider this report to conform to the standardsof evaluation for internal controls over financial reporting generally recognized as fair and appropriate,and have determined that all of the important points in the evaluation of internal controls over financial
reporting have been appropriately presented”.

48

Japan Finance Organization for Municipalities Annual Report 2012

Corporate Governance

3. Internal Audits
An internal auditor, who is independent from other departments, sections, and offices, examines andassesses the appropriateness and effectiveness of JFM’s internal control systems, thereby helping
ensure reliable financial reporting and appropriate and efficient operations.

The internal auditor examines and assesses the following items.
a. Are the operations conducted in accordance with laws, regulations and rules?

Management Structureb. Are the operations conducted efficiently?
c. Are the risk management systems functioning appropriately and efficiently?
d. Are the systems for managing, conveying and sharing information functioning
effectively?

On completing this task, the internal auditor submits a report to the president and CEO.
If the internal auditor identifies deficiencies, related sections and offices must immediately take therequired corrective action. The internal auditor will then submit to the president and CEO an internal
audit report that includes the status of corrective actions.
The internal auditor also performs follow-up audits and reports the results to the president andCEO as necessary.

Deputy President

Corporate
Auditors
AuditsSeniorExecutive
Directors
Departments
Sections

Internal
AuditsInternal
Auditors

AuditsExternal Accounting Auditors

Corporate Auditors

President and CEO

Japan Finance Organization for Municipalities Annual Report 201249

Management Structure

General Account and Management Account
The Japan Finance Organization for Municipalities (JFM) was established on August 1, 2008, withcapital contributed by all local governments in Japan (prefectures, cities, towns, villages and special
wards of Tokyo) as a joint fundraising organization to fund local government. JFM began operations
after assuming the assets and liabilities of the Predecessor on October 1, 2008.
As a result of the reorganization on June 1, 2009, the General Accounts of local governments
also became eligible for JFM loans.
New loans made and bonds issued since JFM’s operations began are accounted for in the
General Account of JFM, whereas operations to administer loans carried over from the Predecessor
are accounted for in the Management Account, thereby classifying each accounting.
JFM issues bonds with government guarantees only for refinancing bonds issued by thePredecessor in the Management Account.

Established on
August 1, 2008

Began operations on
October 1, 2008

Reorganized onJune 1, 2009

Japan Finance
Organization for
Municipal Enterprises

Japan Finance
Organization for
Municipalities (JFM)

Established by capital
contributions from all local
governments in JapanThe lending scope was expanded toinclude the General Accounts oflocal governments.

Established onJune 1, 1957

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

Assumed assets
and liabilities
Abolished(and its capital returned to
the national government)

Special governmental institution(fully owned by the national government)

When JFM was founded, it assumed the Reserve for Losses on the Refinancing of Bonds, etc., in
the amount of approximately ￥3.4 trillion to ensure its future stable management.
Of this, the ￥2.2 trillion needed to ensure the future continuity of JFM’s operations was to betransferred to the General Account in equal installments over 10 years, with the remainder to betransferred to the Management Account to ensure a sufficient financial foundation to appropriately
manage the loans that JFM assumed from the Predecessor and the bonds of the Predecessor that
JFM has assumed and prepare for the refinancing risk of the government-guaranteed bonds.

50

Japan Finance Organization for Municipalities Annual Report 2012

General Account and Management AccountJapan Finance Organization for Municipalities (JFM)
Ensure the financial
foundation needed to sustain
the businesses into the future

General AccountReserve forInterest Rate Volatility

Reserve for Losseson the Refinancingof Bonds￥3.4 trillion

Management Account

FY2008-2017￥220 billion
transferred each year

Management Account Reservefor Interest Rate Volatility

Management Structure

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

￥2.2
trillion

If any assets remain when the asset management operations of the Predecessor are completed andthe Management Account is closed, those assets shall be returned to the national treasury.
Even before the Management Account is closed, in the event that the businesses of JFM aredetermined to have been executed smoothly in light of the condition of the management of JFM, theMinister for Internal Affairs and Communications and the Minister of Finance shall, if the management
account reserves for interest rate volatility and so on are determined to exceed the amount necessary
for the smooth operation of the asset management operation of the Predecessor in the future, cause
the amount that is determined to be in excess to belong to the national treasury (Article 14 of the
Supplementary Provisions to the Japan Finance Organization for Municipalities Law).
In accordance with this provision, part of JFM’s reserves for interest rate volatility within theManagement account are set to be attributed to the Japanese national government over a periodof three years from fiscal 2012 through fiscal 2014, with the aim of transferring ¥1 trillion over thisperiod. Such part is to be transferred to the Japanese national governments’ special account for local
allocation tax. In fiscal 2012, ¥350 billion has been so transferred to the national treasury by JFM.
In fiscal 2008, ¥300 billion was transferred to the national treasury by JFM, and used as a special
grant for regional revitalization and lifestyle assistance.

Japan Finance Organization for Municipalities Annual Report 201251

Management Structure

Risk Management
1. Overall Risk Management
1. Risk Management System
To maintain a sound and good financial standing and gain the solid confidence of the capital markets,
JFM needs to appropriately manage various risks including interest rate risks.
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 theestablishment of the Integrated Risk Management Committee, which supervises JFM’s overall risk
management, and the Risk Management Office to ensure comprehensive management of the risks.
Risk management can then be appropriately reflected in management decisions.

Risk Management System

President and CEO

Integrated Risk
Management
Committee

Senior Executive
Director in Charge

ALM Committee

Corporate Planning
Department Risk
Management OfficeFinance
Department

Loan
Department

Administration
Department

2. Characteristics of JFM’s Risks
JFM raises funds primarily by issuing 10-year bonds and making loans with a maximum maturity of
30 years with repayment of interest and principal in equal instalments. Therefore, a maturity gap iscreated between lending and funding, and JFM is exposed to the interest rate risk associated withbond refinancing (the risk of the negative margin caused by the interest payable exceeding the interest
receivable).
JFM has set aside reserves for interest rate fluctuations (the Reserve for Interest Rate Volatility)and has set up the ALM Committee to comprehensively analyze and manage JFM’s assets andliabilities in a timely and appropriate manner.
The ALM Committee conducts medium- and long-term management and risk analysis throughscenario, Value at Risk, duration, and other analyses. JFM reflects the findings in its bond issuanceplans and other aspects of management and endeavors to lower interest rate risk.

52

Japan Finance Organization for Municipalities Annual Report 2012

Risk Management

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

Management Structure1) Credit risk associated with loans
JFM lends exclusively to local governments. Local governments have a zero risk weighting under
the regulations of the Bank for International Settlements. JFM does not expect any default on loans
made to local governments for the reasons outlined below. JFM and its Predecessor have neverexperienced any loan losses.
• The Japanese national government includes local government debt servicing costs in the

expenditure of the Local Government Finance Program, and secures the total amount ofLocal Allocation Tax which balances local governments’ total expenditures including debt
servicing costs and total revenue. Thus, the national government effectively secures revenue
sources for principal and interest payments for local governments. The national government
also secures revenue sources for debt service for individual local governments by including
a portion of local government debt servicing costs when calculating Local Allocation Tax.
• Under the consultation system for local government borrowings, credit reviews must include

checks on the status of local government debt servicing and tax revenue and necessary
revenue sources to be secured. Additionally, under the “Early Warning System”, the local
governments whose debt servicing costs and financial deficits exceed a certain level mustobtain prior approval from the Minister for Internal Affairs and Communications or the relevant
prefectural governor to obtain borrowings, so that the credit standing of local government
borrowings is maintained.
• Under the Financial Soundness of Local Governments Law, local governments must maketheir own efforts toward achieving fiscal soundness when their fiscal indicators exceed theearly warning limits. In addition, local governments must take necessary actions to restore
the soundness of their finances under the oversight of the Japanese national government
with regard to redemption of local government borrowings and other operations when theirfiscal indicators exceed the reconstruction limits.

For organizations experiencing repayment difficulty owing to the impact of the Great East Japan
Earthquake of March 11, 2011, JFM extended to September 20, 2011, the principal and interest
repayment dates totaling more than ¥7.2 billion for 32 accounts. All of the above principal and interest
was redeemed as of that date.
(Loan assets)
As of March 31, 2012, JFM’s total outstanding loans stood at ¥22,387.4 billion, of which ¥120.4
billion, or 0.5%, is the amount of outstanding loans made to local government road corporations by
the Predecessor.
The amount of loans made to local governments for which the fiscal indicators exceeded theearly warning limits or the financial reconstruction limits accounted for approximately 0.2% of the totalloans.

Japan Finance Organization for Municipalities Annual Report 201253

Management Structure

Risk Management

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

2. Market Risk
Market risk is the risk of loss resulting from changes in the value of assets and liabilities due tofluctuations in risk factors such as interest rates, securities prices and foreign exchange rates, or
the risk of loss resulting from changes in earnings generated from assets and liabilities. Market risk
includes interest rate risk, foreign exchange risk, inflation risk and price fluctuation risk.
1) Interest rate risk
Interest rate risk is the risk of loss resulting from fluctuations in interest rates.
JFM’s loans to local governments are for maximum maturities of 30 years. The majority of funds
for these loans is through issuance of 10-year bonds. These expose JFM interest rate risks associatedwith bond refinancing.
JFM takes the following measures to address the interest rate risk resulting from a duration gap
between lending and fundraising.

Managing interest rate risk
• JFM maintains necessary reserves for interest rate volatility to cope with the interest rate risk resulting froma duration gap between lending and fundraising. The amount of the above reserves stood at ¥880 billion in
the General Account and ¥3,137.5 billion in the Management Account for a total of ¥4,017.5 billion in bothaccounts at the end of March 2012.
• As assets and liabilities in JFM’s General Account are expected to increase as a result of the loans andfundraising for local governments after JFM was established, JFM carries out an ALM analysis of this accountin a timely and appropriate manner to further enhance the effectiveness of its management of interest raterisk. JFM also set the following medium-term management target (for five years starting with the fiscal year
ended 31 March 2010) to reduce its exposure to interest rate risk by setting (1) the outlier ratio (the ratio of theinterest risks (a 200-basis-point upward or downward parallel shift in the yield curve) to net assets including
reserves for interest rate volatility and the Fund for Improvement of Operations of Municipalities) to be below
approximately 20% and (2) the duration gap to be below approximately two years, thereby issuing super-longterm bonds. Because it is only three and a half years since JFM started its operation, whereas the size of
assets and liabilities were small compared to the Management Account, whereas the outlier ratio for the endof fiscal 2011 was 17.5% and the duration gap was 0.97 years, which are within the management target.
• Although the Management Account, which manages assets transferred from the Predecessor, is currently

exposed to more interest rate risk than the General Account, JFM is required Reserves for Interest Rate
Volatility as described above. The amount of the above reserves stood at ¥3,137.5 billion at the end of March
2011. But in the future, assets and liabilities of the Management Account will decline over time and interest
risk decline because new loans have not been made since October 2008.
• It was decided that a part of JFM’s Reserves for Interest Rate Volatility would be attributed to the Japanesenational government from within JFM’s Management Account over a period of three years from fiscal 2012 to
fiscal 2014 pursuant to Article 14 of the Supplementary Provisions of the JFM law. The amount of attribution
is to be within the amount which the Minister for Internal Affairs and Communications and the Minister ofFinance deem as an amount exceeding the requisite amount of reserve necessary for smooth operation of theManagement Account at such point or in the future in light of the conditions of the management of JFM, andthe amount expected to be attributed over the above three fiscal years is ¥1,000 billion in total. JFM believes
that, even if such transfers to the national treasury take place, this will not affect the smooth operation of
JFM’s business at such point or in the future because JFM will have enough reserve to deal with the interest
rate risk even after such attribution.

54

Japan Finance Organization for Municipalities Annual Report 2012

Risk Management

Maturity Ladder of Loans and Bonds
General Account(as of March 31, 2012)

1,000
800
600

Billions of yen

400
200
0
-200

Loan Interest Receipt-400

Loan Principal Redemption
Bond Principal Redemption

Management Structure-600

Bond Coupon Payment
Gap between Cash Inflows
and Outflows-800-1,000FY2012 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41• Loan duration 10.10 years • Bond duration 9.13 years • Duration gap 0.97 years (YoY change: -0.15 years)

Management Account

3,000(as of March 31, 2012)

2,000

Billions of yen

1,0000
Loan Interest Receipt-1,000Loan Principal Redemption
Bond Principal Redemption
Bond Coupon Payment-2,000Gap between Cash Inflows
and Outflows-3,000FY2012

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

• Loan duration 6.81 years • Bond duration 4.39 years • Duration gap 2.42 years (YoY change: -0.08 years)
JFM as a whole• Loan duration 7.57 years • Bond duration 5.41 years • Duration gap 2.16 years (YoY change: -0.20 years)

Maturity Ladder
The maturity amount and interest repricing for assets (such as for loan recoveries) and liabilities (suchas bond redemptions) are presented chronologically for each period.

Japan Finance Organization for Municipalities Annual Report 201255

Management Structure

Risk Management

Because of mismatches between the timing of loans and financing for local governments, interest
rate fluctuations in the meantime pose pipeline risks—that lower earnings or losses could result. JFM
uses swaps to hedge against pipeline risks.
2) Foreign exchange and other risks
Various risks associated with bond principal and interest payments are generally hedged by swap
transactions. These risks include foreign exchange risk related to foreign currency denominated bonds,
interest rate risk related to floating rate bonds and the risk of fluctuations in the amounts of principal
and interest of inflation-indexed bonds. JFM’s investments of surplus funds are exposed to the risk oflosses 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, inprinciple, JFM reduces the price fluctuation risk by holding investments until maturity and hedges
foreign exchange risk by using forward foreign exchange contracts.

3. Liquidity Risk
Liquidity risk is the risk that JFM would incur losses because of difficulty in fundraising, or becauseof funding at far higher interest rates than under ordinary conditions. It also includes the risk thatJFM would incur losses because of the inability to conduct market transactions or because oftransactions at prices far more unfavorable than under normal conditions due to market disruption
or other situations. However, JFM’s current exposure to liquidity risk is low because loans are madebased on a pre-set schedule, and the daily cash and liquidity management is carried out. Moreover,JFM has entered into overdraft agreements with a wide range of financial institutions to prepare forunexpected fund shortfalls, and invests surplus funds only in short-term financial products. However,
if severe circumstances relating to liquidity unforeseen by JFM were to occur, JFM’s funding costs,
results of operations and financial condition may be adversely affected.

