Debt Management Report 2016 The Government Debt Management and the State of Public Debts

Financial Bureau, Ministry of Finance

2016

Debt Management Report The Government Debt Management and the State of Public Debts

C ontents

P reface 1 2

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About “Debt Management Report” What is Debt Management Policy (1) Overview (2) Framework of “Government Funding Activities”

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FY2016 D ebt Management P olicies 1

Trends of JGB Market in FY2015 8 (1) Yields continued a downtrend 8 (2) BOJ introduced “ uantitative and ualitative Monetary Easing with a Negative Interest Rate” 10 (3) Growing presence of the BOJ and Foreign Investors 10 (4) Change in Yield Curve 13 (5) Foreign Government Bond Market Trends 13 uantitative and ualitative Monetary Easing with a Negative Interest Rate Column1 15 17 Column2 Widening of Negative Basis Swap Spread

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JGB Issuance Plan for FY2016 (1) Basic Objectives for JGB Management Policy (2) Scheduled Issuance Amount of JGBs (3) JGB Issuance Plan Based on Market Trends and Needs Column3 Approach on Average Maturity of JGBs (Flow and Stock Bases)

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Diversification of JGB Investor Base (1) JGB Holdings by Retail Investors (2) JGB Holdings by Foreign Investors

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Framework of D ebt Management C hap ter 1 Gov ernment Bonds (J GBs) 1

P rim (1 ) (2 ) (3 ) (4 ) (5 )

ary M ark et f or Gov ernm ent Bonds · · · · JGBs by L egal Grounds of I ssuance · · · T y pes of JGBs · · · · · · · · · · · · · · · · · · · · · · · · · · · · JGB M ark et S pecial P articipants S chem M ethods of I ssuance · · · · · · · · · · · · · · · · · · · · · Gov ernm ent Bond Adm inistration · · · · · Column4 Debt M anagem ent P olicies in F

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· 4 0 · 4 0 · 4 4 · 4 5 · 4 6 · 5 0 · 5 2

S econdary M ark et f or Gov ernm ent Bonds · · · · · · · · · · · · · · · · · ( 1 ) O T C T ransactions and T ransactions on the S tock E x ( 2 ) I m prov em ents to the JGB T ransaction S ettlem ent S y ( 3 ) W I T ransaction · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 4 ) JGB F utures T rading · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 5 ) Bond Gensaki and Bond- L ending T ransaction · · · · · · (6 ) S T R IP S ···················································· Column5 O perational C hanges in BO J’ s S L F · · · · · · · · · ·

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Debt M anagem ent S y stem s · · · · · · · · · · · · · · · ( 1 ) R edem ption S y stem · · · · · · · · · · · · · · · · · · ( 2 ) I nterest R ate S wap T ransaction · · · · ( 3 ) Auctions f or E nhanced- L iq uidity · · ( 4 ) Buy - back P rogram · · · · · · · · · · · · · · · · · · · ( 5 ) Dialogue with M ark et P articipants

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T ax (1 ) (2 ) (3 ) (4 )

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ation of Gov ernm ent Bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · I ndiv iduals ( residents) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Dom estic C orporations · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · N onresident I ndiv iduals and F oreign C orporations · · · · · · · T ax E x em ption S chem e f or N onresident I ndiv iduals and F

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C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds 1

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F inancing Bills · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) L egal Grounds of F inancing Bills · · · · · · · · · · · · · · · ( 2 ) S tatus of F inancing Bills in the Budget · · · · · · · · ( 3 ) Auction M ethods, etc. · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 4 ) O utline of C ash M anagem ent of the N ational T

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Borrowings · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) L egal Grounds of Borrowings · · · · · · · ( 2 ) S tatus of Borrowings in the Budget ( 3 ) S ource of Borrowings · · · · · · · · · · · · · · · ·

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(4 ) (5 )

Borrowings f rom the P riv ate S ector · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 9 2 Borrowing through P ublic Auction on P riv ate- sector Borrowings · · · · · · · · · · · · · · · · · 9 3

Gov (1 ) (2 ) (3 )

ernm ent- Guaranteed Debt · · · · · · · · · · · · · · · · · · · · L egal Ground of Gov ernm ent Guarantee · · F eatures of Gov ernm ent- Guaranteed Debt T reatm ent in the Budget and E x am ination P

S ubsidy Bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) S ubsidy Bonds ( narrowly def ined) ( 2 ) S ubscription/ C ontribution Bonds · ( 3 ) O thers · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

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1

L ocal Gov ernm ent Bonds ( L GBs) · · · · · · · · · · · · · · · · · · · ( 1 ) Basic S chem e of L GBs · · · · · · · · · · · · · · · · · · · · · · · · · · ( 2 ) L oans to L ocal Gov ernm ent by P ublic F unds ( 3 ) L ocal F unds O f f ered by P riv ate S ectors, etc.

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Debt of I ncorporated Adm inistrativ e Agencies, etc. · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) Debt of I ncorporated Adm inistrativ e Agencies, etc. · · · · · · · · · · · · · · · · · · · ( 2 ) F inancial C onditions of I ncorporated Adm inistrativ e Agencies, etc. Column6 JGB H istory · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

C hap ter 3 Other P ublic D ebt

III

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Ap p endices C hap ter 1 Gov ernment Bonds (J GBs) P rim (1 ) (2 ) (3 ) (4 ) (5 ) (6 ) (7 ) (8 ) (9 ) (1 0 ) 2

1

ary M ark et f or Gov ernm ent Bonds · · · · · · · · · · · · · · · · · · · · · · I ssuance Am ount of Gov ernm ent Bonds · · · · · · · · · · · · · · · C hanges in JGB M ark et I ssuance · · · · · · · · · · · · · · · · · · · · · · · · Auction R esults f or JGBs and T - Bills in F Y 2 0 1 5 · · · · · I ssuance Am ount of JGBs and T - Bills O f f ered to the M P rinciple/ C oupon P ay m ent C orresponding to Day s of C losing Bids S hare f or JGBs by I nv estor T y pe in F Y 2 I ssuance of JGBs f or R etail I nv estors · · · · · · · · · · · · · · · · · · · I ssuance by the Bank of Japan S witch · · · · · · · · · · · · · · · · · · F ront- L oading I ssuance of R ef unding Bonds · · · · · · · · · · L ist of C om m issions f or I ssuing JGBs, etc. · · · · · · · · · · ·

S econdary M ark et f or Gov ernm ent Bonds ( 1 ) 1 0 - Y ear JGB Y ield · · · · · · · · · · · · · · · · · · · · · · ( 2 ) 1 0 - Y ear Gov ernm ent Bonds Y ields · · ( 3 ) Y ields of JGBs in F Y 2 0 1 5 · · · · · · · · · · · · ( 4 ) JGB Y ield C urv es · · · · · · · · · · · · · · · · · · · · · ·

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iii

(5 ) (6 ) (7 ) (8 ) (9 ) (1 0 (1 1 (1 2 (1 3 (1 4 (1 5 (1 6 (1 7 (1 8 (1 9 (2 0 (2 1 (2 2 (2 3 (2 4 3

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V arious R ates in the S hort- term F inancial M ark et in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · Break - E v en- I nf lation ( BE I ) R ate · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · M ark et P rice of 1 5 - y ear F loating- rate Bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · JGB S hare in T otal T rading V olum e of Y en Bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · JGB S hare in T otal I ssuance Am ount of Y en Bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · P ortf olio I nv estm ent Assets in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · P ortf olio I nv estm ent L iabilities in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · T rends in JGB T ransactions ( by inv estor ty pe) in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · T rading V olum e of Y en Bonds · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · T rading V olum e of JGB F utures · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · T rading V olum e of Bond Gensaki · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · T rading V olum e of Bond- L ending · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · O pen I nterest Am ounts of Bond- L ending · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · T rading V olum e of JGB O ption by O T C · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · T rading V olum e of JGB F utures O ptions · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · O utstanding Am ount of S T R I P S - P rincipal- O nly Book - entry T ransf er JGBs · R esults of O utright P urchases of JGBs by the Bank of Japan in F Y 2 0 1 5 · · · · · R esults of O utright P urchases of T - Bills by the Bank of Japan in F Y 2 0 1 5 · · · Japan' s S ov ereign R atings by M aj or C redit R ating Agencies · · · · · · · · · · · · · · · · · · · L ist of M aj or C ountries' S ov ereign R atings by M aj or C redit R ating Agencies ·

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Debt M anagem ent S y stem s · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 3 8 ( 1 ) R ev enues and E x penditures f or the S pecial Account f or the GDC F ( F Y 2 0 1 6 I nitial Budget) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 3 8 ( 2 ) T ransf er of R edem ption S ources, R edem ption Am ount, O utstanding Am ount and R ef unding Am ount of the GDC F ( F Y 2 0 1 6 I nitial Budget) · · · · · · · · · · · · · · · · · · 1 3 9 ( 3 ) I nv estm ent Balance of the GDC F · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 3 9 ( 4 ) Budgetary S urplus of the S pecial Account of the GDC F · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 0 ( 5 ) R esults of Auctions f or E nhanced- L iq uidity Bid Achiev em ents in F Y 2 0 1 5 · · · 1 4 0 ( 6 ) Buy - back R esults in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 1 ( 7 ) Buy - back R esults · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 1 ( 8 ) V arious C ouncils · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 2 ( 9 - 1 ) W rap- up of Discussion at the Adv isory C ouncil on Gov ernm ent Debt M anagem ent ( S um m ary ) ( June 1 8 , 2 0 1 4 ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 6 ( 9 - 2 ) M ain issues f or f uture discussions at the Adv isory C ouncil on Gov ernm ent Debt M anagem ent ( O ctober 2 1 , 2 0 1 5 ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 7 ( 1 0 ) H istory of P ostwar Debt M anagem ent P olicy · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 4 8 ( 1 1 ) Gov ernm ent Bond- related L egal S y stem s · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 5 0

C hap ter 2 Financing Bills, Borrowings and Gov ernment-Guaranteed D ebt 1

iv

F inancing Bills ( F Bs) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) O utstanding Am ount of F Bs- Break down by the T y pes ( as of the end of F Y 2 0 1 5 ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 2 ) O utstanding Am ount of F Bs · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 3 ) I ssuance Am ount of F Bs in F Y 2 0 1 5 - Break down by F unding R ( 4 ) R eceipts and P ay m ents on the N ational T reasury f or F Y 2 0 1 5

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2

3

Borrowings · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 1 ) O utstanding Am ount of Borrowings · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 2 ) O utstanding Am ount of Borrowings - Break down by the T y pes of Account ( as of the end of F Y 2 0 1 5 ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 3 ) O utstanding Am ount of Borrowings of the S pecial Account f or L ocal Allocation T ax · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 4 ) Am ount of Borrowings of the S pecial Account f or L ocal Allocation T ax O f f ered to the M ark et at E ach Auction · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 5 ) Auction R esults of the Borrowings of the S pecial Account f or L ocal Allocation T ax in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 6 ) Auction R esults of the Borrowings of the S pecial Account f or the N ational F orest Debt M anagem ent in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 ( 7 ) Auction R esults of the Borrowings of the S pecial Account f or E nergy P olicy in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 Gov ernm ent- Guaranteed Debt · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) C hanges in the O utstanding Am ount of Gov ernm ent- Guaranteed Debt · · · · · · · · · ( 2 ) C hanges in the I ssuance Am ount of Gov ernm ent- Guaranteed Dom estic Bonds O f f ered to the M ark et · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 3 ) Break down of the Gov ernm ent- Guaranteed Debt by Agencies · · · · · · · · · · · · · · · · · · ( 4 ) I ssuance C alendar of Gov ernm ent- Guaranteed Dom estic Bonds O f f ered to the M ark et by Agencies in F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 5 ) O utstanding Am ount of Gov ernm ent- Guaranteed F oreign Bonds - Break down by Denom ination and by Agencies ( as of the end of F Y 2 0 1 5 ) · · · · · · · · · · · · · · · · · · · ( 6 ) S pread between M aj or 1 0 - y ear Gov ernm ent- Guaranteed Bonds and JGBs in F Y 2 0 1 5 ···················································································

5 5 5 5 5 5 5 6 5 6 5 7 5 8 5 8

1 5 9 1 5 9 1 5 9 1 6 0 1 6 1 1 6 3 1 6 3

C hap ter 3 Other P ublic D ebt 1

L ocal Gov ernm ent Bonds ( L GB) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 1 ) O v erv iew of L GB P rogram in F Y 2 0 1 6 · · · · · · · · · · · · · · · · · ( 2 ) L GB P rogram - Break down by F unding R esources · · · · ( 3 ) O utstanding Am ount of L GB P rogram - Break down by ( 4 ) I ssuance C onditions of P ublic O f f ering L GBs in F Y 2 0 ( 5 ) I ssuance Am ount of P ublic O f f ering L GBs · · · · · · · · · · · ·

·· ·· ·· F 1 ··

··········· ··········· ··········· unding R 5 ········ ···········

2

Debt of I ncorporated Adm inistrativ e Agencies, etc. · · · · · · · · · · · · · · · · · · · · ( 1 ) F Y 2 0 1 6 F I L P P lan · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ( 2 ) P lanned and Actual I ssuance Am ount of F I L P Agency Bonds · · ( 3 ) S pread between 1 0 - y ear F I L P Agency Bonds and JGBs in F Y 2 0

············ ············ ············ esources ············ ············

··· ··· ··· 1 5

···· ···· ···· ··

·· ·· ·· ··

·· ·· ·· ··

·· ·· ·· ··

·· ·· ·· ·· ·· ··

·· ·· ·· ·· ·· ··

1 6 4 1 6 4 1 6 4 1 6 5 1 6 6 1 6 6

·· ·· ·· ··

·· ·· ·· ··

1 6 1 6 1 6 1 6

7 7 8 9

【Sup p lement】 Fiscal C onditions and D ebt Outstandings (1 ) (2 ) (3 ) (4 ) (5 )

General Account T ax R ev enues, T otal E x penditures and Gov ernm ent Bond I ssues · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · Gov ernm ent Bond I ssues and Bond Dependency R atio · · · · · · · · · · · · · · · · · · · · · · · · · · · C hanges in R atio of P rim ary Balance to GDP · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · P roj ections in R atio of P rim ary Balance to GDP ( E conom ic R ev iv al C ase) · · · Gov ernm ent Debt- related E x penditures in the General Account- Break down by C ategories ( F Y 2 0 1 6 ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

1 7 0 1 7 0 1 7 1 1 7 1 1 7 2

v

(6 ) (7 ) (8 ) (9 ) (1 0 ) (1 1 ) (1 2 ) (1 3 ) (1 4 ) (1 5 ) (1 6 ) (1 7 )

(1 8 ) (1 9 ) (2 0 ) ( R ef

vi

H istorical C hanges in Gov ernm ent Debt- related E x penditures · · · · · · · · · · · · · · · · · · · 1 7 2 P roj ections of the F Y 2 0 1 6 Budget I m pact on F ollowing Y ears' E x penditure and R ev enue · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 7 3 C ash- F low P roj ections of the GDC F · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 7 4 C hanges in the O utstanding Am ount of JGBs, F inancing Bills, Borrowings and Gov ernm ent- Guaranteed Debt · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 7 5 L ong- term Debt O utstanding of C entral and L ocal Gov ernm ents · · · · · · · · · · · · · · 1 7 6 Break down of the O utstanding Am ount of General Bonds by R em aining Y ears to M aturity · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 7 7 T erm - to- m aturity S tructure of General Bonds ( F Y 2 0 1 6 I nitial Budget Basis) 1 7 7 Break down of the O utstanding Am ount of General Bonds by M aturity T y pes and T heir Av erage I nterest R ate at the end of F Y 2 0 1 5 · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 7 8 O utstanding I nterest R ate W eighted Av erage, I nterest P ay m ent of General Bonds and Av erage Y ears to M aturity · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 7 8 O utstanding Am ount of JGB and T - Bill - Break down by H olders- · · · · · · · · · · · · · 1 7 9 Balance S heet of Japanese Gov ernm ent ( General Account and S pecial Accounts) ( as of the end of F Y 2 0 1 4 ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 8 0 F inancial Assets and L iabilities of General Gov ernm ent ( C entral Gov ernm ent, L ocal Gov ernm ent and S ocial S ecurity f und) ( 3 1 M ar, 2 0 1 6 ( P relim inary F igures) ) · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 8 1 I nternational C om parison of General Gov ernm ent F inancial Balance to GDP 1 8 2 I nternational C om parison of General Gov ernm ent Gross Debt to GDP · · · · · · · 1 8 3 I nternational C om parison of General Gov ernm ent N et Debt to GDP · · · · · · · · · · 1 8 3 erence) JGB- related Adv ertisem ents and P ublications · · · · · · · · · · · · · · · · · · · · · · · · · · · 1 8 4

Thet a bsl oc a t e di nt hes a mepos i t i onsi ndi c a t et ha tt hec ha pt e r sa r er e l e va ntt oe a c hot he ra c r os st he pa r t st he ybe l ongt o.

ⅡࠉFramework Ⅲ Appendices

2 Secondary Market for Government Bonds

2 Secondary Market for Government Bonds

ⅵ

Chapter 1 Government Bonds

Chapter 1 Government Bonds

（Body Text）

vii

Preface

P reface

１ About“D ebt Management R ep ort” T he obj ectiv e of the “ Debt M anagem ent R eport,” which has been published since 2 0 0 4 , is to prov ide readers across a wide spectrum

spanning dom estic and f oreign m ark ets, gov ernm ent

af f airs, and research, etc., with the opportunity of gaining a deeper understanding of Japan’ s debt m anagem ent policy . At the core of the debt m anagem ent policy is, needless to say , JGB m anagem ent policy . H owev er, f rom

the perspectiv e of prov iding a wide range of inf orm ation on

ex tensiv e public debts in general, which will be tak en up in m ore detail later, this report concerns itself not only with JGBs, but also includes v arious discussion points relating to public debts in general. T o begin with, P art I , headed “ F Y 2 0 1 6 Debt M anagem ent P olicies,” discusses the recent trends in the JGB market, as well as various latest policies, specifically in relation to the JGB Issuance Plan for this fiscal year. Particularly, the part has three new columns to describe “ uantitative and

ualitative Monetary Easing with a Negative Interest Rate,” “Widening of Negative Basis

S wap S pread” and “ Approach on Av erage M aturity of JGBs ( F low and S tock Bases) .” P art I I , headed “ F ram ework ,” concerns itself with the f undam ental m echanism

of public debts

and debt m anagem ent policy in general. Lastly, Part III, the “Appendices,” lists all materials that did not fit into the previous part; this section should be used with ref erence to P art I I “ F ram ework .” I n this latest report as well, we prov ide a lot of cross- ref erences including som e that link P art I I “ F ram ework ” with P art I I I “ Appendices” so that readers will be able to q uick ly access the inf orm ation that they want. Y our com m ents are highly appreciated f or f urther im prov em ents of this report.

2

P reface

２ W

h at is D ebt Management Policy?

(1) Ov erv iew U nder the F Y 2 0 1 6 budget, the central gov ernm ent plans to issue JGBs worth 1 6 2 .2 trillion y en, posting a decline of 7 .8 trillion y en f rom

the initial lev el f or F Y 2 0 1 5 . C onstruction

Bonds and Special Deficit-financing Bonds to provide General Account revenues decline by 2 .4 trillion y en f rom

the initial lev el f or the prev ious y ear to 3 4 .4 trillion y en. O n the other

hand, JGBs outstanding at the end of F Y 2 0 1 5 totaled as m uch as 9 0 1 .5 trillion y en. T he gov ernm ent also raises necessary f unds with other f inancing m ethods than JGBs, such as F inancing Bills and Borrowings. I f these f actors are tak en into account, the central gov ernm ent’ s debts resulting f rom

its f iscal operations total as m uch as 1 ,0 4 9 .4 trillion

y en. M oreov er, the gov ernm ent giv es guarantees to I ncorporated Adm inistrativ e Agencies in order f or them

to carry out f unding to im plem ent public proj ects, and the gov ernm ent-

guaranteed debt totals 41.8 trillion yen (The figures are at the end of FY2015.). Both the f undraising am ount and the outstanding balance of gov ernm ent debt continue to increase. Gov ernm ent debt m anagem ent af f ects not only the choice of f inancial assets of economic entities such as corporations and households, but also the flow of funds on a m acro- scale, which ev entually would inf luence interest rates. I n turn, changes in m ark et interest rates influence government funding activities and the activities of every economic entity . T he gov ernm ent, theref ore, needs to m anage properly the stock and f low of gov ernm ent debts associated with fiscal operations, including JGBs, Financing Bills, Borrowings and gov ernm ent- guaranteed debt. T his adm inistration is called “ debt m anagem ent,” and how to m anage debt is ref erred to as “ debt m anagem ent policy .” Besides gov ernm ent debts, there are sev eral f orm s of public debts including f uture pension pay m ents, local gov ernm ent bonds and I ncorporated Adm inistrativ e Agencies’ liabilities. S uch public debt would af f ect gov ernm ent debt m anagem ent through the m ark et interest rate f orm ation m echanism .

3

P reface

Borrow ings

Borrow ings

ＦＢ

L ocal Government

Government Financial Institutions

L ocal Government Bonds

P ublic Issue Bonds

Government-Guaranteed Bonds

FL IP A gency Bonds, Borrow ings

Government Bonds (FIL P Bonds)

ＦＢ

ＦＢ

Government Guaranteed Bonds Government-Guaranteed Borrow ings

Fiscal L oan Fund Borrow ings

Government Bonds (R efunding Bonds)

Government Bonds (Construction Bonds, Special Deficit-Financing Bonds)

ＦＢ

Government Bonds (R econstruction Bonds)

Government Debt Consolidation Fund (Special A ccount)

Incorporated A dministrative A gencies

Special A ccounts ＦＢ

Bor row ings (ass ume d de bts)

Go L o v c Bo ernm al nd e s nt

General A ccount

☞① T he shaded area represents gov ernm ent debts.

C o n c e p tio n a l D ia g r a m

Lo ca lG Bo ove nd rnm s e nt

F i g .1 P u b l i c D e b t s

☞② I n addition to these debts, there are gov ernm ent bonds that are held by the Bank of Japan as a m eans of open m ark et operations. ☞③ T h e G o v e r n m e n t Guaranteed Bonds issued by the Japan F inance O rganization f or M unicipalities, are issued only f or ref unding of Gov ernm entGuaranteed Bonds conv erted f rom the f orm er Japan F inance C orporation f or M unicipal Enterprises.

F in a n c ia l M arkets (as of A pril 1, 2016)

(2) Framework of “ Gov ernment Funding Activ ities” T he gov ernm ent issues JGBs and carries out Borrowings ( ☞) in order to f inance its annual gov ernm ent ex penditures. I n addition, F inancing Bills are issued to cov er tem porary cash shortage for daily cash management of the National Treasury. Out of the topics referenced above, the f ram ework of ( central) gov ernm ent f unding activ ities will be discussed in this section. F i g .2 N a t i o n a l T r e a s u r y R e c e i p t s a n d P a y m e n t s ＜P ayments＞ R edemption of JGBs, repayment of long-term Borrow ings L ocal allocation tax , general ex penditures, other payments such as pension benefits

＜R eceipts＞ Issuance of Financing Bills Issuance of JGBs (including R efunding Bonds), long-term Borrow ings

Fund-raising to cover temporary cash shortage of the National T reasury. Fund-raising to meet annual government ex penditure demands

T ax es and other revenue

【National T reasury】

（A ll receipts and payments of the cash in the National T reasury is made through the BOJ.）

（P rivate Sector）

T he central gov ernm ent budget consists of the General Account and 1 4 S pecial Accounts ( as of April 1 , 2 0 1 6 ) , and all receipts and pay m ents in these accounts are m anaged through the Bank of Japan ( BO J) . T he gov ernm ent sm oothly im plem ents spending under the budget by raising f unds through the issuance of JGBs and Borrowings to m eet annual gov ernm ent ex penditure dem and and by the issuance of Financing Bills to cover temporary cash shortage of the National Treasury as follows. 4

☞ U nlik e JGBs, Borrowings are a f orm of f unding that does not inv olv e the issuing of securities.

P reface A. J GBs and Borrowings to meet annual gov ernment ex p enditure demand T he gov ernm ent issues JGBs and carries out Borrowings that constitute a part of government revenue in order to finance annual government expenditures. The government sm oothly im plem ents budget spending by raising f unds in this way as necessary . I n addition to planning the gov ernm ent debt m anagem ent policy , the F inancial Bureau of the M inistry of F inance im plem ents the policy through conducting JGB auctions, issuance and redem ption, and auctions f or Borrowings.

B. Financing Bills to cov er temp orary cash shortage of the N ational Treasury T he central gov ernm ent: m inistries, agencies or special accounts carry out a lot of f iscal activ ities ev ery day . All the receipts and pay m ents are m ade through the BO J f or their integrated handling in the National Treasury. As explained in section A, the government raises f unds through the issuance of JGBs and Borrowings to cov er annual gov ernm ent ex penditures. H owev er, the gov ernm ent sees tem porary cash shortage and surplus due to lags of day - to- day receipts and pay m ents of gov ernm ent f unds. T he F inancial Bureau of the M inistry of F inance m ak es adj ustm ents through the issuance of F inancing Bills in the case of shortage, and through the tem porary use of the treasury surplus in the case of surplus (“Cash Management in the National Treasury”)(☞) . Based on what was described abov e, the chart below prov ides an ov erv iew of the v arious elem ents of public debts and lists the relev ant ref erence points in this report. F i g .3 V a r i o u s E l e m e n t s o f P u b l i c D e b t s a n d R e l e v a n t R e f e r e n c e P o i n t s i n T h i s R e p o r t

☞ R ev enue ref ers to cash receipts to cov er annual gov ernm ent ex penditures in a specif ic f iscal y ear. F inancing Bills, which are issued to manage the National Treasury, are not counted as rev enue, since F inancing Bills are redeem ed with the rev enue of the same fiscal year.

T opics Inside T his R eport (for details, see Contents) Ⅰ Debts from government funding

Government Debts

P ublic Debts

Debts associated w ith financing government activity

General Bonds

FIL P Bonds Financing Bills Borrow ings

Government-Guaranteed Debt Subsidy Bonds

■１ T rends of JGB M arket in FY2015 P 8 ■２ JGB Issuance P lan for FY2016 P 19 ■３ Diversification of JGB Investor Base P 31

Ⅱ(Framework)

Ⅲ(Appendices)

◆Chapter 1

◆Chapter 1

■１ P rimary M arket for ■1 P rimary M arket for Government Bonds Government Bonds P 40 P 110 ■２ Secondary M arket for ■2 Secondary M arket for Government Bonds Government Bonds P 60 P 121 ■３ Debt M anagement Systems P 72 ■3 Debt M anagement                  ■４ T ax ation of Government Bonds Systems P 85 P 138

◆Chapter 2 ■1 Financing Bills ◆Chapter 2 ■2 Borrow ing

P 90 P 92

◆Chapter 2 ■1 Financing Bills ◆Chapter 2 ■2 Borrow ing

P 153 P 155

◆Chapter 2 ■3 Government-Guaranteed Debt ◆Chapter2 ■3 Government-Guaranteed Debt P 94 P 159 ◆Chapter 2 ■4 Subsidy Bonds

P 97

Other P ublic Debts

L ocal Government Bonds

◆Chapter 3 ■1L ocal Government Bonds ◆Chapter 3 ■1 1L ocal Government Bonds P 99 P 164

Debt of Incorporated A dministrative A gencies, etc.

◆Chapter 3 ■ 2 Debt of Incorporated ◆Chapter 3 ■2 Debt of Incorporated A dministrative A gencies, etc. A dministrative A gencies, etc. P 103 P 167

5

Ⅰ FY 2016 Debt Management Policies This part provides the most recent updates on FY 2016 Debt Management Policy.

Ⅰ FY 2016 D ebt Management Policies

1 Trends of J GB Market in FY2015 (1) Yields continued a downtrend 1 T rends of J GB Mark et in FY 2015

A m oderate downtrend f or the JGB y ield continued with a sm ooth JGB auction at the beginning of FY2015 under the continuation of “ uantitative and ualitative Monetary Easing” by the BOJ. However, the JGB yield rose in late April with the long-term (10-year) JGB yield rising above 0.5 briefly, following the steep rise in the European government bond y ield due to a larger increase in Germ an consum er prices than m ark et ex pectation. T his was after a substantial decline of the European government bond yield following uantitative Easing by the ECB in March (Fig. 1-1). JGB y ields resum ed a m oderate downtrend in July as a risk - of f trend dev eloped due to the em ergence of risk s regarding the C hinese econom y and resources prices ( including crude oil prices) . T he C hinese econom y dev elopm ents thus ex erted signif icant im pacts on f inancial m ark ets in the world. As C hinese stock prices ( S hanghai C om posite S tock I ndex ) turned downward af ter a substantial rise in June and the standard renm inbi ex change rate against the U .S . dollar was lowered sharply in August, stock prices in other countries declined rapidly , with currency exchange rates fluctuating wildly (Figs. 1-2 and 1-3). Among resources prices, crude oil f utures prices resum ed their decline in July af ter rebounding f rom a bottom in January ( F ig. 1 - 4 ) . JGB y ields f ell with the trend of the y en’ s appreciation and stock price f alls under such global financial market and economic trends. nder this situation, the BOJ introduced “Supplementary Measures for uantitative and ualitative Monetary Easing” in December to facilitate the “ uantitative and ualitative Monetary Easing” policy (☞). While maintaining its policy of “purchasing JGBs so that their am ount outstanding will increase at an annual pace of about 8 0 trillion y en,” the BO J im plem ented these supplem entary m easures in preparation f or an increase in the gross am ount of its JGB purchases that was ex pected to com e in 2 0 1 6 due to an ex pansion in the redem ption of JGBs at m aturity . I n response to the supplem entary m easures, JGB m ark et participants increasingly ex pected the BO J to purchase longer- term JGBs, leading to drops in super longterm JGB y ields including the 2 0 - y ear JGB y ield that slipped below 1 .0 % . F i g .1- 1 J G B Y i e l d T r e n d s b y M a t u r i t y （％）

2.0

1.5

1.0 40-year bonds 30-year bonds

0.5

20-year bonds

10-year bonds 5-year bonds 2-year bonds

0.0

-0.5

A pr-15

M ay-15

Jun-15

Jul-15

(Source: Japan Bond T rading Co.)

8

A ug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

M ar-16

☞ B O J “ S u p p l e m en t ar y Measures for uantitative and ualitative Monetary Easing” ( Decem ber 1 8 , 2 0 1 5 ) ① Expanding eligible collateral f or the BO J’ s prov ision of credit ( Accepting f oreign currency - denom inated loans on deeds as eligible collateral and introducing a f ram ework in which the BO J will accept f inancial institutions' housing loans portf olio as collateral through a trust schem e) ② Extending the average rem aining m aturity of JGB purchases ( f rom about 7 - 1 0 y ears at present to about 7 - 1 2 y ears) ③ I ncreasing the m ax im um am ount of each issue of Japan real estate inv estm ent trust (J-REIT) to be purchased (from the current 5 % to 1 0 % of the total amount of that J-REIT issued)

Ⅰ FY 第Ⅰ 2016 D ebt7年度の債務管理政策 Management Policies F i g .1- 2 S h a n g h a i C o m p o s i t e S t o c k I n d e x t r e n d s 5,500 5,000 4,500

1 T rends of J GB Mark et in FY 2015

4,000 3,500 3,000 2,500 A pr-15 M ay-15 Jun-15

Jul-15

A ug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 M ar-16

(Source: Bloomberg)

F i g .1- 3 J a p a n e s e , U .S . a n d G e r m a n s t o c k p r i c e t r e n d s (yen, dollar) 22,000

(euro) 13,000

21,000

12,500 12,000

20,000

11,500

19,000

11,000

18,000

10,500

17,000

10,000

16,000

9,500

Nikkei average New York Dow Jones industrial average

15,000

9,000

German DA X index (right scale)

14,000

8,500

A pr-15 M ay-15 Jun-15 Jul-15 A ug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 M ar-16

(Source: Bloomberg)

F i g .1- 4 C r u d e o i l f u t u r e s p r i c e t r e n d s (dollar/barrel) 80 70

W T I North Sea Brent

60 50 40 30 20

* Front-month contract price

Jan-15 Feb-15 M ar-15 A pr-15 M ay-15 Jun-15 Jul-15 A ug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 M ar-16

(Source: Bloomberg)

9

Ⅰ FY 2016 D ebt Management Policies (2) BOJ introduced " Q uantitativ e and Q ualitativ e Monetary E asing with a N egativ e Interest Rate" Exerting the greatest impact on the JGB market in FY2015 was the BOJ s introduction of uantitative and

Ref: Column 1: “ uantitative and ualitative Monetary Easing with a Negative I nterest R ate” ( P 1 5 )

ualitative Monetary Easing with a Negative Interest Rate” that was

decided at its M onetary P olicy M eeting on January 2 9 , 2 0 1 6 .

1 T rends of J GB Mark et in FY 2015

T he policy is to apply a negativ e interest rate of m inus 0 .1 %

to som e of the current

accounts that financial institutions hold at the BOJ while maintaining the and

uantitative

ualitative Monetary Easing.” In explaining the objective of the policy, the BOJ said,

“ T he Bank will lower the short end of the y ield curv e by slashing its deposit rate on current accounts into negativ e territory and will ex ert f urther downward pressure on interest rates across the entire y ield curv e, in com bination with large- scale purchases of JGBs.” I n f act, interest rates accelerated their downtrend, including the long- term

JGB y ield that plunged

into negativ e territory on F ebruary 9 . As inv estors enhanced purchases of JGBs with positive yields later, super long-term JGB yields also fell. All JGB yields briefly fell to alltim e lows - - m inus 0 .1 3 5 % JGBs and 0.270 short and long- term

on 1 0 - y ear JGBs, 0 .2 4 5 %

on 2 0 - y ear JGBs, 0 .2 6 5 %

on 3 0 - y ear

on 40-year JGBs, leading the yield curve to flatten with gaps between JGB y ields narrowing.

T he trend of JGB inv estors by business category under such situation indicated that city bank s, which had reduced JGB holdings and accum ulated current accounts at the BO J since the introduction of “ uantitative and

ualitative Monetary Easing,” have refrained from

trading in JGBs including m edium - to long- term

ones and held down the accum ulation of

current accounts at the BO J since the introduction of the negativ e interest rate. M eanwhile, regional bank s hav e ex panded super long- term

JGB purchases in pursuit of inv estm ent

returns. L if e insurance com panies hav e reduced super long- term

JGB purchases under the low

interest rate env ironm ent and increased f oreign bond inv estm ent, while f oreign inv estors hav e continued their net purchases of short to m edium - term

JGBs with f alls in dollar- based

y en f und raising costs. I n the m eantim e, som e JGB m ark et participants v oiced concerns on the f alling liq uidity of the JGB m ark et.

(3 ) Growing p resence of the BOJ and Foreign Inv estors As the BOJ has purchased massive JGBs in the market under its uantitative and ualitative Monetary Easing, the central bank s JGB holdings and their share of outstanding JGBs have continued to increase. At the end of M arch 2 0 1 6 , the BO J’ s JGB and T reasury Discount Bill ( T - Bills) holdings totaled about 3 6 4 trillion y en, accounting f or 3 3 .9 % and T - bills. T he BO J plans the gross am ount of its long- term

of outstanding JGBs

JGB purchases at about 1 2 0

trillion y en in 2 0 1 6 com pared with the planned issuance of about 1 2 8 trillion y en in couponbearing JGBs in F Y 2 0 1 6 , indicating its considerable presence in the JGB m ark et. F oreign inv estors hav e increased their presence as JGB holders af ter the BO J. T heir JGB holdings still lower than banks and insurers . While banks JGB holdings have declined, with insurers’ JGB holdings hav ing lev elled of f , f oreign inv estors’ JGB holdings hav e m oderately increased, standing at 1 0 .2 % 10

at the end of M arch 2 0 1 6 . T heir T - bill holdings

R ef : BO J “ F low of F unds Accounts ( M arch- end 2 0 1 6 ( prelim inary ) ) ( P 3 1 )

Ⅰ FY 第Ⅰ 2016 D ebt7年度の債務管理政策 Management Policies were as high as 4 9 .0 % . JGB trading trends by inv estor category ( F ig. 1 - 5 ) indicate that f oreign inv estors’ net m edium - term inv estor category f rom

JGB purchases were f ar larger than those of any other

the second half of 2 0 1 5 .

While domestic investors have refrained from purchasing short to medium-term JGBs carry ing negativ e y ields other than those f or collateral, f oreign inv estors hav e increased their purchases. T his is because f oreign inv estors can benef it f rom

JGB purchases with basis swaps ( ☞) . I n this inv estm ent m echanism , f oreign

investors use basis swaps to swap yen cash flow they receive by holding yen assets with dollar and other cash f lows. S wap spreads they receiv e upon the swapping are added to dollar and other cash flows, providing foreign investors with advantageous yields (Fig. 1-6). Although any sim ple com parison cannot be done because of dif f erences in ratings and other conditions, JGBs m ight hav e been v iewed as one of the attractiv e inv estm ent v ehicle f or f oreign inv estors. I n long- term

JGB f utures trading in 2 0 1 5 , f oreign inv estors accounted f or about 9 4 %

brok erage trading and about 5 1 %

of

1 T rends of J GB Mark et in FY 2015

m edium - term

com bining short to

☞ A basis swap is a k ind of currency swap. O f currency swaps in which principals and interests in dif f erent currencies are swapped, those with interests indicated as L ibor are called basis swaps. At present, inv estors who use U .S . dollars f or inv estm ent in y en can receiv e spreads, while those who use y en f or inv estm ent in dollars m ust pay spreads.

Ref: Column 2 “Widening of Negative Basis Swap S pread ( P 1 7 )

of brok erage trading and securities com panies’ dealing

on their own accounts ( F ig. 1 - 8 ) . F oreign inv estors, including f inancial institutions and inv estm ent f unds, m ight hav e traded in long- term

JGB f utures f or v arious purposes.

Whatever their purposes are, they may never participate in trading unless they can trade at adeq uate prices. T his m eans that f oreign inv estors participate in the JGB m ark et because the long- term

JGB f utures m ark et is highly liq uid with the spot JGB m ark et m aintaining certain

liq uidity . F i g .1- 5 J G B

T r a d in g T r e n d s b y In v e s to r C a te g o r y (m e d iu m -te r m

J G B

tr a d in g )

(100 million yen)

80,000 60,000 40,000 20,000

Other corporations, etc. Foreign investors Investment trusts

0

L ife and non-life insurers

▲20,000

Other financial institutions

▲40,000

T rust banks

▲60,000

City banks

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

(Source: Japan Securities Dealers A ssociation)

11

Ⅰ FY2016 Debt Management Policies Fig.1-6 Dollar-yen Basis Swap Spread Trends （bp）

0

­20 ­40

1 Trends of JGB Market in FY2015

­60 3-month 6-month 2-year 5-year

­80 ­100 ­120 Apr-14

Jul-14

Oct-14 Jan-15 Apr-15

Jul-15

Oct-15 Jan-16

(Source: Bloomberg)

Fig.1-7 JGB Trading Volume Trends

140 120

(trillion yen/month) Trading volume

100 80 60 40 20 0

Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr 12 Apr 13 Apr-14 Apr-15 Apr-16

Note 1. Excluding Treasury Discount Bills (treasury bills until January 2010) Note 2. Trading volume excludes bond dealers trading (Sources: Japan Securities Dealers Association, Bank of Japan)

Fig.1-8 Long-term JGB Futures Trading Volume by Investor Category (2015) Other financial institutions Investment trusts, etc 1%

1%

Trust banks

2%

Foreign investors

51%

(Source: Japan Exchange Group, Inc.)

12

Securities companies dealing on their own accounts

45%

Ⅰ FY 第Ⅰ 2016 D ebt7年度の債務管理政策 Management Policies (4 ) C hange in Yield C urv e The yield curve had retained a shape focusing on the zero level, reflecting the downward rigidity of yields, before the BOJ s introduction of its “ uantitative and

ualitative

Monetary Easing with a Negative Interest Rate.” However, the BOJ s decision to introduce the “ uantitative and

ualitative Monetary Easing with a Negative Interest Rate” pushed

1 T rends of J GB Mark et in FY 2015

down yields in the short-term zone first. As investors pursued positive yields later, those in the long - to super long-term zone fell substantially, leading the yield curve to bull-flatten.

F i g .1- 9 J G B Y i e l d C u r v e s （％） 1.6 3/31/2015 3/31/2016

1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 ▲ 0.2 ▲ 0.4

0

5

10

15

20

25

30

(Source: Japan Securities Dealers A ssociation)

35

40

45

(Duration to maturity)

(5 ) Foreign Gov ernment Bond Market Trends In FY2015, yields on short to medium-term bonds were bipolarized reflecting the difference between .S. and European monetary policy directions. The 2-year yield susceptible to monetary policy influences rose toward the end of 2015 with some fluctuations in the nited States while declining in many European countries. .S. and European yields thus went in different directions (Fig. 1-10). In the

nited States, the 2-year Treasury yield moderately rose with some fluctuations on

speculation about a possible interest rate hik e by the F ederal R eserv e ( F ed) . At its m eeting in Decem ber 2 0 1 5 , the F ederal O pen M ark et C om m ittee ( F O M C ) decided to raise the target range f or the f ederal f unds rate by 0 .2 5 percentage points to 0 .2 5 % 0 .5 0 %

to

( the f irst policy rate hik e since 2 0 0 6 ) ( ☞①) . I ts statem ent said, “ T he C om m ittee

j udges that there has been considerable im prov em ent in labor m ark et conditions this y ear, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent obj ectiv e.” In Europe, meanwhile, many countries had negative yields on short to medium-term gov ernm ent bonds ( F ig. 1 - 1 1 ) . T hose y ields f ell gradually in Germ any and F rance in FY2015 in a manner to prompt the European Central Bank (ECB) to decide on further

☞① T he F O M C at its m eetings in January and M arch 2 0 1 6 ref rained f rom raising the policy interest rate due m ainly to unstable f inancial m ark ets. T he F ed plans to m oderately raise the policy interest rate while watching the im pacts of financial markets and emerging econom ies on the U .S . labor m ark et and prices.

monetary easing. Even while the ECB was purchasing bonds with yields at or above the deposit f acility rate, the 2 - y ear y ield in Germ any rem ained below the deposit f acility rate. S om e m ark et participants v oiced concerns about rising v olatility and f alling liq uidity . Behind such conditions might have been ECB s and other monetary policies. For the reason 13

Ⅰ FY 2016 D ebt Management Policies that inflation was not rising, the ECB eased its monetary policy twice -- in December and M arch - - in F Y 2 0 1 5 ( ☞②). In additional monetary easing in December, the ECB lowered the deposit f acility rate by 0 .1 0 percentage points to m inus 0 .3 0 % . I n M arch, it eased its m onetary policy ex tensiv ely to cut the rate f urther to m inus 0 .4 0 % m onthly purchases under its asset purchase program

and to increase the

by € 2 0 billion to € 8 0 billion f rom

April.

1 T rends of J GB Mark et in FY 2015

F i g . 1- 10 J a p a n e s e , U .S . a n d E u r o p e a n 2- y e a r G o v e r n m e n t B o n d Y i e l d T r e n d s 1.5

（％）

1.0 U.S.

0.5

U.K.

0.0 Japan Denmark

▲ 0.5

France Germany Sw eeden Sw itz erland

▲ 1.0

▲ 1.5 A pr-14

Jul-14

Oct-14

Jan-15

A pr-15

Jul-15

Oct-15

Jan-16

(Source: Bloomberg)

F i g .1- 11 J a p a n e s e , U .S . a n d E u r o p e a n Y i e l d C u r v e s ( a s o f M a r c h 31, 2016) 3.0

（％） U.S.

2.5

U.K.

2.0 Sw eeden

1.5

France Denmark

1.0

Germany

0.5

Japan Sw itz erland

0.0 ▲ 0.5 ▲ 1.0 ▲ 1.5

0

(Source: Bloomberg)

14

5

10

15

20

☞② I n additional m onetary easing published on Dec ember 3, the ECB decided (1) to cut the deposit f acility rate by 0 .1 0 percentage points to m inus 0 .3 0 % and to k eep the m onthly purchases under the asset purchase program at € 6 0 billion and ( 2 ) to ex tend the asset purchase program f or six m onths f rom S eptem ber 2 0 1 6 to the end of M arch 2 0 1 7 , to include euro- denom inated m ark etable debt instrum ents issued by regional and local gov ernm ents in the list of assets that are eligible f or regular purchases to reinv est the principal pay m ents on the securities purchased under the asset purchase program as they m ature. I n additional m onetary easing announced on M arch 1 0 , the ECB decided (1) to lower the deposit f acility rate to m inus 0 .4 0 % and lower the other two policy rates ( ☞③) , ( 2 ) to ex pand the m onthly purchases under the asset purchase program by € 2 0 billion to € 8 0 billion f rom April and ( 3 ) to launch the second series of targeted longer-term refinancing operations ( T L T R O I I ) .

25

30

(Duration to maturity)

☞③ The ECB has three policy interest rates - - “ the interest rate on the m ain ref inancing operations,” “ the interest rate on the m arginal lending f acility ” and “ the interest rate on the deposit f acility .” “ T he interest rate on the m ain ref inancing operations” is positioned as the target f or guiding m ark et rates, supported by “ the interest rate on the m arginal lending f acility ” as the ceiling and “ the interest rate on the deposit f acility ” as the bottom . At the M arch m eeting of the Governing Council, the ECB lowered “ the interest rate on the m ain ref inancing operations” f rom 0 .0 5 % to 0 .0 0 % and “ the interest rate on the m arginal lending f acility ” f rom 0 .3 0 % to 0 .2 0 % in addition to cutting “ the interest rate on the deposit f acility .”

Ⅰ FY 第Ⅰ 2016 D ebt7年度の債務管理政策 Management Policies

C olumn 1 Q uantitativ e and Q ualitativ e Monetary E asing with a N egativ e Interest Rate N egativ e interest rate ap p lication scheme uantitative and

Interest Rate by adding a negative interest rate to the existing

1 T rends of J GB Mark et in FY 2015

On January 29, 2016, the BOJ decided to introduce

ualitative Monetary Easing with a Negative

uantitative and

ualitative Monetary Easing.” It then

v owed to m ak e f ull use of possible m easures in term s of three dim ensions - - “ q uantity ,” “ q uality ” and “ interest rate” - - to realize the target inflation rate of 2

as early as possible.

U nder the negativ e interest rate application schem e, the BO J has adopted a three- tier sy stem

in which the outstanding

balance of each financial institution s current account at the BOJ is divided into three tiers -- the “Basic Balance,” the “ M acro Add- on Balance” and the “ P olicy - R ate Balance.” T he interest rates of 0 .1 % , 0 .0 %

and m inus 0 .1 %

are applied to

the three tiers, respectiv ely . T he “ Basic Balance” represents the av erage outstanding balance of current accounts that all financial institutions held at the BOJ during the one-year period of January to December 2015, which will basically remain unchanged. T he “ M acro Add- on Balance” will be rev iewed ev ery three m onths with considerations giv en to the req uired reserv es, the total am ount of the BO J prov ision of credit through the L oan S upport P rogram

and the outstanding balance

of current accounts that increases on a m acro basis. T he oustanding balance ex cluding the “ Basic Balance” and “ M acro Add-on Balance” is the “Policy-Rate Balance” to which the interest rate of minus 0.1

is applied. Explaining the reason

f or adopting the m ultiple- tier sy stem , BO J Gov ernor H aruhik o K uroda said: “ T he outstanding balance of current accounts at the cental bank in Japan is far greater than in Europe and will increase by about 80 trillion yen annually. Applying a negative interest rate to all the outstanding balance would impose too much burden on financial institutions.” The PolicyR ate Balance is ex pected to range f rom

1 0 trillion y en to 3 0 trillion y en.

F i g .c 1- 1 I m a g e o f O u t s t a n d i n g B a l a n c e o f C u r r e n t A c c o u n t a t B O J

Outstanding balance of current account

▲0.1％ P olicy-R ate Balance

M acro A dd-on Balance

Basic Balance

0％

＋0.1％

(Source: Bank of Japan)

15

Ⅰ FY2016 Debt Management Policies

❷ I mpacts of Introduction of “Quantitative and Qualitative Monetary Easing with a Negative Interest Rate” The introduction of "Quantitative and Qualitative Monetary Easing with a Negative Interest Rate" has exerted impacts on various areas. Financial institutions have refrained from raising additional funds. The amounts outstanding in the

1 Trends of JGB Market in FY2015

call money market have substantially declined. Money management funds (MMF), which invest mainly in T-Bills, the call money market and commercial paper, have discontinued new subscriptions or suspended investment. As for money reserve funds (MRF), funds have remained at deposit accounts at trust banks. As a result, the Policy-Rate Balance subject to the negative interest rate has increased for trust banks. In response, the BOJ at its Monetary Policy Meeting in March decided to include MRF in the Macro Add-on Balance (excluding MRF from the Policy-Rate Balance subject to the negative interest rate). As mentioned by BOJ Governor Kuroda, the negative interest rate policy possibly affects earnings at most banks. Although a fundraising cost fall is limited due to a small drop in deposit rates for banks’ fundraising, the negative interest rate on the outstanding balance of current accounts at the BOJ leads to market rate falls for lower investment returns. Particularly, it is pointed out that earnings at financial institutions with high shares for investment in securities in their assets could be affected seriously. In response, financial institutions have increased their tendency to take risks that differ from those for earlier investment. For example, they have been purchasing longer-duration JGBs as well as shares and REITs with dividends. They have also enhanced moves to purchase foreign bonds with higher yields while controlling foreign exchange risks. Some financial institutions cooperatively founded new investment companies to focus on efficient investment in pursuit of higher investment returns. On the other hand, some people are concerned that negative interest rates could be applied to deposits of ordinary people. However, the Financial Law Board has offered a view denying such possibility (Note 1). Some financial institutions are urging foreign banks, investment funds and pension funds to shoulder some costs, indicating significant impact from the negative interest rate introduction for financial institutions holding massive funds. The BOJ has pointed out that lending rate drops have led to refinancing, indicating some effects of the negative interest rate. It has also noted that moves to review asset allocation and increase new fundraising deals as well as refinancing can be expected to spread in a manner to vitalize the Japanese economy. "Quantitative and Qualitative Monetary Easing with a Negative Interest Rate" has just been introduced and is expected to take some more time to produce clear effects. In the primary JGB market, the bid-to-cover ratio (Note 2) fluctuated wildly, with the tail (Note 3) expanding, just after the introduction of the new monetary policy. However, the market has restored stability, with new issues being absorbed into the market stably (as of June 2016). (Note 1) “Putting in order views about contract interpretation problems arising from the introduction of the negative interest rate (excerpts)” (February 19, 2016, Financial Law Board) “(Skipped). Interest on bailment, as is the case with interest on loans, is interpreted as being paid by deposit-taking financial institutions to depositors, not as being paid by depositors. Deposit contracts do not plan interest payments by depositors. According to a reasonable interpretation of depositors’ intentions, therefore, deposit-taking fiancial institutions, though having room to collect deposit costs or costs of services through deposit accounts in accordance with deposit contracts, may not be allowed to set negative interest rates on ordinary or floating-rate time deposits for displaying at bank counters and collect amounts based on such rates from outstading deposits on interest payment dates.” (Note 2) The ratio of bids to the planned issuance amount. (Note 3) The tail (the gap between the average and lowest accepted bid prices) indicates whether an auction is favorable or unfavorable. (1) If the tail is short, the relevant auction is seen as favorable with JGB market participants supporting the market’s direction. (2) If the tail is long, the relevant auction is seen as unfavorable with market participants divided over the market’s direction.

16

Ⅰ FY 第Ⅰ 2016 D ebt7年度の債務管理政策 Management Policies

C olumn 2 W idening of N egativ e Basis Swap Sp read W

hat is the basis swap sp read? 1 T rends of J GB Mark et in FY 2015

I n the recent m ark et, concerns hav e allegedly been growing about a rise in costs f or raising dollar f unds. S uch situation can be seen with the m ov e of the basis swap spread in the currency swap m ark et. I n a currency swap, principals in two dif f erent currencies are ex changed at a certain ex change rate f or a certain period, during which interests ( f or which the L ondon I nterbank O f f ered R ate, or L I BO R , is usually used) f or the currencies are ex changed. Fig. c2-1 outlines a currency swap (dollar-yen basis). In the figure, prem ium

is the basis swap spread. The spread means a

f or y en interest rates. I f the dem and f or raising y en is strong ev en in ex change f or an increase in y en interest

payments, upward pressure is exerted on . If demand is strong for raising dollars even in exchange for a decline in yen interest receipts, downward pressure is exerted on .

F i g .c 2- 1 I l l u s t r a t e d C u r r e n c y S w a p ( d o l l a r - y e n b a s i s ) S c h e m e ■Initial phase ( Yen and dollar principals are exchanged) Yen principal Investor A ※Demand for raising dollars Dollar principal

■Term ( Interests are exchanged)

Investor B ※Demand for raising y en

Yen LIBOR＋α Investor B

Investor A Dollar LIBOR ■M aturity ( Last interests pay ments and principals are exchanged) Yen principal・Yen LIBOR＋α

Investor B

Investor A Dollar principal・Dollar LIBOR ( Source: M inistry of F inance)

F igure c2 - 2 indicates the trends of basis swap spreads ( f or 1 , 2 , 5 and 1 0 y ears) in and af ter April 2 0 1 0 , showing that negativ e spreads widened substantially in the past y ear. F or ex am ple, the latest 2 - y ear basis swap spread is m inus 7 0 basis points, m eaning that ex changing y en f or raising dollars f or two y ears generates a dollar L I BO R pay m ent and a y en L I BO R m inus 7 0 bp receipt. As the latest y en L I BO R is around 0 .0 % , their com bination results in a dollar L I BO R plus 7 0 bp pay m ent. T his m eans that a y en holder, or a Japanese inv estor, m ust pay a proper cost to raise dollar.

