Japan Finance Organization for Municipalities
ANNUAL REPORT 2019

ANNUAL REPORT 2019Japan Finance Organization for Municipalities

http://www.jfm.go.jp/en/

By reading these materials, you agree to be bound by the following limitations:

CONTENTS

Review and PlanDI SC L A I MERManagement Structure

Profile of JFM

ness or correctness of the information, or opinions contained herein. Neither the company nor any of the company’s advisors or represen-

03Management Philosophy

38

Corporate Governancetatives shall have any responsibility or liability whatsoever (for negligence or otherwise) for any loss howsoever arising from any use of04

Message from President and CEO

38

1. Corporate Governanceto updating, completion, revision, verification and amendment and such information may change materially.

06

JFM at a Glance40

2. Internal Control over Financial Reporting

These materials are based on the economic, regulatory, market and other conditions as in effect on the date hereof. It should be

08

Outline of JFM Operations

40

3. Internal Audit

09

Capital

41

General Account and Management Account43

Risk Management

50

Compliance51

Disclosure

these materials or their contents or otherwise arising in connection with these materials. The information set out herein may be subject

understood that subsequent developments may affect the information contained in these materials, which neither the company nor its
advisors or representatives are under an obligation to update, revise or affirm.
Forward-looking statements, including the company’s plans in these materials, are based on information available to the company at thetime they were prepared and involve potential risks and uncertainties. Actual results, therefore, may differ from those described in these

Review and Plan

materials due to changes in a variety of factors, such as market trends, economic conditions and regulations. Accordingly, investors areadvised to use their own discretion and exercise great caution when making investment decisions.
or invitation of any offer to buy or subscribe for any securities of the company.

12

1. Lending Operations

Securities of the company not registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), may not be offered,14

2. Funding Operations

requirements of the United States securities laws.

16

3. Financial Review

These materials and the information contained herein are being furnished to you solely for your information and may not be reproduced

18

Management Plan for Fiscal 2019

hereof may be, directly or indirectly, taken or transmitted into or distributed in the United States, Canada, Australia, Japan, Hong Kong18

1. Lending Operations

52

1. Japanese Local Government Systemor any other jurisdiction which prohibits the same except in compliance with applicable securities laws. Any failure to comply with this18

2. Funding Operations

53

2. Local Government Finance Programme

3. Scheduled Payment to54

3. Local Allocation Tax

the National Treasury

54

4. Local Government Borrowings

54

5. Security of Local Government Borrowings

55

6. Local Government Borrowing Programme

These materials and the information contained herein do not constitute or form part of any offer for sale or subscription of or solicitation

sold or delivered within the United States or to U.S. persons absent registration under or an applicable exemption from the registration

or redistributed to any other person, in whole or in part. In particular, neither the information contained in these materials nor any copy

restriction may constitute a violation of U.S. or other national securities laws. No money, securities or other consideration is being
solicited, and, if sent in response to this presentation or the information contained herein, will not be accepted.

19Note to Financial Statements
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the

Operations

prevailing exchange rate as of 31 March 2019, the final day of the fiscal year, which was JPY 110.92 to USD 1. This translation should
not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate.

Government Finance22

Lending Operations

22

1. Outline

24

2. Loan Interest Rates

26

3. Credit Check System

26

4. Trends in Lending Operations

58

Financial Statements

29

5. Lending Operations by Business98

Independent Auditor’s Report

32

Funding Operations

32

1. Issue Type

33

2. Basic Funding Policy

100

Appendix34

3. Features of JFM Bonds112

JFM Data

35

4. Trends in Funding Operations

112

Organization History

113

Organization Chart

7. JFM Funds in Local Government Borrowing
56

Programme

Financial Section

Appendix / JFM Data

Financial Section

ANNUALREPORT 2019

JFM’s Role in Local
Government Finance

JFM’s Role in
Local Government Finance

Review of Operations for Fiscal 2018

Management Structure

12

Operations

02

No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, complete-

Directors and Corporate Auditors/
Contact Information

Appendix / JFM Data

115

Management
Philosophy

Profile of JFM

Name

Japan Finance Organization for Municipalities (JFM)

Japan Finance Organization for Municipalities (JFM), as a joint funding organization wholly

Establishment

1 August 2008 (Reorganized on 1 June 2009)

contributed by all Japanese local governments, sets forth the following three policies as its

Governing Law

Japan Finance Organization for Municipalities Law(Law No. 64 of 2007, as amended)

Address

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

President and CEO

Kinya Takino

CapitalUSD 149.7 million

Number of Employees

88 (as of April 2019)

Outstanding Loans

USD 211.9 billion

as of 31 March 2019
Outstanding Bonds andmanagement philosophy with the purpose of contributing to fiscal soundness of local governments through our financing activities

1

Being Responsive to
Local Government Needs
As a reliable provider of long-term and low-interest funds for local governments, JFM closely supports local government funding based on theirneeds as well as the environment.

USD 185.0 billion

JFM focus on related investigation and research and offer information

Bank Loans

with the aim of becoming a good partner in financial management for local

as of 31 March 2019
Credit Ratings

S&P: A+as of 31 March 2019

Moody’s : A1
R&I: AA+2

governments.

Strengthening Capital Market Confidence
JFM aims to strengthen its market confidence and secure low-cost funding through appropriate disclosure as required in capital markets, as wellas its sound financial standing maintained through prudent risk management.
Furthermore, JFM, as a leading public-sector bond issuer, is committed to3contributing to the sound development of capital markets.

Ensuring Responsible Corporate Governanceas a Joint Organization of Local Governments
JFM ensures responsible corporate governance through prudent risk
management, monitoring and recommendations by the Supervisory Committee, as well as audits by external accounting auditors and deepen
communication with local governments as a responsible joint organization of local governments.

2019
Message

Japan Finance
Organization
for Municipalities

fromthe President and CEO

JFM is a joint funding organization established

Local finance is working on key topics in thisincreasing funding demands by local govern-

under the laws of Japan, which is wholly owned

fiscal year, which is to reduce temporary fiscal

ments as repair and renewal are required forby all the Japanese local governments, with themeasures bond for the sound fiscal manage-

various public infrastructure facilities built after

objective to provide long-term and low-interest

ment of local finance and also taking initiatives

the World War II and to prepare for natural

funds for local governments.

to prevent and mitigate natural disasters anddisasters which occurred recently multiple

building national resilience. The volume oftimes. JFM also understands that its financial

Last fiscal year was the 10th anniversary of

JFM funding increased due to the increase insupport for local governments will be more

JFM and in order to obtain our goal, which is

the Local Government Borrowing Program.

significant given uncertain market conditions

to support sound fiscal management of local

JFM has supported local governments’ policies bysuch as trade friction and monetary policies

governments in Japan through the capital markets,

lending to new projects such as urgent naturalin each central bank. JFM as a joint funding

we have set forth the following three management

disaster prevention measures, and extendingorganization will continue to focus on meeting

philosophy. “Being Responsive to Local Govern-

maturities in certain projects upon demand.

expectations from local governments by complying with regulations and internal control

ment Needs”, “Strengthening Capital Market

Kinya Takino
President and CEO
2019

Confidence” and “Ensuring Responsible Corpo-

Japanese local governments have faced fast

rate Governance as a Joint Organization of

population decrease and aging society and have

Local Governments”.

consulted on regional revitalization. JFM expects

systems and maintaining sound financial conditions with confidence from the markets.

JFM at a Glance
The Joint Funding
Organization for All Japanese
Local Governments■ High credit quasi-sovereign issuer, wholly owned by

Japanese local governments with the capital contribution from 1,789*1 local governments*2■ Operates as a non-profit organization under the JFM
Law with the objective to provide long-term and low-interest rate loans exclusively to Japanese local governments■ JFM has never experienced any default on its loans

Japanese Local Governments■ Japanese local governments include 47 prefectures and a

total of 1,741*1 cities and special wards of Tokyo, government-designated cities, as well as towns and villages■ Revenue sources for the local governments are securedby the national government● The national government allocates a part of nationaltax revenue to the local governments, in order toadjust revenue disparities among the local governments (Local Allocation Tax system)● The national government also prepares the Local
Government Borrowing Programme (LGBP) eachfiscal year, which specifies the amount of local
government borrowing as well as funding sources● In the case of each local government funding, aconsent or an approval must, in principle, beobtained from the relevant authorities■ The national government also establishes a legal
framework to monitor fiscal indices for each local
government and implement early correction
measures if the local governments with the indicesexceeding the early warning limits or reconstruction
limits shall restore their financial soundness■ Thus, none of the local governments has defaulted■ BIS 0% risk weight for Japanese local governments*3

Lending

LGBP - Funding Sources for Local Governments
Publicly Offered Bonds
National Government(USD bn)

(％)

180

18

160

15.5

15.9

LGBP since fiscal 2012

■ Loans planned to be made in fiscal 2019 ending 31

March 2020 are amounted to USD 15.0 bn■ Maximum term to maturity of JFM loans is 40 years
Note: Figures in USD are converted at USD 1 =JPY 110.92 as of 31 March 2019, unless otherwise noted.

16.1

15.8

16.1

15.6

15.3

15.3

16

140

14

120

12

100

10

80

8

60

6

40

4

20
0
FY

19.6

19.6

18.5

17.8

16.4

16.3

16.0

16.6

2012

2013

2014

2015

2016

2017

2018

2019

2
0

■ Leading issuer in the Japanese bond market with anaverage annual funding volume of USD 17 – 19 bn■ Aiming to diversify its funding sources and expand its
investor base – continues to access the international
market through benchmark transactions as well asprivate placements, making use of its MTN Program■ In the international market, only non-government
guaranteed bonds will be issued■ In fiscal 2018, JFM has issued a total of USD 3.2 bn worthof international bonds through 3 benchmark transactions(※), 2 private placements and an Uridashi transaction(※) Includes USD 1.0 bn benchmark transaction issued on 12 March 2019 which wehave prefunded for fiscal 2019

Support Structure

Annual Lending Volume(USD bn)25■ Under the JFM Law, if JFM is to be dissolved and its

obligations cannot be satisfied in full with its assets,
local governments bear all costs necessary to satisfy
the relevant obligations in full via payment to JFM

20
15
10

Solid Risk Management

50
FY 2012

2013

2014

2015

2016

2017

2018

2019

* Planned amount; subject to change depending on market conditions andother factors.

Outstanding Loans
by Business

Total
USD
211.9bn

Sewerage USD 66.9bn 31.6%
Temporary Financial Countermeasures Funding

USD 50.6bn 23.9%
Water Supply USD 29.6bn 13.9%
Three Special Projects USD 8.6bn 4.1%
Transportation USD 7.6bn 3.6%
Special Municipal Mergers USD 9.6bn 4.5%
Hospitals USD 9.6bn 4.5%
Disaster Management and Mitigation

USD 6.8bn 3.3%
Public Projects USD 4.4bn 2.1%
Industrial Water Supply USD 1.6bn 0.8%
Local Road Development USD 4.7bn 2.2%
Others USD 11.9bn 5.5%

Outstanding Loans
by Borrower■ JFM maintained USD 25 bn of the reserves forinterest rate volatility for the purpose of dealing withinterest rate risk resulting from a duration gap between
lending (8.09 years) and funding (7.22 years)■ The duration gap of 0.87 years*1 in the generalaccount qualifies JFM’s management target of theduration gap below 2 years

Credit Ratings■ A1 (Moody’s), A+ (S&P)■ The ratings of JFM are the same as those of theJapanese sovereign■ BIS risk weight*3: 10% for JFM bonds (non-guaranteed) denominated in JPY

Prefectures USD 44.3bn 20.9%■ JFM funds have accounted for around 15-16% of the■ JFM provides loans to almost all local governments

Other Private Sectors
JFM
JFM Ratio

Funding

Government-designated Cities

Total
USD
211.9bn

USD 32.6bn 15.4%

Cities, Special Wards of Tokyo,
Towns and Villages

USD 129.2bn 61.0%

Local Government Corporations andAssociations

USD 5.8bn 2.8%

Note: A rating is not a recommendation to buy, sell or hold securities andmay be subject to suspension, reduction or withdrawal at any timeby the assigning rating agencies.
*1: As of 31 March 2019.
*2: Local governments comprise all of the prefectures, cities and special wards of Tokyo, governmentdesignated cities, towns and villages, as well as some local government associations.
*3: Value for investors in Japan. For overseas bonds, the value is determined by respective
authorities in each country (as of 31 March 2019).

Funding Plan
Type of
Funding Instruments

FY2019(plan)(1)

FY2018(achieved)

Non-Guaranteed Bonds

USD 14.7 bn

USD 14.9 bn

Domestic Public Offerings

USD 6.7 bn

USD 7.3 bn

Domestic Private Placements

USD 4.3 bn

USD 4.4 bn

Overseas Offerings - GMTN
Benchmark

USD 3.2 bn（2）USD 3.0 bn（5）USD 2.3 bn

Uriadshi Bonds

USD 90 mm（2）Private Placements

USD 145 mm（2）Open Issuance

USD 1.4 bn

ーGuaranteed Bonds(4)USD 0.9 bn

USD 2.3 bn

Long-Term Bank Loans

USD 0.7 bn

USD 0.4 bn(3)(1) Planned amount; subject to change depending on lending status, market
conditions and other factors.
(2) Includes USD, AUD and EUR denominated bonds, each converted at
the exchange rate at the time of pricing.
(3) Details of issuance such as tenor, issue size and issue market will be
determined as necessary based on the lending status, market conditions
and other factors.
(4) Denominated in JPY only and issued in the domestic market forrefinancing our predecessor’s government guaranteed bonds.
(5) Includes USD 1.0 bn benchmark transaction issued on 12 March 2019
which we have prefunded for fiscal year 2019.

Bond Issuance

Bonds without government guarantee
Bonds with government guarantee（USD bn）

16
14
12
10
8
6
4
2
0
FY 2012

2013

2014

2015

2016

2017

2018

2019

*Planned amount; subject to change depending on lending status, market
conditions and other factors.

Outstanding Non-JPY Public Bonds (non-guaranteed)
Coupon(%)

Tenor

12 Mar 2019

Issue Date

Currency Issue Amount
USD

1,000 mm

3.000

5y

27 Sep 2018

USD

1,000 mm

3.375

5y

24 Apr 2018

USD

1,000 mm

3.250

5y

8 Sep 2017

USD

1,000 mm

2.000

3y

20 Apr 2017

USD

1,000 mm

2.625

5y

25 Oct 2016

USD

1,000 mm

2.125

7y

13 Apr 2016

USD

1,500 mm

2.125

5y

12 Feb 2016

USD

500 mm2.125

5y

21 Apr 2015

USD

1,000 mm

2.000

7y

13 Feb 2015

USD

1,000 mm

2.375

10y

22 Sep 2014

EUR

1,000 mm

0.875

7y

Outline of JFM Operations

Outstanding
Bonds
JPY 20.3 tn(USD 183.8bn)

Outstanding
Long-term BankLoans
JPY 0.1 tn(USD 1.2bn)

Proceeds from
Public Races*

Japan Finance
Organization for
Municipalities(JFM)

Reserve forInterest Rate
Volatility, etc.
JPY 2.8 tn(USD 25.4bn)

Lending(Long-term/low
interest rates)
Outstanding
Loans
JPY 23.5 tn(USD 211.9bn)

Reduction ofLending Rates

Solid Financial Foundation
Local Governments

Financial Markets

Funding(JFM Bonds)

In response to this situation, JFM issues bonds in capital markets with a wide variety of maturities ranging
from medium-term to super long-term to provide stable and low-interest funds to local governments.
Under the JFM Law (Article 52, Paragraph 1), local governments have an obligation to bear the cost
necessary to satisfy all JFM obligations in the event JFM is to be dissolved and its obligations remain unpaid.

Fund forLending Rate
Reduction
JPY 0.9 tn(USD 8.3 bn)

JFM primarily issues 10-year bonds to raise funds and extends long-term loans to local governments,
which creates a duration gap between lending and funding. To cope with the interest rate risk associatedwith bond refinancing (a potential negative margin caused by the interest payable exceeding the interest
receivable), JFM maintains reserves for interest rate volatility.

Reduction of Lending Rates by Utilizing the Fund forLending Rate Reduction
JFM receives a portion of the earnings from various racing events (horse, bicycle, motorcycle and boatraces) operated by local governments, which is directed to the Fund for Lending Rate Reduction. The
investment gains from the fund are used for lowering interest rates on JFM loans.

* A portion of the earnings from municipally operated racing(horse, bicycle, motorcycle and boat race).

(As of 31 March 2019)

Public Institution Wholly Owned by
Japanese Local Governments
JFM is a joint funding organization for all local governments, wholly owned by Japanese local governments
under the Japan Finance Organization for Municipalities Law (Act No. 64 of 2007, as amended; the “JFM
Law”).
JFM loans are provided exclusively to local governments, and local governments must, in principle,
receive consents or approvals of the Minister for Internal Affairs and Communications or their respective
prefectural governors when they borrow from JFM. Within this structure, JFM has never had a default since
its establishment.

Joint Funding Organization for
All Local Governments
JFM contributes to the sound financial operation of local governments and improves the welfare of local
residents with the aim of efficiently and effectively complementing local government fund-raising by providing
long-term funding at low-interest rates to local governments.
For social infrastructure improvements to be implemented by local governments, long-term funding is
usually desirable given that it takes a long time to recoup such capital expenditures, and also the costburden should be shared across generations. However, local governments generally raise funds in capital
markets for terms of 10 years or less.

Capital
As of 31 March 2019, JFM's capital was USD
149.7 million contributed by 1,789 Japanese local
governments, i.e., all of the prefectures, cities,
special wards of Tokyo, government-designatedcities, towns and villages, as well as some local
government associations.
The amount of capital contribution from each
local government is decided based on 1)
outstanding JFM loans to each local government,
and 2) the amount of revenue of each local
government (mainly comprised of local taxes,
local allocation taxes and temporary financial
countermeasures funding).

Capital Contribution by
Local Government Group
Towns, villages
and local
government
associations

Prefectures

USD 9.4 mm

USD 57.4 mm

6.3%

38.4%
USD
149.7 mm

Governmentdesignatedcities *2

Cities *1 andspecial wardsof Tokyo

USD 26.0 mm

USD 56.9 mm

17.3%

38.1%

(As of 31 March 2019)

Notes:
1.Excludes government-designated cities.
2.Government-designated cities:
Cities with populations of 500,000 or more designated in accordance with Paragraph 1, Article 252-19 of the Local Autonomy Act. Such government-designated cities areallowed to administer certain matters such as social welfare, food safety, and urban planning, for which prefectures are responsible in principle.

Review of Operations
for Fiscal 2018
1. Lending Operations

12

2. Funding Operations

14

3. Financial Review

16Management Plan for
Fiscal 2019
1. Lending Operations

18

2. Funding Operations

18

3. Scheduled Payment to
the National Treasury

19

Furano City, Hokkaido Prefecture

Review and Plan

Review and plan

Review of Operations for Fiscal 2018
1

Lending Operations

In fiscal 2018, JFM provided loans totaling USD 14.9 billion, which was below the initial plan by USD
62 million, mainly as a result of actual lending underperforming plan in water supply business.
General account-related loans totaled USD 4.3 billion, or 29% of the total lending volume, mainly
represented by disaster management and mitigation and special municipal mergers. Loans for
temporary financial countermeasures funding* were USD 4.6 billion (31%), followed by municipal
enterprise-related loans in the amount of USD 6.0 billion (40%), of which sewerage and water supply
businesses were the main contributors.
Note: Represents local government funding to cover shortfalls in local government revenue sources pursuant to the provisions of the
Local Government Finance Law (Law No. 109 of 1948, as amended).

Lending Operations by Business Type in Fiscal 2018
Number ofLoans Made

Business

Loan Amount (USD in millions)% of total

FY2018 Loans Extended by Business Type

Others1% (USD 0.2 bn)

Special Municipal Mergers

7% (USD 1.0 bn)

Transportation

1% (USD 0.2 bn)

Disaster Management and
Mitigation

Hospitals and Elderly
Care Services

7% (USD 1.0 bn)

9% (USD 1.2 bn)

Public Projects, etc.

Water Supply

3% (USD 0.5 bn)

9% (USD 1.3 bn)

OthersSewerage

11% (USD 1.8 bn)

21% (USD 3.1 bn)

General Account-related Loans
Public Projects, etc.

702

499

3.3

Public Housing

224

160

1.1

Educational Facilities Development

298

144

1.0

Social Welfare Facilities Development

267

133

0.9

General Waste Dispoal

118

114

0.8

General Service Facilities Development

Municipal Enterprise-related Loans

Temporary Financial Countermeasures Funding

General Account-related Loans(USD 6.0 bn)(USD 4.6 bn)(USD 4.3 bn)

40％

6

13

0.1

General Projects

119

110

0.7

Regional Revitalization

268

120

0.8

Disaster Prevention

389

162

1.1

Local Government
Corporations and Associations

Local Road Development

471

349

2.3

Special Municipal Mergers

608

1,048

7.0

2％ (USD 0.2 bn)

Disaster Management and Mitigation

1,497

983

6.6

Towns and Villages

Optimization of the Public Facilities

16

37

0.2

8％ (USD 1.2 bn)

Proper Management of Public Facilities and Infrastructures

275

380

2.5

Anti depopulation measure project

119

39

0.3

5,377

4,289

28.8

1,127

1,342

9.0

Subtotal
Municipal Enterprise–related Loans-

Water Supply
Industrial Water Supply

78

71

0.5

Transportation

39

170

1.1

Electricity and Gas Supply

40

65

0.4

Port Facilities

18

14

0.1

Hospitals and Elderly Care Services

523

1,202

8.1

Markets and Slaughterhouses

42

76

0.5

2,237

3,072

20.6

Sewerage
Tourism and Others
Subtotal

17

6

0.0

4,121

6,019

40.4

Refinancing Loans for Facilities Affected by Earthquake

-

-

0.0

Temporary Financial Countermeasures Funding

690

4,596

30.8

10,18814,904

100.0

Total

31％

FY2018 Loans Extended by Borrower Type

Prefectures

21％ (USD 3.2 bn)
Government-designated Cities

9％ (USD 1.3 bn)

Cities, Special
Wards of Tokyo

60％ (USD 8.9 bn)

Total

USD

14.9 bn
Note: Totals may not add up due to rounding.

Note: Totals may not add up due to rounding.

JFM Annual Report 2019 | 1229％

JFM Annual Report 2019 | 13

Review and plan

Review of Operations for Fiscal 20182

2. Government-guaranteed Domestic Bonds

Funding Operations

Type of Bonds

Plan

Achieved

Type of Bonds

Plan

Achieved

10-year

USD 2.3 bn

USD 2.3 bn

Long-term Bank Loans

USD 0.5 bn

USD 0.4 bn

6-year

USD 1.3 bn

-

Total

USD 3.6 bn

USD 2.3 bn

1. Overview*1
In fiscal 2018, JFM raised a total of USD 17.7 billion including USD 14.9 billion in JFM bonds (nongovernment guaranteed), and USD 2.3 billion in government-guaranteed bonds for the repayment ofexisting bonds issued by Japan Finance Corporation for Municipal Enterprises (the “Predecessor”). And,
with the aim of diversifying funding source, JFM raised USD 0.4 billion through long-term bank loans.
With regard to JFM bonds, a total of USD 10.5 billion was raised by the regular issuance of 5-year, 10year, 20-year and 30-year domestic bonds, as well as opportunistic issuances through JFM’s Flexible
Issuance Programme (“FLIP”) and the MTN Programme.
As for domestic public offerings, a total of USD 7.3 billion was issued in the fiscal year. In order to copewith highly volatile market conditions through the period, JFM have increased 10-year, 20-year of theregular issuance and FLIP amount from the initial plan by utilizing the budget of Open Issuance scheme.
JFM have also issued 40-year bond as spot issuance subject to demand from investors.
In overseas offerings, JFM issued USD denominated benchmark bonds in 5-year tenor (USD 1.0
billion) in April 2018, September 2018 and March 2019. In addition to these successful public offerings,
JFM have issued a total of USD 235 million equivalent Uridashi and private placement bonds in threetranches. Through these activities, the total volume of international bonds issued for fiscal 2018
amounted to USD 3.2 billion*2.
The private placements with the pension funds for local government officials were totaled USD 4.4
billion.
As a result, JFM’s outstanding bonds were USD 183.9 billion, including the Predecessor’s bonds towhich JFM succeeded. Outstanding long-term bank loans totaled USD 1.2 billion as of 31 March 2019.
Notes: 1. Issued amounts are calculated based on issue prices.
2. Includes an offering of AUD and EUR denominated bonds, converted at the exchange rate at the time of pricing.
Flexible Issuance Programme (“FLIP”)
FLIP is JFM’s unique framework for domestic bond issuance which is similar to the MTN programme in some ways. JFM issues
domestic bonds under the FLIP, in order to meet both the needs of investors in the domestic market and the borrowing needs of local
governments in a timely and ﬂexible manner. FLIP permits minimum and maximum issue sizes of JPY 3 billion (USD 27.0 million) and
JPY 20 billion (USD 180.3 million), respectively.