56Japan Finance Organization for Municipalities Annual Report 2012

Risk Management

4. Operational Risk
Operational risk is the risk of loss resulting from inadequate operation processes, inadequate activities
by management and staff, and inadequate computer systems, or from external events.
1) Administrative risk
Administrative risk is the risk of loss resulting from neglect by management and staff in not properly
conducting administrative work, accidents and/or violation of laws caused by them in the course of
the administrative work process.
JFM endeavors to mitigate its exposure to administrative risk by preparing operational manuals,
holding educational seminars and training sessions, and reducing operational workload throughsystematization.
Management Structure2) Systems risk
Systems risk is the risk of the confidentiality, integrity and availability of information being impaired asa result of computer system inadequacies or the fraudulent use of computer systems.
JFM has established and implemented the “Systems Risk Management Policy” and the “Systems
Risk Management Standard” to appropriately manage systems risk and ensure smooth business
operations.
3) Other risks
In addition to the aforementioned risks, JFM appropriately identifies and addresses other risks, suchas legal risk, personnel risk, physical asset risk and reputation risk.

5. Contingency Measures
JFM has prepared the “Contingency Plan” to minimize the scope of losses and the impact on operations
and restore normal operations promptly and efficiently in the event that computer systems break down
or cannot be used due to unexpected accidents, disasters or malfunctions.
Furthermore, to prepare for a contingency, JFM has a backup server outside JFM so that its
business can be continued despite an emergency.

Japan Finance Organization for Municipalities Annual Report 201257

Management Structure

Compliance
1. Basic Policy
JFM has prepared the “Compliance Rules” to ensure that operations are conducted in accordancewith laws and regulations and indicate what actions management and staff should take when a breachof laws or regulations is identified. The rules include the following basic policy on compliance.
• Management and staff must be aware of JFM’s social responsibility and public mission andrealize that a breach of laws or regulations would cause a great hindrance to JFM’s business
operations, such as a loss in credibility of JFM as a whole. Management and staff must also
observe laws and regulations and fulfill their duties with integrity and fairness.
• Management and staff must strive to earn the trust of society by appropriately disclosing
information on JFM’s operations.

2. Compliance System
Based on the Compliance Rules, JFM has established the Compliance Committee.
JFM’s deputy president serves as the chairman of the committee, with senior executive directors
and department heads serving as committee members. The committee deliberates on importantcompliance issues, such as the formulation, revision and abolition of compliance-related rules andregulations and the preparation of guidelines and action plans for compliance.
JFM established the Compliance Division to oversee compliance arrangements. This unit deploys
compliance-based initiatives (providing system guidance and training or producing manuals) in keepingwith the committee’s guidelines.

Compliance System

President and CEO
Appointment

Compliance Committee

Instruction

ReportCompliance Division (Administration Department)

Instruction and training

ReportEmployees

58

Japan Finance Organization for Municipalities Annual Report 2012

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

2. Materials for Disclosure
1. Materials for disclosure pursuant to laws and regulations
Management Structure

Explanatory documents based on Article 36, Paragraph 3, of the Japan Finance Organization
for Municipalities Law(Documents corresponding to securities reports of private company, the Internal Control
Report)Business reports
Financial statements

2. Other documents for disclosure
Budgets, business plans, funding plans and medium-term plans on income and expenditures
Management plan
Bond issuance plan
Brochure
Annual Report (Japanese and English)
JFM News magazine

Website (http://www.jfm.go.jp/en/)Japan Finance Organization for Municipalities Annual Report 201259

Management Structure

JFM’s Role in Local Government Finance
1. Japanese Local Government System
Local governments are responsible for extensive areas of administration for the public welfare of
citizens.
While the national government focuses on administration for the state as a member of theinternational community, local governments engage in administration that relates to daily lives. Local
governments handle large parts of social welfare, school education, fire-fighting roles, and infrastructural
work such as road and waterways.
Local governments comprise prefectures, cities, special wards, towns and villages. Cities, towns
and villages handle administrative issues related to their respective regions. Prefectures are broaderbased local governments.

2. Local Government Finance Program
Each local government is unique in terms of its natural and historic situations, industrial structures,
population sizes, and other attributes. As a result, these governments handle diverse administration.
The term “local government finance” collectively refers to funding for individual local governments
engaging in such administration. Just as with national finance, local government finance plays a majorrole in the nation’s economy and the lives of citizens. In fiscal 2012, local government finance will total¥81.9 trillion (based on the Local Government Finance Program (LGFP), while the nation’s General
Account Budget for the year is ¥90.3 trillion).
Because local governments engage in numerous activities that relate closely to residents, theyneed to provide stable public services regardless of regional differences stemming from varying
populations, industry densities, and/or tax revenue fluctuations over fiscal years. Accordingly, thenational government annually creates LGFPs based on assessments of the scales of local government
finance and forecasts of overall revenues and expenditures. In response to annual national budget
plans, the national government balances revenues and expenditures for local governments in LGFPs.
Under this program, all local governments ensure uniform public service standards through Local
Allocation Tax and local government borrowings.

60

Japan Finance Organization for Municipalities Annual Report 2012

JFM’s Role in Local Government Finance

3. Local Allocation Tax
Local governments would ideally cover the expenditures they need to provide public services with
their local taxes. However, tax revenues are distributed unevenly, necessitating a system to adjust
disparities and guarantee funds for local governments that have low tax revenues. That setup is Local
Allocation Tax system, which comprised certain percentages of national taxes, including personaland corporate income taxes and consumption taxes. Local Allocation Tax is an important source offunds for local governments as local taxes that the national government collects on behalf of local
governments so the latter can equally fulfill their tasks.

Management Structure

4. Local Government Borrowings
A local government borrowing is a debt lasting more than one financial year that a local government
incurs in securing necessary external funds. In principle, a local government should cover expenditureswith revenues other than local government borrowings. Local governments can use these instruments,
however, when it is desirable to share costs with future residents, such as for constructing facilities
or to cover massive, near-term expenditures following disasters.

5. Safety of Local Government Borrowings
The following framework guarantees redemption of principal and interest from local government
borrowings. The BIS risk weighting is 0%.
1) The national government’s guaranteed funds for local government borrowing principal
and interest redemption
The national government records totals for both local government borrowings and their redemption ofprincipal and interest (debt servicing costs) for revenues and expenditures under the abovementioned
LGFPs. The national government guarantees the funds on a macro basis by balancing total expendituresand revenue of LGFPs, including local government debt servicing costs.
The national government secures revenues for principal and interest redemptions on local
government borrowings by including a portion of the principal and interest in average funding demand(standard financial requirements) for each local government when calculating Local Allocation Tax.
This system ensures that the national government can guarantee required debt servicing costsof local governments for both macro and micro financing.

Japan Finance Organization for Municipalities Annual Report 201261

Management Structure

JFM’s Role in Local Government Finance2) Issuance Approval System as Early Corrective Measure
Local governments can undertake borrowings after consultations with national or prefectural
governments. This consultation system stipulates an early corrective measure to maintaincreditworthiness, with local governments that have certain debt servicing costs or of balance sheet
deficits requiring approval before raising funds. This system maintains controls to ensure trouble-free
redemptions of principal and interest on local government borrowings.
In fiscal 2012, the national government introduced a prior notification system for funds raised by
local governments with good financial standings. That system applies only to private funds. JFM is a
public fund. So it continues to provide loans only based on the consent (approval) of the national orprefectural governments.
3) System for Soundness and Revitalization of Local Finance
The Law Relating to the Financial Soundness of Local Governments/Assurance of Sound Financial
Status of Municipalities, which was promulgated in June 2007 (No. 94) requires each local government
to calculate and disclose four broad debt ratios. These are the real debt payment ratio, the real
deficit ratio, the consolidated real deficit ratio, and the future burden ratio. The law also requires local
governments with fiscal indicators exceeding early warning limits of ratios to restore the financial
soundness through their own efforts. Local government with fiscal indicators exceeding reconstruction
limits should undertake more definite fiscal restoration efforts by drawing on the involvement of
the national government, including for redeeming local government borrowings. This system thus
guarantees the redemption of principal and interest on borrowings even if the financial position of a
local government deteriorates.

62

Japan Finance Organization for Municipalities Annual Report 2012

JFM’s Role in Local Government Finance

6. Local Government Borrowing Program
The Local Government Borrowing Program (LGBP) is an annual plan that the national government
prepares for local government borrowings. The LGBP is closely linked to the LGFP and the Fiscal
Investment and Loan Program prepared by the national government with its budget-making. The
LGBP plays the following crucial roles in terms of local finance.
1) Consent (Approval) Based on LGBPThe LGBP indicates the total scheduled amount of local government borrowings including amountby business type. Typically, consent (approval) for local government borrowings is given based on
the LGBP.
Management Structure2) Funding Sources of Local Government Borrowings
The national government balances scheduled local government borrowing and fund amounts, andindicates funds by source and by business under the LGBP.

7. JFM Funds in Local Government Borrowing Program
One can broadly classify local government funding by underwriter into Public funds and Private funds.
JFM funds are one of Public funds.

LGBP

Public funds

Fiscal Loan FundJFM funds

Private funds

Public offering
Banks and other underwriters

LGBP Fund Classifications
There is a legal requirement for JFM to gradually and appropriately reduce lending volume as the
Fiscal Loan Fund shrinks. However, the scale and proportion of JFM funds (on an initial basis) in thefiscal 2012 LGBP was the biggest since JFM’s establishment against the backdrop of the need forrestoration following the Great East Japan Earthquake and national initiatives to prevent and mitigate
disasters.
JFM thus plays a major role in Japan’s local government finance. JFM contributes greatly to theproject implementation and financial management of local governments.

Japan Finance Organization for Municipalities Annual Report 201263

Management Structure

JFM’s Role in Local Government FinanceInitial LGBP Volume by Fund Category(Billions of yen)

20,00015,897.6
14,184.4

15,00012,477.6

13,734.0

4,747.4
10,0003,400.0
1,123.0210.0
3,240.003,910.0

3,529.1

4,504.6
3,670.0

5,000

14,030.1

5,099.6

FY2008

1,833.0

4,300.0
2,159.0

3,934.0

4,339.009

4,200.0
1,893.0

4,440.0

Other private funds
Public offering
JFM funds
Predecessor funds
Government funds

2,174.0

3,731.0

3,887.0

10

11

12

32.1%

28.5%

25.2%

25.9%

27.0%

30.6%

31.6%

12.9%

13.6%

13.8%

15.5%

27.7%

27.3%

27.2%

27.7%

09

10

11

12

Initial LGBP by Fund Composition
100%

80%

36.1%

33.5%

60%

27.2%
40%

20%

9.0%
1.7%
26.0%

Other private funds
Public offering
JFM funds
Predecessor funds
Government funds

0%

FY2008* For fiscal 2012, government and JFM funds are the total of ordinary net expenses and operations related to
the Great East Japan Earthquake.

64

Japan Finance Organization for Municipalities Annual Report 2012

Financial Section
Financial Section

Financial Statements

Report of Independent Auditors・ 105

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Statements of Appropriation of Profit[General account/Management account] 68
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Japan Finance Organization for Municipalities Annual Report 201265

Financial Section

Financial Statements
Balance Sheets(As of March 31, 2011 and 2012)

Item

Fiscal 2010
(March 31,
2011)(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2011
(March 31, 2012)

Item

Fiscal 2010
(March 31,
2011)

AmountFiscal 2011
(March 31, 2012)
AmountAssetsLiabilities

Loans (Note 4)¥22,231,856¥22,387,411 $271,329,669

Bonds (Notes 7 and 8)

Securities (Note 18)457,590762,987

9,247,212

Borrowed money (Note 9)

Cash andbank deposits

516,633

172,250

2,087,627

Other liabilities

Other assets

17,033

14,894

180,523

Tangible fixed
assets (Note 6)

2,918

2,563

Intangible fixed
assets (Note 6)

756

600

¥18,327,190¥18,176,696 $220,296,886-

30,000363,592

17,69815,373

186,318

Reserve for bonuses (Note 10)

41

47

580

31,067

Reserve for directors’
bonuses (Note 10)

6

6

84

7,278

Reserve for retirement
benefits (Notes 10 and 13)

195

146

1,780

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

27

23

291

Fund for improvement ofoperations of municipalities

915,823

919,871

11,148,604

Basic fund for improvementof operations ofmunicipalities (Note 12)908,104

911,935

11,052,420

Additional fund for
improvement of operationsof municipalities (Note 12)

7,719

7,936

96,184

Reserve under special laws

3,896,421

4,104,844

49,749,662

Reserve for interest rate
volatility (Note 11)

660,000

880,000

10,665,374

Management account reserve forinterest rate volatility (Note 11)3,136,532

3,137,557

38,026,385

Reserve for interest rate reduction

99,88987,287

1,057,903

23,157,405

23,247,010

281,747,797

Capital16,602

16,602201,213Retained earnings

13,86029,393356,238

General account surplus
reserve

13,86029,393356,238

Valuation, translation
adjustments and others(8,645)(5,964)(72,291)

Management accountsurplus reserve

47,56553,666650,419

Total net assets

69,382

93,696

1,135,579

Total liabilities
Net Assets

Total assets¥23,226,787 ¥23,340,707 $282,883,376 Total liabilities and net assets ¥23,226,787 ¥23,340,707 $282,883,376

See notes to financial statements.

66

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

Statements of Income(For the years ended March 31, 2011 and 2012)

Item

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

Fiscal 2010
(April 1, 2010 toMarch 31, 2011)

Fiscal 2011
(April 1, 2011 to March 31, 2012)

AmountAmount¥511,805$6,202,949

539,812511,641

6,200,967

Fees and commissions

134

128

1,561

Other income

50

34

421

292,428

281,749

3,414,734

283,177

274,320

3,324,690

Fees and commissions

269

275

3,334

Other operating expenses

4,418

4,539

55,016

General and administrative expenses

2,374

2,385

28,911Other expenses

2,187

229

2,783

2,187

216

2,629

-

12

154

Ordinary income

247,569

230,055

2,788,215

Special gains

233,994

232,601

2,819,072

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

220,000

220,000

2,666,343

Reversal of reserve for interest rate reduction

13,994

12,601

152,729

465,489

441,024

5,345,101

Provision for reserve for interest rate volatility (Note11)

220,000

220,000

2,666,343

Provision for management account reserve forinterest rate volatility (Note 11)245,489

221,024

2,678,758¥16,074¥21,632$262,186

Interest income

Expenses
Interest expenses

Transfer to fund for improvement of operations ofmunicipalities (Note 12)
OthersSpecial losses

Net income

Financial Section¥539,997

See notes to financial statements.