F i g .c 2- 2 D o l l a r - Y e n B a s i s S w a p S p r e a d T r e n d s 20 0

(bp)

­20 ­40 ­60 ­80

­100

­120 10/4 10/10

(year/month)

11/4 1year

11/10

12/4

12/10

2years

13/4

13/10 5years

14/4

14/10

15/4

15/10

10years

(Source: Bloomberg)

17

Ⅰ FY2016 Debt Management Policies

❷ Background of rising dollar raising cost The dollar raising cost hiked when the Lehman Shock and the euro debt crisis occured. This is reportedly because many investors tried to secure dollars as an international settlement currency as financial markets became dysfunctional. However, recent financial markets is not in such condition. The dollar raising cost hike since last year may be caused from

1 Trends of JGB Market in FY2015

strong expectations of U.S. interest rates rise in an interest rate hike stage, restricted dollar supply from U.S. financial institutions under toughened financial regulations, Japanese companies’ strong demand for dollars (dollar-denominated loans) (Fig. c2-3) for overseas expansion and Japanese financial institutions’ growing foreign bond investment. Fig. c2-4 indicates cumulative net fund flow into Japanese and foreign medium to long-term bonds since early last year, based on international balance of payments statistics. Fund flow into foreign medium to long-term bonds (Japanese investors’ net purchases of foreign medium to long-term bonds indicated by the blue line) has enhanced an expansion since mid-2015. As a low interest environment has been enhanced in Japan, most Japanese investors might have expanded foreign bond investment.

Fig.c2-4 Inward and Outward Securities Investment (Cumulative net investment in medium to long-term bonds since the start of 2015)

Fig.c2-3 Outstanding Loans at Overseas Branches of Japanese Banks 90 80

(Trillion yen)

30

70

25

60

20

50

15

40

Outward investment in medium to long-term bonds (cumulative) Inward investment in medium to long-term bonds (cumulative)

10

30

5

20

(Year/month)

0

10 0 03/4

(Trillion yen)

(Year/month)

05/4

07/4

(Source: Bank of Japan)

09/4

11/4

13/4

15/4

-5

15/1

15/3

15/5

15/7

15/9

15/11 16/1

16/3

(Note)Medium to long-term bonds here are more-than-1-year bonds (Source: Ministry of Finance)

❸ Impacts of negative basis swap spread expansion Another remarkable point in Fig. c2-4 is that foreign fund flow into Japanese medium to long-term bonds (foreign investors’ net purchases of Japanese medium to long-term bonds indicated by the red line) has considerably expanded. As noted above, Japan’s low interest rate environment has been enhanced. Nevertheless, foreign investors have seemingly expanded investment in Japanese bonds that have lost their attractiveness in terms of yields. Here, let’s return to the basis swap spread at the outset of this column. The negative basis swap spread is a premium interest rate that Japanese investors must pay to raise dollars. Conversely, the negative spread represents a premium interest rate that dollar holders, or foreign investors, can receive when raising yen. Given the premium, Japanese bonds that have lost their attractiveness for Japanese investors might have become an attractive investment target for foreign investors. Due to such situation, foreign investors’ presence in the JGB market has steadily increased (see P34). In foreseeing the supply-demand environment for the JGB market, we may have to pay attention not only to the investment trend of Japanese investors but also to that of foreign investors based on the supply-demand balance regarding currencies.

18

Ⅰ FY 2016 D ebt Management Policies

2 J GB Issuance P lan for FY2016 (1) Basic Obj ectiv es for J GB Management P olicy O n Decem ber 2 4 , 2 0 1 5 , the Japanese gov ernm ent publicly announced the JGB I ssuance P lan f or F Y 2 0 1 6 in line with the F Y 2 0 1 6 budget gov ernm ent draf t. I n addition to m assiv e outstanding JGBs of alm ost 9 0 1 .5 trillion y en ( as of the end of F Y 2 0 1 5 ) , including F iscal I nv estm ent and L oan P rogram

Bonds, the gov ernm ent is considered to continue issuing a

2 J GB I ssuance Plan for FY 2016

m assiv e am ount of JGBs in the f uture. I n this situation, the gov ernm ent is dev eloping its annual JGB I ssuance P lan on the basis of the basic obj ectiv es f or the Debt M anagem ent P olicy : A. E N S U R E S TA B L E A N D S MO O TH I S S U A N C E O F J A P A N E S E GO V E R N ME N T B O N D S B. MI N I MI Z E ME D I U M- TO L O N G-TE R M F I N A N C I N G C O S TS When developing the JGB Issuance Plan for FY2016 where JGB issues including Refunding Bonds will total 1 6 2 .2 trillion y en, the gov ernm ent held caref ul dialogues with m ark et participants through the M eeting of JGB M ark et S pecial P articipants and som e other dialogue sessions, and has f orm ulated JGB I ssuance P lans f or each bond issuance m ethod, pay ing attention to inv estors’ needs and m ark et trends. T he f ollowing ex plains the outline of the JGB m anagem ent policy scheduled f or F Y 2 0 1 6 , with a f ocus on the contents of the JGB I ssuance P lan. R ef : I I C hapter 1 1 “ P rim ary M ark et f or Gov ernm ent Bonds ( P 4 0 )

(2) Scheduled Issuance Amount of J GBs A. Breakdown by legal grounds for FY2016 U nder the F Y 2 0 1 6 budget, the central gov ernm ent plans to issue JGBs worth 1 6 2 .2 trillion y en, posting a decline of 7 .8 trillion y en f rom

the initial lev el f or F Y 2 0 1 5 .

A breakdown of the FY2016 JGB issues shows that Construction Bond and Special Deficitf inancing Bond issues to prov ide rev enues f or the General Account Budget hav e been reduced by 2 .4 trillion y en f rom

the initial lev el f or F Y 2 0 1 5 to 3 4 .4 trillion y en. Aim ing

at financing reconstruction projects for recovering from the Great East Japan Earthquake, Reconstruction Bonds are issued as bridging finance until Special Taxes for Reconstruction and other rev enues are receiv able to the gov ernm ent. I n F Y 2 0 1 6 , the gov ernm ent is planning to issue R econstruction Bonds worth 2 .2 trillion y en, down 0 .7 trillion y en f rom the initial lev el f or the prev ious y ear. I n F Y 2 0 1 6 , the issuance am ount of F I L P Bonds, which is determ ined by not only the scale of new lending under the F iscal L oan P rogram

but also

the financial position of the overall Fiscal Loan Fund, is 16.5 trillion yen, up 2.5 trillion yen f rom

the initial lev el f or the prev ious y ear. R ef unding Bonds are issued to ref und the bonds

that were issued in the past and are due to m ature, accounting f or a m aj ority of total annual JGB issues. T heir issuance am ount has basically continued an upward trend in line with the growing outstanding balance of JGBs. As F Y 2 0 1 6 is destined to see a tem porary decline in m aturing JGBs, howev er, F Y 2 0 1 6 R ef unding Bond issues are planned to decline by 7 .2 trillion y en f rom

the initial lev el f or the prev ious y ear to 1 0 9 .1 trillion y en.

T he F Y 2 0 1 6 JGB issuance am ount, though f alling f rom

F Y 2 0 1 5 , is still v ery high. T he

outstanding balance of General Bonds is ex pected to reach about 8 3 7 .8 trillion at the end 19

Ⅰ FY 2016 D ebt Management Policies of F Y 2 0 1 6 , and central and local gov ernm ent long- term trillion yen, equivalent to 205

debt is proj ected to rise to 1 ,0 6 2

of GDP. These figures show that Japan has the worst fiscal

situation am ong m aj or industrial countries. I t is growing ev en m ore im portant f or the Japanese gov ernm ent to appropriately im plem ent its gov ernm ent debt m anagem ent policy to stably issue JGBs. F i g . 1- 12 J G B

I s s u a n c e P l a n f o r F Y 2016 ( B r e a k d o w n b y L e g a l G r o u n d s ) ( ☞①∼③ ) （Unit: billion yen）

FY2015 (Initial)

2 J GB I ssuance Plan for FY 2016

(a)

New ly-issued 36,863.0 bonds

(b)

(b)−(a)

36,418.3

▲444.7

6,003.0

6,479.0

476.0

Special DeficitFinancing Bonds 30,860.0

29,939.3

▲920.7

Construction Bonds

(c)

FY2016 (Initial)

(c)−(a)

(c)−(b)

34,432.0 ▲2,431.0 ▲1,986.3 6,050.0

47.0

▲429.0

28,382.0 ▲2,478.0 ▲1,557.3

R econstruction Bonds

2,862.5

1,946.3

▲916.2

2,156.4

▲706.1

210.1

FIL P Bonds

14,000.0

14,000.0

−

16,500.0

2,500.0

2,500.0

R efunding Bonds

For matured R econstruction Bonds T otal

20

FY2015 (Supplementary Budget)

116,298.6 114,372.8 ▲1,925.8 109,114.4 ▲7,184.1 ▲5,258.3 521.8

−

▲521.8

83.2

▲438.6

83.2

170,024.1 166,737.4 ▲3,286.7 162,202.8 ▲7,821.2 ▲4,534.5

☞① F igures m ay not sum up to total because of rounding. ☞② JGB buy - back s will be im plem ented in F Y 2 0 1 6 under a ceiling of som e 1 trillion y en. A specif ic buy - back m ethod will be determ ined with m ark et conditions tak en into account, based on an ex change of v iews with m ark et participants. ☞③ T he m ax im um am ount of f ront- loading issuance of R ef unding Bonds in F Y 2 0 1 6 is 4 8 trillion y en.

Ⅰ FY 2016 D ebt Management Policies F i g .1- 13 H i s t o r i c a l C h a n g e s i n J G B

T o ta l Is s u a n c e A m o u n t

(trillion yen) 200

FIL P Bonds R efunding Bonds R econstruction Bonds Special Bonds for covering P ublic P ension Funding

Construction Bonds, Special Deficit-Financing Bonds 151.8 9.4 141.3 135.7 16.8 8.6

150

176.2

177.5

13.1

14.2

10.7

151.5

76.4

99.2

110.2

0

5.7 5.3

12.3

1975

1985

1998

162.2

14.0

16.5

116.3

114.4

109.1

2.3

52.0 34.0

119.4

11.3

21.3 9.0

166.7

93.9

25.4

2007

33.2

2008

2009

1.9

2.9 2.6

0.4

14.0

111.0

100.8

42.4

50

170.0

14.0

2 J GB I ssuance Plan for FY 2016

90.5

172.0

8.4

109.0

100

164.3

2.6

42.3

42.8

47.5

2010

2011

2012

40.9

2013

2.2

0.1 38.5

36.9

36.4

34.4

2014

2015

2015

2016 (FY)

Note 1: Up to FY2014: A ctual figures Note 2: Figures may not sum up to total because of rounding.

(Initial) (Supplementary (Initial) budget)

F i g .1- 14 H i s t o r i c a l C h a n g e s i n O u t s t a n d i n g A m o u n t o f J G B 1,000

(trillion yen) FIL P Bonds Special Bonds for covering P ublic P ension Funding R econstruction Bonds Special Deficit-Financing Bonds Construction Bonds

900 800

681.2

700

677.0

716.2

754.5

780.8

814.3

848.1

873.1

901.5

931.6

600 500 General Bonds 837.8

400 295.2

300 200 100 0

134.4 15.0 1975

1985

1998

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(FY)

Note 1: Figures may not sum up to total because of rounding. Note 2: Up to FY2015: A ctual figures, FY2016: Estimates Note 3: Special Deficit-Financing Bonds include R efunding Bonds w hich w ere issued resulting from the takeover of debts transferred.

21

Ⅰ FY 2016 D ebt Management Policies B. Breakdown by Issuance Methods for FY2016 T he JGBs totaling 1 6 2 .2 trillion y en based on respectiv e legal grounds, as described in the

R ef : I I C hapter1 1 ( 4 ) “ M ethods of I ssuance” ( P 4 6 )

previous section, are categorized by three issuance methods; “JGB market issuance,” “JGB issuance to retail inv estors” and “ JGB issuance to the public sector.” While the total JGB issuance is cut by as much as 7.8 trillion yen from the previous year as described abov e, any sharp reduction in the calendar- based JGB issuance am ount ( ☞①) can be ex pected to greatly af f ect the liq uidity of the JGB m ark et. T he JGB redem ption am ount is proj ected to decline f rom

the prev ious y ear to hit bottom

in F Y 2 0 1 7 bef ore resum ing an

☞① " JGB M ark et I ssuance ( C alendar Base) " ref ers to JGBs issued by scheduled auctions f rom April to nex t M arch.

upward trend in F Y 2 0 1 8 . Giv en the proj ection, it is im portant to lev el annual JGB issuance

2 J GB I ssuance Plan for FY 2016

am ounts to m aintain m ark et liq uidity . T heref ore, we hold a calendar- based JGB issuance decline f rom

the initial lev el f or the prev ious y ear down to 5 .6 trillion y en and set the

F Y 2 0 1 6 calendar- based JGB issuance am ount at 1 4 7 .0 trillion y en. F or non- price com petitiv e auction I I ( ☞②) , 5 .6 trillion y en or 5 %

of the calendar- based

JGB m ark et issuance am ount ( ex cluding 1 - y ear T reasury Bonds and JGBs f or auctions f or Enhanced-Liquidity) is earmarked. For adjustment between years, a decline of 0.4 trillion y en ( down 0 .8 trillion y en f rom

the initial lev el f or the prev ious y ear) is earm ark ed, cov ering

a gap between “ F Y 2 0 1 6 R ef unding Bond issues f ront- loaded in F Y 2 0 1 5 ” ( F Y 2 0 1 5 f rontloaded issues) and “ F Y 2 0 1 7 R ef unding Bond issues to be f ront- loaded in F Y 2 0 1 6 ” ( F Y 2 0 1 6 f ront- loaded issues) . The JGB issuance to retail investors, which widely fluctuates depending on interest rate and other trends, is set at 2 .0 trillion y en, down 0 .3 trillion y en f rom

the initial lev el f or F Y 2 0 1 5 ,

with current sales conditions under low interest rates tak en into account. T he JGB issuance to the public sector ( BO J switch) is put at 8 .0 trillion y en, cov ering a part of BO J- held JGBs reaching m aturity , down 2 .4 trillion y en f rom

the initial lev el f or the

prev ious y ear, based on the total JGB issuance am ount and m ark et conditions.

22

☞② Non-price competitive auction I I is an auction carried out af ter the price- com petitiv e auction. T he price of f ered is eq ual to the weighted av erage accepted price in the pricecom petitiv e auction. O nly the JGB M ark et S pecial P articipants are eligible to bid in this auction ( T he am ount assignable to each M ark et S pecial P articipant does not ex ceed 1 5 % of the am ount awarded to it in the pricecom petitiv e auction) .

Ⅰ FY 2016 D ebt Management Policies FF i i g g .1) ) ( ☞③∼⑤) .1-15 15J G J G B B I s I ss s u u a a n n c c e e P P l a l a n n f fo o r r F F Y Y 2016 2016 ( ( B B r r e e a a k k dd oo ww n n b b y y F F i i n n a a n n c c i in n g g M M e e t ht h o o d d s （☞③∼⑤） （Unit: billion yen）

FY2015 (Initial) (a)

FY2015 (Supplementary Budget) (b)

(b)−(a)

FY2016 (Initial) (c)

(c)−(a)

(c)−(b)

OT C Sales for H ouseholds

Subtotal for H ouseholds BOJ R ollover T otal

200.0

100.0

▲100.0

100.0

▲100.0

−

2,300.0

2,100.0

▲200.0

2,000.0

▲300.0

▲100.0

10,400.0

10,400.0

−

☞④ Non-price competitive auction I I is estim ated to be 5 % of the JGB M ark et I ssuance ( 4 0 - Y ear, 3 0 - Y ear, 2 0 - Y ear, 1 0 Y ear, 5 - Y ear, 2 - Y ear Bonds and Inflation-Indexed Bonds). ☞⑤ " Adj ustm ent between f iscal y ears" ref ers to lev elingof f of issuance am ount between f iscal y ears through f rontloading issuance of R ef unding Bonds and def erred issuance in the accounting adj ustm ent term . ( R ef : I I C hapter 1 1 ( 1 ) “ JGBs by L egal Grounds of I ssuance” (P 4 0 ))

2 J GB I ssuance Plan for FY 2016

JGB M arket ▲400.0 147,000.0 ▲5,600.0 ▲5,200.0 152,600.0 152,200.0 Issuance (calendar-based) Non-P rice 1,240.0 ▲2,287.0 5,620.0 3,527.0 7,907.0 4,380.0 Competitive A uction Ⅱ A dj ustment 5,452.5 ▲761.2 ▲417.2 344.1 ▲5,869.6 ▲6,213.7 betw een fiscal years Subtotal 157,324.1 154,237.4 ▲3,086.7 152,202.8 ▲5,121.3 ▲2,034.5 Financed in the M arket Nonmarketable ▲100.0 ▲200.0 1,900.0 ▲100.0 2,000.0 JGBs for R etail 2,100.0 Investors

☞③ F igures m ay not sum up to total because of rounding.

8,000.0 ▲2,400.0 ▲2,400.0

170,024.1 166,737.4 ▲3,286.7 162,202.8 ▲7,821.2 ▲4,534.5

23

Ⅰ FY 2016 D ebt Management Policies (3 ) J GB Issuance P lan Based on Market Trends and N eeds A break down of the calendar- based JGB m ark et issuance by m aturity is determ ined with m ark et needs and trends tak en into account, cov ering a wide range of m aturities f rom the short term

to the super long term , based on gov ernm ent debt m anagem ent policy ☞① I n F Y 2 0 1 6 , 4 0 - Y ear Bonds will be issued in M ay , July, September, November, January and M arch.

req uirem ents. T y p e s f o r F Y 2016 ( ☞①～④)

F i g .1- 16 M a r k e t I s s u a n c e P l a n b y J G B

Unit: trillion yen FY2016 (Initial) (per time) (total; b) (b) (a)

FY2015 (Initial) (per time) (total; a)

2 J GB I ssuance Plan for FY 2016

40-Year (☞①)

0.4 ×

5times

2.0

0.4 ×

6times

2.4

30-Year

0.8 ×

12times

9.6

0.8 ×

12times

9.6

20-Year

1.2 ×

12times

14.4

1.1 ×

12times

13.2

10-Year

2.4 ×

12times

28.8

2.4 ×

12times

28.8

5-Year

2.5 ×

12times

30.0

2.4 ×

12times

28.8

▲

2-Year

2.5 ×

12times

30.0

2.3 ×

12times

27.6

▲

T Bs (1-Year) (☞②)

2.1 ×

2times

2.0 ×

2times

2.2 ×

10times

2.1 ×

10times

25.0

▲

0.5 ×

4times

2.0

0.5 ×

4times

0.8 ×

12months

9.6

10-Year (☞③) A uctions for Enhanced-L iq uidity (☞④) T otal

26.2

160 140

6.3

80

106.3 2.3 2.1 13.6

21.6

156.6

154.5

7.2

8.4

22.8

20.4

25.0

26.4

26.4

55.6

60.0

60.8

62.8

32.9

30.0

30.0

30.0

30.0

2009

2010

2011

2012

2013

27.8

28.8

0.6

24.0

28.8

152.2 147.0 9.6

9.6 1.8

26.0

28.8

2.0

25.2

21.0

28.8

67.2

64.8

60.0

56.4

26.7

25.8

25.0

2008

2014

2015

2016

(Initial) Note 1: Up to FY2015: A ctual figures Note 2: T he short-term JGBs are discount bonds. T he medium-, long-, and super long-term bonds are the bonds w ith fix ed-rate coupons.

24

2.0

44.5

20 0

144.8 7.2

T y p e s

22.8

60 40

142.8 7.2

149.4 7.2

☞④ Details of Auctions f or Enhanced-Liquidity will be determ ined based on discussion with m ark et participants as well as m ark et conditions.

▲

19.2

17.7

120 100

M a r k e t Is s u a n c e b y J G B

A uctions for Enhanced-L iq uidity Inflation-Index ed, Floating-R ate Super long-term (20, 30, 40-year) L ong-term (10-year) M edium-term (2, 5-year) Short-term (T Bs; 1-year or shorter)

137.5

2.0

147.0

F i g .1- 17 H i s t o r i c a l C h a n g e s i n J G B

☞③ 10-Year Inflation-Indexed Bonds will be issued in April, August, O ctober and F ebruary . T he size of 1 0 - Y ear I nf lationI ndex ed Bonds issuance will be made flexibly, based on market conditions and discussion with m ark et participants. I n f act, a 10-Year Inflation-Indexed Bond issue in April 2 0 1 6 was reduced to 4 0 0 billion y en f rom the originally planned size of 5 0 0 billion y en, based on m ark et participants’ opinions, etc. ( see P 2 8 ).

▲

9.6

152.6

(trillion yen)

0.4

☞② W h i l e t h e i s s u a n c e am ount of T reasury Bills ( T B) will be decreased, new 1 - Y ear F inancing Bills( F B) com pensate the decrease, m aintaining the total issuance of T - Bills( T B+ F B) at 2 .5 trillion y en per issue.

(FY)

Ⅰ FY 2016 D ebt Management Policies A. Adj ustment of Maturity D istribution based on Market E nv ironment T he F Y 2 0 1 6 JGB I ssuance P lan calls f or securing stable JGB issuance by m aintaining liquidity in the JGB market and reviewing a maturity distribution in a fine-tuned manner based on the trend of inv estors’ dem and. Specifically, a reduction in short to medium-term issues (5-, 2- and 1-year issues) has been narrowed f rom

the initial lev el of 6 .1 trillion y en f or the prev ious y ear to 4 .8 trillion y en

in F Y 2 0 1 6 , with considerations giv en to concerns about a m ark et liq uidity decline under the tightening supply - dem and balance. As f or super long- term

issues ( 4 0 - , 3 0 - and 2 0 the initial lev el f or

2 J GB I ssuance Plan for FY 2016

y ear issues) , 4 0 - y ear issues hav e been increased by 0 .4 trillion y en f rom

the prev ious y ear in line with a shif t to a bim onthly issue, while 2 0 - y ear issues hav e been reduced by 1 .2 trillion y en f rom

the initial lev el f or the prev ious y ear, based on the trend of

inv estors’ dem and, etc. As a result, the av erage m aturity of JGBs has been ex tended by 4 m onths to 8 y ears and 9 m onths on an outstanding balance ( stock ) basis ( estim ated f or the end F Y 2 0 1 6 ) and by 2 months to 9 years and 2 months on a calendar-based JGB issuance (flow) basis. F i g .1- 18 A v e r a g e M a t u r i t y o f J G B s Outstanding balance base (stock) （at the end of FY）

Calendar base (flow ) （FY）

2008

6 years and 3 months

2008

2009

6 years and 5 months

2009

2010 2011 2012 2013 2014 2015 2016

（Initial）

7 years and 3 months 7 years and 7 months

2010

6 years and 8 months 7 years and 0 months 7 years and 3 months

2011

7 years and 9 months

2012

7 years and 10 months

2013

7 years and 7 months

7 years and 11 months

2014

8 years and 0 months

8 years and 6 months

2015

8 years and 5 months 8 years and 9 months

7 years and 4 months

(estimate)

(Note 1) Up to FY2015; A ctual (Note 2) Outstanding amount consists of only General Bonds (i.e., FIL P Bonds are ex cluded.)

9 years and 0 months

2016

（Initial）

9 years and 2 months

(Note) Up to FY2015; A ctual

25

Ⅰ FY 2016 D ebt Management Policies B. E x p anding Measures to E nhance Market L iq uidity M ak ing ef f orts to realize the basic obj ectiv es f or Debt M anagem ent P olicy , i.e., ensuring stable and sm ooth issuance of JGBs and m inim izing m edium

to long- term

f undraising

costs, the government has a keen interest in whether the JGB market has sufficient liquidity to enable transactions to be conducted f reely in accordance with inv estors’ interest rate f orecasts and inv estm ent strategies or not. T he JGB secondary m ark et consists of brok ers such as JGB M ark et S pecial P articipants ( P rim ary Dealers) and v arious inv estors. Basically , the JGB m ark et’ s liq uidity depends on the m ark et’ s autonom ous f unctioning back ed by transactions between m ark et participants.

2 J GB I ssuance Plan for FY 2016

C onseq uently , the gov ernm ent basically play s a com plem entary role in supporting the JGB m ark et liq uidity by arranging JGB issue sizes, m aturities, integration ( reopening past JGB issues ( ☞) ) and the lik e in the prim ary m ark et. F rom

this point of v iew, JGBs m aturing in m ore than 1 to 5 y ears hav e been newly included

into those subject to Auctions for Enhanced-Liquidity for FY2016, based on market participants’ needs, etc. F i g .1- 19 E x p a n s i o n o f A u c t i o n s f o r E n h a n c e d - L i q u i d i t y 【Before ex pansion】 (FY2015)

【A fter ex pansion】 (1st q uarter of FY2016)*

M ore than 1 to 5 years to maturity

M ore than 1 to 5 years to maturity (bimonthly auction)

M ore than 5 to 15.5 years to maturity (monthly auction)

M ore than 5 to 15.5 years to maturity (monthly auction)

M ore than 15.5 to 39 years to maturity (monthly auction)

M ore than 5 to 15.5 years to maturity (bimonthly auction)

* T he issuance amount (9.6 trillion yen under the FY2016 JGB Issuance P lan), allocation of duration z ones and other details for A uctions for Enhanced-L iq uidity are determined based on discussion w ith market participants (at the q uarterly M eeting of JGB M arket Special P articipant, the M eeting of JGB Investors, etc.) * A n A uction for Enhanced-L iq uidity for the duration z one of more than 15.5 to less than 39 years is implemented on a bimonthly basis in a month w ithout a 40-year JGB auction to level supply in the super long-term z one.

26

☞ I n M arch 2 0 0 1 , the im m ediate reopening rule was introduced to treat a new JGB issue as an addition to an outstanding issue im m ediately f rom the issuance day in principle if the principal and interest pay m ent dates and coupon rate f or the new issue are the sam e as those f or the outstanding issue. I n line with the im m ediate reopening rule, accrued interest em erges on new JGB issues. Accrued interest is eq uiv alent to interest f or a period when an inv estor had not held relev ant JGBs ( six m onths — the actual period for holding). When buy ing JGBs, inv estors pay the accrued interest to sellers f or adj ustm ent.

Ⅰ FY 2016 D ebt Management Policies C . P romoting Market D ev elop ment and D iv ersity of J GB H olders I n F Y 2 0 1 6 , the gov ernm ent will prom ote initiativ es to div ersif y JGB m ark et products and JGB holders and dev elop the JGB m ark et. First, the government will increase the frequency of 40-year issues from five to six for a bim onthly issuance sy stem

to dev elop an env ironm ent which m ak es it easier to inv est in 4 0 -

y ear JGB, tak ing into account the needs f or lif e insurance com panies, pension f unds, etc. to inv est their assets in a long- term

or constantly while the m ark et size is relativ ely sm all due

to their later introduction com pared to other bonds.

2 J GB I ssuance Plan for FY 2016

For Inflation-Indexed Bonds (JGBis), the development of the market has remained a key to be an important task to address market environment changes after overcoming deflation and to div ersif y JGB products. JGBis are bonds whose principals ( and relev ant interests) fluctuate in line with the core consumer price index (Fig. 1-20). The government began to issue JGBis in M arch 2 0 0 4 and suspended their issuance in O ctober 2 0 0 8 due to a sharp dem and decline accom pany ing the L ehm an S hock and other changes. I n O ctober 2 0 1 3 , the gov ernm ent resum ed JGBi issuance with the principal guarantee upon m aturity ( F ig. 1 - 2 1 ) in view of economic conditions after overcoming deflation. i .

0

on e t

l

e eo n

tion n e e

on 1 0 y ears

ASSUM PTION - F ace value: ¥ 1 0 0 million, C oupon rate: 3 % - Initial C PI ( core): 1 0 0 , increase 2 % annually - M aturity : 1 0 y ears

Purchase ½

1 y ear

y ear

interest ¥ 1 .5 1 5 mln

(

3 %

（¥ 1 0 1 mln） C PI: 1 0 1

½

）

(

3 %

（¥ 1 0 2 mln） C PI: 1 0 2

） ½

e

tion loor

on e t

l

C PI: 1 0 3

i

(

（¥ 1 0 3 mln）

Note: The above C PI increase rate is purely hy pothetical.

i .

y ears

3 %

½

）

(

3 %

½

〔 Inflation-Adjusted 〕 Principal

）

9 ½

〔 Inflation-Adjusted 〕 Principal

½

〔 Inflation-Adjusted 〕 Principal

C PI: 1 0 0

3 %

y ears

interest ¥ 1 .5 4 5 mln

interest ¥ 1 .5 3 mln inflation -adjusted principal 〔 （Inflation-Adjusted ）〕 Principal

(

Inflation-Adjusted 〔（inflation -adjusted ） 〕 Principalprincipal

face value ¥ 1 0 0 mln

1 ½

Redemption ¥ 1 2 0 mln + Interest ¥ 1 .8 mln

）

( ¥ 1 2 0 mln) C PI: 1 2 0

r

Index ation Coefficient

②

10 years

1 ①

③

①In case w here the index ation coefficient is below 1, the inflation-adj usted principal w ill fall below its face value. ②In case w here the index ation coefficient at maturity is above 1, the principal and the interest w ill be paid based  on the inflation-adj usted principal per se. ③In case w here the index ation coefficient at maturity is below 1, principal w ill be redeemed at its face value. Note: Deflation floor has no effect on interests during the maturing period or at maturity.

27

Ⅰ FY 2016 D ebt Management Policies As for FY2016, the government is supposed to flexibly adjust JGBi issues on the basis of the v olum e of issuance last y ear, 2 .0 trillion y en ( f our tim es issuance of 5 0 0 billion y en) according to the m ark et env ironm ent and inv estm ent needs. I n this respect, the gov ernm ent decided and announced that the v olum e of JGBi issues in April 2 0 1 6 would be lowered to 4 0 0 billion y en f rom

the originally planned 5 0 0 billion y en, based on m ark et participants’

opinions presented at the M eeting of JGB M ark et S pecial P articipants and the M eeting of JGB I nv estors in M arch. I n January 2 0 1 5 , a prohibition on retail inv estors' holdings of JGBis was rem ov ed only for JGBis maturing after January 2016, allowing some well-prepared financial institutions

2 J GB I ssuance Plan for FY 2016

( including m aj or securities com panies) to sell such bonds to retail inv estors by negotiated transaction. F urtherm ore, the gov ernm ent will add JGBis issued af ter F Y 2 0 1 7 to goods in the new ov er- the- counter sales sy stem

where sm all and m edium - sized regional f inancial

institutions will sell JGBis in sm all lots, div ersif y ing JGBi sales channels ( F ig. 1 - 2 2 ) . i .

n in

le o t e n

[ Sales by New

tion n e e

on

or

et il n e tor

Over-T he-Counter sales system (from February 2017)] Financial institution

Customer

Sales and account management

Government

Entrustment of sales of JGBs including JGBi

(using NOT C sales system on their ow n initiative)

Issue of JGBs

F i g . 1- 23

r et el

l n eo t e n

tion n e e

on

t en o

r

0

（billion yen）

2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0

8

9

10

11

(Sources: M inistry of Finance, Bank of Japan)

28

A fter resumption of the issuance

Outstanding amount (ex cl. BOJ holding) (5,442.2 billion yen in total) BOJ holding (1,299.6 billion yen in total)

12

13

14

15

16

17

18

19

20 （issue number）

Ⅰ FY 2016 D ebt Management Policies

C olumn 3

Ap p roach on Av erage Maturity of J GBs (Flow and Stock Bases)

P ast ap p roach I n the Debt M anagem ent P olicy , the basic principle is to dev ise an adeq uate m aturity distribution while considering a tradeof f between f undraising costs and ref unding risk s. I n work ing out the annual JGB I ssuance P lan in recent y ears, the gov ernm ent tried to lengthen the av erage m aturity of JGBs in v iew of low interest rates. the v iewpoint of the Debt M anagem ent P olicy to address interest rate hik e

2 J GB I ssuance Plan for FY 2016

T hen, what should be giv en priority f rom

risk s is the av erage m aturity of the oustanding balance of JGBs ( stock base) . I n the past, howev er, the gov ernm ent paid attention to the average maturity of the calendar-based JGB issuance (flow base) that is easy to grasp as statistics.

elationship between ow- and stoc -base a erage maturities If the government continues to draft the annual JGB Issuance Plan for the purpose of lengthening the flow-base average maturity, however, they may fail to make flexible responses to temporary demand trends, leading fundraising costs to increase. I f m ark et env ironm ent changes f orce the av erage m aturity to be shortened rapidly , m ark et participants m ay lose confidence in the Debt Management Policy. As the outstanding balance of JGBs has increased, the influence that a change in the annual flow-base maturity distribution exerts on the stock-base average maturity has declined. Even if the flow-base average maturity is kept at the present level, the stock - base av erage m aturity is ex pected to rem ain stable f or the im m ediate f uture. ( F igs. c3 - 1 , c3 - 2 and c3 - 3 ) . (Note) If the JGB issuance amount and maturity distribution are left unchanged from the FY2016 JGB Issuance Plan in and after FY2017, the stock - base av erage m aturity is autom atically proj ected to continue lengthening at least f or som e 1 0 y ears.

F i g . c 3- 1 R e l a t i o n s h i p b e t w e e n S t o c k - a n d F l o w - b a s e A v e r a g e M a t u r i t i e s ( I m a g e )

Change in stock-base average maturity

Flow -base average maturity

Gross issuance amount Outstanding balance

(Year)

(Note 1) No change is assumed in the outstanding balance of JGBs (Note 2) If the outstanding balance increases(decreases), -1 w ill ex pand in the negative (positive) direction.

(Flow -base average maturity)

10

(year)

If the gross issuance amount/outstanding balance falls by 1% annually from 16% at present, w ith the flow -base average maturity being left unchanged from 9 (years), the stock-base average maturity w ill continue lengthening for about five years [ = (16-11)/1]

9 8 7 6 5 4 3

10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

(Gross issuance amount/outstanding balance)

29

Ⅰ FY 2016 D ebt Management Policies

F i g .c 3- 2 F a c t o r s t o C h a n g e A v e r a g e M a t u r i t y ( I s s u a n c e i n F Y 2017 i s a s s u m e d t o r e m a i n u n c h a n g e d f r o m F Y 2016) (year)

9.5

▲0.30

9.0 8.5

▲0.94

2 J GB I ssuance Plan for FY 2016

8.0 7.5

1.51

8.98

8.71

7.0 6.5 6.0

End of FY2016

Effect of redemption and natural falls

Effect of new issues

Effect of outstanding balance grow th

F i g . c 3- 3 S h a r e s f o r P r e v i o u s - F Y O u t s t a n d i n g B a l a n c e a n d C u r r e n t - F Y F l o w C urrent -F Y flow Outstanding balance at end of previous F Y C urrent-F Y flow s contribution ( right scale)

( y ear) 1 0

2 2 .2 % 9

2 1 .1 %

8 6 .9 4 7 6

1 .5 4

7 .2 2

2 1 .1 %

8 .3 8 7 .9 2

7 .5 4 1 .5 8

1 .5 3

Estimate 8 .7 1 2 0 .5 % 1 .5 7

8 .9 8 1 .5 1

9 .2 2

1 .4 5

End of FY2017

in A v e r a g e M a tu r ity

9 .4 1

2 5 %

1 .4 1 2 0 %

1 9 .9 % 1 .7 2 1 6 .8 %

1 8 .0 %

1 .5 9

1 5 .8 %

1 4 .9 % 1 5 %

5 4 3

5 .4 0

5 .7 0

5 .9 5

6 .3 4

6 .6 6

7 .1 5

7 .4 7

7 .7 7

8 .0 0

2

1 0 %

5 % 1 0

F Y2 0 1 1

F Y2 0 1 2

F Y2 0 1 3

F Y2 0 1 4

F Y2 0 1 5

F Y2 0 1 6

F Y2 0 1 7

F Y2 0 1 8

F Y2 0 1 9

0 % ( end of F Y)

( Note) Actual figures F Y2 0 1 1 -2 0 1 4 , an estimate for F Y2 0 1 5 and a projection for F Y2 0 1 6 based on the JGB Issuance Plan. The JGB issuance plan is assumed to remain unchanged from F Y2 0 1 6 until F Y2 0 1 9 for projection.

Future ap p roach on av erage maturity T heref ore, the gov ernm ent believ es that it is appropriate to work out the annual JGB I ssuance P lan while pay ing attention to the JGB holder m ix and m aj or inv estors’ debt m ix and recognizing an adeq uate lev el f or the stock - base av erage maturity without necessarily sticking to lengthening the flow-base average maturity.

30

Ⅰ FY2016 Debt Management Policies

3 Diversification of JGB Investor Base At present, the outstanding amount of JGBs is enormous. Therefore, it has become an important issue to ensure the stable issuance of JGBs by diversifying the investor base. The structure of the JGB investor base is such that a large proportion of JGBs are held by domestic financial institutions, such as banks. Therefore, it is said that if conditions of the JGB market change, market participants may tend to conduct transactions in one direction only. For this reason, the government has made efforts to diversify the JGB investor base by promoting JGB holdings by life insurance companies and pension funds that continue to be stable investors over the long term, and by retail investors and foreign investors who have different investment

☞① “T-Bill” is the sum of “Treasury Bills (TBs)” and “Financial Bills (FBs)” with a maturity of 1 year or less and TBs and FBs have been jointly issued since February 2009.

Fig.1-24 Breakdown by JGB and T-Bill Holders (March 2016, QE) (☞①〜④ ) General Government (ex Public Households Others Pensions) 10.0 2.5 Foreigners 13.8 0.9% 1.3% 0.2% Fiscal Loan Fund 109.6 10.2% Pension Funds 0.0 34.6 0.0% 3.2% Public Pensions BOJ 52.5 364.4 4.9% 33.9% Life and Nonlife Insurance 212.5 19.8% Banks,etc. 275.1 25.6%

☞② “JGBs” in the figures represent the outstanding balance of JGBs (including FILP bonds) excluding TBs maturing within one year or less. ☞③ ”Banks, etc.” includes Japan Post Bank, “Securities investment trust” and “Securities Companies”. ☞④ “ L i f e a n d N o n - l i f e insurance” includes Japan Post Insurance.

（Unit：trillion yen）

Total 1,075.0 trillion yen

(Source: Bank of Japan)

Fig.1-25 Breakdown by JGB Holders (☞②〜④ ) (March 2016, QE)

Fig.1-26 Breakdown by T-Bill Holders (☞①, ③ , ④ ) (March 2016, QE)

General Households Others Government 10.0 (ex Public Foreigners 13.8 1.0% Pensions) 50.8 1.4% 2.5 5.3% Pension Funds 0.3% Fiscal Loan Fund 34.6 0.0 3.6% 0.0% Public Pensions BOJ 52.5 317.1 5.5% 33.2% Life and Nonlife Insurance 210.2 22.0%

General Government (ex Public Pensions) 0.0 0.0%

Households 0.0 0.0%

Others 0.0 0.0%

Fiscal Loan Fund 0.0 0.0%

BOJ 47.3 39.4%

Foreigners 58.8 49.0%

Banks,etc. 11.5 9.6%

Banks,etc. 263.6 27.6% （Unit：trillion yen）

Total 955.0 trillion yen

(Source: Bank of Japan)

3 Diversification of JGB Investor Base

behaviors from those of domestic financial institutions, such as banks.

（Unit：trillion yen）

Pension Funds Public Pensions 0.0 0.0 0.0% 0.0%

Life and Non-life Insurance 2.3 1.9%

Total 119.9 trillion yen (Source: Bank of Japan)

31

Ⅰ FY 2016 D ebt Management Policies (1) J GB H oldings by Retail Inv estors

R ef : I I C hapter1 1 ( 4 ) “ M ethods of I ssuance” ( P 4 6 )

3 D iversification of J GB I nvestor B ase

T o prom ote JGB sales to retail inv estors, 1 0 - Y ear F loating- R ate Bonds f or R etail I nv estors were introduced in M arch 2 0 0 3 , f ollowed by the introduction of 5 - Y ear F ix ed- R ate Bonds f or R etail I nv estors in January 2 0 0 6 and the new O T C sales sy stem in O ctober 2 0 0 7 . As a result, retail inv estors’ holdings of outstanding JGBs rose abov e 4 .0 % . As sales to retail inv estors hav e slack ened due to f alling interest rates and other f actors later, howev er, the percentage has f ollowed a downward trend. T he gov ernm ent has continuously prom oted public relations activ ities to im prov e citizens’ awareness of JGBs f or retail inv estors and im plem ented the f ollowing sales prom otion m easures, considering that the f ull- scale scheduled redem ption of JGBs f or retail inv estors started in January 2 0 1 1 . ・I ntroduction of 3 - Y ear F ix ed- R ate Bonds f or R etail I nv estors in order to address the anticipated rising dem and f or retail inv estor bonds with shorter m aturities ( July 2 0 1 0 ) ・R ev isions of the rate- setting f orm ula f or JGBs f or R etail I nv estors ( 1 0 - Y ear F loating R ate JGBs) ( July 2 0 1 1 ) ・ nification of the conditions for redemption before maturity(April 2012) ・I ntroduction of m onthly subscription and issuance f or 1 0 - Y ear F loating- R ate and 5 - Y ear F ix ed- R ate Bonds f or R etail I nv estors in addition to 3 - Y ear F ix ed- R ate Bonds ( f rom Decem ber 2 0 1 3 ) As interest rate falls have intensified against the backdrop of the BOJ s uantitative and ualitative Monetary Easing implemented since April 2013, interest rates on all maturities of JGBs issued f or retail inv estors in M arch 2 0 1 6 stood at the m inim um lev el of 0 .0 5 % f or the f irst tim e. I n the negativ e interest rate env ironm ent, JGB sales to retail inv estors are increasing at present. U nder the new ov er- the- counter sales sy stem , sales hav e been suspended f or 2 - y ear JGBs since November 2014, for 5-year JGBs since September 2015 and for 10-year JGBs since February 2016 (as of March 2016) as interest rate drops have made it difficult to sell them as attractiv e inv estm ent targets ( inv estm ent returns are negativ e) . I n F Y 2 0 1 6 , the new ov erthe- counter sales sy stem is planned to newly cov er JGBis, with a subscription lim it being raised. Based on opinions of financial institutions handling JGBis, the government will consider a wide range of m easures including the im prov em ent of the product- design to prom ote retail inv estors’ purchases of these bonds. F i g .1- 27 J G B

R ef : I 2 ( 3 ) C “ P rom oting M ark et Dev elopm ent and Div ersity of JGB H olders” ( P 2 7 )

H o ld in g s b y R e ta il In v e s to r s

(trillion yen)

45 40 35 30 25 20 15

4.6%4.6% 4.5% 4.6%4.5% T otal JGBs held by retail investors (left) 4.5% 4.5% 4.4% 4.4% 4.3% 4.3%4.3% Outstanding " JGBs for retail investors" (left) 4.2% 4.1% 4.1% 4.0% R atio of JGBs held by retail investors （right） 3.9% 3.8% 3.8% 36.7 3.7% 3.6% 36.036.3 36.0 35.8 3.5% 35.635.5 35.4 35.3 3.4% 35.0 3.4% 34.4 34.4 34.1 3.2% 3.2% 33.4 33.6 3.1% 33.0 3.0% 32.3 3.0% 2.9% 2.9% 31.4 31.1 2.7% 30.4 2.6% 2.6% 29.5 2.5% 29.1 2.4% 2.3% 28.5 28.0 2.2% 2.2%2.2% 27.7 2.1% 26.9 2.1% 27.0 2.1% 2.0% 2.0% 25.7 27.7 27.7 27.6 2.0% 27.5 27.4 27.5 1.9% 27.2 27.3 27.4 27.2 25.5 24.5 26.5 26.7 26.8 1.8% 24.5 25.8 25.8 24.2 1.6% 25.2 1.5% 22.9 24.1 24.1 21.8 1.4% 1.3% 22.0 23.4 23.2 1.3% 22.9 21.421.0 22.3 20.1 22.0 20.4 19.3 21.0 20.7 18.4 20.3 18.0 19.7 19.2

18.7

15.9 14.6 13.4 12.312.512.4

18.2

17.1 15.3

17.8

16.9 17.4

16.8

15.9 14.9

14.0

10

12.6

10.1

11.2 11.0 11.0

0

6.5 4.8 0.4

0.7

M ar - 03

1.0

3.3 2.0

M ar - 04

M ar - 05

M ar - 06

M ar - 07

M ar - 08

M ar - 09

M ar - 10

M ar - 11

M ar - 12

M ar - 13

M ar - 14

M ar - 15

M ar - 16

Note 1: Outstanding " JGBs for retail investors" at Jun-16 is calculated to 〔aggregate issues of ¥ 47.2 trillion〕-〔redemption before maturity of ¥ 14.7 trillion〕〔aggregate redemption money of ¥ 21.5 trillion〕 . Other figuers based on Bank of Japan " Flow of Funds" statistics. Note 2: T he total at the end of June 2016 is an estimate covering the outstanding balance of JGBis for retail investors at the end of June 2016 and other JGB holdings of households at the end of M arch 2016. * Due to rounding, components may not add up to the total. (Sources: M inistry of Finance, Bank of Japan " Flow of Funds" )

32

3.0%

2.0%

1.0%

0.0% 11.9

8.4

5

4.0%

15.4 14.5 13.613.813.8

13.8

12.4

5.0%

Ⅰ F Y 2016 Debt M anag ement Polic ies ( R ef erence) R etail inv estors’ JGBi holdings I n January 2 0 1 5 , a prohibition on retail inv estors' JGBi holdings was lif ted f or JGBi issues maturing from January 2016, allowing some well-prepared financial institutions (including m aj or securities com panies) to sell such bonds to retail inv estors through negotiated transaction. As it has been pointed out that sales to retail inv estors through negotiated transaction are dif f icult f or f inancial institutions other than som e large ones to handle, JGBis will be handled under the new ov er- the- counter sales sy stem f rom F ebruary 2 0 1 7 to secure a wide range of sales channels including small and medium-sized regional financial institutions and promote the diversification of JGBi investors.

R ef : I I C hapter 1 1 ( 4 ) “ M ethods of I ssuance” ( P 4 6 )

F i g .1- 28 I s s u a n c e a n d R e d e m p t i o n o f J G B s f o r R e t a i l I n v e s t o r s T rillion yen

T rillion yen

8

28

Outstanding balance

Issuance

21

(right scale)

4

14

2

7

0

0

3 Diversific ation of J GB Investor B ase

6

-4 -6

Issuance

18 20 FY

16

15

14

17 20 FY

20 FY

20 FY

20

12

13

FY

20 FY

20

10

09

11

FY

20 FY

20 FY

20 FY

08 20 FY

07 20 FY

06 20 FY

05 20 FY

04 20 FY

20 FY

FY

03

Outstanding balance 20

-8

P lanned redemption amount

R edemption

02

R edemption

-2

Note: Issuance, redemption and outstanding balance amounts in and before FY2015 are actual results. R edemption amounts in and after FY2016 are estimates at end of M arch 2016.

F i g .1- 29 O u t s t a n d i n g J G B s f o r R e t a i l I n v e s t o r s 10-Year Floating R ate(Base rate-0.8%) 10-Year Floating R ate(Base rate 0.66) 5-Year Fix ed R ate 3-Year Fix ed R ate

（trillion yen）

8

1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0%

10-Year Floating-R ate JGB sales

6

5-Year Fix ed-R ate JGB sales 3-Year Fix ed-R ate JGB sales

4 2 0

15 14 02 13 06 10 03 12 05 07 09 11 04 08 20 20 20 20 20 20 20 20 20 20 20 20 20 20 FY FY FY FY FY FY FY FY FY FY FY FY FY FY Note: Interest rates are for A pril, July, October and January in each fiscal year

33

Ⅰ FY 2016 D ebt Management Policies (2) J GB H oldings by Foreign Inv estors A. Foreign Inv estors’ P resence T he status of JGB holdings by f oreign inv estors can be f ound in the “ F low- of - F unds Accounts” published by the BO J on a q uarterly basis ( F ig. 1 - 3 0 ) . M ov es in past y ears indicate that f oreign inv estors reduced their JGB holdings due to a credit sq ueeze accom pany ing the f inancial crisis af ter the 2 0 0 8 L ehm an S hock . T heir holdings of JGBs plunged f rom

8 .6 %

( at the end of S eptem ber 2 0 0 8 ) to 5 .6 %

( at the end

of M arch 2 0 1 0 ) . L ater, howev er, their dem and f or JGBs, deem ed a saf e asset, em erged due to global inv estm ent f unds’ inf low into the JGB m ark et on the back of m aj or countries’ monetary easing and the so-called “flight to quality” under the European sovereign debt crisis am id a global econom ic recov ery trend. F oreign inv estors tem porarily reduced JGB holdings as JGB v olatility headed higher j ust af ter the BO J’ s decision at its M onetary P olicy

3 D iversification of J GB I nvestor B ase

Meeting in April 2013 to introduce the uantitative and ualitative Monetary Easing policy. Nevertheless, foreign investors JGB holdings turned upward as JGB yields remained stable at low lev els due to destabilization f actors in em erging and other f oreign countries. F oreign inv estors’ JGB holdings continued an uptrend in F Y 2 0 1 5 . T his is because that JGB looked attractive to them as European interest rates remained low since the ECB s introduction of negativ e interest rates in 2 0 1 4 and y en raising cost f ell on the back of the tightening dollar supply - dem and balance. At the end of M arch 2 0 1 6 , f oreign inv estors’ holdings of JGBs hit a record 1 0 .2 %

worth 1 1 0 trillion y en.

Foreign investors JGB investment has featured a focus on short-term issues. At the end of M arch 2 0 1 6 , they held 5 .3 %

of JGBs ( ex cluding T - Bills) and 4 9 .0 %

of T - Bills ( F ig. 1 - 3 1 ) .

F oreign inv estors also f eature their activ e trading on the secondary m ark et. T heir share of secondary m ark et transactions at the end of M arch 2 0 1 6 reached 3 3 .0 % 53.9

f or spot trading and

for futures trading (Fig. 1-32). Foreign investors presence on the secondary market

is greater than indicated by their JGB holdings and should be k ept under close watch. F i g .1- 30 J G B 12

H o ld in g s b y F o r e ig n In v e s to r s (trillion yen)

(％)

A mount of JGB H oldings (right)

11

9

8.6 7.7

8 7 5.9 5.2 5.1

5.5

2

7.4

7.0

45.7

39.6 42.2 39.1

6.8

6.9

4.4

9.1 8.7 8.6

7.5

5.5

4 3

8.4 8.5 8.3

8.0

6.5

6 5

120 10.5 10.2

P roportion of JGB H oldings (left)

10

6.4

6.0

5.6

6.4

6.0

8.5 8.4

8.5 8.1

8.2 8.3

78.3 81.8 77.0 76.6

82.6 81.9 81.7

67.9 67.8 63.3 61.8 60.159.2 58.1 55.2 55.0 56.5 55.6 52.2 52.1 50.4 49.3 46.4

9.4

110

9.2

109.6

8.6

108.4 98.0 101.5 93.0 95.6

86.1

7.1 6.6

9.1

9.8

83.8

78.9

87.2 83.9

80

81.5

70 60 50

42.3

40

33.6

30

M ar-06

M ar-07

Note: " JGB" includes T -Bills. (Source: Bank of Japan)

34

100 90

1 0

130

M ar-08

M ar-09

M ar-10

M ar-11

M ar-12

M ar-13

M ar-14

M ar-15

M ar-16

20

Ⅰ FY2016 Debt Management Policies Fig.1-31 JGB Holdings by Foreign Investors (including T-Bills) 55

(%)

Total

50

48.7 49.0

JGBs (excluding T-Bills) T-Bills

45 40

36.9

35

32.4 31.1 30.2 32.0 28.6 28.3 28.0 28.9 28.8 26.8 25.4 28.1

30 25

23.8 23.4

15 10

0

12.3

11.5 11.3 7.8 4.4

18.9

17.5

19.5 17.0

17.8

9.7

21.4 19.1

21.4

16.1

15.8 14.0

8.6 8.4 8.5 8.3 8.7 7.6 7.7 7.4 8.0 11.2 7.1 7.5 6.9 7.0 6.8 6.4 6.5 6.0 5.6 6.0 6.6 6.4 5.2 5.1 5.5 5.9 5.5

3.9 4.3 4.2

Mar-06

4.7 5.3 5.2

5.6 6.0 5.8 5.6 6.3 5.0 4.9

Mar-07

Mar-08

4.6 4.2 3.9

Mar-09

3.7 3.8 3.9 3.8 4.1

Mar-10

32.1

9.1 8.6 8.5 8.4

8.1 8.5 8.2 8.3 8.6 9.1

4.5 4.5 4.3 4.1 4.4 4.5 4.5 4.4 4.2 4.1 4.2

Mar-11

Mar-12

Mar-13

3.7 3.8 4.4

Mar-14

9.4 9.2 9.8

10.5 10.2

3 Diversification of JGB Investor Base

5

19.0

18.7

20

39.5

35.3 35.4

4.8 4.9 4.7 5.1 5.35.3 Mar-15

Mar-16

(Source: Bank of Japan Flow of Funds )

Fig.1-32 JGB Holdings and Trading by Foreign Investors 60

（％）

54.7 53.653.4 53.9 51.6 51.051.1 49.249.2 47.8 45.8

① Foreign Investors' share in secondary market for JGB Futures 50 41.3 40

42.2 38.2

39.6

42.3 40.3 40.6 41.0 38.0

41.0

37.5

30

37.537.637.4

37.2

38.6

33.9

② Foreign investors' share in secondary market for JGB 31.8 22.9 21.0 20.7 21.2 20.5 19.519.3 18.2 17.3

33.0 29.0

25.725.125.5 23.7 23.322.524.122.6 22.3 22.0

19.4 18.918.7 17.7 20 17.4 16.115.816.2

10

10.5 9.4 9.2 9.8 10.2 8.4 8.5 8.3 8.7 9.1 8.6 8.5 8.4 8.1 8.5 8.2 8.3 8.6 9.1 7.1 7.5 7.0 6.8 6.4 6.6 6.4 6.0 5.6 6.0

③ Proportion of JGB holding by Foreign Investors 0 Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Note.1: Figures are on a quarterly basis. Note.2: "JGB" includes T-Bills. Figures on ② excludes dealers' transaction. (Source: Bank of Japan, JSDA, JPX)

B. Breaking down Foreign Investors There are various types of foreign investors, but they are roughly divided into two groups: (1) large-lot institutional investors called real money investors, including central banks investing foreign exchange reserves, asset management firms, pension funds, life insurance companies, and sovereign wealth funds (SWFs) undertaking integral investment of state funds, and (2) hedge funds that use derivatives and other investment means for gaining higher returns (Fig. 1-33). Most of the foreign investors holding JGBs are deemed to be real money investors, which reportedly tend to be long term investors. Recently, however, a wide range of foreign investors have intensified investment in short to medium-term JGBs by taking advantage of 35

Ⅰ FY 2016 D ebt Management Policies F i g .1- 33 T y p e s a n d I n v e s t m e n t B e h a v i o r s o f F o r e i g n I n v e s t o r s

Ø Foreign investors participating in the JGB (Japanese Government Bond) market are roughly divided into real money investors and hedge funds. T heir investment behaviors are very different.

