Silviase/jgov_v1.4_full_ann huggingface dataset:
This year, we would like to highlight our work to formulate Japan’s Stewardship Code and Japan’s Corporate Governance Code. We believe that the introduction of these Codes represents an epoch-making event for Japan in making its business environment, and financial and capital markets more attractive.

Japan’s Stewardship Code is a set of principles for responsible institutional investors in fulfilling their stewardship responsibilities with due regard both to their clients and beneficiaries and to investee companies. It enhances the medium- to long-term investment return for their clients and beneficiaries by improving and fostering the investee companies’ corporate value and sustainable growth through constructive engagement, or purposeful dialogue.

Japan’s Corporate Governance Code, on the other hand, establishes fundamental principles for effective corporate governance for listed companies. This Code is to present the best practices for listed companies, rather than to force rules on them. Based on the Japan Revitalization Strategy (Revised in 2014) approved by the Cabinet in June 2014, the Council of Experts was formed in August 2014, with the FSA and the Tokyo Stock Exchange (TSE) serving as a joint secretariat. In March 2015, the Council finalized the proposal, taking public comments into account. The TSE formulated a corporate governance code, which has the same content as the proposal finalized in March 2015 by the Council. The TSE’s code and the related regulations entered into force on June 1, 2015.

These efforts are to improve our markets and businesses through close and frequent communications among the relevant parties including market participants, investors and companies.

With regard to issues affecting financial administration, in order not to overlook serious potential risks that at first appear to be innocuous, the FSA must have strong surveillance capacities and must position itself to act promptly and appropriately if risk does become apparent. For that purpose, we intend to advance integration between on-site and off-site monitoring.

In the program year 2014, we eliminated the former divisional structure in the Inspection Bureau, and launched a structure comprising monitoring teams for each type of financial institution, and monitoring teams for specialized operation and risk categories: business management, enterprise risk management, legal compliance, market business, and information technology.

Since the program year 2013, we have implemented a horizontal review to make comparisons among multiple peer financial institutions, conducting monitoring on important themes to ascertain actual practice from a unified viewpoint. This identifies best practices at the monitored peer institutions, and extracts relevant issues that exist in individual institutions. Through the Financial Monitoring Report, we provided feedback based on the monitoring results to each financial institution and we expect that this will
lead to proactive improvements in the management of each financial institution. Everyone involved in the management of financial institutions is encouraged to read this report.

Amid the current economic conditions, our financial administration has been shifting from crisis-alert mode to ordinary vigilance. We wish to have constructive discussions with all those involved with financial services, including financial services consumers, market participants and financial professionals, in order to ensure that our financial sector contributes to sustainable economic growth and stability in people’s lives, while providing useful information about our regulatory environment.

Kiyoshi Hosomizo

Commissioner, Financial Services Agency

Government of Japan
### I I. Organization of the FSA (Fiscal 2014)

Notes:

Numbers in parenthesis show the number of employees as of the end-March 2015.

- Two out of the five Deputy-Directors General, one out of the two Deputy-Secretaries General, and the Head of the Certified Public Accountant & Auditing Oversight Committee Executive Board are ex officio members.
Box: Establishment of “Vice Minister for International Affairs”

Global financial regulatory reforms have been discussed under the G20 leadership since the financial crisis. In such discussions, central bank governors and heads of financial supervisors set the overall direction and framework for policies. Thus, the FSA established the new post of “Vice Minister for International Affairs” in August 2014, upgrading the post of Vice Commissioner for International Affairs (director-general level). This post has the principal responsibility of international negotiation, and its purpose is to ensure effective negotiations with representatives from other overseas authorities at the same level as central bank governors and heads of supervisors.
### I II. Highlight of the FSA’s Challenges

### i. Growth Strategy in Financial Field

## “Abenomics” and the Financial Services Agency (FSA)

Since the Abe administration took office in December 2012, the Government of Japan has been carrying out the “Three Arrows” strategy of Abenomics. The three arrows comprise of “Bold Monetary Policy,” “Flexible Fiscal Policy” and “Growth Strategy for Promoting Investment” implemented in an integrated and intensive manner. Our utmost aim is to break out from a prolonged deflationary stagnation and to revitalize the economy. The Growth Strategy was upgraded in June 2014 and June 2015 to advance deregulation and structural reform, and more than 40 laws have already been enacted. It is expected that these revisions will change the mindset of Japanese corporations and encourage companies to mobilize their under-utilized funds for substantial investment and wage increase.