Japan Finance Organization for Municipalities Annual Report 201267

Financial Section

Financial Statements

Statements of Appropriation of Profit [General account](For the year ended March 31, 2011)(Millions of yen)

1 Profit available for appropriation¥8,025

Net income
Accumulated deficit brought forward¥8,025-

2 Profit appropriatedSurplus reserve

8,025

8,025

Statements of Appropriation of Profit [General account](For the year ended March 31, 2012)(Millions of yen)

1 Profit available for appropriation¥15,532

Net income
Accumulated deficit brought forward¥15,532-

2 Profit appropriatedSurplus reserve

15,532

15,532(Thousands of U.S. dollars)

1 Profit available for appropriation$188,249

Net income
Accumulated deficit brought forward$188,249-

2 Profit appropriatedSurplus reserve

188,249

188,249

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

68

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

Statements of Appropriation of Profit [Management account](For the year ended March 31, 2011)(Millions of yen)

1 Profit available for appropriation¥8,048Net income
Accumulated deficit brought forward¥8,048-2 Profit appropriatedSurplus reserve

8,048

8,048

Statements of Appropriation of Profit [Management account](For the year ended March 31, 2012)(Millions of yen)

1 Profit available for appropriation¥6,100Net income
Accumulated deficit brought forward¥6,100-2 Profit appropriated6,100

Financial Section

Surplus reserve

6,100(Thousands of U.S. dollars)

1 Profit available for appropriation$73,937

Net income
Accumulated deficit brought forward$73,937-

2 Profit appropriatedSurplus reserve

73,93773,937

Notes: 1. Profit was appropriated at the end of this fiscal year in accordance with the provisions of Article 13, Section 8 of the
supplementary provisions of the Law.
2. Surplus reserve appropriated was posted as management account surplus reserve on the balance sheets.
See notes to financial statements.

Japan Finance Organization for Municipalities Annual Report 201269

Financial Section

Financial Statements

Statements of Changes in Net Assets(For the year ended March 31, 2011)

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

CapitalBalance at April 1, 2010

(Millions of yen)

Total
net
assets¥16,602¥5,834¥5,834¥22,436¥(1,340)¥39,517¥60,613

Net income

-

8,025

8,025

8,025

-

8,048

16,074

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

(7,305)-(7,305)

-

8,025

8,025

8,025

(7,305)

8,048

8,768

¥16,602¥13,860¥13,860¥30,462¥(8,645)¥47,565¥69,382

Changes duringaccounting period

Net changes duringaccounting period
Balance at March 31,
2011

70

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements(For the year ended March 31, 2012)

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

CapitalBalance at April 1, 2011

(Millions of yen)

Total
net
assets¥16,602¥13,860¥13,860¥30,462¥(8,645)¥47,565¥69,382

Net income-

15,532

15,532

15,532-

6,100

21,632

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

2,681

-

2,681

-

15,532

15,532

15,532

2,681

6,100

24,314¥16,602¥29,393¥29,393¥45,995¥(5,964)¥53,666¥93,696

Changes duringaccounting period

Net changes duringaccounting period(For the year ended March 31, 2012)(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$201,213$167,989$167,989$369,202$(104,785)$576,482$840,899

Net income-

188,249

188,249

188,249-

73,937262,186

Net changes duringaccounting period
in items other thanstockholders’ equity

-

-

-

-

32,494-32,494-

188,249

188,249

188,249

32,49473,937

294,680$201,213$356,238$356,238$557,451$(72,291)$650,419$1,135,579

CapitalBalance at April 1, 2011

Financial Section

Balance at March 31,
2012

Changes duringaccounting period

Net changes duringaccounting period
Balance at March 31,
2012
See notes to financial statements.

Japan Finance Organization for Municipalities Annual Report 201271

Financial Section

Financial Statements

Statements of Cash Flows(For the years ended March 31, 2011 and 2012)

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

Fiscal 2010
(April 1, 2010 toMarch 31, 2011)

Fiscal 2011
(April 1, 2011 to March 31, 2012)

AmountAmountⅠ Cash flows from operating activities

Net income
Depreciation and amortization
Interest income
Interest expenses
Increase/(decrease) in reserve for bonuses
Decrease in reserve for directors’ bonuses
Decrease in reserve for retirement benefits
Decrease in reserve for retirement benefits for
directors and corporate auditors
Increase in fund for improvement ofoperations of municipalities
Increase in reserve for interest rate volatility
Increase 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¥16,074353(539,812)
283,177
(1)
(0)
(14)

¥21,632
345(511,641)
274,3206(0)(48)$262,186
4,189(6,200,967)
3,324,690
75
(0)
(589)

(28)

(3)

(39)

2,187

216

2,629

220,000

220,000

2,666,343

25,4891,024

12,414(13,994)(201,628)(211,245)
539,475(279,095)(7,434)(12,601)(155,554)(154,272)
30,000513,086(271,287)
1,507(152,729)(1,885,282)(1,869,738)
363,592
6,218,480(3,287,933)
18,271(166,498)(43,268)(524,408)

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

6,711,500(6,184,118)
(15)
(195)
-

4,065,600(4,370,780)
(108)
(75)
421

49,274,027(52,972,742)(1,320)
(920)
5,106

Net cash provided by/(used in) investing activities

527,170(304,944)(3,695,849)

6,696

3,830

46,425

6,696

3,830

46,425---367,368(344,382)(4,173,832)

Ⅵ Cash and cash equivalents at beginning of year

149,264

516,633

6,261,459

Ⅶ Cash and cash equivalents at end of year

¥516,633¥172,250$2,087,627

Net cash used in operating activities
Ⅱ Cash flows from investing activities

Ⅲ Cash flows from financing activities

Revenue from contributions made frommunicipally operated racing
Net cash provided by 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.

72

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements■Notes to Financial Statements
1. Basis of Presentation
Japan Finance Organization for Municipalities (hereinafter, “JFM”) has prepared financial statements in accordance with
the Japan Finance Organization for Municipalities Law (Law No. 64, 2007; hereinafter the “Law”), the ordinances basedon the Law and other regulations applicable to JFM and accounting principles generally accepted in Japan.
   Since JFM does not have any subsidiaries or affiliates, it does not prepare consolidated financial statements.
   Amounts less than one million yen have been omitted. As a result, the totals in Japanese yen shown in 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 March 31, 2012, the final business day of the fiscal year, whichwas ¥82.51 to U.S. $1.

2. Summary of Significant Accounting Policies

Japan Finance Organization for Municipalities Annual Report 2012

Financial Section(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 to income,
except for those which meet the criteria for hedge accounting.
(3) Depreciation(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: 20 to 41 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 foreign exchange
forward contracts are used to hedge the foreign currency fluctuation, are translated at the contracted rate as theseswap 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 loan losses has been maintained.
(b) Reserve for bonuses
Reserve for bonuses is provided for payment of bonuses to employees, in the amount of estimated bonuses,
which are attributable to the fiscal year.
(c) Reserve for directors’ bonuses
Reserve for directors’ bonuses is provided for payment of bonuses to directors, in the amount of estimatedbonuses, which are attributable to the fiscal year.
(d) Reserve for retirement benefits
Reserve for retirement benefits is provided for payment of retirement benefits to employees, in the amount deemed
accrued at the fiscal year-end, based on the projected retirement benefit obligation and fair value of plan assets
at the fiscal year-end.
(e) Reserve for retirement benefits for directors and corporate auditors
Reserve for retirement benefits for directors and corporate auditors is provided for payment of retirement benefits
to directors and corporate auditors, in the amount deemed accrued at the fiscal year-end based on the internal
policies.
(7) Hedge accounting(a) Hedge accounting method
Interest rate swaps used to hedge the risk of interest rate fluctuations that qualify for hedge accounting and meet
specific matching criteria are not measured at fair value, but the differential paid or received under the swap
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 currencydenominated assets and liabilities are translated at the contracted rate.
(b) Hedging instruments and hedged items(ⅰ) Hedging instruments・・・Interest rate swaps

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Financial Section

Financial Statements

Hedged items・・・・・・・・・Bonds and borrowed money(ⅱ) Hedging instruments・・・Currency swaps
Hedged items・・・・・・・・・Foreign currency-denominated bonds(ⅲ) Hedging instruments・・・Foreign exchange forward contracts
Hedged items・・・・・・・・・Receipt of interest and principal of foreign currency-denominated bank deposits(c) Hedging policy
JFM uses hedging instruments as a means of hedging exposure to 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 to hedge the risks.
(d) Assessment of hedge effectivenessJFM ensures hedging instruments and hedged items have the same major terms when entering into hedgetransactions to offset bond and borrowed money market fluctuation risks. Accordingly, JFM deems these to behighly effective and thus does not assess effectiveness. Moreover, a periodic assessment of hedge effectivenessfor interest rate swaps, 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 statement of cash flows consist of “Cash and bank deposits” on the balance
sheets.
(9) Fund for improvement of operations of municipalities
In accordance with the provisions of Article 46, Section 1 of the Law, JFM has established the fund for improvementof operations of municipalities to reserve contributions as stipulated in Article 32-2 of the Local Finance Law (Law No.
109, 1948). Also, pursuant to the provisions of Article 46, Section 5 of the Law, income arising from the investment of
the fund (hereinafter, “investment income”) is used to reduce interest rates of the loans to municipalities, and if there
is any surplus in the investment income after this interest rate reduction process, the surplus amount is added to thefund. 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 the total of the additional
portion to the fund made up to the previous fiscal year and the contributions made in the most 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,“former JFM”) pursuant to the provisions of Article 38, Sections 1 and 3 of the Law, and Article 9, Section 8 of the
supplementary provisions of the Law, and is calculated and accounted for based on the provisions of Article 34 of the
Ministerial Ordinance on Finance and Accounting of Japan Finance Organization for Municipalities (Ordinance No. 87
of the Ministry of Internal Affairs and Communications, 2008; hereinafter, “Ordinance on Finance and Accounting”) and
Article 22 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 former JFM 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 Communication, and the Ministry of Finance, 2008; hereinafter, “Management Account Operations Ordinance”)
and Articles 3 and 5 of the supplementary provisions of the above ordinance.
(11) Reserve for interest rate reduction
Reserve for interest rate reduction is set aside to reduce interest rates on the loans made by the former JFM to local
governments pursuant to the provisions of Article 9, Section 13, and Article 13, Section 8 of the supplementaryprovisions of the Law, and Article 26, Sections 1, 3 and 4 of the Preparation Ordinance, and is calculated andaccounted for based on the provisions of Article 5 of the Management Account Operations Ordinance.
(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 supplementaryprovisions 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. Additional Information
Effective April 1, 2011, JFM has adopted “Accounting Standard for Accounting Changes and Error Corrections”(Accounting Standards Board of Japan (ASBJ) Statement No.24, December 4, 2009) and “Guidance on AccountingStandard for Accounting Changes and Error Corrections” (ASBJ Guidance No.24, December 4, 2009).

74

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Financial Statements

4. 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 Articles 96, Section 1, Clause 3 (a) through (e) and
Clause 4 of the Enforcement Ordinance of the Corporate Income Tax Law (Government Ordinance No. 97, 1965), and on
which accrued interest is not accounted in revenue as there is no expectation of collection of either principal or interest
because they are past due for a considerable period of time or for other reasons (excluding loans on which bad debts
are written off; hereinafter, “Non-accrual loans”).
   Non-accrual loans represent loans on which accrued interest is not accounted in revenue, excluding loans 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 exemption ofinterest, grace periods for interest or principal payments, and debt waivers, to assist borrowers in corporate rehabilitationor to support business, excluding bankrupt loans, non-accrual loans and past due loans (three months or more).
   All principal and interest (2,543 million yen in total) of which due dates had been extended during the previous
fiscal year ended March 31, 2011 due to the Great East Japan Earthquake, were fully repaid on or before September
20, 2011.

5. Financial Instruments

Japan Finance Organization for Municipalities Annual Report 2012

Financial Section(1) Status of financial instruments(a) Policy for financial instruments
In order to maintain a sound and good financial standing and earn the solid confidence of capital markets, JFM
needs to appropriately manage various risks including interest rate risks.
   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 establishmentof 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 then be
appropriately reflected in management decisions.
(b) Details and risks of financial instruments
JFM raises funds by primarily issuing 10-year bonds, and makes loans with a maximum maturity of 30 years andwith repayment of interest and principal in equal installments. Therefore, a large maturity gap is created between
lending and funding, and JFM is exposed to the interest rate risk associated with bond refinancing.
   JFM has set aside reserves for interest rate fluctuations (reserve for interest rate volatility), and has set up the
ALM Committee separately from the Integrated Risk Management Committee to comprehensively analyze andmanage JFM’s assets and liabilities in a timely and appropriate manner. The ALM Committee is held four times ayear in principle. At the meeting, the medium- and long-term management analysis and risk analysis and evaluation
are conducted through scenario analysis, VaR analysis, and duration analysis, among other methods. In addition,
by reflecting the conclusions of the ALM Committee in JFM’s management such as funding plans, JFM endeavors
to lower interest rate risk by narrowing the maturity gap between lending and funding.
(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, that causes an asset to lose value or become worthless. In addition to credit risk associated withloans, market transactions also involve credit risk.
A. Credit risk on loans
JFM extends loans exclusively to local governments. Local governments have a zero Bank of International
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 former JFM have never experienced any loan losses.
• The national government of Japan includes local government debt servicing costs in the expenditureof the Local Government Finance Program, and secures the total amount of local allocation tax whichbalances local governments’ total expenditures including debt servicing costs and total revenue. Thus,
the national government effectively secures revenue sources for principal and interest payments for local
governments. The national government also secures revenue sources for debt servicing for individual local
governments by including a portion of local government debt servicing costs 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 circumstances of local government debt servicing, and tax revenue and necessary revenue sources
to be secured. Additionally, under the Early Warning System, the local governments whose debt servicing

75

Financial Section

Financial Statements

costs and financial deficits exceed a certain level must apply for approval to issue bonds or obtain loans,so that the credit standing of local government bonds and loans is maintained.
• Under the Law Relating to the Financial Soundness of Local Governments, which was promulgated inJune 2007 (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 oversightof the national government with regard to redemption of local government bonds and loans, and otheroperations.
• 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 made by the former JFM to local government road corporationsin 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 conditionof 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 case of a deterioration of their credit
standings. Moreover, JFM limits counterparties to financial institutions that achieve a certain credit rating andother 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 loss resulting from fluctuations in interest rates. More specifically, it is the riskof losses incurred or decrease in profits, which would arise from fluctuations in interest rates when there isan interest rate or maturity gap between assets and liabilities.
   JFM makes loans to local governments. The maximum term to maturity is 30 years, but the majorityof 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 raterisk resulting from a duration gap between lending and fund-raising.
• JFM maintains necessary reserves to cope with the interest rate risk resulting from a duration gap between
lending and fund-raising.
• As assets and liabilities in JFM’s general account will expand as a result of loans and fund-raising for local
governments, JFM carries out an ALM analysis of this account in a timely and appropriate manner to further
enhance the effectiveness of its management of interest rate risk. JFM also endeavors to reduce exposure
to interest rate risk by setting the following medium-term (between fiscal 2009 and fiscal 2013) managementtarget, such as continuously issuing super-long bonds with maturities exceeding 10 years.
   a. Maintain the “outlier ratio” below approximately 20%   Notes: 1. “Outlier ratio” is the ratio of “decline in economic value” as a result of interest rate shocks
to net assets including reserves for interest rate volatility and the fund for improvement ofoperations of municipalities.
  