2. Issue Spreads
In the domestic market, JFM bonds had been priced under the low interest rate environment on theback of the introduction of BOJ’s QQE with yield curve control during fiscal 2018.
In July and September 2018, the premium of JFM 10-year domestic bonds over respective JGB yield
curve was 14.0 bps with the premium over major municipal bonds at 1.0 bps, which continued till
January 2019. However in February 2019, the yield for 10 year JGB recorded negative which resulted inwidening of JFM bonds by 2.0 bp in parallel with municipal bonds. The yield of JFM 10-year bonds had
been hovering around 0.15% to 0.30% during fiscal 2018.
There were strong demands from the investor for 5-year, 20-year and 30-year JFM bonds. 5 year
bonds attracted investors as substitutes for JGB, while 20-year and 30-year bonds had been supported
by investors looking for higher yields. This strong demand made it possible for JFM to issue bonds at thesame spread as municipality bonds for these tenors and spread have been moving stably at tight levels
post issuance.
JFM’s international bonds have been issued based on investor demands and market conditions byreferring to credit spreads observed in the international primary and secondary markets at the time ofpricing.
Note: See pages 106-109 for the terms of issuances in fiscal 2018.

Issue Conditions of JFM 10-Year Domestic Bonds
(bps)
20

16

(%)
0.50

Spread over JGB yield curve (bps, LHS)*
Spread over major local government bonds (bps, LHS)
Yield on JFM bonds (%, RHS)

18

Funding in Fiscal 2018

3. Long-term Bank Loans

17.0

0.45

17.0 17.0 17.0
16.0 16.0 16.0 16.0 16.0

15.0 15.0 15.0 15.0 15.0 15.0

16.0 16.0
15.0 15.0
14.0 14.0 14.0 14.0 14.0

141. JFM Bonds (Non-government Guaranteed)(1) Domestic and Overseas Offerings(2) Private Placements with Pension Funds for
Local Government Ofﬁcials

Type of Bonds

Plan (Initial)

Achieved

Type of Bonds

Plan

Achieved

Domestic Public Offerings

USD 5.4 bn

USD 7.3 bn

10-year

USD 2.0 bn

USD 2.0 bn

10-year

USD 2.0 bn

USD 2.5 bn

20-year

USD 2.4 bn

USD 2.4 bn

20-year

USD 0.9 bn

USD 1.2 bn

Total

USD 4.4 bn

USD 4.4 bn

0.250

10
8

0.255 0.250

0.235

0.225
0.200 0.205

0.215

0.200

6

0.30
0.279

0.269

0.215 0.220

0.220

0.205

0.264

0.200

0.25
0.200

0.20

0.195

0.166

0.165

0.145

0.155

4

5-year

USD 0.2 bn

USD 0.2 bn

USD 0.2 bn

USD 0.2 bn

Opportunistic Issuance

USD 2.1 bn

USD 3.2 bn

Overseas Offerings - MTN

USD 2.3 bn

USD 3.2 bn

FY2017

Open Issuance*1

USD 1.0 bn-

Note: Spreads over the JGB curve are theoretical values calculated by JFM.

Total

USD 8.7 bn

USD 10.5 bn

2
0

0.15
0.10

30-year

1.0

1.0

1.0

1.0

Apr

May

Jun

Jul

1.0

1.0

1.0

1.0

1.0

Aug

Sep

Oct

Nov

Dec

1.0
Jan

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

FY2018Notes: 1. Details of issuance such as tenor, issue size and issue market will be determined as necessary based on the lending
status, market conditions and other factors.
2. Planned amount was increased to USD 10.5 bn in total after funding plan revision in December 2018 and March 2019.

JFM Annual Report 2019 | 14

0.35

0.299

12

0.40

JFM Annual Report 2019 | 15

0.05
0.00

Review and plan

Review of Operations for Fiscal 2018
3

Financial Highlights

Financial Review

1. Income Statement(USD Millions)

1. Income Statement

FY2016

In fiscal 2018, JFM’s income was USD 2.9 billion, a decrease of USD 0.3 billion from the previous year.
This decrease was mainly due to a decrease in interest income caused by a decrease in the averageinterest rate on loans as a result of redemptions of loans made in the past with relatively high interest
rates. Expenses also decreased by USD 0.1 billion from the previous fiscal year resulting in USD 1.6
billion. As a result, net income has decreased by USD 0.1 billion from precious year, resulting in USD 1.3
billion.
Pursuant to the relevant laws, a portion of the revenue generated by the refinancing of bonds andborrowed money of JFM* is to be directed into the reserves for interest rate volatility. As a result of suchprovisions as well as other factors, net income remains similar level to the previous year at USD 209.0
million.
*This revenue is calculated based on the difference between JFM’s funding rates at the time the loans were made and the current
refinancing rates.

FY2017FY2018

3,394

3,133

2,875

-258

Expenses

1,950

1,763

1,618

-145

Ordinary Income

1,444

1,370

1,257

-113

251

235

209

-26

Net Income(USD mm)
4,000

IncomeExpenses

3,000

Ordinary Income

2,000
1,000
0

FY201620172018

2. Balance Sheet(USD Millions)

2. Balance Sheet

End of FY2016

As of 31 March 2019, JFM’s total assets amounted to USD 221.7 billion, a decrease of USD 1.5 billion
from the previous year. This mainly resulted from a decrease in loans by USD 2.4 billion.
Total liabilities decreased by USD 1.8 billion resulting in USD 219.0 billion. This decrease primarily
reﬂected a decrease of USD 2.5 billion in management account reserve for interest rate volatility.
Total net assets were USD 2.7 billion, up USD 0.3 billion. This mainly reﬂected net income of USD 0.2
billion in the general account being recorded as the general account surplus reserve.
Financial highlights since fiscal 2016 are on the next page.

End of FY2017

End of FY2018

YoY

Total Assets

223,461

223,186

221,684-1,502

Loans

213,848214,283

211,892-2,390

OthersTotal Liabilities
Bonds
Cash collateral received forfinancial instruments

9,613

8,904

9,792

888

221,287

220,775

219,023-1,753179,910

182,875

183,846

971

1,002

111

249

139

Fund for lending rate reduction

8,297

8,297

8,297

-

Reserves under special laws

30,46527,99325,419-2,574

17,851

19,834

19,834-

12,244

7,848

5,383

-2,465

370

311

202

-109

Others

1,614

1,500

1,212

-288

Total Net assets

2,173

2,411

2,661

250

Reserve for interest rate
volatility
Management account reservefor interest rate volatility
Reserve for interest rate
reduction(USD mm)230,000

Total Assets
Total Liabilities

220,000

210,000

200,000

FY20162017

2018

Note: Totals may not add up due to rounding.

JFM Annual Report 2019 | 16

YoY

IncomeJFM Annual Report 2019 | 17

Review and plan

Management Plan for Fiscal 2019
1

Funding Plan for FY2019

Lending Operations

1. JFM Bonds (Non-government Guaranteed)
JFM’s lending plan is formulated based on the amount of local government borrowing for which theconsent or approval is scheduled to be given by the Minister for Internal Affairs and Communications or
the respective prefectural governors, under the Local Government Borrowing Programme (the “LGBP”).
Based on the LGBP, JFM plans to extend loans in the amount of USD 16.6 billion in fiscal 2019, USD 0.6
billion or 3.3% increase from fiscal 2018.

(1) Domestic and Overseas Offerings
Type of Bonds

FY2019 (Plan)

FY2018 (Achieved)

Domestic Public Offerings

USD 6.7 bn

USD 7.3 bn

10-year

USD 2.3 bn

USD 2.5 bn

20-year

USD 1.0 bn

USD 1.2 bn

5-year

USD 0.2 bn

USD 0.2 bn

30-year

USD 0.2 bn

USD 0.2 bn

Opportunistic Issuance

USD 3.0 bn

USD 3.2 bn

USD 2.3 bn

USD 2.1 bn

Lending Plan

Planned Amount

FY2019FY2018YoY

USD 15.0 bn

USD 15.0 bn

0.0%Overseas Offerings - MTN
Open Issuance
Total

JFM Funds in Local Government Borrowing Programme
FY2019FY2018YoY

USD 16.6 bn

USD 16.0 bn

3.3%

General Account-related Loans

USD 5.4 bn

USD 4.5 bn

20.8%

Municipal Enterprise-related Loans

USD 7.3 bn

USD 6.6 bn

9.8%

Temporary Financial Countermeasures Funding

USD 3.9 bn

USD 4.9 bn-21.3%JFM Funds

Notes: 1. The amount of JFM funds in the LGBP does not match JFM’s lending plan due to the timing for consent or approval being
different from when JFM loans will actually be extended.
2. See page 56 for more information on JFM funds in the LGBP.

(2) Private Placements with Pension Funds for Local Government Ofﬁcials
FY2019 (Plan)

FY2018 (Achieved)

10-yearType of Bonds

USD 2.2 bn

USD 2.0 bn

20-year

USD 2.2 bn

USD 2.4 bn

USD 4.3 bn

USD 4.4 bn

Total

2. Government-guaranteed Domestic Bonds
Type of Bonds

Total

Funding Operations

USD 9.4 bn

Notes: 1. Subject to change depending on lending status, market conditions and other factors.
2. For Open Issuance, details of issuance such as tenor, issue size and issue market will be determined as necessary basedon the lending status, market conditions and other factors.

10-year2

USD 1.4 bn
USD 10.3 bn

FY2019 (Plan)

FY2018 (Achieved)

USD 0.9 bn

USD 2.3 bn

USD 0.9 bn

USD 2.3 bn

FY2019 (Plan)

FY2018 (Achieved)

USD 0.7 bn

USD 0.4 bn

3. Long-term Bank Loans
Type of Loans

In order to raise funds for lending operations, JFM primarily issues non-government guaranteed bonds
through domestic public offerings and overseas offerings. For fiscal 2018, JFM plans to issue USD 10.3
billion of JFM bonds through these methods.
In addition, private placements with pension funds for local government officials are projected toamount to USD 4.3 billion in fiscal 2019. In addition to issuing JFM bonds, JFM plans to raise USD 0.7 bn
through long-term bank loans.
As for government-guaranteed bonds, JFM plans to issue USD 0.9 billion during fiscal 2019.

Long-term Bank Loans

3

Scheduled Payment to the National Treasury

In accordance with Article 14 of the Supplementary Provisions of the Law, a portion of JFM’s
management account reserve for interest rate volatility is being attributed to the Japanese national
government over a period of three years from fiscal 2017 through fiscal 2019, with the aim of transferring
up to USD 8.1 billion over this period. In fiscal 2017 and 2018, USD 3.6 billion was transferred to thenational treasury by JFM and, in fiscal 2019, USD 0.9 billion is scheduled to be transferred to the nationaltreasury to secure financial resources of the local allocation tax.
Furthermore, it has been also determined that an additional amount of up to USD 13.5 million from fiscal
2018 through fiscal 2023 shall be attributed to the government attributed to the government to secure
financial resources for water and sewage concession. In fiscal 2018, USD 0.5 million was transferred to
the national treasury and the same amount is scheduled to be transferred in fiscal 2019 for this purpose.
JFM Annual Report 2019 | 18

JFM Annual Report 2019 | 19

Lending Operations
1. Outline

22

2. Loan Interest Rates

24

3. Credit Check System

26

4. Trends in Lending Operations

26

5. Lending Operations by
Business

29

Funding Operations
1. Issue Type

32

2. Basic Funding Policy

33

3. Features of JFM Bonds

34

4. Trends in Funding Operations

35

Rurikoin, Kyoto Prefecture

Operations

Operations

Lending Operations
JFM’s primary objective is to contribute to the sound operation of the local
government ﬁnancing and to improve the welfare of local residents by providing long-

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

term funding at low interest rates to local governments.
Loans for Fiscal 20191

OutlineFixed Lending Rate

Business TypeAs public funds included in the LGBP, JFM loans are offered to local governments which have theconsent or approval of the Minister for Internal Affairs and Communications or the respective prefectural
governors.

JFM provides loans exclusively to local governments.

2. Types of Loans

Public Housing
General Account-related Loans

1. Eligible Borrowers

Public Projects, etc.*2

Educational andSocial Welfare
Facilities Projects

Unsubsidized
Projects

JFM classifies general loans into the following three categories depending on the term.

Municipal
Enterprise-related Loans• Pre-Consent or Pre-Approval Loans
Bridge loans to cover the period up to the disbursement of Long-Term Loans for projects forwhich the consent or approval is assured.
• Short-Term Loans
Loans to be repaid with revenues in the same fiscal year.

Temporary Financial
Countermeasures Funding

Maturity

Grace Period
for Principal
Repayment

Maturity

Grace Period
for Principal
Repayment

Within (Years)
25

Within (Years)
5

Within (Years)
25

Within (Years)
5

25

5

25

5

Educational Facilities Development*2

25

3

25

3

Social Welfare Facilities Development

25

3

25

3

General Waste Disposal

20

3

20

3

General Projects*2

30

5

30

5

Regional Revitalization

30

5

30

5

Disaster Prevention

30

5

30

5

Local Road Development

20

5

20

5

Special Municipal Mergers

30

5

30

5

Disaster Management and Mitigation

30

5

30

5

Public Facilities Optimization

30

5

30

5

Emergency Natural Disaster Prevention

30

5

30

5

30

5

40

5

Water Supply

30

5

40

5

Industrial Water Supply

30

5

40

5

Transportation*2

30

5

40

5

Electricity Supply*2

30

5

30

5

Gas Supply

25

5

25

5

Port Facilities*2

30

5

40

5

Hospitals*2

30

5

30

5

Markets

30

5

40

5

Slaughterhouses

30

5

30

5

Sewerage

30

5

40

5

Prefectures and GovernmentDesignated Cities

–

–

30

3

Cities, Towns and Villages

–

–

20

3

Anti-depopulation Measure Project• Long-Term Loans
Loans provided to local governments that have the consent or approval, and mature in orafter the second fiscal year.

Adjustable Lending Rate*1

Notes: 1. Adjustable lending rates are reviewed depending on the maturity of the loan every 5 years, every 10 years or every 15
years or 20th, or 30th anniversary of the initial disbursement. Lending rates for Temporary Financial Countermeasures
Fundings are reviewed every 5 years or 10 years.
2. Figures represent maximum maturities and grace period for principal payment.

JFM Annual Report 2019 | 22

JFM Annual Report 2019 | 23

Operations

Lending Operations
2

2. Lending Rate Reduction

Loan Interest Rates

JFM sets standard lending rates, which are determined to balance its funding cost, and also offers
special lending rates at a discount to the standard rates by making use of its Fund for Lending Rate
Reduction.

The interest rate differentials between the special lending rates and the standard lending rates
are covered by investment gains in the Fund for Lending Rate Reduction. The fund is comprised of
payments by local governments of a portion of proceeds they earn from municipally operated racing inaccordance with the Local Government Finance Law, and also JFM’s own funds.

1. Loan Interest Rates
JFM offers two types of loan interest rates: the standard lending rate and the special lending rate. The
standard lending rate is calculated in order to balance JFM’s funding cost with interest income from its
lending. Specifically, this rate is determined in a manner that the discounted present value of the cash
ﬂows of the funds raised to make the loans equals the discounted present value of the cash ﬂows to begenerated by those loans with their respective terms to maturity, grace period for principal repayment
and repayment methods.
The special lending rate is set at 0.35% per annum below the standard rate with the minimum interest
rate set at the same level as the interest rates for Fiscal Loan Fund provided by the national government. At
the end of fiscal 2018, approximately 99% of outstanding JFM loans consisted of special interest rate loans.
The trends of JFM loan interest rates since April 2017 are shown below. The special lending rate has
been at the same level as the national government’s lending rates that are applicable to loans for specificpublic projects (the Fiscal Loan Fund). This is due to the ﬂoor rates of the special lending rates being set
equal to respective lending rates of the Fiscal Loan Fund which have identical terms on redemptions tothose of JFM loans.

0.15%

Reduction using investment gains

0.20%

Reduction using JFM’s own funds

Reduction
0.35%Standard
Lending Rate(funding costs)

General Account-related Loans• Public housing
Municipal Enterprise-related Loans
SpecialLending Rate • Industrial water supply • Gas supply• Elderly care services • Markets• Slaughterhouses • Parking facilities

0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%

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

0.10%

Jun

2017

Sep

0.15%

General Account-related Loans(excluding public housing)Temporary 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 provided by
the national government.
2. The discount rates using the investment gains (0.15% or 0.20%) applicable to each business category are determined by
the Minister for Internal Affairs and Communications, pursuant to the Ministerial Ordinance on Finance and Accounting of
the Japan Finance Organization for Municipalities (Ordinance No. 87 of the Ministry of Internal Affairs and Communications,2008).

Trends of Lending Rates

0.00%

0.20%

Dec

Mar

Jun
2018

Sep

Dec

2019

Mar

Note: The lending rates above represent a 30-year fixed rate loan with a 5-year grace period for semi-annually equal total payment.

JFM Annual Report 2019 | 24

JFM Annual Report 2019 | 25

Operations

Lending Operations
3

2. Annual Lending Volume by Business and Borrower

Credit Check System

JFM conducts the following credit check process for all loans on the assumption that the details
and legality of each project as well as assurance of loan repayment have been confirmed during theconsultation and checking process to obtain the consent or approval for loans.
1) JFM checks the financial and operational status of local governments and municipal enterprises
to which it plans to lend, in light of the fiscal indicators as stipulated in the Law Relating to the
Financial Soundness of Local Governments of Japan (Act No. 94 of 2007). This credit checkprocess may include an interview of the staff of prefectures, cities, towns, and villages.
2) JFM reviews loan applications submitted by local governments to determine if conditions are met.
The conditions include the consent or approval, any required resolution by the local government
assembly and budget appropriation for loans.
3) After a loan is disbursed, JFM conducts an onsite review to verify the use of funds and to check theoperational status of the project and the financial and operational status of the borrower.
1 Check of local

2 Verification at the timegovernments/municipal
enterprises applying
for loansof lending
Check of the loan
application documents•Check financial andoperational status•Conduct interviews•Verify the consent or approval
for the loan amount•Check the loan application
documents

3 Subsequent review
Onsitecredit review

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

In fiscal 2018, loans for temporary financial countermeasures funding were USD 4.6 billion, accounting
for the largest share of lending, at 31% of the total. Ranked next were USD 3.1 billion in the seweragebusiness, representing 21% of the total, and USD 1.3 billion in the water supply, for 9% of the total.

Long-Term Loans Extended by Business
Total
FY (USD bn)
2014 17.4

Sewerage

Water Supply

18%

7%

38%

28%

18

8

6

2

28

Transportation

2016 15.6

18

9

7

2017 15.6

18

9

9

2018 14.9

21

9

2
1
8

34

28
29
1

29

Total

USD
1. Overview

33

2

31

2

FY2018 Loans Extended by Borrower
Local Government Corporations
and Associations

8％ (USD 1.2 bn)

Trends in Lending Operations

3

Notes: 1. Pre-consent or pre-approval loans are accounted for in the year when they are converted into long-term loans.
2. “Others” includes refinancing loans for municipal enterprise-related projects, and refinancing loans for facilities andspecified local governments affected by earthquake.
3. Totals may not add up due to rounding.

Towns and Villages

42%

Temporary Financial Countermeasures Funding
35
2

Hospitals

2015 16.8

OthersGeneral Account-related Loans

5% 2%

2％ (USD 0.2 bn)

14.9 bn

Prefectures

21％ (USD 3.2 bn)
Government-designated Cities

JFM’s annual lending volume has dropped since fiscal 2014 due mainly to decrease in the budget of
disaster management and mitigation and Temporary financial countermeasures funding.
In fiscal 2018, the lending volume amounted to USD 14.9 billion. At year-end, outstanding loans were
USD 211.9 billion.

9％ (USD 1.3 bn)

Cities,Special Wards of Tokyo

60％ (USD 8.9 bn)
Note: Totals may not add up due to rounding.

Annual Lending Volume

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

20
17.0
15

210

19.2
17.4

208.1

211.3

213.3 213.8 214.3 211.9

204.4
16.8

15.6 15.6 14.9

200
190

10
180
5

170

0
FY2012 2013 2014 2015 2016 2017 2018

JFM Annual Report 2019 | 26

0
FY2012 2013 2014 2015 2016 2017 2018

JFM Annual Report 2019 | 27

Operations

Lending Operations
3. Outstanding Loans by Business and Borrower

5

At the end of fiscal 2018, the outstanding loans were USD 211.9 billion, of which the seweragebusiness accounted for the largest share at 31.6%, followed by temporary financial countermeasuresfunding at 23.9% and water supply at 13.9%.
There was a total of 2,175 local governments, local government associations and corporations withoutstanding JFM loans, including all prefectures. Cities, special wards of Tokyo, towns and villages
accounted for the largest portion at 61.0% of the total, followed by prefectures at 20.9% and governmentdesignated cities at 15.4%. Local government associations and corporations represented the remaining
2.7%.

Others
4.4% (USD 9.3 bn)

Sewerage
31.6% (USD 66.9 bn)

Public Projects, etc.
2.1% (USD 4.4 bn)

Water Supply
13.9% (USD 29.6 bn)

Transportation
3.6% (USD 7.6 bn)

Three Special Projects*1
4.1% (USD 8.6 bn)

Industrial Water Supply
0.8% (USD 1.6 bn)

Special Municipal Mergers
4.5% (USD 9.6 bn)

Others
1.1% (USD 2.3 bn)

20.5%(USD 43.4 bn)

Water Supply Business(USD bn)

Temporary Financial
Countermeasures Funding

23.9%(USD 50.6 bn)

Toll Road Public Loans

Municipal Enterprise-related Loans%(USD 0.3 bn)%(USD 117.6 bn)

0.1(Number of loans)

2.0

1,300

Loan Amount
Number of Loans

Hospitals
4.5% (USD 9.6 bn)

Disaster Management
and Mitigation
3.3% (USD 6.8 bn)

General Account-related Loans

JFM provides loans to local government businesses specified in the LGBP that the national
government formulates each fiscal year.
The major JFM-funded businesses are as follows.

At the end of fiscal 2017, the water supply coverage was 97.3% of the population. The water supply
business (including small-scale water supply) operated by local governments totaled 1,926 projects andprovided about 18.1 billion cubic meters of water annually for approximately 124.2 million people.
In fiscal 2018, loans extended to the water supply business amounted to USD 1.3 billion.