R eal money investors Ø R eal money investors tend to invest funds in securities including JGBs held for a long time. Ø T hey are maj or investors in JGBs.

ü Central banks （foreign ex change reserves investment authority)

→ P rioritiz ing safety and liq uidity. M aj or investors in JGBs.

ü ü ü ü

H edge funds Ø H edge funds take certain risks and

3 D iversification of J GB I nvestor B ase

use leverage to gain higher returns. Ø T hey implement mainly short-term and speculative trades.

A sset management firms P ension funds L ife insurance companies Sovereign w ealth funds

ü

Global macro: Global macro hedge funds proactively take interest rate risks based on macroeconomic scenarios regarding economic grow th, prices, etc.

ü

R elative value: R elative value hedge funds pay attention to yield curve distortions and use interest rate sw aps to gain higher returns.

ü

CT A (Commodity T rading A dvisor): CT A hedge funds ex tract trends from past market data under mathematical approaches and use them for investment.

basis swaps ( see P 1 0 ) . T he M inistry of F inance and the Bank of Japan release a region- by - region break down of JGBs and other Japanese bonds held ov erseas in the balance of pay m ents statistics ( R egional P ortf olio I nv estm ent and F inancial Deriv ativ es P osition ( L iabilities) ) . According to the balance of pay m ents statistics, JGB and other Japanese bond holdings total ( 1 ) 5 9 .6 trillion y en in Europe, (2) 22.7 trillion yen in Asia, (3) 22.5 trillion yen in North America, (4) 9.1 trillion yen in the Middle East and (5) 7.8 trillion yen in Latin America (Figure 1-34). A country-bycountry breakdown of Japanese bonds held overseas indicates that the five largest holders of these bonds are ( 1 ) L ux em bourg with 2 2 .8 trillion y en, ( 2 ) the U .S . with 2 1 .4 trillion y en, ( 3 ) the U .K . with 1 1 .3 trillion y en ( 4 ) F rance with 9 .5 trillion y en, and ( 5 ) C hina with 9 .5 trillion y en. F i g .1- 34 F o r e i g n I n v e s t o r s ' B o n d H o l d i n g s b y R e g i o n ( C u s t o d i a n B a s e ) ( ☞) 140

(trillion yen)

Others

120

M iddle East

110

Europe

100

North A merica

90 70 60 50

10.6 9.1

0

71.7 4.5 10.1 6.3

60.4 2.3 46.3 33.7

71.9

10.9 5.1

38.6

65.5 10.6 3.6

9.4 6.1

30.8

96.9 13.9

8.7

6.5 9.0

7.7

6.9

10.4

9.9

11.9

2006

2007

2008

2009

100.9

19.0

15.4

8.3

6.1

7.4

36.0

36.8

40.5

11.6

9.7

28.1 2011

19.7 9.1

59.6 50.2

27.0

20.2 2010

22.5

11.9

17.6

30.5

25.7

20.8

22.7

2012

2013

2014

2015 (CY)

9.2

20 10

91.6

79.5

40 30

115.9

A sia

80

36

133.6

130

☞ I n addition to JGBs, all of the y en- denom inated bonds issued by residents in Japan such as L ocal Gov ernm ent Bonds and corporate bonds are included. Giv en that the balance of pay m ents statistics prov ide a country - by - country break down of Japanese bond holders including custodians ( f inancial institutions that tak e custody of and m anage securities including shares and bonds) , we m ust tak e note of the f act that the break down does not necessarily giv e a region- by - region breakdown of final investors.

Ⅰ F Y 2016 Debt M anag ement Polic ies C . Ov erseas Inv estor Relations E fforts S ince 2 0 0 5 , the M inistry of F inance has m ade ef f orts to enhance relations with f oreign inv estors in JGBs ( inv estor relations ( I R ) activ ities) . T he activ ities aim

to div ersif y the JGB

inv estor base, including f oreign inv estors, f or the purpose of stabilizing the JGB m ark et and provide accurate information on a timely basis that meets investors needs for the purpose of encouraging them

to hold JGBs longer and m ore stably ( F ig. 1 - 3 5 ) .

F i g .1- 35 O b j e c t i v e s o f O v e r s e a s I R A c t i v i t i e s

Obj ectives of Overseas IR

A ctivities

I n ov erseas I R

3 Diversific ation of J GB Investor B ase

1. Diversifying JGB holders → Ensure and smooth JGB issuance, JGB market stability 2. P roviding accurate and timely information on JGBs and the Japanese economy → P romoting stable and long-term holdings 3. Grasping foreign investors trends and needs accurately → Feedback to Debt M anagement P olicy

activ ities, we prov ide v arious ty pes of inv estors with inf orm ation m eeting

their needs in a fine-tuned manner. For example, central banks usually have a strong interest in m acroeconom ic trends, political clim ate and diplom atic situations, while institutional inv estors f req uently tak e up technical m atters including JGB characteristics, JGB issuance sizes, JGB issuance plans and the JGB m ark et. R ecently , they seem ingly hav e considerable interests in JGB market liquidity and responses after the implementation of the

uantitative

and ualitative Monetary Easing policy. We have adopted overseas IR activity methods fulfilling investors needs, based on trends of ov erseas inv estors and m ark et env ironm ent changes as well as opinions at such f orum s as the Adv isory C ouncil on Gov ernm ent Debt M anagem ent. I nitially , we m ainly sponsored seminars for a large number of investors at various locations to improve foreign investors awareness of JGBs. O v er recent y ears, we hav e not only held sem inars but also v isited investors in response to improvements in foreign investors awareness of JGBs. Our direct talks with overseas investors allow us to grasp and respond to investors needs in a finetuned manner and are significant for promoting their understanding of JGBs. In FY2015, we sent a total of nine overseas IR missions to North America, Europe and Asia. I n 2 5 cities of 2 3 countries, m ission m em bers interv iewed local inv estors and participated in local sem inars where they m ade speeches. O v er recent y ears, giv en that Asian inv estors’ inv estm ent in Japanese bonds has increased, we hav e participated in the regional f orum

on inv estm ent

m anagem ent of f oreign ex change reserv es ( sponsored

F i g . 1- 36 I n v e s t o r R e l a t i o n s T o u r s ( M a r c h 2016, K y o t o ( M a n a b u S a k a i , S t a t e M i n i s t e r o f F i n a n c e ) )

by the Asian Dev elopm ent Bank ) , a m eeting of f oreign ex change reserv e inv estm ent m anagers, to proactiv ely ex plain JGBs to institutional and other inv estors in the Asia Pacific region. We also prioritize lectures at seminars to which foreign inv estors are inv ited and direct talk s with f oreign inv estors v isiting Japan. At a sem inar in Japan f or f oreign inv estors in M arch 2 0 1 6 , M anabu S ak ai, S tate M inister of F inance, deliv ered a speech em phasizing progress in Abenomics and fiscal consolidation initiatives (Fig. 1-36). 37

Ⅰ FY 2016 D ebt Management Policies We had meetings with many foreign investors in FY2015 (Fig. 1-37) as investors increasingly requested meetings with MOF officials in response to their growing interest in the Japanese economy in recent years. We have also launched new initiatives including visits to foreign central banks Tokyo offices for IR activities. T hrough these I R activ ities, we hav e receiv ed v arious q uestions and opinions f rom

f oreign

investors. These opinions are reflected in our debt management and other policies and used ef f ectiv ely ( F ig. 1 - 3 8 ) . F i g .1- 37 M e e t i n g s w i t h F o r e i g n I n v e s t o r s i n J a p a n

78

3 D iversification of J GB I nvestor B ase

56

59

F i g .1- 38 M a j o r O p i n i o n s f r o m F o r e i g n I n v e s t o r s a n d R e s p o n s e s Opinions from foreign investors

R esponses

Ø BOJ-NET operation hours should be ex panded.

ü T he settlement interval should be shortened from February 2016; BOJ-NET operation hours for current account and JGB clearance services w ere ex panded by tw o hours until 9:00 p.m.

Ø Information services regarding JGBs, the Japanese economy, macroeconomic policies and other matters should be ex panded

ü R egular provision of new sletters, etc. ü In response to investors interests, the M OF provides up-to-date information on the Japanese economy and macroeconomic policies. ü In October 2013, the M OF resumed an InflationIndex ed Bonds issuance w ith a principal guarant ee (deflation floor) upon maturity. ü In the FY 2014 and FY 2015 JGB Issuance P lan, Inflation-Index ed Bonds issuance is ex panded.

Ø Japan should resume and ex pand Inflation-Index ed Bonds issuance that have obtained maj or positions in other advanced countries

2013

2014

2015

(CY)

○Other maj or opinions Ø Is there any target for foreign investors share of JGB holdings? Ø Is there any target for an average maturity of JGBs? Ø H ow are Japanese macroeconomic policy prospects (fiscal and monetary policies, grow th strategies, the balance of payments, etc.)? Ø Is there any plan to issue JGBs under the Islamic bond system?

Note: T hese figures are limited to meetings arranged by Office of Debt M anagement and JGB Investor R elations.

I n this way , the I R activ ities play a role in giv ing direct m essages to inv estors about accurate inf orm ation on Japanese gov ernm ent debt m anagem ent and econom ic policies on behalf of the Japanese gov ernm ent, responding to wide- ranging and deep needs f or inf orm ation on not only JGBs but also the economy and fiscal situation. In July 2014, the Ministry of Finance established the Office of Debt Management and JGB Investor Relations in Debt Management P olicy Div ision to enhance com m unications arrangem ents to secure ev en m ore ef f ectiv e and efficient IR activities in cooperation with research and analysis offices (Fig. 1-39). F i g .1- 39 F u t u r e I R A c t i v i t i e s D i r e c t i o n

Future directions -- Overseas IR negative interest rates

activities under

Desirable information services and communications W hile it may not be easy to attract new investors under negative interest rates, w e w ill continue to promote IR activities giving priority to foreign ex change reserve authorities, pension funds and other foreign institutional investors that are ex pected to continue investment in JGBs and stably hold JGBs for a long term. W e w ill continue to build netw orks linking investors in A sian and other emerging countries, ex pecting them to invest in JGBs in the future. W e w ill continue to give ex planations meeting foreign investors needs and interests.

Cooperation w ith foreign debt management authorities and international organiz ations W ith debt management authorities in foreign countries adopting negative interest rates, w e w ill have close discussion on negative interest rates impacts on government bond markets and desirable debt management policies. T hrough IR activities, international conferences and other opportunities, w e w ill have close discussion w ith foreign debt management authorities to further enhance our relations w ith them. W e w ill enhance cooperation w ith international organiz ations by proactively making proposals and presentations for foreign authorities and investors at international conferences sponsored by these organiz ations. (Ex cerpts from documents distributed at the A dvisory Council on Government Debt M anagement (42nd R ound) on June 13, 2016)

38

Ⅱ Framework of Debt Management This part explains the fundamental framework of debt management.

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

C hap ter 1 Gov ernment Bonds (J GBs)  1 P rimary Market for Gov ernment Bonds JGBs for financing fiscal expenditures are issued in various types, depending on their applicable legal grounds and bond features. This section explains how JGBs are issued.

(1) J GBs by L egal Grounds of Issuance JGBs can be divided into two m ain categories: general bonds, and F iscal I nvestm ent and L oan P rogram redeem

Bonds ( F I L P Bonds) . W hile the governm ent m ainly relies on tax revenue to

general bonds, the redem ption and the interest paym ents on F I L P Bonds are covered

1 P rimary Market for Gov ernment Bonds

through the recovery of loans to F I L P agencies. H owever, both general bonds and F I L P Bonds are JGBs and are j ointly issued with the sam e interest rate and m aturity. They are the sam e financial instrum ents and are treated in the sam e m anner on the m ark et as well. F i g .2- 1 J G B s b y L e g a l G r o u n d s o f I s s u a n c e

Construction Bonds General Bonds

JGBs

R econstruction Bonds

A. General Bonds General bonds consist of C onstruction Bonds, S pecial Deficit- financing Bonds, R econstruction Bonds and R ef unding Bonds. C onstruction Bonds and S pecial Deficit- financing Bonds are issued under the General Account and the revenue f rom

their issuance is reported as the governm ent

revenue of the General Account. O n the other hand, R econstruction Bonds are issued under the S pecial Account f or R econstruction f rom

the Great E ast Japan E arthq uak e and R ef unding Bonds under the S pecial

Account of Governm ent Debt C onsolidation F und and the revenue f rom

their issuance is

reported as the governm ent revenue of each S pecial Account. a. C onstruction Bonds Article 4 ( 1 ) of the P ublic F inance Act prescribes that annual governm ent expenditure has to be covered in principle by annual governm ent revenue generated f rom

other than

governm ent bonds or borrowings. But as an exception, a proviso of the Article allows the governm ent to raise m oney through bond issuance or borrowings f or the purpose of public work s, capital subscription or lending. Bonds governed by this proviso of Article 4 ( 1 ) are called " C onstruction Bonds." The Article prescribes that the governm ent can issue C onstruction Bonds within the am ount approved by the Diet, and the ceiling am ount is provided under the general provisions of the General Account budget ( 40

)．

When intending to get approval for this ceiling amount, the government is obliged to submit to the Diet a redemption plan that shows the redemption amount, the redemption method (redemption at maturity or by annual installments) and the redemption periods for each fiscal year for a reference.

Ⅱ Framework

W hen estim ating a shortage of governm ent revenue despite the issuance of C onstruction Bonds, the governm ent can issue governm ent bonds based on a special act (

① ) to raise

m oney f or the purpose of other than public work s and the lik e. These bonds are generally called " S pecial Deficit- financing Bonds" , but given their nature, these bonds are also called " Deficit- financing Bonds" . As is the case with C onstruction Bonds, the governm ent can issue S pecial Deficit- financing

① The Act on Special Provisions concerning Issuance of Public Bonds to Secure Financial Resources Required for Fiscal Management allows Special Deficit-financing Bonds to be issued for five years from FY2016 to 2020.

Bonds within the am ount approved by the Diet and the ceiling am ount is provided under the ②) .

general provisions of the General Account budget (

S pecial Deficit- financing Bond issuance m ust be m ade on exceptional cases. Theref ore, the governm ent has to m inim ize the issuance am ount as m uch as possible within the am ount approved by the Diet, while tak ing into account the state of tax and other revenues (

③) .

c. Reconstruction Bonds the Great E ast Japan E arthq uak e disasters, the governm ent is supposed

to issue R econstruction Bonds f rom

③ In this context, it is allowed to issue Special Deficitfinancing Bonds until the end of June in the next fiscal year. (deferred issuance in the accounting adjustment term)

F Y 2 0 1 1 to F Y 2 0 2 0 in accordance with the Act on

S pecial M easures concerning the securing of f inancial resources to execute m easures necessary f or recovery f rom

the Great E ast Japan E arthq uak e ( R econstruction F unding

Act) . W hile necessary financial resources will be financed with revenues of S pecial Taxes f or R econstruction, the governm ent will issue R econstruction Bonds as bridging f inance until these revenues are receivable to the governm ent. The governm ent m ay issue these R econstruction Bonds within the am ount as approved by the Diet. The ceiling am ount is provided under the general provisions of the S pecial Account budget f rom

F Y 2 0 1 2 onwards. Ref: II Chapter1 3 (1) “Redemption System” (P72)

d. Refunding Bonds As f or General Bonds, R ef unding Bonds are issued in order to raise f unds f or ref unding

1 P rimary Market for Gov ernment Bonds

To recover f rom

② The government is also required to submit a redemption plan to the Diet for a reference

C hap ter 1 Gov ernment Bonds (J GBs)

b. Sp ecial D eficit-Financing Bonds

part of m atured JGBs. Am ong General Bonds, as f or C onstruction Bonds and S pecial Deficit- financing Bonds, the issuance am ount of R ef unding Bonds is determ ined basically in accordance with the 6 0 - year redem ption rule. As f or R econstruction Bonds, R ef unding Bonds are issued depending on the am ount of the revenue f rom R econstruction and profit f rom

sales of stock s in each year. (

S pecial Taxes f or

)

R ef unding Bonds are the JGBs issued through the S pecial Account f or the Governm ent Debt C onsolidation F und ( GDC F ) . R evenues f rom

R ef unding Bonds are directly posted to

the f und. I n the issuance of R ef unding Bonds, the governm ent is not req uired to seek the Diet approval f or the m axim um

issuance am ount. This is because unlik e in the case of bonds

issued to secure new revenue resources, such as C onstruction Bonds and S pecial Deficitfinancing Bonds, issuing R ef unding Bonds does not lead to an increase in the total am ount of outstanding debt.

In line with tax revenues through the consumption tax increases in and after FY2014, Refunding Bonds are issued for Special Bonds for covering Public Pension Funding, which were issued in FY2012 and FY2013 as bridging finance until tax revenues are assured for the finance of increase of the Government s contribution to the basic national pension, based on the special law for Special Deficit-financing Bonds legislated in FY 2012.

(Reference) Front-loading issuance of Refunding Bonds As m assive bonds redem ption at m aturity is expected to continue, the governm ent is allowed to f ront- load the issuance of R ef unding Bonds in order to m itigate the im pact of concentration of bonds redem ption at m aturity, to control substantial volatility of JGB 41

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

m ark et issuance in each fiscal year and to enable flexible issuance of them

in response to

financial conditions and so on. I f we k now in advance that bonds redem ption at m aturity will concentrate in a certain fiscal year, leading to a sharp rise in R ef unding Bond issuance, then we are able to level of f bond issuance on the yearly basis by issuing a certain portion of these bonds ahead of schedule( F Y 2 0 0 8 problem

(

①) ) .

F ront- loading issuance of R ef unding Bonds can also serve to address a sharp fluctuation of fiscal needs without bringing about additional im pacts on the m ark et. I f f ront- loading issuance of R ef unding Bonds is already scheduled ( i.e., scheduled bond issuance am ount is larger than the necessary f und- raising am ount) , and the necessary f und- raising am ount has increased, we are able to address the situation without changing the JGB M ark et I ssuance ( C alendar Base) by issuing the scheduled f ront- loading issuance am ount as necessary JGBs f or that fiscal year (

②) .

F ront- loading issuance of R ef unding Bonds can be m ade within the upper lim it approved by

1 P rimary Market for Gov ernment Bonds

the Diet in accordance with P aragraph ( 1 ) , Article 4 7, of the Act on S pecial Accounts. The lim it is provided in the general provisions of the S pecial Account budget in each fiscal year. The gap between the am ount of the f ront- loading issuance of R ef unding Bonds that had been scheduled in the previous fiscal year f or this fiscal year and those that are scheduled f ront- loading in this fiscal year f or the next fiscal year can be used as part of this fiscal year s f und- raising am ount under the governm ent debt m anagem ent policy. This is called adj ustm ent between fiscal years (

③)

in term s of issuance type in the JGB

I ssuance P lan. F i g .2- 2 A d j u s t m e n t b e t w e e n F i s c a l Y e a r s i n t h e F Y 2016 J G B I s s u a n c e P l a n ( I m a g e ) A mount req uired to be raised through JGB market issuance for FY2016 revenue 152.2 trillion yen ( part)

FY2016 (A pril-M arch) JGB market issuance amount 152.6 trillion yen ( part)

A d ju s tm e n t b e tw e e n fis c a l y e a r s ▲0.4 trillion yen (    )

: Calendar-based JGB market issuance amount+ Non-P rice Competitive A uction II : R epresenting FY2016 revenue : R epresenting FY2015 and FY2017 revenue

FY2015 transfer consolidation period JGB issuance amount: 2.5 trillion yen

M onthly issuance amount

Front loaded FY2016 R efunding Bond issuance amount: 38.2 trillion yen

FY2016 transfer consolidation period JGB issuance amount: 2.5 trillion yen Front loaded FY2017 R efunding Bond issuance amount: 38.7 . trillion yen

FY2015

FY2016

① The problem refers to concentrated bond redemption at maturity in FY2008 resulting from the large-scale 10year JGB issuance mainly for economic stimulus purposes in FY1998. To address this problem, the government has coordinated the amount of JGB issuance between fiscal years by buying back JGBs redeemable at maturity in FY2008 and sharply increasing frontloading issuance of Refunding Bonds from FY2004. ② In the FY2011 third supplementary budget, the government planned to issue additional JGBs (Reconstruction Bonds) of 11.55 trillion yen (figures in this paragraph represent in comparison with the first supplementary budget). Then, the government has minimized impacts on demand-supply in the market by issuing additional Reconstruction Bonds instead of front-loading issuance of Refunding Bonds, which leads to holding down an increase in the calendar-based JGB market issuance as small as 800 billion yen. ③ The adjustment includes the difference in the amount of issuance in the accounting adjustment term between the current and the previous fiscal years besides that of frontloading issuance of Refunding Bonds. In the accounting adjustment term, which means a period from April to June, some of Deficit-Financing or Reconstruction Bonds for the previous fiscal year can be issued.

FY2017 M arch

A pril Note 1: Components may not add up to the total due to rounding. Note 2: A mounts planned or estimated upon the fix ation of the FY2016 JGB Issuance P lan.

B. Fiscal Inv estment and L oan P rogram Bonds (FIL P Bonds) Along with the F Y 2 0 0 1 ref orm

of the F I L P ( F iscal I nvestm ent and L oan P rogram ) , the

governm ent started issuance of the F iscal I nvestm ent and L oan P rogram 42

Bonds ( so- called

Ref: “FILP Report”

Ⅱ Framework

of governm ent bonds, this security is issued against the credit of the governm ent, and its m axim um

issuance am ount req uires the Diet approval ( Article 6 2 ( 2 ) of the Act on S pecial

Accounts) . R evenues f rom

the F I L P Bond issuance are allotted to the annual revenue f or

the S pecial Account f or the F iscal I nvestm ent and L oan P rogram H owever, the F I L P Bonds are dif f erent f rom

( F I L P S pecial Account) .

C onstruction Bonds and S pecial Deficit- financing

Bonds on one account. W hile f uture taxes will be used to redeem

C onstruction Bonds and

S pecial Deficit- financing Bonds, the redem ption on the F I L P Bonds are covered through the recovery of F iscal L oan F und loans to I ncorporated Adm inistrative Agencies, etc. Theref ore, when publishing outstanding debt, F I L P Bonds are treated dif f erently f rom (

General Bonds

).

F i g .2- 3 O u t l i n e o f F I L P R e f o r m ＜Before Reform＞

Redemption

Loan Recovery

Note1 : After the reform, F ILP includes loans to F ILP Special Account ( Investment Account), Government-Guaranteed Bonds ; loans from Postal Savings and Postal Life Insurance to local governments. Since F Y2 0 0 7 , there has been no loan from Postal Savings and Postal Life Insurance to local governments. Note2 : F iscal Loan F und includes deposits from special account surplus reserves, other than those shown above.

1 P rimary Market for Gov ernment Bonds

Note1 : Prior to the reform, F ILP funding came from the Trust F und Bureau F und ( shown above) and also from Postal Life Insurance F unds, the Industrial Investment Special Account and Government-Guaranteed Bonds. Note2 : Trust F und Bureau F und includes deposits from special account surplus reserves, other than those shown above.

F ILP Bonds

F iscal Loan F und

Recovery

Redemption

F inancial markets

Pension Deposit Reserves ( Employ ee Refund Pension/ ・ National Pension)

Loan

F ILP agency bonds ( non-F ILP plan)

Government affiliated financial institutions Incorporated administrative agencies Local governments

Refund

Government affiliated financial institutions Incorporated administrative agencies Local governments

Deposit

Trust F und Bureau F und

Postal Savings

＜After Reform＞

Also in the System of National Accounts (SNA), which is created by the nited Nations for each country to create economic statistics based on a common standard, FILP Bonds are not classified as debt of the general government.

C hap ter 1 Gov ernment Bonds (J GBs)

F I L P Bonds) to raise f unds f or the investm ent of the F iscal L oan F und. As with other types

43

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

(2) Typ es of J GBs Governm ent bonds are the securities issued by the central governm ent. The central governm ent pays the bondholders interests on the securities and repays the principal am ount ( i.e., redem ption) . I nterest is payable on a sem iannual basis, except f or short- term bonds, and the principal am ount is redeem ed at m aturity. The JGBs currently issued can be classified into six categories: short- term ( 1 - Y ear) ; m edium - term ( 2 - Y ear and 5- Y ear Bonds) ; long- term ( 1 0 - Y ear Bonds) ; super long- term ( 2 0 - Y ear, 30 - Y ear and 4 0 - Y ear Bonds) ; I nflation- I ndexed Bonds ( 1 0 - Y ear Bonds) ; and JGBs f or R etail I nvestors ( 3- Y ear F ixed- R ate, 5- Y ear F ixed- R ate and 1 0 - Y ear F loating- R ate Bonds) . The short- term JGBs are all discount bonds, which are accom panied by no interest paym ent during their duration to m aturity and redeem ed at f ace value at m aturity ( ① ) . O n the other hand, all m edium - , long- , super long- term bonds and JGBs f or R etail I nvestors ( 3- Y ear F ixed- R ate, 5- Y ear F ixed- R ate) are the bonds with fixed- rate coupons. W ith fixed- rate coupon-

1 P rimary Market for Gov ernment Bonds

bearing bonds, the interest calculated by the coupon rate determ ined at the tim e of issuance is paid on a sem iannual basis until the security m atures and the principal is redeem ed at f ace value. I nflation- I ndexed Bonds ( JGBi) are securities whose principal am ounts are link ed to the consum er price index ( C P I ) . Thus, although their coupon rates are fixed, the interest paym ent also fluctuates. The principal am ount of JGBi issued in and af ter 2 0 1 3 will be guaranteed at m aturity ( deflation f loor) . I n case where the indexation coef f icient f alls below 1 at m aturity, the Bonds will be redeem ed at the f ace value. JGBs f or R etail I nvestors ( 1 0 - Y ear F loating- R ate) are JGBs with coupon rates that vary over tim e according to certain rules. 1 5- Y ear F loating- R ate Bonds ( ② ) as well as JGBs f or R etail I nvestors ( 1 0 - Y ear F loating- R ate) f eature their coupon rates that vary according to certain rules. New issuance has been put on hold f or the 1 5- Y ear F loating- R ate Bonds, however. F i g .2- 4 T y p e s o f J G B s Short ter

M aturity T ype of issue M in. face alue unit

M ediu

1 Year Discount bonds 10,000,000 yen

2 Year, 5 Year

10 Year

Coupon bearin bonds

③

50,000 yen ublic offerin OT C sales akin offerin s and acceptin subscriptions rice co petiti e auction/ Con entional style auction Non Co petiti e A uction Non rice Co petiti e A uction Non rice Co petiti e A uction

ublic offerin BOJ sw itch

A uction ethod Non price Co petiti e A uction

rice co petiti e auction/ Con entional style auction

T ransfer

Not restricted

Not restricted

req uency of issue

M onthly

M onthly each

Non

rice Co petiti e A uction

Super lon ter M aturity

20 Year

30 Year

T ype of issue

JGBs for R etail n estors n ation ndex ed Bonds Super lon ter 3 Year ix ed R ate, 15 Year loatin R ate 5 Year ix ed R ate, 40 Year 10 Year （☞② 10 Year loatin R ate Coupon bearin bonds

M in. face alue unit

50,000 yen

ssuance ethod

ublic offerin

A uction ethod Non price Co petiti e A uction

rice co petiti e auction/ Yield co petiti e auction/ Con entional style auction Dutch style auction Non rice Co petiti e A uctionⅠ Non rice Non rice Co petiti e A uction Co petiti e A uction Ⅱ Ⅱ

T ransfer

Not restricted

req uency of issue Y2016

M onthly each

10,000 yen OT C sales akin offerin s and acceptin subscriptions ― ― R estricted（ 6 ti es

100,000 yen ublic offerin

rice co petiti e auction/ Dutch style auction Non rice Co petiti e A uction Ⅱ Not ④） restricted

M onthly each

4 ti es

Ref: I 2(3)C Promoting Market Development and Diversity of JGB Holders” (P27) ② Issuance of 15-Year Floating-Rate Bonds has been suspended since May 2008. ③ 50,000 yen from April 1, 2017 ④ JGBs for retail investors can be transferred only to retail investors (including certain trust custodians).

on ter

ssuance ethod

Y2016

44

ter

① Since Feb. 2009, Treasury Bills and Financing Bills have jointly been issued, under unified names of Treasury Discount Bills (abbreviation: T-Bill), in the primary and secondary market transaction. But their legal status has not changed under the existing fiscal system and they will continue to be handled as Treasury Bills and Financing Bills under the fiscal system.

― ― ― Not restricted ―

Ⅱ Framework

Am id expectations that JGB issuance in large volum es will continue, in O ctober 2 0 0 4 the JGB M ark et S pecial P articipants S chem e was introduced in Japan. This schem e is designed based on the so- called P rim ary Dealer S ystem and the

generally m aintained in m aj or E uropean countries

.S . to f acilitate secure stable issuance and to m aintain and enhance the liq uidity of

governm ent bond m ark ets. nder the schem e, the M O F grants special entitlem ents to certain auction participants when they carry out responsibilities essential to debt m anagem ent policies, such as active participation in JGB auctions. The M O F expects the schem e to f acilitate secure and stable issuance of JGBs and to m aintain and enhance the liq uidity of the JGB m ark et. The f ollowing is an outline of the schem e.

C hap ter 1 Gov ernment Bonds (J GBs)

(3 ) J GB Market Sp ecial P articip ants Scheme

A. Resp onsibilities of Sp ecial P articip ants I n every auction, the S pecial P articipants shall bid f or an adeq uate am ount ( at least 4 %

of

the planned issue am ount) at reasonable prices. ・P urchasing responsibility: The S pecial P articipants shall purchase and underwrite at least a specif ied share of the planned total issue am ount ( 0 .5%

f or short- term

the super long- term , long- term , m edium - term

zone; and 1 %

f or other zone) in each of

and short- term

zones in auctions f or the

preceding two q uarters. ・R esponsibility on the secondary m ark et: The S pecial P articipants shall provide suf ficient liq uidity to the JGB secondary m ark et. ・I nf orm ation sharing: The S pecial P articipants shall provide inf orm ation on JGB m ark ets and related transactions to the M O F .

1 P rimary Market for Gov ernment Bonds

・Bidding responsibility:

B. E ntitlement of Sp ecial P articip ants ・P articipation in the M eeting of JGB M ark et S pecial P articipants: The S pecial P articipants can tak e part in the m eeting in order to exchange opinions with the M O F on JGB m anagem ent policies. ・P articipation in Auctions f or Buy- back s: The S pecial P articipants can tak e part in Auctions f or Buy- back s. ・S eparation and integration of S TR I P S Bonds: The S pecial P articipants can apply f or the separation and integration of S TR I P S .

・P articipation in Non- P rice C om petitive Auctions I &

II:

The S pecial P articipants can tak e part in Non- P rice C om petitive Auction I ( held concurrently with norm al com petitive auctions) and Non- P rice C om petitive Auction I I ( held af ter norm al com petitive auctions) . These auctions enable S pecial P articipants to obtain JGBs at the weighted average accepted price at a com petitive price auction, up to a purchasing lim it preset f or each P articipant on the basis of past successf ul bid ( Non- P rice C om petitive Auction I ) and past subscriptions ( Non- P rice C om petitive Auction I I ) . ・P articipation in Auctions f or E nhanced- L iq uidity: The S pecial P articipants can tak e part in Auctions f or E nhanced- L iq uidity that are designed to m aintain and im prove liq uidity on the JGB m ark et. 45

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

・P ref erential P articipation in I nterest R ate S wap Transactions: The S pecial P articipants can be pref erential counterparties f or the interest rate swap transactions im plem ented by the M O F .

C . H istory of System Introduction ・O ctober 2 0 0 4 : JGB M ark et S pecial P articipants S ystem

was introduced ( S pecial

P articipants were designated. The M eeting of JGB S pecial P articipants started. The NonP rice C om petitive Auction I I was launched.) .

・April 2 0 0 5: The Non- P rice C om petitive Auction I was launched. ・January 2 0 0 6 : I nterest rate swap transactions started.

・M arch 2 0 0 6 : The governm ent bond syndicate underwriting system

was abolished.

・April 2 0 0 6 : Auction f or E nhanced- L iq uidity was launched.

(4 ) Methods of Issuance 1 P rimary Market for Gov ernment Bonds

M ethods of issuing JGBs are basically divided into three: of f erings to the m ark et, sales to retail investors, and of f erings to the public sector.

A. Offering to the market JGBs are principally issued in public of f ering on m ark et- based issue term s. a. P rice/ yield-comp etitiv e auction P rice/ yield- com petitive auction is a m ethod in which each auction participant subm its a bidding price ( or yield) and bidding am ount in response to the issue term s ( e.g., issue am ount, m aturity, coupon rate) presented by the M O F , and the issue price and am ount will then be determ ined based on the bids. I n this type of auction, the issuing authority starts selling first to the highest price bidder in descending order ( or to the lowest yield bidder in ascending order) till the cum ulative total reaches the planned issue am ount. I n Japan, the auction m ethod varies by type of security. O ne is the conventional m ethod by which each winning bidder purchases the security at his bidding price; and the other is the Dutch- style m ethod by which all winning bidders pay the ①) . I n M arch 2 0 0 1 , the im m ediate reopening rule was introduced f or the purposes including the lowest accepted bid price regardless of their original bid prices ( or yields) (

enhancem ent of JGB liq uidity. The rule treats a new JGB issue as an addition to an outstanding issue im m ediately f rom

the issuance day in principle if the principal and interest paym ent dates

and coupon rate f or the new issue are the sam e as those f or the outstanding issue. As f or 2 - year JGB issues f or which principal and interest paym ent dates are dif f erent, the im m ediate reopening rule m ay not be applied ef f ectively (

②) .

b. N on-comp etitiv e auction Besides com petitive auction, 2 - Y ear, 5- Y ear and 1 0 - Y ear Bonds are also issued through non- com petitive auction. This approach is to tak e into account sm all and m edium

m ark et

participants who tend to subm it a sm aller bid than their larger counterparts. Biddings f or non- com petitive auction are of f ered at the sam e tim e as f or the price- com petitive auction, and the price of f ered eq uals to the weighted average accepted price of the price com petitive auction. O ne can bid f or either the price com petitive auction or f or the nonprice com petitive auction. 46

① The price-competitive conventional auction is used for all JGB issues excluding the 40-year issue subject to the yield-competitive Dutch auction and the Inflation-Indexed Bonds subject to the pricecompetitive Dutch auction. ② In FY2016, the government will reopen a 10-year Bonds four times (integrating March, April and May issues into the March issue, June, July and August issues into the June issue, September, October and November issues into the September issue, and December, January and February issues into the December issue) unless interest rates fluctuate wildly (a market yield on an auction day for a new issue deviates from the coupon on an earlier issue with the same maturity date by more than 30 basis points). The reopening rule will also be used in principle to integrate 20- and 30-year Bonds each into four issues. The 40-year Bonds (May, July, September, November, January and March issues) will be integrated into one issue (May issue).

Ⅱ Framework issuance am ount is 1 0 %

of the planned issuance am ount. E ach participant is

perm itted to bid up to 1 billion yen (

) .

c. N on-P rice C omp etitiv e Auction I &

II

Non- P rice C om petitive Auction I is an auction in which biddings are of f ered at the sam e tim e as f or the price- com petitive auction. The m axim um

issuance am ount is set at 1 0 %

The ceiling amount to bid is not applyed the Shinkin Central Bank, the Shinkumi Federation Bank, the Rokinren Bank and the Norinchukin Bank.

of

the total planned issuance am ount and the price of f ered is eq ual to the weighted average accepted price of the price com petitive auction. O nly the JGB M ark et S pecial P articipants are eligible to bid in this auction. E ach participant is allowed to bid up to the am ount set based on the result of its successf ul bids during the preceding two q uarters. Non- P rice C om petitive Auction I I is an auction carried out af ter the com petitive auction is finished. The price of f ered is eq ual to the weighted average accepted price in the pricecom petitive auction or lowest accepted price in Dutch- style yield- com petitive auction. O nly the JGB M ark et S pecial P articipants are eligible to bid in this auction. E ach participant is allowed to bid up to the am ount set based on the result of its bids during the preceding two ).

B. Methods of selling J GBs to Retail Inv estors a. J GBs for Retail Inv estors I n M arch 2 0 0 3, issuance was started on 1 0 - Y ear F loating- R ate Bonds f or R etail I nvestors (

) in order to prom ote JGB holdings am ong individuals. M oreover, in order to respond to retail investors various needs and to prom ote f urther sales, the governm ent has been im proving product f eatures by introducing 5- Y ear F ixed- R ate and 3- Y ear F ixed- R ate JGBs. I ssuance of JGBs f or R etail I nvestors rests on their handling and distribution by their handling institutions com prised of securities com panies, bank s, and other f inancial

institutions as well as post of fices ( about 1 ,0 50 institutions) . The handling institutions are com m issioned by the governm ent to accept purchase applications and to sell JGBs to retail investors. H andling institutions are paid a com m ission by the governm ent corresponding to

Ref: I 3 “Diversification of JGB Investor Base” (P31) JGBs for Retail Investors are designed not to lose principal. The minimum interest rate of 0.05 is set to prevent the rate from falling to zero or becoming negative.

1 P rimary Market for Gov ernment Bonds

q uarters (

Each participant is allowed to bid up to the 15 of one s total successful biddings in the competitive auction and NonPrice Competitive Auction I.

C hap ter 1 Gov ernment Bonds (J GBs)

The m axim um

the handled issuance am ounts. b. N ew Ov er-The-C ounter (OTC ) sales system for selling marketable J GBs I n addition to JGBs f or R etail I nvestors, in O ctober 2 0 0 7 a new O TC

sales system

f or

m ark etable JGBs was introduced in order to increase retail investors purchase opportunities with regard to JGBs ( 2 - Y ear, 5- Y ear, and 1 0 - Y ear coupon- bearing Bonds) . W ith regard to this new O TC sales system , it allows private financial institutions to engage in subscription- based O TC sales of JGBs in a m anner previously exclusive to post of fices. This developm ent allows retail investors to purchase JGBs via financial institutions with whom

they are f am iliar, it also allows them

to purchase JGBs in a m anner that is essentially

ongoing. Depending on m ark et yield conditions, however, the acceptance of subscriptions m ay be suspended. As with JGBs f or R etail I nvestors, f or the new O TC

sales system , the governm ent has

com m issioned financial institutions ( about 72 0 institutions) to conduct subscriptions and sales of JGBs. Note that while these financial institutions are req uired to accept subscription and sell JGBs at prices defined by the M O F within a defined period, they are not req uired to purchase any unsold JGBs. As f or F Y 2 0 1 6 , the governm ent plans to launch the new O TC sales system

f or I nf lation-

I ndexed JGBs f or issuance f rom F Y 2 0 1 7 and raise the lim it on the am ount of subscription, etc. 47

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

F i g .2- 5 C o m p a r i s o n o f J G B s f o r R e t a i l I n v e s t o r s a n d N e w

O v e r - T h e - C o u n te r (O T C ) S a le s S y s te m

JGBs for R etail n estors 10 Year loatin R ate M aturity

3 Year ix ed R ate

10 Year M arketable ix ed R ate Bonds

5 Year M arketable ix ed R ate Bonds

2 Year M arketable ix ed R ate Bonds

5 year

3 year

10 year

5 year

2 year

M onthly 12 ti es a year

M onthly 12 ti es a year

urchase M ini u purchase of 10 thousand yen in 10 units/purchase thousand yen units/No upper li it alue li its Sales price

1 P rimary Market for Gov ernment Bonds

nterest rate

No restrictions can also be purchased by corporate entities or condo iniu associations, etc.

i ited to retail in estors loatin rate

M ini u interest rate

ix ed rate

ix ed rate

resent 0.05%

A bsent

Once one year has elapsed since issuance, rede ption before aturity due to o ern ent R ede ption buy back shall be possible at any ti e there is before no principal loss risk . Deduct the tw o interest aturity pay ents i ediately precedin rede ption pre tax x 0.79685. ntroduction 1st issuance

F i g .2- 6 N e w

M ini u purchase of 50 thousand yen in 50 thousand yen units/M ax i u alue of 100 illion yen per indi idual application Deter ined by M O for each issue possible to sell at any ti e on the arket. H ow e er, the price ay chan e w hen the bonds are sold before aturity.

100 yen per 100 yen of face alue the sa e in the rede ption

urchasers

M arch, 2003

O T C

OT C JGBs

5 Year ix ed R ate

10 year

req uency of issuance

New

January,2006

ossible to sell at any ti e on the arket how e er, because the price at ti e of sale shall be the arket price at that ti e, loss/pro t shall occur on sale there is a principal loss risk . urther ore, there is no sche e for the o ern ent to buyback these bonds before aturity.

July, 2010

October, 2007

S a le s S y s te m

New OTC

Sales Sy stem

○The M OF entrusts offering and sales of JGBs to intermediaries  ( sales prices are designated by the M OF ). ○The intermediaries offer and sell JGBs at the M OF -designated prices. ○Retail investors purchase JGBs through the intermediaries.

M OF ①Entrusts offering and  sales of JGBs

④Reports the amount  of sales Pay s the  sales value

⑤Issuance

Intermediaries ②Offering and sales of JGBs

③Offers to purchase  Pay s purchase  money

Retail investors

48

⑥Pay s a commission for  handling the offering

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

C . Offering to the p ublic sector (Bank of J ap an Switch) W hile Article 5 of the P ublic F inance Act prohibits the BO J f rom

underwriting governm ent

bonds, a proviso to the Article allows the BO J to extend credit to the governm ent, up to an am ount authorized by the Diet, in exceptional cases. I n practice, such cases are lim ited to underwriting of R ef unding Bonds within the am ount of JGBs that are held by the BO J and have reached m aturity ( ̶ of ten ref erred to as " Bank of Japan S witch" ) . Through its m ark et operations, the BO J holds a large am ount of governm ent bonds. I f the BO J tried to have its JGB holdings redeem ed in cash, the M O F would be req uired to issue R ef unding Bonds in the m ark et to raise the f und needed f or redem ption. A m assive issuance of R ef unding Bonds in the m ark et, however, could invite a f und shortage in the private sector, thus obliging the BO J to provide the private sector with f unds by purchasing a substantial am ount of the R ef unding Bonds f rom

private sector. To avoid such

roundabout, the BO J is exceptionally allowed to underwrite only up to the am ount necessary

F i g .2- 7 J G B I s s u a n c e A m o u n t b y M e t h o d s o f I s s u a n c e

JGB Issuance A mount P lanned for FY2016 (162.2)

Bank of Japan Sw itch

(8.0)

FIL P Bonds

Financed in the market

(2.0)

(16.5)

P ublic Offering (147.0)

Sales for R etail Investors

(152.2)

(trillion yen)

JGBs for R etail Investors (1.9)

OT C Sales for marketable bonds (0.1)

1 P rimary Market for Gov ernment Bonds

to roll over its m aturing bonds.

Non-price A dj ustment betw een Competitive fiscal years A uction

(5.6)

40-year, 30-year, 20-year, 10-year, 5-year, 2-year, T reasury Discount Bills,10-year InflationIndex ed Bonds,A uctions for Enhanced-L iq uidity

(▲0.4) 40-year, 30-year, 20-year, 10-year, 5-year, 2-year, 10-year Inflation-Index ed Bonds

Note: Figures may not sum up the total because of rounding.

49

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

(5 ) Gov ernment Bond Administration A. Items the Bank of J ap an handles The governm ent entrusts the BO J with m ost of the governm ent bond- related adm inistrative task s, such as issuance and redem ption. Those adm inistrative task s are as f ollows ( ・I ssuance: The BO J accepts bids f rom

).

bidders in auctions, notifies am ounts of bids accepted,

collects paym ents, issues the securities, and receives and handles revenues. ・R edem ption/ interest paym ent: The BO J pays principal and interests on JGBs, and receives and handles f unds to be used f or redem ption, and m ak es their disbursem ent.

B. The Bank of J ap an gov ernment bond network system The Bank of Japan operates the Bank of Japan F inancial Network S ystem JGB S ervices (

( BO J- NE T)

) to ef ficiently and saf ely im plem ent JGB issuance, redem ption and other

adm inistrative task s as explained above.

1 P rimary Market for Gov ernment Bonds 50

The BOJ provides these government bond related services through its head office and branches, and through agent financial institutions.

Bank s, securities com panies, m oney m ark et brok ers, insurance com panies, etc. participate in the BO J- NE T JGB S ervices that im plem ent JGB issuance, redem ption and other adm inistrative task s online. nder the Act on Book - E ntry Transf er of C om pany Bonds, S hares, etc. at present, JGBs traded between f inancial institutions are paperless. JGB transf ers are done in the f orm transf ers on accounts m anaged by the transf er institution ( the Bank of Japan) . The BO J- NE T JGB S ervices allow the f ollowing procedures to be com pleted online: ・Notification of of f ering ( f rom ・Bidding ( f rom

the BO J to auction participants)

bidders to the BO J)

・C ounting the num ber of bidding and reporting to the M O F on total bidding ・Notification of accepted/ allocated bids ( f rom ・I ssuance and paym ent ( f rom

the BO J to bidders)

the BO J to purchasers / f rom

purchasers to the BO J)

of

The BOJ-NET includes the BOJ-NET current account system as a fund settlement system and the BOJ-NET JGB Services as a JGB settlement system.

Ⅱ Framework

F i g .2- 8 A u c t i o n P r o c e d u r e s f o r P u b l i c O f f e r i n g A u c t i o n

About 3 months before auction

About 1 week before auction

( M edia)

( M inistry of F inance)

Press release

M OF determines auction date

Press release

1 0 :3 0

1 0 :3 0 ( 1 0 :2 0 )

Till the day before auction

( Bank of Japan)

( Q ualified auction participant)

M OF determines issue date & amount M OF sounds out market trends & investor' s needs

Day of Auction

Press release

1 0 :3 0 ( 1 0 :2 0 )

M OF releases auction information

1 2 :4 5 ( 1 2 :3 5 )

instruction Announces the auction

1 0 :3 0 ( 1 0 :2 0 )

Bidding M OF determines successful bids

Press release

M arket

Bidding closes

1 2 :0 0 ( 1 1 :3 0 )

M OF announces auction results

Notifies successful bids

Announces the auction

1 6 :0 0

Bidders

1 4 :0 0

Bidding

Non-price competitive auction II

M OF determines successful bids

Press release

1 5 :1 5

1 P rimary Market for Gov ernment Bonds

M OF determines coupon rate ( Note.1 )

C hap ter 1 Gov ernment Bonds (J GBs)

C . Auction p rocedures for p ublic offering auction

Bidding closes

1 4 :3 0

M OF announces auction results

Notifies successful bids

1 6 :0 0

Bidders

Note.1 : Treasury Discount Bills are discount bonds and have no coupon rates. Note.2 : Time in paranthesis refers to the time for Treasury Discount Bills. Note.3 : Non-Price C ompetitive Auction II is an auction carried out after the competitive auction is finished. The price is eq ual to the weighted average accepted price in the price-competitive auction or lowest accepted price in Dutch-sty le y ield-competitive auction. The JGB M arket Special Participants who participate in the auction are able to bid up to the 1 5 % of one' s total successful biddings in the price-competitive auction and Non-Price C ompetitive Auction I. Non-Price C ompetitive Auction II is not conducted for Auctions for Enhanced-Liq uidity and Treasury Discount Bills.

51

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

C olumn 4

D ebt Management P olicies in Foreign C ountries

❶ D ebt Management P olicies, Issuance P lan I n Japan, the basic obj ectives of the debt m anagem ent policy are set at: ( 1 ) ensuring the stable and sm ooth issuance of Japanese Governm ent Bonds; and ( 2 ) m inim izing m edium - to long- term f inancing costs. I n line with these obj ectives, the governm ent caref ully pays attentions to m ark et conditions and m ak es ef f orts to m anage JGBs based on investor needs and m ark et trends. Basically, f oreign countries also tak e alm ost the sam e stance on their debt m anagem ent policies, but they have their uniq ue characteristics.

1 P rimary Market for Gov ernment Bonds

F urther, the JGB I ssuance P lan is established in line with annual budget f orm ulation and an annual planned issue am ount f or each m aturity and other data are published in Japan but m ethods f or publishing such data also vary f rom country to country. At the end of each fiscal year, Germ any publishes the total governm ent bond issue am ount and break down f or each m aturity f or the f ollowing fiscal year and their m ethods are considered sim ilar to those of Japan. O n the other hand, the .S . determ ines and publishes necessary issue am ounts not on a fiscal year basis but on a q uarterly basis, com plying with the upper debt lim it specified by law. I n addition, the tim ing of inf orm ation disclosure during the period f rom the announcem ent of a planned issue am ount to an actual auction f or the issue also varies f rom country to country. ( F ig. c4 - 1 ) ( F ig. c4 - 2 ) F i g .c 4- 1 D e b t M a n a g e m e n t P o l i c i e s i n J a p a n a n d F o r e i g n C o u n t r i e s

Debt M ana e ent Of ce

T he Obj ecti e of Debt M ana e ent olicy

iscal Year

ssuance lan

Japan

U.S.

U.K.

Ger any

inancial Bureau, M inistry of inance

Depart ent of the T reasury, Of ce of the Debt M ana e ent Depart ent of the T reasury, Bureau of the iscal Ser ice

Debt M ana e ent Of ce DM O

Bundesrepublik Deutschland inanz a entur G bH Ger an inance A ency

・Ensurin stable s ooth issuance of JGBs ・M ini iz in ediu to lon ter nancin costs

A pril to M arch nex t year ・A nnounce ent of total JGB issuance a ount for the nex t scal year, breakdow ns by aturity, and freq uency of issuance,etc. in late -Dece ber each year. ・R e iew and ex ible adj ust ent of the plan durin the rele ant scal year

( S ource: R elevant countries debt m anagem ent authorities)

52

T o nance o ern ent borrow in needs at the low est cost o er ti e.

October pre ious year to Septe ber ・A nnounce ent of planned issuance a ounts by aturity, auction schedule, etc. on a q uarterly basis ebruary, M ay, A u ust and No e ber .

rance

'A

ence rance T ré sor A T

T o ini ise, o er the lon ter , the costs of eetin the o ern ent' s nancin needs, takin into account risk, w hile ensurin that debt ana e ent policy is consistent w ith the ai s of onetary policy.

T o keep interest costs as low as possible across a nu ber of years and arket phases w hile li itin the interest rate risks resultin fro the portfolio structure.

R aisin suf cient funds on the arkets to nance the State w hile keepin the debt burden to tax payers dow n to a ini u under opti u conditions of security.

A pril to M arch nex t year

January to Dece ber

January to Dece ber

・A nnounce ent ・A nnounce ent of of total issuance planned issuance a ount for the a ounts by aturity, nex t scal year, auction schedule, breakdow ns by New issue/ aturity, etc. in R eopenin , etc. M arch each year. for the nex t year ・A nnounce ent of in Dece ber each speci c details of year. T hereafter, issuance a ounts announce ent of and auction schedule auction schedule on a q uarterly basis. a ain on a q uarterly basis.

・A nnounce ent of total issuance a ount for the nex t scal year in Dece ber each year. ・Speci c issuance a ounts are deter ined at a eetin w ith D held in the w eek precedin the issuance date.

Ⅱ Framework

Japan

In previous fiscal year

U.K.

Ger any

Total issuance amount

U.S.