2. “Decline in economic value” is the decline of present value after interest rate shocks (anupward or downward 200 bp parallel shift of the yield curve).
   b. Maintain a duration gap of less than approximately 2 years.
  The management account, which manages assets related to money loaned by the former JFM, iscurrently exposed to greater interest rate risk than the general account, but JFM contributes to therequired reserves for interest rate volatility as described above.
   In accordance with Article 14 of the Supplementary Provisions to the Law, it was decided that a part of
JFM’s reserves for interest rate volatility within the management account would be attributed to the Japanesenational government. The transfer is projected to occur over a period of three years from FY2012 throughFY2014, with the aim of transferring 1 trillion yen over this period.
   JFM is also exposed to pipeline risk, whereby losses would be incurred or profits decreased as a resultof interest rate fluctuations during the time from when JFM raises money until the point at which the money
is loaned to local governments. JFM 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. Theserisks include foreign exchange risk related to foreign currency-denominated bonds, interest rate risk related
to floating rate bonds, and risk of fluctuations in the amounts of principal and interest of inflation-indexed76

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

Financial Section

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 fromfluctuations in foreign exchange rates. Accordingly, in principle, JFM minimizes the risk of price fluctuation
by holding investments until maturity, and hedges foreign exchange risk by using foreign exchange
contracts.
C. Quantitative information on market risk
Loans, bonds and borrowed money are primarily affected by interest rate risk, which is a major risk variable
among the market risks.
   With respect to general account loans, bonds and borrowed money, JFM establishes a managementtarget and uses the outlier ratio for quantitative analysis in the management of interest rate risk.
   Specifically, JFM is attempting to maintain the outlier ratio below approximately 20% from Fiscal 2009
to Fiscal 2013 by means of issuing bonds of various terms, including super long-term bonds, which havea redemption period of over 10 years, considering the composition of the remaining periods of the bonds
held.
   The outlier ratio is calculated based on the following conditions.
• Future Cash Flows
With respect to loans, future cash flows regarding such loans are calculated based on the type of interest
rate of the loans. In addition, the advanced redemption in the future is not expected by JFM.
   With respect to fixed-rate bonds, future cash flows regarding such fixed-rate bonds are calculated
based on the redemption schedule. With respect to floating rate bonds hedged by interest rate swaps,that qualify for hedge accounting and meet specific matching criteria, future cash flows corresponding
to such floating rate bonds are calculated in a manner similar to fixed-rate bonds.
• Indicative Interest Rate
For the assessment of loans, bonds and borrowed money, the corresponding interest rate of Japanese
government bonds as of March 31, 2012 is used.
• Calculation of Outlier Ratio
Based on an assumption that risk variables, except for interest rate risk, are fixed as of March 31, 2012,
the outlier ratio is calculated by dividing the change in fair value in the case where the indicative interest
rate (government bonds) rises across-the-board by 200 basis points (2.00%) or the change in fair value
in the case such rate falls across-the-board by 200 basis points (2.00%), whichever is greater, by net
assets including the reserve for interest rate volatility and the fund for improvement of operations ofmunicipalities.
   Information the outlier ratio as of March 31, 2012, is as follows:
One outlier ratio reflecting a rise of 200 basis points of the indicative interest rate is calculated as JFM
has determined that the change in fair value in the case of rising interest rates would be greater thanthat in the case of falling interest rates.
(Millions of yen) (Millions of U.S. dollars)
Outlier
ratio(a)=-(b)/(e)Generalaccount

17.5%[+2.9%]

Change in fair value in the case of 200 basis points rise in interest rates
Total(b)=(c)+(d)¥(321,992)[(88,064)]$(3,902)[(1,067)]

Loans
(c)
¥(998,914)[(306,305)]$(12,106)[(3,712)]

Bonds and borrowed
money
(d)

Net assets including reservefor interest rate volatility andthe fund for improvement ofoperations of municipalities (e)¥+676,921[+218,240]¥1,839,901[+242,261]$+8,204[+2,645]$22,299[+2,936]

Note: Amounts posted in square brackets indicate the change from March 31, 2011.

   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 or transition, etc. of interest rate risk, JFM does not establish amanagement target or use the quantitative analysis in the management of interest rate risk.
   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 March
31, 2012 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 61,644 million yen (747 million U.S. dollars). On the contrary, for an indicative interest rate as of March
31, 2012 that is 10 basis points lower 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 increaseby 62,558 million yen (758 million U.S. dollars).

Japan Finance Organization for Municipalities Annual Report 201277

Financial Section

Financial Statements(ⅲ) Liquidity risk
Liquidity risk is the risk that JFM would incur losses due to difficulties in securing the necessary funds or thenecessity of obtaining funds at far higher interest rates than under normal conditions as a result of a 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.
(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 avalue that has been rationally calculated. Since certain assumptions were made when calculating the fair value,
the value may differ in the event that the assumptions change.

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Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements(2) Items related to fair value of financial instruments
The book value, fair value and difference between them as of March 31, 2011 are as follows.
(Millions of yen)Book value(1) Loans

Fair value¥23,462,149¥1,230,293

457,590

457,582(7)

516,633

516,633-

23,206,079

24,436,365

1,230,285

Bonds

18,327,190

18,873,549

546,359

Total liabilities

18,327,190

18,873,549

546,359

Derivative transactions(*1)
Hedge accounting applied

(789)

(789)

-

Total of derivative transactions

(789)

(789)

-

(2) Securities
held-to-maturity securities(3) Cash and bank deposits
Total assets¥22,231,856

Difference

The book value, fair value and difference between them as of March 31, 2012 are as follows.
(Millions of yen)Book value

Difference¥22,387,411¥23,797,792¥1,410,381(2) Securities
held-to-maturity securities

762,987

762,979(8)(3) Cash and bank deposits

172,250

172,250-

Total assets

23,322,648

24,733,021

1,410,373(1) Bonds(2) Borrowed money

18,176,696
30,00018,890,039
30,072

713,343
72

Total liabilities

18,206,696

18,920,112

713,416

Derivative transactions(*1)
Hedge accounting applied

222

222

-

Total of derivative transactions

222

222

-

Financial Section(1) Loans

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

Fair value$288,423,127$17,093,458

9,247,212

9,247,113(99)

2,087,627

2,087,627-

282,664,508

299,757,867

17,093,359(1) Bonds(2) Borrowed money

220,296,886
363,592

228,942,426
364,475

8,645,540
883

Total liabilities

220,660,478

229,306,901

8,646,423

Derivative transactions(*1)
Hedge accounting applied

2,695

2,695

-

Total of derivative transactions

2,695

2,695

-

(2) Securities
held-to-maturity securities(3) Cash and bank deposits
Total assets$271,329,669

Difference(*1) Assets and liabilities resulting from derivative transactions are presented on a net basis with liabilities in parentheses.

Japan Finance Organization for Municipalities Annual Report 201279

Financial Section

Financial Statements

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 March 31, 2011 and 2012.
(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, thebook value is deemed to be the fair value.
As of March 31, 2011

(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

¥-

¥-

¥-

-

-

-

Treasury discount bills
Negotiable certificatesof deposit

86,990370,600

86,982
370,600(7)-

Sub total

457,590

457,582(7)¥457,590¥457,582¥(7)

Sub total

Total

As of March 31, 2012

(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

¥-

¥-

¥-

-

-

-

Treasury discount bills
Negotiable certificatesof deposit

96,987
666,000

96,979666,000(8)-

Sub total

762,987

762,979(8)¥762,987¥762,979¥(8)

Sub total

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

$-

$-

$-

-

-

-

Treasury discount bills
Negotiable certificatesof deposit

1,175,463
8,071,749

1,175,364
8,071,749(99)-

Sub total

9,247,212

9,247,113(99)$9,247,212$9,247,113$(99)

Sub total

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.

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Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

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 of bonds
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
by determining the current 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 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.

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 March 31, 2011 is as follows:(Millions of yen)Type ofderivativetransactions

Contract amountPrimary
hedged items

Of which
1 year or
more

Fair
value

Method for
calculating fairvalue
Based on prices
provided by thecounterparty
financial institution

Principal
accounting
methodInterest rate swap
transactions
Receive/fixed andpay/floating

Bonds¥100,000¥100,000¥(789)

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

95,00095,000(*1)

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Foreign currencydenominatedbonds

483,090

483,090(*2)

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Foreign currencydenominateddeposits

138,000-(*2)¥816,090¥678,090

Total

Financial Section

Hedge
accounting
method¥(789)

Japan Finance Organization for Municipalities Annual Report 201281

Financial Section

Financial Statements

For derivative transactions for which hedge accounting is applied, the contractual amount or the amount equivalent
to the principal in the contract under each hedge accounting method as of March 31, 2012 is as follows:(Millions of yen)Hedge
accounting
methodContract amountType ofderivativetransactions

Primary
hedged items

Fair
value

Method for
calculating fairvalue

Principal
accounting
methodInterest rate swap
transactions
Receive/fixed andpay/floating

Bonds
Borrowed money¥44,500¥222

Based on prices
provided by
the counterparty
financial institution¥44,500

Hedge accountfor interest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

95,00095,000(*1)

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Foreign currencydenominatedbonds

551,494

551,494(*2)

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Foreign currencydenominateddeposits

125,000-(*2)¥815,994¥690,994

Total

Of which
1 year or
more

¥222
(Thousands of U.S. dollars)Hedge
accounting
methodContract amountType ofderivativetransactions

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions
Receive/fixed andpay/floating

Bonds
Borrowed money$539,329

Hedge accountfor interest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Foreign currencydenominatedbonds

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Foreign currencydenominateddeposits

Total

Fair
value

Method for
calculating fairvalue

$539,329$2,695

Based on prices
provided by
the counterparty
financial institution

1,151,376

1,151,376(*1)

6,683,974

6,683,974

(*2)

-

(*2)

Of which
1 year or
more

1,514,968$9,889,647$8,374,679$2,695(*1) Since interest rate swaps for which hedge accounting is applied are accounted for together with the bond being
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 are accounted
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.

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Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

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

As of March 31, 2011
(Millions of yen)
Within1 yearAfter
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

After
20 years
through
30 years¥1,579,622¥1,551,565¥1,544,319¥1,510,292¥1,478,709¥6,288,292¥6,911,416¥1,367,638

Securities
held-tomaturity
securities

457,590

-

-

-

-

-

-

-

Deposits

516,632

-

-

-

-

-

-

-

Loans

As of March 31, 2012
(Millions of yen)After
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

After
20 years
through
30 years¥1,555,010¥1,552,019¥1,548,246¥1,540,203¥1,481,212¥6,369,714¥6,939,819¥1,401,184

Securities
held-tomaturity
securities

762,987

-

-

-

-

-

-

-

Deposits

172,249

-

-

-

-

-

-

-

Loans

Financial Section

Within1 year(Thousands of U.S. dollars)Within1 yearLoans

After
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 years$18,846,332 $18,810,080 $18,764,352 $18,666,866

After
5 years
through
10 years

After
10 years
through
20 years

After
20 years
through
30 years$17,951,911 $77,199,306 $84,108,829 $16,981,993

Securities
held-tomaturity
securities

9,247,212

-

-

-

-

-

-

-

Deposits

2,087,626

-

-

-

-

-

-

-

Japan Finance Organization for Municipalities Annual Report 201283

Financial Section

Financial Statements

Note 3. The repayment schedule is as follows:
As of March 31, 2011

Bonds

(Millions of yen)

Within1 yearAfter
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

After
20 years
through
30 years¥2,176,130¥2,030,560¥2,164,070¥1,931,670¥1,680,970¥6,865,040¥1,286,338¥211,452

As of March 31, 2012
(Millions of yen)

Bonds
Borrowedmoney

Within1 yearAfter
1 yearthrough
2 yearsAfter
2 years
through
3 yearsAfter
3 years
through
4 yearsAfter
4 years
through
5 yearsAfter
5 years
through
10 years

After
10 years
through
20 years

After
20 years
through
30 years¥2,030,560-¥2,164,070-¥1,931,670-¥1,680,970-¥1,560,228-¥7,058,245
30,000¥1,549,120-¥220,000-(Thousands of U.S. dollars)Within1 year
Bonds
Borrowed
money

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$24,609,865 $26,227,972 $23,411,344 $20,372,924 $18,909,574-

After
10 years
through
20 years

After
20 years
through
30 years$85,544,126 $18,774,936
363,592-$2,666,343-

6. Tangible and Intangible Fixed Assets
Tangible and intangible fixed assets at March 31, 2011 consisted of the following:

Balance atApril 1, 2010
(Acquisition
costs)

Increaseduringthe year

Decreaseduringthe year

Balance at
March 31,2011
(Acquisition
costs)

Buildings

¥555

¥12

¥-

¥568

Land

2,403

-

-

2,403

96

43

-

140

3,055

56

-

3,111

1,219

113

-

13

-

13

¥1,233¥113¥13

Type of assets(Millions of yen)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
during theat March 31,
year
2011

Balance at
March 31,
2011
(Net bookvalue)

Tangible fixed assets

Other tangible fixed assets
Total tangible fixed assets

¥107

¥42

¥460

-

-

2,403

85

45

54

193

87

2,918

1,332

576

264

756

0

-

-

0

¥1,332

¥576

¥264

¥756

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

84

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

Tangible and intangible fixed assets at March 31, 2012 consisted of the following:(Millions of yen)

Increaseduringthe year

Buildings

¥568

¥95

¥10

¥652

¥149

¥43

¥502

Land

2,403

-

408

1,994

-

-

1,994

140

36

74

102

37

25

65

3,111

131

493

2,750

186

68

2,563

1,332

118

74

1,376

776

274

600

0

-

-

0

-

-

0

¥1,332¥118¥74¥1,376

¥776

¥274

¥600

Type of assets

Balance at
March 31,2012
(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
during
at March 31,
the year2012

Balance atApril 1,2011
(Acquisition
costs)

Decreaseduringthe year

Balance at
March 31,
2012
(Net bookvalue)

Tangible fixed assets

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

Increaseduringthe year

Buildings$6,886

Land

29,126

Other tangible fixed assets

Type of assets

Accumulated
Depreciation
depreciation
andand
amortizationamortization
during
at March 31,
the year2012

Decreaseduringthe year

Balance at
March 31,2012
(Acquisition
costs)$1,154$131$7,909$1,813$527$6,096-

4,950

24,176--24,176

1,701

443

897

1,247

452

308

795

37,713

1,597

5,978

33,332

2,265

835

31,067

16,154

1,432

899

16,687

9,410

3,328

7,277

1

-

-

1

-

-

1

$16,155$1,432$899$16,688$9,410$3,328$7,278

Balance at
March 31,
2012
(Net bookvalue)

Financial Section

Balance atApril 1,2011
(Acquisition
costs)

Tangible fixed assets

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

Notes: 1. Accumulated depreciation of tangible fixed assets amounted to 186 million yen (2,265 thousand dollars)and 193 million yen as of March 31, 2012 and 2011, respectively.