Outstanding Loans by Business (as of 31 March 2019)Local Road Development
2.2% (USD 4.7 bn)

Lending Operations by Business

1.5

1,200

1.0

1,100

0.5

1,000

Kaneda Water Distribution Station (Kisarazu City, Chiba Prefecture)

55.5

0

FY2014 15

16

17

18

900

*1 Development projects for local roads, rivers and other waterways, and high school building.

Transportation Business

Outstanding Loans by Borrower (as of 31 March 2019)Local Government
Corporations and Associations

2.8% (USD 5.8 bn)

Prefectures[399]

20.9% (USD 44.3 bn)

At the end of fiscal 2017, the transportation projects managed by local governments totaled 86
projects and public transportation is used by approximately 4.4 billion people annually (12.11 million
people on an average daily basis).
In fiscal 2018, loans extended to the transportation business amounted to USD 0.2 billion.

[47](USD bn)(Number of loans)

0.4
Cities, Special Wards of Tokyo,
Towns and Villages

Loan AmountGovernment-designated Cities

15.4% (USD 32.6 bn)

61.0% (USD 129.2 bn)

0.3

[20]

[1,709]80

60
Number of Loans*Figures in square brackets represent the
number of borrowers.

Total

USD

211.9 bn

JFM Annual Report 2019 | 28

Note: Totals may not add up due to rounding.

0.2

40

0.1

20

Kumamoto City Tram (Kumamoto City, Kumamoto Prefecture)0

FY2014 15

JFM Annual Report 2019 | 29

16

17

18

0

Operations

Lending Operations
Hospitals Business

Disaster Management and Mitigation

At the end of fiscal 2017, hospital projects managed by local governments totaled 630 with 783
hospitals, which included 751 general hospitals and 32 mental hospitals.
In fiscal 2018, loans extended to the hospitals business (including those run by local independentadministrative institutions) totaled USD 1.2 billion.

Disaster management and mitigation represents projects to
support and build strong disaster-resistant cities and towns byextending loans to facilities that can gather information promptly incase of emergent situations and other projects that can increase
disaster prevention capablility.
In fiscal 2018, loans extended for disaster management andmitigation amounted to USD 1.0 billion.

(USD bn)(Number of loans)

1.6

800
Number of Loans

1.4
1.2

Atsugi City Hospital (Atsugi City, Kanagawa Prefecture)

700
Loan Amount

1.5

0.6

600
300

600

0

0.6

300

0.4

200

0.2

100
17

18

0

Sewerage BusinessAt the end of fiscal 2017, the sewerage system covered 90.9% of the nation’s total population. There
were 3,631 projects involved, with a total annual sewerage processing capacity (combined storm waterand sewerage treatment, excluding river basin sewerage) of around 15.1 billion cubic meters serving
areas with a population of nearly 104 million people.
In fiscal 2018, loans extended to the sewerage business totaled USD 3.1 billion.

FY2014 15

16

17

18

0

Temporary Financial Countermeasures Funding
Temporary financial countermeasures funding represents thefunding for local governments in order to cover general resource
shortfalls pursuant to the provisions of the Local Government
Finance Law.
In order to secure the payments of the principal and interestof funds borrowed by local governments under temporar yfinancial countermeasures funding, the national government
includes the entire amount of such payments in the total amountof local allocation tax grants, which are to be allocated to local
governments in subsequent years.
In f iscal 2018, loans ex tended for temporar y f inancial
countermeasures funding amounted to USD 4.6 billion.

(USD bn)(Number of loans)

8.0

1,000

Loan Amount

6.0

Number of Loans

800

4.0

600

2.0

400

(Number of loans)

4.0

2,500

0

FY2014 15

Loan Amount
Number of Loans

3.0

2,250

2.0

2,000

1.0

1,750

FY2014 15

1,500

900

400

0

Loan Amount

1,800

0.9

0.8

(USD bn)

Number of Loans

1,200

0.3

16

(Number of loans)

1.2

500

FY2014 15

JFM Annual Report 2019 | 30

1.8

1.0

0

Shiojiri City Sewage Purification Center(Shiojiri City, Nagano Prefecture)(USD bn)

16

17

18

1,500

JFM Annual Report 2019 | 31

16

17

18

200

Operations

Funding Operations
As a joint funding organization for local governments, JFM raises funds in a

2

Basic Funding Policy

consistent manner to provide local governments with long-term and low-interest funds,
while endeavoring to focus on market ﬂuctuations.

1Issue TypeJFM primarily issues non-government guaranteed bonds (i.e., JFM bonds) through public offeringsin order to raise funds for its lending operations. Private placements with the pension funds for local
government officials are also taken as a means of fund-raising.
JFM issues government-guaranteed bonds only for refinancing the existing government-guaranteedbonds of the Predecessor in order to manage the Predecessor’s assets to which JFM has succeeded.
In addition to issuing bonds, JFM raises money from long-term bank loans as a supplemental sourcefor overall funding operations.

JFM Bonds

To be issued by JFM without government guarantees. Under Article 40,
Paragraph 2 of the JFM Law, all holders of JFM bonds have a preferential
right to be paid prior to other unsecured indebtedness.

Domestic
Bonds
Public•Regular issuance of 5-year, 10-year, 20-year and 30-year bonds

Offerings•Opportunistic bond issuance (maturities except for 5-year, 10-year, 20-year and30-year)Private Placement with pension funds for local
government officials

International
Bonds

Bonds issued in international markets through the MTN Programme

Government-Guaranteed Bonds

To be issued only in the domestic market denominated in Japanese Yen forthe purpose of refinancing outstanding government guaranteed bonds
issued by the Predecessor.

Long-term Bank Loans

To secure stable funding at fair value, JFM pursues diversified funding options and strives tobuild confidence in capital markets by proactively disclosing information and thoroughly fulfilling
responsibilities. JFM also endeavors to seek more ﬂexible funding operations than ever in response tovolatile market conditions and shift in investor demands on the back of the change of monetary policy ofmajor central banks.

1. Diversiﬁcation of Funding Methods
From the viewpoint of stable funding, JFM endeavors to issue bonds with various maturities andstructures, including medium-term and super-long-term bonds in response to the market environment
and market needs, in order to broaden its investor base, while also considering funding costs and risk
management.
JFM’s basic means of funding is the issuance of bonds. JFM accesses the domestic market throughthe regular issuance of 5-year, 10-year, 20-year and 30-year bonds, and also continues to takeadvantage of its Flexible Issuance Programme (FLIP) for opportunistic funding as well as long-term bankloans. JFM also utilizes the MTN Programme, being committed to the regular issuance of benchmark
bonds to the international investors and Uridashi bonds to Japanese retail investors. In addition to that,
JFM is going to issue private placement bonds in a ﬂexible manner.

2. Proactive Disclosure and Investor Relations
JFM proactively discloses information on its operations, financial conditions and risk management
status in order to support investment decisions by investors. In this context, JFM announces its annual
funding plan prior to the start of the new fiscal year and its second half-year funding plan in August.
In addition, JFM performs investor relations activities, including presentation meetings and/or oneon-one meetings with investors in both domestic and international markets. JFM thereby helps investors
correctly understand JFM’s management and bonds as well as strengthens market confidence toward
JFM.

3. Contribution to the Sound Development of Capital Markets
While capturing funding opportunities in response to the needs of capital markets, JFM will further
strengthen its role as a leading public-sector bond issuer and be committed to contributing to the sounddevelopment of capital markets.

JFM utilises long-term bank loans as a complementary means of fundraising.

JFM Annual Report 2019 | 32

JFM Annual Report 2019 | 33

Operations

Funding Operations
3

Features of JFM Bonds

4

JFM bonds are generally recognized as having high credit standing with the following features.

• JFM’s assets can be deemed to be highly stable based on the fact that JFM lends
exclusively to local governments, and no local governments have ever defaulted.
• JFM has a solid financial foundation, backed by its reserve for interest rate volatility and theFund for Lending Rate Reduction prescribed in the JFM Law.
• JFM is a joint funding organization established with a capital contribution from Japanese
local governments encompassing all prefectures, cities, special wards of Tokyo, governmentdesignated cities, towns and villages, as well as some local government associations.
• Under the JFM Law, local governments have an obligation to bear the costs necessary tosatisfy all JFM obligations in the event JFM is to be dissolved and its obligations remain
unpaid.
• All holders of JFM bonds have a preferential right to be paid prior to other unsecured
indebtedness.

JFM has received the highest credit rating among the Japanese public-sector bond issuers fromStandard and Poor’s (S&P), Moody’s Investors Service (Moody’s) and Rating and Investment Information,
Inc. (R&I). The BIS risk weighting is 10% for JFM bonds denominated in yen.
In addition to JGBs and local government bonds, interest received by foreign investors (non-residents,
foreign corporations, etc.) on JFM’s domestic bonds in book-entry form as well as JFM’s internationalbonds (both of which include government-guaranteed bonds) shall be exempted from Japanese income
tax, subject to certain procedural requirements.

Trends in Funding Operations

JFM issues JFM bonds (non-government guaranteed bonds to be issued through domestic public
offerings or under the MTN Programme, or private placements with pension funds for local government
officials) and government-guaranteed bonds for the purpose of refinancing existing government
guaranteed bonds of the Predecessor. And, from the perspective of diversifying funding source, longterm bank loans are also an important for JFM’s funding operations.
In fiscal 2018, JFM raised a total of USD 17.7 billion, slightly decreased from the previous year.
This was mainly result of an decrease in the amount of government guaranteed bonds and private
placements with the pension funds issued during fiscal 2018 while the issuance volume of JFM bonds
was increased.
As of 31 March 2019, outstanding bonds were USD 183.9 billion. Outstanding long-term bank loans
totaled USD 1.2 billion. The total amount of outstanding bonds and long-term bank loans was USD
185.0 billion, which was comprised of USD 115.6 billion in the general account and USD 69.5 billion in
the management account. Since the end of fiscal 2016 the volume of outstanding debt in the generalaccount exceeds that of the management account as a result of the trend the management account has
been decreasing while the general account has been increasing.

Funding Volume

Outstanding Bonds and Bank Loans(USD bn)
20(USD bn)
200

15

18.7

18.6

18.1

5.7

5.4

0.5

2.7

0.3

2.6

3.5

6.9

0.4

0.1

4.4

4.5

Moody’s: A1

0

R&I: AA+BIS Risk Weighting(denominated in yen)

187.0

83.9

80.8

2.6
2.1

6.2

6.2

2015

2016

5.4

2017

76.3

7.3

2018

0

FY2014

86.8

2015

97.6

2016

106.2

2017

Japanese Government Bonds: 0%

Long-term Bank Loans

General AccountJapanese Government-Guaranteed Bonds: 0%

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

10%

All holders of JFM bonds (as well as JFM’s government-guaranteed bonds) have apreferential right to be paid prior to other unsecured indebtedness, and such preferential

JFM bonds (domestic bonds)
Non-government guaranteed bonds

right shall rank immediately after the general preferential rights as provided for in the
Civil Code of Japan (Law No. 89 of 1896, as amended). (Article 40, Paragraph 2 andParagraph 3 of the JFM Law)

Note: The risk weights are values for investors in Japan. For international bonds, the values are determined by respective authorities
in each country. (as of 31 March 2019)

JFM Annual Report 2019 | 34

75.6

100

Management AccountFor reference:

191.1

3.1

Government-guaranteed Domestic Bonds

JFM bonds:

Local Government Bonds: 0%

Preferential Rights
for JFM Bonds

FY2014

181.4

100.7

50
7.7

Issuer Credit Rating

150
92.9

3.8

1.6

(As of 31 March 2019)

179.7

2.3

5
S&P: A+

177.1

17.6

6.5
0.1

10

19.1

JFM Annual Report 2019 | 35

115.5

2018

Corporate Governance1. Corporate Governance38

2. Internal Control overFinancial Reporting40

3. Internal Audit

40

General Account andManagement Account41

Risk Management

43

Compliance50

Disclosure

51

Bitchu Matsuyama Castle, Okayama PrefectureManagement StructureManagement Structure

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

1

Corporate GovernanceCorporate Governance System

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 to theoverall management of JFM, including budgets, settlement of accounts and business plans and to
appoint and dismiss the President and CEO as well as Corporate Auditors. As its supervisory function,
the Board is also authorized to obtain from the President and CEO information relating to JFM’soperations and financial condition, and to order the President and CEO to take corrective actions withrespect to any illegal or other inappropriate activities.

Representative Board
Members: (1) Representatives at local governments*(2) External experts*
Number of Members: 6 (3 from (1) above and 3 from (2) above)
Term of Office: 3 years
Appointmentof members

Supervisory
Committee

Appointment and dismissal of
the President and CEO
Agreement for appointment
and dismissal of the President
and CEO / Deputy President

Appointment of
Accounting Auditors
and Corporate
Auditors

Decisions on importantmatters, including
budgets and accounts

Accounting
Auditors

Consultation andpropositions

Members: External experts
Number of Members: 6
Statement ofTerm of Office: 2 years

2. Supervisory Committee

AuditsPresident and CEO,
Deputy President, etc.

(Certified public
accountants or an
audit corporation)

Audits

JFM has focused on establishing highly transparent management that incorporates unbiased opinions
of external parties, and responsible corporate governance. To ensure such a governing structure, JFM
has the Supervisory Committee as a deliberative committee comprising external experts.
The Representative Board appoints the members of the Supervisory Committee from among experts
in local administration, economics, finance, law or accounting, and other experts in the academic world.
The Supervisory Committee has the function of monitoring the operations of JFM and may offer its
opinions on important matters such as JFM’s operations including budgets, settlement of accounts
and business plans. The Committee may also, if necessary, request that the President and CEO reporton those matters. The President and CEO must respect and report the Committee’s opinions to theRepresentative Board.

Corporate Auditors

opinion forimportant matters
including financial
results and budget
Budgetsubmissions

Approval of changes to thearticles of association
Demand for correction ofillegal activities

National Government

3. Audits by Corporate Auditors
The Corporate Auditors are responsible for auditing the accounts of JFM, and may, at their discretion,
submit reports to the Representative Board, the President and CEO and the Minister for Internal Affairs
and Communications.

*Elected by the national associations of prefectural governors, mayors of cities, and mayors of towns and villages.

4. Audits by External Accounting Auditors
As JFM raises funds in capital markets, the proper disclosure of information and external checks on
accounting procedures are essential in order to build market confidence toward JFM.
From this viewpoint, JFM has its financial statements audited not only by corporate auditors but also
by external accounting auditors (certified public accountants or an audit corporation) appointed by the
Representative Board.

JFM Annual Report 2019 | 38

JFM Annual Report 2019 | 39

Management StructureManagement Structure

Corporate Governance

General Account and Management Account2

Internal Control over Financial Reporting

Pursuant to the Ministerial Ordinance on Finance and Accounting of the Japan Finance Organization
for Municipalities, JFM has set up a system which is similar to the internal control reporting system under
the Financial Instruments and Exchange Law in Japan. In accordance with the system, JFM prepares theInternal Control Report to evaluate the effectiveness of internal control over financial reporting to ensure
the reliability of its financial statements, the base date of which is the end of the fiscal year (March 31),and it is audited by the external auditors and released together with the financial statements.
As for the Internal Control Report in which JFM viewed its internal controls on financial reporting
as effective as of the end of fiscal 2019, the accounting auditors gave their opinion (unqualified audit
opinion pursuant to Ministerial Ordinance Article 32, Paragraph 5, Clause 1) that, in all material respects,
evaluation results of JFM’s internal controls over financial reporting were in conformity with the standardsof evaluation for internal controls over financial reporting generally accepted in Japan.

3

Japan Finance Organization for Municipal Enterprises was established on 1 August 2008, with capital
contributed by all prefectures, cities, special wards of Tokyo, government-designated cities, towns andvillages, as well as some local government associations, to provide funds to local governments. JFM
commenced its operations after succeeding to the assets and liabilities of the Predecessor on 1 October
2008.
As a result of the reorganization on 1 June 2009, JFM’s lending scope was extended to overall generalaccount-related loans.
Under the JFM Law, JFM requires managing loans and bonds issued since JFM began its operationsin the general account of JFM, whereas loans and operations carried over from the Predecessor areadministered in the separate account known as the management account of JFM.
With regard to the management account, JFM issues government-guaranteed bonds solely for the
purpose of refinancing government-guaranteed bonds of the Predecessor.
Established on
1 August 2008

Internal Audit

An internal auditor, who is independent from other departments, divisions and offices, examines andassesses the appropriateness and effectiveness of JFM’s internal control systems, thereby helping
ensure reliable financial reporting and appropriate and efficient operations.
On completing this task, the internal auditor submits a report to the president and CEO.
If the internal auditor identifies deficiencies, related divisions and offices must immediately take therequired corrective actions. The internal auditor will then submit to the president and CEO an internal
audit report that includes the progress of corrective actions.
The internal auditor also performs follow-up audits and reports the results to the president and CEO
as necessary.

Internal Audit System

President and CEO
Deputy PresidentInternal Audits

Internal
Auditors

Japan Finance
Organization for
Municipalities (JFM)

Established by capital
contributions only from Japanese local
governments

The lending scope was expanded tooverall general account-related loans
Succeeded to assets
and liabilities

Established on
1 June 1957

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

Abolished(and its capital returned to
the national government)

Special governmental institution(wholly owned by the national government)

When JFM was founded, it succeeded to the Reserve for Losses on the Refinancing of Bonds in theamount of approximately JPY 3.4 trillion (USD 30.7 billion) to ensure its future stable management fromthe Predecessor.
Of this amount which was recorded in the management account, the JPY 2.2 trillion (USD 19.8 billion)needed to ensure the future continuity of JFM’s operations is being transferred to the general accountin equal installments over 10 years, with the remainder which is expected to remain in the management
account to ensure a sufficient financial foundation to appropriately manage the Predecessor’s bonds
and loans and prepare for the risk with refinancing bonds of the Predecessor.

Predecessor

Japan Finance Organization for Municipalities (JFM)

Reserve for Losseson the Refinancingof Bonds
JPY 3.4 tn(USD 30.7 bn)

General AccountReserve for JPY 2.2 tn
Interest Rate Volatility (USD 19.8 bn)

JPY 0.2 tn (USD 1.8 bn)

Management AccountJPY 3.2 tn (USD 28.8 bn)

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

JFM Annual Report 2019 | 40

Reorganized on
1 June 2009

Japan Finance
Organization for
Municipal Enterprises

Ensure a financial
foundation needed to sustain
the businesses into the future

SeniorExecutive
Directors
Departments
Divisions

Began operations on
1 October 2008

FY2009-2017
JPY 220 bn (USD 2.0 bn)
transferred each year

Management Account Reservefor Interest Rate Volatility

JFM Annual Report 2019 | 41

JPY 0.5 tn(USD 4.5 bn)

Management StructureManagement Structure

General Account and Management AccountRisk Management

Under the JFM Law, if any assets remain when the asset management operations of the Predecessor
are completed and the management account is closed, those assets shall be returned to the nationaltreasury.
Even before the management account is closed, in the event that the businesses of JFM aredetermined to have been executed smoothly in light of the condition of the management of JFM, theMinister for Internal Affairs and Communications and the Minister of Finance shall, if the management
account reserve for interest rate volatility and the management account surplus reserve are determined
to exceed the amount necessary for the smooth operation of the asset management operations of thePredecessor in the future, cause the amount that is determined to be in excess to belong to the nationaltreasury (Article 14 of the Supplementary Provisions of the JFM Law).
In accordance with this provision, JFM has transferred a portion of its reserve for interest rate volatility
within the management account to the Japanese national government and such portion has been
allocated to the national treasury to secure financial resources of the local allocation tax for regional
revitalization.

1

Overall Risk Management

1. Risk Management System
JFM adopts an integrated risk management approach to respond to various risks, while pursuing for ahigher level of risk analysis and management.
Accordingly, JFM has developed a system for appropriate risk management, including theestablishment of the Integrated Risk Management Committee, which supervises JFM’s overall risk
management, and the Risk Management Office to ensure comprehensive risk management. Risk
management can then be appropriately reﬂected in management decisions.

Risk Management System

President and CEO

Integrated Risk
Management
Committee

Senior Executive
Director in Charge

ALM Committee

Risk Management
OfficeFinance
Department

Loan
Department

Administration
Department

2. Characteristics of JFM’s Risks
JFM lends to local governments with the maximum maturity of 40 years while JFM raises funds
primarily by issuing 10-year bonds. Among other risks, JFM considers the interest rate risk associatedwith bond refinancing as its major risk (the risk of the negative margin caused by the interest payable
exceeding the interest receivable).
To address such interest rate risk, JFM maintains reserves for interest rate ﬂuctuations (the Reservefor Interest Rate Volatility) and has set up the ALM Committee to comprehensively analyze and manage
JFM’s assets and liabilities in a timely and appropriate manner.
The ALM Committee conducts medium-term and long-term management and risk analysis throughscenario, Value at Risk, duration, and other analyses. JFM reﬂects the findings in its bond issuance plansand other aspects of management and endeavors to lower interest rate risk.

JFM Annual Report 2019 | 42

JFM Annual Report 2019 | 43

Management Structure

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.

1) Credit risk associated with loans
JFM lends exclusively to local governments. Local government bonds and loans have a zero risk
weighting under the Basel regulatory framework. For the reasons outlined below, JFM believes it isunlikely that any of its borrowers will default those loans. In fact, JFM and its Predecessor have neverexperienced any loan losses.

As of 31 March 2019, JFM’s total outstanding loans stood at USD 211.9 billion. The amount of loans
outstanding made to local governments whose fiscal indicators exceeded the early warning limits or
the reconstruction limits accounted for less than 0.03%. in aggregate of total loans outstanding as of 31
March 2019.

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 withcounterparties that have come to poor credit standings. Moreover, JFM limits counterparties to financial
institutions that meet the credit rating and other criteria, and conducts transactions within the credit lines
for each counterparty in order to diversify risks.
In addition, JFM entered into the ISDA Master Agreement and the CSAs (Credit Support Annexes) withits derivatives counterparties to reduce the credit risk resulting from ﬂuctuations in the value of derivativetransactions.

• Financial sources for the payment of the principal and interest of local government bonds
and loans are secured through the following mechanisms. First, local governments canobtain local tax revenues pursuant to their right to impose tax. Second, in addition to such
local tax revenues, local allocation tax grants are allocated as follows: (i) the national
government includes certain local government debt servicing costs, i.e., expenditures for thepayment of the principal and interest of certain local government bonds and loans including
those issued or borrowed with consents or approvals, in the amount of “expenditures” inthe Local Government Finance Programme formulated by the national government; and (ii)the total amount of local allocation tax grants is calculated so that the total amount of local
government expenditures, including such debt servicing costs, is equivalent to the total
amount of the local government revenues, in the Local Government Finance Programme.
Thus, the national government effectively secures revenue sources for the payment ofprincipal and interest of such local governments bonds and loans in terms of the total
amount. When calculating the amount of local allocation tax grants to be allocated to anindividual local government, a part of the “expenditures” for the payment of the principal andinterest of such local government bonds and loans are included.
• Before issuing a loan, JFM checks the financial and operational status of the local
government, including its debt servicing costs, tax revenues and necessary funds. In
addition, when reviewing the ability of a local government to repay the loan, where such local
government’s expenditures exceed the revenue generated by local taxes, JFM takes into
account the local allocation tax grants from the national government described above.
• The Early Correction Measure requires certain local governments, such as those whosedebt servicing costs or financial deficits exceed specified levels, to obtain approval from the
Minister for Internal Affairs and Communications or their respective prefectural governors
in cases where they issue additional bonds or borrow additional loans. In addition, local
governments whose fiscal indicators exceed certain early warning limits must make theirown efforts toward achieving fiscal soundness, and local governments whose fiscal
indicators exceed certain “reconstruction limits” must take necessary actions to restore fiscal
soundness under the oversight of the national government with regard to redemption of local
government bonds and loans, and other operations. This system facilitates the maintenanceof the credit standing of local government bonds and loans.