The FSA is fully committed to Abenomics approaches related to financial and capital markets. Strategic financing for growth-oriented businesses is the key to successful implementation of initiatives for overcoming deflation and achieving sustainable economic growth under Abenomics. In designing policy measures to establish a “virtuous economic cycle” to enhance the capital shift from “savings” to “investment,” there are three major approaches to elaborate.

## Approach toward Households

This approach means to establish a positive cycle in which household assets are allocated to funding for growing businesses. This approach includes the promotion of NISA to expand the range of investors with the measures to improve financial education. At the same time, the asset management business should improve their activities to increase the transparency in the management of investment funds and offer investment products that faithfully reflect the needs of investors.

## Approach toward Financial Institutions

There are three policy measures in this approach.

(1) Promoting lending by financial institutions based on customers’ business potential

The FSA is recently promoting lending by financial institutions based on customers’ business potential. Our efforts include:

- Revising Financial Monitoring Policy to ensure that financial institutions make efforts to provide financing taking well into consideration the growth potential of debtor’s business, and that related stakeholders cooperate with each other to improve the performance, productivity, and sustainability of businesses.

- Encouraging regional financial institutions to make use of the “Guidelines for
Personal Guarantee Provided by Business Owners."

(2) Growing together with Asia

One of the core messages of our Growth Strategy is “growing together with Asia.” To achieve inclusive growth together with other Asian countries, our Growth Strategy aims at promoting the development of the financial infrastructure in Asia. The FSA has been actively engaged in concluding a Memorandum of Understanding (MOU) and Exchanges of Letters (EOL) for financial technical cooperation with the financial authorities of Cambodia, Indonesia, Mongolia, Myanmar, Philippines, Thailand, and Vietnam, respectively, and has proactively pushed forward such technical cooperation in partnership with relevant organizations.

The FSA established the Asian Financial Partnership Center (hereinafter, “AFPAC”) in April 2014 and has started to invite government officials from Asian financial authorities as visiting fellows. The AFPAC aims to address the issues related to the financial markets in Asia, to review our financial sector technical assistance for infrastructure development, and to further strengthen cooperative relationships with Asian financial authorities.

## (3) Enhancing settlement systems

Settlement systems are raising their importance as financial infrastructure. Under these circumstances, the FSA promoted the efforts of banking industry, and the Japanese Bankers Association has begun to create 24/7 operation systems.

## Approach toward Business Sectors

There are also three policy measures toward the business sector.

(1) Formulating the Corporate Governance Code

See the following section (III-ii. Corporate Governance Reforms).

(2) Promoting an increase in the number of companies voluntarily adopting the IFRS

The “IFRS Adoption Report” was published in April 2015 as a reference for companies considering adopting the IFRS, based on the research on how companies that have voluntarily adopted the IFRS overcame any challenges they faced during the transition to the IFRS and what advantages their shift to the IFRS has had.

(3) Strengthening the competitiveness of companies

Another measure specified in the Japan Revitalization Strategy is to encourage more widespread use of the JPX-Nikkei Index 400, which consists of companies selected with a focus on profitability and corporate governance and has begun to calculate from January 6, 2014, including support for the prompt listing of futures. Promoting measures to improve the quality of audit and the attractiveness of qualified CPAs are also the agendas for further discussion.
Box: Panel for Vitalizing Financial and Capital Markets

About the Panel for Vitalizing Financial and Capital Markets

The “Panel for Vitalizing Financial and Capital Markets” was set up jointly by the FSA and the Ministry of Finance in November 2013 to carry out cross-sectoral discussions on the measures to make Japanese financial and capital markets more attractive and enhance their international competitiveness, based on the “Japan Revitalization Strategy” (Cabinet decision: June 14, 2013) and the “Action Plan to Implement the Growth Strategy” (decision of the Headquarters for Japan’s Economic Revitalization on October 1, 2013).

The Panel confirms the basic recognition that it is important to provide support from a financial perspective for manufacturing, the foundation of the Japanese economy, in order to achieve a positive cycle of a strong economy driven by the private sector, and that, for this purpose it is necessary for financial institutions and industries to establish a relationship in which the two grow in tandem, just like the two wheels of a cart, and add value to each other, leveraging improved financial functions. Based on this basic recognition, free and vigorous opinions from a broader perspective have been exchanged among experts from various sectors, including financial industry, business sector and academic circles. Reflecting those discussions, “Recommendations for Vitalizing Financial and Capital Markets” (hereinafter, “Recommendations”) was compiled in December 2013, aiming at making Japan as Asia’s number one international financial center by 2020.