7. Assets Pledged as Collateral(1) Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as general collateralfor JFM bonds in the amounts of 18,176,696 million yen (220,296,886 thousand dollars) and 18,327,190 million yen
as of March 31, 2012 and 2011, respectively.
(2) Securities in the amounts of 469 million yen (5,695 thousand dollars) are pledged as collateral for derivative transactions
as of March 31, 2012.

Japan Finance Organization for Municipalities Annual Report 201285

Financial Section

Financial Statements

8. Bonds
Bonds at March 31, 2011 consisted of the following:(Millions of yen)Type of bondDate of
issue

Balanceat April 1,
2010

Government-guaranteed bonds (domestic)
1st-22th JFM bonds

6/15/20093/14/2011¥680,402

Government-guaranteed bond(international)
1st Global U.S. dollar JFM bond

1/13/2011

Public offering bonds without government
guarantee 1st-4th 5-year JFM bonds

Couponrate (%)

Maturity¥1,330,908

0.9
to 1.5

10Y-

83,170[U.S. dollars 1,000,000 thousand]

4.0

10Y

5/25/20102/21/2011-

90,0000.423
to 0.639

5Y

Public offering bonds without government
guarantee 1st-22nd JFM bonds

6/18/20093/17/2011

245,000

605,000

0.976
to 1.648

10Y

Public offering bonds without government
guarantee 1st-13th 20-year JFM bonds

6/25/20091/24/2011

195,000

355,000

1.752
to 2.266

20Y

Public offering bonds without government
guarantee F-1st - F-52th, F-54th - F-56th
JFM bonds

7/22/20092/3/2011

186,000

461,000

0.185
to 2.332

3Y
to 29Y

Public offering bond without government
guarantee F-53th JFM bond(Floating Rate Note)

2/1/2011-

15,000Floating
rate

9Y

Private placement bonds without
government
guarantee A-1st – A-14th JFM bonds

7/31/20093/22/2011

280,000

680,000

0.99
to 1.53

10Y-

1,586,402

3,620,078--

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

2/27/2009

299,872

299,917

0.7

4Y

Government-guaranteed bonds (domestic)
1st-8th JFM bonds

10/16/20085/25/2009

560,087

560,3621.3
to 1.6

10Y

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

2/24/2009

29,99329,994

1.01

5Y

Public offering bonds without government
guarantee 1st-4th JFM bonds

11/25/20085/28/2009

139,957

139,962

1.59
to 1.77

10Y

Public offering bonds without government
guarantee 1st-2nd 20-year JFM bonds

1/26/20094/30/2009

84,94384,9462.07
to 2.29

20Y

Private placement bonds without
government
guarantee A-1st-2nd JFM bonds

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y

Japan Finance Organization for MunicipalEnterprises bonds - Sub-total-

1,234,854

1,235,183--

Government-guaranteed bonds (domestic)
788th-886th former JFM bonds

4/27/20006/19/2008

9,220,051

7,556,867(1,540,760)

0.5
to 2.0

10Y

Government-guaranteed bonds (domestic)
1st-5th 15-year former JFM bonds

6/22/20057/18/2007

184,637

184,659

1.6
to 2.2

15Y

1,043,458

923,913(200,000)[U.S. dollars 3,200,000 thousand][Euro 900,000 thousand][Pound sterling 150,000 thousand]

1.350
to 5.875

10Y
to 20YJapan Finance Organization for
Municipalities bonds - Sub-total

Government-guaranteed bonds(international)
4th Euro sterling pound former JFM bond- 5th Global Yen former JFM bond

86

Japan Finance Organization for Municipalities Annual Report 2012

8/9/19996/25/2008

Balance at
March 31, 2011

Financial Statements

2/29/2008

129,963

129,976

1.14

5Y

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

12/26/20016/16/2008

1,279,786

1,279,829(100,000)

0.64
to 2.07

10Y

Public offering bonds without government
guarantee 1st-25th 20-year
former JFM bonds

7/30/20026/16/2008

569,611569,636

1.03
to 2.58

20Y

Public offering bonds without government
guarantee 1st-10th 30-year
former JFM bonds

1/29/20049/20/2006

189,848

189,855

2.39
to 2.95

30Y

Public offering bond without government
guarantee 1st floating rate former JFM
bond

10/31/2002

20,00020,000Floating
rate

15Y

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

3/2/20057/19/2005

40,00040,0000.45
to 0.47

10Y

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

2/14/20036/9/2004

45,66043,490(2,170)1.39
to 2.01

28Y

20,00020,000Floating
rate

10Y

4/28/20007/31/2008

2,970,200

2,513,700(333,200)

0.67
to 2.18

10Y

Former JFM bonds - Sub-total-

15,713,218

13,471,927(2,176,130)

-

-

Total

-

¥18,534,475¥18,327,190(2,176,130)--

Public offering bond without government
guarantee 1st CMS-linked floating rate
former JFM bondPrivate placement bonds A series 55th
- Special No. 1 series 31st
former JFM bonds

9/13/2006

Financial Section

Public offering bond without government
guarantee 1st 5-year former JFM bondNotes:1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as generalcollateral for JFM bonds for 18,327,190 million yen at March 31, 2011.
2. Amounts in square brackets under “Balance at March 31, 2011” for “Government-guaranteed bond (international)
1st Global U.S. dollar JFM bond” and “Government-guaranteed bond (international) - 4th Euro sterling pound
former JFM bond - 5th Global Yen former JFM bond” are denominated in foreign currencies.
3. Amounts in parentheses under “Balance at March 31, 2011” are to be repaid within one year.

Japan Finance Organization for Municipalities Annual Report 201287

Financial Section

Financial Statements

Bonds at March 31, 2012 consisted of the following:(Millions of yen)Type of bondDate of
issue

Balanceat April 1,
2011

Government-guaranteed bonds (domestic)
1st-34th JFM bonds

6/15/20093/14/2012¥1,330,908

Government-guaranteed bonds (domestic)
1st-4th 6-year JFM bonds

9/27/20113/26/2012

Government-guaranteed bond(international)
1st Global U.S. dollar JFM bondCouponrate (%)

Maturity¥1,841,660

0.9
to 1.5

10Y-

199,964

0.4

6Y

1/13/2011

83,17083,170[U.S. dollars 1,000,000 thousand]

4.0

10Y

Public offering bonds without government
guarantee 1st-8th 5-year JFM bonds

5/25/20102/20/2012

90,000170,000

0.384
to 0.639

5Y

Public offering bonds without government
guarantee 1st-34th JFM bonds

6/18/20093/19/2012

605,000

1,005,000

0.976
to 1.648

10Y

Public offering bonds without government
guarantee 1st-20th 20-year JFM bonds

6/25/20091/26/2012

355,000

525,000

1.752
to 2.266

20Y

Public offering bonds without government
guarantee F-1st - F-52th, F-54th - F-109th
JFM bonds

7/22/20093/28/2012

461,000

754,500

0.185
to 2.334

3Y
to 30Y

Public offering bond without government
guarantee F-53th JFM bond(Floating Rate Note)

2/1/2011

15,00015,000Floatingrate

9YInternational without government guarantee
2nd, 3rd, 7th, 14th-16th, 19th, 28th
JFM bonds

1/12/20123/13/2012-

17,795[U.S. dollars 227,000 thousand]1.84
to 2.40

5Y
to 7Y

International without government guarantee
1st, 4th-6th, 8th-13th, 17th, 18th, 20th-27th
JFM bonds

1/17/20123/13/2012-

50,608[U.S. dollars 591,000 thousand][NZ dollars 40,000 thousand][AU dollars 20,000 thousand]Floating
rate

5Y

Private placement bonds without
government
guarantee A-1st - A-26th JFM bonds

7/31/20093/19/2012

680,000

980,000

0.99
to 1.53

10Y-

3,620,078

5,642,699--

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

2/27/2009

299,917299,962(300,000)

0.7

4Y

Government-guaranteed bonds (domestic)
1st-8th JFM bonds

10/16/20085/25/2009

560,362

560,636

1.3
to 1.6

10Y

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

2/24/2009

29,99429,996

1.01

5Y

Public offering bonds without government
guarantee 1st-4th JFM bonds

11/25/20085/28/2009

139,962

139,967

1.59
to 1.77

10Y

Public offering bonds without government
guarantee 1st-2nd 20-year JFM bonds

1/26/20094/30/2009

84,946

84,9492.07
to 2.29

20Y

Private placement bonds without
government
guarantee A-1st - A-2nd JFM bonds

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y-

1,235,183

1,235,513(300,000)--

Japan Finance Organization for
Municipalities bonds - Sub-total

Japan Finance Organization for MunicipalEnterprises bonds - Sub-total

88

Japan Finance Organization for Municipalities Annual Report 2012

Balance at
March 31, 2012

Financial Statements

Government-guaranteed bonds (domestic)
801th-886th former JFM bonds

4/26/20016/19/2008

7,556,867

6,018,749(1,108,390)

0.5
to 2.0

10Y

Government-guaranteed bonds (domestic)
1st-5th 15-year former JFM bonds

6/22/20057/18/2007

184,659

184,682

1.6
to 2.2

15Y

Government-guaranteed bonds(international)
4th Euro sterling pound former JFM bond- 5th Global Yen former JFM bond

8/9/19996/25/2008

923,913723,848[U.S. dollars 2,200,000 thousand][Euro 900,000 thousand][Pound sterling 150,000 thousand]

1.350
to 5.75

10Y
to 20Y

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

2/29/2008

129,976

129,989(130,000)

1.14

5Y

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

12/26/20016/16/2008

1,279,829

1,179,870(250,000)

0.64
to 2.07

10Y

Public offering bonds without government
guarantee 1st-25th 20-year
former JFM bonds

7/30/20026/16/2008

569,636569,661

1.03
to 2.58

20Y

Public offering bonds without government
guarantee 1st-10th 30-year
former JFM bonds

1/29/20049/20/2006

189,855

189,8612.39
to 2.95

30Y

20,00020,000Floating
rate

15Y

Public offering bond without government
guarantee 1st floating rate former JFM
bond

10/31/2002

3/2/20057/19/2005

40,00040,0000.45
to 0.47

10Y

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

2/14/20036/9/2004

43,49041,320(2,170)1.39
to 2.01

28Y

20,00020,000Floating
rate

10Y

7/31/20017/31/2008

2,513,700

2,180,500(240,000)

0.67
to 2.18

10Y

Former JFM bonds - Sub-total-

13,471,927

11,298,483(1,730,560)

-

-

Total

-

¥18,327,190¥18,176,696(2,030,560)--

Public offering bond without government
guarantee 1st CMS-linked floating rate
former JFM bondPrivate placement bonds A series 58th
- Special No. 1 series 31st
former JFM bonds

9/13/2006

Japan Finance Organization for Municipalities Annual Report 2012

Financial Section

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

89

Financial Section

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

Balance atApril 1, 2011

Balance at
March 31, 2012

Couponrate (%)

Maturity

Government-guaranteed bonds (domestic)
1st-34th JFM bonds

6/15/20093/14/2012$16,130,273$22,320,447

0.9 to 1.5

10Y

Government-guaranteed bonds (domestic)
1st-4th 6-year JFM bonds

9/27/20113/26/2012-

2,423,524

0.4

6YGovernment-guaranteed bond (international)
1st Global U.S. dollar JFM bond

1/13/2011

1,007,999

1,007,999

4.0

10Y

Public offering bonds without government
guarantee 1st-8th 5-year JFM bonds

5/25/20102/20/2012

1,090,777

2,060,356

0.384
to 0.639

5Y

Public offering bonds without government
guarantee 1st-34th JFM bonds

6/18/20093/19/2012

7,332,445

12,180,342

0.976
to 1.648

10Y

Public offering bonds without government
guarantee 1st-20th 20-year JFM bonds

6/25/20091/26/2012

4,302,509

6,362,865

1.752
to 2.266

20Y

Public offering bonds without government
guarantee F-1st - F-52th, F-54th - F-109th
JFM bonds

7/22/20093/28/2012

5,587,202

9,144,346

0.185
to 2.334

3Y to 30Y

Public offering bond without government
guarantee F-53th JFM bond(Floating Rate Note)

2/1/2011

181,796

181,796

Floatingrate

9YInternational without government guarantee
2nd, 3rd, 7th, 14th-16th, 19th, 28th
JFM bonds

1/12/20123/13/2012-

215,681

1.84
to 2.40

5Y to 7YInternational without government guarantee
1st, 4th-6th, 8th-13th, 17th, 18th, 20th-27th
JFM bonds

1/17/20123/13/2012-

613,367

Floating
rate

5Y

Private placement bonds without
government
guarantee A-1st - A-26th JFM bonds

7/31/20093/19/2012

8,241,425

11,877,348

0.99
to 1.53

10Y-

43,874,426

68,388,071--

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

2/27/2009

3,634,923

3,635,468(3,635,923)

0.7

4Y

Government-guaranteed bonds (domestic)
1st-8th JFM bonds

10/16/20085/25/2009

6,791,446

6,794,776

1.3
to 1.6

10Y

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

2/24/2009

363,531363,553

1.01

5Y

Public offering bonds without government
guarantee 1st-4th JFM bonds

11/25/20085/28/2009

1,696,308

1,696,367

1.59
to 1.77

10Y

Public offering bonds without government
guarantee 1st-2nd 20-year JFM bonds

1/26/20094/30/2009

1,029,533

1,029,569

2.07
to 2.29

20Y

Private placement bonds without
government
guarantee A-1st - A-2nd JFM bonds

4/30/20095/26/2009

1,454,369

1,454,369

1.69
to 1.73

10Y

Japan Finance Organization for MunicipalEnterprises bonds - Sub-total-

14,970,110

14,974,102(3,635,923)--

Government-guaranteed bonds (domestic)
801th-886th former JFM bonds

4/26/20016/19/2008

91,587,292

72,945,698(13,433,402)

0.5 to 2.0

10Y

Government-guaranteed bonds (domestic)
1st-5th 15-year former JFM bonds

6/22/20057/18/2007

2,238,029

2,238,299

1.6 to 2.2

15YJapan Finance Organization for
Municipalities bonds - Sub-total

90

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

8/9/19996/25/2008

11,197,591

8,772,863

1.350
to 5.75

10Y to 20Y

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

2/29/2008

1,575,278

1,575,435(1,575,566)

1.14

5Y

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

12/26/20016/16/2008

15,511,199

14,299,733(3,029,936)

0.64
to 2.07

10Y

Public offering bonds without government
guarantee 1st-25th 20-year
former JFM bonds

7/30/20026/16/2008

6,903,850

6,904,149

1.03
to 2.58

20Y

Public offering bonds without government
guarantee 1st-10th 30-year
former JFM bonds

1/29/20049/20/2006

2,300,994

2,301,068

2.39
to 2.95

30Y

Public offering bond without government
guarantee 1st floating rate former JFM bond

10/31/2002

242,395

242,395

Floating
rate

15Y

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

3/2/20057/19/2005

484,790484,7900.45
to 0.47

10Y

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

2/14/20036/9/2004

527,088

500,788(26,300)

1.39
to 2.01

28Y

Public offering bond without government
guarantee 1st CMS-linked floating rate
former JFM bond

9/13/2006

242,395

242,395

Floating
rate

10Y

Private placement bonds A series 58th
- Special No. 1 series 31st
former JFM bonds

7/31/20017/31/2008

30,465,398

26,427,100(2,908,738)

0.67
to 2.18

10Y

Former JFM bonds - Sub-total-

163,276,299

136,934,713(20,973,942)

-

-

Total

-

$222,120,834$220,296,886(24,609,865)--

Financial Section

Government-guaranteed bonds(international)
4th Euro sterling pound former JFM bond- 5th Global Yen former JFM bondNotes:1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as general collateralfor JFM bonds for 18,176,696 million yen (220,296,886 thousand dollars) at March 31, 2012.
2. Amounts in square brackets under “Balance at March 31, 2012” for “Government-guaranteed bond (international)
1st Global U.S. dollar JFM bond”, “International without government guarantee 2nd, 3rd, 7th, 14th-16th, 19th,
28th JFM bonds”, “International without government guarantee 1st, 4th-6th, 8th-13th, 17th, 18th, 20th-27th
JFM bonds” and “Government-guaranteed bond (international) - 4th Euro sterling pound former JFM bond - 5th
Global Yen former JFM bond” are denominated in foreign currencies.
3. Amounts in parentheses under “Balance at March 31, 2012” are to be repaid within one year.