JFM Annual Report 2019 | 44

JFM Annual Report 2019 | 45

Management Structure

Risk Management
2. Market Risk
Market risk is the risk of losses resulting from changes in the value of assets and liabilities due toﬂuctuations in risk factors such as interest rates, securities prices and foreign exchange rates, or therisk of loss resulting from changes in earnings generated from assets and liabilities. Market risk includes
interest rate risk, foreign exchange risk, inﬂation risk and price ﬂuctuation risk.

1) Interest rate risk

• Interest rate risk associated with bond reﬁnancing
JFM is exposed to the interest rate risk resulting from a duration gap between lending and funding. To
address such risk, JFM takes measures described on page 45.

• Interest rate risk associated with a gap in lending and funding schedules
JFM generally raises funds required to finance a loan by issuing bonds prior to the loan disbursements.
Proceeds from bond issuances may not be earmarked for a particular loan. Thus, fluctuations ininterest rates in the period where lending and funding schedules differ affect the profitability of loans(“pipeline” risk). In order to hedge against pipeline risk, JFM utilizes interest rate swaps.

Managing interest rate risk associated with bond refinancing• JFM maintains reserves to prepare for interest rate risk associated with bond refinancing.
At the end of fiscal 2018, the total amount of the reserves stood at USD 25.2 billion, which
consisted of USD 19.8 billion in the general account and USD 5.4 billion in the management
account.
• As assets and liabilities in the general account are expected to expand as a result of anincrease in loans and fund-raising, JFM carries out an ALM analysis of this account in orderto further enhance the effectiveness of its interest rate risk management. Furthermore, JFM
has established a medium-term management target of five years from fiscal 2018, in which
the duration gap is maintained below two years. In order to implement the managementtarget, JFM takes the following measures:(1) Controlling lending duration – Lending rates for loans for temporar y financial
countermeasures funding, which account for approximately one third of JFM’s
outstanding loans in the general account, are revised every 5 years or 10 years
depending on loans. In addition, JFM will revise its lending rate by 30th year at thelatest for its loans with maturities longer than 30 years, while maturities of the loans wereextended to be a maximum of 40 years from April 2015.
(2) Extending funding duration – Utilizing its FLIP and Open Issuance scheme, JFM aims toextend the funding duration by carefully choosing maturities of bonds to be issued e.g.,continuously issuing long-dated bonds with maturities over 10 years.
• At the end of fiscal 2018, the duration gap in the general account was 0.87 years, staying
within the management target.
• In the management account, which manages assets transferred from the Predecessor, JFM
maintains USD 5.4 billion of the management account reserve for interest rate volatility as
described above. As no new lending from the management account has been made since
October 2008, JFM expects that the interest rate risk in the management account will decline
overall as the size of the account declines over time.
• Pursuant to Article 14 of the Supplementary Provisions of the JFM Law, a portion of JFM’s
management account reserve for interest rate volatility is being attributed to the Japanesenational government over a period of three years from fiscal 2017 through fiscal 2019, withthe aim of transferring up to USD 8.1 billion over this period. Furthermore, it has been also
determined that an additional amount of up to USD 13.5 million from fiscal 2018 through fiscal
2023 shall be attributed to the government. The amount of transfer is to be within the amountwhich the Minister for Internal Affairs and Communications and the Minister of Finance deemas an amount exceeding the requisite amount of reserve necessary for the smooth operationof JFM’s management account at the time of transfer and in the future, in light of JFM’s
financial condition. Even after these transfers, JFM does not expect the transfers to have amaterial effect on JFM’s business, results of operations or financial condition, due primarily
to sufficient amount of the reserve for this account.

JFM Annual Report 2019 | 46

JFM Annual Report 2019 | 47

Management Structure

Risk Management
3. Liquidity Risk

Maturity Ladder (JFM Loans, Bonds and Bank Loans)
General Account(as of 31 March 2019)15,00012,0009,000

USD mm

6,000
3,000
0

-3,000Interest Receipt (Lending)-6,000Principal Redemption (Lending)-9,000Principal Redemption (Funding)-12,000

Gap

Liquidity risk is the risk that JFM would incur losses because of difficulty in funding, or because offunding at far higher interest rates than under ordinary conditions. It also includes the risk that JFM
would incur losses because of the inability to conduct market transactions or because of transactions at
prices far more unfavorable than under normal conditions due to market disruption or other situations.
However, JFM’s current exposure to liquidity risk is low because loans are made based on a pre-set
schedule, and the daily cash and liquidity management is carried out. Moreover, JFM has entered into
overdraft agreements with a wide range of financial institutions to prepare for unexpected fund shortfalls,
and invests surplus funds only in short-term financial products.
In addition, JFM has implemented a policy to maintain a certain amount of liquid assets so that, in theevent of market disruption, JFM may continue to timely make its payments of interest and principal on thebonds and other dent securities.

Interest Payment (Funding)-15,000

FY2019 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

4. Operational Risk

• Lending duration 8.09 years • Funding duration 7.22 years • Duration gap 0.87 years (YoY change: -0.28 years)

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.
Management Account(as of 31 March 2019)15,0001) Administrative risk

12,000Administrative risk is the risk of loss resulting from the neglect or inadequacy of attention by
management and employees to properly conduct administrative work, accidents and/or violation oflaws caused by them in the course of the administrative work process. JFM endeavors to mitigate its
exposure to administrative risk by preparing operational manuals, holding educational seminars andtraining sessions, and reducing operational workload through systematization.

9,000

USD mm

6,000
3,000
0

-3,000Interest Receipt (Lending)-6,000Principal Redemption (Lending)-9,000Principal Redemption (Funding)Interest Payment (Funding)Gap-12,000-15,000

FY2019

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

2) Systems risk
Systems risk is the risk of the confidentiality, integrity and availability of information assets being
impaired as a result of computer system inadequacies or the fraudulent use of computer systems.
JFM has established and implemented the Systems Risk Management Policy and the Systems Risk
Management Standard to appropriately manage systems risk and ensure smooth business operations.

• Lending duration 5.29 years • Funding duration 4.38 years • Duration gap 0.91 years (YoY change: -0.17 years)
JFM as a whole• Lending duration 7.14 years • Funding duration 6.16 years • Duration gap 0.98 years (YoY change: -0.23 years)

2) Foreign exchange and other risks
Various risks associated with bond principal and interest payments are generally hedged by swap
transactions. These risks include foreign exchange risk related to foreign currency denominated bonds
and interest rate risk related to ﬂoating rate bonds. JFM’s investments of surplus funds are exposed to
the risk of losses on the sale of securities resulting from price declines and the risk of realized losses
on foreign currency denominated deposits resulting from fluctuations in foreign exchange rates.
Accordingly, in principle, JFM reduces the price ﬂuctuation risk by holding investments until maturity andhedges foreign exchange risk by using forward foreign exchange contracts.

JFM Annual Report 2019 | 48

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 incidents, disasters or malfunctions. Furthermore, in order toprepare for a contingency, JFM has a backup server outside JFM so that its business operations can becontinued.

JFM Annual Report 2019 | 49

Management StructureManagement Structure

Compliance

Disclosure

1

Basic Policy

1

JFM has prepared the Compliance Rules to ensure that operations are conducted in accordance withlaws and regulations and indicate what actions management and staff should take when a breach oflaws or regulations is identified. The rules include the following basic policy on compliance.

• Management and employees must be aware of JFM’s social responsibility and public mission
and realize that a breach of laws or regulations would cause a great hindrance to JFM’sbusiness operations, such as a loss in credibility of JFM as a whole. Management and staff
must also observe laws and regulations and fulfill their duties with integrity and fairness.

Basic Stance on Information Disclosure

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

2

Materials for Disclosure

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

• Management and employees must strive to earn the trust of society by appropriately
disclosing information on JFM’s operations.

1. Materials for Disclosure Pursuant to Laws and Regulations

2

Compliance System

Based on the Compliance Rules, JFM has the Compliance Committee.
JFM’s deputy president serves as the chairman of the committee, with senior executive directors anddepartment heads serving as committee members. The committee deliberates on important complianceissues, such as the formulation, revision and abolition of compliance-related rules and regulations andthe preparation of guidelines and action plans for compliance.
JFM has also established the compliance division to oversee compliance arrangements. This unit
deploys compliance-based initiatives (providing system guidance and training or producing manuals) in
keeping with the committee’s guidelines.

Compliance System• Financial statements• Business reports and statement of accounts (in Japanese only)• Explanatory documents based on Article 36, Paragraph 3 of the JFM Law (Documents corresponding
to annual securities reports specified in the Financial Instruments and Exchange Act and the Internal
Control Report) (in Japanese only)

2. Other Documents for Disclosure• Budgets, business plans, funding plans, and medium-term plans on income and expenditures• Management plan
• Funding plan
• Brochure• Annual Report• JFM News magazine

President and CEO
Appointment
Compliance Committee
Instruction

ReportCompliance Division (Administration Department)
Instruction and training

ReportDirectors and Employees

JFM Annual Report 2019 | 50

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

Annual Report

JFM Annual Report 2019 | 51

JFM’s Role in
Local Government Finance

JFM’s Role in Local Government Finance1

Japanese Local Government System

Local governments are responsible for extensive areas of public administration for the welfare of
citizens.
While the national government focuses on administrative affairs for the state as a member of theinternational community, local governments engage in administration that relates to the daily livesof citizens. Local governments are responsible for social welfare, education, fi re defense, andinfrastructure such as road and waterways.
Japanese local government system adopts a two-tier system with prefectures serving broader
geographic areas, and cities, special wards of Tokyo, as well as government-designated cities, towns
and villages providing local services.

National Government
Prefectures
Local Government

Cities, Special Wards of Tokyo,
Towns and Villages

Number of Japanese Local Governments
Prefectures
Cities, special wards of Tokyo, etc.

47
1,741

Government-designated cities

20

Cities772

Special wards of Tokyo

23

Towns

743

Villages

183

Total

2

Local Government Finance Programme

Each local government is unique in terms of its
natural and historic situations, industrial structures,
population sizes, and other attributes. As a result,each local government handles diverse administration.
The term “local government finance” collectively refers
to funding for individual local governments engaging insuch administration. Just as with national finance, local
government finance plays a major role in the nation’s
economy and the lives of citizens. In fiscal 2019, local
government finance will total JPY 90.8 trillion (USD
818.7 billion) (based on the Local Government Finance
Programme (the “LGFP”).
Because local governments engage in numerous
activities that closely relate to residents, they need toprovide stable public services regardless of regional
dif ferences stemming from var ying populations,industry densities, and/or tax revenue fluctuations
over years. Accordingly, the national government
formulates the LGFP each fiscal year based on
assessments of the scales of local government financeand forecasts of overall revenues and expenditures.
In response to annual national budget plans, thenational government balances the total amount of local
government revenues and expenditures in the LGFP.
Under this Programme, revenue sources for all local
governments, including local allocation tax grants aswell as bonds and loans to be issued or borrowed, aresecured so that local governments can ensure uniform
public service standards.

Local Government Finance Programme(Initial Plan for FY2019)

Annual Expenditure(USD 818.6 bn)

Local TaxUSD 387.2 bn- Social welfare- Education- Fire defense- Infrastructure, etc.

Local Allocation Tax
USD 149.5 bn
Local Government
Bonds and Loans
USD 85.0 bn
OthersUSD 196.9 bn

Note: The above programme includes Great East Japan
Earthquake related budgets.

1,788(as of 1 April 2019)

JFM Annual Report 2019 | 52

Annual Revenue(USD 818.7 bn)

JFM Annual Report 2019 | 53

JFM’s Role in
Local Government Finance

JFM’s Role in Local Government Finance3

Local Allocation Tax

Local governments would ideally cover the expenditures necessary to provide public services with
their local tax revenues. In reality, however, tax revenues are distributed unevenly. In order to adjust
disparities and secure funds for local governments that have low tax revenues, the national government
distributes Local Allocation Tax, which comprises certain percentages of national taxes, including
personal and corporate income taxes and consumption taxes. Local Allocation Tax is an importantsource of funds for local governments to maintain an appropriate level of public services.

Note: In (ii), (iii) and (iv) above, only the local government borrowings to which the consent or approval has been given arecovered.

Local Allocation Tax System

2) Issuance restriction

Example: City A
Standard
Financial
Requirements*1(i) Local tax revenues are secured by taxation rights of local governments(ii) The national government includes repayments of local government borrowings (i.e., principal andinterest payments) in the amount of expenditures in the LGFP(iii) The total amount of Local Allocation Tax grants is set aside so that the total amount of local
government expenditures, including the principal and interest payments, is equivalent to the total
amount of local government revenues in the LGFP(iv) In the calculation of Local Allocation Tax grants to be allocated to an individual local government, aportion of the principal and interest payments are included in the Standard Financial Requirementsof an individual local government

Shortage—Standard
Local
Tax revenue*2

Allocation Tax= Local for
City A

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

3) Supervision of ﬁnancial soundness
Notes: 1. Standard financial requirements are the amount of funds necessary to provide standard public services. The requirements
are calculated for each local government according to the standard specified by the Ministry of Internal Affairs andCommunications.
2. Local governments have taxation rights in Japan, but there are regional imbalances in tax revenues.

4

Local Government Borrowings

Local government borrowings are bonds and loans to be issued by local governments for securing
necessary external funds, and mature no earlier than the first fiscal year. In principle, a local government
should cover expenditures with its revenues other than local government borrowings. However, local
governments can finance through borrowings in the case that it is desirable to share costs with future
residents such as for constructions of facilities, or that large temporary expenses are required due todisasters.

5

Security of Local Government Borrowings

The Law Relating to the Financial Soundness of Local Governments of Japan, which was promulgatedin June 2007, requires local governments the following measures in order to securely manage their fiscal
soundness:(i) Specified fiscal indicators to be disclosed(ii) Local governments with those fiscal indicators exceeding certain early warning limits to restore
fiscal soundness through their own efforts(iii) Local governments with those fiscal indicators exceeding certain reconstruction limits to takenecessary actions under the supervision of the national government or the respective prefectural
governments, in order to restore their fiscal soundness

6

Local Government Borrowing Programme

The LGBP is an annual plan that the national government prepares for local government funding. The
LGBP is closely linked to the national government budget-making. The LGBP plays the following crucial
roles in terms of local government finance.

1) Consent (approval) based on LGBPThe following framework secures principal and interest payments of local government borrowings. On
the back of this framework, the BIS risk weighting for local government borrowings is 0%, based on thestandardized approach (as of 31 March 2019).

1) Secured funds for repayments of local government borrowings
The national government effectively secures revenue sources for repayments of local government
borrowings from both macro and micro perspectives.

JFM Annual Report 2019 | 54

The LGBP specifies the total scheduled amount of local government borrowings including the amountby business type. Typically, the consent or approval for local government borrowings is given based on
the LGBP.

2) Secured funding sources for local government borrowings
The national government balances the amount of local government funding needs and the amount offunding sources, and specifies funding sources for each business under the LGBP.

JFM Annual Report 2019 | 55

JFM’s Role in
Local Government Finance

JFM’s Role in Local Government Finance
7

JFM Funds in Local Government Borrowing Programme

The sources for local government funding are classified into national government funds, JFM funds
and private funds.

Local Government Borrowing Programme
FY2018FY2019Share

Publicly Offered Bonds

USD 34 bn

USD 36 bn

33%

Other Private Sectors

USD 29 bn

USD 30 bn

27%

JFM

USD 16 bn

USD 17 bn

15%

National Government

USD 25 bn

USD 27 bn

25%

USD 105 bn

USD 108 bn

100%

1. Private Funds

2. Public Funds
Total

Note: The figures above are the planned numbers originally published by the Ministry of Internal Affairs and Communications andnot the actual numbers.

Since fiscal 2015, JFM funds have accounted for around 15-16% of the LGBP. JFM plays a major rolein Japanese local government finance, making a substantial contribution to project implementation andfinancial management of local governments.

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

(%)

180
160

18
16.1

16.1
15.3

15.3

101

105

105

108

33.3

34.4

34.4

35.5

26.2

28.4

29.2

29.5

25.5

25.9

25.3

26.6

16.4

16.3

16.0

16.6

2016

2017

2018

2019

140
120
100

110
36.1

80
60
40

26.7

29.5

20
17.8

0
FY2015

16
15.6

14
12
10
8
6

Other Private Sectors
Publicly Offered Bonds
National Government
JFM
JFM Ratio

420

Source: The Ministry of Internal Affairs and Communications

JFM Annual Report 2019 | 56

Financial Section

Financial Statements
Balance Sheets
Statements of Income
Statements of Appropriation of Profit[General account/Management account]

58
58
59

Notes to Financial Statements

60
62
64
65

Independent Auditor’s Report98Statements of Changes in Net Assets
Statements of Cash FlowsJFM Annual Report 2019 | 57

Financial Section

Financial Statements
Balance Sheets

Statements of Income(As of 31 March 2018 and 2019)
Item

Fiscal 2017(31 March
2018)(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2018(31 March 2019)

Item

Fiscal 2017(31 March
2018)

AmountFiscal 2018(31 March 2019)

Item

AmountAssetsLiabilities

Loans (Note 3) ¥23,768,240 ¥23,503,092 $211,892,288

Bonds (Notes 7 and 8)

Securities(Note 17)

170,000

180,000

1,622,791

Borrowed money (Note 9)

159,500

128,000

1,153,985

Cash andbank deposits

747,767

870,480

7,847,824

Cash collateral received
for financial instruments

12,26027,630249,098

Income¥20,284,520 ¥20,392,179 $183,845,828

56,277

22,847

205,977

Other liabilities

Other assets

9,783

8,859

79,869

6,692

6,261

56,446

Reserve for bonuses (Note 10)

57

57

520

8

10

92

Tangible fixed
assets (Note 6)

2,549

2,884

26,005Reserve for bonuses
for directors and corporate
auditors (Note 10)

Intangible fixed
assets (Note 6)

1,211

1,035

9,339

Reserve for retirement
benefits (Notes 10 and 13)

47

52

475

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

24

24

220

Fund for lending rate reduction

920,287920,287

8,296,859

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

8,296,859

Reserves under special laws

3,105,003

2,819,505

25,419,271

Reserve for interest rate
volatility (Note 11)2,200,000

2,200,000

19,834,115

Management account reserve forinterest rate volatility (Note 11)

870,453

597,076

5,382,945

Reserve for interest rate reduction

34,55022,429202,21124,488,401

24,294,008

219,022,794

Capital16,602

16,602

149,676

Retained earnings

191,890

212,616

1,916,844

General account surplus
reserve

191,890

212,616

1,916,844

Valuation, translation
adjustments and others

5,268

8,163

73,602

Management accountsurplus reserve

53,66657,808521,177

Total net assets

267,427

295,191

2,661,299

Total liabilities(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2017
(1 April 2017 to
31 March 2018)

Fiscal 2018
(1 April 2018 to 31 March 2019)

AmountAmount¥347,476¥318,863$2,874,714

343,305

313,7852,828,939

Fees and commissions

98

93

840

Other operating income

46

21

197

4,026

4,962

44,738

4,011

4,949

44,625

14

12

113

195,499

179,428

1,617,638

187,970

172,436

1,554,600

Fees and commissions

300

300

2,708

Other operating expenses

3,934

3,270

29,488General and administrative expenses

3,295

3,397

30,627-23

215

Ordinary income

151,976

139,434

1,257,076

Special gains

626,467

406,190

3,662,009

Reversal of management account reserve forinterest rate volatility (Note 11)620,000

400,064

3,606,782

Reversal of reserve for interest rate reduction

6,467

6,125

55,227752,332

522,445

4,710,110

Provision for reserve for interest rate volatility (Note 11)

220,000--

Provision for management account reserve forinterest rate volatility (Note 11)132,332

122,381

1,103,328

Payment to national treasury (Notes 4 and 11)

400,000

400,064

3,606,782¥26,111¥23,179$208,975Interest income

Other income

Cash collateral
paid for financial
instruments

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

Other expenses

Net Assets

Total assets(For the years ended 31 March 2018 and 2019)

Special losses

Net income
See notes to financial statements.

¥24,755,829 ¥24,589,199 $221,684,093 Total liabilities and net assets ¥24,755,829 ¥24,589,199 $221,684,093

See notes to financial statements.

JFM Annual Report 2019 | 58

JFM Annual Report 2019 | 59

Financial Section

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

Statements of Appropriation of Profit [Management account](Millions of yen)

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

Accumulated deficit brought forward(For the year ended 31 March 2018)(Millions of yen)

1 Profit available for appropriation¥-

Net income-¥-

Accumulated deficit brought forward

2 Profit appropriated-2 Profit appropriatedSurplus reserve

26,111

26,111

Statements of Appropriation of Profit [General account](For the year ended 31 March 2019)¥23,179

Net income¥23,179

Accumulated deficit brought forward--

Statements of Appropriation of Profit [Management account](Millions of yen)

1 Profit available for appropriation

Surplus reserve(For the year ended 31 March 2019)(Millions of yen)

1 Profit available for appropriation¥-

Net income-¥-

Accumulated deficit brought forward

2 Profit appropriated-2 Profit appropriatedSurplus reserve

23,17923,179Surplus reserve-(Thousands of U.S. dollars)

1 Profit available for appropriation$208,975

Net income$208,975

Accumulated deficit brought forward(Thousands of U.S. dollars)

1 Profit available for appropriation$-

Net income-$-

Accumulated deficit brought forward

2 Profit appropriated--2 Profit appropriatedSurplus reserve

208,975

208,975

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

Surplus reserve-

See notes to financial statements.

See notes to financial statements.

JFM Annual Report 2019 | 60

JFM Annual Report 2019 | 61-

Financial Section

Financial Statements(For the year ended 31 March 2019)

Statements of Changes in Net Assets(Millions of yen)
Valuation,translation
adjustments
and others

Stockholders’ equity(For the year ended 31 March 2018)(Millions of yen)
Valuation,translation
adjustments
and others

Stockholders’ equity
Retained earnings
CapitalBalance as of 1 April 2017¥16,602

Unrealized
Total
gain/(loss)
stockholders’ fromhedging
equityinstruments

Generalaccount
surplusreserve

Total
retainedearnings¥165,779¥165,779¥182,381¥5,035Retained earnings
Management
account
surplusreserve¥53,666

CapitalTotal
netassets¥241,082

Changes during accounting
periodNet income-

26,111

26,111

26,111--

26,111

Net changes duringaccounting period in items
other than stockholders’ equity

-

-

-

-

233

-

233

Net changes duringaccounting period
Balance as of 31 March 2018¥16,602

26,111¥191,890

26,111¥191,890

26,111¥208,492

233¥5,268¥53,666

26,345¥267,427

Generalaccount
surplusreserve

Total
retainedearnings

Unrealized
Total
gain/(loss)
stockholders’ fromhedging
equityinstruments

Management
account
surplusreserve

Total
net
assetsBalance as of 1 April 2018¥16,602¥191,890¥191,890¥208,492¥5,268¥53,666¥267,427

Cumulative effects of error
correction (Note 19)-(2,453)(2,453)(2,453)

-

4,142

1,688

¥16,602¥189,436¥189,436¥206,038¥5,268¥57,808¥269,116

Net income-

23,17923,17923,179--23,179Net changes duringaccounting period in items
other than stockholders’ equity

-

-

-

-

2,895

-

2,895

-

23,17923,17923,1792,895-

26,074¥16,602¥212,616¥212,616¥229,218¥8,163¥57,808¥295,191

Balance at the beginning ofcurrent period after retrospective
adjustment for error correction
Changes during accounting period

Net changes duringaccounting period
Balance as of 31 March 2019(For the year ended 31 March 2019)(Thousands of U.S. dollars)
Valuation,translation
adjustments
and others

Stockholders’ equity
Retained earnings
CapitalGeneralaccount
surplusreserve

Total
retainedearnings

Unrealized
Total
gain/(loss)
stockholders’ fromhedging
equityinstruments

Management
account
surplusreserve

Total
net
assetsBalance as of 1 April 2018

$149,676$1,729,992$1,729,992$1,879,668$47,501$483,827$2,410,996

Cumulative effects of error
correction (Note 19)-(22,123)(22,123)(22,123)-

37,35015,227$149,676$1,707,869$1,707,869$1,857,545$47,501$521,177$2,426,223

Net income-

208,975

208,975

208,975--

208,975

Net changes duringaccounting period in items
other than stockholders’ equity

-

-

-

-

26,101-

26,101-

208,975

208,975

208,975

26,101-

235,076$149,676$1,916,844$1,916,844$2,066,520$73,602$521,177$2,661,299

Balance at the beginning ofcurrent period after retrospective
adjustment for error correction
Changes during accounting period

Net changes duringaccounting period
Balance as of 31 March 2019
See notes to financial statements.