In addition, since the beginning of 2014, the Panel has followed up implementation of the measures that were incorporated in the Recommendations and also discussed in depth the points in the Recommendations and new issues. In June 2014, the Panel published a follow-up review and further recommendations for vitalizing financial and capital markets.

As of June 24, 2015, the Panel is evaluating the progress of measures in various areas of the financial and capital markets in Japan and reexamining the policy for 2020, as well as compiling the “Statement for Vitalizing Financial and Capital Markets,” regarding issues that need to be further developed, including new issues considered to be crucial for vitalizing the financial and capital markets in Japan.

- “Recommendations for Vitalizing Financial and Capital Markets” (published on December 13, 2013)

The Panel for Vitalizing Financial and Capital Markets set the goal of establishing a leading position as an international financial center by 2020, envisaging an ideal state in 2020 and illustrated specific policies to be realized in the short term (measures to be launched within one year) and in the medium term (by 2020) with the focus on four areas as described below.
(i) Establishing a positive cycle in which abundant financial assets held by households and public pensions are allocated more to funding for growing businesses (Utilizing “inactive” funds)

(ii) Realizing Asia’s growth potential, improving the market function of the Asian region, paving the way for integral growth of Japan and Asia

(iii) Strengthening corporate competitiveness and promoting entrepreneurship

(iv) Developing human resources and establishing a better business environment

The Recommendations incorporate a wide variety of measures to help vitalize the financial and capital markets, including those related to Japan’s business practices and economic systems as well as those directly related to the financial system, in light of changes in the internal and external economic and social structure, such as the rapid development of Asian countries and the falling birth rate and the aging population. The Panel and the Recommendations are positioned as the foundation to help vitalize the financial and capital markets by the year 2020.

- “Further Recommendations for Vitalizing Financial and Capital Markets” (published on June 12, 2014)

Since the beginning of 2014, the Panel has discussed in depth the measures in the Recommendations published in 2013 and new issues, and compiled further recommendations with the focus on the following.

(i) Strengthening the competitiveness of Japanese companies through formulating a corporate governance code, etc.

(ii) Further enhancing the positive cycle in which abundant household assets are allocated to growing businesses by reforming the investment trusts and the awareness of trustees

(iii) Realizing global-based management of cash and securities by enhancing settlement systems in order to bring innovation to commerce and financial transactions in Japan

(iv) Improving the quality of human resources by promoting financial education and measures for developing global human resources

- “Summary of Statement from the Panel for Vitalizing Financial and Capital Markets” (published on June 24, 2015)

On June 24, 2015, the Panel published the summary of “Statement for Vitalizing Financial and Capital Markets” with the focus on the following.

(i) Pushing for further improvements in the corporate governance to achieve growth-oriented governance. Encouraging companies to examine the economic rationale of cross shareholdings and take accountability for investors

(ii) Strengthening asset management businesses by their establishing superior
governance and compensation systems, based on highly independent fiduciary duties

(iii) Upgrading settlement system and examining how financial groups should work to provide financial services that are really beneficial for their customers
ii. Corporate Governance Reforms - Formulating Japan’s Corporate Governance Code -

## Background

Japan’s initiatives for the corporate governance system have significantly accelerated in recent years.

The Japan Revitalization Strategy approved by the Cabinet in June 2013 specified as one of its measures the “preparation of principles (a Japanese version of the Stewardship Code) for institutional investors in order to fulfill their stewardship responsibilities, such as promoting the mid- to long-term growth of companies through dialogue.” This led to discussions starting in August 2013 by the Council of Experts Concerning the Japanese Version of the Stewardship Code established under the FSA, which drafted and released the “Principles for Responsible Institutional Investors (Japan’s Stewardship Code)” (hereinafter, “Japan’s Stewardship Code”) in February 2014. Japan’s Stewardship Code is currently in effect (See the following Box: Japan’s Stewardship Code for more details).

Furthermore, the Japan Revitalization Strategy (Revised in 2014) approved by the Cabinet in June 2014 specified as one of its measures the establishment of “a council of experts of which the Tokyo Stock Exchange and the Financial Services Agency will act as joint secretariat, aiming to prepare the key elements of the Corporate Governance Code.” This led to the formation of the Council of Experts Concerning the Corporate Governance Code (hereinafter, the “Council of Experts”) in August 2014, with the FSA and the Tokyo Stock Exchange (hereinafter, “TSE”) serving as joint secretariat. The Council of Experts published its basic thought on a corporate governance code as the “Corporate Governance Code [Final Proposal]” (hereinafter, the “Code”) in March 2015, taking into account the comments to the exposure draft which was published in December 2014. Then, in accordance with the Japan Revitalization Strategy (Revised in 2014), the TSE formulated a corporate governance code, which has the same content as the Code. The TSE’s code and the related regulations entered into force on June 1, 2015.