Japan Finance Organization for Municipalities Annual Report 201291

Financial Section

Financial Statements

9. Borrowed Money
Borrowed money at March 31, 2012 consisted of the following:(Millions of yen)Classification of borrowed money

Balance atApril 1, 2011

Balance at
March 31, 2012

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

¥-

¥-

-

-

Long-term borrowed money(repayment within 1 year)

-

-

-

-

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

30,0000.69

Other interest-bearing liabilities

-

-

-

-

Total

¥-

¥30,000--

3/26/2019(Thousands of U.S. dollars)
Classification of borrowed money

92

Balance atApril 1, 2011

Balance at
March 31, 2012

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

$-

$-

-

-

Long-term borrowed money(repayment within 1 year)

-

-

-

-

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

363,592

0.69

Other interest-bearing liabilities

-

-

-

-

Total

$-

$363,592--

Japan Finance Organization for Municipalities Annual Report 2012

3/26/2019

Financial Statements

10. Reserves
Reserves at March 31, 2011 consisted of the following:(Millions of yen)
Decrease during the year

Balance atApril 1,
2010

Increaseduring the
year

¥43

¥41

¥43

¥-

¥41

Reserve for directors’ bonuses

7

6

7

-

6

Reserve for retirement benefits

210

5

10

9

195

Reserve for retirement benefits for directors
and corporate auditors

56

6

10

24

27

Classificationof reserve
Reserve for bonuses

Intended
purposeOther

Balance at
March 31,2011

Reserves at March 31, 2012 consisted of the following:(Millions of yen)
Decrease during the year

Increaseduring the
year

¥41

¥47

¥41

¥-

¥47

Reserve for directors’ bonuses

6

6

6

-

6

Reserve for retirement benefits

195

9

47

9

146

Reserve for retirement benefits for directors
and corporate auditors

27

4

5

1

23

Reserve for bonuses

Intended
purposeOther

Balance at
March 31,2012

Financial Section

Balance atApril 1,
2011

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

Balance atApril 1,
2011

Increaseduring the
year

$505

$580

$505

$-

$580

Reserve for directors’ bonuses

84

84

84

-

84

Reserve for retirement benefits

2,369

114

582

121

1,780

330

51

72

18

291

Classificationof reserve

Reserve for bonuses

Reserve for retirement benefits for directors
and corporate auditors

Intended
purposeOther

Balance at
March 31,2012

Japan Finance Organization for Municipalities Annual Report 201293

Financial Section

Financial Statements

11. Reserve for Interest Rate Volatility
Reserve for interest rate volatility at March 31, 2011 consisted of the following:(Millions of yen)
Increase during the year

Decrease during the year

AmountprovidedAmountWithdrawn

Classification of reserve

Balance atApril 1,
2010

Reserve for interest rate volatility¥440,000¥220,000¥220,000¥-

Management account reserve forinterest rate volatility

3,111,043

245,489

245,489

220,000

220,000

3,136,532¥3,551,043¥465,489¥465,489¥220,000¥220,000¥3,796,532

Total

Balance at
March 31,2011
¥660,000Reserve for interest rate volatility at March 31, 2012 consisted of the following:(Millions of yen)
Increase during the year

Decrease during the year

AmountprovidedAmountWithdrawn

Classification of reserve

Balance atApril 1,
2011

Balance at
March 31,2012

Reserve for interest rate volatility¥660,000¥220,000¥220,000¥-

Management account reserve forinterest rate volatility

3,136,532

221,024

221,024

220,000

220,000

3,137,557

Total¥3,796,532¥441,024¥441,024¥220,000¥220,000¥4,017,557¥880,000(Thousands of U.S. dollars)

94

Increase during the year

Decrease during the year

AmountprovidedAmountWithdrawn

Classification of reserve

Balance atApril 1,
2011

Reserve for interest rate volatility$7,999,031$2,666,343$2,666,343$-

Management account reserve forinterest rate volatility

38,013,970

2,678,758

2,678,758

2,666,343

2,666,343

38,026,385

Total$46,013,001$5,345,101$5,345,101$2,666,343$2,666,343$48,691,759

Japan Finance Organization for Municipalities Annual Report 2012

Balance at
March 31,2012
$10,665,374

Financial Statements

12. Fund for Improvement of Operations of Municipalities
Fund for improvement of operations of municipalities at March 31, 2011 consisted of the following:(Millions of yen)
Increase during the year
Classification of fund

Basic fund for improvement ofoperations of municipalities
Additional fund for improvementof operations of municipalities
Total

Balance atApril 1,2010

Decrease during the year
Balance at
March 31,2011

Amount ofreserveAmountMarch
31, 2011
Transferred

AmountWithdrawn¥901,407¥6,696¥-¥-¥-¥908,104

5,531

-

2,187

-

-

7,719

¥906,939¥6,696¥2,187¥-¥-¥915,823

OthersFund for improvement of operations of municipalities at March 31, 2012 consisted of the following:(Millions of yen)
Increase during the year
Classification of fund

Additional fund for improvementof operations of municipalities
Total

Balance at
March 31,2012

Amount ofreserveAmountMarch
31, 2012
Transferred

AmountWithdrawn¥908,104¥3,830¥-¥-¥-¥911,935

7,719

-

216

-

-

7,936

¥915,823¥3,830

¥216

¥-

¥-

¥919,871

OthersFinancial Section

Basic fund for improvement ofoperations of municipalities

Balance atApril 1,2011

Decrease during the year

(Thousands of U.S. dollars)
Increase during the year
Classification of fund

Basic fund for improvement ofoperations of municipalities
Additional fund for improvementof operations of municipalities
Total

Balance atApril 1,2011

Decrease during the year
Balance at
March 31,2012

Amount ofreserveAmountMarch
31, 2012
Transferred

AmountWithdrawn$11,005,995$46,425

$-

$-

$-

$11,052,420

93,555

-

2,629

-

-

96,184$11,099,550$46,425$2,629$-$-$11,148,604

OthersNote:1. The “increase during the year” of the “amount of reserves” applicable to “Basic fund for improvement of operationsof municipalities” is 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. Amount transferred in “Increase during the year” applicable to “Additional fund for improvement of operationsof municipalities” represents the amount transferred to “Additional fund for improvement of operations ofmunicipalities” pursuant to the provisions of Article 46, Section 7 of the Law.

Japan Finance Organization for Municipalities Annual Report 201295

Financial Section

Financial Statements

13. Reserve for Employee Retirement Benefits
As of and for the years ended March 31, 2011
(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Employees’ Pension Fund and offers lump-sum payments
upon retirement of employees.
(2) Projected benefit obligation
Projected benefit obligation 344 million yen
Plan assets 149 million yen
Reserve for employee retirement benefits 195 million yen(3) Pension expenses
Pension expenses 5 million yen
Pension expenses related to lump-sum payments upon retirement 2 million yen
Pension expenses related to the Employees’ Pension Fund 2 million yen(4) Basis of calculation of projected benefit obligation
Projected benefit obligation is calculated by the simplified method.
As of March 31, 2012
(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Employees’ Pension Fund and offers lump-sum payments
upon retirement.
(2) Projected benefit obligation
Projected benefit obligation 298 million yen (3,613 thousand dollars)
Plan assets 151 million yen (1,833 thousand dollars)
Reserve for employee retirement benefits 146 million yen (1,779 thousand dollars)(3) Pension expenses
Pension expenses 9 million yen (113 thousand dollars)
Pension expenses related to lump-sum payments upon retirement 4 million yen (49 thousand dollars)
Pension expenses related to the Employees’ Pension Fund 5 million yen (64 thousand dollars)(4) Basis of calculation of projected benefit obligation
Projected benefit obligation is calculated by the simplified method.

14. Net Income by Account(For the year ended March 31, 2011)
Net income of the general account was 8,025 million yen, while net income of the management account was 8,048
million yen.
(For the year ended March 31, 2012)
Net income of the general account was 15,532 million yen (188,249 thousand dollars), while net income of the
management account was 6,100 million yen (73,937 thousand dollars).

15. Subsequent events
Transfer to the National Treasury of a Part of JFM’s Reserve for Interest Rate Volatility within the Management Account   In accordance with the supplementary provisions to the Law, a part of JFM’s reserve for interest rate volatility within
the management account is to be attributed to the Japanese national government over a period of three years from
FY2012 through FY2014, with the aim of transferring 1 trillion yen over this period.
   In FY2012, 350 billion yen has been transferred to the national treasury by JFM, pursuant to Article 14 of the
supplementary provisions to the Law for FY2012 (Ordinance No. 2 of the Ministry of Internal Affairs and Communication,and the Ministry of Finance, 2012).

96

Japan Finance Organization for Municipalities Annual Report 2012

Financial Statements

16. Information by Account (Balance sheets)
Balance sheets of general account and management account at March 31, 2011 were as follows:(Millions of yen)
Item

Generalaccount

Management
account

OffsetTotal(Assets)
Loans¥3,586,125¥18,645,731¥22,231,856

Securities

457,590

457,590

Cash and bank deposits

516,633

516,633

Other assets

2,420

Tangible fixed assets

2,918

Intangible fixed assets

756

Due from general accountDue to management account for fund for
improvement of operations of municipalities
Total assets

14,612

17,033
2,918
756

827,351442,831¥(827,351)(442,831)

5,009,275

19,487,695(1,270,183)

23,226,787

2,580,904

15,746,285

18,327,190

3,107

14,59017,698(Liabilities)
Bonds
Other liabilities

41

41

Reserve for directors’ bonuses

6

6

Reserve for retirement benefits

195

195

Reserve for retirement benefits for directors andcorporate auditors

27

27

915,823

915,823

908,104

908,104

7,719

7,719

Fund for improvement of operations ofmunicipalities
Basic fund for improvement of operations ofmunicipalities
Additional fund for improvement of operations ofmunicipalities
Due to management account827,351

Due from general account for fund for improvementof operations of municipalities
Reserve under special laws
Reserve for interest rate volatility(442,831)

3,236,421

3,896,421

660,000

Management account reserve for interest rate
volatility
Reserve for interest rate reduction
Total liabilities(827,351)
442,831660,000

4,987,458

Financial Section

Reserve for bonuses

660,000
3,136,532

3,136,532

99,88999,88919,440,129(1,270,183)

23,157,405(Net Assets)
Capital16,602

16,602Retained earnings

13,86013,86013,86013,860General account surplus reserve
Valuation, translation adjustments and others(8,645)

Management account surplus reserve
Total net assets
Total liabilities and net assets(8,645)47,56547,565

21,81647,56569,382¥5,009,275¥19,487,695¥(1,270,183)¥23,226,787

Japan Finance Organization for Municipalities Annual Report 201297

Financial Section

Financial Statements

Balance sheets of general account and management account at March 31, 2012 were as follows:(Millions of yen)
Item

Generalaccount

Management
account

OffsetTotal(Assets)
Loans¥5,351,164

Securities

762,987

Cash and bank deposits

172,250

Other assets

2,628

Tangible fixed assets

2,563

Intangible fixed assets

600

Due from general accountDue to management account for fund for
improvement of operations of municipalities
Total assets¥17,036,246¥22,387,411
762,987
172,250

12,266

14,8942,563
600

820,207292,831¥(820,207)(292,831)

6,585,025

17,868,720

3,892,818

14,283,877(1,113,038)

23,340,707(Liabilities)
Bonds
Borrowed money

30,000

Other liabilities

1,872

18,176,696
30,00013,50015,373

Reserve for bonuses

47

Reserve for directors’ bonuses

6

6

Reserve for retirement benefits

146

146

Reserve for retirement benefits for directors andcorporate auditors

23

23

919,871919,871

911,935

911,935

7,936

7,936

Fund for improvement of operations ofmunicipalities
Basic fund for improvement of operations ofmunicipalities
Additional fund for improvement of operations ofmunicipalities
Due to management account820,207

Due from general account for fund for improvementof operations of municipalities
Reserve under special laws
Reserve for interest rate volatility(820,207)
292,831880,000(292,831)

3,224,844

4,104,844

880,000

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

47

6,544,995

880,000
3,137,557

3,137,557

87,28787,287

17,815,054(1,113,038)

23,247,010(Net Assets)
Capital16,602

16,602Retained earnings

29,39329,39329,39329,393General account surplus reserve
Valuation, translation adjustments and others(5,964)

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

98

Japan Finance Organization for Municipalities Annual Report 2012

(5,964)53,666

53,66640,03053,666

93,696¥6,585,025¥17,868,720¥(1,113,038)¥23,340,707

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

Generalaccount

Management
account$64,854,736$206,474,933

OffsetTotal(Assets)
Loans$271,329,669

Securities

9,247,212

9,247,212

Cash and bank deposits

2,087,627

2,087,627

Other assets

31,860

Tangible fixed assets

31,06731,067

Intangible fixed assets

7,278

7,278

Due from general account148,663

9,940,702

Due to management account for fund for
improvement of operations of municipalities

3,549,042

Total assets

79,808,822

216,564,298

47,179,959

173,116,927

180,523$(9,940,702)(3,549,042)(13,489,744)

282,883,376(Liabilities)
Bonds
Borrowed money

363,592

Other liabilities

22,696220,296,886
363,592

163,622

186,318580

Reserve for directors’ bonuses

84

84

Reserve for retirement benefits

1,780

1,780

291

291

11,148,604

11,148,604

11,052,420

11,052,420

96,18496,184

Reserve for retirement benefits for directors andcorporate auditors
Fund for improvement of operations ofmunicipalities
Basic fund for improvement of operations ofmunicipalities
Additional fund for improvement of operations ofmunicipalities
Due to management account9,940,702

Due from general account for fund for improvementof operations of municipalities
Reserve under special laws
Reserve for interest rate volatility(9,940,702)
3,549,042

10,665,374(3,549,042)

39,084,288

49,749,662

10,665,374

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

580

79,323,662

Financial Section

Reserve for bonuses

10,665,374
38,026,385

38,026,385

1,057,903

1,057,903

215,913,879(13,489,744)

281,747,797(Net Assets)
Capital201,213201,213Retained earnings

356,238

356,238

356,238

356,238

General account surplus reserve
Valuation, translation adjustments and others(72,291)

Management account surplus reserve
Total net assets
Total liabilities and net assets(72,291)
650,419

650,419

485,160

650,419

1,135,579$79,808,822$216,564,298$(13,489,744)$282,883,376

Notes:1. General account and management accountIn accordance with the provisions of Article 13, Section 1 of the supplementary provisions of the Law, themanagement account is used to conduct administration, collection and other related operations of the assetsthat JFM inherited from the former JFM (management of the assets of the former JFM).
   The management account is separated from the other account (general account) pursuant to the provisionsof Article 13, Section 3 of the supplementary provisions of the Law.