JFM Annual Report 2019 | 62

JFM Annual Report 2019 | 63

Financial Section

Financial Statements
Statements of Cash Flows

Notes to Financial Statements(For the years ended 31 March 2018 and 2019)
Item(Millions of yen) (Thousands of U.S. dollars)

Fiscal 2017
(1 April 2017 to
31 March 2018)

Fiscal 2018
(1 April 2018 to 31 March 2019)

AmountAmountⅠ Cash flows from operating activities

Net income
Depreciation and amortization
Interest income
Interest expenses
Increase in reserve for bonuses
Increase in reserve for bonuses for directors
and corporate auditors
Increase in reserve for retirement benefits
Increase in reserve for retirement benefits for
directors and corporate auditors
Decrease in fund for lending rate reduction
Increase in reserve for interest rate volatility
Increase/(decrease) in management accountreserve for interest rate volatility
Decrease in reserve for interest rate reduction
Net (increase)/decrease in loans
Net increase in bonds
Net increase/(decrease) in borrowed money
Interest received
Interest paid
Others¥26,111659(343,305)
187,9702¥23,179726(313,785)
172,4360$208,975
6,546(2,828,939)
1,554,600
1

0

2

19

2

5

45

6

0

2

(4,011)
220,000(4,949)-(44,625)-(87,667)

122,381

1,103,329(6,467)(48,218)
326,799(11,000)
344,134(187,420)(130,597)(6,125)
265,147
105,848(31,500)
314,710(171,555)
51,734(55,227)
2,390,441
954,279(283,988)
2,837,270(1,546,656)
466,413

286,997528,254

4,762,485

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

578,000(588,000)
(91)
(336)

5,210,963(5,301,118)(821)(3,033)(4,467)(10,427)(94,009)(400,000)(400,064)(3,606,782)

4,011

4,949

44,625(395,988)(395,114)(3,562,157)

-

-

-

(113,458)

122,7121,106,319

Ⅵ Cash and cash equivalents at beginning of year

861,226

747,767

6,741,505

Ⅶ Cash and cash equivalents at end of year

¥747,767¥870,480$7,847,824

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

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

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

Ⅴ Net increase/(decrease) in cash and cash

equivalents

See notes to financial statements.

JFM Annual Report 2019 | 64

1. Basis of Presentation
Japan Finance Organization for Municipalities (hereinafter, “JFM”) has prepared financial statements in accordancewith the Japan Finance Organization for Municipalities Law (Law No. 64, 2007; hereinafter the “Law”), the ordinances
based on the Law and other regulations applicable to JFM and accounting principles generally accepted in Japan,
which are different in certain respects as to the application and disclosure requirements of International Financial
Reporting Standards.
Since JFM does not have any subsidiaries or affiliates, it does not prepare consolidated financial statements.
Amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial
statements do not necessarily agree with the sum of the individual amounts.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate as of 31 March 2019, the final day of the fiscal year, which was¥110.92 to U.S. $1. This translation should not be construed as a representation that all amounts shown could be
converted into U.S. dollars at such rate.

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

JFM Annual Report 2019 | 65

Financial Section

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

JFM Annual Report 2019 | 66(12) Management account surplus reserve
Profits generated in the management account are accounted for as the management account surplus reserve
separately from retained earnings in accordance with the provisions of Article 13, Section 8 of the Supplementary
Provisions of the Law and Article 26, Section 2 of the Preparation Ordinance.
(13) Consumption taxes
National and local consumption taxes are accounted for using the tax exclusion method.

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

4. Payment to the National Treasury of a Portion of JFM’s Management Account Reserve for Interest Rate Volatility
In accordance with the Supplementary Provisions of the Law, a portion of JFM’s management account reserve forinterest rate volatility is being attributed to the Japanese national government over a period of three years from fiscal
2015 through fiscal 2017, with the aim of transferring up to 600 billion yen over this period. Furthermore, it has been
also determined that an additional amount of up to 900 billion yen from fiscal 2017 through fiscal 2019 shall be
attributed to the government.
In fiscal 2017, 400,000 million yen was reversed from the Management Account Reserve for Interest Rate Volatility
and the same amount was transferred to the national treasury by JFM, pursuant to Article 14 of the Supplementary
Provisions of the Law for fiscal 2017 (Ordinance No. 2 of the Ministry of Internal Affairs and Communications, and theMinistry of Finance, 2017). And, in fiscal 2018, 400,064 million yen (3,606,782 thousand U.S. dollars) was reversed
from the Management Account Reserve for Interest Rate Volatility and the same amount was transferred to thenational treasury by JFM, pursuant to Article 14 of the Supplementary Provision of the Law for fiscal 2018 (Ordinance
No. 1 of the Ministry of Internal Affairs and Communications, and the Ministry of Finance, 2018).
JFM obtained the approval of the Minister of Health, Labour and Welfare, dated 1 October 2014, for the transfer
to the Japanese national government of the payment obligation of the substitutional portion of the Employees’
Pension Fund established under the Japanese Welfare Pension Insurance Law. Furthermore, on 22 September 2017,
JFM completed the transfer of the total amount of the refund (minimum policy reserve) to the Japanese national
government. There will be no impact on JFM’s profit or loss in conjunction with this because Clause 46 of “Guidanceon Accounting Standard for Retirement Benefits” (Accounting Standards Board of Japan Guidance No. 25) has been
applied.
Additional information
In fiscal 2019, 100 billion yen is scheduled to be transferred to the national treasury by JFM, pursuant to Article 14of the Supplementary Provision of the Law for fiscal 2019 (Ordinance No. 4 of the Ministry of Internal Affairs andCommunications, and the Ministry of Finance, 2019).
The Act on Promotion of Private Finance Initiative (Law No. 60, 2018) was amended on 20 June 2018 and it wasdetermined that an amount of up to 1.5 billion yen of a portion of JFM’s Management Account Reserve for Interest
Rate Volatility would be transferred to the national treasury over a six-year period ending 31 March 2024 for securing
funds of the Trust Fund Bureau Fund for exemptions of early redemption charges in relation to concessions of watersupply and sewerage businesses.

5. Financial Instruments(1) Status of financial instruments(a) Policy for financial instruments
In order to maintain a sound and good financial standing as well as the solid confidence of capital markets,

JFM Annual Report 2019 | 67

Financial Section

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

JFM Annual Report 2019 | 68

in risk factors such as interest rates, securities prices and foreign exchange rates, or the risk of loss resulting
from changes in earnings generated from assets and liabilities. Market risk includes interest rate risk, foreignexchange risk, inflation risk and price change risk.
A. Interest rate risk
Interest rate risk is the risk of losses incurred or a decrease in profits due to fluctuations in interest rates
when there is an interest rate or duration gap between assets and liabilities. The interest rate risk at JFM
includes the interest rate risk associated with bond and borrowed money refinancing and pipeline risk.
- Interest rate risk associated with bond and borrowed money refinancing
JFM makes loans to local governments. The maximum term to maturity is 40 years, but the majority of
the funds for these loans are raised mainly through issuance of 10-year bonds, which creates interest
rate risk associated with bond refinancing. JFM takes the following measures to address the interest
rate risk resulting from a duration gap between lending and funding.
• JFM maintains necessary reserves to cope with the interest rate risk resulting from a duration gap
between lending and funding.
• As assets and liabilities in JFM’s general account will expand as a result of lending to local governments
and funding, JFM carries out an ALM analysis of this account in a timely and appropriate manner tofurther enhance the effectiveness of its management of interest rate risk. In order to reduce exposure tointerest rate risk, JFM has established a medium-term management target for five years from fiscal 2018,
in which the duration gap is to be maintained below approximately two years.
• To achieve its objective, from the viewpoint of controlling the duration on assets (lending), the interest
rates for temporary financial countermeasures funding which accounts for approximately 1/3 of the overall
outstanding loans in the general account, are revised every 5 or 10 years. In addition, JFM will revise its
lending rate by the 30th year at the latest for its loans with maturities longer than 30 years. And, in termsof funding, JFM has taken measures to manage the duration on liabilities (bonds and loans) by issuingbonds with maturities longer than 10 years continuously under the ultra-low interest rate circumstancesand carefully choosing maturities of bonds to be issued by utilizing its FLIP and Open Issuance scheme.
• The management account, which manages assets related to loans extended by the Predecessor, is
exposed to interest rate risk. To address such risk, JFM contributes to the required reserves for interest
rate volatility as described above. In accordance with Article 14 of the Supplementary Provisions of theLaw, a portion of JFM’s management account reserve for interest rate volatility is to be transferred to theJapanese national government. The transfer is scheduled to occur over a period of three years from fiscal
2017 through fiscal 2019, with the aim of transferring up to 900 billion yen of which the transfer of 100
billion yen is pursuant to the January 2015 determination, and over a period of six years from fiscal 2018
through fiscal 2023, with the aim of transferring up to 1.5 billion yen for securing funds of the Trust Fund
Bureau Fund for exemptions of early redemption charges in relation to concessions of water supply andsewerage businesses. The amount of transfer is to be within the amount which the Japanese national
government deems as an amount exceeding the requisite amount of reserve necessary for the smooth
operation of JFM’s management account at the time of transfer and in the future, in light of JFM’s
financial condition.
- Pipeline risk
JFM is also exposed to pipeline risk, whereby losses would be incurred or profits decreased as a result ofinterest rate fluctuations during the time from when JFM raises money until the point at which the money
is loaned to local governments. JFM, in principle, uses swap transactions to hedge against pipeline risk.
B. Foreign exchange and other risks
Various risks associated with bond principal and interest payments are hedged by swap transactions.
These risks include foreign exchange risk related to foreign currency-denominated bonds and interest
rate risk related to floating rate bonds.
JFM’s investments of surplus funds are exposed to the risk of losses on the sale of securities resulting
from price declines and the risk of realized losses on the cancellation of foreign currency-denominateddeposits resulting from fluctuations in foreign exchange rates. Accordingly, in principle, JFM minimizes therisk 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 long-term borrowed money are primarily affected by interest rate risk, which is a majorrisk variable among the market risks.
With respect to loans, bonds and long-term borrowed money in the general account, JFM establishesa management target for the duration gap in order to manage interest rate risk appropriately. With regard
to the quantitative analysis of interest rate risk, while JFM does not have a management target for thequantitative figures, it reports the results of calculating the quantitative information to the ALM Committee
and tracks the status of the interest rate risk.
With respect to these financial instruments in the general account, based on an assumption thatthe risk variables, except for interest rate risk, hold steady, for an indicative interest rate that is 10

JFM Annual Report 2019 | 69

Financial Section

Financial Statements
basis points higher than the actual rate, it is assumed that the fair value of the net amount (assetsside), after offsetting such financial instruments with the financial liabilities, would decline by 42,454
million yen and 38,399 million yen (346,189 thousand U.S. dollars) as of 31 March 2018 and 2019,respectively. On the contrary, for an indicative interest rate 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 increase by 43,181 million yen and 39,013 million yen(351,726 thousand U.S. dollars) as of 31 March 2018 and 2019, respectively. These basis point values
are presented in the financial statements from fiscal 2017 instead of the outlier ratio (A maximum lossof market value expressed as a percentage of net assets in the event of a parallel rate hike or drop of
200 basis points) in accordance with an amendment to Comprehensive Guidelines for Supervision ofMajor Banks, etc. issued by the FSA in Japan.
With respect to loans and bonds in the management account, JFM raises funds by the issuanceof bonds as necessary in order to manage existing loans until their redemption. For this reason, while
JFM reports the calculation results of the quantitative information regarding the interest rate risk to the
ALM Committee and confirms the status of interest rate risk as is the case in the general account,
JFM does not establish a management target or use the quantitative analysis for the management
account.
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 that is
10 basis points higher than the actual rate, it is assumed that the fair value of the net amount (assetsside), after offsetting such financial instruments with the financial liabilities, would decline by 15,157
million yen and 10,560 million yen (95,209 thousand U.S. dollars) as of 31 March 2018 and 2019,respectively. On the contrary, for an indicative interest rate 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 increase by 15,352 million yen and 10,692 million yen(96,396 thousand U.S. dollars) as of 31 March 2018 and 2019, respectively.
(ⅲ) Liquidity risk
Liquidity risk is the risk that JFM would incur losses due to difficulties in securing the necessary funds or
the necessity of obtaining funds at far higher interest rates than under normal conditions as a result ofa mismatch between the maturities of assets and liabilities or an unexpected outflow of funds (funding
liquidity risk). It also includes the risk that JFM would incur losses because it is unable to conduct market
transactions or is forced to conduct transactions at far more unfavorable prices than under normal
conditions due to market disruption or other difficult situations (market liquidity risk).
JFM’s exposure to liquidity risk is extremely low because loans are made to local governments according
to a pre-set schedule, and the daily cash and liquidity management is carried out based on a quarterly planfor fund management. Moreover, JFM has entered into overdraft agreements with several financial institutions
to prepare for the unexpected events, and invests surplus funds only in short-term financial products.
In addition, JFM has implemented a plan to secure liquidity support assets in advance in order to prepare
for potential market disruption which may prevent JFM from securing the necessary funds for scheduledbond principal and interest payments.
(ⅳ) Supplemental remarks on fair value of financial instruments
In addition to the amount based on the market price, the fair value of illiquid financial instruments includes
a value that has been rationally calculated. Since certain assumptions were made when calculating the fairvalue, the value may differ in the event that the assumptions change.

JFM Annual Report 2019 | 70(2) Items related to fair value of financial instruments
The book value, fair value and difference between them as of 31 March 2018 are as follows:(Millions of yen)Book value(1) Loans

Fair value

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

170,000

170,000-(3) Cash and bank deposits

747,767

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

56,27756,277-

Total assets

24,742,285

26,615,243

1,872,958(1) Bonds

20,284,520

21,100,871

816,350(2) Borrowed money

159,500

161,601

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

12,26012,260-20,456,280

21,274,733

818,452

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

The book value, fair value and difference between them as of 31 March 2019 are as follows:(Millions of yen)Book value(1) Loans

Fair value

Difference¥23,503,092¥25,369,115¥1,866,022(2) Securities
held-to-maturity securities

180,000

180,000-(3) Cash and bank deposits

870,480

870,480-(4) Cash collateral paid for financial instruments

22,847

22,847-

Total assets

24,576,420

26,442,443

1,866,022(1) Bonds

20,392,179

21,226,384

834,205(2) Borrowed money

128,000

130,272

2,272(3) Cash collateral received for financial instruments

27,63027,630-20,547,809

21,384,287

836,478

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

Total liabilities

JFM Annual Report 2019 | 71

Financial Section

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

Fair value

DifferenceType$211,892,288$228,715,430$16,823,142(2) Securities
held-to-maturity securities

1,622,791

1,622,791-(3) Cash and bank deposits

7,847,824

7,847,824-

205,977

205,977-

Total assets

221,568,880

238,392,022

16,823,142(1) Bonds

183,845,828

191,366,614

7,520,786

1,153,985

1,174,474

20,489249,098

249,098-

185,248,911

192,790,186

7,541,275

Derivative transactions
Hedge accounting applied

-

-

-

Total of derivative transactions

-

-

-

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

Note 1. Method for calculating fair value of financial instruments and items related to marketable securities and derivativetransactions
Assets(1) Loans
The fair value of loans is calculated by discounting future cash flows assuming prepayment at the discount rate
calculated using the Japanese government bond rates as of 31 March 2018 and 2019.
(2) Securities
All bonds are held until maturity, and the fair value of treasury discount bills is the market price.
Since all negotiable certificates of deposit are short-term, the fair value approximates the book value. As a result,the book value is deemed to be the fair value.
As of 31 March 2018
(Millions of yen)
Type
Securities with fair values
exceeding the balance sheet
amountSecurities with fair values that
do not exceed the balance sheet
amountBook value

Fair value

Difference

-

-

-

-

Sub total---

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

Sub total

170,000

170,000-¥170,000¥170,000-

Total

Securities with fair values
exceeding the balance sheet
amountSecurities with fair values that
do not exceed the balance sheet
amountTotal

Book value---

Sub total---

Negotiable certificatesof deposit$1,622,791$1,622,791-

Sub total

1,622,791

1,622,791-$1,622,791$1,622,791-(3) Cash and bank deposits
The book value is used as the fair value for deposits without maturities. Since all deposits with maturities are shortterm, the fair value approximates the book value. As a result, the book value is deemed to be the fair value.
(4) Cash collateral paid for financial instruments
Cash collateral is associated with derivative transactions. The book value is used as the fair value of cash collateral
paid for financial instruments since both values are approximately equal as a result of each deposit period being
short term.

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

(Millions of yen)

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

Fair value

Difference

-

-

-

-

Sub total---

Negotiable certificatesof deposit¥180,000¥180,000-

Sub total

180,000

180,000-¥180,000¥180,000-

Total
JFM Annual Report 2019 | 72

Difference-

As of 31 March 2019
Type

Fair value

JFM Annual Report 2019 | 73

Financial Section

Financial Statements(Thousands of U.S. dollars)

Derivative transactions
Transactions for which hedge accounting is applied
For derivative transactions for which hedge accounting is applied, the contractual amount or the amount equivalent
to the principal in the contract under each hedge accounting method as of 31 March 2018 is as follows:

Hedge
accounting
methodContract amountType ofderivativetransactions

Primary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts(Millions of yen)Hedge
accounting
methodType ofderivativetransactions

Principal
accounting
methodInterest rate swap
transactions

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Contract amountPrimary
hedged items

Bonds
Long-term
borrowed money

Bonds

Foreign currencydenominated
bonds

-

¥35,000

1,411,742

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-¥35,000

1,117,763-

Based on prices
provided by
the counterparty
financial institution

(*1)

(*2)

-

-

$315,543$180,310(*1)

Foreign currencydenominatedbonds

13,296,241

12,946,912(*2)

Foreign currencydenominateddeposits

27,047-(*2)$13,638,831$13,127,222

Total
Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Foreign currencydenominateddeposits

Total

140,000-¥1,586,742¥1,152,763

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

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

(*2)

-

Note 2. The repayment schedule for monetary claims and securities with maturities is as follows:
For derivative transactions for which hedge accounting is applied, the contractual amount or the amount equivalent
to the principal in the contract under each hedge accounting method as of 31 March 2019 is as follows:

As of 31 March 2018
(Millions of yen)

(Millions of yen)Hedge
accounting
methodType ofderivativetransactions

Contract amountPrimary
hedged items

Principal
accounting
methodInterest rate swap
transactions

Bonds
Long-term
borrowed money

Hedge
accounting forinterest rate
swaps

Interest rate swap
transactions
Receive/floating
and pay/fixed

Bonds

Deferral hedge
accounting for
currency swaps

Currency swap
transactions

Deferral hedge
accounting forforeign exchange
contracts

Foreign exchange
contracts

Total

Loans

-

-

¥35,000¥20,000(*1)

Foreign currencydenominatedbonds

1,474,819

1,436,071(*2)

Foreign currencydenominateddeposits

3,000

-

(*2)

¥1,512,819¥1,456,071

JFM Annual Report 2019 | 74

Method for
calculating fair
value

Fair
value

Of which
1 year or
more-

Based on prices
provided by
the counterparty
financial institutionAfter
20 years
through
30 years

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

Within1 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

Securities
held-tomaturity
securities

170,000

-

-

-

-

-

-

-

-

Deposits

747,767

-

-

-

-

-

-

-

-

-

JFM Annual Report 2019 | 75

Financial Section

Financial Statements
6. Tangible and Intangible Fixed Assets

As of 31 March 2019
(Millions of yen)After
1 yearthrough
2 years

Loans
Securities
held-tomaturity
securities

After
30 years
through
40 years¥1,763,913 ¥1,784,040 ¥1,769,220 ¥1,709,516 ¥1,605,880 ¥6,520,793 ¥6,648,578 ¥1,665,063¥36,084

Deposits

180,000-

870,480After
3 years
through
4 years

-

-

After
4 years
through
5 years

-

-

After
5 years
through
10 years

-

-

After
10 years
through
20 years(Millions of yen)After
20 years
through
30 yearsWithin1 yearAfter
2 years
through
3 years

-

-

-

-

-

-

-

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

After
30 years
through
40 years$15,902,575 $16,084,033 $15,950,421 $15,412,160 $14,477,830 $58,788,257 $59,940,306 $15,011,387$325,319

Within1 yearLoans

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

After
10 years
through
20 years

-

-

-

-

-

-

-

Deposits

7,847,824

-

-

-

-

-

-

-

-

¥2

-

¥1,185

¥442

¥33

¥742

1,659

-

-

1,659

-

-

1,659

395

48

¥4

439

292

71

147

3,237

51

4

3,284

735

105

2,549

2,692

261

23

2,930

1,750

554

1,180

0

79

48

31

-

-

31

¥2,692¥341¥71¥2,962¥1,750¥554¥1,211Other tangible fixed assets
Total tangible fixed assets

Total intangible fixed assets

Tangible and intangible fixed assets as of 31 March 2019 consisted of the following:

Type of assets

As of 31 March 2018

(Millions of yen)After
10 years
through
20 years

After
20 years
through
30 years

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

Within1 yearAfter
1 yearthrough
2 years

80,000After
2 years
through
3 years

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

1,000

After
5 years
through
10 years-

68,500-After
1 yearthrough
2 yearsAfter
10 years
through
20 years

After
20 years
through
30 years

After
30 years
through
40 years¥2,078,327 ¥2,072,865 ¥2,345,072 ¥2,124,677 ¥2,332,910 ¥6,272,932 ¥2,917,863¥183,000¥70,000--

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

1,000

After
4 years
through
5 years-

86,200After
5 years
through
10 years

30,800-

Balance asof 31 March
2019(Acquisition
costs)

Decreaseduringthe year¥1,185

Land

1,659
439
3,284

454

Total tangible fixed assets--¥1,185

-

-

1,659

¥454

¥0

893

0

3,738

Bonds

After
10 years
through
20 years

After
20 years
through
30 years

After
30 years
through
40 years$18,737,175 $18,687,929 $21,142,015 $19,155,048 $21,032,366 $56,553,666 $26,306,019$1,649,838$631,085--

90,155After
1 yearthrough
2 yearsAfter
2 years
through
3 years-After
3 years
through
4 years

9,016

After
4 years
through
5 years-

777,137

JFM Annual Report 2019 | 76

After
5 years
through
10 years

277,678-

Balance asof 31 March
2019(Net bookvalue)

¥476

¥33

¥708

-

-

1,659

377

85

515

853

119

2,884

Total intangible fixed assets

2,930

339

3

3,266

2,353

606

912

31

122

30

123

-

-

123

¥2,962¥461¥33¥3,389¥2,353¥606¥1,035(Thousands of U.S. dollars)Within1 year

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2019

Intangible fixed assets
SoftwareWithin1 yearIncreaseduringthe year

Buildings
Other tangible fixed assets(Millions of yen)

Balance asof 1 April
2018(Acquisition
costs)

Tangible fixed assets

Other intangible fixed assets

As of 31 March 2019

Borrowedmoney

Balance asof 31 March
2018(Net bookvalue)(Millions of yen)

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

Bonds¥1,182Land

Software-Borrowed
money

Buildings

Decreaseduringthe year

Tangible fixed assets

Other intangible fixed assets

1,622,791

Bonds

Increaseduringthe year

Intangible fixed assets

Securities
held-tomaturity
securities

Borrowedmoney

Balance asof 31 March2018(Acquisition
costs)

Accumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2018

Balance asof 1 April
2017(Acquisition
costs)

Type of assets--

Tangible and intangible fixed assets as of 31 March 2018 consisted of the following:

JFM Annual Report 2019 | 77

Financial Section

Financial Statements(Thousands of U.S. dollars)

Type of assets

Balance asof 1 April
2018(Acquisition
costs)

Increaseduringthe year

Balance asof 31 March
2019(Acquisition
costs)

Decreaseduringthe yearAccumulated
Depreciation
depreciation
andand
amortizationamortization
duringas of 31
the yearMarch 2019

Bonds as of 31 March 2018 consisted of the following:
Balance asof 31 March
2019(Net bookvalue)

Tangible fixed assets
Buildings$10,684--$10,684$4,295$303$6,389Land

14,964--

14,964--

14,964

Other tangible fixed assets

3,965

4,096

8

8,053

3,401

773

4,652

29,6134,096

833,701

7,696

1,076

26,005

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

26,4183,059

30

29,447

21,220

5,470

8,227

287

1,100

275

1,112

-

-

1,112

$26,705$4,159$305$30,559$21,220$5,470$9,3397. Assets Pledged as Collateral
Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as general collateral for
JFM bonds in the amount of 20,284,520 million yen and 20,392,179 million yen (183,845,828 thousand U.S. dollars)
as of 31 March 2018 and 2019, respectively.