## Objectives of the Code

The Code has its foundation in the Japan Revitalization Strategy (Revised in 2014), and is formulated as part of Japan’s economic growth strategy. The Code seeks “growth-oriented governance” by promoting timely and decisive decision-making based upon transparent and fair decision-making through the fulfillment of companies’ accountability in relation to responsibilities to shareholders and stakeholders. Recognizing the board’s fiduciary responsibilities to shareholders and other stakeholder responsibilities, the Code includes language that calls for a certain measure of corporate self-discipline. It would not be appropriate, however, to view them as limits on companies’ business prerogatives and activities.
Given the concerns regularly perceived about the growth of short-term investment activities in capital markets, it is hoped that the Code will also have the effect of promoting mid- to long-term investing. The Code asks companies to examine whether there are issues in their corporate governance in light of the aim and spirit of the principles of the Code, and take self-motivated actions in response to those issues. Such efforts by companies will make possible further corporate governance improvements, supported by purposeful dialogue with shareholders (institutional investors) based on Japan’s Stewardship Code. In this sense, the Code and Japan’s Stewardship Code are “the two wheels of a cart,” and it is hoped that they will work appropriately and together so as to achieve effective corporate governance in Japan.

## “Principles-Based Approach” and “Comply-or-Explain Approach”

The Code specifies General Principles, Principles and Supplementary Principles. The Code does not adopt a rule-based approach, in which the actions to be taken by companies are specified in detail. Rather, it adopts a principles-based approach, and the manner in which the Code’s principles are implemented may vary depending on industry, company size, business characteristics, company organization and the environment surrounding the company, so as to achieve effective corporate governance in accordance with each company’s particular situation. Shareholders and other stakeholders are also expected to fully understand the significance of this principles-based approach in their dialogue with companies.

Moreover, unlike laws and regulations the Code is not legally binding. The approach it adopts for implementation is “comply or explain” (either comply with a principle or, if not, explain the reasons why not to do so). In other words, the Code assumes that if a company finds specific principles (General Principles, Principles and Supplementary Principles) inappropriate to comply with in view of their individual circumstances, they need not be complied with, provided that the company explains fully the reasons why it does not comply.

## I mplementation of the Code

The Code is applicable to all companies listed on securities exchanges in Japan (hereinafter, “companies”).

Companies in Japan may choose one of the following three forms of corporate organization: Company with Kansayaku Board, Company with Three Committees (Nomination, Audit and Remuneration), or Company with Supervisory Committee. The Code does not express a view on any of these forms of company organization. It specifies fundamental principles for corporate governance that should be applicable to whichever form of organization a company may choose. The Code entered into force on June 1, 2015.
## Future Revisions of the Code

As noted above, while the Code establishes fundamental principles for effective corporate governance, these principles do not remain unchanged. Under rapidly changing economic and social circumstances, in order to ensure that the Code continues to achieve its objectives, the Council of Experts expects that the Code will be periodically reviewed for possible revisions.

## General Principles of Japan’s Corporate Governance Code

## Securing the Rights and Equal Treatment of Shareholders

1. Companies should take appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively.

In addition, companies should secure effective equal treatment of shareholders.

Given their particular sensitivities, adequate consideration should be given to the issues and concerns of minority shareholders and foreign shareholders for the effective exercise of shareholder rights and effective equal treatment of shareholders.

## Appropriate Cooperation with Stakeholders Other Than Shareholders

2. Companies should fully recognize that their sustainable growth and the creation of mid- to long-term corporate value are brought as a result of the provision of resources and contributions made by a range of stakeholders, including employees, customers, business partners, creditors and local communities. As such, companies should endeavor to appropriately cooperate with these stakeholders.

The board and the management should exercise their leadership in establishing a corporate culture where the rights and positions of stakeholders are respected and sound business ethics are ensured.

## Ensuring Appropriate Information Disclosure and Transparency

3. Companies should appropriately make information disclosure in compliance with the relevant laws and regulations, but should also strive to actively provide information beyond that required by law. This includes both financial information, such as financial standing and operating results, and non-financial information, such as business strategies and business issues, risk, and governance.

The board should recognize that disclosed information will serve as the basis for