Total issuance amount

Total issuance amount

Total issuance amount

Issues

Scheduled auction date

Issues

Scheduled auction date

Planned auction amount

rance

Planned auction amount Scheduled auction date

Scheduled auction date

Quarterly basis

Approximately one week before

* Auction date of each month is announced 3 months before. Planned auction amount ( ＊1 )

Total issuance amount ( ＊2 )

Issues

Scheduled auction date ( ＊3

)

Issues Scheduled auction date Planned auction amount

C hap ter 1 Gov ernment Bonds (J GBs)

F i g .c 4- 2 A n n o u n c e m e n t T i m e o f I s s u a n c e A m o u n t a n d A u c t i o n D a t e i n J a p a n a n d F o r e i g n C o u n t r i e s

Planned auction amount Issues

Note 1 : As f or issuance lots by m aturity announced in the previous fiscal year and the scheduled auction date announced 3 m onths bef ore, the fixed am ounts and other details are announced one week bef ore. Note 2 : P lanned q uarterly am ounts financed f rom the m ark et. Note 3: S cheduled auction date is announced again every q uarter. ( S ource: R elevant countries debt m anagem ent authorities)

❷ Bond Typ es and Issuance Methods M ethods of issuing governm ent bonds adopted in various f oreign countries are divided into two types: of f ering to the m ark et through auctions or other m eans ( m ark etable bonds) and of f ering to retail investors without going through the m ark et ( nonm ark etable bonds) . M ark etable bonds are norm ally of f ered m ainly through the public auction m ethod which uses both com petitive and non- com petitive auctions. As f or com petitive auctions, notable is the f act that the .K ., Germ any and F rance em ploy the conventional m ethod ( Note 1 ) f or alm ost all m aturities as is the case of Japan while the .S . em ploys the Dutch- style m ethod f or all m aturities ( Note 2 ) . I n addition, the .K . and F rance also use the syndication m ethod ( Note 3) to issue som e of the super long- term bonds and inflation- indexed bonds ( F ig. c4 - 3) .

1 P rimary Market for Gov ernment Bonds

Planned auction amount

Note 1 : Auction m ethod by which each winning bidder purchases the security at his bidding price ( or yield) Note 2 : Auction m ethod by which all winning bidders pay the sam e lowest price/ highest yield of their biddings regardless of their original bidding prices ( or yields) Note 3: M ethod of of f ering/ underwriting by a syndication com posed of financial institutions, securities com panies, etc.

53

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

F i g .c 4- 3 B o n d s T y p e s a n d I s s u a n c e M e t h o d s i n J a p a n a n d F o r e i g n C o u n t r i e s Japan

U.S.

about 2 onth, 3 onth 6 onth, 1 year

4 w eek, 13 w eek, 26 w eek, 52 w eek

2 year, 5 year

2 year, 3 year, 5 year, 7 year

1 ∼ 7 year

2 year, 5 year

on ter

10 year

10 year

7 ∼ 15 year

10 year

Super on ter

20 year, 30 yaer 40 year

30 year

15 ∼ 55 year

30 year

n ation ndex ed Bonds 5 year, 10 year, 30 year loatin R ate Bonds 2 year

n ation ndex ed Bonds 5 ∼ 55 year

n ation ndex ed Bonds 5 year, 10 year, 30 year

n ation ndex ed Bonds 2 ∼ 30 year

Con entional style auction n ation ndex ed Bonds: Dutch style auction Note 1

Con entional style auction Note 2

Con entional style auction Note 1

Short ter M ediu

ter

n ation ndex ed Bonds 10 year

Others

ssuance M ethod

1 P rimary Market for Gov ernment Bonds

Con entional style auction 40 year, n ation ndex ed Bonds: Dutch style auction

Dutch style auction

U.K. 1 6

onth, 3 onth, onth, 12 onth

Ger any 6

onth, 12

rance onth

ess than or eq ual to 1 year 2 ∼ 7 year

7 ∼ 50 year

Note 1 : The syndication m ethod is used to issue som e super long- term bonds and inflation- indexed bonds Note 2 : The syndication m ethod was adopted f or the first and second 1 0 - year inflation- indexed bond issues ( 2 0 0 6 ) and the first 30 - year inflation- indexed bond issue ( 2 0 1 5) . ( S ource: R elevant countries debt m anagem ent authorities)

R epresentative non- m ark etable bonds are bonds f or holdings only by households and other retail investors ( savingstype bonds) , issued in Japan, the .S . and the .K . The .K . f eatures uniq ue non- m ark etable bonds that cannot be seen in other countries, including P rem ium Bonds that of f er a m onthly prize draw instead of earning interest, as well as C hildren s Bonds that can be held only by parents or grandparents with children aged below 1 6 . M eanwhile, Germ any and F rance issued governm ent bonds f or retail investors in the past but have discontinued the issuance. The .S . issues a large am ount of non- m ark etable bonds intended f or governm ent accounts including governm ent entities and pension f unds, which account f or approxim ately 30 % of its entire governm ent debt outstanding. ( Note) F or Japanese governm ent bonds f or retail investors, see F ig 2 - 5 C om parison of JGBs f or R etail I nvestors and New O ver- The- C ounter ( O TC ) S ales S ystem ( P 4 8 ) .

( R ef .) Governm ent Bond I ssuance M ethods and Their Transition in F oreign C ountries As explained in F ig. c4 - 3, m aj or industrial countries widely use conventional and Dutch- style m ethods f or com petitive auctions of m ark etable governm ent bonds. M ost of them use either or both of the two to issue governm ent bonds ( a survey report covering dozens of countries has concluded that the conventional m ethod has been used m ore widely than the Dutch- style m ethod) . But there are som e other auction m ethods. The f ollowing auction m ethods are actually used or advocated by auction theorists in addition to the two m ethods ( F ig. c4 - 4 ) . F i g .c 4- 4 O t h e r G o v e r n m e n t B o n d A u c t i o n M e t h o d s A uction

ethod

O er iew

Spanish auction ethod

T he a era e accepted bid price is adopted for successful bidders w ith bid prices at or abo e the a era e. Successful bidders bid prices are adopted if their bid prices slip below the a era e accepted price. Spain introduced this ethod in 1987.

M edian bid price auction

T he edian accepted price is adopted for successful bidders w ith bid prices at or abo e the edian le el. Successful bidders bid prices are adopted if their bid prices slip below the edian price. Sakai 2014 ad ocated this ethod as a theoretically concei able one.

V ickrey auction

Each successful bidder s pay ent a ount is calculated based on the hi hest of non-accepted bid prices instead of the successful bid price, in accordance w ith the bidder s bid a ount. V ickrey 1961 ad ocated this auction ethod as a theoretically concei able one. T he ethod has the theoretical ad anta e bein strate y-proof.

( S ources: S panish debt m anagem ent authority s website, I M F , S ak ai ( 2 0 1 4 ) , V ick rey ( 1 96 1 ) , etc.)

54

Ⅱ Framework

For example, the U.S. had conducted competitive auctions based on the conventional method for a long time while subjecting some Treasury auctions to the Dutch method in 1973-1974, before switching from the conventional method to the Dutch method for 2- and 5-year Treasury issues in 1992 and for all other Treasury issues in 1998. Such countries as France have been reported as having switched from the Dutch method to the conventional method. (Sources: Relevant countries debt management authorities websites, etc.) While structure estimation, economic tests and other various demonstrative analysis approaches have developed, there is no simple theoretical consensus on any optimum method for a government bond auction in which each

Chapter 1 Government Bonds (JGBs)

Japan switched from the yield-based Dutch auction to the price-competitive, conventional auction for 30-year JGB issues in 2007. Other countries have also changed auction methods.

bidder has a chance to purchase massive bonds. Countries might have chosen their respective auction methods based on their respective government bond market conditions.

In Japan, the government issues fixed-rate coupon-bearing bonds with the maturity of 40 years at the longest by striking a balance with market trends and investor needs, etc. As shown by the examples of foreign countries, the medium-term zone (7 years or less) accounts for 60% of all government bonds in the U.S. and Germany while the super long-term zone accounts for 30% of all such bonds in the U.K. Maturity mixes thus vary widely from country to country. In addition, it is notable that the U.K. and France specify no maturity and divide maturities into rough categories in a flexible manner. As for Inflation-Indexed Bonds whose issuance resumed in Japan in October 2013, the authorities plan basically to maintain the present issuance size and adjust it flexibly in response to the market environment and investment needs for the purpose of developing the market for these bonds. In the U.K. among foreign countries, Inflation-Indexed Bonds account for more than 20% of all outstanding government bonds, being established as a major fundraising means. In France, Inflation-Indexed Bonds account for 10%, occupying a fairly major position. Germany introduced 30-year Inflation-Indexed Bonds as a new product in June 2015 (Fig. c4-5).

1 Primary Market for Government Bonds

❸ Medium to Long-Term Bonds Issuance Broken down by Types

Fig. c4-5 Medium to Long-Term Bonds Issuance by Types in Major Countries (FY2015) 300

InflationIndexed Bonds

(trillion yen)

Floater

250 200 150 100 50 0

30-year

InflationIndexed Bonds 40-year 30-year 20-year 10-year

Japan

30

InflationIndexed Bonds

(trillion yen)

25 20

Inflation-Indexed Bonds

10-year 7-year

15

5-year

10

5-year

3-year

5

2-year

2-year U.S.

(April to March next year) (October previous year to September)

0

～50-year ～40-year ～20-year

InflationIndexed Bonds 30-year 10-year

～55-year ～30-year ～20-year

～10-year

5-year

～10-year

～5-year

～5-year U.K.

(April to March next year)

Germany

2-year

(January to December)

France

(January to December)

Note 1: Other than those described above, Auctions for Enhanced-Liquidity are held in Japan. Note 2: Foreign currencies are converted into yen using the following exchange rates: 1 dollar = 112.57 yen, 1 GBP =161.65 yen and 1 euro = 128.11 yen (as of March 31, 2016). (Source: Relevant countries debt management authorities)

55

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

❹ L iq uidity Maintenance/ E nhancement Measures As f or on- the- run ( new) JGB issues, Japan has adopted reopening f or 2 0 - to 4 0 - year and I nflation- I ndexed JGB issues in principle and 1 0 - year JGB issues unless yields fluctuate wildly ( the gap between a m ark et yield and a coupon on a new issue exceeds 30 basis points) . Japan has thus tried to m aintain and enhance liq uidity by securing a suf ficient outstanding value f or each issue. As f or of f - the- run ( outstanding) JGB issues, Auctions f or E nhancedL iq uidity are used to expand issues viewed as illiq uid by m ark et participants am ong alm ost all issues. Am ong f oreign countries, the .S . and Germ any have adopted reopening f or on- the- run issues ( excluding 7- year or shorter issues in the .S .) in principle. I n the .K . and F rance, the debt m anagem ent authorities discretionarily reopen any issue whether it is on or of f the run ( F ig. c4 - 6 ) . I n Germ any, m eanwhile, the authorities reserve part of each debt issue and gradually sell such reserves in consideration of secondary m ark et conditions. C ountries im plem ent various m easures to m aintain and enhance governm ent bond m ark et liq uidity.

1 P rimary Market for Gov ernment Bonds

F i g .c 4- 6 R e o p e n i n g I s s u a n c e s Japan

On the R un ssues

Off the R un ssues

・5 year Note 1 ・10 year Note 2 ・20 year ・30 year ・40 year ・ n ation index ed bonds

U.S. ・10 year ・30 year ・ n ation index ed bonds

・A uctions for Enhanced iq uidity ・2 year

W ithout reopenin

− ・2 ・3 ・5 ・7

U.K. ・M ediu ter 1 ∼ 7 year ・ on ter 7 ∼ 15 year ・Super on ter 15 ∼ 55 year ・ n ation index ed bonds

year year year year

Ger any ・2 year ・5 year ・10 year ・30 year ・ n ation index ed bonds

rance ・M ediu ter 2 ∼ 7 year ・ on ter 7 ∼ 50 year ・ n ation index ed bonds

・30 year Note 4

Note 3

Note 3 −

−

−

Note 1 : R eopening issuances only in case nom inal coupon is the sam e as that of previous issue. Note 2 : R eopening m ethod in principle except in case of significant changes ( the gap between a m ark et yield and a coupon on a new issue exceeds 30 basis points) in m ark et environm ents. Note 3: The debt m anagem ent authorities discretionarily reopen any issue whether it is on or of f the run. Note 4 : The debt m anagem ent authorities decide whether to reopen any issue. ( S ource: R elevant countries debt m anagem ent authorities)

❺ Av erage Maturity The stock - base average m aturity is viewed as an im portant benchm ark f or assessing ref unding risk s. C om parison between stock - based average m aturities f or governm ent bonds in Japan and m aj or f oreign countries indicates that the averages range f rom high as m ore than 1 6 years in the

f our to seven years in the .S ., Germ any and F rance ( the average stands at as .K . with super long- term

issues accounting f or a large share of all governm ent

bonds) , while the Japanese average bottom ed out at 4 .9 years at the end of F Y 2 0 0 3 and increased by approxim ately 3.5 years in 1 2 years to 8 .4 years at the end of F Y 2 0 1 5 ( F ig. c4 - 7) . The stock - base average m aturity in Japan is expected to rem ain stable f or the im m ediate f uture even if the flow- base average m aturity is k ept unchanged at the present level ( see C olum n 3 P 2 9) .

56

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

F i g . c 4- 7 A v e r a g e M a t u r i t y 17

24



( Year)

15

( Year)



22

U.K.

20

13

18

11

U.K.

16 14

9 8

Japan

U.S.

Germany

12 10

F rance

9 7

8 7 6

6

Japan

5 4

5 ( F Y)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

4

U.S.

Germany

F rance

( F Y)

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

❻ Breakdown by Gov ernment Bond H olders A signif icantly large portion of JGBs are held by Japanese dom estic investors including f inancial institutions. Although the percentage of JGBs held by f oreign investors has been in an uptrend recently, it stays at the low level of approxim ately 1 1 % . O n the contrary, bonds of m aj or f oreign countries are held in large part by overseas investors who account f or 4 0 % in the .S ., approxim ately 50 % in Germ any and approxim ately 6 0 % in F rance. ( F ig. c4 - 8 ) F i g .c 4- 8 B r e a k d o w n o f g o v e r n m e n t b o n d s b y h o l d e r c a t e g o r y U.S.

Japan

( Dec. 2 0 1 5 )

Overseas 4 0 %

F inancial institutions 5 0 %

C entral bank 3 2 %

Overseas 2 6 %

C entral bank 1 6 %

Total 1 .9 trillion pounds

Others 0 % H ouseholds 4 %

F inancial institutions 1 7 %

H ouseholds Others 8 % 1 %

F rance Government 1 %

Government 9 % C entral bank 4 %

Total 2 .2 trillion euros ( Dec. 2 0 1 5 )

( Dec. 2 0 1 5 )

F inancial institutions 4 1 %

Germany

Overseas 5 3 %

C entral bank 2 1 %

Total 1 5 .1 trillion dollars ( Dec. 2 0 1 5 )

OverseasGovernment 5 % 1 1 %

Total 1 0 3 5 .7 trillion y en

Government 8 %

Government 1 7 %

Others 1 % H ouseholds 1 %

U.K.

1 P rimary Market for Gov ernment Bonds

( S ource: E stim ated by M inistry of F inance based on websites of O E C D and relevant countries debt m anagem ent authorities)

Total 2 .0 trillion euros

F inancial institutions 2 8 %

( Dec. 2 0 1 5 )

Overseas 6 2 % H ouseholds + Others 7 %

F inancial institutions 3 7 %

Others 0 % H ouseholds 0 %

Note 1 : Japanese governm ent bonds include F iscal I nvestm ent and L oan P rogram Bonds and Treasury Discount Bills ( T- Bills) . Note 2 : The central bank s share in F rance is not m ade available. Note 3: I n Germ any and F rance, the total covers m unicipal and public f und bonds ( on a general governm ent basis) . ( S ources: Japan: Bank of Japan, .S .: F ederal R eserve Board, .K .: O f fice f or National S tatistics, K Debt M anagem ent O f fice, Germ any: Deutsche Bundesbank , F rance: Banq ue de F rance)

57

Ⅱ Framework C hap ter 1 Gov ernment Bonds (J GBs)

❼ P rimary D ealer System P rim ary dealers ( P Ds ) originally ref erred to governm ent- certif ied dealers in the .S . C om panies designated as P Ds are entitled to directly trade with the F ederal R eserve Bank of New Y ork when it conducts open m ark et operations and to exchange opinions by participating in periodic m eetings with the authorities. At the sam e tim e, candidates f or P D designation are exam ined bef orehand f or their ability to provide m ark et- m ak ing services, financial conditions, auction participation records, etc. and af ter the designation, certain obligations, such as bidding f or governm ent bonds, m ark et m ak ing and providing inf orm ation to the authorities, are placed on P Ds. I n this way, under a certain system , com panies with special responsibilities and q ualifications in regard to governm ent bond m ark ets are designated as P Ds to ensure that the liq uidity, ef ficiency and stability of governm ent bond m ark ets are m aintained and im proved. S uch system is generally called the P rim ary Dealer S ystem . Nowadays, various countries have sim ilar system s in place, including Japan s JGB M ark et S pecial P articipant S chem e. But P Ds responsibilities and q ualifications vary f rom country to country as shown below ( F ig. c4 - 9) .

Japan

45

Na e

JGB M arket Special articipants

ntroduction ti e

2004

Nu ber of e bers as of M arch 2016

22 co panies

R esponsibilities

1 P rimary Market for Gov ernment Bonds

F i g .c 4- 9 P r i m a r y D e a l e r S y s t e m

Biddin

・ articipation in all auctions ・4% of total planned issuance a ount

urchasin

< Short ter > 0.5% or ore of total planned issuance a ount o e the last tw o q uarters < Ex cludin Short ter > 1% or ore of the said a ount o er the last tw o q uarters

M arket akin

ro idin suf cient liq uidity to the JGB secondary arket

Q uali cations

nfor ation pro ision counterparty

M inistry of inance

Ex clusi e participation in auction

・Non rice Co petiti e A uction ・Non rice Co petiti e A uction ・A uctions for Enhanced iq uidity ・Buy back A uctions

R e ular eetin counterparty

M inistry of inance [ q uarterly]

U.S.

U.K.

Ger any Note 1

rance

Gilt ed ed M arket M akers （GEM M s）

Bieter ruppe Bundese issionen Bund ssues A uction Group

Spé cialistes en V aleurs du T ré sor SV T

1960

1986

1990

1987

22 co panies

19 co panies

36 co panies

18 co panies

ri ary Dealers

・ articipation in all auctions ・T otal planned issuance a ount ／ the nu ber of Ds

[ obj ecti e] ・ articipation in all auctions ・5% or ore of total issuance a ount o er a rollin 6 onth period

―

[ obj ecti e] 2% or ore of total issuance a ount o er a rollin 6 onth period

M akin reasonable arkets for the New York ed w hen it transacts on behalf of its forei n of cial account holders New York ed

―

・U.S. Depart ent of the T reasury [ q uarterly] ・New York ed [ annually]

―

・ articipation in all auctions ・ articipation in all syndications

0.05% or ore of total issuance a ount o er the last one scal year

2% or ore of total issuance a ount o er the last one year

[ obj ecti e] H a in a 2% or ore share in the ilt secondary arket spot

―

H a in a 2% or ore share in the rench o ern ent bond secondary arket spot and repo

DM O

― A

T

・Co petiti e A uctions ・Co petiti e A uctions ・Co petiti e A uctions ・Non Co petiti e ・Non Co petiti e ・Non Co petiti e A uctions A uctions A uctions ・Buy back A uctions ・Buy back A uctions ・Buy back A uctions ・Syndication Book runner

・DM O [ q uarterly] ・H M T reasury [ annually]

― A

T [ periodically]

Note: Germ any s Bund I ssues Auction Group is sim ilar to prim ary dealer system in other countries in that only the group m em bers are allowed to participate in governm ent debt auctions. But the only req uired q ualification f or a Bund I ssuance Auction Group m em ber is a financial institution based in the E uropean nion and group m em bers have no obligation to participate in governm ent debt auctions and no opportunity f or exchanging views with debt issuance authorities. Theref ore, the Germ an group is viewed as dif f erent f rom the P D group in other countries. ( S ource: R elevant countries debt m anagem ent authorities)

58

Ⅱ Framework

R ecent debt m anagem ent policies in f oreign countries m aintain the basic obj ective of holding down m edium - to long- term financing costs while tak ing risk s into account. H owever, responses to the continuation of a low interest rate environm ent dif f er f rom country to country. W hile som e E uropean countries including F rance, S pain and Belgium have issued longer- m aturity governm ent bonds, the .S . has given priority to regular and predictable issuance and been cautious of autom atically issuing super longterm bonds. I n response to f alling governm ent bond m ark et liq uidity, toughened f inancial regulations and other changes, f oreign governm ent bond m ark et environm ents have changed. I n the .S ., m oney m ark et f und ref orm , liq uidity risk regulations and other m easures to toughen financial regulations are expected to prom pt dem and to increase f or short- term issues, with the authorities considering introducing a 2 - m onth issue as a new short- term instrum ent.

changes to an auction calendar. Germ any introduced 30 - year I nflation- I ndexed Bonds in 2 0 1 5 and im plem ented m ultiple sm aller- size auctions f or 30 - year f ixed interest bearing bonds to address dwindling m ark et liq uidity. R esponding to the E uropean C entral Bank s launch of the P ublic S ector P urchase P rogram ( P S P P ) , a sovereign q uantitative easing program , F rance has expanded additional supply f or outstanding governm ent bond issues to m aintain and enhance liq uidity throughout the yield curve.

❾ C oop eration between D ebt Management Authorities National debt m anagem ent authorities can exchange inf orm ation through internatinoal conf erences sponsored by international organizations. These conf erences include the O E C D ( O rganization f or E conom ic C ooperation and Developm ent) W ork ing P arty on P ublic Debt M anagem ent, the I M F ( I nternational M onetary F und) P ublic Debt M anagem ent F orum , the W orld Bank Governm ent Borrowers F orum and the ADB ( Asian Developm ent Bank ) R egional P ublic Debt M anagem ent F orum . The Japanese debt m anagem ent authorities have attended these international conf erences as m uch as

1 P rimary Market for Gov ernment Bonds

I n response to declining governm ent bond m ark et liq uidity, the .K . published a pack age of policy m easures responding to m ark et environm ent changes in its 2 0 1 6 - 2 0 1 7 governm ent bond issuance plan, including the reduction of auction sizes, a greater unallocated portion ( representing bonds with unfixed m aturities) and flexible

C hap ter 1 Gov ernment Bonds (J GBs)

❽ Recent Trends

possible. At m ost of these conf erences, Japanese debt m anagem ent authority of ficials have given presentations on Japan s Debt M anagem ent P olicy and proactively shared inf orm ation and opinions with their f oreign counterparts on debt m anagem ent policies. Appreciating these ef f orts, in f all 2 0 1 5 the O E C D W ork ing P arty elected a Japanese authority of ficial as a m em ber of its steering.

59

Ⅱ Framework

 2  Secondary Market for Gov ernment Bonds C hap ter 1 Gov ernment Bonds (J GBs)

Not only are governm ent bonds a m eans f or governm ent f inancing, but also they are f inancial products being traded on the ever changing financial and securities m ark ets at the sam e tim e. F or JGBs to be issued sm oothly and f ulf ill their f unctions as indicators of bonds and interest rates, transparency and liq uidity m ust be assured and secondary m ark ets with reliable and ef f icient settlem ent m ust exist. This chapter outlines how JGBs are distributed and m ade settlem ent on the m ark et.

(1) OTC Transactions and Transactions on the Stock E x change The secondary bond m ark et can be divided into transactions that tak e place on the S tock E xchange and transactions that are m ade over- the- counter, f or exam ple, at securities com panies ( O TC transaction) . O TC is a predom inant transaction m ethod f or bonds, because bonds have so m any issues that their transactions and procedures tend to be cum bersom e and bond transactions per se are com plex. m ark et, in principle, a price is concluded through a negotiation between the

parties concerned. H owever, in order to ensure f air and sm ooth O TC bond transactions, S elf regulatory R egulations by the Japan S ecurities Dealers Association req uire each securities com pany to m aintain the f airness of the transaction by acting at a proper price according to a set of internal rules (

on the S tock E xchange in Tok yo and Nagoya, and their daily transaction volum e is published. F i g .2- 9 C a s e o f t h e T o k y o S t o c k E x c h a n g e

 

JGB Trading S ystem

Trading H ours

0 : 30 - 3.0 0 pm

Trading nit

50 thousand yen in par value

Tick S ize

0 .0 1 yen per 1 0 0 yen in par value

Types of O rders

L im it orders only

Daily P rice L im it

L im it fixed by the exchange ( 1 yen)

Trading M ethod

Trading other than trading via the trading system will be accepted via Target.)

Trade E xecution

I ndividual auctions f or each issue ( price priority and tim e priority are applied sam e as stock s)

Types of Trading and S ettlem ent Dates

R olling settlem ent ( T+ 2 )

S ettlem ent

S ettlem ent through BO J- NE T

( S ource: Tok yo S tock E xchange)

60

①) .

C urrently, 2 - Y ear, 5- Y ear, 1 0 - Y ear, 2 0 - Y ear, 30 - Y ear and 4 0 - Y ear F ixed- R ate JGBs are listed

P articulars

2 Secondary Market for Gov ernment Bonds

I n the O TC

( O rders

①Furthermore, to improve the price discovery function of the OTC market, the Japan Securities Dealers Association publishes reference prices for OTC bond transactions on every business day, based on the reports from its member security companies and some other firms. As financial institutions often engage in OTC transactions through their brokers, such transaction price data are available from these brokers.

Ⅱ Framework (2) Imp rov ements to the J GB Transaction Settlement System The BO J- NE T f or f und settlem ents between private financial institutions is used f or the I n 1 994 , the BO J- NE T adopted Delivery- versus- P aym ent ( DV P ) settlem ent ( in January 2 0 0 1 changed f rom

the Designated- tim e Net S ettlem ent ( DTNS ) (

R eal- Tim e Gross S ettlem ent ( R TGS ) (

① ) , and ② ) to

③ ) , to prevent the occurrence of any system ic

risk event. M eanwhile, deliberations were held by m ark et participants on how to deal with the significantly increased num ber of settlem ents and clerical work load associated with the shif t to JGB settlem ent by R TGS . These deliberations resulted in the Japan S ecurities Dealers Association f orm ulating the Japanese Governm ent S ecurities Guidelines f or R eal Tim e Gross S ettlem ent in August 2 0 0 0 . Based on this guideline, the standards prevailing in the m aj or overseas m ark ets such as F ails P ractice, C ut- O f f Tim e, and R eversal Tim e (

④ ) , as well as Bilateral Netting (

⑤ ) have been adopted in the Japanese secondary

m ark ets in order to f acilitate flawless settlem ent and increase ef ficiency.

F i g .2- 10 E x a m p l e o f R T G S v i a C u r r e n t A c c o u n t s w i t h t h e B a n k o f J a p a n

13：00

150 -100 50 -20 30 + 50 80

・ ・ ・

150 + 100 250 250 -50 200

・ ・ ・

③ The RTGS (Real-Time Gross Settlement) system is a mechanism to transfer in real time the gross amount of each transfer order as received. By this method, settlement is effected for each transfer order. Any single payment default will only directly affect the counter party of that order (which mitigates any systemic risk).

150 Settlement

150 + 20 170 170

Settlement Settlement

・ ・ ・

The f ollowing section reviews the deliberations concerning the JGB settlem ent system

to date and introduces the m ost recent discussion points.

A. N ew BOJ -N E T The BO J launched the developm ent of a new system

( hereinaf ter ref erred to as New BO J-

NE T) in 2 0 0 8 . I n January 2 0 1 4 , the k ey New BO J- NE T com ponent f or the first phase cam e into operation, covering m oney m ark et operations, JGB auction procedures and delivery procedures f or JGB purchasing operations. The New BO J- NE T cam e into f ull operation to cover all services on O ctober 1 3, 2 0 1 5. The F orum

towards M ak ing E f f ective

se of the New BO J- NE T was created in August

2 0 1 3 f or f urther im proving the saf ety and ef f iciency of the entire settlem ent system Japan, invigorating financial m ark ets and advancing financial services. The f orum

of

discussed

how to use the New BO J- NE T with operation hours extended, a specific extension, and the im plem entation schedule of the extension. Based on the policy given in the report published by the f orum

in M arch 2 0 1 4 , operation hours were extended until 2 1 : 0 0 f rom

F ebruary 1 5,

④ Cut-Off Time refers to a daily settlement closing time established among market participants that occurs before the end of JGB related operations on the BOJ-NET in order to identify “fail events,” etc., ahead of the end of settlement for the day. Currently the Cut-Off Time is set at 14:00. Reversal time refers to a period of time after the CutOff Time that is used for achieving the resolution of a fail status at the Cut-Off Time based on an agreement between the parties to extend the settlement time, or for correcting an erroneous settlement. Currently Reversal Time is from 14:00 to 16:30.

2 Secondary Market for Gov ernment Bonds

9：00

② The DTNS (DesignatedTime Net Settlement) system is designed to hold and accumulate various orders received for book entry transfers (payment orders) until a certain time, and at that time, pay or receive only the difference between the total amount receivable and the total amount payable as of such time. nder this settlement method, one single payment default at the time of settlement will cause the settlement of any and all payment orders issued by all participating financial institutions to be suspended and reversed, and by extension, may cause a systemic risk.

C hap ter 1 Gov ernment Bonds (J GBs)

settlem ent of JGB transactions.

① D P (delivery versus payment) settlement of JGBs is a mechanism that prevents the occurrence of a situation in which “payment for securities is not received despite the delivery of the securities having been made” or where “securities are not delivered despite the payment of funds having been made,” by making the delivery of securities and payment therefore conditional on each other.

⑤ Bilateral netting is a method for the settlement of the difference between the various JGB delivery obligations and JGB payment obligations of two counterparties in situations where both types of obligation exist, as opposed to requiring each counterparty to meet each separate obligation as it falls due at the same time. All obligations are netted on each individual JGB and fund for settlement purposes. This netting process serves to reduce settlement volumes across the market as a whole.

61

Ⅱ Framework 2 0 1 6 . I n M arch 2 0 1 6 , the f orum

created three work ing groups, including one on C ross- border

se of Y en and JGBs , to discuss the expanded global use of JGBs as collateral and other

C hap ter 1 Gov ernment Bonds (J GBs)

m easures.

B. E stablishment and p rop agation of the Fails P ractice F ail ref ers to a case of non- delivery of specif ic securities by the scheduled tim e due to reasons other than the creditworthiness of the relevant trade counterparty. F ails P ractice ref ers to a m ark et routine that prescribes general clerical procedures to be perf orm ed between the parties in a F ail instance and provides as a principle that a F ail event does not autom atically ①) .

im ply def ault (

F ails P ractice was introduced in January 2 0 0 1 when the R TGS system

f or JGB settlem ent

was adopted in Japan. Back then, a f air num ber of parties neither understood the need f or F ails P ractice nor had the clerical processing f ram ework s in place, which prevented F ails P ractice f rom

becom ing established procedure. H owever, in connection with the collapse

of the investm ent bank L ehm an Brothers in S eptem ber 2 0 0 8 , def ault contagion caused an unprecedented surge in F ail events. S ubseq uently, as a m eans f or m ark et participants to reduce

2 Secondary Market for Gov ernment Bonds

F ail risk , avoiding new repurchase transactions altogether becam e increasingly widespread, which reduced liq uidity not only in the repurchase ( repo) m ark et but also in the JGB m ark et. This experience led in M ay 2 0 0 9 to the inception of the W ork ing Group concerning

① Specifically, in case of a Fail event, neither will the right of contract cancellation be exercised nor will a penalty for late payment be imposed, in principle. If the Fail duration is prolonged, Buy-In provisions, etc., are stipulated as a method of resolution. ”Buy-In” as used above means the purchase of the deliverable securities or identical securities by the recipient to resolve a Fail status that has continued for a certain period.

R eview of F ails P ractice f or Bond Trading, an organ subordinate to the Japan S ecurities Dealers Association s Bonds C om m ittee, which provided a m ark et cross- sectional reviewing f ram ework f or policies to reduce F ail f req uency and to f urther establish F ails P ractice as a standard. The final report was released in April 2 0 1 0 . The current revision of F ails P ractice has been im plem ented since Novem ber 2 0 1 0 , and it includes a newly introduced F ails C harge ( ② ) and an accelerated C ut- O f f Tim e. Based on the recom m endation of the C urrent S ituation and F uture C hallenges of Debt M anagem ent P olicy―Discussion P aper― that I t is desirable f or the issuing authorities to support the discussions on secondary m ark et ref orm

m ade under m ark et participants initiative

and to tak e appropriate m easures on its own the M O F , af ter reaching the consensus with JGB M ark ets S pecial P articipants, has introduced a F ails C harge to be im posed on Buy- Back auctions, since January 2 0 1 1 .

C . Shortening of settlement p eriods

② “Fails Charge” means a payment imposed on the party that gives rise to a Fail event by failing to deliver. The Fails Charge was introduced for its conceivable power to reduce Fail frequency on the grounds of its compelling economic rationale, especially in a lowinterest environment (For details refer to the relevant regulations including the “The Japanese Government Securities Guidelines for Real Time Gross Settlement”).

I n reaction to the growth in international cross border transactions, securities authorities overseas prom ote ref orm ing the settlem ent system enhance the ef ficiency. E specially in the

in order to reduce settlem ent risk and

.S ., securities authorities have been reviewing the

possibility of introducing next- day settlem ent ( T+ 1 ) f or securities transactions ( on this situation, in 2 0 0 0 , Japan s F inancial S ystem settlem ent system

① ) . Based

C ouncil also verbally endorsed securities

ref orm , in succession prom oted the creation of integrated securities

settlem ent legislation as well as the im plem ent of the paperless settlem ent, the DV P m ethod, and the S traight Through P rocessing ( S TP : f ully com puterized handling of the settlem ent process) . The shortening of settlem ent periods has yet to com m ence, however. Am id these developm ents, in the wak e of the def ault of the investm ent bank L ehm an Brothers in S eptem ber 2 0 0 8 , a surge in incom plete settlem ents due to def aults and F ails work ed as 62

① Currently, the standard settlement period for government bonds is T 1 in the .S. and . ., but T 2 in Germany.

Ⅱ Framework a strong rem ainder of liq uidity risk , leading once again to the realization that shortening settlem ent periods was indispensable f or ef f ectively reducing and resolving def aults and on the S hortening of the JGB S ettlem ent C ycle was established as a subordinate organ of the P rom otion M eeting f or R ef orm

②) .

of the S ecurities C learing and S ettlem ent (

Deliberations at the work ing group were subseq uently initiated regarding the principles and the m easures f or realization of settlem ent practice and transaction m anagem ent that would enable accom m odating standard settlem ent periods of T+ 2 and T+ 1 f or JGB trading transactions. Based on the paper entitled Developm ent of I nstitutional F ram ework s P ertaining to F inancial and C apital M ark ets released by the F S A in January 2 0 1 0 , the R oadm ap to R educe S ettlem ent R isk in JGB Transactions was f orm ulated and m ade public in June 2 0 1 0 . The roadm ap provides that T+ 2 is to be im plem ented in the first half of 2 0 1 2 , that deliberations are to be advanced on specific m easures to enable the im plem enting of T+ 1 . I n response, the W ork ing Group in M arch 2 0 1 1 decided to im plem ent T+ 2 on April 2 3, 2 0 1 2 (

③ ) . I n addition, the W ork ing Group in its final report published in Novem ber 2 0 1 1

planned to resum e discussions on the f easibility of im plem enting T+ 1 in the second half of F Y 2 0 1 2 and to consider im plem enting T+ 1 as soon as possible in or af ter F Y 2 0 1 7. Novem ber 2 0 1 4 , provided the basic policy f or im plem enting the T+ 1 system . The report on the target date f or introducing the T+ 1 system to introduce the system

, published in June 2 0 1 5, gave the agreem ent

in the first half of F Y 2 0 1 8 (

④) .

As f or shortening the JGB transaction settlem ent period f or the prim ary m ark et, m any m ark et participants have given opinions hoping f or the sam e JGB transaction settlem ent period f or the prim ary and secondary m ark ets, as any dif f erence between such periods is expected to cause additional business costs. F rom

the viewpoint of sm ooth JGB issuance and cost cuts, it is

undesirable that dif f erent JGB transaction settlem ent periods would cause additional costs f or auction participants. Theref ore, the authority is considering adopting the T+ 1 system

f or the

prim ary m ark et as well in principle.

D . Strengthening the op erations and ex p anding the use of clearing institutions

③ As for the time period from the auction to issuance/ purchase, the T 2 scheme is implemented in principle for auctions from April 23, 2012. Most of the transactions with non-residents are currently conducted under a T 3 or longer cycle even when a T 2 cycle is adopted for domestic transactions. Nonetheless, after the T 2 implementation for domestic transactions, increasing number of transactions with non-residents are settled on a T 2 cycle. ④ Specifically, the Working Group plans to introduce the T 1 system after a threeday holidays in the first half of FY2018. At present, it intends to make preparations assuming a day after consecutive holidays in April or May as the target date.

2 Secondary Market for Gov ernment Bonds

A grand design f or shortening the JGB transaction settlem ent period ( T+ 1 ) , released in

② The “Promotion Meeting for Reform of the Securities Clearing and Settlement” is established under the Committee for Reform of Securities Clearing and Settlement System” which is hosted by the Japan Securities Dealers Association. Its purpose is to engage, from an overarching, cross-sectional perspective, in the progress management of the securities settlement system reform and in the discussion of topics that cut across products and industries.

C hap ter 1 Gov ernment Bonds (J GBs)

F ails. Based on this experience, in S eptem ber 2 0 0 9, the W ork ing Group f or Discussing

Together with the change in January 2 0 0 1 to JGB settlem ent by R TGS , Bilateral Netting was also introduced. S ince in the JGB m ark et outright transactions and repurchase transactions are being carried out constantly by m ultiple m ark et participants, settling all transactions by individual counterparty would render clerical procedures com plicated and highly inef ficient, and also com pel consideration of counterparty risk when m ak ing transactions. W ith regard to transactions contracted between m ark et participants, this situation gave rise to the dem and f or an arrangem ent in which paym ents and JGBs deliveries of JGB transactions are netted under the guarantee of settlem ent im plem entations by a clearing institution tak ing the positon between parties. I n M arch 2 0 0 1 , the M eeting on the Japanese Governm ent Bond M ark et (

① ) proposed

in the paper entitled R ecom m endation to E nhance L iq uidity in the S econdary M ark et the creation of a JGB clearing agency. S ubseq uently, af ter deliberations by the W ork ing Group, in O ctober 2 0 0 3 the Japan Governm ent Bond C learing C orporation ( JGBC C ( Japan S ecurities C learing C orporation or JS C C at present) (

② ) ) was established as the central counterparty

① The Meeting on the Japanese Government Bond Market was maintained from September 2000 until August 2004 for the purpose of enabling opinion exchanges with concerned parties in the market. It was superseded by the launch of the Meeting of JGB Market Special Participants ② On October 11, 2013, the JSCC merged with the JGBCC and took over the JGBCC s clearing services for over-thecounter JGB trading.

63

Ⅱ Framework ( C C P ) f or the JGB m ark et. Actual operations com m enced in M ay 2 0 0 5. As a result, the relation of rights and obligations contracted between JGBC C participants was sim plified to

C hap ter 1 Gov ernment Bonds (J GBs)

the ef f ect that rights and obligations now exist between the JGBC C with each party s counterparty risk now posed by the JGBC C

and each participant,

instead of the transaction

counterparty. M oreover, since participants and the JGBC C settle only the net balance of f unds and identical JGB issues, the am ounts of settlem ents, f unds, and JGBs necessary f or settlem ent as well as their exposures during the day are significantly lower than bef ore. These risk m anagem ent f unctions of the JGBC C

cam e to bear during the f inancial crises

in S eptem ber 2 0 0 8 . To enhance the ef f ectiveness of these f unctions, a paper entitled Developm ent of I nstitutional F ram ework s P ertaining to F inancial and C apital M ark ets released by the F S A in January 2 0 1 0 proposed to strengthen the operations and to increase the use of the JGBC C . Another paper, entitled R oadm ap to R educe S ettlem ent R isk in JGB Transactions released in June 2 0 1 0 , proposed with a view to widening JGBC C governance f urther policies, including the expansion of f unding schem es f or em ergencies such as a participant s def ault and the establishm ent of clear rules f or F ail allocation. As a result, steps were indeed tak en to widen JGBC C governance, including an announcem ent in S eptem ber 2 0 1 0 to strengthen cooperation with the Japan S ecurities C learing C orporation, and the

2 Secondary Market for Gov ernment Bonds

establishm ent of clear F ail allocation rules alongside a F ails P ractice review on Novem ber 2 0 1 0 . R egarding the expanded use of the clearing organization, the JS C C and trust bank s accounting f or a large share of JGB settlem ents considered how to design the clearing system

considerations given to the characteristics of trust bank s. I n June 2 0 1 4 , trust bank s started their participation in the JS C C .

(3 ) W

I Transaction A W I ( W hen- I ssued) transaction is a transaction m ade during a period between an auction announcem ent ( in principle, a week bef ore an auction date) and the previous day of its issuance. Besides a W I transaction during a period between an auction and the day of its issuance, one has becom e available prior to an auction date since F ebruary 2 0 0 4 .

F i g .2- 11 W I T r a n s a c t i o n s - C o n c e p t u a l D i a g r a m

Auction Announcement

Auction Date

Auction date, issue date, maturity date and offering amount are announced

C oupon, issue number, and other issue-related points are announced

JGB transactions prior to the auction Transacted at compound y ield basis, etc. ( approximately 5 business day s)

Issue Date

Transacted on at simple y ield basis or at price basis ( conventional method)

WI Transactions of JGB

64

with

Ⅱ Framework A price of W I transactions f unctions as a predicted value of a bid price to be accepted because it reflects trends in the dem and f or a new issue prior to its auction. F or the issuer, active W I strengthen the link age between the prim ary and secondary m ark ets and reduce the uncertainty inherent in the auction process.

C hap ter 1 Gov ernment Bonds (J GBs)

transactions are considered to contribute to the ef ficiency of f undraising activities since they

2 Secondary Market for Gov ernment Bonds 65

Ⅱ Framework (4 ) J GB Futures Trading F utures trading m eans a trading contract to m ak e deals f or specific products on a certain f uture

C hap ter 1 Gov ernment Bonds (J GBs)

date at a certain designated price. Trading conditions such as trading units and delivery dates have been standardized on the prem ise that a large and uncertain num ber of participants will be trading JGB f utures on securities exchanges. JGB f utures tradings do not entail tradings in governm ent bonds actually issued; instead, m ark et participants use notional JGBs, so- called standardized instrum ents (

① ) , f or f utures

trading purposes. P arties engaged in tradings m ay at any tim e within the stipulated period m ak e an of f setting trade ( e.g., selling the sam e num ber of units of JGB f utures contracts that they have purchased) ; in addition, settlem ent by paying/ receiving the dif f erence between the bid and ask prices on the final day of a trading ( net settlem ent) or settlem ent by paying/ receiving on the delivery settlem ent date the purchase/ sale cost or by delivering actual JGBs ( delivery settlem ent) are possible f or each contract m onth ( the m onth of final settlem ent of the trade) . Actual JGBs that have been deem ed delivery- q ualif ied issues (

② ) will be delivered in

place of notional JGBs f or delivery settlem ent. I n this case, a settlem ent is conducted using

2 Secondary Market for Gov ernment Bonds

a price m ultiplied by a conversion f actor which represents the value of the delivered issues with the value of standardized instrum ents set at 1 . Theref ore, if the delivering party uses the cheapest issues (

③ ) f or delivery, it can m inim ize losses ( or m axim ize prof its) . F or this

reason, the correlation between the prices of f utures and the cheapest issues is lik ely to be high. I n Novem ber 2 0 1 1 , the trading system

was changed, such as expanding trading tim e and

introducing the bid price range to im prove user- f riendliness and m aintain liq uidity. I n M arch 2 0 1 3, the O sak a S ecurities E xchange and the Tok yo S tock E xchange integrated their derivatives m ark ets, subj ecting bond f utures to trading on the O sak a E xchange ( the O sak a S ecurities E xchange was renam ed O sak a E xchange upon the derivative m ark et integration) . S im ultaneously, night trading hours were extended until 3 a.m . on the next day. F urtherm ore, the O sak a E xchange shortened a period between the final day f or trading in a bond f utures contract and the delivery settlem ent deadline by two m ark et days to five m ark et days in order to reduce settlem ent risk s and increase trading opportunities. The first contract subj ect to the shorter period was the Decem ber 2 0 1 5 contract. Trading in super long- term

JGB f utures, which had been suspended since the Decem ber 2 0 0 2

contract, was resum ed in April 2 0 1 4 . I n order to invigorate trading in super long- term f utures, the O sak a E xchange in July 2 0 1 5 lowered the standardized bond yield f rom 3%

closer to m ark et yields and revised the product design by changing the m inim um

f or deliverable issues f rom

JGB 6 %

to

duration

1 8 years to 1 9 years and three m onths representing a highly liq uid

duration zone on the spot m ark et and by lowering the m inim um

q uotation unit f rom

0 .0 5 yen

per 1 0 0 yen in par value to 0 .0 1 yen. The revision was im plem ented first f or the Decem ber 2 0 1 5 contract.

66

① “Standardized instruments” mean notional JGBs for which the stock exchange standardizes interest rates, redemption dates, and some other factors for smoother transactions.

② “Delivery-qualified issues” mean 10-Year Couponbearing JGBs with a remaining maturity of not less than 7 years but less than 11 years at the delivery settlement date in the case of long-term bond futures trading. ③ “The cheapest issues” mean issues offering the smallest difference between spot and futures prices. As of the end of March 2016, issues whose remaining maturity is shortest (approximately 7 years) are the cheapest issues.

Ⅱ Framework F i g .2- 12 O v e r v i e w

o f J G B

F u tu r e s T r a d in g

5 year JGB utures

Contract Deli erable rade

eb. 16, 1996

Contract

ade at the openin , a shift to the re ular session w ill be ade at the closin , tradin session o es to Z araba.

5th business day prior to each deli ery date 20th of each contract

100

onth .

illion yen face alue

rice of standardiz ed 6%, 10 year JGB ―

ade

onths traded at any one ti e * 6th business day prior to each deli ery date of the 10 year JGB utures for the sa e contract onth. T radin for the new contract onth be ins on the business day follow in the last tradin day of 10 year JGB utures. * inal settle ent day is 2nd business day follow in the last tradin day. M ultiply 100 thousand yen by the price of 10 year JGB utures

0.01yen per 100 yen face alue

0.005 yen

1 Daily price li it: 5 year JGB utures Nor al price li it M ax i u price li it

10 year JGB utures 2.00 yen 3.00 yen

20 year JGB utures 4.00 yen 6.00 yen

M ini 10 year 2.00 yen 3.00 yen

* T he ex pansion of price li its shall be conducted only once.

Daily price li it

2 ediately ex ecutable price ran e dyna ic circuit breaker ran e : ro the iew point of pre entin sudden price uctuations, such as caused by erroneous orders, w hen an order placed w ill trade beyond or below a dyna ic circuit breaker ran e fro the reference price, such as the last traded price, tradin w ill be halted after those tradin s w ithin daily price li it are co pleted. 5 year JGB utures

10 year JGB utures

0.1 yen of the last traded price

20 year JGB utures 0.3 yen of the last BBO id price ☞②

Circuit brake Strate y tradin J NET tradin ☞⑤ Clearin

alue

M ar in Settle ent

ethod

Deli ery of bonds Gi e up ☞⑦ osition transfer ☞⑧

M ini 10 year JGB utures 0.1 yen of the last BBO id price ☞②

n the case w here a buy sell order is placed or ex ecuted at the upper low er price li it for the central contract onth ex cludin ini 10 year JGB utures , and no subseq uent trades are ex ecuted outside the dyna ic circuit breaker ran e fro the said price in the nex t inute, the tradin includin ini 10 year JGB utures w ill be suspended and the upper low er daily price li it ran e w ill be ex panded. ☞③ T he calendar spread tradin is a ailable. ☞④ A ailable T ick siz e: ¥ 0.005, A ailable T ick siz e: ¥ 0.01, M ini u tradin unit: 1 unit M ini u tradin unit: 1 unit Clearin alue of the 10 year ast traded price JGB utures ar e for the sa e contract onth. Calculated by usin S A N® ☞⑥ 1. on liq uidation or short co erin 1. on liq uidation or short co erin 2. inal settle ent deli ery settle ent 2. inal settle ent cash settle ent T he deli ery of issues is at the discretion of the seller of the futures contract. ― A ailable A

2 Secondary Market for Gov ernment Bonds

M ini u uctuation

M ar. 23, 2009

Closed fro Sep. 10, 2002 to A pr. 4, 2014

M arch, June, Septe ber, Dece ber cycle three contract

Contract unit

M ini 10 year JGB utures

R esu ed tradin on A pr. 7, 2014 Standardiz ed 6%, Standardiz ed 3%, 10 year JGB 20 year JGB 10 year coupon bearin JGBs w ith re ainin 20 year coupon bearin JGBs w ith re ainin aturity of 7 years or ore but less than 11 aturity of 19 years 3 onths or ore but years less than 21 years < M ornin session> Openin : 8:45 R e ular session: 8:45 11:00 Closin : 11:02 < A fternoon session> Openin : 12:30 R e ular session: 12:30 15:00 Closin : 15:02 < Ni ht session> Openin : 15:30 R e ular session: 15:30 2:55 nex t day ☞① Closin : 3:00 nex t day ☞①

* 1: f no trade is * 2: f no trade is

onth

ast tradin day

Oct. 19, 1985

Standardiz ed 3%, 5 year JGB 5 year coupon bearin JGBs w ith re ainin aturity of 4 years or ore but less than 5.25 years

T radin hours

20 year JGB utures Jul. 8, 1988

C hap ter 1 Gov ernment Bonds (J GBs)

Date launched

10 year JGB utures

ailable

☞① ro July 19, 2016, the re ular session of ni ht tradin is planned to be ex tended until 5:25 on the nex t day, w ith the closin set at 5:30. ediate best offer and best bid. ☞② T he BBO id price refers to the id price of the i ☞③ Ex ceptional cases 1. n the case w here the abo e criteria is et w ithin 20 inutes before the end of the re ular session of the day afternoon or ni ht session. 2. n the case w here the circuit breaker criteria is tri ered a ain after the price li it of a bid or offer has been ex panded to the ax i u ran e. 3. n cases w here the Osaka Ex chan e dee s that a tradin suspension w ould not be appropriate in consideration of the tradin conditions, etc. eans a for of tradin conducted by placin bids/offers based on the price difference spread betw een tw o different contract onths speci cally, ☞④ Calendar spread tradin a nearer contract onth and a farther contract onth; for ex a ple, M arch and June to establish opposite positions by akin one sale and one purchase at the sa e ti e for the tw o contract onths. eans the tradin of futures and options w ithout sessions at the J NET M arket that is independent fro co petiti e tradin arkets. ☞⑤ J NET tradin ® ☞⑥ T he S A N Standard ortfolio A nalysis of R isk syste is a ethodolo y that calculates the ar in de eloped by the Chica o M ercantile Ex chan e CM E . i e up syste enables a custo er to entrust order ex ecution to a transaction participant and to entrust its settle ent related operations pay ent/receipt of the ☞⑦ A difference at the ti e of settle ent for futures tradin , pay ent/receipt of options pre iu and ar ins, etc. to other transaction participants. A position transfer syste allow s a transferrin clearin participant a transaction clearin participant w ho transfers unsettled positions to transfer futures/options ☞⑧ unsettled positions to a transferee clearin participant a transaction clearin participant w ho takes o er unsettled positions fro the transferrin clearin participant , w ith prior JSCC appro al. Source Osaka Ex chan e, JSCC

67

Ⅱ Framework (5 ) Bond Gensaki and Bond-L ending Transaction C hap ter 1 Gov ernment Bonds (J GBs)

A. Bond Gensaki Transaction Bond Gensaki Transactions are bond sales transactions in which the traded bonds are traded back in the opposite direction on a date and at a price specified in an agreem ent concluded in advance between the parties to the transaction. W hen the prim ary m ark et reopened and trading resum ed af ter the end of W W I I , they were the principle m eans of f und procurem ent. S ubseq uently, however, certificates of deposit ( C D) , com m ercial papers ( C P ) , and large- lot tim e deposits em erged as new short- term

f inancial

products. Bond Gensaki Transactions, however, continued to be subj ect to the securities transaction tax because it is a f orm

of sales transaction, so f und procurem ent shif ted toward

the Japanese E q uivalent to R epurchase Transactions, which are discussed below. The range of Bond Gensaki Transactions has since contracted to m ostly Treasury Bills and F inancing Bills ( today s T- Bills) , which are exem pt f rom F ollowing a warning f rom

securities transaction tax.

the S ub- C ouncil on the I nternationalization of the Y en under the

C om m ittee on F oreign E xchange and O ther Transactions that Japan s repurchase and Gensaki ①) , and af ter the abolition of the securities transaction tax in M arch 1 999, a new Bond Gensaki m ark ets needed to prom ote transaction f orm ats consistent with global standards (

2 Secondary Market for Gov ernment Bonds

Transaction f orm at was introduced beginning in April 2 0 0 1 that incorporated risk m anagem ent m ethods such as the use of a pack age settlem ent provision ( and substitution (

② ) , m argin call f eature (

③) ,

④) .

I n Novem ber 2 0 0 2 , the repurchase operations of the BO J changed f rom

their previous

lending f orm at to the new Gensaki type and have since been of f ered as Gensaki operations.