JFM Annual Report 2019 | 78

8. Bonds(Millions of yen)Type of bondDate of
issue

Balance
as of 1
April 2017

Balance as of 31
March 2018

Couponrate (%)

Maturity

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

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

0.005
to 1.500

10Y

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

9/26/20132/24/2017

420,100

420,0860.001
to 0.576

8Y

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

9/27/201110/28/2016

1,330,732

1,130,594(320,000)

0.001
to 0.400

6Y

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

6/24/20132/26/2018

150,126

200,3360.001
to 0.249

4Y

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

1/13/2011

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

4

10Y

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

2/19/2016

25,000

-

0.03

2Y

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

4/19/201210/20/2017

190,000

160,000(45,000)

0.001
to 0.360

5Y

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

8/20/2012

20,00020,0000.446

7Y

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

6/18/20093/19/2018

2,755,000

2,970,000

0.06
to 1.648

10Y

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

1/31/20131/22/2014

50,00050,0001.161
to 1.334

15Y

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

6/25/20091/26/2018

1,195,000

1,295,000

0.18
to 2.266

20Y

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

6/26/201410/20/2017

35,00055,0000.569
to 1.864

30Y

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

7/22/20092/27/2018

2,029,401

2,206,530(167,500)

0.001
to 2.334

2Y
to 40Y

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

2/1/20117/25/2014

35,00035,000Floatingrate

9Y
to 30Y

1,211,337

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

0.875
to 5.092

3Y
to 10Y

Floating
rate

5Y
to 7Y

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

3/1/20121/30/2018

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

5/22/20127/22/2013

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

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

7/31/20093/26/2018

2,330,000

2,480,000

0.069
to 1.53

10Y

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

11/24/20153/26/2018

75,500159,000

0.069
to 0.511

10Y

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

11/24/20153/26/2018

134,000

248,500

0.19
to 1.154

20Y

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

4/21/20163/26/2018

150,000

300,000

0.19
to 0.778

20Y

JFM Annual Report 2019 | 79

Financial Section

Financial Statements
Bonds as of 31 March 2019 consisted of the following:

Bonds issued by JFM - Sub-total-

16,480,031

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

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

10/16/20085/25/2009

562,010562,285(422,500)

1.3
to 1.6

10Y

Type of bondDate of
issue

Balance
as of 1
April 2018

Balance as of 31
March 2019

Couponrate (%)

Maturity

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

11/25/20085/28/2009

139,991

139,996(80,000)

1.59
to 1.77

10Y

Government-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-118)

6/15/20093/18/2019¥4,792,105¥5,053,012(683,910)

0.005
to 1.500

10Y

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

1/26/20094/30/2009

0.001
to 0.576

8Y

20Y

9/26/20132/24/2017

420,073

84,967

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

420,086

84,9642.07
to 2.29

4/26/201210/28/2016

1,130,594

810,455(290,000)

0.001
to 0.385

6Y

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

Government-guaranteed bonds issued by JFM(domestic) 6-year bonds (Series 5-20)

4/30/20095/26/2009

120,000

120,000

1.69
to 1.73

10Y

Government-guaranteed bonds issued by JFM(domestic) 4-year bonds (Series 7-10)

6/30/20162/26/2018

200,336200,223

0.001

4Y

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

4

10Y

-

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

1/13/2011

906,967

907,249(502,500)

4/22/201311/19/2018

160,000

135,000(30,000)

0.001
to 0.360

5Y

1.4
to 1.9Non-guaranteed bonds issued by JFM(domestic) 5-year bonds (Series 12-24)

10Y

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

8/20/2012

20,00020,000(20,000)

0.446

7Y

Non-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-118)

6/18/20093/22/2019

2,970,000

3,250,000(245,000)

0.06
to 1.648

10Y

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

1/31/20131/22/2014

50,00050,0001.161
to 1.334

15Y

Non-guaranteed bonds issued by JFM(domestic) 20-year bonds (Series 1-73)

6/25/20093/22/2019

1,295,000

1,425,000

0.18
to 2.266

20Y

Non-guaranteed bonds issued by JFM(domestic) 30-year bonds (Series 1-7)

6/26/201410/19/2018

55,00075,0000.569
to 1.864

30Y

Non-guaranteed bonds issued by JFM(domestic) 40-year bonds (Series 1)

2/26/2019-15,0000.882

40Y

Non-guaranteed bonds issued by JFM(domestic) FLIP bonds (Series F2-F6, F8F17,F19, F20, F22-25, F31, F34-F37, F39,
F41-F52, F54-F153, F155-F164, F166-F169,
F171-F210, F212-F243, F245-F276, F278-F456)

7/23/20093/26/2019

2,206,530

2,380,659(153,500)

0.001
to 2.334

2Y
to 40Y

35,00035,000(15,000)

Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y(Millions of yen)

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

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

4/19/20076/19/2008

808,536

221,115(221,120)

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

6/22/20057/18/2007

184,793

184,815

1.6
to 2.2

15Y

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

8/9/19996/25/2008

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

1.9
to 5.75

10Y
to 20Y

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

7/30/20076/16/2008

49,999(50,000)

1.77
to 2.02

10Y

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

7/30/20026/16/2008

569,809

1.03
to 2.58

20Y

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

1/29/20049/20/2006

189,891

189,897

2.39
to 2.95

30Y

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

10/31/2002

20,000-Floating
rate

15Y

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

2/14/20036/9/2004

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

28Y

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

2/1/20117/25/2014

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

5/28/20077/31/2008

382,000

127,000(127,000)

1.59
to 2.03

10Y

Non-guaranteed bonds issued by JFM(international)(Series 15, 35, 40-45, 47-68)

3/1/20123/12/2019

1,257,266

Bonds issued by the Predecessor - Sub-total-

2,568,595

1,474,304(475,290)--

1,340,300[USD 10,200 million][AUD 604 million][NZD 58 million][EUR 1,080 million]¥19,955,593¥20,284,520(1,804,268)

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

6/6/20127/22/2013

40,376

20,230[USD 230 million](10,367)

Floating
rate

5Y
to 7Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series A1-A110)

7/31/20093/26/2019

2,480,000

2,630,000(280,000)

0.069
to 1.53

10Y

Non-guaranteed bonds issued by JFM(domestic) Private placements with pension funds
for local government officials (Series B1-B41)

11/24/20153/26/2019

159,000

229,500

0.069
to 0.511

10Y

Non-guaranteed bonds issued by JFM(domestic) Private placements with pension funds
for local government officials (Series C1-C41)

11/24/20153/26/2019

248,500

365,500

0.19
to 1.154

20Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series D1-D36)

4/21/20163/26/2019

300,000

450,000

0.19
to 0.778

20Y

Bonds issued by JFM - Sub-total-

17,902,966

18,988,125(1,727,777)

-

-

Total

-

159,997569,784---

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

JFM Annual Report 2019 | 80

JFM Annual Report 2019 | 81

Financial Section

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

10/16/20085/25/2009

562,285

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

11/25/20085/28/2009

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

1/26/20094/30/2009

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

140,000(140,000)

1.3
to 1.6

10Y

139,996

60,000(60,000)

1.59
to 1.77

10Y

84,967

84,9702.07
to 2.29

20Y

4/30/20095/26/2009

120,000

120,000(120,000)

1.69
to 1.73

10Y

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

907,249

404,970(320,000)-Government-guaranteed bonds issued by thePredecessor (domestic) 10-year bonds (Series
884-886)

4/17/20086/19/2008

221,115-

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

6/22/20057/18/2007

184,815

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

8/9/19996/25/2008

103,366

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

6/16/2008

49,999Non-guaranteed bonds issued by the Predecessor(domestic) 20-year bonds (Series 1-25)

7/30/20026/16/2008

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

1/29/20049/20/2006

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

2/14/20036/9/2004

Non-guaranteed bonds issued by thePredecessor (domestic) Private placements withpension funds for local government officials(Series Special No.29-31)

4/30/20087/31/2008

Bonds issued by the Predecessor - Sub-total

-

Total

-

Type of bondDate of
issue

Balance
as of 1
April 2018

Balance as of 31
March 2019

Couponrate (%)

Maturity

Government-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-118)

6/15/20093/18/2019$43,203,257$45,555,470(6,165,796)

0.005
to 1.500

10Y

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

9/26/20132/24/2017

3,787,294

3,787,172

0.001
to 0.576

8Y

Government-guaranteed bonds issued by JFM(domestic) 6-year bonds (Series 5-20)

4/26/201210/28/2016

10,192,886

7,306,664(2,614,497)

0.001
to 0.385

6Y

Government-guaranteed bonds issued by JFM(domestic) 4-year bonds (Series 7-10)

6/30/20162/26/2018

1,806,133

1,805,119

0.001

4Y

-

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

1/13/2011

749,819

749,819[USD 1,000 million]

4

10Y

1.4
to 1.8

10Y

Non-guaranteed bonds issued by JFM(domestic) 5-year bonds (Series 12-24)

4/22/201311/19/2018

1,442,481

1,217,093(270,465)

0.001
to 0.360

5Y

184,838

1.6
to 2.2

15Y

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

8/20/2012

180,310

180,310(180,310)

0.446

7Y

28,376[GBP 150 million](28,380)

1.9
to 5.75

10Y
to 20Y

Non-guaranteed bonds issued by JFM(domestic) 10-year bonds (Series 1-118)

6/18/20093/22/2019

26,776,055

29,300,397(2,208,799)

0.06
to 1.648

10Y

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

1/31/20131/22/2014

450,775

450,775

1.161
to 1.334

15Y

-

1.97

10Y

6/25/20093/22/2019

11,675,081

12,847,097

0.18
to 2.266

20Y

569,834

1.03
to 2.58

Non-guaranteed bonds issued by JFM(domestic) 20-year bonds (Series 1-73)

20Y

6/26/201410/19/2018

495,853

676,1630.569
to 1.864

30Y

189,897

189,9032.39
to 2.95

Non-guaranteed bonds issued by JFM(domestic) 30-year bonds (Series 1-7)

30Y

Non-guaranteed bonds issued by JFM(domestic) 40-year bonds (Series 1)

2/26/2019-

135,233

0.882

40Y

28,30026,130(2,170)1.39
to 2.01

28Y

Non-guaranteed bonds issued by JFM(domestic) FLIP bonds (Series F2-F6, F8F17,F19, F20, F22-25, F31, F34-F37, F39,
F41-F52, F54-F153, F155-F164, F166-F169,
F171-F210, F212-F243, F245-F276, F278-F456)

7/23/20093/26/2019

19,892,993

21,462,853(1,383,880)

0.001
to 2.334

2Y
to 40Y

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

2/1/20117/25/2014

315,543

315,543(135,233)

Floatingrate

9Y
to 30Y

0.875
to 5.092

3Y
to 10Y

569,809

127,000

1,474,304¥20,284,520

JFM Annual Report 2019 | 82-

1.59
to 1.91

999,082(30,550)-¥20,392,179(2,078,327)

-

10Y

-

Non-guaranteed bonds issued by JFM(international)(Series 15, 35, 40-45, 47-68)

3/1/20123/12/2019

11,334,891

12,083,489[USD 10,200 million][AUD 604 million][NZD 58 million][EUR 1,080 million]

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

6/6/20127/22/2013

364,016

182,388[USD 230 million](93,468)

Floating
rate

5Y
to 7Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series A1-A110)

7/31/20093/26/2019

22,358,457

23,710,783(2,524,342)

0.069
to 1.53

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series B1-B41)

11/24/20153/26/2019

1,433,466

2,069,059

0.069
to 0.511

10Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series C1-C41)

11/24/20153/26/2019

2,240,353

3,295,168

0.19
to 1.154

20Y

Non-guaranteed bonds issued by JFM (domestic)
Private placements with pension funds for local
government officials (Series D1-D36)

4/21/20163/26/2019

2,704,652

4,056,9780.19
to 0.778

20Y

Bonds issued by JFM - Sub-total-

161,404,315

171,187,573(15,576,790)--

JFM Annual Report 2019 | 83

Financial Section

Financial Statements
As of 31 March 2018

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

10/16/20085/25/2009

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

5,069,288

1,262,171(1,262,171)

1.3
to 1.6

10Y

11/25/20085/28/2009

1,262,141

540,930(540,930)

1.59
to 1.77

10Y

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

1/26/20094/30/2009

766,027

766,054

2.07
to 2.29

20Y

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

4/30/20095/26/2009

1,081,861

1,081,861(1,081,861)

1.69
to 1.73

10Y

Within 1 year
Bonds

¥1,804,268(Millions of yen)
After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

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

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥2,072,865¥2,345,072¥2,124,677¥2,332,910

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years$18,687,929$21,142,015$19,155,048$21,032,366

As of 31 March 2019
Within 1 year
Bonds

¥2,078,327(Millions of yen)(Thousands of U.S. dollars)

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

8,179,317

3,651,016(2,884,962)

Government-guaranteed bonds issued by thePredecessor (domestic) 10-year bonds (Series
884-886)

4/17/20086/19/2008

1,993,467

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

6/22/20057/18/2007

-

-

-

1.4
to 1.8

10Y

1,666,209

1,666,410

1.6
to 2.2

15Y

931,899

255,832[GBP 150 million](255,860)

1.9
to 5.75

10Y
to 20Y

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

8/9/19996/25/2008

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

6/16/2008

450,774

-

1.97

10Y

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

7/30/20026/16/2008

5,137,122

5,137,345

1.03
to 2.58

20Y

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

1/29/20049/20/2006

1,712,022

2.39
to 2.95

30Y

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

2/14/20036/9/2004

255,139

235,575(19,564)

1.39
to 2.01

28Y

Non-guaranteed bonds issued by thePredecessor (domestic) Private placements withpension funds for local government officials(Series Special No.29-31)

4/30/20087/31/2008

1,144,969-

1.59
to 1.91

10Y

Bonds issued by the Predecessor - Sub-total-

13,291,601

9,007,239(275,424)

-

-

Total

-

$182,875,233$183,845,828(18,737,176)--

1,712,077

Within 1 year
Bonds

$18,737,175

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

Notes: 1. Pursuant to the provisions of Article 40, Section 2 of the Law, JFM’s total assets are pledged as generalcollateral for JFM bonds in the amount of 20,392,179 million yen (183,845,828 thousand U.S. dollars) as of
31 March 2019.
2. Amounts in square brackets under “Balance as of 31 March 2019” for “Government-guaranteed bonds
issued by JFM (international)—Global U.S. dollar bonds (Series 1),” “Non-guaranteed bonds issued by JFM(international)— (Series 15, 35, 40-45, 47-68),” “Non-guaranteed bonds issued by JFM (international)—(Floater, Series 30, 36, 38, 39)” and “Government-guaranteed bonds issued by the Predecessor(international)—Euro-sterling bonds (Series 4), Global-yen bonds (Series 5), etc.” are denominated in foreign
currencies.
3. Amounts in parentheses under “Balance as of 31 March 2019” are to be repaid within one year.
4. Annual schedule of redemption within five years after the fiscal year-end:

Balance as of
31 March 2018

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

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

0.456

9/26/20183/26/2019

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

145,500

79,5000.541

3/9/20203/27/2028¥170,500¥159,500

-

Total

-

-

Borrowed money as of 31 March 2019 consisted of the following:(Millions of yen)Classification of borrowed money

Balance as of
1 April 2018

Balance as of
31 March 2019

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

Long-term borrowed money(repayment within 1 year)¥80,000¥10,000

0.21

3/9/2020

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

79,500118,000

0.445

9/27/20213/15/2029¥159,500¥128,000

-

Total

-

-

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

Balance as of
1 April 2018

Balance as of
31 March 2019

Averageinterest rate (%)

Repayment
date

Short-term borrowed money

-

-

-

Long-term borrowed money(repayment within 1 year)$721,241$90,155

0.21

3/9/2020

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

716,733

1,063,830

0.445

9/27/20213/15/2029$1,437,974$1,153,985

-

Total

JFM Annual Report 2019 | 84

Balance as of
1 April 2017

JFM Annual Report 2019 | 85--

Financial Section

Financial Statements
Notes: 1. Average interest rates are calculated by dividing the total amount of interest paid by the total amount ofprincipal multiplied by repayment years.
2. Annual schedule of repayments within five years after the fiscal year-end:(Thousands of U.S. dollars)
Increaseduring the
year

$519

$520

$519

$-

$520

Reserve for bonuses for directors andcorporate auditors

74

92

74

-

92

Reserve for retirement benefits

430

153

38

70

475

Reserve for retirement benefits for directors
and corporate auditors

218

75

62

11

220

As of 31 March 2018
(Millions of yen)
Within 1 year
Borrowed money¥80,000

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥10,000¥-¥1,000¥-

As of 31 March 2019
(Millions of yen)
Within 1 year
Borrowed money¥10,000

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years¥-¥1,000¥-¥86,200

Reserve for bonuses

Borrowed money$90,155

After 1 year
through 2 years

After 2 years
through 3 years

After 3 years
through 4 years

After 4 years
through 5 years$-$9,016$-$777,137

10. Reserves

Intended
purposeOther

11. Reserve for Interest Rate Volatility
Reserve for interest rate volatility as of 31 March 2018 consisted of the following:(Millions of yen)(Thousands of U.S. dollars)Within 1 year

Balanceas of
31 March
2019

Decrease during the year

Balanceas of
1 April 2018

Classification of reserve

Classification of reserve

Balanceas of
1 April2017

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

Management account reserve forinterest rate volatility

1,358,120

132,332

Total¥3,338,120¥352,332

Reserves as of 31 March 2018 consisted of the following:

Increase during the year

Decrease during the year

AmountprovidedAmountwithdrawn¥220,000¥220,000

Balanceas of
31 March
2018¥-¥2,200,000

620,000¥220,000

870,453¥620,000¥220,000¥3,070,453(Millions of yen)
Decrease during the year

Balanceas of
31 March
2018

Reserve for interest rate volatility as of 31 March 2019 consisted of the following:

Balanceas of
1 April 2017

Increaseduring the
year

¥55

¥57

¥55

¥-

¥57

Reserve for bonuses for directors andcorporate auditors

8

8

8

-

8

Reserve for retirement benefits

45

12

2

8

47

Reserve for retirement benefits for directors
and corporate auditors

17

7

-

1

24

Classification of reserve

Reserve for bonuses

Intended
purpose

Other(Millions of yen)

Reserves as of 31 March 2019 consisted of the following:(Millions of yen)Classification of reserve

Reserve for bonuses

Balanceas of
1 April 2018

Increaseduring theyear

Decrease during the year
Intended
purposeOther

Balanceas of
31 March
2019

¥57

¥57

¥57

¥-

¥57

Reserve for bonuses for directors andcorporate auditors

8

10

8

-

10

Reserve for retirement benefits

47

16

4

7

52

Reserve for retirement benefits for directors
and corporate auditors

24

8

6

1

24

JFM Annual Report 2019 | 86

Balance at the
Cumulative
beginning ofeffects
current periodof error after retrospective
correction adjustment forerror correction

Increase during
the yearClassification ofreserve

Balanceas of
1 April
2018

Reserve for interest
rate volatility¥2,200,000¥-¥2,200,000¥-

Management
account reserve forinterest rate volatility

870,453

4,306

874,759

122,381

Total¥3,070,453¥4,306¥3,074,759¥122,381

Decrease during
the yearAmountprovided¥-¥-Amountwithdrawn¥-

Balanceas of
31 March
2019¥2,200,000

400,064-

597,076¥400,064¥- ¥2,797,076(Thousands of U.S. dollars)
Balance at the
Cumulative
beginning ofeffects
current periodof error after retrospective
correction adjustment forerror correction

Increase during
the year

Decrease during
the yearClassification ofreserve

Balanceas of
1 April
2018

Reserve for interest
rate volatility$19,834,115$0Management
account reserve forinterest rate volatility

7,847,575

38,8237,886,398 1,103,329

3,606,782

Total$27,681,690$38,823$27,720,513 $1,103,329$- $3,606,782$19,834,115

Amountprovided$-

JFM Annual Report 2019 | 87$-

Amountwithdrawn$-

Balanceas of
31 March
2019$19,834,115-

5,382,945$- $25,217,060

Financial Section

Financial Statements
Notes: The “decrease during the year” for the “management account reserve for interest rate volatility” in the amountof 400,064 million yen (3,606,782 thousand U.S. dollars) consists of the payment to the national treasury inaccordance with an ordinance pursuant to Article 14 of the Supplementary Provisions of the Law for fiscal 2018
(Ordinance No. 1 of the Ministry of Internal Affairs and Communications, and the Ministry of Finance, 2018).