Japan Finance Organization for Municipalities Annual Report 201299

Financial Section

Financial Statements

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 with theprovisions of Article 39, Section 1 of the Law, while “Net income” of the management account is posted
as “Management account surplus reserve” in accordance with the provisions of Article 13, Section 8 of the
supplementary provisions the Law.
3. Due from general account and due to management account
These amounts represent funds lent between the general account and the management account pursuant to
the provisions of Article 13, Section 4 of the supplementary provisions of the Law.
4. Due from general account for fund for improvement of operations of municipalities and due to management
account for fund for improvement of operations of municipalities
These amounts represent cash received for “Fund for improvement of operations of municipalities,” which waslent to the management account from the general account pursuant to the provisions of Article 9, Section 12of the supplementary provisions of the Law.

17. Information by Account (Statements of income)Statements of income of general account and management account from April 1, 2010 through March 31, 2011 wereas follows:(Millions of yen)
Item
IncomeInterest income

General account Management account¥62,032¥512,245

45,152494,659

OffsetTotal¥(34,280)¥539,997
539,812Fees and commissions

134

Other income

50

Administrative fee for management account

962

(962)

15,730(15,730)

Interest on fund for improvement ofoperations of municipalities
Interest on due from general account

134
50

594

(594)

16,992(16,992)

54,006

272,702(34,280)

29,637

253,540

26

243

269

Other operating expenses

2,303

2,115

4,418

General and administrative expenses

2,264

109

2,374

Other expenses

2,187

2,187

Transfer to fund for improvement ofoperations of municipalities

2,187

2,187

Interest on due to management account

594

(594)

16,992(16,992)

Transfer from general account for fund for
improvement of operations of municipalities
Expenses
Interest expenses
Fees and commissions

Transfer to management account for fund for
improvement of operations of municipalities
Administrative fee for management accountInterest on fund for improvement ofoperations of municipalities
Ordinary income
Special gains
Provision for management account292,428
283,177

962

(962)

15,730(15,730)

8,025

239,543-

247,569

220,000

233,994(220,000)

233,994

220,000(220,000)

Reversal of management account reserve forinterest rate volatility

220,000

220,000

Reversal of reserve for interest rate reduction

13,994

13,994

Special losses
Provision for reserve for interest rate volatility

220,000

Provision for management account reservefor interest rate volatility

100 Japan Finance Organization for Municipalities Annual Report 2012

(220,000)¥8,025465,489
220,000

245,489

Transfer to management accountNet income

465,489

220,000

245,489

220,000(220,000)¥8,048¥-¥16,074

Financial Statements

Statements of income of general account and management account from April 1, 2011 through March 31, 2012 wereas follows:(Millions of yen)
Item
IncomeInterest income

General account Management account¥83,092¥456,669

70,563441,078

OffsetTotal¥(27,957)

511,641

Fees and commissions

128

Other income

31

Administrative fee for management account

930

(930)

11,438(11,438)

Interest on fund for improvement ofoperations of municipalities
Interest on due from general accountExpenses
Interest expenses

128
3

34

635

(635)

14,952(14,952)

67,560242,146(27,957)

46,922

227,397

Transfer from general account for fund for
improvement of operations of municipalities¥511,805

281,749
274,320

Fees and commissions

43

231

275

Other operating expenses

2,503

2,035

4,539

General and administrative expenses

2,272

113

2,385

Other expenses
Transfer to fund for improvement ofoperations of municipalities

Transfer to management account for fund for
improvement of operations of municipalities

229

216

216

12
(635)

14,952(14,952)

Administrative fee for management account

930

(930)

11,438(11,438)

15,532

214,523-230,055

220,000

232,601(220,000)

232,601

Interest on fund for improvement ofoperations of municipalities
Ordinary income
Special gains
Provision for management account

12

635

220,000(220,000)

Reversal of management account reserve forinterest rate volatility

220,000

220,000

Reversal of reserve for interest rate reduction

12,601

12,601

Special losses
Provision for reserve for interest rate volatility

220,000

441,024(220,000)

220,000

Provision for management account reservefor interest rate volatility

221,024

Transfer to management account

220,000(220,000)¥6,100¥-Net income¥15,532

441,024
220,000
221,024¥21,632

Japan Finance Organization for Municipalities Annual Report 2012 101

Financial Section

OthersInterest on due to management account229

Financial Section

Financial Statements(Thousands of U.S. dollars)
Item
IncomeInterest income
Fees and commissions
Other income

General account Management account$1,007,061$5,534,722

855,214

5,345,753

OffsetTotal$(338,834)$6,202,949
6,200,967

1,561
376

1,561
45

421

Administrative fee for management account11,279(11,279)

Interest on fund for improvement ofoperations of municipalities

138,631(138,631)

Interest on due from general account

7,706(7,706)

181,218(181,218)

818,8122,934,756(338,834)

568,6932,755,997

Transfer from general account for fund for
improvement of operations of municipalities
Expenses
Interest expenses

3,414,734
3,324,690

Fees and commissions

527

2,807

3,334

Other operating expenses

30,347

24,66955,016

General and administrative expenses

27,538

1,373

28,911Other expenses

2,783

2,783

2,629

2,629

Transfer to fund for improvement ofoperations of municipalities
OthersInterest on due to management accountTransfer to management account for fund for
improvement of operations of municipalities

154

154

7,706

(7,706)

181,218(181,218)

Administrative fee for management account11,279(11,279)

Interest on fund for improvement ofoperations of municipalities

138,631(138,631)

188,2492,599,966-

2,788,215

2,666,343

2,819,072(2,666,343)

2,819,072

Ordinary income
Special gains
Provision for management account2,666,343(2,666,343)

Reversal of management account reserve forinterest rate volatility

2,666,343

2,666,343

Reversal of reserve for interest rate reduction

152,729

152,729

Special losses
Provision for reserve for interest rate volatility

2,666,343

5,345,101(2,666,343)

2,666,343

Provision for management account reservefor interest rate volatility

2,678,758

Transfer to management account2,666,343(2,666,343)$73,937$-

Net income

102 Japan Finance Organization for Municipalities Annual Report 2012

$188,249

5,345,101
2,666,343
2,678,758$262,186

Financial Statements

18. Fair Value of Marketable Securities
Marketable held-to-maturity securities at March 31, 2011 consisted of the following:(Millions of yen)Book value

Fair value

Difference

Unrealized gains Unrealized losses

Treasury discount bills¥86,990¥86,982

¥(7)

¥-

¥(7)

Negotiablecertificates of deposit

370,600

370,600

-

-

-

Total

¥457,590¥457,582

¥(7)

¥-

¥(7)

Marketable held-to-maturity securities at March 31, 2012 consisted of the following:(Millions of yen)Book value

Fair value

Difference

Unrealized gains Unrealized losses

Treasury discount bills¥96,987¥96,979

¥(8)

¥-

¥(8)

Negotiablecertificates of deposit

666,000

666,000

-

-

-

Total

¥762,987¥762,979

¥(8)

¥-

¥(8)

Book value

Fair value

Difference

Unrealized gains Unrealized losses

Treasury discount bills$1,175,463$1,175,364

$(99)

$-

$(99)

Negotiablecertificates of deposit

8,071,749

8,071,749

-

-

-

Total

$9,247,212$9,247,113

$(99)

$-

$(99)

Notes:1. The fair value of treasury discount bills is based on the market price at the end of the fiscal year.
2. The balance sheet amount for negotiable certificates of deposit is the fair value.
3. Difference is the net amount of “unrealized gains” and “unrealized losses.”

Japan Finance Organization for Municipalities Annual Report 2012 103

Financial Section(Thousands of U.S. dollars)Financial Section

Financial Statements

19. Information on Derivative Transactions(1) Types of derivative transactions
Derivative transactions entered into by JFM are interest rate swaps for interest rate related transactions, and currency
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 fund-raising 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 and meet
specific matching criteria are not measured at fair value, but the differential paid or received under the swap
agreements is recognized and included in interest expense or income. If swap contracts or forward contracts used
to hedge the foreign currency fluctuation qualify for deferral hedge accounting, the foreign currency-denominatedassets and liabilities are translated at the contracted rate.
(b) Hedging instruments and hedged items(ⅰ) Hedging instruments: Interest rate swaps
Hedged items: Bonds and borrowed money(ⅱ) Hedging instruments: Currency swaps
Hedged items: Foreign currency-denominated bonds(ⅲ) Hedging instruments: Foreign exchange forward contracts
Hedged items: Receipt of interest and principal of foreign currency-denominated bank deposits(c) Hedging policy
JFM uses hedging instruments as a means of hedging exposure to 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 at the time of deposit isentered into by JFM.
(d) Assessment of hedge effectivenessJFM ensures hedging instruments and hedged items have the same major terms when entering into hedgetransactions are to offset bond and borrowed money market fluctuations.
   Accordingly, JFM deems these to be highly effective and thus does not assess their effectiveness. Moreover,a periodic 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 tofulfill their contracts due to bankruptcy or other reasons.
   As for derivative transactions used for hedging purposes, market risk is offset by the corresponding change into
underlying hedged items.
   JFM enters into ISDA Master Agreements and CSA Agreements with financial institutions, which are its derivativetransactions counterparties, to reduce credit risk. Moreover, JFM constantly monitors the transactions’ restructuringcosts and their credit profiles, and deals with multiple counterparties.
(4) Risk management system for derivative transactions
Execution and management of derivative transactions are conducted by the Finance Department of JFM with theapproval of persons in charge in accordance with the operational guidelines which specify transaction authority andlimits 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.

104 Japan Finance Organization for Municipalities Annual Report 2012

Report of Independent Auditors

Report of Independent Auditors

Financial Section
Japan Finance Organization for Municipalities Annual Report 2012 105

106 Japan Finance Organization for Municipalities Annual Report 2012

Appendices / JFM Data

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Japan Finance Organization for Municipalities Annual Report 2012 107

Appendices / JFM Data

Appendices��������������������������������� 108

Appendices / JFM Data

AppendicesFiscal 2011 Redemption of Loans
Principal
Classification

Number ofloansInterest

Amount(Millions of yen)

Number ofloans

Amount(Millions of yen)

General loans

393,499

1,485,418

463,760

506,900

Loans to local
government
corporations

984

16,627

1,009

2,941

Subtotal

394,483

1,502,045

464,769

509,841

General loans

2,736

143,513

1,355

5Loans to local
government
corporations

20

3,009

11

0

2,756

146,5221,366

5397,239

1,648,567

466,135

509,847

Redemption of loans with pre-consent orapproval

－

－

2

3

Redemption of short-term loans

－

－

－

－

Regular redemptionof loans

Prepayment of loans

Subtotal
Total

Note: The totals of the individual amounts may not add up exactly due to rounding off.

108 Japan Finance Organization for Municipalities Annual Report 2012

Appendices

Outstanding Loan Balance by Business for Fiscal 2011
Project
Public Projects, Etc.

136

0.0

518,326

2.3

Emergency Disaster Management
and Mitigation Projects

1

2

0.0

Social Welfare Facilities Construction

159

15,671

0.1

General Projects

148

21,1130.1

3,567

180,2450.8

407

67,136

0.3

Local Road Construction

30,6053,450,547

15.4

Local Road Construction Business

2,215

257,3811.2

Regional Revitalization

257

18,9080.1

Disaster Prevention

454

45,686

0.2

Special Municipal Merger Projects

1,331

378,024

1.7

Extraordinary Financial
Countermeasures Funding

2,325

1,951,474

8.7

46,773

6,904,649

30.9

Water Supply

45,2733,804,271

17.0

Small-Scale Water Supply

6,139

184,0420.8

14115,8790.1

High School Construction

Subtotal

Transportation
Urban Rapid Transit Railway

1,343,886

6.0

2,414

608,055

2.7

Sewerage

122,527

8,768,382

39.2

2,336

236,528

1.1

Electricity Supply

698

54,1660.2

Gas Supply

307

39,521

0.2

Elderly Care Services

331

25,6480.1

Markets

476

83,507

0.4

Slaughterhouses

67

6,292

0.0

Parking Facilities

461

69,316

0.3

Port Facilities

1,254

89,507

0.4

Tourism Facilities

67

5,541

0.0

Industrial Waste Disposal

21

7,234

0.0

Regional Development (Note1)
Subtotal
Toll Roads (Public Corporations)
Total

47

20,5950.1

183,374

15,362,369

68.6

451

120,3930.5

230,598

22,387,411

100.0

Notes: 1. Regional Development Projects are land creation projects for regional development that include the creation of coastal
industrial land and other land along the shoreline, the preparation of inland industrial land, and land for distribution parks,
offices, shops and housing (including land for related facilities), as well as residential land development projects for land
readjustment.
2. JFM’s scope of lending does not include toll road projects, urban redevelopment projects or residential land development
projects. Moreover, JFM does not lend to local government road corporations.
3. The totals of the individual amounts may not add up exactly due to rounding off.