B. Bond-L ending Transaction (J ap anese E q uiv alent to Rep urchase Transactions) Bond- L ending Transactions are transactions of L oans f or consum ption that one party ( a lender) lends bonds to a second party ( a borrower) , and af ter a specified period, the borrower returns bonds of the sam e k ind and in the sam e am ount to the lender, thereby settling the lending transaction. Bond- L ending Transactions were introduced in 1 98 9 concurrent with the deregulation of the short- selling of bonds to prom ote the developm ent of the secondary bond m ark et. BondL ending Transactions were f or the m ost part f ully uncollateralized; collateralized BondL ending Transactions were shunned by m ark et participants. This is because the lim its were originally im posed on the interest to prevent com petition with the Bond Gensaki Transactions discussed above that was allowed to accrue to cash collateral, and there was com plicated clerical work associated with perm itted bond collateral other than cash collateral ( such as substitute securities) . The collapse of the Barings Bank in F ebruary 1 995 served as a f resh rem inder of the risk associated with unsecured dealings. I n order to m itigate credit risk , Bond- L ending Transactions underwent a review towards collateralization, m odeled af ter the .S . repurchase transactions. R isk m anagem ent was reinf orced by putting into place a pack age settlem ent provision and m argin call f eatures, and with the change to rolling settlem ent of JGB transactions, the m inim um

lim it f or cash collateral was abolished along with the lim it on interest. Beginning in

April 1 996 , cash secured Bond- L ending Transactions were initiated ( as so- called the Japanese 68

① The internationalization of the yen for the 21st century Japan s Response to Changes in Global Economic and Financial Environments, as replied to by the Council on Foreign Exchange and Other Transactions on April 20, 1999. ② A provision whereby if one of the two counterparties to the transaction defaults on payment, all the debts and credits under the basic agreement between them are replaced by one single monetary debt and credit (each of which is obtained by terminating all individual transactions and then offsetting the resulting loss or profit against the total collateral). ③ If, while transactions are being conducted, any difference arises as between the market value of the bond in a bond-lending and the value of the collateral provided because of fluctuations in bond prices, this feature permits a counterparty to claim a collateral shortage at any time. ④ A feature whereby, during the transaction period, another bond of equal or higher market value can be used to substitute for the bond being sold or purchased, subject to the agreement of both parties and following a notification given by one counterparty to the other of such an intention to substitute.

Ⅱ Framework E q uivalent to R epurchase Transactions) . These Japanese E q uivalent to R epurchase Transactions are used m ainly to procure the spot

C hap ter 1 Gov ernment Bonds (J GBs)

securities ( S C transactions) req uired f or unwinding short positions of bonds, and, m ostly f or the purposes of brok erages, are also f req uently used f or the procurem ent of cash with securities as collateral ( GC

transaction) . I n Novem ber 1 997, Japanese E q uivalent to R epurchase

Transactions were included in the operations of the BO J ( as so- called repo operations ) . M oreover, the JGBC C

( Japan S ecurities C learing C orporation or JS C C

at present) in M ay

2 0 0 5 started settlem ent services including repo transaction settlem ents ( such as obligation assum ption and netting) and risk m anagem ent, contributing to expanding repo transactions. The volum e of repurchase transactions in Japan over the last f ew years as m easured in outstanding balances has been between 6 0 - 1 1 0 trillion yen ( 8 0 - 1 50 trillion yen including Bond Gensaki Transactions) and f orm s the core of the short- term

m oney m ark et.

F i g .2- 13 B o n d Gensaki a n d B o n d - L e n d i n g T r a n s a c t i o n s (J a p a n e s e E q u iv a le n t to R e p u r c h a s e T r a n s a c tio n s ) (im a g e s )

Bonds

Bonds

C ash collateral

Bonds Lending costs C ash collateral

F unds（Sell back）

Interest

Borrower of bonds ( M anaging section)

After a certain period of time

Lender of bonds ( F inancing section)

Bonds（Buy back）

Buy er of bonds

After a certain period of time

Seller of bonds

F unds

2 Secondary Market for Gov ernment Bonds

Bond-Lending Transactions ( Japanese Eq uivalent to Repurchase Transactions)

Bond G e n s a k i Transactions

69

Ⅱ Framework (6) STRIP S S TR I P S ( S eparate Trading of R egistered I nterest and P rincipal of S ecurities) are a type of

C hap ter 1 Gov ernment Bonds (J GBs)

coupon- bearing governm ent bonds of which coupons and principal are separated and traded separately, or can be reconstructed into a whole security. W hile S TR I P S have long been in place in the

.S . and som e E uropean countries, it was

introduced into Japan in January 2 0 0 3 to m eet the needs of investors who want the separation of principal and interest com ponents (

) .The new instrum ent is also expected to enhance

arbitrage f unctions between discount bonds and coupon- bearing bonds, thus adding to the ef ficiency of the JGB m ark et. S uppose 2 - Y ear F ixed- R ate coupon- bearing JGB with 1 0 0 m illion yen of f ace value ( nom inal rate: 2 % ; m aturity date: 1 5 M arch, 2 0 1 8 ) is issued in M arch 2 0 1 6 . This m eans that 1 m illion yen of interest paym ent will be m ade biannually f or a total of f our tim es. Thus, when a bondholding securities com pany strips the security ( i.e., separates the security s principal and interest com ponents) the original security will be brok en down into a principal- only book entry transf er JGB worth 1 0 0 m illion yen and f our coupon- only book - entry transf er JGBs, each with a f ace value of 1 m illion yen. Thus, in the end, a total of five JGBs, each with a

2 Secondary Market for Gov ernment Bonds

dif f erent m aturity, can be sold independently f rom

each other, to m eet diversif ied investor

needs.

All coupon-bearing bonds issued in January 2003 and thereafter except for 15-Year Floating-Rate Bonds, JGBs for Retail Investors, and 10Year Inflation-Indexed Bonds are the strippable book-entry securities. (Bonds issued as special bonds provided by the Act on Book-Entry Transfer of Company Bonds, Shares, etc. are excluded.) While no restrictions exist on holders of stripped bookentry securities, only the JGB Market Special Participants are allowed to apply for the separation and reconstruction of STRIPS.

S tate of stripping of S TR I P S is published at the M O F s web site on a regular basis.

F i g .2- 14 S T R I P S - C o n c e p t u a l D i a g r a m 2-year Fix ed-R ate coupon-bearing JGB w ith 100 million yen of face value (nominal rate:2%; maturity date: 15 M arch, 2018)

(P rincipal) 100 million yen

P ayment Date: 15 M arch 2018 (coupon) 1 million yen P ayment date: 15 Sep. 2016

(coupon) 1 million yen P ayment Date: 15 M ar. 2017

(coupon) 1 million yen P ayment Date: 15 Sep. 2017

(coupon) 1 million yen P ayment Date: 15 M ar. 2018

(Separate) P rincipal-only book-entry transfer JGB

Discount Bond 100 million yen

M aturity Date: 15 M arch 2018

Coupon-only book-entry transfer JGB Discount Bond 1 million yen M aturity Date: 15 Sep. 2016

70

Discount Bond 1 million yen M aturity Date: 15 M ar. 2017

Discount Bond 1 million yen M aturity Date: 15 Sep. 2017

Discount Bond 1 million yen M aturity Date: 15 M ar. 2018

Can be traded separately or reconstructed into a w hole security

Ⅱ Framework

Op erational C hanges in BOJ ’ s SL F

The Bank of Japan has gradually relaxed conditions f or its S ecurities L ending F acility ( S L F ) operations to lend JGB holdings to m ark et participants tem porarily. The relaxation is designed to ease stresses in JGB m ark et with a view to f urther f acilitating the BO J s m oney m ark et operations as well as contributing to sm ooth settlem ent of JGB. C hanges in S L F operations since 2 0 1 5 are as f ollows:

F i g . c 5- 1 C h a n g e s i n S L F O p e r a t i o n s JGBs with coupons Date

Upper limit on the amount of sales per issue

Treasury Discount Bills

C ontinuous use of the F acility

Upper limit on the amount of sales per issue

C ontinuous use of the F acility

C hap ter 1 Gov ernment Bonds (J GBs)

C olumn 5

The amount outstanding of the

BOJ’ s holdings ( excluding the Original operations amount planned for selling in ( on or before M arch 2 2 , 2 0 1 5 ) monetary operations, etc.) or 2 0 0

M aximum 5 business day s

Unavailable

billion y en, whichever is smaller

The amount outstanding of the BOJ’ s holdings ( excluding the amount planned for selling in monetary operations, etc.) or 4 0 0 billion y en, whichever is smaller

M aximum 1 5 business day s

The The amount outstanding of the BOJ’ s holdings ( excluding the amount planned for selling in monetary operations, etc.) or 1 0 0 billion y en, whichever is smaller

September 1 , 2 0 1 5

M aximum 5 0 business day s

January 4 , 2 0 1 6

F ebruary 1 6 , 2 0 1 6 ( Note)

M aximum 5 business day s

The amount outstanding of the BOJ’ s holdings ( excluding the amount planned for selling in monetary operations, etc.) or 1 trillion y en, whichever is smaller

Ditto

Ditto

2 Secondary Market for Gov ernment Bonds

M arch 2 3 , 2 0 1 5

Ditto

( Note) In addition to an increase in the upper limit on the amount of sales of JGBs with coupons, the BOJ implements the clarification of the upper limit on selling y ields.

In principle, the upper limit on selling y ields shall be calculated as follows: ( The rate considered in light of the uncollateraliz ed overnight call rate) ( * ) minus ( the minimum fee rate [0 .5 percent]) * The weighted average of the uncollateraliz ed overnight call rate on the previous business day ( rounded off to the first decimal place) will be used.

71

Ⅱ Framework

 3 Debt Management Systems (1) Redemption System Chapter 1 Government Bonds (JGBs)

All the JGBs issued to fund a shortfall in General Account and Special Accounts of the national budget are redeemed through the Government Debt Consolidation Fund (GDCF). To ensure stable redemption, redemption funds are transferred from the each Account to the GDCF based on certain rules. In addition, revenues from Refunding Bonds, issued through the GDCF Special Account, are posted to the GDCF. Moreover, the proceeds from the sales of government-owned shares that belong to the GDCF Special Account are also transferred into the GDCF. Simply put, fiscal resources for government bond redemption are all funneled through the GDCF ̶ from reception and accumulation to disbursements. This section explains applicable redemption methods and redemption resources for each JGB category with different legal grounds. Then, it also describes the GDCF Special Account.

3 Debt Management Systems

Fig.2-15 Mechanism of Redemption

General Account

Transfer ・Fixed-rate transfer ・Special transfer on tax reduction-related Special Deficit-financing Bonds ・Transfer of budgetary surplus ・Direct budget transfer

GDCF Special Account

・Proceeds from sales of government-owned shares belonging to the GDCF Special Account ・Revenues from investment management ・Revenue from tobacco special tax

Redemption Revenues from Refunding Bond issues

Note.1: Redemption System of JGBs belonging to the General Account. Note.2: Proceeds from sales of government-owned shares of Tokyo Metro Co.,Ltd, and Japan Post Holdings Co.,Ltd, etc are appropriated for the redemption resources of Reconstruction Bonds.

72

Private Sector Public Sector

Ⅱ Framework A. Redemp tion Methods W hen redeem ing JGBs, redem ption rules will be applicable as set f orth in related legislations. a. 60-Year Redemp tion Rule(C onstruction Bonds and Sp ecial D eficit-Financing Bonds) Deficit- financing Bonds so that these JGBs, including R ef unding Bonds, will be entirely ① ) . R edem ption of JGBs is financed with two revenue

redeem ed f or a 6 0 - year period ( sources: cash f rom

GDC F and revenues f rom

issuing R ef unding Bonds in accordance with

applicable rules. The 6 0 - year redem ption rule is m aintained in this way. W hen redeem ing S pecial Deficit- financing Bonds, the governm ent will strive to redeem

these bonds as soon

as possible as set f orth in its governing law. F igure.2 - 1 5 will give you an idea about how the 6 0 - year redem ption rule work s. S uppose you issue 6 0 billion yen of debt in f ixed- rate coupon- bearing 1 0 - year bonds, at m aturity ( i.e., 1 0 years f rom

now) you will redeem

1 0 billion yen of them

②)

in cash (

- eq uivalent to 1 / 6 of 6 0 billion yen - while issuing R ef unding Bonds to cover the rem aining 50 billion yen. As sum ing that these R ef unding Bonds will also be issued in f ixed- rate coupon- bearing 1 0 - year bonds, then you will redeem

1 0 billion yen in cash - 1 / 6 of the

initial issue am ount of 6 0 billion yen - in another 1 0 years. W hile issuing R ef unding Bonds

① The rule stands on the fact that the average economic depreciation period of the assets purchased by the construction bonds is about 60 years. Deriving from this rule is the 1.6 ratio for fixed-rate transfer for each fiscal year, which is about equivalent to onesixtieth. ② The term “cash” redemption in this context means that bond redemption is not financed with issuing Refunding Bonds. From the viewpoint of individual bond holders, their JGBs will always be redeemed with cash at maturity.

D ebt Management Systems

com plete the cash redem ption in 6 0 years f rom

3

to cover the rem aining 4 0 billion yen. R epeat this f or f our m ore tim es, then, you ll be able to the first issuance.

As shown in the figure below, because annual fixed- rate transf er is calculated based on the JGB outstanding am ount at the beginning of the previous f iscal year, it decreases along

F i g .2- 16 R e d e m p t i o n v i a R e f u n d i n g B o n d s - " 60- Y e a r R e d e m p t i o n R u l e "

Issuance and R edemption of Government Bonds

Construction Bonds, Special Deficit-Financing Bonds

Outstanding

R efunding Bonds

[ Financing the Special A ccount to A ppropriate for R edeeming]

R edemption 600

Construction Bonds, Special DeficitFinancing Bonds

Cash R edemption

A mount of Issuance of R efunding Bonds of every 10 years

500 500

400 400

R efunding Bonds

300 300

200 200

600 600

Fix ed rate transfer Shortfall

100 A fter 10 years

500

C hap ter 1 Gov ernment Bonds (J GBs)

The 6 0 - year redem ption rule is applicable to redeem ing C onstruction Bonds and S pecial

A fter 20 years

400

A fter 30 years

300

A fter 40 years

200

A fter 50 years

100

100 A fter 60 years

0

A fter 2 11years A fter 12 21years A fter 22 31years A fter 32 41years A fter 42 51years A fter 52 61years

600×1.6% ×10= 96

500×1.6% ×10= 80

400×1.6% ×10= 64

300×1.6% ×10= 48

200×1.6% ×10= 32

100×1.6% ×10= 16 T

4

20

36

52

68

84

otal 336 T otal 264

73

Ⅱ Framework with the decrease in the JGB outstanding am ount. Theref ore, f ixed- rate transf er will be insuf ficient to finance bond redem ption in cash. F or this reason, bond redem ption will also be com plem ented with a surplus f und, budget f und, and proceeds f rom

sales of governm ent

owned shares. As an exception to the 6 0 - year redem ption rule, the 2 0 - year redem ption rule is applicable

C hap ter 1 Gov ernment Bonds (J GBs)

to redeem ing Tax C ut S pecial Def icit- f inancing Bonds, issued f rom in order to cover a tax revenue f all resulting f rom system

F Y 1 994 to F Y 1 996

an upf ront incom e tax cut under a tax

ref orm . Given the nature of these issues, early redem ption was deem ed essential.

Accordingly, while the redem ption period f or ordinary governm ent bonds is 6 0 years, these S pecial Deficit- financing Bonds are supposed to be redeem ed in 2 0 years - one third of the norm al redem ption period. b. Redemp tion Methods for Reconstruction Bonds R econstruction Bonds, including their R ef unding Bonds, will be entirely redeem ed in F Y 2 0 37 at the latest. The 6 0 - year redem ption rule will not be applicable to the redem ption of R econstruction Bonds. This is because Basic Guidelines f or R econstruction in response to the Great E ast Japan E arthq uak e states that the f inancial resources f or recovery and reconstruction shall basically be borne by the entire current generation, collectively sharing the financial burden by solidarity and not be lef t as cost of f uture generations and redem ption of these bonds will surely be financed with certain revenue resources.

3 D ebt Management Systems

S pecifically speak ing, a portion of R econstruction Bonds redeem able each year ( including R ef unding Bonds f or R econstruction Bonds) will be redeem ed with cash to the extent that revenues f rom

S pecial Taxes f or R econstruction and profit on sales of governm ent- owned

eq uities are transf erred to the GDC F S pecial Account as redem ption resources, while the rem aining portion will be entirely covered with R ef unding Bonds. The governm ent is planning to finish redem ption of R econstruction Bonds by repeating cash- based redem ption and R ef unding Bond- based redem ption every fiscal year by F Y 2 0 37 at the latest. c. Other Redemp tion Methods for J GBs General Bonds subj ect to redem ption m ethods other than those above include S pecial Def icit- f inancing Bonds issued by F Y 1 98 4 , Gulf S pecial Def icit- f inancing Bonds issued in F Y 1 990 and S pecial Bonds f or C overing P ublic P ension F unding issued in F Y 2 0 1 2 and F Y 2 0 1 3.As S pecial Def icit- f inancing Bonds were prohibited f rom

being redeem ed with

refinancing in the past, the 6 0 - year redem ption rule was not applicable to S pecial Deficitf inancing Bonds issued up until F Y 1 98 4 . F or this reason, the 6 0 - year redem ption rule did not apply to JGBs redeem able by F Y 1 98 4 ( JGBs redeem able f rom

) , but the rule becom es applicable to

F Y 1 98 5 onward. I n addition, Gulf S pecial Deficit- financing Bonds

got redeem ed f or f our years ending in F Y 1 994 as initially scheduled. S pecial Bonds f or C overing P ublic P ension F unding and relevant R ef unding Bonds will be redeem ed by F Y 2 0 33. All of F I L P Bonds are redeem ed with cash, rather than issuing R ef unding Bonds. I n this case, the governm ent transf ers necessary redem ption f unds f rom the F I L P

74

to the GDC F S pecial Account every year.

the S pecial Account f or

JGBs redeemable in FY1984 were able to be redeemed with refinancing based on the 60-year redemption rule, but all these were redeemed by cash, and the rule was not applied.

Ⅱ Framework B. Redemp tion Resources R edem ption resources f or JGBs are set f orth in applicable laws. This section explains financial resources used f or cash- based redem ption.

F or governm ent bond redem ption, there are f our ways to transf er fiscal resources f rom the General Account to the GDC F S pecial Account.   i. Fix ed-rate transfer (1. 6% of total gov ernment bond outstanding as of the beginning of the p rev ious fiscal year) P ursuant to Article 4 2 ( 2 ) of the Act on S pecial Accounts the am ount eq ual to 1 .6 % of total governm ent bond outstanding in f ace value – excluding outstanding of S pecial Bonds f or covering P ublic P ension F unding, R econstruction Bonds, F I L P Bonds, F inancing Bills, Tem porary Borrowings, S ubsidy Bonds and S ubscription/ C ontribution Bonds– as of the beginning of the previous f iscal year is transf erred f rom the General Account to the GDC F S pecial Account on the basis of the 6 0 - year redem ption rule discussed above ( ).

P ursuant to Article 6 ( 1 ) of the P ublic F inance Act, when surplus is generated in the General Account as a result of the settlem ent, at least half the surplus m ust be transf erred to the GDC F S pecial Account within two years f rom the said fiscal year in which the surplus was generated ( ).   iv . D irect budget transfer (A discretionary transfer sp ecified by the General Account budget when necessary) I n addition to the above transf ers, to ensure sm ooth redem ption of governm ent bonds, Article 4 2 ( 5) of the Act on S pecial Accounts prescribes that a discretionary transf er, which is specified by the budget can be m ade as needed f rom the General Account to

D ebt Management Systems

  iii. Transfer of a budgetary surp lus (A minimum of half of the surp lus in the General Account as a result of the settlement of the fiscal year)

3

  ii. Sp ecial transfer on tax reduction-related Sp ecial D eficit-financing Bonds S ince tax reduction- related S pecial Def icit- f inancing Bonds are supposed to be redeem ed entirely f or 2 0 years as m entioned earlier, specifically, during the period of F Y 1 998 to F Y 2 0 1 7, one- thirtieth part of the balance that subtracts the am ount of issuance to m ak e up f or the loss caused by the abolition of autom obile consum ption tax and special corporation surtax f rom the total issuance am ount of tax reductionrelated S pecial Def icit- f inancing Bonds is to be transf erred to the GDC F S pecial Account every fiscal year, in addition to the fixed- rate transf er.

When calculating the outstanding amount of discount bonds, their issue price is regarded as the face value (Article 42(3) of the Act on Special Accounts). As to the difference between the issue price and the face value (i.e., (the sum) equivalent to redemption profit), the difference divided by the number of years to maturity is additionally transferred to the GDCF Special Account every fiscal year (Article 42(4) of the Act on Special Accounts).

C hap ter 1 Gov ernment Bonds (J GBs)

a. Redemp tion Resources for C onstruction Bonds and Sp ecial D eficit-financing Bonds  ① Transfer from the General Account

An appendix to the Reconstruction Funding Act calls for using such surplus primarily for redeeming Reconstruction Bonds

the GDC F S pecial Account.  ② Others    i. P roceeds from gov ernment-owned shares belonging to the GD C F Sp ecial Account P roceeds f rom sales and dividends of governm ent- owned shares that belong to the GDC F S pecial Account shall be set aside as a resource f or redem ption of JGBs. A part of Nippon Telegraph and Telephone C orporation ( NTT) shares, a part of 75

Ⅱ Framework shares of Japan Tobacco I nc. ( JT) , an eq uity stak e in Teito R apid Transit Authority ( ) and a part of the shares of Japan P ost H oldings C o., L td. were transf erred to the GDC F S pecial Account as the JGB redem ption resources in F Y 1 98 5, F Y 1 98 5, F Y 1 998 and F Y 2 0 0 7, respectively. The M O F f inished selling out NTT shares and JT shares ( a portion held initially) in the GDC F S pecial Account in S eptem ber 2 0 0 5

C hap ter 1 Gov ernment Bonds (J GBs)

and June 2 0 0 4 , respectively. P roceeds f rom the sale of eq uities currently belonging to the GDC F S pecial Account ( including JT shares newly allocated to the GDC F S pecial Account in accordance with the R econstruction F unding Act) will be spent f or redeem ing R econstruction Bonds.   ii. P roceeds from allocation The GDC F can m anage JGBs by either possessing them

by itself or cash be

depositing them to the F iscal L oan F und. W e pursue ef f icient allocation of these governm ent bonds, while tak ing into account the need to secure adeq uate levels of liq uidity in order to ensure sm ooth im plem entation of large- scale redem ption and ref unding. P roceeds f rom the allocation are credited to the GDC F S pecial Account to be included in its revenues.

3 D ebt Management Systems

  iii. Sp ecial Tobacco Tax Rev enues The governm ent has created the S pecial Tobacco Tax in accordance with the Act on S pecial M easures f or S ecuring Necessary F inancial R esources I ncidental to Transf er of Debt to General Account in order to cover a cost increase f or the General Account to tak e over the Japanese National R ailway ( JNR ) S ettlem ent C orporation s longterm debt and the National F orest S ervice s accum ulated debt. S pecial Tobacco Tax revenues are directly transf erred to the GDC F S pecial Account to repay principals and interests of the JNR S ettlem ent C orporation s long- term debt and the National F orest S ervice s accum ulated debt. b. Redemp tion Resources for Reconstruction Bonds  ① Rev enues from Sp ecial Tax es for Reconstruction As f or taxation f or reconstruction- related f inancial resources, S pecial Taxes f or R econstruction ( S pecial I ncom e Tax f or R econstruction and S pecial C orporation Tax f or R econstruction) are created as tem porary additional incom e taxes and corporate taxes. I n the case of S pecial I ncom e Tax f or R econstruction, 2 .1 % additional tax is created as tem porary taxation f rom January 2 0 1 3 to Decem ber 2 0 37. The S pecial C orporation Tax f or R econstruction was introduced as a tem porary m easure f or F Y 2 0 1 2 - 2 0 1 4 , am ounting to 1 0 % of the corporation tax. nder the F Y 2 0 1 4 tax ref orm , however, the S pecial C orporation Tax f or R econstruction was term inated one year ahead of schedule to encourage corporations to use earnings at hand f or increasing wages.  ② N on-tax Rev enues   i. U tiliz ing Reserv es in the Sp ecial Account for the FIL P An am ount designated in the annual budget was planned to be transf erred to the GDC F S pecial Account f or redeem ing R econstruction Bonds f rom reserves in the F iscal L oan F und Account of the S pecial Account f or the F I L P between F Y 2 0 1 2 and F Y 2 0 1 5 and f rom profit f rom assets in the I nvestm ent Account of the F I L P S pecial Account between F Y 2 0 1 6 and F Y 2 0 2 2 .

76

As Teito Rapid Transit Authority was privatized and renamed Tokyo Metro Co., Ltd. in April 2004, Tokyo Metro shares were distributed to the government free of charge in proportion to the government s equity stake in Teito Rapid Transit Authority. Therefore, the equity stake has been replaced with shares.

Ⅱ Framework   ii. P roceeds from gov ernment-owned shares R egarding JT shares ( excluding the governm ent s m andatory shareholding (

①) ) , shares of Tok yo M etro C o., L td. ( ② ) and shares of Japan P ost H oldings C o., L td. ( excluding the governm ent s m andatory shareholding ( ③ ) ) belonging to the GDC F S pecial Account, proceeds generated f rom the sale of those shares no later than F Y 2 0 2 2 will be spent f or redeem ing R econstruction Bonds.

The supplem entary provisions of the R econstruction F unding Act stipulates that, if settlem ent surplus in the General Account revenues and expenditures f rom F Y 2 0 1 1 to F Y 2 0 1 5 is utilized to finance redem ption of public bonds or repaym ent of borrowings, the governm ent is supposed to put a higher priority on redem ption of R econstruction Bonds. c. Redemp tion Resources for Other J GBs Am ong General Bonds subj ect to financial resources f or redem ption other than the above, S pecial Bonds f or C overing P ublic P ension F unding will be redeem ed with a tax revenue increase through the im plem entation of the revised C onsum ption Tax Act in and af ter F Y 2 0 1 4 . Am ong the other bonds, F I L P Bonds are redeem ed with f unds f rom the F iscal L oan F und s collection of loans to I ncorporated Adm inistrative Agencies and others.

② The government holds 53.4 of the total outstanding shares (as of the end of March 2016). ③ In November and December 2015, a total of about 880 million shares were sold (net proceeds at about 1,411 billion yen). The government holds 80.5 of the total outstanding shares (as of the end of March 2016). The government is required to hold more than one-third of the total outstanding shares.

C hap ter 1 Gov ernment Bonds (J GBs)

 ③ U tiliz ing Settlement Surp lus

① According to the Reconstruction Funding Act, the mandatory government s shareholding in JT has been reduced from “1/2 or more” of the total shares outstanding to “more than 1/3”. As a result, during the period from February to March 2013, the government sold a portion that could be sold (1/6 of the shares outstanding). (The amount of net proceeds from the sale is approximately 973.4 billion yen.)

Ref: “FILP Report”

3

The GDC F S pecial Account is an independent account created f or the purpose of clarif ying the status of the country s total debt m anagem ent, centered on the governm ent debt issued under the General Account. I t is a special account f or the paym ent of the principals and interests of JGBs, f unded through fiscal transf ers f rom the General Account and other special accounts. A portion of f unds transf erred f rom the General Account and other S pecial Accounts to the GDC F S pecial Account at a fixed rate is accum ulated as the GDC F , which will finance redem ption of JGBs in accordance with redem ption rules. I n this context, this f und serves as a sink ing f und.

D ebt Management Systems

C . GD C F Sp ecial Account

a. Basic roles To redeem in accordance with the 6 0 - year redem ption rule C onstruction Bonds and S pecial Deficit- financing Bonds, which occupy a large percentage of all JGBs, this f und tem porarily accum ulates the f uture redem ption resources f or sm oother redem ption purposes. I n addition, by m ak ing sure steady redem ption, the f und also serves f or m aintaining JGB s credibility f rom

m ark et participants.

b. Secondary roles GDC F plays the secondary roles as f ollows.  ① C ontributing to financing the N ational Treasury GDC F serves f or sm oothly financing the National Treasury by accepting F inancing Bills.  ② C omp ensating for deficit in the General Account GDC F will com pensate f or deficits in the General Account by transf erring som e f unds to the Account S ettlem ent Adj ustm ent F und. I f GDC F hands over som e f unds to the Account S ettlem ent Adj ustm ent F und, GDC F will get ref unded at the sam e am ount f rom the General Account in the later fiscal year to avoid a shortage of JGB redem ption resources. 77

Ⅱ Framework D . Recent Measures for GD C F Sp ecial Account R ecent m easures f or the GDC F S pecial Account are explained below: a. Reducing GD C F Balance

C hap ter 1 Gov ernment Bonds (J GBs)

The GDC F is annually accum ulated in the GDC F S pecial Account under a certain f ram ework to respond to lags of redem ption and transf er such as fixed- rate transf er f rom the General Account ( 1 .6 % of the total JGB outstanding at the beginning of the previous fiscal year) . The GDC F balance has been m aintained at approxim ately 1 0 trillion yen using issuance am ount of approxim ately one week ( ① ) as a guide in order to prepare f or operational risk s and other em ergencies ( possibilities that R ef unding Bonds cannot be issued due to reasons such as large- scale disasters or system f ailure) . The F Y 2 0 1 3 JGB I ssuance P lan stated that the governm ent was allowed to use tem porary borrowings f rom the BO J f or covering operational risk s. As a result, the governm ent in F Y 2 0 1 3 reduced the GDC F balance to 3 trillion yen or the level prepared f or accidental underbidding in JGB auctions ( ② ) , which cannot be covered by such borrowings, and used 7 trillion yen f rom the reduction f or redeem ing JGBs to cut R ef unding Bond issues. The governm ent plans to k eep the GDC F balance at 3 trillion yen in F Y 2 0 1 6 .

① Maximum issuance amount of JGBs: 9.6 trillion yen per day, 9.9 trillion yen per week (both figures current as of September 2011). ② The maximum amount offered per auction in FY2016 is 2.4 trillion yen for 5-Year Bonds or 10-Year Bonds. The largest ever amount offered in an auction was 2.9 trillion yen for 2-Year Bonds (FY2013).

F i g .2- 17 C h a n g e s i n o u t s t a n d i n g a m o u n t o f G D C F

Y2013 A ctual

Y2014 A ctual

Y2015 Esti ate

Y2016 Esti ate

3,040.3 billion yen

3,000.6 billion yen

3,476.7 billion yen

3,000.1 billion yen

3 Note T he Y2015 esti ate includes 476.7 billion yen for redee in R econstruction Bonds.

D ebt Management Systems

F i g .2- 18 R e d u c t i o n o f G D C F B a l a n c e

Before

T he balance of the GDCF (pool of future redemption resources for JGBs) had been conventionally maintained at the level prepared for operational risks (being unable to issue R efunding Bonds due to reasons such as large-scale disasters or system failure) (10.5 trillion yen at the end of FY 2012).

GDCF Special A ccount

General A ccount

P reparation for operational risks: 10.5 trillion yen

                          (as of the end of FY 2012)

T ransfer based on 60-Year R edemption R ule etc.

T ax R evenue

R evenues from issues of JGBs for General A ccount

A ctualiz ation of operational risks

R evenues from R efunding Bond issues

R edemption

M arket FY2013

In cases of operational risks, it becomes possible to respond by temporary borrow ing from the Bank of Japan. T hus the balance of the GDCF is reduced to the level prepared for accidental underbidding in JGB auctions, w hich is not covered w ith the temporary borrow ing from the Bank of Japan (3 trillion yen at the end of FY 2013).

GDCF Special A ccount

General A ccount T ax R evenue

T ransfer based on 60-Year R edemption R ule etc.

P reparation for the risk of incidentally not meeting auction targets of JGBs: 3 trillion yen                       (as of the end of FY 2013)

R evenues from R efunding Bond issues

M arket

78

T emporary Borrow ings

A ctualiz ation of operational risks

R educing the balance R evenues from issues of JGBs for General A ccount

the Bank of Japan

R edemption

Ⅱ Framework b. Rev ised Act on Sp ecial Accounts Based on a report on special account ref orm

( as com piled by the Adm inistrative R ef orm

Ref.: II 1 (1) A (Reference) Front-loading issuance of Refunding Bonds (P 4 1 )

P rom otion C ouncil on June 5, 2 0 1 3) , the governm ent subm itted to the Diet a bill to revise part of the Act on S pecial Accounts on O ctober 2 5, 2 0 1 3, and won its passage through the legislature on Novem ber 1 5, 2 0 1 3. The revision allows the governm ent: the f ront- loaded issuance of R ef unding Bonds f or the next

C hap ter 1 Gov ernment Bonds (J GBs)

( 1 ) To book revenues f rom

fiscal year rather than f or the issuance year instead of book ing such revenues f or the issuance year and carrying over them

as a surplus to the next fiscal year, and

( 2 ) To transf er relevant adm inistrative costs to the General Account f rom

F Y 2 0 1 4 budget.

F i g .2- 19 G D C F S p e c i a l A c c o u n t R e f o r m

1. M aking incomes from front-loading issuance of R efunding Bonds become revenues in the next year < Before revision>

< A fter revision>

Front-loading issuance in the previous year

R edemption

R efunding Bonds issued in the current year

Frontloading issuance in the current year

4/1

Brought forw ard to the current year as surplus

3/31

Included in the revenues in the current year

Brought forw ard to the nex t year as surplus

Front-loading issuance in the previous year

R efunding Bonds issued in the current year

Frontloading issuance in the current year

3/31

4/1

Included in the revenues in the current year

Included in the revenues in the nex t year

D ebt Management Systems

Income from issuance of refunding bonds

R edemption

JGBs reaching maturity in the current fiscal year

3

R edemption fees

R edemption fees

JGBs reaching maturity in the current year

2. T ransferring administrative exp enses to the General A ccount

(2) Interest Rate Swap Transaction An interest rate swap transaction is a transaction in which dif f erent types of interest paym ents ( e.g., floating- rate and fixed- rate) are exchanged f or a specific period of tim e. I nterest rate swap transaction in connection with JGBs becam e possible under the Act f or the S pecial Account f or the GDC F , as am ended in June 2 0 0 2 . I n the New P rom otion of JGB M anagem ent P olicy ( published in Decem ber 2 0 0 3) , it was stated that the governm ent would utilize swap transactions ( starting in F Y 2 0 0 5) in order to control the duration of the outstanding JGBs, thereby m anaging interest rate risk . I n consideration of the above, we have work ed to upgrade the relevant system s, and entered 79

Ⅱ Framework

C hap ter 1 Gov ernment Bonds (J GBs) 3 D ebt Management Systems 80

into a m aster agreem ent with counterparties, m ost of which are JGB M ark et S pecial P articipants, pursuant to the guidelines issued by I S DA ( the I nternational S waps and Derivatives Association, I nc.) . S ince January 2 0 0 6 , swap transactions have been started. To carry out a transaction, we m ak e an of f er to several counterparties according to a rotation schedule, and enter into a contract with the counterparty that presents the m ost f avorable term s. Transaction results are published on a sem i- annual basis on the M O F website ( in April and O ctober) . No new transactions were im plem ented f rom the second half of F Y 2 0 0 9 to F Y 2 0 1 5.

(3 ) Auctions for E nhanced-L iq uidity Auctions f or E nhanced- L iq uidity are to issue additional JGBs f or which liq uidity is structurally lack ing and f or which liq uidity is in a tem porary shortf all due to rising dem and. Auctions f or E nhanced- L iq uidity started in April 2 0 0 6 f or the purpose of supporting the m aintenance and enhancem ent of liq uidity with JGB m ark ets and holding down the f unding costs. The yield- spread- com petitive auction under the conventional m ethod f or JGB M ark et S pecial P articipants is used f or Auctions f or E nhanced- L iq uidity. A bidding yield- spread and bidding am ount are subm itted f or each nam e and code of target bonds. I n principle, regardless of the groups of issues, the bidding am ounts are allocated to issues auctioned with a priority placed on an application with a sm aller bidding yield- spread. Applications whose bidding am ounts are allocated bef ore the issuance am ount is reached are successf ul applications. F rom the launch to the f irst half of F Y 2 0 0 8 , the governm ent conducted Auctions f or E nhanced- L iq uidity to issue 1 0 0 billion yen worth of bonds each m onth ( once per m onth) only f or sm all 2 0 - Y ear Bond issues with 1 1 - 1 6 years rem aining to m aturity that structurally lack ed liq uidity. As com puter system s were im proved in April 2 0 0 8 , the coverage of Auctions f or E nhanced- L iq uidity was expanded to include 1 0 - , 2 0 - and 30 - Y ear Bonds with 6 - 2 9 years rem aining to m aturity ( 5- 2 9 years rem aining to m aturity f rom July 2 0 0 9) to flexibly im prove liq uidity f or issues whose liq uidity declined due to various f actors af ter their issuance. F rom the latter half of F Y 2 0 0 8 , the governm ent increased the m onthly f req uency ( f rom once to twice) and gradually expanded an auction size ( f rom 1 0 0 billion yen to 30 0 billion yen, to 6 0 0 billion yen and to 70 0 billion yen) to m eet a rem ark able liq uidity drop on the JGB m ark et af ter the L ehm an S hock and JGB issuance plan revisions accom panying budget f orm ulation. F rom July 2 0 1 3, 4 0 - Y ear issues were added to the coverage of Auctions f or E nhanced- L iq uidity. F rom April 2 0 1 4 , the coverage was expanded to all issues other than on the run issue. The F Y 2 0 1 6 JGB I ssuance P lan earm ark s the sam e am ount f or Auctions f or E nhancedL iq uidity as in the previous year when the am ount was increased to 9.6 trillion yen to m aintain and enhance JGB m ark et liq uidity. Based on discussions at the M eeting of JGB M ark et S pecial P articipants and the M eeting of JGB I nvestors, the governm ent decided to add 2 - , 5- , 1 0 - and 2 0 - year JGB issues m aturing in one to five years to those subj ect to Auctions f or E nhanced- L iq uidity and conduct a bim onthly auction f or issues m aturing in one to five years and in 1 5.5 to 39 years f rom F Y 2 0 1 6 . F or Auctions f or E nhanced- L iq uidity in the April- June 2 0 1 6 q uarter, the governm ent decided to issue 50 0 billion yen in each m onth f or 1 0 - , 2 0 - and 30 - year issues with 5- 1 5.5 years rem aining to m aturity, 4 0 0 billion yen each in April and June f or 2 0 - , 30 - and 4 0 - year issues with 1 5.5- 39 years rem aining to m aturity, and 2 0 0 billion yen in M ay f or 2 - , 5- , 1 0 - and 2 0 year issues with 1 - 5 years rem aining to m aturity, based on discussions at the M eeting of JGB M ark et S pecial P articipants and the M eeting of JGB I nvestors.

Ref: I2(3)B “Expanding Measures to Enhance Market Liquidity” (P26)

Ⅱ Framework (4 ) Buy-back P rogram

The Ministry of Finance has stated on its website its vow not to implement the prematurity redemption of JGBs.

C hap ter 1 Gov ernment Bonds (J GBs) 3 D ebt Management Systems

Buy- back is defined as a schem e f or the governm ent as the issuer of JGBs to retire debt by purchasing existing bonds at a price agreed upon with the respective holders willing to tak e part in the deals prior to m aturity of the bonds. P re- m aturity redem ption ( ) , sam e as a schem e to retire debt, dif f ers f rom Buy- back in that the governm ent reserves an option to redeem existing bonds at the f ace value. F or Buy- back , the price- spread- com petitive auction under the conventional m ethod f or JGB M ark et S pecial P articipants is used with the governm ent clarif ying a planned Buyback am ount in advance. A bidding price- spread and bidding am ount are subm itted f or each nam e and code of target bonds. I n principle, the bidding am ounts are allocated to Buyback auctioned with a priority placed on an application with a sm aller bidding price- spread. Applications whose bidding am ounts are allocated bef ore the Buy- back am ount is reached are successf ul applications. I n the past, Buy- back program used to be im plem ented on very lim ited occasion: when JGBs are paid in k ind to the governm ent in accordance with the I nheritance Tax Act; or when JGBs deposited with the governm ent pursuant to the P ublic O f fice E lection Act are confiscated with the candidate s election loss. H owever, the June 2 0 0 2 am endm ent to the Governm ent Bond S ecurities Buy- back Act including the f ollowing relevant preparation entitled the issuing authorities to flexibly im plem ent Buy- back program . Buy- back program has been conducted according to the respective obj ectives under Debt M anagem ent P olicy as well since F ebruary 2 0 0 3. S pecif ically, Buy- back s f or specif ic purposes in debt m anagem ent nam ely to level of f the concentration of JGB m aturities in F Y 2 0 0 8 and to com press the outstanding debt through transf ers f rom the F I L P S pecial Account were im plem ented. M oreover, in response to the contraction of liq uidity of the JGB m ark et in the second half of 2 0 0 8 af ter the L ehm an S hock , Buy- back s were conducted in such a way that the dem and and supply balance of certain JGB issues would be adj usted in order to support liq uidity. As f or I nflation- I ndexed Bonds whose issuance resum ed in O ctober 2 0 1 3, the governm ent im plem ented Additional Buy- back of outstanding bonds under a ceiling of a new issue am ount until January 2 0 1 5 to m eet dem and f or switching f rom outstanding bonds to new ones when a new issue was of f ered. The governm ent plans JGB Buy- back s at up to 1 trillion yen f or F Y 2 0 1 6 . I t will determ ine specif ic Buy- back m ethods while watching m ark et conditions, based on discussions with m ark et participants. Af ter discussions at the M eeting of JGB M ark et S pecial P articipants and the M eeting of JGB I nvestors on Buy- back s in the April- June 2 0 1 6 q uarter, the governm ent has decided to suspend Buy- back s of 1 5- year F loating- R ate Bonds in M arch 2 0 1 6 as needs f or selling these bonds have declined due to a substantial yield f all f or f ixed- rate JGBs in all duration zones since F ebruary 2 0 1 6 . M eanwhile, m ark et participants have pointed out that a perm anent supply- dem and im balance em erges f or I nf lation- I ndexed Bonds ( JGBi) ( those with principal guarantee issued f rom O ctober 2 0 1 3) when the break - even inf lation rate f alls substantially and that liq uidity prem ium s f or these bonds have expanded as investors have ref rained f rom buying these bonds due to wild price fluctuations. They req uested Buy- back s to be im plem ented to address these problem s. The authorities see the developm ent of a m ark et f or JGBi subj ect to great potential dem and as a k ey challenge f or Debt M anagem ent P olicy and have decided to im plem ent JGBi Buy- back s f rom F Y 2 0 1 6 in view of m ark et conditions and the req uest. JGBi Buy- back s are planned at 4 0 trillion yen f or the April- June 2 0 1 6 q uarter.

81

Ⅱ Framework

F i g .2- 20 M e c h a n i s m s f o r A u c t i o n s o f E n h a n c e d - L i q u i d i t y a n d B u y - B a c k s Buy-backs

・Buy-back for outstanding bonds through auction ・T he total Buy-back amount in FY2016 1.0 trillion yen

C hap ter 1 Gov ernment Bonds (J GBs)

Debt M anagement Office

R edemption

M arket

Issuance A uctions for Enhanced-L iq uidity

・A dditional issuance of outstanding bonds through auction ・T he total amount in FY2016 9.6 trillion yen ・T he A uctions for Enhanced-L iq uidity w ill be conducted at the current level based on the recognition that the auction should be a supplementary measure.

F i g .2- 21 T r a n s i t i o n o f A u c t i o n s f o r E n h a n c e d - L i q u i d i t y

3

Lehman Brothers' ban ruptcy (deepening of financial crisis)

(Unit: billion yen)

BOJ introduced "Quantitati e and Qualitati e Monetary Easing" 2013/4

Remaining maturity 1-5 years (2-, 5-, 10- and 20-Year Bonds) (Note 3)

900 (400・500)

These bonds maturing in 1-5 years ere added to J Bs subject to Auctions for Enhanced-Li uidity to maintain and enhance J B mar et li uidity.

800 (300・500)

700 (300 400, 200 500)

Issuance amount and fre uenc per month

D ebt Management Systems

Raised total mar et issuance amount responding to the formulation of the stimulus pac age(+16.9 trillion yen)

Expanded the target zone to all issues except current issues (remaining maturity o er 5 years) responding to a fall in li uidity of the J B mar et

600 (300×2) 20-Year Bonds Li uidity enhancing measures for the zone ith structural lac li uidity

10-Year Bonds 20-Year Bonds 30-Year Bonds Expanded the target zone (remaining maturity to 6-29 years) li uidity enhancing measures for the indi idual issues hose li uidity ha e been reduced by se eral reasons

Remainig maturity 15-29 years (20-Year Bonds 30-Year Bonds) (Note 2)

Remaining maturity 15(15.5)-39 years (20-Year Bonds 30-Year Bonds 40-Year Bonds)(Note 2)

300 (150×2) Remaining maturity 16-29 years (20-Year Bonds 30-Year Bonds) (Note 1)

200 (100×2)

100 (100×1)

Remainig maturity 6-15(16) years (10-Year Bonds 20-Year Bonds) (Note 1)

Remaining maturity 11-16 years (20-year Bonds) 2006/4

2008/4

2008/10

2008/11

2009/7

Remainig maturity 5-15(15.5) years (10-Year Bonds 20-Year Bonds 30-Year Bonds)(Note 2)

2014/4

2015/4

2016/4 2016/5 2016/6

Note 1: n FY2008, durations to aturit had een di ided into t o groups 1 ears and 1 29 ears. n the April June 2009 uarter, durations to aturit had een differentl classified into t o groups 1 ears and 1 29 ears. Note 2: Fro the Jul Septe er 2009 uarter to the April June 201 uarter, durations to aturit had een differentl di ided into t o groups: 1 ears and 1 29 ears. n the Jul Septe er 201 uarter, durations to aturit had een differentl classified into t o groups: 1 ears and 1 9 ears. Since the Octo er ece er 201 uarter, durations to aturit ha e een differentl classified into t o groups: 1 . ears and 1 . 9 ears. Since the April June 201 uarter, 0 ear issues ha e een put into the Bu ac co erage for the 1 . ear zone. Note : An auction for Enhanced Li uidit for J Bs aturing in 1 ears or 1 . 9 ears ta es place e er t o onths.

82

Ⅱ Framework

F i g .2- 22 T r a n s i t i o n o f t h e B u y - b a c k P r o g r a m (Unit: illion yen)

1,100

2,5,10,20 and 30-Year

1,000

15-Year Floating-Rate 10-Year In ation-Inde ed (issued efore August 2008)

900 3,418

4,915

3,204

10-Year n ation nde ed (issued a er Octo er 201 )

3,155

4,000 3,031

700 600

294.3

270.9

2,745

500

5,226

2,406

5,963

400 300

2,194

6,002

6,091

6,044

4,131

6,507

6,547

6,507

290.4

299.3

286.9

290.7

3,046

664.3 3,021 574.9

200

596.7

684.7

5,004

5,252

5,208

687.8

5,233 600.6

4,407

448.8 397.0 3,206

300.8

100 0

6,010 4,813

6,510

1,201

1,240

1,202

1,201

262.5 211.2

161.0

159.4

151.9

149.0

150.0

168.5

150.2 90.1

42.6

40.0

39.5

90.5

90.1

90.3

37.4

60.5

60.1

180 136.6

94.5

76.1

108.0

120

120 40.0

C hap ter 1 Gov ernment Bonds (J GBs)

800

Note: Figures are ased on actual amount. (FY2016 1Q; estimated amount)

3

I n order to secure stable financing and to im plem ent appropriate policies to enhance m ark et liq uidity of JGBs, the M O F aim s to prom ote the dialogue with the m ark ets.

A. The Adv isory C ouncil on Gov ernment D ebt Management S ince Novem ber 2 0 0 4 , the M O F has convened the Advisory C ouncil on Governm ent Debt M anagem ent, a private advisory panel f or the Director General of the M O F F inancial Bureau, to receive opinions and advice f rom private sector experts with a high degree of insight on public debt m anagem ent with a f ocus on Debt M anagem ent P olicy f rom a m edium to longterm perspective. The council com piled a report in Decem ber 2 0 0 9 and f ollowed up on the report in 2 0 1 0 bef ore suspending discussions f or about three years. Based on econom ic, social and fiscal changes, however, the council resum ed discussions in O ctober 2 0 1 3. S ince then, it has continuously discussed various challenges involving Debt M anagem ent P olicy, com piling a report in June 2 0 1 4 . The council has also widely discussed the f iscal situation, and m onetary policy and regulations involving governm ent debt.

D ebt Management Systems

(5 ) D ialogue with Market P articip ants

B. The Meeting of J GB Market Sp ecial P articip ants S ince the introduction of the JGB M ark et S pecial P articipants schem e in O ctober 2 0 0 4 , the M O F also has had the M eeting of JGB M ark et S pecial P articipants to exchange opinions between m em bers and the M O F concerning im portant topics relating to the bond m ark et. The M O F convenes the m eeting every q uarter to deal m ainly with m ethods f or im plem enting Auctions f or E nhanced- L iq uidity and Buy- back s and JGB m ark et trends. I n addition, the M O F calls the m eeting to receive opinions f rom m ark et participants f or work ing out an annual JGB I ssuance P lan toward the year- end. 83

Ⅱ Framework C . The Meeting of J GB Inv estors

C hap ter 1 Gov ernment Bonds (J GBs)

The M O F has hosted the M eeting of JGB I nvestors since April 2 0 0 2 , to directly and continually share ideas with JGB investors. This m eeting consists of m aj or institutional investors such as bank s and lif e insurance com panies. As is the case with the M eeting of JGB M ark et S pecial P articipants, the M O F convenes the m eeting every q uarter to deal m ainly with m ethods f or im plem enting Auctions f or E nhancedL iq uidity and Buy- back s and JGB m ark et trends. I n addition, the M O F calls the m eeting to receive opinions f rom investors f or work ing out an annual JGB I ssuance P lan toward the yearend.

D . The Meeting of J GB Top Retailers F rom the perspective of prom oting bond ownership by retail investors, in June 2 0 0 7 we began to hold m eetings with top JGB retail brok ers to express our appreciation of the perf orm ance achieved and ef f orts m ade by f inancial institutions that aggressively m ak e of f erings to and solicit subscriptions f rom retail investors. The m eetings also allow f or a m utual exchange of views and opinions between JGB selling agencies and the M O F on the f urther prom otion of JGB sales to retail investors. S ince the first m eeting in June 2 0 0 7, the M O F has convened the m eeting once or twice a year. I t also publishes top sellers of JGBs f or retail investors and the new O TC sales system by business category every six m onths. 

3 D ebt Management Systems

F i g .2- 23 D i a l o g u e w i t h t h e M a r k e t s

D ia lo g u e w ith m a r k e t p a r tic ip a n ts

Share ideas with major banks and securities companies( PDs).

Debt M anagement Office

Obtain opinions and advices on the government debt management policy from intellectuals in the private sector.

Promotion of JGB holdings ◇The M eeting of JGB Investors Dialogue with institutional investors such as insurance companies and pension funds, banks, and foreign investors.

84

◇ The Advisory C ouncil on Government Debt M anagement

◇ The M eeting of JGB M arket Special Participants

◇Overseas IR Explain the current status and future of the Japanese economy , debt management policies etc directly to foreign investors.

◇ The M eeting of JGB Top Retailers Dialogue with financial institutions involving actively in promotion for retail JGB holdings.

Ⅱ Framework

 4  Tax ation of Gov ernment Bonds

I n relation to the integration of taxation on financial incom e and gains in January 2 0 1 6 , a tax ref orm was im plem ented to subj ect gains on public and corporate bond transf ers to a 2 0 %

separate self -

assessm ent taxation and com bine such gains with gains or losses on listed shares f or gain- loss of f setting f or taxation. As f or taxation f or nonresident individuals, the ref orm book - entry transf er JGBs f rom

exem pted interest on

The MOF does not accept tax consultation requests, which should be referred to a tax office close to you. Remember that the MOF cannot transfer any call to any tax office or telephone consultation center.

withholding incom e tax irrespective of how long these individuals

hold these JGBs.

(1) Indiv iduals (residents)

C hap ter 1 Gov ernment Bonds (J GBs)

Taxation of JGBs varies depending on the bondholder - e.g. resident individual, dom estic corporation, dom estic financial institution, nonresident individual, f oreign corporation - and on the types of bonds. I n order to secure sm ooth and stable financing at a tim e when large- scale JGB issuance is expected to continue, it is essential to have a deep and diverse investor base. To that end, various tax exem ption schem es, including providing tax exem ption f or interest, are of f ered to certain q ualified investors under certain conditions. To prom ote JGB holdings, the tax exem ption schem es are of f ered not only to dom estic financial institutions and certain corporations, but also to nonresident individuals and f oreign corporations. ( ).

A. C oup on-bearing bond I nterests, capital gains and profits f rom

redem ption on coupon- bearing bonds are subj ect to incom e tax + 5%

local tax) (

) and

and listed shares is allowed. W ith regards to interests, taxes are

withheld when a coupon is paid. O ther tax break s, k nown as Maruyu and Tokubetsu-Maruyu tax- f ree saving schem es which provide tax exem ption on interest incom e f rom

In addition to the income tax, a special income tax for reconstruction (2.1 of income tax in principle) is imposed from 2013 to 2037.

JGBs, are of f ered to individuals with

disabilities and certain other types of individuals.

B. T-Bills and STRIP S C apital gains and profits f rom

redem ption on T- Bills ( Treasury Discount Bills) and S TR I P S

( principal- only book - entry transf er JGBs and coupon- only book - entry transf er JGBs) are subj ect to separate self - assessm ent taxation at a rate of 2 0 % (

) and profit/ loss of f set am ong them f rom

( 1 5%

incom e tax + 5%

local tax)

and listed shares is allowed. W ith regards to profits

redem ption, taxes are withheld at the tim e of redem ption.

○ S ee F ig. 2 - 2 4 f or taxation f or individuals.

Tax ation of Gov ernment Bonds

profit/ loss of f set am ong them

( 1 5%

4

separate self - assessm ent taxation at a rate of 2 0 %

In addition to the income tax, a special income tax for reconstruction (2.1 of income tax in principle) is imposed from 2013 to 2037.