12. Fund for Lending Rate Reduction
Fund for lending rate reduction as of 31 March 2018 consisted of the following:(Millions of yen)Classification of fund

Basic fund for lending rate
reduction
Total

Balanceas of
1 April2017

Balanceas of
31 March
2018

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

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

OthersFund for lending rate reduction as of 31 March 2019 consisted of the following:(Millions of yen)Classification of fund

Basic fund for lending rate
reduction
Total

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn¥920,287¥4,949¥-¥4,949¥-¥920,287¥920,287¥4,949¥-¥4,949¥-¥920,287

Balanceas of
1 April
2018

OthersBalanceas of
31 March
2019(Thousands of U.S. dollars)

Classification of fund

Basic fund for lending rate
reduction
Total

Balanceas of
1 April
2018

Balanceas of
31 March
2019

Increase during the year

Decrease during the year

Amount ofreserveAmounttransferred

Amountwithdrawn$8,296,859$44,625$-$44,625$-$8,296,859$8,296,859$44,625$-$44,625$-$8,296,859

Others

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

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

12million yen

As of and for the year ended 31 March 2019(1) Outline of retirement benefits system
JFM has a defined benefit plan that contributes to the Corporate Pension Fund and offers lump-sum payments
upon retirement of employees and a defined contribution plan. The reserve for retirement benefits and pension
expenses are calculated using the simplified method.
(2) Defined benefit plan(a) Reconciliation of outstanding amounts of reserve for retirement benefits:
Reserve for retirement benefits at the beginning of the fiscal year: 47 million yen(430 thousand U.S. dollars)
Pension expenses:
16 million yen(153 thousand U.S. dollars)
Employee retirement benefits paid:
4 million yen(38 thousand U.S. dollars)
Contributions to the defined benefit plan:
7 million yen(70 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
52 million yen(475 thousand U.S. dollars)(b) Retirement benefit obligation, plan assets, and reconciliation of retirement benefit asset and liability
Funded retirement benefit obligation:
184 million yen (1,668 thousand U.S. dollars)
Plan assets:(171) million yen ((1,549) thousand U.S. dollars)
Balance:13 million yen(119 thousand U.S. dollars)
Unfunded retirement benefit obligation:
39 million yen(356 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:52 million yen(475 thousand U.S. dollars)
Reserve for retirement benefits at the end of the fiscal year:
52 million yen(475 thousand U.S. dollars)
Net liability for retirement benefits in the balance sheet:52 million yen(475 thousand U.S. dollars)(c) Profit and loss associated with employee retirement benefits
Pension expenses calculated based on the simplified method: 16 million yen (153 thousand U.S. dollars)
Additional information
JFM obtained the approval of the Minister of Health, Labour and Welfare, dated 1 October 2014, for the transfer
to the Japanese national government of the payment obligation of the substitutional portion of the Employees’
Pension Fund established under the Japanese Welfare Pension Insurance Law. Furthermore, on 22 September 2017,
JFM completed the transfer of the total amount of the refund (minimum policy reserve) to the Japanese national
government. There will be no impact on JFM’s profit or loss in conjunction with this because Clause 46 of “Guidanceon Accounting Standard for Retirement Benefits” (Accounting Standards Board of Japan Guidance No. 25) has been
applied.

JFM Annual Report 2019 | 88

JFM Annual Report 2019 | 89

Financial Section

Financial Statements
14. Net Income by AccountBalance sheets of general account and management account as of 31 March 2019 were as follows:(For the year ended 31 March 2018)
Net income of the general account was 26,111 million yen, while there was no net income of management
account.
(For the year ended 31 March 2019)
Net income of the general account was 23,179 million yen (208,975 thousand U.S. dollars), while there was no net
income of management account.

15. Information by Account (Balance sheets)
Balance sheets of general account and management account as of 31 March 2018 were as follows:(Millions of yen)
Item

Generalaccount

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

Offset

Total

Item

Generalaccount

Management
account¥15,743,380¥7,759,711¥23,768,240

OffsetTotal(Assets)
Loans¥23,503,092

Securities

180,000

180,000

Cash and bank deposits

870,480

870,480

Cash collateral paid for financial instruments

22,847

Other assets

3,948

Tangible fixed assets

2,884

Intangible fixed assets

1,035

Due from general account(Assets)
Loans(Millions of yen)

Total assets

22,847
4,910

8,859
2,884
1,035

622,397¥(622,397)

16,824,577

8,387,019(622,397)

12,686,161

7,706,017

24,589,199

Securities

170,000

170,000(Liabilities)

Cash and bank deposits

747,767

747,767

Bonds

Cash collateral paid for financial instruments

56,27756,277

Borrowed money

128,000

Other assets

4,029

9,783

Cash collateral received for financial instruments

27,630

Tangible fixed assets

2,549

2,549

Other liabilities

2,573

Intangible fixed assets

1,211

1,211

Reserve for bonuses

57

57

Reserve for bonuses for directors and corporate
auditors

10

10

Reserve for retirement benefits

52

52

Reserve for retirement benefits for directors andcorporate auditors

24

24

920,287920,287

Due from general accountTotal assets

5,753

658,396¥(658,396)

15,788,248

9,625,977(658,396)

11,621,637

8,662,882

24,755,829(Liabilities)
Bonds
Borrowed money

20,284,520

159,500

Cash collateral received for financial instruments
Other liabilities

159,500

12,2602,267

Reserve for bonuses

12,260
4,425

57

6,692
57

Reserves under special laws

2,200,000

8

Reserve for retirement benefits

47

47

Reserve for retirement benefits for directors andcorporate auditors

24

24

920,287920,287

Basic fund for lending rate reduction

920,287
658,396

Reserves under special laws

2,200,000

Reserve for interest rate volatility

920,287(658,396)
905,003

3,105,003

2,200,000

2,200,000

Management account reserve for interest rate
volatility

870,453

870,453

Reserve for interest rate reduction

34,55034,550Total liabilities

15,574,486

9,572,311(658,396)

24,488,401

Reserve for interest rate volatility

16,602

16,602Retained earnings

191,890

191,890

191,890

191,890

General account surplus reserve
Valuation, translation adjustments and others

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

53,666

213,761

53,666

267,427¥15,788,248¥9,625,977

JFM Annual Report 2019 | 90¥(658,396)

6,261

920,287(622,397)
619,505

2,819,505
2,200,000

Management account reserve for interest rate
volatility

597,076

597,076

Reserve for interest rate reduction

22,42922,429Total liabilities

16,587,195

8,329,210(622,397)

24,294,008(Net Assets)
Capital16,602

16,602Retained earnings

212,616

212,616

212,616

212,616

General account surplus reserve
Valuation, translation adjustments and others

8,163Management account surplus reserve
Total net assets
Total liabilities and net assets

8,163
57,80857,808237,382

57,808295,191¥16,824,577¥8,387,019

5,268
53,666

27,6303,687

2,200,000(Net Assets)
Capital128,000

920,287
622,3978

Due to management accountBasic fund for lending rate reduction
Due to management accountReserve for bonuses for directors and corporate
auditors

Fund for lending rate reduction

Fund for lending rate reduction

20,392,179¥24,755,829

JFM Annual Report 2019 | 91¥(622,397)¥24,589,199

Financial Section

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

(Thousands of U.S. dollars)
Item

Generalaccount

Management
account$141,934,553$69,957,735

OffsetTotal(Assets)
Loans$211,892,288

Securities

1,622,791

1,622,791

Cash and bank deposits

7,847,824

7,847,824

Cash collateral paid for financial instruments

205,977

205,977

Other assets

35,601

Tangible fixed assets

26,00526,005Intangible fixed assets

9,339

9,339

Due from general account44,2685,611,226

Total assets

151,682,090

75,613,229

114,372,174

69,473,654

Borrowed money$(5,611,226)(5,611,226)

221,684,093

183,845,828

1,153,985

Cash collateral received for financial instruments

249,098

Other liabilities

23,204

Statements of income of general account and management account from 1 April 2017 through 31 March 2018 wereas follows:(Millions of yen)Item79,869(Liabilities)
Bonds

16. Information by Account (Statements of income)

1,153,985
33,242

IncomeInterest income

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

133,064

210,240

Fees and commissions

98

Other operating income

46

Other income
Contributions from fund for lending rate
reduction
Others249,098

Administrative fee for management account56,446

Interest on due from general account

4,024

OffsetTotal¥(8,832)

343,305
98
46

1

4,026

4,011
12

4,011
1

673

14
(673)

24

(24)

8,134

(8,134)

111,795

92,536(8,832)

98,47589,495

Transfer from general account for fund for
lending rate reduction¥347,476

Reserve for bonuses

520

520

Reserve for bonuses for directors and corporate
auditors

92

92

Reserve for retirement benefits

475

475

Interest expenses

Reserve for retirement benefits for directors andcorporate auditors

220

220

Fees and commissions

155

144

300

Other operating expenses

1,885

2,048

3,934

General and administrative expenses

3,119

175

Fund for lending rate reduction
Basic fund for lending rate reduction

8,296,859

8,296,859

8,296,859

8,296,859

Due to management account5,611,226

Reserves under special laws

19,834,115

Reserve for interest rate volatility

19,834,115

Management account reserve for interest rate
volatility
Reserve for interest rate reduction
Total liabilities(5,611,226)
5,585,156

149,541,968

Transfer to management account for fund for
lending rate reduction

19,834,115

Administrative fee for management account5,382,945

202,211202,211(5,611,226)

219,022,794(Net Assets)
CapitalRetained earnings
General account surplus reserve
Valuation, translation adjustments and others

Total liabilities and net assets

8,134(8,134)
673(673)

Ordinary income

26,111

125,864-

151,976

Special gains

220,000

626,467(220,000)

626,467

Transfer from management account

220,000

Reversal of management account reserve forinterest rate volatility(220,000)
620,000

Reversal of reserve for interest rate reduction

1,916,844

1,916,844

1,916,844

Provision for reserve for interest rate volatility

73,60273,602

Provision for management account reservefor interest rate volatility

132,332

Transfer to general account

220,000

Payment to national treasury

400,000

2,140,122

521,177

2,661,299$151,682,090$75,613,229$(5,611,226)$221,684,093

Special losses

Net income

220,000

752,332

6,467(220,000)

220,000¥26,111

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

JFM Annual Report 2019 | 92620,000

6,467

1,916,844

521,177

3,295
(24)

149,676

521,177

195,499
187,97024

149,676

Management account surplus reserve
Total net assets

Interest on due to management account25,419,271

5,382,945

75,092,052

Expenses

JFM Annual Report 2019 | 93752,332
220,000¥-

132,332(220,000)
400,000¥-¥26,111

Financial Section

Financial Statements
Statements of income of general account and management account from 1 April 2018 through 31 March 2019 wereas follows:(Millions of yen)
Item

General account Management accountIncomeInterest income¥136,945¥189,867

131,327

182,458

Offset¥318,863
313,785

Fees and commissions

93

93

Other operating income

21

21

4,962

4,962

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

4,949

4,949

12

12

540

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

(540)
30

(30)

7,378

(7,378)

113,765

73,611(7,949)179,428

72,087

172,436

166

133

300

Other operating expenses

2,493

777

3,270

General and administrative expenses

3,324

72

3,397

Other expenses

23

Transfer to management account for fund for
lending rate reduction

(30)
23

7,378

Administrative fee for management account540

Ordinary income
Special gains

Special losses

44,625

OthersAdministrative fee for management account(274)

66,520(66,520)

1,025,656

663,647(71,665)

904,696649,904

Fees and commissions

1,502

1,206

2,708

Other operating expenses

22,480

7,008

29,488General and administrative expenses

29,969658

30,627

215

Other expenses

274

(274)

66,520(66,520)

Transfer to management account for fund for
lending rate reduction
Administrative fee for management accountReversal of reserve for interest rate reduction-

122,381

Payment to national treasury

JFM Annual Report 2019 | 94¥-

522,445
122,381400,064¥23,179

208,975

Special losses
Provision for management account reservefor interest rate volatility
Payment to national treasury
Net income

400,064
¥-

215

4,871

(4,871)

1,048,101-¥23,179

JFM Annual Report 2019 | 95

1,257,076

3,662,009

3,662,009

3,606,782

3,606,782

55,22755,2274,710,110

4,710,110

1,103,328

1,103,328

3,606,782$208,975

1,617,638
1,554,600

Interest on due to management account406,190

522,445

113(4,871)
274

-

-

113

Transfer from general account for fund for
lending rate reduction

406,190

6,125

840

4,871

Interest on due from general account-

Provision for management account reservefor interest rate volatility
Net income

44,625Contributions from fund for lending rate
reduction

139,434

6,125

2,828,939
197-

400,064$2,874,714

44,738Special gains(540)$(71,665)

44,738Other income

116,255

Reversal of reserve for interest rate reduction

1,644,954

197

23,179400,064$1,711,748

1,183,985

Total

Other operating income

Reversal of management account reserve forinterest rate volatility

Reversal of management account reserve forinterest rate volatility$1,234,631

Offset840

Ordinary income(7,378)General account Management accountFees and commissions

Interest expenses

100,348

30

IncomeExpensesFees and commissions

Interest on due to management account

Item
Interest income

Total¥(7,949)(Thousands of U.S. dollars)$-

3,606,782$-$208,975

Financial Section

Financial Statements
17. Fair Value of Marketable Securities
Marketable held-to-maturity securities as of 31 March 2018 consisted of the following:(Millions of yen)Book value
Negotiable certificatesof deposit

Fair value¥170,000

Difference¥170,000

Unrealized gains Unrealized losses---

Marketable held-to-maturity securities as of 31 March 2019 consisted of the following:(Millions of yen)Book value
Negotiable certificatesof deposit

Fair value¥180,000

Difference¥180,000

Unrealized gains Unrealized losses---

JFM ensures hedging instruments and hedged items have the same major terms when entering into hedgetransactions to offset market fluctuation risks associated with bonds and long-term borrowed money.
Accordingly, JFM deems these to be highly effective and thus does not assess effectiveness. Moreover, aperiodic assessment of hedge effectiveness for interest rate swaps and currency swaps and forward contracts
that qualify for deferral hedge accounting is omitted when the exceptional accrual method is applied.
(3) Risks on derivative transactions
Major risks on derivative transactions are market risk and credit risk. Market risk is the risk of future revenue
fluctuations due to market value changes. Credit risk is the risk of losses incurred when counterparties are unable
to fulfill their contracts due to bankruptcy or other reasons.
As for derivative transactions used for hedging purposes, market risk is offset by the corresponding change inthe underlying hedged items.
JFM enters into ISDA Master Agreements and CSA with financial institutions, which are its derivative transactions
counterparties, to reduce credit risk. Moreover, JFM constantly monitors restructuring costs of the transactions andthe counterparties’ credit profiles, and deals with multiple counterparties.
(4) Risk management system for derivative transactions
Execution and management of derivative transactions are conducted by the Finance Department of JFM with theapproval of persons in charge in accordance with the operational guidelines which specify transaction authority
and limits on the transaction amount.
Additionally, the total amount of derivative transactions, the status of risks, the assessed fair value, and the credit
risk on counterparties are regularly reported to the Integrated Risk Management Committee.

(Thousands of U.S. dollars)Book value
Negotiable certificatesof deposit

Fair value$1,622,791$1,622,791

Difference

Unrealized gains Unrealized losses---

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

18. Information on Derivative Transactions(1) Types of derivative transactions
Derivative transactions entered into by JFM are interest rate swaps for interest rate related transactions, andcurrency swaps and foreign exchange forward contracts for currency related transactions.
(2) Policies and purposes of derivative transactions
JFM uses interest rate swaps, currency swaps and foreign exchange forward contracts as a means of hedging
exposure to interest rate and foreign exchange fluctuation risks, and does not enter into derivatives for speculative
purposes.
Interest rate swaps are used to hedge exposure to interest rate risk on funding activities. Currency swaps andforeign exchange forward contracts are used to hedge exposure to foreign exchange risk associated with issuanceof foreign currency-denominated bonds and foreign currency-denominated deposits.
Hedge accounting is applied to interest rate swaps, currency swaps and foreign exchange contracts.
(a) Hedge accounting method
Interest rate swaps used to hedge the risk of interest rate fluctuations that qualify for hedge accounting andmeet specific matching criteria are not measured at fair value, but the differential paid or received under theswap agreements is recognized and included in interest expense or income. If swap contracts or forward
contracts used to hedge the risk of foreign currency fluctuation qualify for deferral hedge accounting, the foreign
currency-denominated assets and liabilities are translated at the contracted rate.
(b) Hedging instruments and hedged items(ⅰ) Hedging instruments: Interest rate swaps
Hedged items: Bonds and long-term borrowed money(ⅱ) Hedging instruments: Currency swaps
Hedged items: Foreign currency-denominated bonds(ⅲ) Hedging instruments: Foreign exchange forward contracts
Hedged items: Foreign currency-denominated bank deposits(c) Hedging policy
JFM uses hedging instruments as a means of hedging exposure to interest rate risk and foreign exchange risk.
Hedged items are identified by each individual contract.
As a means of hedging foreign exchange fluctuation risks associated with the receipt of interest and principalof foreign currency-denominated bank deposits, a foreign exchange forward contract is entered into at the timeof each deposit to hedge the risks.
(d) Assessment of hedge effectiveness

JFM Annual Report 2019 | 96

19. Notes on error correction(1) Contents of errors
During fiscal 2018, JFM discovered that the provisioned amount from the general account and the reversal amountof reserve for interest rate reduction in the management account for the loans extended by the Predecessor in
fiscal 2007 were posted incorrectly. In order to correct this error, the management account reserve for interest
rate volatility and the management account surplus reserve increased by 4,142 million yen (37,350 thousand U.S.
dollars) and the reserve for interest rate reduction and the general account surplus reserve decreased by 2,453
million yen (22,123 thousand U.S. dollars) as of the beginning of the year ended 31 March 2019.
(2) Effects on the net assets as of the beginning balance of the year ended 31 March 2019
The effect of correcting this error on net assets of 1,688 million yen (15,227 thousand U.S. dollars) is shown as“Cumulative effects of error correction” on the “Statements of Changes in Net Assets.”

JFM Annual Report 2019 | 97

Financial Section

Appendix / JFM Data

Independent Auditor’s Report100

Appendix
Members of the Representative Board and theSupervisory Committee
Redemption of Loans in Fiscal 2018
Outstanding Loans by Business
Outstanding Loans by Borrower
Bond Issuance in Fiscal 2018
Outstanding International Bonds
Additional data regarding liquidity risk

JFM Data
Organization History
Organization Chart
JFM Annual Report 2019 | 98

Directors and Corporate Auditors/Contact Information
JFM Annual Report 2019 | 99

100
100
101
102
106
110
111
112
112
113
115

Appendix / JFM Data

Appendix
Members of the Representative Board and the Supervisory Committee
The Representative Board members of JFM as of 1 August 2019 are as follows:
Name

Title

Outstanding Loans by Business(as of 31 March 2019)

BackgroundToshizo Ido

ChairmanVice Chairman, National Governors’ Association
Governor, Hyogo prefecture

Masataka Matsuura

Deputy Chairman

Chairman, Finance committee of Japan Association of City Mayors
Mayor, Matsue City, Shimane prefecture

Yasuomi Araki

Deputy Chairman

Chairman, National Association of Towns & Villages
Mayor, Kashima Village, Kumamoto prefecture

Junko Obata

MemberNaohiko Jinno
Isao Sumihiro

Loan Amount (USD millions)% of total

Public Projects, etc.

3,911

4,358

2.1

Public Housing

3,918

2,461

1.2

National Disaster Prevention

1,290

1,321

0.6

Professor, Sophia University Law School

Educational Facilities Development

1,185

627

0.3

MemberProfessor Emeritus, The University of Tokyo

Social Welfare Facilities Development

1,414

991

0.5

MemberChairman of The Hiroshima Bank, Ltd.

General Waste Disposal

355

374

0.2

General Projects

804

730

0.3

Regional Revitalization

1,494

655

0.3

Disaster Management and Mitigation

8,684

6,833

3.3

Local Road Development

5,526

4,674

2.2

Special Municipal Mergers

5,257

9,589

4.5

Disaster Prevention

2,197

1,496

0.7

Others17,522

9,274

4.3

53,55743,383

20.5

Water Supply

54,42829,636

13.9

Transportation

835

7,591

3.6

4,355

9,739

4.6

123,665

66,874

31.6

2,246

1,625

0.8

Electricity and Gas

837

707

0.3

Port Facilities

922

398

0.2

Markets and Slaughterhouses

734

857

0.4

Tourism and Others

215

172

0.1

188,237

117,600

55.5

Temporary Financial Countermeasures Funding

7,457

50,647

23.9

Total

249,251

211,629

99.9

153

263

0.1

249,404

211,892

100.0

General Account-related
Loans

The Supervisory Committee members of JFM as of 1 August 2019 are as follows:
Name

Title

Background

Takahiro Mitani

Chairman

Chaiman, Tanshi Association

Yutaka Suzuki

Deputy Chairman

Professor Emeritus, Aoyama Gakuin University

Tomoko Seiichi

MemberProfessor, Seinan Gakuin University

Yasuharu Yoneda

MemberProfessor Emeritus, Shinshu University

Hitomi Tamaoki

MemberChief Executive Officer of Tsumugi Co., Ltd.

Masanori Kamizaki

MemberDirector, Jiji Press, Ltd

Subtotal

Hospitals and Elderly Care Services

Redemption of Loans in Fiscal 2018

Sewerage

Principal
Classification

Municipal Enterpriserelated Loans

Interest

Number ofloans

Amount(USD millions)

Number ofloans

Amount(USD millions)

446,024

15,401

502,732

2,826

355

73

355

5

446,379

15,474503,087

2,831

General loans

457

1,804

34

0

Loans to local
government corporations

8

16

-

-

Subtotal

465

1,820

34

0

Redemption of loans with pre-consent or pre-approval

-

-

-

-

Redemption of short-term loans

-

-

-

-

446,844

17,294503,121

2,831

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

Prepayment oflong-term loans

Number ofLoans Made

Business

Total

Industrial Water Supply

Subtotal

Local Government Road Corporation, Toll Roads*1
Grand Total

Notes: 1. No loans will be extended to local government road corporations by JFM. The outstanding loans shown above was extended by thePredecessor.
2. Totals may not add up due to rounding.

Note: Totals may not add up due to rounding.