Japan Finance Organization for Municipalities Annual Report 2012 109

Appendices / JFM Data

815

Hospitals

Industrial Water Supply

Loan for Local Government
Road Corporation

Share (%)

3

Improvement of Rivers and Other
Waterways

Municipal EnterpriseRelated Loans

Amount(Millions of yen)

5,301

Public Housing

General Account-Related
Loans

Number ofloans

Appendices / JFM Data

Appendices

Bond Issuance in Fiscal 2011
1. JFM Bonds(1) Domestic Public Offering Bonds
Term

SeriesIssue amount(Billions of yen)

Coupon rate (%)

Issue price (yen)Issue date
(YY/MM/DD)

10 years

23rd

40.0

1.418

100.002011/4/21

10 years

24th

30.0

1.208

100.002011/5/26

10 years

25th

35.0

1.178

100.002011/6/27

10 years

26th

30.0

1.149

100.002011/7/25

10 years

27th

30.0

1.034

100.002011/8/18

10 years

28th

30.0

1.048

100.002011/9/20

10 years

29th

30.0

1.025

100.002011/10/24

10 years

30th

30.0

1.035

100.002011/11/17

10 years

31st

30.0

1.067

100.002011/12/19

10 years

32nd

35.0

0.991

100.002012/1/26

10 years

33rd

40.0

1.035

100.002012/2/20

10 years

34th

40.0

1.010

100.002012/3/19

20 years

14th

30.0

2.187

100.002011/4/27

20 years

15th

35.0

2.030

100.002011/6/9

20 years

16th

20.0

1.846

100.002011/8/18

20 years

17th

20.0

1.870

100.002011/9/20

20 years

18th

20.0

1.781

100.002011/10/24

20 years

19th

20.0

1.840

100.002011/12/19

20 years

20th

25.0

1.800

100.002012/1/26

5 years

5th

20.0

0.510

100.002011/5/26

5 years

6th

20.0

0.435

100.002011/7/25

5 years

7th

20.0

0.385

100.002011/11/17

5 years

8th

20.0

0.384

100.002012/2/20

9 years

57th FLIP

20.0

1.297

100.002011/4/27

9 years

58th FLIP

3.0

1.203

100.002011/4/27

19 years

59th FLIP

6.0

2.164

100.002011/4/27

14 years

60th FLIP

10.0

1.715

100.002011/5/10

30 years

61st FLIP

3.0

2.334

100.002011/5/10

13 years

62nd FLIP

10.0

1.491

100.002011/5/31

14 years

63rd FLIP

3.0

1.579

100.002011/5/31

15 years

64th FLIP

5.0

1.683

100.002011/5/31

14 years

65th FLIP

3.0

1.583

100.002011/6/6

15 years

66th FLIP

3.0

1.649

100.002011/6/6

16 years

67th FLIP

3.0

1.805

100.002011/6/630 years

68th FLIP

3.0

2.243

100.002011/6/6

9 years

69th FLIP

20.0

1.027

100.002011/7/28

110 Japan Finance Organization for Municipalities Annual Report 2012

Appendices

Term

SeriesIssue amount(billions of yen)

Coupon rate (%)

Issue price (yen)Issue date
(YY/MM/DD)

7 years

70th FLIP

20.0

0.673

100.002011/10/26

16 years

71st FLIP

5.0

1.637

100.002011/10/27

12 years

72nd FLIP

6.0

1.274

100.002011/10/27

15 years

73rd FLIP

3.0

1.569

100.002011/10/31

7 years

74th FLIP

5.0

0.663

100.002011/10/31

12 years

75th FLIP

8.0

1.244

100.002011/10/31

14 years

76th FLIP

4.0

1.448

100.002011/10/31

15 years

77th FLIP

3.5

1.519

100.002011/10/31

13 years

78th FLIP

3.0

1.331

100.002011/11/7

15 years

79th FLIP

6.0

1.507

100.002011/11/7

17 years

80th FLIP

5.5

1.658

100.002011/11/7

8 years

81st FLIP

4.5

0.761

100.002011/11/14

13 years

82nd FLIP

3.0

1.381

100.002011/11/14

15 years

83rd FLIP

3.0

1.571

100.002011/11/7

84th FLIP

10.0

1.640

100.002011/12/20

85th FLIP

10.0

1.630

100.002011/12/26

7 years

86th FLIP

20.0

0.631

100.002012/1/31

12 years

87th FLIP

3.0

1.259

100.002012/1/31

15 years

88th FLIP

6.0

1.546

100.002012/1/31

15 years

89th FLIP

3.0

1.602

100.002012/1/31

16 years

90th FLIP

3.0

1.609

100.002012/1/31

7 years

91st FLIP

4.5

0.602

100.002012/2/2

12 years

92nd FLIP

3.0

1.259

100.002012/2/2

25 years

93rd FLIP

3.0

1.944

100.002012/2/2

7 years

94th FLIP

3.0

0.597

100.002012/2/2

13 years

95th FLIP

7.0

1.336

100.002012/2/6

15 years

96th FLIP

3.0

1.546

100.002012/2/2

13 years

97th FLIP

3.0

1.345

100.002012/2/7

16 years

98th FLIP

4.0

1.583

100.002012/2/7

7 years

99th FLIP

3.0

0.554

100.002012/2/28

11 years

100th FLIP

3.0

1.111

100.002012/3/7

12 years

101st FLIP

3.0

1.220

100.002012/3/6

16 years

102nd FLIP

3.0

1.620

100.002012/3/6

12 years

103rd FLIP

3.0

1.205

100.002012/3/7

13 years

104th FLIP

4.0

1.314

100.002012/3/7

12 years

105th FLIP

3.0

1.210

100.002012/3/12

12 years

106th FLIP

3.0

1.259

100.002012/3/27

13 years

107th FLIP

3.0

1.388

100.002012/3/27

15 years

108th FLIP

4.5

1.580

100.002012/3/28

16 years

109th FLIP

4.0

1.675

100.002012/3/28

Japan Finance Organization for Municipalities Annual Report 2012 111

Appendices / JFM Data

16 years
16 years

Appendices / JFM Data

Appendices(2) Private Placement Bonds Underwritten by Pension Fund Association for Local Government Officials
Term

SeriesIssue amount(Billions of yen)

Coupon rate (%)

Issue price (yen)Issue date
(YY/MM/DD)

10 years

A-15th40.0

1.46

100.002011/4/21

10 years

A-16th40.0

1.25

100.002011/5/26

10 years

A-17th30.0

1.19

100.002011/6/27

10 years

A-18th30.0

1.17

100.002011/7/25

10 years

A-19th30.0

1.12

100.002011/8/18

10 years

A-20th20.0

1.07

100.002011/9/20

10 years

A-21st20.0

1.06

100.002011/10/24

10 years

A-22nd10.0

1.05

100.002011/11/17

10 years

A-23rd10.0

1.09

100.002011/12/19

10 years

A-24th10.0

1.03

100.002012/1/26

10 years

A-25th20.0

1.06

100.002012/2/20

10 years

A-26th40.0

1.04

100.002012/3/19(3) EMTNs
Issue amount
Issue
NumberTerm

Currency Coupon
type

Local
denomination(Millions)Aftertranslation
into yen(Billions ofyen)

Coupon (%)

Price (%)

Issue date
(YY/MM/DD)

1

5 years

US$

Variable105

8.1

3m USD Libor + 73bp

100.002012/1/17

2

5 years

US$

Fixed

40

3.1

2.0350%100.002012/1/12

3

5 years

US$

Fixed

57

4.4

2.0000%100.002012/1/17

4

5 years

US$

Variable35

2.7

3m USD Libor + 75bp

100.002012/1/17

5

5 years

US$

Variable30

2.3

3m USD Libor + 75bp

100.002012/1/19

6

5 years

US$

Variable51

3.9

3m USD Libor + 70bp

100.002012/1/18

7

5 years

US$

Fixed

20

1.5

2.0000%100.002012/1/23

8

5 years

US$

Variable20

1.5

3m USD Libor + 73bp

100.002012/1/23
2012/1/19

9

5 years

US$

Variable20

1.5

3m USD Libor + 70bp

100.0010

5 years

US$

Variable20

1.5

3m USD Libor + 75bp

100.002012/1/18

11

5 years

NZ$

Variable40

2.4

3M NZD-BBR-FRA + 113bp

100.002012/1/24

12

5 years

US$

Variable20

1.5

3m USD Libor + 69bp

100.002012/1/26

13

5 years

US$

Variable20

1.5

3m USD Libor + 70bp

100.002012/1/24

14

5 years

US$

Fixed

25

2.0

1.8400%100.002012/3/1

15

7 years

US$

Fixed

20

1.6

2.4000%100.002012/3/1

16

5 years

US$

Fixed

25

2.0

1.8725%100.002012/3/1

17

5 years

US$

Variable30

2.4

3m USD Libor + 70bp

100.002012/3/1

18

5 years

US$

Variable25

2.0

3m USD Libor + 70bp

100.002012/3/1

19

5 years

US$

Fixed

20

1.6

1.8900%100.002012/3/1

20

5 years

US$

Variable40

3.2

3m USD Libor + 70bp

100.002012/3/6

21

5 years

US$

Variable30

2.4

3m USD Libor + 70bp

100.002012/3/6

22

5 years

US$

Variable25

2.0

3m USD Libor + 70bp

100.002012/3/6

23

5 years

US$

Variable30

2.4

3m USD Libor + 70.5bp

100.002012/3/6

24

5 years

US$

Variable30

2.4

3m USD Libor + 70bp

100.002012/3/8

25

5 years

US$

Variable30

2.4

3m USD Libor + 70bp

100.002012/3/6

26

5 yearsA$

Variable20

1.7

3m AUD-BBR-BBSW + 115bp

100.002012/3/13

27

5 years

US$

Variable30

2.4

3m USD Libor + 70bp

100.002012/3/8

28

5 years

US$

Fixed

20

1.6

1.8500%100.002012/3/13

Note: Issue amounts after converted to yen for each series are rounded down to the nearest ¥100 million.

112 Japan Finance Organization for Municipalities Annual Report 2012

Appendices

2. Government-Guaranteed Bonds (Domestic Bonds)
Term

SeriesIssue amount(billions of yen)

Coupon rate (%)

Issue price (yen)Issue date
(YY/MM/DD)

10 years

23rd

40.0

1.3

99.70

2011/4/18

10 years

24th

40.0

1.1

99.35

2011/5/25

10 years

25th

40.0

1.2

100.002011/6/14

10 years

26th

40.0

1.1

99.15

2011/7/19

10 years

27th

40.0

1.0

99.30

2011/8/15

10 years

28th

55.0

1.0

99.10

2011/9/14

10 years

29th

40.0

1.0

99.85

2011/10/18

10 years

30th

40.0

1.0

99.50

2011/11/15

10 years

31st

40.0

1.1

100.002011/12/14

10 years

32nd

40.0

0.9

99.25

2012/1/25

10 years

33rd

40.0

0.9

99.20

2012/2/15

10 years

34th

57.86

0.9

99.15

2012/3/14

6 years

1st

50.0

0.4

99.88

2011/9/27

6 years

2nd

50.0

0.4

100.05

2011/11/29

6 years

3rd

50.0

0.4

99.94

2012/1/30

6 years

4th

50.0

0.4

100.05

2012/3/26

Appendices / JFM Data
Japan Finance Organization for Municipalities Annual Report 2012 113

Appendices / JFM Data

JFM Data

JFM Data
Organization History
History of JFM

2008

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

2009

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

History of the Predecessor
1957

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

1960

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

1966

Started a lending program that applied special lending rates.

1967

Started receiving subsidies from the national treasury.

1970

Started the program of contributions of proceeds from municipally operated racing and established theFund for the Improvement of Operations of Municipal Enterprises.

1972

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

1978

Included three General Account–related special projects (Local Road Construction, Improvement ofRivers and Other Waterways and High School Construction) in the scope of lending.

1983

Started issuing foreign currency–denominated bonds.

1989

Established the Reserve for Losses on Refinancing of Bonds.

1990

Started a lending program that applied extra special lending rates.

1998

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

2001

Subsidies from the national treasury were abolished and the Reserve for Interest Rate Reduction wasestablished.
Started providing borrowers with the right to choose fixed or adjustable interest rates.
Established a compensation program for advanced repayments. Started issuing FILP Agency Bonds.
The Special Public Institutions Reform Basic Law was passed, and the Reorganizations andRationalization Plan for Special Public Institutions was approved by the Cabinet.

2002

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

2005

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

2006

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

2007

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

2008

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

114 Japan Finance Organization for Municipalities Annual Report 2012

JFM Data

Organization Structure
As of April 1, 2012
Personnel and Secretariat … Secretariat, Personnel

Corporate Planning…

Corporate planning, budget control, mattersrelated to the Representative Board and theSupervisory Committee, public relations,communication and coordination with otherorganizations, ALM

Risk Management…

Integrated risk management, systems
management

Corporate Planning
Department
Chief Research Fellow

Local government Support … Support operations for local governments’fund-raising, financial research

Representative
Board

President and CEO
Deputy President
Senior Executive
Directors

General Affairs…

General affairs including compensation andbenefits and legal review

Accounting…

Budgets, settlement of accounts, mattersrelated to contributions from municipally
operated racing, accounting, receipts anddisbursements, external audit

Finance…

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

Administration
Department

Corporate
Auditors
Supervisory Committee

Finance Department

Funding Administration … Funding administration and management offund investment

Loan Administration…

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

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

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

Japan Finance Organization for Municipalities Annual Report 2012 115

Appendices / JFM Data

Loan Department

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

116 Japan Finance Organization for Municipalities Annual Report 2012

JFM Data■ Directors and Corporate Auditors
President and CEO
Deputy President
Senior Executive Directors
Corporate Auditors

Yuji Watanabe
Kenji Tanigawa
Takeji Takei, Sadaji Hiranuma, Keiichi Hikita (part-time)
Katsuhiko Hara, Nadamu Takata (part-time)(From left, S. Hiranuma, Senior Executive Director; K. Tanigawa, Deputy President; Y. Watanabe, President and CEO;T. Takei, Senior Executive Director; and K. Hikita, Senior Executive Director)(From left, K. Hara, Corporate Auditor,
and Nadamu Takata, Corporate Auditor)■ Address:
Shisei Kaikan, 1-3 Hibiya Koen, Chiyoda-ku,
Tokyo 100-0012, Japan
http://www.jfm.go.jp/en/

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

Japan Finance Organization for Municipalities Annual Report 2012 117

Appendices / JFM Data

Photo provided by The Tokyo Institute for Municipal ResearchJapan Finance Organization for Municipalities Annual Repor t 2012