85

Ⅱ Framework F i g . 2- 24 J G B

In te r e s t T a x a tio n S y s te m

Cate ory

T ype of inco e

nterest interest inco e

C hap ter 1 Gov ernment Bonds (J GBs)

Coupon bearin bonds

Discount Bonds T -Bills and ST R S

ro ts fro rede ption capital ain ro t fro sale capital ain ro ts fro rede ption capital ain ro t fro sale capital ain

(fo r in d iv id u a ls )

T ax ation ○ Separate self-assess ent tax ation w ithholdin at source upon interest pay ent it has tw o options as below ・Not to le nal tax return tax pay ent is co pleted only by w ithholdin . ・T o le nal tax return as inco e ain, etc. on listed shares, etc. ○ T ax ex e piton only for the disabled,etc. ・Maruyu Non-tax able interest inco e fro s all-su deposits of the disabled,etc. M ax i u face alue: ¥ 3.5 illion ・Tokubetsu-Maruyu Non-tax able interest inco e fro s all-su public bonds held by the disabled,etc. M ax i u face alue: ¥ 3.5 illion ○ Separate self-assess ent tax ation aid by declaration as tax ation on capital ains, etc. on listed shares, etc. ○ Separate self-assess ent tax ation w ithholdin at source upon rede ption ○ Separate self-assess ent tax ation aid by declaration as tax ation on capital ains, etc. on listed shares, etc.

Note 1: The tax rates on the income above are 15% income tax (special income tax for reconstruction (basically 2.1% of income tax) is imposed additionally from 2013 to 2037) and 5% local tax. Note 2: Profit/loss offset among the income types and listed shares is allowed.

(2) D omestic C orp orations A. C oup on-bearing bond 4

I nterests, capital gains and prof its f rom

Tax ation of Gov ernment Bonds

redem ption on coupon- bearing bonds are counted

as prof it, and are subj ect to corporate tax and the houj inzei- wari local tax ( m unicipal tax m ultiplied by a certain rate) ( public corporations m ay be exem pt f rom

tax) . W ith regards to

interests, taxes are withheld when the interests are paid. F inancial institutions such as bank s, and financial instrum ents firm s and dom estic corporations capitalized at 1 0 0 m illion yen or m ore m ay be exem pt f rom

withholding tax im posed on the interest incom e.

B. T-Bills and STRIP S C apital gains and prof its f rom

redem ption on T- Bills and S TR I P S ( principal- only book -

entry transf er JGBs and coupon- only book - entry transf er JGBs) are counted as profit, and are subj ect to corporate tax and the houj inzei- wari local tax ( m unicipal tax m ultiplied by a certain rate) ( public corporations m ay be exem pt f rom

tax) . W ith regards to profits f rom

redem ption

received by General I ncorporated Associations ( excluding P ublic I nterest I ncorporated Associations) ,etc., taxes are withheld at the tim e of redem ption.

(3 ) N onresident Indiv iduals and Foreign C orp orations A. C oup on-bearing bonds, T-Bills and STRIP S I nterests, etc. on book - entry transf er JGBs ( interests on book - entry transf er JGBs or profit f rom redem ption on T- Bills or S TR I P S ) held by nonresident individuals or f oreign corporations without a perm anent establishm ent in Japan are exem pt f rom

tax under certain conditions

under the tax exem ption schem e as described in ( 4 ) below. Aside f rom 86

such tax exem ption

Ⅱ Framework schem e, if there is a tax treaty in ef f ect between Japan and the country of residence of the nonresident individuals or the country where the f oreign corporation is located, and the tax rate on interest stipulated under the treaty is set lower than 1 5% , the withholding tax rate on the interests, etc. f rom

book - entry transf er JGBs will be lowered to m atch the rate stipulated

under the treaty, provided that the relevant procedures have been com pleted. I n addition, f or coupon- bearing bonds held by f oreign corporations with a perm anent establishm ent in Japan, the incom e tax is withheld, but the incom e tax withheld will be deducted f rom

their corporation tax.

C hap ter 1 Gov ernment Bonds (J GBs)

B. Bond Gensaki Transactions and Securities L ending Transactions conducted by foreign financial institutions L oan interest which f oreign f inancial institutions ( f oreign corporations operating bank ing business, f inancial instrum ents business or insurance business, f oreign central bank s and international organizations) receive f rom

specified financial institutions in Japan ( ( i) financial

institutions and financial instrum ents firm s subj ect to the provisions of the " Act on C ollective L iq uidation of S pecif ied Transaction C onducted by F inancial I nstitutions, etc." and ( ii) the Bank of Japan ( BO J) ) on transactions executed with repurchase or resale agreem ents ( i.e. Bond Gensaki Transactions) or S ecurities L ending Transactions between these two parties is exem pt f rom

tax, provided that certain req uirem ents have been m et.

(4 ) Tax E x emp tion Scheme for N onresident Indiv iduals and Foreign C orp orations 4

expected to continue, it is essential to have a deep and diverse investor base. Toward this goal, beginning in S eptem ber 1 999 and thereaf ter, various tax exem ption schem es, including providing tax exem ption schem e f or interest on JGBs, have been introduced to enable nonresident individuals and f oreign corporations to invest m ore easily in JGBs. S uch schem es are established with the consideration of f air and eq uitable taxation, and are of f ered to nonresident individuals and f oreign corporations under certain conditions (

).

A. Income Tax I nterests, etc. on JGBs ( interests on JGBs or profits f rom

Including trustees of ualified Foreign Securities Investment Trusts and Foreign Pension Trusts.

Tax ation of Gov ernment Bonds

I n order to secure sm ooth and stable f inancing at a tim e when large- scale JGB issuance is

redem ption on T- Bills or S TR I P S )

held by nonresident individuals or f oreign corporations ( including trustees f or Q ualif ied F oreign S ecurities I nvestm ent Trusts and F oreign P ension Trusts) without a perm anent establishm ent in Japan in transf er accounts at a JBE S P ( f inancial institutions or f inancial instrum ents firm s in Japan acting as account m anagem ent institutions f or JGBs) or a Q F I are exem pt f rom

incom e tax, provided that certain req uirem ents have been m et.

87

Ⅱ Framework F i g .2- 25 O v e r v i e w o f T a x E x e m p t i o n S c h e m e f o r N o n r e s i d e n t I n d i v i d u a l s a n d F o r e ig n C o r p o r a tio n s Nonresident individuals and foreign corporation Identification Q FIs

FIP s (other than Q FIs) (Overseas)

C hap ter 1 Gov ernment Bonds (J GBs)

(Japan) Identification JGB Book-Entry System P articipants in Japan (sub-custodian)

T he T ax Office having j urisdiction over the location of the head office or principal office of JBESP s

A pplication Form for W ithholding T ax Ex emption and A pplication Form for A mendment P ayment record

B. C orp oration Tax The corporation tax does not apply to interests, etc. on JGBs held by nonresident individuals or f oreign corporations ( including trustees f or Q ualified F oreign S ecurities I nvestm ent Trusts

4

and F oreign P ension Trusts) without a perm anent establishm ent in Japan in transf er accounts

Tax ation of Gov ernment Bonds

at a Q F I , etc.

C . Bond Gensaki Transactions and Securities L ending Transactions effected by foreign financial institutions L oan interest which f oreign f inancial institutions (

① ) receive f rom

specif ied f inancial

② ) on their Bond Gensaki Transactions or S ecurities L ending

institutions in Japan ( Transactions is exem pt f rom

tax, provided that certain req uirem ents have been m et.

F i g .2- 26 O v e r v i e w o f T a x E x e m p t i o n S c h e m e f o r N o n r e s i d e n t I n d i v i d u a l s a n d F o r e i g n C o r p o r a t i o n s ( B o n d Gensaki T r a n s a c t i o n s )

F oreign financial institutions. etc. ( Overseas) ( Japan)

Identification Specified financial institutions. etc. in Japan

The competent tax office in the tax jurisdiction

Application F orm for Withholding Tax Exemption and Application F orm for Amendment

88

① Foreign corporations operating banking business, financial instruments business or insurance business, foreign central banks and international organizations. ② (i) Financial institutions and financial instruments firms subject to the provisions of the “Act on Collective Liquidation of Specified Transaction Conducted by Financial Institutions, etc.” and (ii) the BOJ.

Ⅱ Framework F i g .2- 27 R e c e n t T a x - R e l a t e d I n i t i a t i v e s iscal Year

T ax R efor

M ain oints

Y 2001

・Ex pansion of the tax ex e ption to co er interest on coupon-bearin JGBs held by nonresident indi iduals or forei n corporations in transfer accounts w ith Q s.

Y 2002

・Ex pansion of the tax ex e ption to co er the interest on JGBs held by non-j uridical forei n in est ent trusts, pro ided that the in est ent trusts are publicly offered and are not offered in Japan. ・A pplication of tax ex e ption, under certain conditions, to loan interest enerated fro Bond Gensaki T ransactions in ol in JGBs, w hich is recei ed by forei n nancial institutions till M arch 31,2004 . S related tax syste s in li ht of the li itation that only corporations can hold ・ ntroduction of ST R principal-only book-entry transfer JGBs and coupon-only book-entry transfer JGBs. ・A doption of the necessary tax related easures in conj unction w ith the transition to the new JGB book-entry transfer syste .

Y 2003

・A pplication of w ithholdin tax ex e ption to the interest on coupon-bearin JGBs held by nonnancial do estic co panies capitaliz ed at 100 illion yen or ore. ・A pplication of w ithholdin tax ex e ption to the interest on coupon-bearin JGBs held by Japan Go ern ent Bond Clearin Corporation.

Y 2004

・Ex pansion of tax ex e ption to co er rede ption profit arisin fro T Bs/ Bs w hich are now collecti ely called T -bills held in transfer accounts w ith Q s by forei n corporations. ・Ex tension of the applicable period of tax ex e ption on loan interest enerated fro Bond Gensaki T ransactions w hich is recei ed by forei n nancial institutions by 2 years till M arch 31, 2006 .

Y 2005

・Ex pansion of eli ible holders of nflation- ndex ed bonds to include forei n j uridical persons, pro ided that they are not subj ect to inco e tax on interest inco e. ・R elax ation/Si plification of the arious procedural req uire ents to apply for beneficial tax treat ent sche es related to JGBs held by nonresident indi iduals or forei n corporations, includin : i si plification of the procedure req uired for notification fro Q s to JGB BookEntry Syste participants in Japan w hen the nonresident indi iduals or forei n corporations hold the JGBs in transfer accounts w ith Q s and ii si pli cation of the procedures req uired for application of tax ex e ption concernin the interest on coupon-bearin JGBs to those w ho ha e tax ex e ption concernin T Bs/ Bs w hich are now collecti ely called T -bills under certain conditions.

Y 2006

・Ex tension of the applicable period of tax ex e ption on loan interest enerated fro Bond Gensaki T ransactions w hich is recei ed by forei n nancial institutions by 2 years till M arch 31, 2008 .

Y 2008

・T ax ex e ption on loan interest enerated fro Bond Gensaki T ransactions w hich is recei ed by forei n nancial institutions beco es a per anent easure.

Y 2010

・T he book prepared for each in estor by JBES s upon recei in notice fro Q under certain conditions. ・Ex pansion of the scope of the q uali ed forei n securities in est ent trusts.

Y 2011

・ rocedures for applyin tax -ex e ption easures on interest of book-entry transfer JGBs to orei n ension T rusts, partnerships and T rusts T ax able on Bene ciaries w ere re ned. ・W ith respect to the Securities endin T ransactions usin JGBs, tax ex e ption easures w ere applied on the interests recei ed by forei n financial institutions, etc. as in the case of Bond Gensaki T ransactions.

Y 2012

・Sub ission etc. of A pplication or for W ithholdin T ax Ex e ption on interests of book-entry transfer JGBs pertainin to the trust property of T rusts T ax able on Beneficiaries w as ade possible to be perfor ed by the trustees of the rele ant trust.

Y 2013

・A fter January 2016, the tax ation syste for public and corporate bonds w ill be chan ed to separate tax ation. M oreo er, the ex tent of profit-loss offsettin for financial products w ill be ex panded to public and corporate bonds nte ration of nancial inco e tax es .

Y 2014

・R e ardin the inte ration of financial inco e tax es to be i ple ented in January 2016, the scope of discount bills has been re ised, etc.

s can be o itted

Tax ation of Gov ernment Bonds

・A pplication of tax ex e ption for the accrued interest on JGBs that need to be paid back to the national treasury w hen the JGBs ha e been reopened i.e. additional issuance of the ex istin JGBs .

4

Y 2000

C hap ter 1 Gov ernment Bonds (J GBs)

Y 1999

・A pplication of tax ex e ption to interest on coupon-bearin JGBs held by nonresident indi iduals or forei n corporations w hich are directly deposited in transfer accounts at JBES s. ・Ex e ption fro tax for rede ption pro t arisin fro T Bs/ Bs w hich are now collecti ely called T -bills held by forei n corporations w hich are directly deposited in transfer accounts at JBES s.

89

Ⅱ Framework C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

C hap ter 2 Financing Bills,借入金、 Borrowings, 第2章 政府短期証券、 政府保証債務 Gov ernment-Guaranteed D ebt and Subsidy Bonds I n addition to issuing JGBs to finance fiscal expenditures as explained in C hapter 1 , the central governm ent also issues F inancing Bills, has borrowings, and grants governm ent guarantees. They have dif f erent f eatures, but they are sim ilar to JGBs in that they are part of the debt associated with financing the fiscal activities of the central governm ent. The governm ent also issues S ubsidy Bonds in place of m onetary paym ents. These debt instrum ents are outlined below:

 1 Financing Bills The central governm ent is able to issue F inancing Bills ( F Bs) to finance the national treasury on a short- term

basis or cope with tem porary f und shortage in special accounts. As Treasury

F inancing Bills issued to finance the national treasury will address cash position within a fiscal year, they will be redeem ed with expenditures in the sam e fiscal year.

(1) L egal Grounds of Financing Bills The governm ent m ay issue F inancing Bills f or the General Account or som e S pecial Accounts within the param eters as approved by the Diet in accordance with the P ublic F inance Act, Act on S pecial Accounts, and som e other legislation. F i g .2- 28 F i n a n c i n g B i l l s b y L e g a l G r o u n d s o f I s s u a n c e (

1 Financing Bills

inancin Bills T reasury inancin Bills

e al rounds A rticle 7 1 of the ublic inance A ct A rticle 9 1 of the iscal oan und iscal oan und inancin Bills A ct A rticle 83 1 of orei n Ex chan e the A ct on Special und inancin Bills A ccounts A rticle 94 2 and etroleu inancin 95 1 of the A ct on Bills Special A ccounts Nuclear Da a e iability acilitation inancin Bills

A rticle 94 4 and 95 1 of the A ct on Special A ccounts

A rticle 136 1 and ood inancin Bills 137 1 of the A ct on Special A ccounts

)

M ain purpose ssued w hen it is req uired to balance the National T reasury. ssued w hen there is insuf cient cash in the iscal oan und ssued w hen there are insuf cient reser es in the orei n Ex chan e und ssued as necessary to pro ide re enue sources for purchase for national petroleu reser es etc. and w hen there is insuf cient cash for pay ent. ssued as necessary to pro ide re enue sources for transfer for Special A ccount for the Go ern ent Debt Consolidation und etc. and w hen there is insuf cient cash for pay ent. ssued w hen re enue sources are req uired for the purchase of foodstuffs, a ricultural products or i ported li estock feed and w hen there is insuf cient cash for pay ent.

(2) Status of Financing Bills in the Budget The budget s general provisions set f orth the upper lim it of F inancing Bills f or that fiscal year. This upper lim it req uires an approval at the Diet.

90

① Because these different bonds and Treasury Bills (later mention) are all issued as Treasury Discount Bills, there is no difference in each other as financial Instruments. ② This table shows the types of Financing Bills which have been issued in the past.

Ⅱ Framework

I n principle, F inancing Bills are issued to the m ark et through public auction. They are basically issued to the m ark et on the first business day in a week . They are redeem able in three m onths, in principle (

①) .

I f som e F inancing Bills rem ain unsold through public auction, or if there em erges unexpected cash needs, the Bank of Japan m ay exceptionally accept F inancing Bills (

②) .

③ ) and F inancing Bills, under

S ince F eb. 2 0 0 9, we have j ointly issued Treasury Bills (

unified nam es of Treasury Discount Bills ( abbreviation: T- Bills) and these have been circulated in the m ark ets. F i g .2- 29 C o m p a r i s o n o f T r e a s u r y B i l l s a n d F i n a n c i n g B i l l s T Bs Of cial na e urpose of issue

T reasury Bills

② In this case, Financing Bills accepted by the BOJ are redeemed as quickly as possible by the cash raised through the revenue of Financing Bills at public auction. ③ If JGBs intended to cover fiscal expenditures are scheduled to be redeemed in a year, they are called Treasury Bills (TBs) (see P50).

T o nance the National T reasury on a short-ter basis,or co er te porary fund shorta e in a special account

ssued at a discount

M aturities

A pprox . 2 onths, 3 onths, 6 onths, 1 year

1 year

face alue

M ethod of issue

inancin Bills

T o nance scal ex penditures the sa e as JGBs w ith other aturities

M anner of issue

M ini u

Bs

① 2-Month, 6- Month and 1-Year Financing Bills are also issued.

10

illion yen ☞④

・ n principle, public auction con entional, co petiti e price auction ・Jointly issued by the na e of T reasury discount bills T -Bills

T ransfer restrictions

Unrestricted

④ The sum will be lowered to 50,000 yen from April 1, 2017.

C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

(3 ) Auction Methods, etc.

(4 ) Outline of C ash Management of the N ational Treasury by tim ing dif f erences between daily receipts and paym ents. The adj ustm ent m eans of treasury balance are: issuance of F inancing Bills, tem porary use of the treasury surplus, advanced redem ption of F inancing Bills possessed by the BO J or the National Treasury, and reclassif ication to dom estic designated deposit ( interest- bearing deposits) . The F inancial

1 Financing Bills

The balance of the National Treasury m ay have tem porary cash shortage or surplus caused

Bureau of the M O F estim ates receipts and paym ents of the National Treasury in order to secure sm ooth and stable financing, and gives due consideration of im pact on private financial m ark ets. S pecifically, we issue 3- M onth, 6 - M onth and 1 - Y ear F inancing Bills as ref unding securities ( ensuring that the issue date of the new bill basically m atches the m aturity date of the outstanding bill being refinanced) . W hile f or 2 - M onth F inancing Bills, we set the issue date on the day of net paym ents f rom

the National Treasury and the redem ption date on the day of net

receipts into the National Treasury. W e also strive to reduce the am ount of public issues to the m ark et and ref rain f rom concentrated issuance, through active tem porary use of treasury surplus into special accounts f acing f und shortage as well as through active underwriting in the National Treasury.

91

Ⅱ Framework

C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

 2 Borrowings Borrowings include two categories, one is Borrowings in a narrow sense and the other is Tem porary Borrowings. I n f iscal- related legislations, the term Borrowings ref ers to the borrowings in a narrow sense, in principle. Borrowings ( in a narrow sense) basically ranges over several accounting years, while Tem porary Borrowings m ust be redeem ed within the sam e accounting year. Tem porary Borrowings and other borrowings redeem able in shorter than a year are called short- term borrowings, while borrowings in a narrow sense is ref erred to as long- term borrowings.

(1) L egal Grounds of Borrowings The General Account and each special account carry out borrowings within the lim it of the am ount approved by the Diet pursuant to the P ublic F inance Act and the Act on S pecial Accounts.

(2) Status of Borrowings in the Budget The m axim um am ount that each special account can borrow or tem porarily borrow f or every fiscal year m ust be provided under the general budget provisions, which is subj ect to Diet approval each fiscal year.

(3 ) Source of Borrowings Borrowings of each special account are m ade f rom the F iscal L oan F und and private financial institutions. At the end of M arch 2 0 1 6 , the General Account and 7 special accounts had outstanding borrowings f rom the F iscal L oan F und, and 3 special accounts had outstanding borrowings f rom private financial institutions. W hile borrowings f rom private financial institutions constitute part of the governm ent debt to the private sector, borrowings f rom the F iscal L oan F und are the governm ent debt to the public sector ( ).

2 Borrowing

F i g .2- 30 F l o w

R e la te d to th e B o r r o w in g s b y S p e c ia l A c c o u n ts fr o m

Special Accounts ( Borrowings from the F iscal Loan F und) ( Borrowings from private financial institutions)

The Fiscal Loan Fund issues FILP Bonds or uses deposits from special accounts, etc., in order to make loans to these special accounts.

th e F is c a l L o a n F u n d F LIP Bonds

Fiscal Loan Fund

Deposits

( Government)

(4 ) Borrowings from the P riv ate Sector The S pecial Account f or Allotm ent of L ocal Allocation Tax and L ocal Transf er Tax ( the S pecial Account f or L ocal Allocation Tax) , the S pecial Account f or the National F orest Debt M anagem ent, and the S pecial Account f or E nergy P olicy carry out borrowings f rom private financial institutions by public auctions. 92

Ref: II Chapter 1 1(1)B “FILP Bonds” (p42) See the MOF website. “FILP” (Explanation of Framework)

( Financial mark et)

Ⅱ Framework A. Sp ecial Account for L ocal Allocation Tax C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

Borrowing by the S pecial Account f or L ocal Allocation Tax finances deficits in local public finances. I t covers part of the L ocal Allocation Tax f or the relevant fiscal year. S ince July 2 0 0 0 , the S pecial Account has been borrowing partly f rom private financial institutions. H owever, f rom F Y 2 0 0 7, it decided to stop borrowing additional f unds. I t now borrows only to repay outstanding debt.

B. Sp ecial Account for the N ational Forest D ebt Management The S pecial Account f or National F orest S ervice has undergone certain ref orm s as seen in F Y 1 998 enf orcem ent of the S pecial M easure Act f or the R ef orm of the National F orest S ervice. I n that fiscal year, the S pecial Account switched its borrowing source f rom the F iscal L oan F und to private financial institutions. To ensure that such borrowings are m ade in a f air, eq uitable and transparent m anner, in F Y 2 0 0 3 the S pecial Account switched f rom the previous practice of using syndicated loans to obtaining loans by public auctions. P ursuant to the L aw concerning P artial R evision, E tc. of L aws, E tc. including the L aw on M anagem ent and O peration of the National F orests to E nhance the P ublic I nterest F unctions of National F orests which cam e into ef f ect in April 2 0 1 3, the S pecial Account f or National F orest S ervice was abolished, whereupon obligations relating to borrowings attributed to the Account were transf erred to the S pecial Account f or the National F orest Debt M anagem ent. Borrowings of the S pecial Account f or the National F orest Debt M anagem ent f rom private financial institutions are intended to be used to repay the outstanding debt. No new additional borrowings are being m ade.

C . Sp ecial Account for E nergy P olicy

(5 ) Borrowing through P ublic Auction on P riv ate-sector Borrowings F or borrowings f rom private sectors, the governm ent em ploys the interest rate com petitive bidding or noncom petitive bidding process ( only f or the S pecial Account f or L ocal Allocation Tax) in which the governm ent will accept biddings that of f er lower interest rates until the borrowing am ount reaches the scheduled f undraising am ount. Bidding participants are private financial institutions, including m aj or city bank s and regional bank s. A total of 1 0 9 private financial institutions participate in the bidding program as of M arch 31 , 2 0 1 6 .

S tate petroleum reserves cam e under direct state supervision in April 2 0 0 3, and the responsibility f or the stock piling f acilities was transf erred in F ebruary 2 0 0 4 .

2 Borrowing

Japan National O il C orporation ( JNO C ) was abolished in accordance with R eorganization and R ationalization P lan f or S pecial P ublic I nstitutions. The state oil reserves that had until that point been tak en care of by JNO C cam e under the direct control and m anagem ent of the governm ent in the f orm of the S pecial Accounts f or P etroleum and the M ore S ophisticated S tructure of Dem and and S upply of E nergy P olicies ( the S pecial Account f or P etroleum ) ( ). I n line with the transf er, the S pecial Account f or P etroleum began to borrow to f inance its costs and expenses related to the construction of stock piling f acilities. P ursuant to the Act on S pecial Accounts that took ef f ect in April 2 0 0 7, the S pecial Account f or P etroleum was abolished, whereupon the rights and obligations attributed to the Account were transf erred to the S pecial Account f or E nergy P olicy. Borrowings of the S pecial Account f or E nergy P olicy f rom private financial institutions are intended to be used to repay the outstanding debt. No new additional borrowings are being m ade. The governm ent has borrowed f unds in the Nuclear Dam age L iability F acilitation Account since F ebruary 2 0 1 2 to cover the redem ption of JGBs granted to the Nuclear Dam age C om pensation and Decom m issioning F acilitation C orporation ( ).

The Nuclear Damage Compensation Facilitation Corporation was reorganized into the Nuclear Damage Compensation and Decommissioning Facilitation Corporation as a revision to the Nuclear Damage Compensation Facilitation Corporation Act took effect in August 2014

93

Ⅱ Framework

 3  Gov ernment-Guaranteed D ebt I ncorporated adm inistrative agencies run businesses f or public purposes as governm ent agencies. The governm ent guarantees their debt within the m axim um

am ount provided in the budget. These

C hap ter2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

governm ent- guaranteed debt is used to finance activities of those agencies, and the governm ent work s to ensure sm ooth and stable financing and to m ak e sure the given term s and conditions are f avorable and appropriate as governm ent- guaranteed debt.

(1) L egal Ground of Gov ernment Guarantee I n principle, governm ent guarantees f or corporate debt are prohibited under Article 3 of the Act on R estrictions on F inancial Assistance by Governm ent to C orporations. E xceptions are only m ade by specific acts under cases where the f ollowing conditions are satisfied; i)

C onducting businesses f or highly public purposes as agencies f or the governm ent.

ii) Their financial accounting and adm inistration are under governm ental supervision, and thus the use of guaranteed- debt borrowing and repaym ent schedules are thoroughly m onitored. W hen guarantees are given, appropriate supervisions including check ing financial condition are exercised at the m inistries and agencies that hold j urisdiction over the relevant agencies.

(2) Features of Gov ernment-Guaranteed D ebt Governm ent- guaranteed debt is broadly divided into Governm ent- Guaranteed Bonds and Borrowings. Governm ent- Guaranteed Bonds are divided into dom estic and f oreign bonds. R aising f unds through Governm ent- Guaranteed Borrowings generally has the advantage of flexibility in m eeting tem porary dem ands f or f unds, but also has the def ect in liq uidity of the secondary m ark et as com pared to Governm ent- Guaranteed Bonds.

(3 ) Treatment in the Budget and E x amination P rocess 3

A. Treatment in the budget

Gov ernment-Guaranteed D ebt

a. The max imum amount of gov ernment guarantee There are cases in which the governm ent is perm itted to guarantee debt based on specific acts, as m entioned above. These acts also provide that the governm ent m ust receive Diet approval f or the m axim um

am ount of governm ent guarantee. Theref ore, the m axim um

am ount f or individual corporations is provided under the general provisions of the General Account budget, which is subj ected to Diet approval in each fiscal year.

b. P rov ision in the FIL P P lan The m axim um

am ount of governm ent- guaranteed debt is specified in the budget as stated

above. The governm ent guarantees f or those agencies that are eligible f or F I L P lending or specified by cabinet orders, when the guarantee term

is 5 years or longer, shall be reported

in the F I L P P lan based on Article 5, P aragraph 2 , I tem

3 of the Act f or the S pecial M easures

on the L ong- Term 94

M anagem ent of the F iscal L oan F und.

Ref: See the MOF website. “FILP” (FILP Plan of each year)

Ⅱ Framework B. C hecking in p ractice E very f iscal year, the M O F plans the issuance am ount of Governm ent- Guaranteed Bonds and the m aturity structure of the f ollowing fiscal year tak ing account of m ark et trends, and m ak es the am ount available with the JGB I ssuance P lan ( F or F Y 2 0 1 6 , the scheduled issuances Governm ent- Guaranteed Bonds or Borrowings, the M O F exam ines whether or not interest rates and prices in each case are appropriate f or the guaranteed debt.

F i g .2- 31 B r e a k d o w n o f t h e P l a n n e d I s s u a n c e A m o u n t f o r F Y 2016 o f G o v e r n m e n t - G u a r a n t e e d D o m e s t i c B o n d s O ffe r e d to th e M a r k e t a n d F o r e ig n B o n d s b y M a tu r itie s billion yen

Y2015 nitial ⒜

Y2015 Supple entary Bud et ⒝

⒝⒜

Y2016 nitial ⒞

M ain ssuer

⒞⒜

Japan Ex pressw ay H oldin 20.0 and Debt R epay ent A ency JEH DR A

20.0

­

40.0

30 year

120.0

120.0

­

160.0

40.0 JEH DR A

20 year

400.0

400.0

­

400.0

­ JEH DR A

10 year

1,584.8

1,584.8

­

877.2

8 year

116.0

116.0

­

120.0

6 year

425.0

425.0

­

415.0

▲10.0

5 year

9.0

9.0

­

9.0

­

4 year

200.0

200.0

­

440.0

240.0

Deposit nsurance Corporation of Japan D C ,J M

2 year

600.0

600.0

­

930.0

330.0

Banks' Shareholdin s urchase Corporation,D C,etc.

Subtotal

3,474.8

3,474.8

­

3,391.2

▲83.6

orei n Bonds

710.0

710.0

­

1,075.0

Japan Bank for nternational 365.0 Cooperation,De elop ent Bank of Japan nc.,etc.

4,184.8

4,184.8

­

4,466.2

281.4

T otal

JEH DR A ,Japan inance ▲707.6 Or aniz ation for M unicipalities J M ,etc. 4.0 J M J M ,Japan inance Corporation,etc. Or aniz ation for ro otin Urban De elop ent

Gov ernment-Guaranteed D ebt

20.0

3

40 year

C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

are tabulated below.) . F urtherm ore, whenever an agency raises f unds through issuance of

95

Ⅱ Framework F i g .2- 32 B r e a k d o w n o f t h e P l a n n e d I s s u a n c e A m o u n t f o r F Y 2016 o f G o v e r n m e n t - G u a r a n t e e d D o m e s t i c B o n d s O ffe r e d to th e M a r k e t a n d F o r e ig n B o n d s b y Is s u e r s a n d M a tu r itie s

ssuer

C hap ter2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds 3 Gov ernment-Guaranteed D ebt 96

Japan inance Corporation Japan nternational Cooperation A ency Japan Bank for nternational Cooperation Deposit nsurance Corporation of Japan Banks' Shareholdin s urchase Corporation Nuclear Da a e Co pensation and Deco issionin acilitation Corporation ri ate inance nitiati e ro otion Corporation of Japan Japan O erseas nfrastructure n est ent Corporation for T ransport & Urban De elop ent und Corporation for the O erseas De elop ent of Japan' s CT and ostal Ser ices nc. Japan Ex pressw ay H oldin and Debt R epay ent A ency New Kansai nternational A irport Co., td. De elop ent Bank of Japan nc. Or aniz ation for ro otin Urban De elop ent Central Japan nternational A irport Co., td. Japan inance Or aniz ation for M unicipalities T otal

40 year

30 year

20 year

10 8 year 6 year 5 year 4 year 2 year Subtotal year 60.0

125.0

185.0

400.0

40.0

160.0

400.0

­

75.0

75.0

­

800.0

800.0 680.0

500.0

500.0

500.0

150.0

150.0

150.0

13.8

13.8

13.8

52.0

52.0

52.0

36.1

36.1

36.1

356.0

956.0

956.0

28.0

28.0

28.0

90.0

150.0 9.0

9.3

400.0

185.0

680.0

22.0

160.0

T otal

280.0

60.0

40.0

orei n Bonds

240.0

120.0

200.0

877.2

120.0

415.0

40.0 9.0

440.0

930.0

200.0

350.0

31.0

31.0

9.3

9.3

600.0

600.0

3,391.2

1,075.0

4,466.2

Ⅱ Framework

 4  Subsidy Bonds S ubsidy Bonds are the governm ent bonds issued in place of provision of cash. Accordingly, issuance of S ubsidy Bonds does not generate revenues (

).

S ubsidy Bonds include ( narrowly def ined) S ubsidy Bonds issued by the governm ent in place of m onetary paym ents including condolence m oney and benefits and S ubscription/ C ontribution I nternational M onetary F und.

(1) Subsidy Bonds (narrowly defined) S ubsidy Bonds are currently issued to the bereaved f am ilies of the war dead or those who suf f ered physical or spiritual dam age in W orld W ar I I and those who were repatriated af ter the war, in lieu of m onetary paym ents such as condolence m oney and benefits. The first such governm ent bonds were issued to the bereaved f am ilies of the war dead and others based on the Act on R elief of W ar V ictim s and S urvivors ( L aw 1 2 7, 1 952 ) established in 1 952 . S ince then, a total of 4 4 types of S ubsidy Bonds have been issued under relevant special laws by the end of F Y 2 0 1 5. The num ber of such bond issues totals 1 8 .2 2 m illion, worth 4 ,0 77.9 billion yen. S ubsidy Bonds outstanding at the end of F Y 2 0 1 5 totaled 1 34 .2 billion yen. I n the context of leveling fiscal spending, redem ption of these bonds is m ade over a period of several years on an installm ent paym ent basis (

).

(2) Subscrip tion/ C ontribution Bonds S ubscription/ C ontribution Bonds (

) are k inds of S ubsidy Bonds, and are issued to pay

the subscription or contribution in whole or in part to international institutions, in lieu of the am ount to be paid in the currency. Thus, these bonds are non- interest bearing, non- transf erable, and payable on dem and ( whenever the institution concerned needs the currency and req uests f or encashm ent, the cash should be paid to the institution) . As of the end of F Y 2 0 1 5, we have a total of 1 9 outstanding issues of subscription or contribution bonds issued to 1 3 institutions, including the I M F . As prescribed in the articles of agreem ent f or each institution, using governm ent bonds to m ak e a paym ent to an international the tim e being f or the conduct of its operations. Dom estically, the Accession M easures Act f or each international institution provides a legal base f or the issuance of these S ubscription/ C ontribution Bonds.

(3 ) Others A. Gov ernment Bonds issued to D ev elop ment Bank of J ap an Governm ent Bonds issued to the Developm ent Bank of Japan ( DBJ) are governm ent bonds issued/ provided f or the purpose of strengthening the f inancial f oundations of the DBJ to

While the difference between “subscription” and “contribution” paid to international institutions is not very clear, the former is used if all of the following requirements (1) to (3) are met, otherwise the latter is used. (1) Funds necessary for institutions with independent articles of agreement to perform their primary operations set forth in their articles of agreement are provided. (2) The purpose of providing the funds is to participate in the management of the institution concerned and voting rights commensurate with the amount of funds paid are granted. (3) In cases including withdrawal from the institution concerned, the right to distribution of property commensurate with funds paid until then is granted.

4 Subsidy Bonds

institution is perm itted only when the institution concerned does not req uire the currency f or

Also, given the purpose for issuance and the nature that the recipients of redemption money are limited, Subsidy Bonds are offered as name bonds, and in principle their transfer and attachment are prohibited.

C hap ter 2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds

Bonds issued f or subscriptions or contributions to international organizations such as the

Subscription/Contribution Bonds, Government Bonds issued to the Development Bank of Japan for crisis response operations and Government Bonds issued to the Nuclear Damage Compensation and Decommissioning Facilitation Corporation are also issued by the government in place of provision of cash and do not generate revenues. Therefore, they are treated as widely defined Subsidy Bonds in addition to narrowly defined Subsidy Bonds in (1).

f acilitate the im plem entation of crisis response operations carried out by the DBJ; these bonds 97

Ⅱ Framework are non- interest bearing, non- transf erable, and payable on dem and ( whenever the DBJ needs to reinf orce its financial f oundation and req uests f or encashm ent, the cash should be paid to the DBJ) .

B. Gov ernment Bonds issued to N uclear D amage C omp ensation and D ecommissioning Facilitation C orp oration Governm ent Bonds issued to the Nuclear Dam age C om pensation and Decom m issioning

C hap ter2 Financing Bills, Borrowings, Gov ernment-Guaranteed D ebt and Subsidy Bonds 4 Subsidy Bonds 98

F acilitation C orporation ( NDF ) are issued/ provided to raise f unds f or the NDF to cover special f inancial assistance. These bonds are non- interest- bearing, non- transf erable, and payable on dem and ( whenever the NDF needs to subsidize f unds f or a nuclear energy f irm

to pay

dam ages com pensation and req uests the encashm ent of these bonds, the cash should be paid to the NDF ) . I t should be noted that these bonds are redeem ed with cash at the expense of the S pecial Account f or E nergy P olicy ( Nuclear Dam age L iability F acilitation Account) .

Ⅱ Framework

C hap ter 3 Other P ublic D ebt I n addition to the bonds or borrowings explained in chapter 1 and 2 such as C onstruction Bonds, there are other categories of P ublic Debt, such as P ublic P ensions, L ocal Governm ent Bonds ( L GBs) , and the debt of I ncorporated Adm inistrative Agencies, etc. Although these debt categories are subj ect to governance f ram ework s which are dif f erent f rom those used f or JGBs and Borrowings by the central governm ent, and none of these debt categories relate to f undraising in connection with fiscal activities of the central governm ent, these are considered to be potentially influential f actors on the country s debt m anagem ent principles. The f ollowing section will specifically discuss L GBs and the debt of I ncorporated Adm inistrative Agencies, etc.

 1 L ocal Gov ernment Bonds (L GBs) (1) Basic Scheme of L GBs A. Basic scheme

F i g .2- 33 C o n s u l t a t i o n S y s t e m

fo r th e L G B

Is s u a n c e [ N otif ication]

Notification ( in advance)

Notice

C onsent

C onsent

Application

Approval

In case of consent

In case of dissent

LGB issuance

F or Local Governments whose fiscal condition is relatively sound

LGB issuance with consent

[Consultation]

Report to its local assembly

LGB issuance without consent

[ Approval] In case of approval

LGB issuance

F or Local Governments whose fiscal condition is not relatively sound

1 L ocal Gov ernment Bonds (L GBs)

C onsultation

( Prefectural Governors)

C onsent

C onsultation

Prefectures ( municipalities)

M IC

M OF C onsultation

Private F unds A part of Public F unds

ntil FY2000, shortages in ordinary revenue appearing in the Local Public Finance Program has been covered by the borrowings of the Special Account for Local Allocation Tax. From FY2001, extraordinary financial countermeasures bonds, a type of LGBs, were introduced as a new bond to cover shortfalls.

C hap ter 3 Other P ublic D ebt

L GBs are issued by local governm ents to cover part of their expenditures, and to constitute the debt of local governm ents, and they are separate f rom the debt of the central governm ent. W hile, in principle, L GBs can only be issued as resources f or construction expenses, etc. as stipulated in Article 5, L ocal Governm ent F inance Act, there are exceptions such as extraordinary financial counterm easures bonds, etc. ( ) W hen a local governm ent intends to issue L GBs, it needs to consult with the M inister f or I nternal Af f airs and C om m unications or its pref ectural governor and obtain his/ her consent. I f the M inister f or I nternal Af f airs and C om m unications is planning to grant his/ her consent in the consultation process, he/ she needs to consult with M inister of F inance in advance. L ocal governm ents satisf ying certain req uirem ents are able to issue their L GBs financed with private- sector f unds, etc. f rom F Y 2 0 1 2 and with a part of public f unds f rom F Y 2 0 1 6 by giving prior notice to the M inister f or I nternal Af f airs and C om m unications or pref ectural governor.

99

Ⅱ Framework B. C lassification of L GBs The planed issuance am ount of L GBs f or the f ollowing fiscal year is announced by the central governm ent in the L GB P rogram at the tim e of determ ination of a governm ent budget draf t

Ref.: Ministry of Internal Affairs and Communications website (Local Bond Program and Local Public Finance Program)

f or the f ollowing fiscal year. According to the L GB P rogram , the f ollowing tables show the break down by f unding resources, proj ect types and accounts.

a. Breakdown by funding resource F i g .2- 34 B r e a k d o w n b y F u n d i n g R e s o u r c e s o f L G B s

ublic unds ocal Go ern ent Bonds ri ate unds

iscal oan unds Japan inance Or aniz ation for M unicipalities unds ublic Offerin

unds

ri ate lace ent unds

L GBs can be classif ied by the f unding resources: P ublic F unds ( F iscal L oan F unds and Japan F inance O rganization f or M unicipalities F unds) and P rivate F unds. The L GB P rogram gives the expected issuance am ount f or each group. Am ong public f unds, the F iscal L oan F unds are included in the F I L P P lan as the F iscal L oans f or local governm ents. Japan F inance O rganization f or M unicipalities F unds are based on the f unds raised by Japan F inance O rganization f or M unicipalities ( ) through the issuance of bonds.

b. Breakdown by p roj ect typ e C hap ter 3 Other P ublic D ebt

As f or proj ect types f inanced with L GBs, General Account Bonds are covering public work s, disaster restoration proj ects, education/ welf are f acilities developm ent proj ects, depopulation and rem ote region proj ects, and som e other proj ects. O n the other hand, M unicipal E nterprise Bonds are f inancing water- supply proj ects, transportation proj ects, hospital and elderly care service proj ects, and sewage proj ects. The L GB P rogram sets f orth the budgeted L GB am ount f or each proj ect type.

c. Breakdown by accounts issuing L GBs L GBs can be classified by the f ollowing two accounts: ordinary account (

) and public

enterprise account. O utlook of annual revenues and expenditures f or the f ollowing year appearing in the L ocal

1 L ocal Gov ernment Bonds (L GBs) 100

Japan Finance Organization for Municipalities is founded by investment from all Prefectures and Municipalities, and accommodates local governments with long-term and lowinterest rate funds for LGBs.

P ublic F inance P rogram is subm itted to the Diet. The issuance am ount of L GBs appearing in the L ocal P ublic F inance P rogram does not include public enterprise accounts ( including only ordinary accounts) .

(2) L oans to L ocal Gov ernment by P ublic Funds F rom

the viewpoint of encouraging local governm ents self - reliant f iscal operations, local

governm ents should basically em ploy L GBs to raise private- sector f unds, while public f unds should rather play com plem entary roles. The F Y 2 0 1 6 L ocal Bond P rogram

has been designed to allow local governm ents to secure

local bond f unds req uired f or steadily enhancing disaster prevention and reduction m easures,

The ordinary account is an account category used uniformly for local public finance statistics, combining the general account and special accounts excluding municipal enterprise accounts and eliminating moves between relevant accounts.

Ⅱ Framework im proving deteriorated public f acilities and vitalizing local com m unities, totaling 1 1 ,2 4 6 .2 billion yen ( com pared with 1 2 ,2 0 6 .4 billion yen in F Y 2 0 1 5) . As f or the f unds f or L GBs, public f unds totaling 4 ,6 4 9.5 billion yen ( com pared with 5,2 4 0 .0 billion yen in F Y 2 0 1 5) are planned f or prom oting the developm ent of inf rastructure link ed closely to local residents livelihood, as well as f or m aintaining the policy f or allocating public f unds on a priority- oriented basis with consideration given to local governm ent s respective f undraising abilities and spending purposes ( L oans f rom

the F iscal L oan F unds or f rom

F unds are available in the f orm

). the Japan F inance O rganization f or M unicipalities

of loans on deed.

(3 ) L ocal Funds Offered by P riv ate Sectors, etc. A. P ublic Offering Funds P ublic of f ering f unds m ean the f unds that local governm ents will raise by issuing their

The breakdown consist of 2,833.5 billion yen in Fiscal Loan Funds (FY2015: 3,269.0 billion yen) and 1,816.0 billion yen in Japan Finance Organization for Municipalities Funds (FY2015: 1,971.0 billion yen).

Ref: See the website below http://www.kyodohakko.jp/ http://www.chihousai.or.jp/ (Japanese version only)

security certificates through m ark ets. S ince greater responsibility f or adm inistrative and fiscal m anagem ent will be dem anded of local governm ents as decentralization progresses, the percentage of P ublic O f f ering F unds within the L GB P rogram

has been in an uptrend in recent

years.

a. J oint-L GBs, etc. 1 ) Joint- L GBs I n F Y 2 0 0 3, local governm ents started of f ering Joint- L GBs to reduce costs and to secure stable f inancing by increasing the lot size of issuance. Joint- L GBs are issued every governm ents based on Article 5- 7 of the L ocal Governm ent F inance Act. 2 ) C itizen P articipatory- type P ublic O f f ering L GB S ince M arch 2 0 0 2 , apart f rom

Nationwide P ublic O f f ering L GB,

C itizen

P articipatory- type P ublic O f f ering L GB have been issued. This is not only to diversif y f inancing m ethods of public of f erings targeting at individual investors but also to encourage the residents participation in local governm ent.

b. Method of issuing P ublic Offering L GB The m ethod of issuance includes issuance f or of f ering/ underwriting by a syndicate com posed of financial institutions and securities com panies (

C hap ter 3 Other P ublic D ebt

m onth under the nam e of local governm ents, and the bonds are the j oint debt of local

nderwriting S yndicate ) ,

issuance f or of f ering/ underwriting led by the lead m anager, and issuance f or of f ering/ April

2 0 0 2 , and were set out in two tables: one f or Tok yo M etropolitan Governm ent Bonds, and the other f or other local governm ent bonds. I n 2 0 0 4 and 2 0 0 6 , the m ethod f or determ ining the appropriate term s was revised, and now each local governm ent issuer decides on the term s of each issue separately and independently.

1 L ocal Gov ernment Bonds (L GBs)

underwriting by auction. I ssuance term s were discussed and deliberated on f rom

101

Ⅱ Framework F i g .2- 35 P l a n n e d I s s u a n c e o f P u b l i c O f f e r i n g L G B

Total

i n F Y 2016

about 7.0 trillion yen (about 7.3 trillion yen) Nationwide Public Offering LGB 10-years

about 6.9 trillion yen (about 7.1 trillion yen)

about 4.4 trillion yen (about 4.9 trillion yen) ・Joint-type

about 1.2 trillion yen (about 1.4 trillion yen)

・Independent -type

about 3.2 trillion yen (about 3.5 trillion yen)

Medium-term (5-years etc.)

about 1.5 trillion yen (about 1.5 trillion yen)

Super Long-term (20 or 30-years etc.) about 0.9 trillion yen (about 0.7 trillion yen) Citizen Participatory -type Public Offering LGB

about 0.2 trillion yen (about 0.2 trillion yen)

Note 1: The numbers in the list rounded off under indication numerical value. Note 2: The amount of planned issuance may be changed. Note 3: The planned issuance includes refinancing bond. Note 4: ( ) refers to planned issuance of public offering LGB in FY2015. (Source: Local Government Bond Program in FY2016)

B. P riv ate P lacement Funds P rivate P lacem ent F unds are f unds based on borrowings f rom

financial institutions and the

several m utual aid associations which have business transactions with the local governm ents. The percentage of P rivate P lacem ent F unds in the L GB P rogram

has declined recently.

The bonds f inanced through the P rivate P lacem ent F unds are called P rivate P lacem ent

C hap ter 3 Other P ublic D ebt 1 L ocal Gov ernment Bonds (L GBs) 102

Bond, and this is financed either by deed borrowings or by actual issuance of the bonds.

Ⅱ Framework

 2 D ebt of Incorp orated Administrativ e Agencies, etc. (1) D ebt of Incorp orated Administrativ e Agencies, etc. The debt of

I ncorporated Adm inistrative Agencies, etc. includes governm ent- guaranteed

debt, borrowings f rom

the General Account, the F iscal L oan F und, and other S pecial

Accounts. Their debt also includes F I L P Agency Bonds, etc. as m eans of financing f rom

the

private sector. I ncorporated Adm inistrative Agencies, etc. ref er to I ncorporated Adm inistrative Agencies (

① ) , public corporations (

② ) , and authorized organizations (

③ ) . All of these

are corporations that are engaged in public policy im plem entation under governm ental supervision.

A. Financing from the central gov ernment a. Borrowing from Fiscal L oan Fund The proj ects of

I ncorporated Adm inistrative Agencies, etc. are subsidized f rom

F I L P to

flexibly cope with national dem and or socioeconom ic changes. I n line with the F I L P ref orm ef f orts, F I L P - target proj ects are f urther f ocused and m ade m ore ef ficient. The organizations that utilize F I L P are called F I L P Agencies.

b. Other Borrowings from the central gov ernment There are also interest- f ree loans f rom

the General Account and S pecial Accounts to

I ncorporated Adm inistrative Agencies, etc.

As a result of the F I L P ref orm , F I L P Agency Bonds, which are not guaranteed by the governm ent and are publicly of f ered, have been introduced as a new f inancial m ethod f or F I L P agencies to raise f unds independently. I t is thought that F I L P Agencies prom ote inf orm ation disclosure and im prove their business operational ef ficiency by F I L P Agency Bonds issuing. S om e k inds of

I ncorporated Adm inistrative Agencies, etc. such as finance

corporations, etc. need Diet approval to issue bonds. F urtherm ore, an approval f rom

the

C om petent M inister is req uired f or a F I L P agency to issue bonds or m ak e long- term borrowings. The C om petent M inister can give their approval only af ter consulting with the M O F .

② The term generally refers to “corporate bodies directly established by acts or corporate bodies established through special measures required by special acts as deemed necessary (excluding Incorporated Administrative Agencies)” as stipulated in Article 4 Item 15 of the Ministry of Internal Affairs and Communications Act of Incorporation. In this case, “established through special measures” refers to “establishment conducted by government appointed commissioners.”

2 D ebt of Incorp orated Administrativ e Agencies, etc.

③ The term generally refers to “corporate bodies established independently by an interested party from the private sector, the establishment of which requires approval by the Competent Minister, based on the special acts due to the public nature of their activities” (Source: “Legal Terms Dictionary,” Legislative Terminology Research Forum Edition).

C hap ter 3 Other P ublic D ebt

B. Financing from the p riv ate sector

① The term generally refers to corporate bodies established pursuant to stipulations in Article 2 Paragraph 1 of the Act on General Rules for Incorporated Administrative Agencies: “A juridical person, incorporated pursuant to the provisions of this Act and the relevant Individual Law as an Agency Managed under the Mediumterm Objectives, a National Research and Development Agency or an Agency Engaged in Administrative Execution, for the purpose of effectively and efficiently conducting, from among the affairs and businesses that need to be implemented securely from a public viewpoint, such as the stability of the lives of the citizenry, society and the economy, and that do not need to be implemented directly by the State itself, those affairs that may not necessarily be implemented properly if entrusted to private entities or that need to be conducted monopolistically by a single entity.” Here, “the relevant Individual Law” refers to an act stipulating the name, objectives, range of activities, etc. of each incorporated Administrative Agency.

103

Ⅱ Framework (2) Financial C onditions of Incorp orated Administrativ e Agencies, etc. I ncorporated Adm inistrative Agencies, etc. disclose inf orm ation on their financial conditions in various f orm s. I ncorporated Adm inistrative Agencies com pile f inancial statem ents, which are based on corporate accounting principles as a general rule, in accordance with the Act on General R ules f or I ncorporated Adm inistrative Agencies. The financial statem ents are audited by an auditor and an accounting auditor and are approved by the C om petent M inisters bef ore their disclosure. Governm ent supervision of I ncorporated Adm inistrative Agencies has shif ted its f ocus f rom

ex- ante control to ex- post check in order to strengthen their independence. The

f inancial statem ents of I ncorporated Adm inistrative Agencies contribute not only to better understanding of how these agencies conduct businesses but also to appropriate evaluations of their business results. E ach public corporation and authorized organization also com piles f inancial statem ents in accordance with the Act under which it was established, receives approval f rom

the

C om petent M inister, and discloses this inf orm ation. S ince settlem ent of accounts in F Y 2 0 0 0 , each institution com piles and discloses an " adm inistrative cost analysis statem ent" , etc., based on corporate accounting principles to f ulf ill its accountability to explain f uture burden on taxpayers. The f inancial statem ents of m aj or I ncorporated Adm inistrative Agencies, etc. in which the governm ent has invested are attached to the budget subm itted to the Diet as ref erence m aterials as stipulated in Article 2 8 of the P ublic F inance Act.

C hap ter 3 Other P ublic D ebt 2 D ebt of Incorp orated Administrativ e Agencies, etc. 104

Ⅱ Framework

C olumn 6 J GB H istory ❶ Massiv e J GB issuance under low economic growth The postwar JGB history started in F Y 1 96 5. Af ter balanced budgets were f orm ed until the initial budget f or F Y 1 96 5 was organized, JGBs were issued under a supplem entary budget f or F Y 1 96 5 to cover a revenue shortf all. I n F Y 1 96 6 , even the initial budget introduced JGBs in a f ull- blown m anner, with the f irst C onstruction Bonds issued. S ince the present redem ption system ( 6 0 - year redem ption rule) was established in F Y 1 96 7, f unds have been transf erred f rom the General Account to the S pecial Account f or the Governm ent Debt C onsolidation F und. I n the autum n of 1 973, the Japanese eonom y plunged into a serious depression due to the first oil crisis, leading the governm ent to issue S pecial Deficit- financing Bonds under a supplem entary budget f or F Y 1 975. The continous issuance of S pecial Deficit- financing Bonds started then. I nitially, all JGBs were designed to m ature in seven years. The single m aturity was extended to 1 0 years in January 1 972 . The single m aturity was m aintained until the governm ent diversified m aturities in F Y 1 975 to sm oothly issue and sell m assive JGBs. M ethods of JGB issuance were lim ited to syndicate underwriting ( Note 1 ) and Trust F und Bureau underwriting ( Note 2 ) until the auction was introduced in 1 978 to bring the num ber of such m ethods to three. L ater, the underwriting syndicate s share of JGBs declined gradually, leading to the abolishm ent of the syndicate in M arch 2 0 0 6 . ( Note 1 ) The syndicate underwriting system is a m eans ( f or the governm ent) to conclude a contract f or the handling of public of f ering and underwriting of governm ent bonds with a group established f or that purpose or a m eans to guarantee to f ully digest the am ount of governm ent bonds issued. ( Note 2 ) Trust F und Bureau underwriting m eans the underwriting of JGBs by f unds of the Trust F und Bureau. The M O F had m anaged f unds collected by the governm ent through postal savings, pension and other system s as f unds of Trust F und Bureau and invested in JGBs, etc. until 2 0 0 1 .