JFM Annual Report 2019 | 100

JFM Annual Report 2019 | 101

Appendix / JFM Data

Appendix
Outstanding Loans by Borrower(as of 31 March 2019)
Cities and Special Wardsof TokyoPrefectures
BorrowerTowns and Villages

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

Local Government
Associations

Local Government Road
Corporations

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

Total
Number ofLoans Made

Loan Amount(USD millions)% of Total

Hokkaido

295

4,236

5,291

6,188

8,114

1,793

303

246

-

-

14,003

12,463

5.9

Aomori

194

340

2,027

2,299

1,391

404

111

133

-

-

3,723

3,176

1.5

Iwate

250

508

2,733

2,281

794

279

218

174

-

-

3,995

3,243

1.5

Miyagi

345

1,151

4,638

3,724

2,631

462

127

65

-

-

7,741

5,402

2.5

Akita

203

248

4,664

2,351

1,081

99

8

2

-

-

5,956

2,700

1.3

Yamagata

225

731

2,771

1,521

1,911

312

168

65

-

1

5,075

2,629

1.2

Fukushima

426

777

3,618

2,251

3,047

489

187

176

1

0

7,279

3,693

1.7

Ibaraki

480

1,268

6,734

4,149

1,407

378

262

228

1

0

8,884

6,024

2.8

Tochigi

269

659

3,234

1,990

814

244

14

28

7

1

4,338

2,922

1.4

Gunma

248

340

3,467

1,792

1,790

313

213

252

-

-

5,718

2,697

1.3

Saitama

252

2,321

6,486

6,140

1,766

494

324

176

5

1

8,833

9,131

4.3

Chiba

394

1,057

5,276

6,388

890

234

406

361

5

9

6,971

8,048

3.8

Tokyo

111

1,117

2,204

2,835

174

47

33

150

-

-

2,522

4,149

2.0

Kanagawa

217

1,928

3,211

7,731

1,176

405

64

477

-

-

4,668

10,541

5.0

Niigata

266

476

8,175

4,160

971

171

173

140

-

-

9,585

4,947

2.3

Toyama

255

267

3,753

2,704

558

215

147

125

6

0

4,719

3,311

1.6

Ishikawa

157

303

2,810

1,747

1,250

393

29

29

-

-

4,246

2,472

1.2

Fukui

227

325

2,216

1,424

825

109

70

29

-

-

3,338

1,887

0.9

Yamanashi

150

331

2,919

1,020

1,012

132

154

50

-

-

4,235

1,533

0.7

Nagano

256

322

4,205

2,411

3,141

544

182

129

4

1

7,788

3,407

1.6

Gifu

220

1,460

4,354

1,929

1,305

355

10

9

-

-

5,889

3,752

1.8

Shizuoka

327

475

5,096

3,291

788

238

80

80

7

3

6,298

4,088

1.9

Aichi

247

2,130

5,295

5,815

878

221

84

25

37

142

6,541

8,334

3.9

Mie

413

1,375

4,049

2,787

1,075

253

31

43

-

-

5,568

4,459

2.1

JFM Annual Report 2019 | 102

JFM Annual Report 2019 | 103

Appendix / JFM Data

Appendix
Cities and Special Wardsof TokyoPrefectures
Borrower

Local Government
Associations

Towns and Villages

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

Local Government Road
Corporations

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

Total
Number ofLoans Made

Loan Amount(USD millions)% of Total

Shiga

194

716

4,211

2,109

597

127

138

73

-

-

5,140

3,026

1.4

Kyoto

196

305

3,654

4,347

1,108

269

30

62

7

3

4,995

4,986

2.4

Osaka

101

1,375

5,715

11,442

996

336

284

611

5

5

7,101

13,770

6.5

Hyogo

324

3,902

8,069

8,687

2,097

786

429

469

21

8

10,94013,853

6.5

Nara

273

1,051

2,439

1,714

1,971

556

32

51

-

-

4,715

3,372

1.6

Wakayama

107

439

1,719

1,976

1,476

511

92

75

-

-

3,394

3,001

1.4

Tottori

345

855

1,283

975

1,827

408

32

22

-

-

3,487

2,259

1.1

Shimane

283

897

2,649

1,864

290

73

75

33

-

-

3,297

2,868

1.4

Okayama

265

843

4,591

3,174

1,268

255

110

144

-

-

6,234

4,416

2.1

Hiroshima

440

1,689

4,284

4,139

901

264

15

20

15

38

5,655

6,150

2.9

Yamaguchi

422

510

4,254

2,442

607

108

109

60

-

-

5,392

3,120

1.5

Tokushima

199

412

1,435

1,085

817

263

3

0

-

-

2,454

1,761

0.8

Kagawa

162

212

1,745

968

697

180

625

244

-

-

3,229

1,604

0.8

Ehime

83

236

2,265

1,774

632

222

16

8

-

-

2,996

2,240

1.1

Kochi

155

862

1,649

1,245

762

239

10

80

-

-

2,576

2,426

1.1

Fukuoka

94

1,278

5,191

7,963

2,150

890

311

220

24

50

7,770

10,402

4.9

Saga

63

332

1,630

1,454

661

272

104

98

-

-

2,458

2,156

1.0

Nagasaki

143

523

2,772

2,489

705

167

15

29

5

2

3,640

3,209

1.5

Kumamoto

152

630

2,713

1,823

1,617

433

40

25

3

0

4,525

2,911

1.4

Oita

91

221

2,241

1,267

190

64

-

-

-

-

2,522

1,552

0.7

Miyazaki

152

630

2,013

1,338

717

170

13

8

-

-

2,895

2,146

1.0

Kagoshima

175

1,247

2,303

1,514

837

244

19

21

-

-

3,334

3,026

1.4

Okinawa

233

943

1,573

1,432

882

230

54

24

-

-

2,742

2,629

1.2

11,07944,255

169,624

146,151

62,594

15,651

5,954

5,572

153

264

249,404

211,893

100.0

Total

Note: Totals may not add up due to rounding.

JFM Annual Report 2019 | 104

JFM Annual Report 2019 | 105

Appendix / JFM Data

Appendix
Bond Issuance in Fiscal 2018
1. JFM bonds(1) International bonds
SeriesNumberTenor(yr)Format63

564

Currency

Issue Size(in millions)

Coupon(%)

Issue Price(%)

Issue Date

Maturity Date

Global

USD

1,000

3.250

99.98224 Apr 201824 Apr 2023

10

Euro

AUD

73

3.370

100.000

26 Jun 2018

21 Jun 2028

65

4

Euro

AUD

125

2.400

99.99026 Sep 2018

26 Sep 2022

66

5

Global

USD

1,000

3.375

99.49927 Sep 2018

27 Sep 2023

67

11

Euro

EUR

80

1.106

100.000

24 Jan 201924 Jan 2030

68

5Global

USD

1,000

3.000

99.68212 Mar 201912 Mar 2024

(2) Domestic public offerings
Issue Size

SeriesNumber

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

107

10

25

108

10

109
110

Issue Size

SeriesNumber

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

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

F405

9

3

28

0.151

100

25 Apr 201828 Jan 2027

F406

21

6

57

0.562

100

25 Apr 2018

26 Nov 2038

F407
F408

5

8

75

0.040

100

26 Apr 2018

26 Jun 2023

6

9

85

0.058

100

26 Apr 2018

27 Nov 2023

F409

7

3

28

0.092

100

26 Apr 2018

27 Jun 2025

F410

8

3

28

0.120

100

26 Apr 2018

28 May 2026

F411

21

3

28

0.551

100

26 Apr 2018

28 Mar 2039

F412

6

3

28

0.058

100

27 Apr 2018

17 Nov 2023

F413

6

3

28

0.058

100

27 Apr 2018

20 Nov 2023

F414

6

3

28

0.058

100

27 Apr 2018

21 Nov 2023

F415

6

3

28

0.058

100

27 Apr 2018

22 Nov 2023

F416

6

3

28

0.058

100

27 Apr 2018

24 Nov 2023

F417

6

3

28

0.058

100

27 Apr 2018

27 Nov 2023

F418

6

3

28

0.058

100

27 Apr 2018

29 Nov 2023

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

F419

4

20

188

0.025

100

22 Jun 2018

1 Dec 2022

235

0.200

100

19 Apr 201828 Apr 2028

F420

7

9

85

0.100

100

28 Jun 2018

27 Jun 2025

20

188

0.215

100

22 May 2018

26 May 2028

F421

7

3

28

0.085

100

25 Jul 201825 Jul 2025

10

20

188

0.220

100

15 Jun 2018

28 Jun 2028

F422

7

3

28

0.088

100

25 Jul 201829 Jul 2025

10

20

188

0.195

100

20 Jul 2018

28 Jul 2028

F423

17

3

28

0.394

100

31 Jul 2018

1 Mar 2035

111

10

25

235

0.264

100

20 Aug 2018

28 Aug 2028

F424

18

5

47

0.431

100

31 Jul 2018

28 Mar 2036

112

10

30

283

0.269

100

21 Sep 2018

28 Sep 2028

F425

5

16

151

0.030

100

26 Jul 2018

28 Sep 2023

113

10

30

283

0.299

100

19 Oct 2018

27 Oct 2028

F426

7

20

188

0.110

100

26 Jul 201820 Jun 2025

114

10

25

235

0.279

100

19 Nov 2018

28 Nov 2028

F427

12

3

28

0.249

100

26 Jul 2018

26 Jul 2030

115

10

25

235

0.200

100

20 Dec 201828 Dec 2028

F428

19

3

28

0.474

100

31 Jul 2018

27 Mar 2037

116

10

20

188

0.155

100

25 Jan 201926 Jan 2029

F429

7

3

28

0.082

100

27 Jul 2018

28 Jul 2025

117

10

20

188

0.166

100

22 Feb 201928 Feb 2029

F430

8

3

28

0.096

100

27 Jul 2018

27 Mar 2026

118

10

20

188

0.145

100

22 Mar 201928 Mar 2029

F431

15

3

28

0.348

100

27 Jul 2018

27 Jul 2033

66

20

15

141

0.559

100

19 Apr 201828 Apr 2038

F432

19

5

47

0.630

100

27 Sep 2018

28 Sep 2037

67

20

20

188

0.564

100

15 Jun 2018

28 Jun 2038

F433

9

20

188

0.247

100

24 Oct 2018

21 Sep 2027

68

20

20

188

0.530

100

20 Jul 2018

28 Jul 2038

F434

9

3

28

0.229

100

24 Oct 2018

28 Oct 2027

69

20

15

141

0.654

100

21 Sep 2018

28 Sep 2038

F435

36

3

28

1.173

100

24 Oct 201819 Mar 2055

70

20

15

141

0.729

100

19 Oct 2018

28 Oct 2038

F436

38

3

28

1.217

100

24 Oct 2018

28 Mar 2057

71

20

15

141

0.635

100

20 Dec 201828 Dec 2038

F437

40

15

141

1.256

100

24 Oct 2018

28 Oct 2058

72

20

15

141

0.534

100

25 Jan 201928 Jan 2039

F438

7

3

28

0.123

100

25 Oct 2018

27 Mar 2026

73

20

15

141

0.468

100

22 Mar 201928 Mar 2039

F439

8

3

28

0.174

100

25 Oct 2018

26 Oct 2026

23

5

10

94

0.040

100

19 Apr 201828 Apr 2023

F440

8

3

28

0.174

100

26 Oct 2018

27 Oct 2026

24

5

10

94

0.020

100

19 Nov 2018

28 Nov 2023

F441

9

3

28

0.227

100

25 Oct 2018

25 Oct 2027

6

30

10

94

0.850

100

19 Apr 201828 Apr 2048

F442

9

3

28

0.227

100

26 Oct 2018

26 Oct 2027

7

30

10

94

1.029

100

19 Oct 2018

28 Oct 2048

F443

40

3

28

1.249

100

25 Oct 2018

25 Oct 2058

1

40

15

141

0.882

100

26 Feb 201928 Feb 2059

F444

5

13

122

0.020

100

26 Oct 201826 Dec 2023

F402

2

3

28

0.001

100.00225 Apr 201828 Apr 2020

F445

8

3

28

0.169

100

26 Oct 2018

27 Oct 2026

F403

6

3

28

0.058

100

25 Apr 2018

28 Nov 2023

F446

8

3

28

0.169

100

29 Oct 2018

30 Oct 2026

F404

7

20

188

0.114

100

25 Apr 201828 Apr 2025

F447

9

3

28

0.227

100

26 Oct 2018

26 Oct 2027

JFM Annual Report 2019 | 106

JFM Annual Report 2019 | 107

Appendix / JFM Data

Appendix
Issue Size

SeriesNumber

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

F448

9

3

F449

18

F450
F451
F452

Issue Size

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

SeriesNumber

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

28

0.227

100

29 Oct 2018

29 Oct 2027

C34

20

15

6

57

0.639

100

26 Oct 2018

27 Oct 2036

C35

20

8

3

28

0.132

100

30 Nov 2018

30 Nov 2026

C36

8

3

28

0.127

100

30 Nov 2018

27 Nov 2026

C37

23

3.5

33

0.696

100

26 Dec 2018

27 Jun 2042

C38

F453

9

20

188

0.115

100

30 Jan 201928 Jan 2028

C39

20

17.5

158

0.554

100

25 Jan 201925 Jan 2039

F454

35

5

47

0.852

100

5 Feb 201927 Mar 2054

C40

20

12.5

113

0.497

100

22 Feb 201922 Feb 2039

F455

5

13

122

0.021

100

26 Feb 2019

26 Mar 2024

C41

20

13

117

0.488

100

26 Mar 201925 Mar 2039

F456

5

20

188

0.020

100

26 Mar 201926 Feb 2024

D25

20

20

180

0.579

100

19 Apr 201819 Apr 2038

D26

20

20

180

0.579

100

22 May 2018

21 May 2038

D27

20

20

180

0.584

100

21 Jun 2018

21 Jun 2038

D28

20

10

90

0.550

100

20 Jul 201820 Jul 2038

D29

20

10

90

0.678

100

20 Aug 2018

20 Aug 2038

D30

20

10

90

0.674

100

21 Sep 2018

21 Sep 2038

D31

20

10

90

0.749

100

19 Oct 201819 Oct 2038

D32

20

10

90

0.722

100

19 Nov 2018

19 Nov 2038

D33

20

10

90

0.655

100

20 Dec 201820 Dec 2038

D34

20

10

90

0.554

100

25 Jan 201925 Jan 2039

D35

20

10

90

0.497

100

22 Feb 201922 Feb 2039

D36

20

10

90

0.488

100

26 Mar 201925 Mar 2039

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

Note 1. 3m¥L+10bp

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

SeriesNumber

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

A99

10

20

180

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

0.230

100

19 Apr 201819 Apr 2028

A100

10

20

180

0.245

100

22 May 201822 May 2028

A101

10

20

180

0.250

100

21 Jun 2018

21 Jun 2028

A102

10

10

90

0.225

100

20 Jul 201820 Jul 2028

Coupon (%)

Issue Price(%)

Issue Date

Maturity Date

135

0.678

100

20 Aug 2018

20 Aug 2038

7.5

68

0.674

100

21 Sep 2018

21 Sep 2038

20

7

63

0.749

100

19 Oct 201819 Oct 2038

20

9

81

0.722

100

19 Nov 2018

19 Nov 2038

20

8

72

0.655

100

20 Dec 201820 Dec 2038

A103

10

10

90

0.294

100

20 Aug 201818 Aug 2028

A104

10

10

90

0.299

100

21 Sep 2018

21 Sep 2028

A105

10

10

90

0.329

100

19 Oct 201819 Oct 2028

A106

10

10

90

0.309

100

19 Nov 2018

17 Nov 2028

A107

10

10

90

0.230

100

20 Dec 201820 Dec 2028

A108

10

10

90

0.185

100

25 Jan 201925 Jan 2029

SeriesNumber

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

A109

10

10

90

0.196

100

22 Feb 201922 Feb 2029

107

10

25

225

0.120

100

16 Apr 201814 Apr 2028

A110

10

10

90

0.175

100

26 Mar 2019

26 Mar 2029

108

10

20

180

0.145

100

21 May 201819 May 2028

B30

10

4

36

0.230

100

19 Apr 201819 Apr 2028

109

10

20

180

0.145

100

18 Jun 201816 Jun 2028

B31

10

5

45

0.245

100

22 May 201822 May 2028

110

10

25

225

0.130

100

18 Jul 201818 Jul 2028

B32

10

4.5

41

0.250

100

21 Jun 2018

21 Jun 2028

111

10

20

180

0.209

100

15 Aug 2018

15 Aug 2028

B33

10

5.5

50

0.225

100

20 Jul 201820 Jul 2028

112

10

20

180

0.209

100

19 Sep 2018

19 Sep 2028

B34

10

10.5

95

0.294

100

20 Aug 201818 Aug 2028

113

10

25

225

0.219

100

16 Oct 201816 Oct 2028

B35

10

4.5

41

0.299

100

21 Sep 2018

21 Sep 2028

114

10

20

180

0.209

100

14 Nov 2018

14 Nov 2028

B36

10

4

36

0.329

100

19 Oct 201819 Oct 2028

115

10

20

180

0.160

100

17 Dec 201815 Dec 2028

B37

10

5.5

50

0.309

100

19 Nov 2018

17 Nov 2028

116

10

25

225

0.095

100

22 Jan 201922 Jan 2029

B38

10

4

36

0.230

100

20 Dec 201820 Dec 2028

117

10

20

180

0.085

100

19 Feb 201919 Feb 2029

B39

10

9

81

0.185

100

25 Jan 201925 Jan 2029

118

10

20

180

0.105

100

18 Mar 201916 Mar 2029

B40

10

7

63

0.196

100

22 Feb 201922 Feb 2029

B41

10

7

63

0.175

100

26 Mar 2019

26 Mar 2029

C30

20

5.5

50

0.579

100

19 Apr 201819 Apr 2038

C31

20

7.5

68

0.579

100

22 May 2018

21 May 2038

C32

20

6.5

59

0.584

100

21 Jun 2018

21 Jun 2038

C33

20

8

72

0.550

100

20 Jul 201820 Jul 2038

JFM Annual Report 2019 | 108

3. Government-guaranteed domestic bonds
Issue Size

JFM Annual Report 2019 | 109

Appendix / JFM Data

Appendix
Outstanding International Bonds

Additional data regarding liquidity risk

1. JFM bonds(as of 31 March 2019)
SeriesNumberTenor(yr)FormatCurrency

Issue Size(in millions)

CouponIssue Price(%)

Issue Date

Maturity Date

30

7

Euro

USD

130

3mL+70bp

100

6 Jun 2012

6 Jun 2019

39

7

Euro

USD

100

3mL+65bp

100

22 Jul 201322 Jul 2020

43

10

Euro

AUD

85

5.092%

100

1 May 2014

1 May 2024

44

10

Euro

USD

90

3.250%

99.055

1 May 2014

2 May 2024

45

7

Euro

EUR

1,000

0.875%

99.29322 Sep 2014

22 Sep 2021

47

10

GlobalUSD

1,000

2.375%

99.611

13 Feb 2015

13 Feb 2025

48

10

Euro

AUD

70

3.600%

100

18 Mar 201518 Mar 2025

49

7

GlobalUSD

1,000

2.000%

99.39121 Apr 2015

21 Apr 2022

50

5

Euro

USD

13

2.010%

99.99

21 Dec 201521 Dec 2020

51

5

Euro

AUD

95

3.060%

99.99

21 Dec 201521 Dec 2020

52

5

GlobalUSD

500

2.125%

99.77412 Feb 2016

12 Feb 2021

53

5

GlobalUSD

1,500

2.125%

99.78

13 Apr 201613 Apr 2021

54

7

GlobalUSD

1,000

2.125%

99.29725 Oct 2016

25 Oct 2023

55

5

Euro

USD

53

2.390%

99.99

30 Jan 201728 Jan 2022

56

5

Euro

AUD

106

3.040%

99.99

30 Jan 201728 Jan 2022

57

5

GlobalUSD

1,000

2.625%

99.82320 Apr 201720 Apr 2022

58

10

Euro

AUD

22

3.418%

99.85

26 Jun 201721 Jun 2027

59

3

GlobalUSD

1,000

2.000%

99.74

8 Sep 2017

8 Sep 2020

60

3

Euro

NZD

58

2.270%

99.98

20 Nov 201719 Nov 2020

61

5

Euro

USD

44

2.570%

99.99

30 Jan 201830 Jan 2023

62

5

Euro

AUD

28

2.760%

99.99

30 Jan 201830 Jan 2023

63

5

GlobalUSD

1,000

3.250%

99.98224 Apr 201824 Apr 2023

64

10

Euro

AUD

73

3.370%

100

26 Jun 2018

21 Jun 2028

65

4

Euro

AUD

125

2.400%

99.99

26 Sep 2018

26 Sep 2022

66

5

GlobalUSD

1,000

3.375%

99.49927 Sep 2018

67

11

Euro

EUR

80

1.106%

100

68

5

GlobalUSD

1,000

3.000%

99.682

JFM has been managing liquidity risk independently from March 2015 with reference to the Basel III regulation,
by setting up an internal policy to secure liquid assets under the supervision of our ALM committee. JFM holds
high quality liquid assets in order to prevent any disruptions regarding redemptions and interest payments forthe following month’s JFM bonds.
JFM’s fund inflows and outflows are mainly consisted of lending and collecting loans from municipalities,
bond issuance related payment such as notional or interest amount payment when funding from the capital
markets. Therefore, inflow and outflow of funds in JFM are limited which makes it possible to predict next
month’s inflows and outflows. JFM finance management division hold high quality liquid assets based on thecalculation at the end of the month to secure liquidity for the following month, which is also monitored by risk
management division who is independent from finance management division.
JFM revised its holding assets and calculation method from April 2019 following the revision of BaselIII policy and below table shows our calculation of liquid assets based on the revised policy for reference
purposes.

(as of 31 March 2019)(USD millions)

Total of liquid assets*1$676
Before applying cash
outflow/inflow rate

Outflows related to unsecured funding (excluding debt securities)

After applying cash
outflow/inflow rate

0

0

2,362

2,362

-

2,362

1,686

1,686

0

0

180

180

-

1,772

High quality liquid assets-

676

27 Sep 2023

Net cash outflows-

591

24 Jan 201924 Jan 2030

Liquidity coverage ratio

-

115%

12 Mar 201912 Mar 2024

-

5,937

-

1,120%

Debt securities
Total cash outflows
Cash inflows from investment*2
Cash inflows from collection of loans
Other cash inflows*3
Total cash inflows*4

Total of semi liquid assets*5
Semi Liquidity coverage ratio*6

Notes: 1. Amount includes bank current deposits, short term Japanese government bonds held by JFM. Bank current deposits are protectedunder deposit insurance system in Japan.
2. Amount includes investment with par redemptions and certain maturities which is defined under JFM law, article 45 section 2 and 3.
3. Amount of bond guaranteed by government of Japan
4. Maximum amount for cash inflows are 75% of cash outflows
5. Amount of normal bank cash deposits
6. Calculated by dividing the total amount of semi liquid assets and liquid assets by net cash outflows

JFM Annual Report 2019 | 110

JFM Annual Report 2019 | 111

Appendix / JFM Data

JFM Data
Organization History

Organization Chart
As of 1 April 2019

History of JFM

FY2008The Japan Finance Organization for Municipal Enterprises (the Predecessor of JFM) was establishedpursuant to the Japan Finance Organization for Municipal Enterprises Law on 1 August 2008.
Succeeded the assets and assumed the liabilities of the Predecessor and commenced operations on 1
October 2008.

2009

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

2011

Created a new special lending rate programme by integrating the existing special lending rate and theextra-special lending rate programmes.

2015

Introduced semi-annual principal and interest equal repayment method and semi-annual capital equal
repayment on JFM loans.

History of the Predecessor
FY1957

Established pursuant to the Japan Finance Corporation for Municipal Enterprises Law (1 June 1957).

1960

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

1966

Started a lending programme that applied special lending rates.

1967

Started receiving subsidies from the national treasury.

1970

Started a programme of contributions of the earnings from municipally operated racing and established
the Fund for Lending Rate Reduction.

1972

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

1978

Included the three types of special projects (in the general account-related business category) in thescope of lending.

1983

Started issuing foreign currency–denominated bonds.

1989

Established the Reserve for Losses on Refinancing of Bonds.

1990

Started a lending programme that applied extra-special lending rates.

1998

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

2001

Subsidies from the national treasury were abolished and the Reserve for Interest Rate Reduction wasestablished.
Started offering borrowers two interest rate options: fixed rates or adjustable rates.
Established the prepayment with penalty system. Started issuing FILP agency bonds.
The Special Public Institutions Reform Basic Law was passed, and the Reorganizations andRationalization Plan for Special Public Institutions was approved by the Cabinet.

2002

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

2005

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

2006

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

2007

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

2008

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

JFM Annual Report 2019 | 112

Personnel and Secretariat … Secretariat, personnel, human resources
development
Corporate Planning…

Corporate planning, budget control, mattersrelated to the Representative Board and theSupervisory Committee, ALM Planning, public
relations, communication and coordination withother organizations

Risk Management…

Integrated risk management, ALM operations

General Affairs…

General affairs including compensation andbenefits and legal review

Accounting…

Budget, settlement of accounts, matters related
to contributions from municipally operated
racing, accounting, receipts and disbursements, external audit

Information Systems
Management…

Information systems management

Finance…

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

Corporate Planning
Department

Representative
Board

President and CEO
Deputy President
Senior Executive
Directors

Administration
Department

Corporate
Auditors
Supervisory Committee

Finance Department

Funding Administration … Funding administration and management offund investment

Loan Department

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

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

Research Planning…

Research and planning to enhance the local
government support operations, research offinancial situation

Local Government
Support Department

Financial Activities Support … Financial advisory services to local governments

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

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

JFM Annual Report 2019 | 113

Appendix / JFM Data

JFM Data
Directors and Corporate Auditors(As of 1 August 2019)

President and CEO
Kinya Takino
Deputy President
Yutaka Endo
Senior Executive Directors Hiromi Yoshikawa, Yuji Tsukada, Toru Nojima
Corporate Auditors
Hidehiko Ouchi, Masaaki Omori (part-time)

Contact Information
Postal address: Shisei Kaikan, 1-3 Hibiya Koen,
Chiyoda-ku, Tokyo 100-0012, JapanTel:+81-3-3539-2697
Fax:+81-3-3539-2615
E-mail: funds-d@jfm.go.jp
Bloomberg ticker: JFM Govt

(Photo provided by The Tokyo Institute for Municipal Research)

JFM Annual Report 2019 | 114

JFM Annual Report 2019 | 115