❷ Massiv e J GB redemp tion and refunding, and p rogress in financial deregulation

however, the governm ent issued S pecial Deficit- financing Bonds again under the first supplem entary budget f or F Y 1 995. F i g . c 6- 1 H i s t o r i c a l C h a n g e i n J G B I s s u a n c e A m o u n t ( b y l e g a l g r o u n d s o f i s s u a n c e ) 200

(trillion yen)

FILP Bonds

180

177.5 176.2

Refunding Bonds

165.0 160.1 161.2

Reconstruction Bonds

160

Special Bonds for covering Public Pension Funding 140

141.3 135.7

138.8 136.4 133.2

Construction Bonds, Special Deficit-Financing Bonds

172.0 166.7 162.2

164.3 151.8 151.5

120

C hap ter 3 Other P ublic D ebt

As R ef unding Bond issuance increased rapidly f rom F Y 1 98 5 to m eet the redem ption of m assive JGBs issued since F Y 1 975, the Act f or the S pecial Account f or the Governm ent Debt C onsolidation F und was revised in 1 98 5 to allow Treasury Bill and R ef unding Bond issues to be f ront- loaded. S pecial Deficit- financing Bond issuance was reduced to zero in F Y 1 990 . As the Japanese econom y rapidly plunged into recession on the collapse of asset bubbles,

100 86.3 76.477.6

80 60 40 20 0

0.2 0.7 0.7 0.5 0.4 0.3 1.2 2.0 2.4

1965

1970

2.8

5.7 7.6

1975

31.0 24.9 26.0 25.6 18.1 22.7 21.121.7 14.5 17.318.0 21.3 13.5 13.8 9.911.3

1980

1985

1990

1995

(Note) Up to FY2014: Actual figures, FY2015: supplementary budget, FY2016: initial budget

2000

2005

2010

2015 (FY)

2 D ebt of Incorp orated Administrativ e Agencies, etc.

49.9 46.648.3 39.4 38.0

105

Ⅱ Framework

The governm ent issued tax reduction- related S pecial Def icit- f inancing Bonds between F Y 2 0 0 4 and 2 0 0 6 and earthq uak e disaster- related S pecial Deficit- financing Bonds under the second supplem entary budget f or F Y 2 0 0 4 . Then, the Japanese public and corporate bond m ark et was rapidly expanding and developing, with trading volum e swelling. ntil the m id- 1 96 0 s, financial institutions had underwritten m ost JGBs and been expected to hold JGBs stably. As they had been ask ed to ref rain f rom selling JGB holdings in the m ark et, trading volum e had rem ained sm all. As m assive JGB issuance f rom F Y 1 975 rapidly raised the ratio of JGB underwriting to deposit growth at city bank s and other financial institutions, however, financial institutions increasingly wanted to sell JGB holdings to im prove their f und positions. As the governm ent eased its req uest f or financial institutions to ref rain f rom selling JGB holdings in April 1 977, JGB liq uidity increased. O ther f actors behind the rapid expansion and developm ent of the public and corporate bond m ark et include: [ I nstitutional developm ents] i.

C hap ter 3 Other P ublic D ebt 2 D ebt of Incorp orated Administrativ e Agencies, etc. 106

F rom April 1 98 3, financial institutions began to handle the of f ering of JGBs, leading to the expansion of the JGB investor base to include industrial corporations and retail investors. ii. F rom June 1 98 4 , bank s and other financial institutions started bond dealing. iii. I n O ctober 1 98 5, the bond f utures m ark et was created as a m eans to hedge risk s. iv. I n April 1 98 8 , bond option trading started, f ollowed by the launch of bond lending in M ay 1 98 8 . [ M ark et environm ent] v. As private sector f und dem and calm ed down due to a shif t f rom high econom ic growth to stable growth, extra f unds em erged at financial institutions and industrial corporations. vi. F inancial institutions and other institutional investors, and industrial corporations with extra f unds proactively participated in the public and corporate bond m ark et where they could invest m assive f unds, pursuing higher investm ent profitability. I nvestors trading needs were diversified with trading m eans advanced, invigorating trading in the m ark et. vii. As the internationalization of f inancial and capital m ark ets m ade progress, f oreign investors invigorated trading in the Japanese m ark ets. L ater, Japan launched super long- term JGB f utures trading in July 1 98 8 , long- term JGB f utures option trading in M ay 1 990 , m edium - term JGB f utures trading in F ebruary 1 996 and Bond- L ending Transaction ( Japanese E q uivalent to R epurchase Transaction) in April 1 996 , allowing investors to hedge risk s and create trading positions in a m ore fine- tuned m anner, with the m erchantability of JGBs enhanced to thick en the cash bond m ark et.

❸ E nhancing dialogue with the market and div ersifying J GB holders S ince 1 96 5, the M O F had convened the M eeting on JGB I ssuance j ust bef ore the subm ission of an annual initial budget and a supplem entry budget to the C abinet M eeting to hear opinions f rom experts on planned JGB issuance and institutional m atters. F rom S eptem ber 2 0 0 0 , the M O F hosted the M eeting of JGB M ark et m ainly with m ark et participants som e 1 0 tim es annually to m ak e JGB sales m ore stable and sm oother and develop the JGB m ark et. The M eeting dealt with a wide range of topics including JGB issuance m ethods, the m aturity distribution and subj ects regarding prim ary and secondary JGB m ark et system s. Based on opinions at the M eeting, the M O F introduced reopening in M arch 2 0 0 1 and when- issued ( W I ) trading in F ebruary 2 0 0 4 . As various opinions were provided on the m erchantability of JGBs and the diversificaiton of JGB holders, the M O F introduced S TR I P S in January 2 0 0 3, JGBs f or retail investors in M arch 2 0 0 3 and I nflation- indexed Bonds in M arch 2 0 0 4 and developed tax exem ption f or nonresident individuals. As the JGB M ark et S pecial P articipant S ystem was introduced in O ctober 2 0 0 4 , the M eeting was replaced with the M eeting of JGB M ark et S pecial P articipants. The M O F also created the M eeting of JGB I nvestors in April 2 0 0 2 f or direct and continuous discussions with JGB investors and the Advisory C ouncil on Governm ent Debt M anagem ent

Ⅱ Framework

in November 2004 to hear opinions from experts on government debt management policy from a medium to longterm perspective. Based on dialogue with the market through these meetings, the MOF also launched overseas investor relations tours in January 2005 and introduced Auctions for Enhanced-Liquidity in April 2006 and a 40-year JGB issue in November 2007 in efforts to implement debt management policy based on market trends and needs. Fig. c6-2 JGB Lineup Before 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Nov. 2007-

30-year

Issued using syndicate underwriting in 1986 and 1987 only.

20-year

Jun.2000-

15-year Floating-rate

- May 2008 Syndicate underwriting abolished on Mar.2006.

Jan.1966After Jan.1972, redemption period extended to 10 years.

2015 (FY)

40-year

Sep. 1999Oct.1986-

2014

Mar.2004-

　 -Aug.2008

Feb.2000-

10-year 　Oct.2013-

10-year Inflation-Indexed

5-year

Jun.1979-

2-year Apr.1999-

TBs(1-year) Apr.2006Mar.2003Jan.2006Jul.2010-

Syndicate underwriting Oct.2007-

Auctions for Enhanced-liquidity 10-year JGB for Retail Investors 5-year JGB for Retail Investors 3-year JGB for Retail Investors 10-year JGB New OTC Sales 5-year JGB New OTC Sales 2-year JGB New OTC Sales

☞ See Page 148 for “History of Postwar Debt Management Policy”

Chapter 3 Other Public Debt 2 Debt of Incorporated Administrative Agencies, etc. 107

Ⅲ Appendices This part contains supplementary information which was not covered in previous parts of this brochure.

Ⅲ

Ap p endices

C hap ter 1 Gov ernment Bonds (J GBs)

Ch ap ter 1 Government B onds (J GB s) １ Primary Mark et for Government B onds (1) I ssuance Amount of Government B onds FY 1947 ∼64

1 P rimary Market for Gov ernment Bonds

65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

110

Subtotal

Construction Bonds

Special DeficitFinancing Bonds

Issuance A mount Special Bonds for R econstruction covering P ublic Bonds P ension Funding

FIL P R efunding Bonds Bonds

T otal

（Unit: billion yen, %） JGB Outstanding Bond （A ） National Dept （B） Service (Initial) General Dependency General Bonds FIL P Bonds Outstanding Outstanding GDP (B) R atio A ccount T otal (A )

In the period of balanced budget, there hadn' t been JGBs issued. 197.2 665.6 709.4 462.1 412.6 347.2 1,187.1 1,950.0 1,766.2 2,160.0 5,280.5 7,198.2 9,561.2 10,674.0 13,472.0 14,170.2 12,899.9 14,044.7 13,486.3 12,781.3 12,308.0 11,254.9 9,418.1 7,152.5 6,638.5 7,312.0 6,730.0 9,536.0 16,174.0 16,490.0

665.6 709.4 462.1 412.6 347.2 1,187.1 1,950.0 1,766.2 2,160.0 3,190.0 3,725.0 5,028.0 6,330.0 7,133.0 6,955.0 7,039.9 7,036.0 6,809.9 6,409.9 6,303.0 6,248.9 6,880.0 6,196.0 6,430.0 6,343.2 6,730.0 9,536.0 16,174.0 12,345.7

21,247.0

16,440.1

21,748.3

10,707.0

18,458.0 34,000.0 37,513.6 33,004.0 30,000.0 34,968.0 35,345.0 35,490.0 31,269.0 27,470.0 25,382.0 33,168.0 51,955.0 42,303.0 42,798.0 47,465.0 40,851.0 38,492.9 36,418.3 34,432.0

9,940.0 17,050.0 13,166.0 11,138.0 9,076.0 9,148.0 6,693.0 8,704.0 7,762.0 6,415.0 6,044.0 6,975.0 15,011.0 7,603.0 8,368.0 11,429.0 7,014.0 6,577.0 6,479.0 6,050.0

290.3 895.2 3,272.7 4,514.5 5,360.3 8,957.3 11,488.6 15,449.0 13,946.1 15,079.8 18,653.2 18,875.7 21,496.9 21,812.9 22,881.7

197.2 665.6 709.4 462.1 412.6 347.2 1,187.1 1,950.0 2,362.0 2,795.8 5,696.1 7,569.4 9,874.1 11,306.6 13,472.0 14,460.5 13,795.1 17,317.5 18,000.9 18,141.7 21,265.3 22,743.5 24,867.2 21,098.6 21,718.3 25,965.2 25,605.7 31,032.9 37,986.9 39,371.7

％ 5.3 14.9 13.9 7.8 6.0 4.2 12.4 16.3 12.0 11.3 25.3 29.4 32.9 31.3 34.7 32.6 27.5 29.7 26.6 24.8 23.2 21.0 16.3 11.6 10.1 9.2 9.5 13.5 21.5 17.9

200.0 875.0 1,595.0 2,054.4 2,463.4 2,811.2 3,952.1 5,818.6 7,550.4 9,658.4 14,973.1 22,076.7 31,902.4 42,615.8 56,251.3 70,509.8 82,273.4 96,482.2 109,694.7 121,693.6 134,431.4 145,126.7 151,809.3 156,780.3 160,910.0 166,337.9 171,647.3 178,368.1 192,539.3 206,604.6

％ 0.6 2.2 3.4 3.7 3.8 3.7 4.8 6.0 6.5 7.0 9.8 12.9 16.8 20.4 25.0 28.4 31.1 34.9 38.0 39.5 40.7 42.4 41.9 40.4 38.7 36.8 36.2 36.9 39.9 41.7

22.0 48.9 115.3 201.3 278.8 290.9 319.3 455.4 704.5 862.2 1,039.4 1,664.7 2,348.7 3,222.7 4,078.4 5,310.4 6,654.2 7,829.9 8,192.5 9,155.1 10,224.2 11,319.5 11,333.5 11,512.0 11,664.9 14,288.6 16,036.0 16,447.3 15,442.3 14,360.2

％ 0.6 1.1 2.3 3.5 4.1 3.7 3.4 4.0 4.9 5.0 4.9 6.9 8.2 9.4 10.6 12.5 14.2 15.8 16.3 18.1 19.5 20.9 20.9 20.3 19.3 21.6 22.8 22.8 21.3 19.6

25,376.7

46,623.8

24.2

225,184.7

44.6

13,221.3

18.6

26,552.4

48,300.7

25.2

244,658.1

47.4

16,375.2

21.8

31,432.0 42,431.0 40,084.4 53,269.7 59,329.6 69,615.5 74,948.9 84,450.5 105,519.5 108,120.6 99,189.4 93,909.5 90,480.3 100,835.5 109,020.0 110,957.9 110,156.9 119,372.8 114,372.8 109,114.4

49,890.0 76,431.0 77,597.9 86,273.7 133,212.7 136,427.1 138,802.5 160,070.2 165,037.9 161,150.2 141,341.0 135,677.5 151,845.3 151,538.5 176,168.0 177,530.3 164,311.4 171,985.7 166,737.4 162,202.8

23.5 40.3 42.1 36.9 35.4 41.8 42.9 41.8 36.6 33.7 31.0 39.2 51.5 44.4 42.5 48.9 40.8 39.0 36.5 35.6

257,987.5 295,249.1 331,668.7 367,554.7 392,434.1 421,099.1 456,973.6 499,013.7 526,927.9 531,701.5 541,458.4 545,935.6 593,971.7 636,311.7 669,867.4 705,007.2 743,867.6 774,083.1 805,418.2 837,840.6

49.5 57.8 65.5 72.0 78.2 84.6 91.1 99.3 104.3 104.4 105.5 111.5 125.3 132.5 141.4 148.6 154.0 158.1 160.1 161.5

16,802.3 17,262.8 19,831.9 21,965.3 17,170.5 16,671.2 16,798.1 17,568.6 18,442.2 18,761.6 20,998.8 20,163.2 20,243.7 20,649.1 21,549.1 21,944.2 22,241.5 23,270.2 23,450.7 23,612.1

21.7 22.2 24.2 25.8 20.8 20.5 20.5 21.4 22.4 23.5 25.3 24.3 22.9 22.4 23.3 24.3 24.0 24.3 24.3 24.4

197.2

595.8 635.8 415.6 371.2 312.8 632.6

2,090.5 3,473.2 4,533.3 4,344.0 6,339.0 7,215.2 5,860.0 7,008.7 6,676.5 6,371.4 6,005.0 5,006.0 2,538.2 956.5 208.5 (968.9)

< 3,333.7> [ 810,6] < 2,851.1> 1,955.8 < 1,879.6> 9,161.7 8,518.0 16,950.0 24,347.6 21,866.0 20,924.0 25,820.0 28,652.0 26,786.0 23,507.0 21,055.0 19,338.0 26,193.0 36,944.0 34,700.0 34,430.0 36,036.0 33,837.0 31,915.9 29,939.3 28,382.0

2,584.2 2,603.5

11,250.0 2,303.3 120.0 1,946.3 2,156.4

43,883.1 31,843.5 28,508.6 40,129.7 28,249.4 25,559.5 16,769.6 8,600.0 9,410.0 8,400.0 13,100.0 14,220.0 10,700.0 16,000.0 14,000.0 16,500.0

43,760.5 75,564.4 91,849.0 121,553.2 139,353.2 138,906.1 139,754.3 131,050.1 122,225.3 118,191.8 110,912.2 109,260.7 104,210.4 98,991.0 96,115.5 93,807.0

Note.1: Issuance A mount is calculated on a revenue basis, up to FY2014; A ctual, FY2015; Supplementary budget, FY2016; Initial T he figures in ( ) indicate A d-hoc Deficit-Financing Bonds, < > are Special Deficit-Financing Bonds for Offset tax cuts, [ ] are Special Deficit-Financing Bonds for Earthq uake. Note.2: R econstruction Bonds are issued under the General A ccount in 2011 and under the Special A ccount for R econstruction from the Great East Japan Earthq uake from 2012 onw ard. Note.3: T he figure of Special Deficit-Financing Bonds in FY1965 includes R evenue Supplementary Bonds issued at the time of supplementary budget for reasons of ex pediency. Note.4: Bond Dependency R atio is the issuance amount of (Construction Bonds+ Special Deficit-Financing Bonds)/general account total, up to FY2014; A ctual, FY2015; supplementary budget, 2016; Initial. Note.5: JGB Outstanding is calculated on a nominal basis, up to FY2014; A ctual, FY2015; supplementary budget, 2016; Initial. Note.6: GDP for FY2014; A ctual, FY2015; Estimates, FY2016; Outlook Note.7: National Dept Servise; Initial.

−

36.4

−

7.6

−

7.9

−

4.4

61.1

38.9

−

25.8

13.1

−

12,000.0

−

2,500.0

−

2,600.0

−

1,440.0

20,140.0

12,800.0

−

8,500.0

4,300.0

15-Year CM T

10-Year

10-Year JGBi

6-Year

5-Year

4-Year

3-Year Discount

2-Year

Subtotal

TB

T B1Y

T B6M

T B3M

5Y8M

32,940.0 100.0

27,000.0

12,000.0

13,200.0

1,800.0

37.2

−

24.0

13.1

5Y8M

−

2.7

19.5

17.7

39.9

60.1

12.4

−

8.1

2.4

8.1

−

24.8

−

3.5

4Y10M

67,700.0 100.0

−

40,700.0

62.8

−

8,400.0

5,500.0

8.7

4.7

1,600.0

−

−

5,500.0

9.0

−

−

16,800.0

35.2

−

−

2,400.0

5.2

−

500.0

−

0.7

−

−

−

45,760.0 100.0

−

6,000.0

11,000.0

−

17,000.0

28,760.0

2,160.0

−

4,000.0

−

4,100.0

−

16,100.0

−

2,400.0

−

−

Share

Share

5Y0M

85,200.0 100.0

−

−

−

−

15.0

19.7

34.7

65.3

17.8

0.4

2.9

13.4

2.9

−

20.9

3.3

2.8

0.8

−

Share

12,800.0

16,800.0

29,600.0

55,600.0

15,200.0

300.0

2,500.0

11,400.0

2,500.0

−

17,800.0

2,800.0

2,400.0

700.0

−

00

−

01

−

−

13.3

16.5

29.8

70.2

18.2

5Y4M

92,500.0 100.0

−

−

12,300.0

15,300.0

27,600.0

64,900.0

16,800.0

0.6

−

−

600.0

21.3

−

−

19,700.0

−

22.1

3.9

3.5

0.6

−

Share

−

20,400.0

3,600.0

3,200.0

600.0

Note.1: Figures may not sum up to total becouse of rounding. Note.2: Up to FY2015; A ctual, FY2016; Initial.

A verage M aturity

T otal

−

4.9

1,600.0

20-Year

−

−

−

30-Year

A uctions for EnhancedL iq uidity

−

−

Share

40-Year

FY

99

−

−

12.1

17.2

29.4

70.6

18.4

5Y7M

−

−

12.1

17.9

30.0

70.0

18.4

−

−

20.0

5Y9M

113,900.0 100.0

−

−

13,800.0

20,400.0

34,200.0

79,700.0

21,000.0

−

−

− 0.4

22,800.0

−

−

11.4

17.0

28.4

71.6

17.3

−

−

20.4

−

0.7

19.4

6.1

6.1

1.7

−

Share

6Y3M

117,800.0 100.0

−

−

13,400.0

20,000.0

33,400.0

84,400.0

20,400.0

−

−

24,000.0

−

−

−

− 21.4

800.0

22,800.0

7,200.0

7,200.0

2,000.0

−

0.1

20.0

5.3

4.7

1.4

−

Share

04

100.0

22,800.0

6,000.0

5,400.0

1,600.0

−

03

−

20.5

5.2

4.0

0.9

−

Share

105,600.0 100.0

−

−

12,800.0

18,200.0

31,000.0

74,600.0

19,400.0

400.0

−

22,600.0

−

−

21,600.0

5,500.0

4,200.0

900.0

−

02

−

−

10.1

15.1

25.3

74.7

17.2

−

−

6Y8M

1.1

−

7.1

14.9

21.9

77.0

18.1

−

−

21.2

7Y0M

113,000.0 100.0

1,200.0

−

8,000.0

16,800.0

24,800.0

87,000.0

20,400.0

−

−

24,000.0

−

−

− 20.3

2.2

20.2

4.8

8.5

2.0

−

Share

2,500.0

22,800.0

5,400.0

9,600.0

2,300.0

−

06

1.7

19.3

7.4

7.1

1.7

−

Share

118,300.0 100.0

−

−

12,000.0

17,900.0

29,900.0

88,400.0

20,400.0

−

−

24,000.0

−

2,000.0

22,800.0

8,800.0

8,400.0

2,000.0

−

05

1.1

−

5.5

15.3

20.8

78.1

18.6

−

−

21.9

−

2.7

20.8

3.1

8.8

2.2

0.1

Share

7Y0M

109,700.0 100.0

1,200.0

−

6,000.0

16,800.0

22,800.0

85,700.0

20,400.0

−

−

24,000.0

−

3,000.0

22,800.0

3,400.0

9,600.0

2,400.0

100.0

07

2.2

−

2.8

16.9

19.8

78.1

20.1

−

−

21.7

−

1.4

21.4

0.6

9.5

2.7

0.6

Share

7Y4M

106,300.0 100.0

2,300.0

−

3,000.0

18,000.0

21,000.0

83,000.0

21,400.0

−

−

23,100.0

−

1,500.0

22,800.0

600.0

10,100.0

2,900.0

600.0

08

4.6

−

4.0

19.9

23.9

71.5

20.7

−

−

19.8

−

−

18.2

−

9.2

2.9

0.8

Share

7Y3M

137,500.0 100.0

6,300.0

−

5,500.0

27,400.0

32,900.0

98,300.0

28,400.0

−

−

27,200.0

−

−

25,000.0

−

12,600.0

4,000.0

1,100.0

09

5.0

7Y7M

142,800.0 100.0

7,200.0

−

−

− −

21.0

21.0

73.9

21.8

−

−

20.2

−

−

18.5

−

9.2

3.4

0.8

Share

30,000.0

30,000.0

105,600.0

31,200.0

−

−

28,800.0

−

−

26,400.0

−

13,200.0

4,800.0

1,200.0

10

1 P rimary Market for Gov ernment Bonds

98

5.0

−

−

20.7

20.7

74.3

21.8

−

−

20.2

−

−

18.2

−

9.1

3.9

1.1

Share

7Y9M

144,800.0 100.0

7,200.0

−

−

30,000.0

30,000.0

107,600.0

31,600.0

−

−

29,200.0

−

−

26,400.0

−

13,200.0

5,600.0

1,600.0

11

4.8

−

−

20.1

20.1

75.1

21.7

−

−

20.3

−

−

18.6

−

9.6

3.7

1.1

Share

7Y10M

149,400.0 100.0

7,200.0

−

−

30,000.0

30,000.0

112,200.0

32,400.0

−

−

30,400.0

−

−

27,800.0

−

14,400.0

5,600.0

1,600.0

12

4.6

−

−

19.2

19.2

76.2

22.2

−

−

20.7

−

0.4

18.4

−

9.2

4.3

1.0

Share

7Y11M

156,600.0 100.0

7,200.0

−

−

30,000.0

30,000.0

119,400.0

34,800.0

−

−

32,400.0

−

600.0

28,800.0

−

14,400.0

6,800.0

1,600.0

13

5.4

−

−

17.3

17.3

77.3

21.0

−

−

21.0

−

1.2

18.6

−

9.3

5.2

1.0

Share

8Y6M

6.3

−

−

17.0

17.0

76.7

19.7

−

−

19.7

−

1.3

18.9

−

9.5

6.3

1.3

Share

9Y0M

152,200.0 100.0

9,600.0

−

−

25,800.0

25,800.0

116,800.0

30,000.0

−

−

30,000.0

−

2,000.0

28,800.0

−

14,400.0

9,600.0

2,000.0

15

6.5

−

−

17.0

17.0

76.5

18.8

−

−

19.6

−

1.4

19.6

−

9.0

6.5

1.6

Share

9Y2M

147,000.0 100.0

9,600.0

−

−

25,000.0

25,000.0

112,400.0

27,600.0

−

−

28,800.0

−

2,000.0

28,800.0

−

13,200.0

9,600.0

2,400.0

16

（Unit: billion yen, ％）

154,500.0 100.0

8,400.0

−

−

26,700.0

26,700.0

119,400.0

32,400.0

−

−

32,400.0

−

1,800.0

28,800.0

−

14,400.0

8,000.0

1,600.0

14

C hap ter 1 Gov ernment Bonds (J GBs)

97

Ⅲ Ap p endices

(2) Ch anges in J GB Mark et I ssuance

111

Ⅲ

Ap p endices (3 ) Auction Results for J GBs and T-Bills in FY2015 4 0 -y ear

C hap ter 1 Gov ernment Bonds (J GBs)

Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en）（billion y en）

8 8 8 8 8

Amount of bids accepted （billion y en）

Lowest Price （y en）

Yield at the lowest price （％）

Non-pricecompetitive Auction II （billion y en）

4 .2 3 .1 5

4 .2 7 .1 5

3 .2 0 .5 5

1 .4

4 0 0 .0

1 , 0 3 2 .0

3 9 9 .7

9 7 .8 9

1 .4 7 0

6 .1 8 .1 5

6 .2 2 .1 5

3 .2 0 .5 5

1 .4

4 0 0 .0

1 , 0 4 0 .2

3 9 9 .8

9 4 .4 2

1 .5 9 0

5 9 .0 0 .0

8 .2 5 .1 5

8 .2 7 .1 5

3 .2 0 .5 5

1 .4

4 0 0 .0

9 1 8 .3

3 9 9 .8

9 6 .0 1

1 .5 3 5

3 4 .6

1 0 .2 7 .1 5

1 0 .2 9 .1 5

3 .2 0 .5 5

1 .4

4 0 0 .0

1 , 1 5 3 .2

3 9 9 .3

9 7 .7 6

1 .4 7 5

4 7 .9

2 .2 3 .1 6

2 .2 5 .1 6

3 .2 0 .5 5

1 .4

4 0 0 .0

1 , 2 2 1 .2

3 9 9 .7

1 0 8 .5 1

1 .1 3 0

4 4 .9

3 0 -y ear Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en） （billion y en）

Amount of bids accepted （billion y en）

Average price （y en）

Yield at the average price （％）

Lowest Price （y en）

Yield at the lowest price （％）

Non-priceNon-pricecompetitive Auction I competitive Auction II （billion y en） （billion y en）

4 6

4 .9 .1 5

4 .1 3 .1 5

3 .2 0 .4 5

1 .5

8 0 0 .0

2 , 0 8 4 .8

7 2 9 .8

1 0 2 .6 4

1 .3 7 5

1 0 2 .4 5

1 .3 8 4

6 9 .5

1 1 8 .7

4 6

5 .1 4 .1 5

5 .1 8 .1 5

3 .2 0 .4 5

1 .5

8 0 0 .0

2 , 0 0 0 .4

7 2 9 .7

9 9 .7 1

1 .5 1 4

9 9 .4 5

1 .5 2 6

6 9 .5

1 1 6 .7 9 5 .9

4 7

6 .4 .1 5

6 .2 2 .1 5

6 .2 0 .4 5

1 .6

8 0 0 .0

2 , 2 3 8 .8

7 2 9 .9

1 0 1 .4 9

1 .5 2 7

1 0 1 .3 5

1 .5 3 4

6 9 .5

4 7

7 .9 .1 5

7 .1 3 .1 5

6 .2 0 .4 5

1 .6

8 0 0 .0

1 , 6 3 1 .8

7 3 7 .6

1 0 3 .5 1

1 .4 3 2

1 0 3 .1 0

1 .4 5 1

6 1 .6

0 .0

4 7

8 .1 1 .1 5

8 .1 3 .1 5

6 .2 0 .4 5

1 .6

8 0 0 .0

2 , 4 0 9 .6

7 2 9 .6

1 0 3 .2 5

1 .4 4 4

1 0 3 .1 0

1 .4 5 1

6 9 .4

1 1 8 .5

4 8

9 .8 .1 5

9 .2 4 .1 5

9 .2 0 .4 5

1 .4

8 0 0 .0

2 , 2 6 6 .3

7 2 9 .0

9 9 .7 4

1 .4 1 2

9 9 .6 5

1 .4 1 6

7 0 .4

1 1 7 .3

4 8

1 0 .8 .1 5

1 0 .1 3 .1 5

9 .2 0 .4 5

1 .4

8 0 0 .0

2 , 4 2 3 .5

7 2 7 .9

1 0 1 .0 6

1 .3 5 0

1 0 1 .0 0

1 .3 5 3

7 1 .2

1 1 8 .9 1 0 5 .2

1 P rimary Market for Gov ernment Bonds

4 8

1 1 .1 2 .1 5

1 1 .1 6 .1 5

9 .2 0 .4 5

1 .4

8 0 0 .0

2 , 3 0 1 .8

7 2 6 .0

1 0 0 .3 0

1 .3 8 5

1 0 0 .2 5

1 .3 8 8

7 3 .0

4 9

1 2 .8 .1 5

1 2 .2 1 .1 5

1 2 .2 0 .4 5

1 .4

8 0 0 .0

2 , 8 6 8 .7

7 2 9 .2

1 0 0 .0 5

1 .3 9 7

1 0 0 .0 0

1 .4 0 0

7 0 .0

6 7 .1

4 9

1 .7 .1 6

1 .1 2 .1 6

1 2 .2 0 .4 5

1 .4

8 0 0 .0

2 , 7 5 1 .1

7 3 7 .0

1 0 3 .8 4

1 .2 2 4

1 0 3 .8 0

1 .2 2 6

6 2 .3

1 0 4 .9

4 9

2 .9 .1 6

2 .1 2 .1 6

1 2 .2 0 .4 5

1 .4

8 0 0 .0

2 , 2 1 1 .2

7 2 6 .4

1 0 7 .5 1

1 .0 6 8

1 0 7 .1 5

1 .0 8 3

7 3 .2

7 5 .3

5 0

3 .8 .1 6

3 .2 2 .1 6

3 .2 0 .4 6

0 .8

8 0 0 .0

3 , 0 5 4 .8

7 2 6 .1

1 0 0 .8 3

0 .7 6 5

1 0 0 .8 0

0 .7 6 7

7 3 .2

1 1 8 .9

2 0 -y ear Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en） （billion y en）

Amount of bids accepted （billion y en）

Average price （y en）

Yield at the average price （％）

Lowest Price （y en）

Yield at the lowest price （％）

Non-priceNon-pricecompetitive Auction I competitive Auction II （billion y en） （billion y en）

1 5 2

4 .1 6 .1 5

4 .2 0 .1 5

3 .2 0 .3 5

1 .2

1 , 2 0 0 .0

2 , 8 9 3 .8

1 , 0 9 8 .7

1 0 2 .1 1

1 .0 7 1

1 0 2 .0 0

1 .0 7 8

9 9 .9

1 5 2

5 .2 6 .1 5

5 .2 8 .1 5

3 .2 0 .3 5

1 .2

1 , 2 0 0 .0

3 , 1 7 0 .1

1 , 0 8 9 .5

9 9 .6 5

1 .2 2 1

9 9 .5 5

1 .2 2 8

1 0 9 .6

1 3 2 .8 7 1 .1

1 5 3

6 .1 1 .1 5

6 .2 2 .1 5

6 .2 0 .3 5

1 .3

1 , 2 0 0 .0

2 , 7 9 2 .8

1 , 0 8 9 .1

1 0 0 .1 1

1 .2 9 3

1 0 0 .0 0

1 .3 0 0

1 0 9 .8

2 2 .7

1 5 3

7 .2 2 .1 5

7 .2 4 .1 5

6 .2 0 .3 5

1 .3

1 , 2 0 0 .0

3 , 3 6 8 .4

1 , 0 8 9 .2

1 0 1 .8 5

1 .1 8 5

1 0 1 .8 0

1 .1 8 8

1 1 0 .0

1 6 3 .1

1 5 3

8 .1 8 .1 5

8 .2 0 .1 5

6 .2 0 .3 5

1 .3

1 , 2 0 0 .0

3 , 2 6 3 .6

1 , 0 9 1 .3

1 0 2 .5 2

1 .1 4 4

1 0 2 .4 5

1 .1 4 8

1 0 7 .6

1 2 9 .5

1 5 4

9 .1 6 .1 5

9 .2 4 .1 5

9 .2 0 .3 5

1 .2

1 , 2 0 0 .0

2 , 7 9 0 .8

1 , 0 9 1 .8

1 0 0 .5 7

1 .1 6 4

1 0 0 .3 0

1 .1 8 1

1 0 7 .6

0 .0

1 5 4

1 0 .2 0 .1 5

1 0 .2 2 .1 5

9 .2 0 .3 5

1 .2

1 , 2 0 0 .0

3 , 3 5 6 .1

1 , 1 0 3 .8

1 0 2 .0 0

1 .0 7 8

1 0 1 .9 0

1 .0 8 3

9 5 .6

4 9 .3

1 5 4

1 1 .2 5 .1 5

1 1 .2 7 .1 5

9 .2 0 .3 5

1 .2

1 , 2 0 0 .0

3 , 9 0 9 .7

1 , 0 9 0 .3

1 0 1 .9 8

1 .0 7 8

1 0 1 .9 5

1 .0 8 0

1 0 8 .8

1 1 9 .4

1 5 5

1 2 .1 7 .1 5

1 2 .2 1 .1 5

1 2 .2 0 .3 5

1

1 , 2 0 0 .0

3 , 3 4 5 .1

1 , 0 8 8 .7

9 9 .3 1

1 .0 4 1

9 9 .2 0

1 .0 4 8

1 0 9 .9

1 4 8 .4

1 5 5

1 .2 1 .1 6

1 .2 5 .1 6

1 2 .2 0 .3 5

1 .0

1 , 2 0 0 .0

3 , 8 1 7 .0

1 , 0 9 4 .4

1 0 1 .2 7

0 .9 2 4

1 0 1 .2 0

0 .9 2 8

1 0 4 .5

1 6 4 .7

1 5 5

2 .1 6 .1 6

2 .1 8 .1 6

1 2 .2 0 .3 5

1 .0

1 , 2 0 0 .0

3 , 8 2 6 .7

1 , 0 9 2 .5

1 0 3 .6 6

0 .7 8 6

1 0 3 .5 5

0 .7 9 2

1 0 6 .5

1 6 4 .6

1 5 6

3 .1 7 .1 6

3 .2 2 .1 6

3 .2 0 .3 6

0 .4

1 , 2 0 0 .0

3 , 3 5 4 .0

1 , 0 8 9 .0

9 9 .4 9

0 .4 2 7

9 9 .2 0

0 .4 4 3

1 1 0 .4

1 6 1 .0

1 0 -y ear Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en） （billion y en）

Average price （y en）

Yield at the average price （％）

Lowest Price （y en）

Yield at the lowest price （％）

Non-priceNoncompetitive competitive Auction I （billion y en） （billion y en）

Non-pricecompetitive Auction II （billion y en）

3 3 8

4 .2 .1 5

4 .6 .1 5

3 .2 0 .2 5

0 .4

2 , 4 0 0 .0

6 , 0 0 3 .6

2 , 1 8 5 .8

1 0 0 .2 9

0 .3 6 9

1 0 0 .2 5

0 .3 7 3

3 .3 8 0

2 1 0 .4

3 3 8

5 .1 2 .1 5

5 .1 4 .1 5

3 .2 0 .2 5

0 .4

2 , 4 0 0 .0

4 , 9 1 8 .6

2 , 1 9 4 .5

9 9 .6 7

0 .4 3 4

9 9 .5 7

0 .4 4 5

3 .1 9 5

2 0 2 .0

0 .0

3 3 9

6 .2 .1 5

6 .2 2 .1 5

6 .2 0 .2 5

0 .4

2 , 4 0 0 .0

5 , 9 0 7 .3

2 , 1 8 1 .9

9 9 .5 2

0 .4 5 0

9 9 .4 9

0 .4 5 3

6 .7 6 7

2 1 0 .4

3 5 7 .1

3 5 8 .2

3 3 9

7 .2 .1 5

7 .6 .1 5

6 .2 0 .2 5

0 .4

2 , 4 0 0 .0

5 , 7 1 6 .8

2 , 1 8 3 .0

9 8 .9 2

0 .5 1 3

9 8 .8 9

0 .5 1 7

5 .3 4 4

2 1 0 .9

2 8 9 .2

3 3 9

8 .4 .1 5

8 .6 .1 5

6 .2 0 .2 5

0 .4

2 , 4 0 0 .0

6 , 2 3 4 .5

2 , 1 9 1 .9

1 0 0 .0 0

0 .4 0 0

9 9 .9 6

0 .4 0 4

2 .8 0 6

2 0 4 .8

3 4 6 .7

3 4 0

9 .1 .1 5

9 .2 4 .1 5

9 .2 0 .2 5

0 .4

2 , 4 0 0 .0

7 , 6 5 3 .6

2 , 1 7 6 .5

9 9 .7 9

0 .4 2 1

9 9 .7 8

0 .4 2 2

6 .1 9 4

2 1 6 .4

3 4 4 .4

3 4 0

1 0 .1 .1 5

1 0 .5 .1 5

9 .2 0 .2 5

0 .4

2 , 4 0 0 .0

6 , 6 1 7 .6

2 , 1 8 6 .4

1 0 0 .6 1

0 .3 3 6

1 0 0 .5 8

0 .3 3 9

2 .4 4 9

2 1 0 .1

3 4 3 .1

3 4 0

1 1 .5 .1 5

1 1 .9 .1 5

9 .2 0 .2 5

0 .4

2 , 4 0 0 .0

6 , 1 1 1 .2

2 , 1 8 1 .1

1 0 0 .7 8

0 .3 1 8

1 0 0 .7 6

0 .3 2 0

3 .1 3 1

2 1 5 .1

1 8 5 .8

3 4 1

1 2 .1 .1 5

1 2 .2 1 .1 5

1 2 .2 0 .2 5

0 .3

2 , 4 0 0 .0

7 , 7 2 6 .2

2 , 1 7 2 .5

9 9 .8 0

0 .3 2 0

9 9 .7 8

0 .3 2 2

5 .6 2 9

2 2 0 .8

3 2 2 .8 3 0 5 .1

3 4 1

1 .5 .1 6

1 .7 .1 6

1 2 .2 0 .2 5

0 .3

2 , 4 0 0 .0

7 , 1 0 6 .9

2 , 1 8 6 .1

1 0 0 .4 4

0 .2 5 4

1 0 0 .4 0

0 .2 5 8

2 .1 1 3

2 1 1 .0

3 4 1

2 .2 .1 6

2 .4 .1 6

1 2 .2 0 .2 5

0 .3

2 , 4 0 0 .0

6 , 8 9 5 .5

2 , 1 9 8 .5

1 0 2 .1 7

0 .0 7 8

1 0 2 .0 3

0 .0 9 2

1 .5 0 1

1 9 9 .9

0 .0

3 4 2

3 .1 .1 6

3 .2 2 .1 6

3 .2 0 .2 6

0 .1

2 , 4 0 0 .0

6 , 9 9 7 .3

2 , 1 8 7 .9

1 0 1 .2 5

0 .9 7 3

2 1 0 .4

3 5 8 .5

Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en）（billion y en）

112

Amount of bids accepted （billion y en）

Amount of bids accepted （billion y en）

Lowest Price （y en）

▲

Yield at the lowest price （％）

1 0 1 .1 6

Non-pricecompetitive Auction II （billion y en）

2 0

5 .8 .1 5

5 .1 2 .1 5

3 .1 0 .2 5

0 .1

5 0 0 .0

1 , 3 2 6 .4

4 9 9 .8

1 0 7 .2 0

▲

5 3 .9

2 0

7 .7 .1 5

7 .9 .1 5

3 .1 0 .2 5

0 .1

5 0 0 .0

1 , 1 6 6 .0

5 0 0 .0

1 0 6 .7 0

▲

4 1 .2

2 0

1 1 .1 0 .1 5

1 1 .1 2 .1 5

3 .1 0 .2 5

0 .1

5 0 0 .0

1 , 1 0 6 .4

4 9 9 .8

1 0 5 .4 5

▲

1 .8

2 0

1 .1 3 .1 6

1 .1 5 .1 6

3 .1 0 .2 5

0 .1

5 0 0 .0

1 , 2 3 2 .8

4 9 9 .9

1 0 4 .4 0

▲

4 3 .0

▲

Ⅲ

Ap p endices

5 -y ear Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en）（billion y en）

Amount of bids accepted （billion y en）

Average price （y en）

Yield at the average price （％）

Lowest Price （y en）

Yield at the lowest price （％）

Non-priceNoncompetitive competitive Auction I （billion y en） （billion y en）

Non-pricecompetitive Auction II （billion y en）

4 .1 4 .1 5

4 .1 6 .1 5

3 .2 0 .2 0

0 .1

2 , 5 0 0 .0

7 , 7 1 8 .3

2 , 2 8 5 .0

1 0 0 .0 9

0 .0 8 1

1 0 0 .0 8

0 .0 8 3

1 .1 0 0

2 1 3 .2

5 .1 9 .1 5

5 .2 1 .1 5

3 .2 0 .2 0

0 .1

2 , 5 0 0 .0

6 , 4 4 3 .3

2 , 3 0 0 .5

1 0 0 .0 0

0 .1 0 0

9 9 .9 9

0 .1 0 2

1 .0 0 0

1 9 7 .6

2 8 1 .1 8 6 .1

1 2 4

6 .1 6 .1 5

6 .2 2 .1 5

6 .2 0 .2 0

0 .1

2 , 5 0 0 .0

6 , 6 0 1 .5

2 , 2 9 7 .9

9 9 .8 9

0 .1 2 2

9 9 .8 8

0 .1 2 4

1 .0 7 0

2 0 0 .2

2 3 .6

1 2 4

7 .1 6 .1 5

7 .2 1 .1 5

6 .2 0 .2 0

0 .1

2 , 5 0 0 .0

7 , 3 0 0 .3

2 , 2 7 8 .7

9 9 .9 2

0 .1 1 6

9 9 .9 1

0 .1 1 8

0 .5 1 0

2 1 9 .7

3 7 3 .7

1 2 4

8 .1 3 .1 5

8 .1 7 .1 5

6 .2 0 .2 0

0 .1

2 , 5 0 0 .0

7 , 9 0 6 .4

2 , 2 9 3 .7

1 0 0 .0 5

0 .0 8 9

1 0 0 .0 4

0 .0 9 1

1 .0 7 2

2 0 3 .9

3 7 2 .2 3 3 2 .1

1 2 5

9 .1 0 .1 5

9 .2 4 .1 5

9 .2 0 .2 0

0 .1

2 , 5 0 0 .0

7 , 9 2 4 .5

2 , 2 7 3 .4

1 0 0 .1 6

0 .0 6 7

1 0 0 .1 5

0 .0 6 9

1 .7 2 5

2 2 4 .4

1 2 5

1 0 .1 4 .1 5

1 0 .1 6 .1 5

9 .2 0 .2 0

0 .1

2 , 5 0 0 .0

6 , 4 5 7 .2

2 , 3 1 6 .6

1 0 0 .2 3

0 .0 5 3

1 0 0 .2 2

0 .0 5 5

0 .0 6 5

1 8 2 .5

0 .0

1 2 5

1 1 .1 7 .1 5

1 1 .1 9 .1 5

9 .2 0 .2 0

0 .1

2 , 5 0 0 .0

9 , 4 1 0 .0

2 , 2 9 0 .7

1 0 0 .3 0

0 .0 3 7

1 0 0 .2 9

0 .0 3 9

0 .0 6 5

2 0 7 .9

2 8 5 .5

1 2 6

1 2 .1 5 .1 5

1 2 .2 1 .1 5

1 2 .2 0 .2 0

0 .1

2 , 5 0 0 .0

9 , 6 9 6 .0

2 , 2 8 0 .6

1 0 0 .3 2

0 .0 3 5

1 0 0 .3 1

0 .0 3 7

0 .3 0 0

2 1 8 .3

7 0 .3

1 2 6

1 .1 9 .1 6

1 .2 1 .1 6

1 2 .2 0 .2 0

0 .1

2 , 5 0 0 .0

9 , 2 9 8 .3

2 , 2 6 9 .9

1 0 0 .4 1

0 .0 1 6

1 0 0 .4 0

0 .0 1 8

0 .0 0 0

2 2 9 .5

8 6 .1

1 2 6

2 .1 8 .1 6

2 .2 2 .1 6

1 2 .2 0 .2 0

0 .1

2 , 5 0 0 .0

8 , 1 1 7 .3

2 , 2 7 6 .5

1 0 1 .1 6

▲

1 0 1 .0 7

▲

0 .0 0 0

2 2 3 .3

3 4 .2

1 2 7

3 .1 0 .1 6

3 .2 2 .1 6

3 .2 0 .2 1

0 .1

2 , 5 0 0 .0

8 , 2 3 5 .9

2 , 2 9 2 .2

1 0 1 .2 2

▲

1 0 1 .1 7

▲

0 .0 0 0

2 0 7 .2

1 7 7 .5

C hap ter 1 Gov ernment Bonds (J GBs)

1 2 3 1 2 3

2 -y ear Amount of Nominal C oupon Offering amount competitive Issue bids number Auction date Issue date M aturity date （％） （billion y en）（billion y en）

Amount of bids accepted （billion y en）

Average price （y en）

Yield at the average price （％）

Lowest Price （y en）

Yield at the lowest price （％）

Non-priceNoncompetitive competitive Auction I （billion y en）（billion y en）

Non-pricecompetitive Auction II （billion y en）

3 5 2

4 .2 8 .1 5

5 .1 5 .1 5

5 .1 5 .1 7

0 .1

2 , 5 0 0 .0

8 , 9 2 2 .7

2 , 2 8 6 .0

1 0 0 .2 0 1

0 .0 0 0

1 0 0 .1 9 5

0 .0 0 2

0 .2 5 0

2 1 3 .1

0 .0

3 5 3

5 .2 8 .1 5

6 .1 5 .1 5

6 .1 5 .1 7

0 .1

2 , 5 0 0 .0

8 , 8 0 7 .3

2 , 3 0 0 .3

1 0 0 .1 9 6

0 .0 0 1

1 0 0 .1 9 5

0 .0 0 2

0 .2 2 0

1 9 8 .2

1 2 0 .6

6 .2 5 .1 5

7 .1 5 .1 5

7 .1 5 .1 7

0 .1

2 , 5 0 0 .0

8 , 5 8 7 .6

2 , 3 1 2 .7

1 0 0 .1 9 7

0 .0 0 1

1 0 0 .1 9 5

0 .0 0 2

0 .2 4 0

1 8 6 .3

0 .0

7 .2 8 .1 5

8 .1 7 .1 5

8 .1 5 .1 7

0 .1

2 , 5 0 0 .0

8 , 7 7 7 .6

2 , 2 8 6 .8

1 0 0 .1 8 8

0 .0 0 5

1 0 0 .1 8 5

0 .0 0 7

0 .0 9 0

2 1 2 .3

0 .0

3 5 6

8 .2 7 .1 5

9 .1 5 .1 5

9 .1 5 .1 7

0 .1

2 , 5 0 0 .0

1 0 , 0 9 6 .5

2 , 3 0 0 .9

1 0 0 .1 8 3

0 .0 0 8

1 0 0 .1 8 0

0 .0 0 9

0 .1 1 0

1 9 8 .4

0 .0

3 5 7

9 .2 9 .1 5

1 0 .1 5 .1 5

1 0 .1 5 .1 7

0 .1

2 , 5 0 0 .0

8 , 5 6 8 .6

2 , 3 0 6 .8

1 0 0 .1 7 9

0 .0 1 0

1 0 0 .1 7 5

0 .0 1 2

0 .1 1 0

1 9 2 .1

0 .0

3 5 8

1 0 .2 2 .1 5

1 1 .1 6 .1 5

1 1 .1 5 .1 7

0 .1

2 , 5 0 0 .0

9 , 6 5 5 .6

2 , 3 0 0 .6

1 0 0 .1 7 7

0 .0 1 1

1 0 0 .1 7 5

0 .0 1 2

0 .1 1 0

1 9 8 .6

6 1 .2 1 0 .9

3 5 9

1 1 .2 7 .1 5

1 2 .1 5 .1 5

1 2 .1 5 .1 7

0 .1

2 , 5 0 0 .0

1 1 , 8 1 0 .7

2 , 2 7 9 .1

1 0 0 .2 0 9

▲

1 0 0 .2 0 5

▲

0 .1 1 0

2 2 0 .4

3 6 0

1 2 .2 2 .1 5

1 .1 5 .1 6

1 .1 5 .1 8

0 .1

2 , 5 0 0 .0

1 0 , 9 6 8 .2

2 , 3 2 5 .6

1 0 0 .2 2 8

▲

1 0 0 .2 2 0

▲

0 .0 1 0

1 7 3 .8

0 .0

3 6 1

1 .2 8 .1 6

2 .1 5 .1 6

2 .1 5 .1 8

0 .1

2 , 5 0 0 .0

1 1 , 0 5 2 .2

2 , 2 8 2 .7

1 0 0 .2 3 8

▲

1 0 0 .2 3 0

▲

0 .1 1 0

2 1 6 .2

2 0 7 .2

3 6 2

2 .2 5 .1 6

3 .1 5 .1 6

3 .1 5 .1 8

0 .1

2 , 5 0 0 .0

9 , 8 8 8 .9

2 , 2 7 6 .4

1 0 0 .5 7 0

▲

1 0 0 .5 5 5

▲

0 .0 1 0

2 2 3 .3

2 9 6 .4

3 6 3

3 .2 5 .1 6

4 .1 5 .1 6

4 .1 5 .1 8

0 .1

2 , 3 0 0 .0

1 0 , 5 7 4 .2

2 , 1 0 9 .0

1 0 0 .6 4 6

▲

1 0 0 .6 2 5

▲

0 .0 1 0

1 9 0 .4

1 1 4 .1

Issue number Auction date Issue date M aturity date

Amount of bids accepted （billion y en）

Amount of competitive bids （billion y en）

Average price （y en）

Yield at the average price （％）

0 .0 0 9 2

Lowest Price （y en）

Yield at the lowest price （％）

Non-pricecompetitive Auction I （billion y en）

5 2 2

4 .2 .1 5

4 .6 .1 5

7 .6 .1 5

4 , 9 6 9 .0 5

1 4 , 8 3 6 .9 5

9 9 .9 9 7 7

5 2 3

4 .7 .1 5

4 .1 0 .1 5

1 0 .1 3 .1 5

3 , 2 3 3 .0 5

1 4 , 9 9 8 .0 0

1 0 0 .0 0 1

9 9 .9 9 6 0

0 .0 1 6 0

4 1 0 .9 0

1 0 0 .0 0 0

0 .0 0 0 0

5 2 4

4 .9 .1 5

4 .1 3 .1 5

7 .1 3 .1 5

4 , 9 2 9 .9 5

1 6 , 4 5 7 .9 0

9 9 .9 9 9 2

2 6 6 .9 0

0 .0 0 3 2

9 9 .9 9 9 0

0 .0 0 4 0

5 2 5

4 .1 3 .1 5

4 .1 5 .1 5

6 .3 .1 5

2 , 3 1 8 .1 7

7 , 5 5 0 .3 0

9 9 .9 9 7 8

4 4 0 .0 0

0 .0 1 6 3

9 9 .9 9 6 5

0 .0 2 6 0

1 8 1 .8 0

5 2 6

4 .1 5 .1 5

4 .2 0 .1 5

4 .2 0 .1 6

2 , 3 0 6 .7 3

1 1 , 0 4 9 .1 0

1 0 0 .0 0 6

5 2 7

4 .1 6 .1 5

4 .2 0 .1 5

7 .2 1 .1 5

4 , 9 9 6 .2 2

1 7 , 9 0 8 .8 0

1 0 0 .0 0 0 0

0 .0 0 0 0

1 0 0 .0 0 0 0

0 .0 0 0 0

4 1 3 .7 0

5 2 8

4 .2 3 .1 5

4 .2 7 .1 5

7 .2 7 .1 5

4 , 9 3 7 .9 3

1 8 , 7 0 5 .8 0

1 0 0 .0 0 1 6

▲

1 0 0 .0 0 1 0

▲

4 4 2 .0 0

5 2 9

4 .2 8 .1 5

5 .7 .1 5

8 .3 .1 5

4 , 9 8 6 .9 3

1 4 , 7 8 7 .2 0

1 0 0 .0 0 1 4

▲

1 0 0 .0 0 0 5

▲

4 1 3 .0 0

5 3 0

5 .8 .1 5

5 .1 2 .1 5

8 .1 0 .1 5

4 , 9 3 4 .1 2

1 7 , 1 0 5 .9 5

1 0 0 .0 0 0 9

▲

1 0 0 .0 0 0 5

▲

4 4 5 .8 0

5 3 1

5 .1 2 .1 5

5 .1 4 .1 5

1 1 .1 0 .1 5

3 , 2 2 6 .4 2

1 4 , 5 6 4 .6 5

1 0 0 .0 0 3

▲

1 0 0 .0 0 3

▲

5 3 2

5 .1 4 .1 5

5 .1 8 .1 5

8 .1 7 .1 5

5 , 0 0 7 .3 4

1 5 , 6 5 0 .1 2

1 0 0 .0 0 0 6

▲

1 0 0 .0 0 0 0

5 3 3

5 .1 8 .1 5

5 .2 0 .1 5

5 .2 0 .1 6

2 , 2 9 4 .8 7

1 1 , 9 5 1 .2 0

1 0 0 .0 0 8

▲

5 3 4

5 .2 1 .1 5

5 .2 5 .1 5

8 .2 4 .1 5

4 , 9 8 5 .8 2

1 3 , 3 4 4 .8 2

9 9 .9 9 9 7

0 .0 0 1 2

▲

▲

1 0 0 .0 0 2

▲

1 9 3 .2 0

2 7 3 .5 0 0 .0 0 0 0

4 1 2 .6 0

9 9 .9 9 9 0

0 .0 0 4 0

4 4 4 .1 0

1 0 0 .0 0 7

▲

2 0 5 .1 0

5 3 5

5 .2 8 .1 5

6 .1 .1 5

8 .3 1 .1 5

4 , 9 6 2 .1 6

1 3 , 2 7 0 .8 0

9 9 .9 9 9 7

0 .0 0 1 2

9 9 .9 9 9 0

0 .0 0 4 0

4 4 7 .8 0

5 3 6

6 .4 .1 5

6 .8 .1 5

9 .7 .1 5

4 , 9 8 0 .4 3

1 8 , 0 0 8 .9 8

9 9 .9 9 9 7

0 .0 0 1 2

9 9 .9 9 9 5

0 .0 0 2 0

4 4 9 .5 0

5 3 7

6 .8 .1 5

6 .1 0 .1 5

1 2 .1 0 .1 5

3 , 2 1 0 .4 6

1 1 , 2 6 6 .3 2

1 0 0 .0 0 4

5 3 8

6 .1 1 .1 5

6 .1 5 .1 5

9 .1 4 .1 5

4 , 9 0 8 .2 2

1 5 , 1 2 2 .6 0

9 9 .9 9 9 9

5 3 9

6 .1 7 .1 5

6 .2 2 .1 5

6 .2 0 .1 6

2 , 3 0 4 .7 7

1 0 , 2 0 0 .7 0

1 0 0 .0 1 5

5 4 0

6 .1 8 .1 5

6 .2 2 .1 5

9 .2 4 .1 5

4 , 9 0 6 .7 9

1 7 , 2 8 6 .6 0

1 0 0 .0 0 0 0

▲

1 0 0 .0 0 2 0 .0 0 0 4

▲

2 8 9 .5 0 0 .0 0 2 0

4 4 1 .7 0

9 9 .9 9 9 5

0 .0 0 1 9

4 4 3 .1 0

1 0 0 .0 1 0 0 .0 0 0 0

▲

9 9 .9 9 9 5

1 P rimary Market for Gov ernment Bonds

3 5 4 3 5 5

▲

1 9 5 .2 0

5 4 1

6 .2 5 .1 5

6 .2 9 .1 5

9 .2 8 .1 5

4 , 9 7 1 .1 4

1 4 , 9 1 7 .6 5

1 0 0 .0 0 0 3

▲

1 0 0 .0 0 0 0

0 .0 0 0 0

4 4 8 .8 0

5 4 2

7 .2 .1 5

7 .6 .1 5

1 0 .5 .1 5

4 , 6 9 5 .5 2

1 6 , 3 9 6 .5 5

1 0 0 .0 0 0 6

▲

1 0 0 .0 0 0 0

0 .0 0 0 0

4 2 4 .4 0

5 4 3

7 .8 .1 5

7 .1 0 .1 5

1 .1 3 .1 6

3 , 2 1 6 .0 6

1 2 , 9 2 0 .4 0

1 0 0 .0 1 0

▲

1 0 0 .0 0 8

▲

2 8 3 .9 0

5 4 4

7 .9 .1 5

7 .1 3 .1 5

1 0 .1 3 .1 5

4 , 6 6 8 .0 5

2 1 , 6 7 3 .6 0

1 0 0 .0 0 2 2

▲

1 0 0 .0 0 1 5

▲

4 2 1 .9 0

5 4 5

7 .1 4 .1 5

7 .2 1 .1 5

7 .2 0 .1 6

2 , 2 9 3 .0 6

9 , 2 2 1 .9 0

1 0 0 .0 1 9

▲

1 0 0 .0 1 1

▲

2 0 6 .9 0

5 4 6

7 .1 6 .1 5

7 .2 1 .1 5

1 0 .1 9 .1 5

4 , 7 3 0 .7 7

1 8 , 0 2 4 .2 0

1 0 0 .0 0 2 0

▲

1 0 0 .0 0 0 5

▲

3 7 9 .2 0

5 4 7

7 .2 3 .1 5

7 .2 7 .1 5

1 0 .2 6 .1 5

4 , 6 9 3 .3 1

2 2 , 7 5 6 .4 0

1 0 0 .0 0 0 8

▲

1 0 0 .0 0 0 5

▲

3 8 6 .6 0

5 4 8

7 .3 0 .1 5

8 .3 .1 5

1 1 .2 .1 5

4 , 6 5 0 .9 0

2 0 , 0 0 5 .0 0

1 0 0 .0 0 1 1

▲

1 0 0 .0 0 1 0

▲

3 9 9 .0 0

5 4 9

8 .5 .1 5

8 .1 0 .1 5

2 .1 0 .1 6

3 , 2 2 4 .3 6

1 2 , 3 6 6 .9 0

1 0 0 .0 1 1

▲

1 0 0 .0 0 8

▲

2 7 5 .6 0

5 5 0

8 .6 .1 5

8 .1 0 .1 5

1 1 .9 .1 5

4 , 6 2 5 .6 3

2 1 , 1 6 2 .3 0

1 0 0 .0 0 1 3

▲

1 0 0 .0 0 1 0

▲

4 2 4 .3 0

5 5 1

8 .1 3 .1 5

8 .1 7 .1 5

1 1 .1 6 .1 5

4 , 6 4 4 .0 2

2 1 , 2 8 0 .6 0

1 0 0 .0 0 1 4

▲

1 0 0 .0 0 1 0

▲

4 2 5 .9 0

113

Ⅲ

Ap p endices

Issue number Auction date Issue date M aturity date

C hap ter 1 Gov ernment Bonds (J GBs) 1 P rimary Market for Gov ernment Bonds

114

Amount of bids accepted （billion y en）

Amount of competitive bids （billion y en）

Average price （y en）

Yield at the average price （％）

Lowest Price （y en）

Yield at the lowest price （％）

Non-pricecompetitive Auction I （billion y en）

5 5 2

8 .1 8 .1 5

8 .2 0 .1 5

8 .2 2 .1 6

2 , 2 8 7 .6 9

1 1 , 6 3 6 .8 0

1 0 0 .0 2 6

▲

1 0 0 .0 2 5

▲

2 1 2 .3 0

5 5 3

8 .2 0 .1 5

8 .2 4 .1 5

1 1 .2 4 .1 5

4 , 6 3 5 .0 4

2 0 , 1 7 3 .3 0

1 0 0 .0 0 2 2

▲

1 0 0 .0 0 1 5

▲

4 2 4 .9 0

5 5 4

8 .2 7 .1 5

8 .3 1 .1 5

1 1 .3 0 .1 5

4 , 6 2 3 .0 6

1 7 , 7 0 1 .8 0

1 0 0 .0 0 1 4

▲

1 0 0 .0 0 0 5

▲

5 5 5

9 .3 .1 5

9 .7 .1 5

1 2 .7 .1 5

4 , 6 6 6 .4 0

1 9 , 1 1 4 .7 0

1 0 0 .0 0 0 8

▲

1 0 0 .0 0 0 0

5 5 6

9 .8 .1 5

9 .1 0 .1 5

3 .1 0 .1 6

3 , 2 0 1 .8 4

1 2 , 5 8 2 .7 0

1 0 0 .0 0 4

▲

1 0 0 .0 0 1

5 5 7

9 .1 0 .1 5

9 .1 4 .1 5

1 2 .1 4 .1 5

4 , 6 2 3 .6 2

1 7 , 2 5 3 .0 0

1 0 0 .0 0 0 8

▲

1 0 0 .0 0 0 0

5 5 8

9 .1 6 .1 5

9 .2 4 .1 5

9 .2 0 .1 6

2 , 2 8 6 .5 6

9 , 2 4 7 .3 0

1 0 0 .0 2 5

▲

1 0 0 .0 1 6

▲

2 1 3 .4 0

5 5 9

9 .1 7 .1 5

9 .2 4 .1 5

1 2 .2 1 .1 5

4 , 7 0 3 .6 6

1 8 , 4 5 6 .3 0

1 0 0 .0 0 5 2

▲

1 0 0 .0 0 2 5

▲

3 8 6 .3 0

5 6 0

9 .2 4 .1 5

9 .2 8 .1 5

1 2 .2 8 .1 5

4 , 6 7 7 .7 7

1 6 , 0 4 1 .5 0

1 0 0 .0 0 8 7

▲

1 0 0 .0 0 4 0

▲

4 3 2 .2 0

5 6 1

1 0 .1 .1 5

1 0 .5 .1 5

1 .1 2 .1 6

4 , 3 5 6 .1 4

2 1 , 5 6 1 .1 1

1 0 0 .0 0 5 1

▲

1 0 0 .0 0 3 0

▲

3 9 3 .8 0

5 6 2

1 0 .6 .1 5

1 0 .1 3 .1 5

4 .1 1 .1 6

3 , 1 9 8 .7 8

1 3 , 4 5 4 .3 0

1 0 0 .0 1 4

▲

1 0 0 .0 0 9

▲

3 0 1 .2 0

5 6 3

1 0 .8 .1 5

1 0 .1 3 .1 5

1 .1 8 .1 6

4 , 4 0 2 .5 6

1 8 , 7 4 1 .4 0

1 0 0 .0 0 2 8

▲

1 0 0 .0 0 1 5

▲

3 9 7 .4 0

5 6 4

1 0 .1 5 .1 5

1 0 .1 9 .1 5

1 .2 5 .1 6

4 , 4 3 5 .4 0

1 9 , 2 7 9 .0 0

1 0 0 .0 0 1 5

▲

1 0 0 .0 0 1 0

▲

3 9 4 .5 0

5 6 5

1 0 .1 6 .1 5

1 0 .2 0 .1 5

1 0 .2 0 .1 6

2 , 2 8 6 .5 9

9 , 3 7 4 .6 0

1 0 0 .0 4 2

▲

1 0 0 .0 3 6

▲

2 1 3 .4 0

5 6 6

1 0 .2 2 .1 5

1 0 .2 6 .1 5

2 .1 .1 6

4 , 3 7 0 .0 2

1 9 , 1 4 1 .3 0

1 0 0 .0 0 1 2

▲

1 0 0 .0 0 1 0

▲

4 0 9 .9 0

5 6 7

1 0 .2 9 .1 5

1 1 .2 .1 5

2 .8 .1 6

4 , 3 6 5 .2 0

1 9 , 5 5 6 .5 0

1 0 0 .0 0 1 0

▲

1 0 0 .0 0 0 5

▲

3 9 4 .7 0

5 6 8

1 1 .5 .1 5

1 1 .9 .1 5

2 .1 5 .1 6

4 , 3 6 8 .1 3

2 4 , 1 3 2 .8 0

1 0 0 .0 0 1 5

▲

1 0 0 .0 0 1 0

▲

3 8 1 .8 0

5 6 9

1 1 .6 .1 5

1 1 .1 0 .1 5

5 .1 3 .1 6

3 , 1 9 3 .5 7

1 3 , 5 5 7 .9 0

1 0 0 .0 2 0

▲

1 0 0 .0 1 6

▲

3 0 6 .4 0

5 7 0

1 1 .1 2 .1 5

1 1 .1 6 .1 5

2 .2 2 .1 6

4 , 3 4 3 .0 7

1 8 , 9 6 9 .5 0

1 0 0 .0 0 8 1

▲

1 0 0 .0 0 5 0

▲

4 1 6 .9 0

5 7 1

1 1 .1 7 .1 5

1 1 .2 0 .1 5

1 1 .2 1 .1 6

2 , 2 8 1 .3 9

1 0 , 2 2 0 .2 0

1 0 0 .0 6 6

▲

1 0 0 .0 5 8

▲

2 1 8 .6 0

5 7 2

1 1 .1 8 .1 5

1 1 .2 4 .1 5

2 .2 9 .1 6

4 , 4 2 9 .0 4

1 7 , 3 0 9 .6 0

1 0 0 .0 1 0 4

▲

1 0 0 .0 0 9 5

▲

3 7 0 .9 0

5 7 3

1 1 .2 6 .1 5

1 1 .3 0 .1 5

3 .7 .1 6

4 , 3 6 2 .0 7

1 8 , 2 2 9 .9 0

1 0 0 .0 2 3 2

▲

1 0 0 .0 0 9 5

▲

4 1 7 .9 0

5 7 4

1 2 .3 .1 5

1 2 .7 .1 5

3 .1 4 .1 6

4 , 4 0 5 .4 2

1 8 , 5 9 9 .5 0

1 0 0 .0 1 7 3

▲

1 0 0 .0 1 3 5

▲

3 7 4 .5 0

5 7 5

1 2 .8 .1 5

1 2 .1 0 .1 5

6 .1 0 .1 6

3 , 2 1 8 .8 8

1 3 , 7 8 9 .5 0

1 0 0 .0 2 3

▲

1 0 0 .0 1 9

▲

2 8 1 .1 0

5 7 6

1 2 .1 0 .1 5

1 2 .1 4 .1 5

3 .2 2 .1 6

4 , 3 4 7 .7 8

1 6 , 0 8 9 .1 0

1 0 0 .0 0 9 6

▲

1 0 0 .0 0 6 0

▲

4 0 2 .2 0

5 7 7

1 2 .1 6 .1 5

1 2 .2 1 .1 5

1 2 .2 0 .1 6

2 , 3 2 8 .8 8

1 0 , 6 7 8 .7 0

1 0 0 .0 4 9

▲

1 0 0 .0 4 1

▲

1 7 1 .1 0

5 7 8

1 2 .1 7 .1 5

1 2 .2 1 .1 5

3 .2 8 .1 6

4 , 3 7 7 .7 6

1 8 , 4 4 8 .5 0

1 0 0 .0 0 6 5

▲

1 0 0 .0 0 3 0

▲

3 7 2 .2 0

5 7 9

1 2 .2 4 .1 5

1 2 .2 8 .1 5

4 .7 .1 6

4 , 3 9 4 .3 5

1 5 , 4 7 1 .7 0

1 0 0 .0 0 5 8

▲

1 0 0 .0 0 4 0

▲

3 5 5 .6 0

5 8 0

1 .7 .1 6

1 .1 2 .1 6

4 .1 1 .1 6

4 , 0 9 0 .0 7

1 9 , 8 4 1 .1 0

1 0 0 .0 0 5 3

▲

1 0 0 .0 0 4 0

▲

3 7 9 .9 0

5 8 1

1 .8 .1 6

1 .1 3 .1 6

7 .1 1 .1 6

3 , 2 1 9 .2 6

1 4 , 5 4 9 .6 0

1 0 0 .0 3 0

▲

1 0 0 .0 2 1

▲

2 8 0 .7 0

5 8 2

1 .1 4 .1 6

1 .1 8 .1 6

4 .1 8 .1 6

4 , 0 8 5 .6 5

1 9 , 2 5 7 .5 0

1 0 0 .0 0 6 9

▲

1 0 0 .0 0 5 5

▲

3 8 4 .3 0

5 8 3

1 .1 8 .1 6

1 .2 0 .1 6

1 .2 0 .1 7

2 , 2 8 1 .3 8

9 , 9 3 0 .0 0

1 0 0 .0 7 3

▲

1 0 0 .0 6 7

▲

2 1 8 .6 0

5 8 4

1 .2 1 .1 6

1 .2 5 .1 6

4 .2 5 .1 6

4 , 1 1 9 .5 5

2 0 , 3 4 1 .6 0

1 0 0 .0 0 5 3

▲

1 0 0 .0 0 4 5

▲

3 9 0 .4 0

5 8 5

1 .2 8 .1 6

2 .1 .1 6

5 .2 .1 6

4 , 1 6 2 .0 5

1 7 , 6 3 2 .5 0

1 0 0 .0 0 8 9

▲

1 0 0 .0 0 7 5

▲

3 5 7 .9 0

5 8 6

2 .4 .1 6

2 .8 .1 6

5 .1 2 .1 6

4 , 1 4 7 .7 5

1 7 , 2 7 1 .0 0

1 0 0 .0 3 3 7

▲

1 0 0 .0 2 6 0

▲

3 3 2 .2 0

5 8 7

2 .8 .1 6

2 .1 0 .1 6

8 .1 0 .1 6

3 , 2 2 0 .6 6

1 2 , 6 0 1 .1 0

1 0 0 .0 8 7

▲

1 0 0 .0 8 0

▲

2 7 9 .3 0

5 8 8

2 .1 0 .1 6

2 .1 5 .1 6

5 .1 6 .1 6

4 , 0 6 5 .9 1

1 5 , 1 8 1 .5 1

1 0 0 .0 3 3 3

▲

1 0 0 .0 2 7 5

▲

3 8 4 .0 0

5 8 9

2 .1 7 .1 6

2 .2 2 .1 6

2 .2 0 .1 7

2 , 3 2 5 .1 7

1 0 , 0 8 7 .5 0

1 0 0 .1 6 0

▲

1 0 0 .1 5 0

▲

1 7 4 .8 0

5 9 0

2 .1 8 .1 6

2 .2 2 .1 6

5 .2 3 .1 6

4 , 0 8 8 .3 8

1 6 , 6 1 3 .0 0

1 0 0 .0 2 7 2

▲

1 0 0 .0 2 5 5

▲

3 8 1 .6 0

5 9 1

2 .2 5 .1 6

2 .2 9 .1 6

5 .3 0 .1 6

4 , 1 3 9 .2 4

1 5 , 0 6 6 .6 0

1 0 0 .0 2 6 6

▲

1 0 0 .0 2 5 0

▲

3 9 0 .7 0

5 9 2

3 .3 .1 6

3 .7 .1 6

6 .6 .1 6

4 , 1 1 7 .1 7

1 7 , 2 9 5 .4 0

1 0 0 .0 2 5 4

▲

1 0 0 .0 2 2 5

▲

3 8 2 .8 0

5 9 3

3 .8 .1 6

3 .1 0 .1 6

9 .1 2 .1 6

3 , 2 2 0 .4 7

1 3 , 0 7 9 .1 0

1 0 0 .0 6 6

▲

1 0 0 .0 6 1

▲

2 7 9 .5 0

5 9 4

3 .1 0 .1 6

3 .1 4 .1 6

6 .1 3 .1 6

4 , 1 0 3 .3 3

1 5 , 3 1 1 .8 0

1 0 0 .0 2 2 5

▲

1 0 0 .0 2 0 0

▲

3 7 6 .6 0

5 9 5

3 .1 6 .1 6

3 .2 2 .1 6

3 .2 1 .1 7

2 , 2 8 4 .6 8

1 0 , 4 9 6 .1 0

1 0 0 .1 6 4

▲

1 0 0 .1 5 3

▲

2 1 5 .3 0

5 9 6

3 .1 7 .1 6

3 .2 2 .1 6

6 .2 0 .1 6

4 , 0 8 8 .8 7

1 6 , 5 1 3 .3 0

1 0 0 .0 2 5 3

▲

1 0 0 .0 2 4 0

▲

3 8 1 .1 0

5 9 7

3 .2 4 .1 6

3 .2 8 .1 6

6 .2 7 .1 6

4 , 0 6 2 .5 5

1 8 , 7 8 6 .1 0

1 0 0 .0 2 5 9

▲

1 0 0 .0 2 5 0

▲

3 8 7 .4 0

4 2 6 .9 0 0 .0 0 0 0

4 3 3 .5 0

0 .0 0 0 0

4 2 6 .3 0

▲

2 9 8 .1 0

第Ⅲ編 資料編 Ⅲ Ap p endices (4 ) I ssuance Amount of J GB s and T - B ills O ffered to th e Mark et at E ach Auction C hap ter 1 Gov ernment Bonds (J GBs)

JGBs 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2

0.8 0.6 0.4 0.2 0.0 A pr-06

A pr-07

A pr-08

A pr-09

A pr-10

A pr-11

A apr-12

A pr-13

A pr-14

A pr-15

A pr-07

A pr-08

A pr-09

A pr-10

A pr-11

A pr-12

A pr-13

A pr-14

A pr-15

T -Bills

1 P rimary Market for Gov ernment Bonds

1.0

6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 A pr-06

Note: Up to Jan.2009, figures for FBs and T Bs are used.

101 115

Ⅲ

Ap p endices (5 ) Princip le/ Coup on Payment Corresp onding to D ays of I ssuance in FY 2016 5, 10, 20, 30-Year Bonds

C hap ter 1 Gov ernment Bonds (J GBs)

M onth of Issuance

Initial Coupon P ayment M onth

A pril M ay June July A ugust September October November December January February M arch

September September December December December M arch M arch M arch June June June September

Coupon P ayment M onths M arch, September M arch, September June, December June, December June, December M arch, September M arch, September M arch, September June, December June, December June, December M arch, September

M onth of R edemption M arch M arch June June June September September September December December December M arch

M aturity M aturity – 1 month M aturity – 2 months A s for term M aturity – 1 month M aturity – 2 months A s for term M aturity – 1 month M aturity – 2 months A s for term M aturity – 1 month M aturity – 2 months A s for term

Note.1: Coupon payment days and days of maturity are the tw entieth of the month. Note.2: W ith regard to establishing the day of issuance, as a rule, issuance shall occur on T + 2 (day of auction + 2 business days). H ow ever, w ith regard to M arch, June, September, and December, if T + 2 falls before the day of maturity (the tw entieth) then issuance shall occur on the tw entieth.

2-Year Bonds 1 P rimary Market for Gov ernment Bonds

M onth of Issuance A pril M ay June July A ugust September October November December January February M arch

Initial Coupon P ayment M onth October November December January February M arch A pril M ay June July A ugust September

Coupon P ayment M onths A pril, October M ay, November June, December January, July February, A ugust M arch, September A pril, October M ay, November June, December January, July February, A ugust M arch, September

M onth of R edemption A pril M ay June July A ugust September October November December January February M arch

Note.1: Coupon payment days and days of maturity are the fifteenth of the month. Note.2: W ith regard to establishing the day of issuance, as a rule, issuance shall occur on the fifteenth of the month.

40-year Bonds M onth of Issuance M ay July September November January M arch

Initial Coupon P ayment M onth Coupon P ayment M onths September M arch, September September M arch, September M arch M arch, September M arch M arch, September M arch M arch, September September M arch, September

M onth of R M M M M M M

edemption arch arch arch arch arch arch

M aturity M aturity – 2 months M aturity – 4 months M aturity – 6 months M aturity – 8 months M aturity – 10 months M aturity – 12 months

M onth of R M M M M

edemption arch arch arch arch

M aturity M aturity – 1 months M aturity – 5 months M aturity – 7 months M aturity – 11 months

Note.1: Coupon payment days and days of maturity are the tw entieth of the month. Note.2: Issuance shall occur on T + 2 (day of auction + 2 business days).

Inflation-Index ed Bonds M onth of Issuance A pril A ugust October February

Initial Coupon P ayment M onth Coupon P ayment M onths M arch, September September M arch, September September M arch, September M arch M arch, September M arch

Note.1: Coupon payment date and redemption date are the tenth of the month. Note.2: W ith regard to establishing the day of issuance, as a rule, issuance shall occur on the tenth of the month.

116

M aturity A s for term A s for term A s for term A s for term A s for term A s for term A s for term A s for term A s for term A s for term A s for term A s for term

22.1%

27.9%

27.9%

0.0%

6,085

7,691

7,691

0

Overseas

Domestic

Overseas

0.0%

100.0%

89

0

27,582

Short-term credit/securities Finance Companies

Others

27,456

0

0

0

0

4,333

4,333

6,545

16,578

23,123

100.0%

0.0%

0.0%

0.0%

0.0%

15.8%

15.8%

23.8%

60.4%

84.2%

Share

26,226

0

0

0

0

3,233

3,233

8,981

14,012

22,993

100.0%

0.0%

0.0%

0.0%

0.0%

12.3%

12.3%

34.2%

53.4%

87.7%

Share

13,108

0

0

72

0

1,376

1,376

5,237

6,423

11,660

100.0%

0.0%

0.0%

0.5%

0.0%

10.5%

10.5%

40.0%

49.0%

89.0%

Share

20-Year

Note.1: Figures may not sum up to the total because of rounding. Figures are calculated on a nominal basis. Note.2: Figures are the total of price-competitive auctions.

T otal for FY2015

0.3%

0

Insurance Companies

0.0%

49.7%

13,718

Domestic

Banks

71.8%

19,802

Securities Companies

Share

10-Year

8,758

0

0

72

0

353

353

3,543

4,791

8,334

100.0%

0.0%

0.0%

0.8%

0.0%

4.0%

4.0%

40.5%

54.7%

95.2%

Share

30-Year

1,998

0

0

0

0

0

0

1,219

780

1,998

100.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

61.0%

39.0%

100.0%

Share

40-Year

52.8%

5.5%

5.5%

0.0%

1,056

110

110

0

0.0%

0.0%

100.0%

0

0

2,000

0.0%

41.7%

833

0

94.5%

1,889

Share

10-Year JGBi

1 P rimary Market for Gov ernment Bonds

５-Year

9,580

0

0

0

0

926

926

3,226

5,428

8,654

100.0%

0.0%

0.0%

0.0%

0.0%

9.7%

9.7%

33.7%

56.7%

90.3%

Share

A uction for Enhanced-L iq uidity

0.0%

0.1%

0.1%

0.0%

15.4%

15.4%

30.8%

53.6%

84.4%

Share

116,708 100.0%

0

89

144

0

18,021

18,021

35,892

62,563

98,454

T otal

299,805

0

16,256

0

120

19,174

19,294

90,947

173,308

264,255

T -Bills

100.0%

0.0%

5.4%

0.0%

0.0%

6.4%

6.4%

30.3%

57.8%

88.1%

Share

C hap ter 1 Gov ernment Bonds (J GBs)

２-Year

（Unit: billion yen）

Ⅲ Ap p endices

(6) Closing B ids Sh are for J GB s by I nvestor T yp e in FY 2015

117

Ⅲ

Ap p endices (7) I ssuance of J GB s for R etail I nvestors month of issue

C hap ter 1 Gov ernment Bonds (J GBs) 1 P rimary Market for Gov ernment Bonds

118

3-Year Fix ed-R ate 5-Year Fix ed-R ate 10-Year Floating-R ate （interest rate）

（interest rate）

（first interest rate）

T otal

（Unit: billion yen） month of issue

3-Year Fix ed-R ate 5-Year Fix ed-R ate 10-Year Floating-R ate （interest rate）

（interest rate）

（first interest rate）

T otal

M ar-03

−

−

−

−

384 (0.09%)

384

A pr-13

28

(0.05%)

14 (0.06%)

A pr-03

−

−

−

−

349 (0.05%)

349

M ay-13

26

(0.05%)

−

−

−

−

Jul-03

−

−

−

−

280 (0.05%)

280

Jun-13

33

(0.12%)

−

−

−

−

33

Oct-03

−

−

−

−

943 (0.77%)

943

Jul-13

41

(0.14%)

297 (0.57%)

467

Jan-04

−

−

−

−

1,395 (0.62%)

1,395

A ug-13

92

(0.14%)

−

−

−

−

A pr-04

−

−

−

−

1,418 (0.55%)

1,418

Sep-13

94

(0.12%)

−

−

−

−

94

Jul-04

−

−

−

−

1,773 (0.74%)

1,773

Oct-13

89

(0.11%)

666 (0.51%)

893

129 (0.30%)

138 (0.24%)

207 (0.42%)

250 26

92

Oct-04

−

−

−

−

1,865 (0.74%)

1,865

Nov-13

108

(0.10%)

−

−

−

−

Jan-05

−

−

−

−

1,765 (0.67%)

1,765

Dec-13

34

(0.10%)

−

−

−

−

34

A pr-05

−

−

−

−

2,337 (0.73%)

2,337

Jan-14

67

(0.08%)

78 (0.15%)

625 (0.43%)

770

108

Jul-05

−

−

−

−

1,642 (0.45%)

1,642

Feb-14

45

(0.09%)

62 (0.17%)

235 (0.48%)

342

Oct-05

−

−

−

−

1,363 (0.55%)

1,363

M ar-14

37

(0.08%)

37 (0.15%)

166 (0.40%)

240

Jan-06

−

−

1,128 (0.80%)

800 (0.68%)

1,929

A pr-14

47

(0.07%)

52 (0.14%)

266 (0.40%)

365

A pr-06

−

−

988 (1.01%)

829 (0.85%)

1,817

M ay-14

44

(0.08%)

65 (0.15%)

210 (0.42%)

318

Jul-06

−

−

1,243 (1.30%)

981 (1.10%)

2,224

Jun-14

28

(0.08%)

33 (0.14%)

96 (0.40%)

157

Oct-06

−

−

858 (1.13%)

732 (0.92%)

1,591

Jul-14

37

(0.07%)

54 (0.14%)

256 (0.40%)

347

Jan-07

−

−

1,073 (1.20%)

433 (0.84%)

1,506

A ug-14

36

(0.06%)

65 (0.12%)

169 (0.37%)

270

A pr-07

−

−

833 (1.13%)

348 (0.87%)

1,180

Sep-14

26

(0.06%)

29 (0.10%)

125 (0.34%)

180

Jul-07

−

−

1,596 (1.50%)

371 (1.01%)

1,968

Oct-14

25

(0.06%)

42 (0.12%)

163 (0.34%)

230

Oct-07

−

−

769 (1.15%)

193 (0.85%)

962

Nov-14

25

(0.05%)

54 (0.11%)

143 (0.34%)

221

Jan-08

−

−

420 (0.94%)

132 (0.68%)

551

Dec-14

17

(0.05%)

15 (0.08%)

63 (0.29%)

96

A pr-08

−

−

292 (0.81%)

62 (0.57%)

354

Jan-15

30

(0.05%)

10 (0.05%)

139 (0.31%)

179

Jul-08

−

−

894 (1.22%)

101 (1.00%)

995

Feb-15

42

(0.05%)

10 (0.05%)

92 (0.20%)

144

Oct-08

−

−

393 (0.99%)

46 (0.69%)

439

M ar-15

29

(0.05%)

4 (0.05%)

91 (0.20%)

124

Jan-09

−

−

473 (0.80%)

32 (0.58%)

505

A pr-15

27

(0.05%)

12 (0.05%)

136 (0.26%)

175

A pr-09

−

−

294 (0.71%)

27 (0.50%)

321

M ay-15

41

(0.05%)

15 (0.05%)

128 (0.24%)

184

Jul-09

−

−

444 (0.82%)

43 (0.73%)

487

Jun-15

21

(0.05%)

11 (0.08%)

115 (0.28%)

147

Oct-09

−

−

269 (0.60%)

41 (0.53%)

310

Jul-15

29

(0.05%)

8 (0.05%)

159 (0.30%)

196

Jan-10

−

−

187 (0.44%)

55 (0.45%)

241

A ug-15

19

(0.05%)

31 (0.09%)

175 (0.34%)

226

A pr-10

−

−

143 (0.48%)

48 (0.53%)

190

Sep-15

20

(0.05%)

7 (0.05%)

133 (0.26%)

160

Jul-10

59

(0.19%)

156 (0.42%)

57 (0.48%)

272

Oct-15

19

(0.05%)

9 (0.05%)

131 (0.28%)

160

A ug-10

26

(0.14%)

−

−

−

−

26

Nov-15

22

(0.05%)

13 (0.05%)

148 (0.22%)

182

Sep-10

29

(0.15%)

−

−

−

−

29

Dec-15

14

(0.05%)

4 (0.05%)

55 (0.21%)

73

Oct-10

31

(0.11%)

40 (0.23%)

15 (0.25%)

86

Jan-16

22

(0.05%)

14 (0.05%)

189 (0.21%)

225

Nov-10

32

(0.12%)

−

−

−

−

32

Feb-16

15

(0.05%)

12 (0.05%)

149 (0.17%)

177

Dec-10

27

(0.13%)

−

−

−

−

27

M ar-16

37

(0.05%)

31 (0.05%)

166 (0.05%)

234

Jan-11

80

(0.21%)

83 (0.37%)

24 (0.39%)

186

Feb-11

116

(0.22%)

−

−

−

−

116

M ar-11

62

(0.27%)

−

−

−

−

62

A pr-11

84

(0.32%)

13 (0.51%)

240

M ay-11

105

(0.26%)

−

−

−

−

105

Jun-11

58

(0.24%)

−

−

−

−

58

232 (0.77%)

451

143 (0.52%)

Jul-11

50

(0.20%)

A ug-11

117

(0.21%)

−

−

−

−

117

Sep-11

50

(0.18%)

−

−

−

−

50

Oct-11

54

(0.17%)

228 (0.72%)

391

Nov-11

83

(0.17%)

−

−

−

−

83

Dec-11

35

(0.18%)

−

−

−

−

35

Jan-12

103

(0.18%)

405 (0.72%)

745

Feb-12

104

(0.17%)

−

−

−

−

104

M ar-12

45

(0.18%)

−

−

−

−

45

A pr-12

47

(0.12%)

97 (0.27%)

241 (0.64%)

385

M ay-12

84

(0.14%)

−

−

−

−

84

Jun-12

39

(0.10%)

−

−

−

−

39

403 (0.57%)

520

169 (0.41%)

110 (0.32%)

237 (0.33%)

Jul-12

34

(0.07%)

83 (0.19%)

A ug-12

54

(0.07%)

−

−

−

−

54

Sep-12

27

(0.07%)

−

−

−

−

27

223 (0.53%)

303

−

−

44

−

Oct-12

23

(0.07%)

58 (0.17%)

Nov-12

44

(0.07%)

−

−

Dec-12

18

(0.07%)

−

−

Jan-13

26

(0.07%)

49 (0.13%)

Feb-13

32

(0.07%)

−

−

M ar-13

15

(0.05%)

−

−

−

18

278 (0.48%)

354

−

−

32

−

−

15

〈FY T otal〉

（Unit: billion yen） 3-Year Fix ed-R ate 5-Year Fix ed-R ate 10-Year Floating-R ate

T otal

FY2002

−

−

384

384

FY2003

−

−

2,967

2,967

FY2004

−

−

6,821

6,821

FY2005

−

1,128

6,143

7,271

FY2006

−

4,163

2,976

7,138

FY2007

−

3,618

1,044

4,662

FY2008

−

2,052

241

2,293

FY2009

−

1,194

166

1,360

FY2010

462

422

144

1,028

FY2011

1,059

757

1,118

2,933

issued in 2012

170

97

241

508

FY2012

361

204

1,111

1,676

issued in 2013

88

14

207

309

FY2013

607

443

1,990

3,040

FY2014

385

433

1,814

2,633

FY2015

286

168

1,683

2,137

Note.1: From January 2012 to June 2013, JGBs for R etail Investors have issued as R econstruction Bonds. Note.2: JGBs for R etail Investors issued from A pril to June 2012 w ere posted under revenues in FY2011and issued from A pril to June 2013 w ere posted under revenues in FY2012, because R econstruction Bonds are accepted to be issued betw een accounting adj ustment term. Note.3: A mounts of 10-year floating-rate JGBs issued for FY2011 and FY2012 include those of R econstruction Supporters’ Bonds for R etail Investors.

Ⅲ

Ap p endices

(8 ) I ssuance by th e B ank of J ap an Sw itch （Unit: billion y en）

F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2

Amount of Switch

0 0 7 0 0 8 0 0 9 0 1 0 0 1 1 0 1 2 0 1 3 0 1 4 0 1 5 0 1 6 1 1 1 1 1 1

9 ,6 9 ,6 0 ,7 9 ,2 1 ,7 6 ,6 1 ,6 1 ,0 0 ,3 8 ,0

5 5 .8 2 2 .2 0 5 .9 （include re-switch 3 , 0 0 0 .0 ) 9 9 .9 9 9 .8 9 9 .8 9 9 .8 9 9 .8 9 9 .9 0 0 .0

C hap ter 1 Gov ernment Bonds (J GBs)

F Y

Note: F igures are calculated on a revenue basis. Up to F Y2 0 1 5 ; Actual, F Y2 0 1 6 ; Initial.

（Unit: billion y en）

M aximum limits

Issuance Amount ( Revenue basis)

F Y2 0 0 7 ( issued in F Y2 0 0 6 )

2 5 , 0 0 0 .0

2 1 , 9 7 4 .8

F Y2 0 0 8 ( issued in F Y2 0 0 7 )

2 0 , 0 0 0 .0

1 7 , 0 5 2 .0

F Y2 0 0 9 ( issued in F Y2 0 0 8 )

2 0 , 0 0 0 .0

5 , 2 7 6 .4

F Y2 0 1 0 ( issued in F Y2 0 0 9 )

1 2 , 0 0 0 .0

8 , 1 2 6 .4

F Y2 0 1 1 ( issued in F Y2 0 1 0 )

2 0 , 0 0 0 .0 （initial plan: 1 2 , 0 0 0 .0 ）

F Y2 0 1 2 ( issued in F Y2 0 1 1 )

1 2 , 0 0 0 .0

9 , 6 4 7 .3

F Y2 0 1 3 ( issued in F Y2 0 1 2 )

1 2 , 0 0 0 .0

1 1 , 3 6 0 .7

F Y2 0 1 4 ( issued in F Y2 0 1 3 )

2 8 , 0 0 0 .0 （initial plan: 2 0 , 0 0 0 .0 ）

2 3 , 2 7 5 .8

F Y2 0 1 5 ( issued in F Y2 0 1 4 )

2 9 , 0 0 0 .0 （initial plan: 2 5 , 0 0 0 .0 ）

2 8 , 8 3 4 .1

F Y2 0 1 6 ( issued in F Y2 0 1 5 )

4 4 , 0 0 0 .0 （initial plan: 3 2 , 0 0 0 .0 ）

4 2 , 2 5 0 .9

F Y2 0 1 7 ( issued in F Y2 0 1 6 )

4 8 , 0 0 0 .0

1 P rimary Market for Gov ernment Bonds

(9 ) Front- Loading I ssuance of R efunding B onds

1 6 , 9 1 9 .4

ー

Note: Refunding Bonds issued in order to refinance JGBs that will mature in F Y X are basically issued in F Y X , but they can be issued in F Y X -1 within an upper limit authoriz ed by the General Rules for the Special Account Budget of F Y X -1 . This kind of issuance is called F ront-Lording lssuance of Refunding Bonds.

119

0.50 yen per 100 yen nominal par 0.40 yen per 100 yen nominal par

10-Year Floating R ate 5-Year Fix ed R ate

3-Year Fix ed R ate

Bank of Japan

H andling Institutions

1,282 yen per JGB certificate

378 yen per interest coupon or attached coupon

Note: A s consumption tax is not included in the aforementioned data, your fees payable w ill stand at the aforementioned amount multiplied by 108/100.

Subsidy JGBs Buy-back redemption fee

Interest payment fee P rincipal/interest payment fee R edemption amount payment fee

357 yen per JGB certificate

Subsidy JGBs delivery fee

Subsidy JGBs redemption fee

JGB purchase amount payable × 0.9/1,000

Ex cept for above

BOJ A gents, etc

BOJ A gents, etc

BOJ A gents, etc

H andling Institutions

R edemption proceeds receivable × 0.9/1,000,000 H ow ever, the follow ing upper limit is applicable to fees per JGB category Self-account: 10,000 yen; and customer account: 15,000 yen BOJ A gents, etc P rincipal receivable × 0.006/1,000 Ex cept for JGBs held at a self-account (ex cept for trust account)

P remature redemption fee (JGBs for R etail Investors)

R edemption fee

T reasury Bills Financing Bills

P rincipal receivable × 0.006/1,000 BOJ A gents, etc Ex cept for JGBs held at a self-account (ex cept for trust account)

0.10 yen per 100 yen nominal par

2-Year

Intermediaries

Interest payment fee

0.15 yen per 100 yen nominal par

5-Year

Necessary fee amount designated by the M inister of Finance

0.20 yen per 100 yen nominal par

10-Year

P ayable to

Bond issuance fee

Bond auction sale fee (JGBs for R etail Investors)

Bond auction sale fee (New OT C sales JGBs)

1 P rimary Market for Gov ernment Bonds

120

Calculation formula

C hap ter 1 Gov ernment Bonds (J GBs)

Categories

Ⅲ Ap p endices (10) List of Commissions for I ssuing J GB s, etc.

Ⅲ

Ap p endices

２ Secondary Mark et for Government B onds (1) 10- Y ear J GB Y ield C hap ter 1 Gov ernment Bonds (J GBs)

(%) 4 Yield of new ly issued 10-year JGB 3

2

1

M arch 31,2016 -0.050%

-1 A pr-96

A pr-98

A pr-00

A pr-02

A pr-04

A pr-06

A pr-08

A pr-10

A pr-12

A pr-14 (Year)

(Source: Japan Bond T rading Co.)

(2) 10- Y ear Government B onds Y ields 40

(%)

35

2 Secondary Market for Gov ernment Bonds

0

End of M arch 2016

30

25

20

15

Greece

8.588%

P ortugal

2.943%

U.S.

1.769%

Spain

1.437%

U.K.

1.415%

Italy

1.221%

Ireland

0.729%

France

0.486%

Germany

0.153%

Japan

-0.029%

A pr-08

A pr-09

10

5

0

-5 A pr-06

A pr-07

A pr-10

A pr-11

A pr-12

A pr-13

A pr-14

A pr-15

(Source: Bloomberg)

121

Ⅲ

Ap p endices (3) Y ields of J GB s in FY 2015 (%) 2.0

C hap ter 1 Gov ernment Bonds (J GBs)

1.5

1.0

40 year bonds 0.5

30 year bonds

0.0

10 year bonds

20 year bonds

5 year bonds 2 year bonds

2 Secondary Market for Gov ernment Bonds

-0.5 A pr-15

M ay-15

Jun-15

Jul-15

A ug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16 M ar-16

(Source: Japan Bond T rading Co.)

(4 ) J GB Y ield Curves (%) 2

1.5

1

0.5

End of FY2015 End of FY2014 (reference)

0

End of FY2013 (reference)

-0.5

0

5

10

(Source: Japan Bond T rading Co.)

122

15

20

25

30

35

40 (Years to maturity)

Ⅲ

Ap p endices

(5 ) V arious R ates in th e Sh ort- term Financial Mark et in FY 2015 (%) 0.40

BOJ basic loan rate

Overnight call rate

0.35

Euro-yen T IBOR

T -Bills (3-month) interest rate

3-month rate

C hap ter 1 Gov ernment Bonds (J GBs)

0.30 0.25 0.20 0.15 0.10 0.05 0.00 -0.05 -0.10 -0.15 -0.20 -0.25 M ay-15

Jun-15

Jul-15

A ug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

M ar-16

(Source: Bank of Japan, Japanese Bankers A ssociation, Japan Bond T rading Co.)

(6) B reak - E ven- I nflation (B E I ) R ate (%) 3.0

Compound interest rate of 10-year Inflation-Index ed Bonds

2.0

2 Secondary Market for Gov ernment Bonds

-0.30 A pr-15

1.0 March 31,2016 Break-EvenInflation Rate 0.425%

0.0

March 31,2016 10-year JGB -0.107%

-1.0

March 31,2016 10-year InflationIndexed Bonds 0.532%

Break-even Inflation rate Compound interest rate of 10-year JGB

-2.0

-3.0 A pr-11

Oct-11

A pr-12

Oct-12

A pr-13

Oct-13

A pr-14

Oct-14

A pr-15

Oct-15

(Source: Calculated by M inistry of Finance based on Nikkei Q UICK)

123

Ⅲ

Ap p endices (7) Mark et Price of 15 - year Floating- rate B onds (yen)

108.0

C hap ter 1 Gov ernment Bonds (J GBs)

106.0

104.0 48th M arch 31, 2016 103.10yen

102.0

2 Secondary Market for Gov ernment Bonds

100.0

A pr-11

Oct-11

A pr-12

Oct-12

A pr-13

Oct-13

A pr-14

15Y44th (

45bp)

15Y45th (

45bp)

15Y46th (

40bp)

15Y47th (

45bp)

15Y48th (

20bp)

Oct-14

A pr-15

Oct-15

(Source: Nikkei )

(8 ) J GB Sh are in T otal T rading V olume of Y en B onds T rading volume of yen bonds (left scale) (Unit: trillion yen) 14,000

T rading volume of JGB (left scale)

13,000

98.3% 98.6%

12,000 11,000

100%

% (right scale) 98.8%

98.7%

98.7%

98.8%

99.0%

99% 98.9%

98.6%

97.5%

97% 96%

10,000

95%

9,000

94%

8,000

93%

7,000

92%

6,000

91%

5,000

90%

4,000

89%

3,000

88%

2,000

87%

1,000

86%

0

06

07

08

09

10

11

Note: Discount Bonds and T -Bills(T Bs & FBs up untill Jan. 09) are included. (Source: Japan Securities Dealers A ssociation )

124

98%

12

13

14

15

85% (FY)

Ⅲ

Ap p endices

(9 ) J GB Sh are in T otal I ssuance Amount of Y en B onds (Unit: trillion yen) 260 240 83.5% 78.9%

79.0%

82.6%

83.1%

100%

84.9%

85.7%

85.8%

86.0%

87.1%

90% 80%

200

70%

180 160

60%

140 50% 120 40%

100 80

30%

60

C hap ter 1 Gov ernment Bonds (J GBs)

220

Yen bonds issuance amount (left scale) JGB issue amount (left scale) % (right scale)

20%

40 10%

20

06

07

08

09

10

11

12

Note: T -Bills(T Bs & FBs up until Jan. 09) are included. P rivate P lacement L ocal Bonds are ex cluded. (Source: Japan Securities Dealer A ssociation)

13

14

15

0% (FY)

2 Secondary Market for Gov ernment Bonds

0

125

Ⅲ

Ap p endices (10) Portfolio I nvestment Assets in FY 2015 ( Unit: trillion y en)

5 4

2 .0 1 .5

3

1 .0 2

0 .5 1

C hap ter 1 Gov ernment Bonds (J GBs)

0

0 .0

-1

-0 .5

-2

Short-term debt securities

-3

Long-term debt securities

-4 -5

Eq uity

Selling on balance Apr M ay

-1 .0 -1 .5 -2 .0

2016

( Unit: trillion y en) T rust b ank s ( b ank ing accounts)

0 .5

0 .0 5

0 .0

0 .0 0

-0 .5

-0 .0 5

2 Secondary Market for Gov ernment Bonds

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

-0 .1 0

2016

2015

( Unit: trillion y en)

1 0

Jul Aug Sep Oct Nov Dec Jan F eb M ar

2016 N on- lif e insurance companies

( Unit: trillion y en)

0 .1 0

Apr M ay

Jun

2015

1 .0

Apr M ay

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2016

2015

T otal Note.1 : Portfolio investment assets indicate a situation of invest ment by resident in securities issued by a non-resident. Note.2 : Long-term debt securities and short-term debt securities include JGBs, government agency securities, supranational bonds, local government bonds, bank bonds, corporate bonds, and Samurai bonds.

8 6 4 2 0 -2 -4 -6 -8 -1 0

Apr M ay

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2016

2015

(11) Portfolio I nvestment Liabilities in FY 2015 ( Unit: trillion y en)

3

Asia

Buy ing on balance

1 .0 1

0 .5 0

0 .0

Short-term debt securities Long-term debt securities Eq uity

-2 -3

Selling on balance Apr M ay

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2015 E urope

( Unit: trillion y en)

U .S.

-0 .5 -1 .0 -1 .5

Apr M ay

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2015

2016

( Unit: trillion y en)

1 0

1 .5

2

-1

2016

( Unit: trillion y en)

1 0

8 8 6 6 4 4 2 2 0

T otal

0

-2

-2

-4

-4

-6

-6

-8

-8

-1 0

-1 0

Apr M ay

2015

126

Apr M ay

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2015

-1 .0

Lif e insurance companies

( Unit: trillion y en)

B ank s ( b ank ing accounts)

Buy ing on balance

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2016

Apr M ay

2015

Jun Jul Aug Sep Oct Nov Dec Jan F eb M ar

2016

Note.1 : Portfolio investment liabilities indicate a situation of investment by a non-resident in securities issued by a resident. Note.2 : Long-term debt securities and short-term debt securities include JGBs, government agency securities, supranational bonds, local government bonds, bank bonds, corporate bonds, and Samurai bonds.

Ⅲ

Ap p endices

(12) T rends in J GB T ransactions (by investor typ e) in FY 2015 ( Unit: trillion y en) 5

City B ank s &

Long- term Credit B ank s Super-long-term bonds Long-term bonds

4

T rust B ank s

( Unit: trillion y en) 2

M edium-term bonds 3

T-Bill

1 0 0 -1 -2

-1

-3 -4 -5

-2 Apr M ay

Jun

Jul

Aug Sep Oct

2015

Jun

Jul

Aug Sep

Oct

Nov Dec

2015

2016

Jan

F eb

M ar

F eb

M ar

F eb

M ar

F eb

M ar

2016 Second- tier R egional B ank s

( Unit: trillion y en) 0 .2

R egional B ank s

( Unit: trillion y en) 1 .0

0 .1

0 .5

0 .0

0 .0

-0 .2 Apr M ay

Jun

Jul

Aug Sep Oct

Agricultual, Forestry and Fin. Insts.

M ay

Jun

Jul

Oct

Nov Dec

Jan

2016

O th er Fin. Insts.

( Unit: trillion y en) 2

0 .5

Aug Sep

2015

2016

2015 ( Unit: trillion y en)

Apr

Nov Dec Jan F eb M ar

0 .4 0 .3 1

0 .2 0 .1 0

0 .0 -0 .1 -0 .2

-1

-0 .3

2 Secondary Market for Gov ernment Bonds

-0 .1

-0 .5 -1 .0

Apr M ay

Nov Dec Jan F eb M ar

C hap ter 1 Gov ernment Bonds (J GBs)

1

Total 2

-0 .4 -0 .5

Apr M ay

Jun

Jul

Aug Sep Oct

Nov Dec Jan F eb M ar

-2

Apr

2016

2015 ( Unit: trillion y en) 0 .5 0 .4 0 .3 0 .2 0 .1 0 .0 -0 .1 -0 .2 -0 .3 -0 .4 -0 .5 Apr M ay Jun

M ay

Jun

Jul

Aug Sep

Oct

Nov Dec

Sh ink in B ank s

Jan

2016

2015 Foreigners

( Unit: trillion y en) 2 5 2 0 1 5 1 0

Jul

Aug Sep

Oct

Nov Dec

2015

Jan

5

F eb M ar

2016 Insurance Companies

( Unit: trillion y en) 1 .0

0 -5 Apr

0 .5

2015

0 .0

Jun

Jul

Aug Sep

Oct

Nov Dec

Jan

2016

Note.1 : Turnover figures represent transaction totals ( excluding Gensaki transactions) by members ( securities companies) and special members ( registered financial instutions conducting dealing duties, etc.) of Japan Securities Dealers Association. F igures are calculated on a nominal basis. Note.2 : In addition to the data shown here, Japan Securities Dealers Association also publishes turnover charts for " Investment Trusts" " National & Local Public Officers M utual Aid Associations" " Business C orporations" " Other Legal Entities" " Individuals" " others" and " Bond Dealers" ( Source: Japan Securities Dealers Association Trends in Bond Transactions ( by investor ty pe))

-0 .5

-1 .0

M ay

Apr M ay

2015

Jun

Jul

Aug Sep Oct

Nov Dec Jan F eb M ar

2016

127

Ⅲ

Ap p endices (13) T rading V olume of Y en B onds T rading V olume

Open Interest(End of FY)

1092.9 T rading V olume 1180.1

OpenSupper-long-term Interest(End of FY) 13.6 bonds

(13) T rading VYenolume of Y en B onds bonds FY2005

C hap ter 1 Gov ernment Bonds (J GBs)

FY2006 F Y2FY2005 0 0 6 FY2007 FY2006 F Y2FY2008 0 0 7 F Y2FY2007 0 0 8 FY2009 FY2008 F Y2FY2010 0 0 9 FY2009 F Y2FY2011 0 1 0 F Y2FY2010 0 1 1 FY2012 FY2011 F Y2FY2013 0 1 2 FY2012 F Y2FY2014 0 1 3

（Unit: trillion yen）

3 , 0 8 9 .5 1092.9 1409.0 3 , 0 3 , 4 7 9 .3 1180.1 868.1 3 , 4 1409.0 3 , 2 6 2 .5 707.6 3 , 1 3 , 3 1 2 .7 868.1 800.2 3 , 2 3 , 4 7 5 .3 707.6 723.5 3 , 6 9 0 .5 800.2 950.2 3 , 4 8 5 .5 723.5 856.9 3 , 1 8 4 .7 950.2 903.9

（Unit: 16.2 trillion yen）

16.2 2 8 5 .4 12.7 13.6 2 7 2 .5 4.1 12.7 2 1 2 .5 5.9

1 7 .3 0 2 .0 9 4 .0

4.1 2 1 2 .4 5.1 5.9 2 8 9 .1 7.7 5.1 3 0 8 .5 10.1

4 1 .9

3 , 4 0 4 .2 3 , 6 1 7 .0

7.7 3 , 4 2 0 .4 3 8 3 .1 10.3 10.1 3 , 1 2 9 .5 3 4 2 .0 8.7 FY2013 10.3 856.9 (Source: T okyo Stock Ex chage, Osaka Ex change, Japan Securities Clearing Corporation) F Y2 0 1 4 3 , 4 4 0 .1 3 , 3 8 6 .7 4 1 3 .5 8.7 F Y2FY2014 0 1 5 2 , 8 1 2 .6 903.9 2 , 7 6 4 .0 3 7 2 .9 (Source: T okyo Stock Ex chage, Osaka Ex change, Japan Securities Clearing Corporation) Gensaki ( Source: Japan Securities Dealers Association)

(14 ) T rading V olume of J GB Futures T rading V olume

( Unit: trillion y en)

Long-term bonds

M edium-term bonds

8 0 9 .8

9 9 3 .9

9 2 8 .2

9 8 1 .2

1 , 0 2 4 .1

1 , 1 2 4 .2

8 4 9 .9

9 3 9 .5

1 , 1 9 2 .0

7 8 1 .5

9 3 5 .0

1 , 3 1 3 .0

9 7 0 .6

1 , 0 0 8 .2

1 , 1 3 6 .4

8 6 7 .4

1 , 2 7 9 .8

1 , 1 6 1 .2

8 4 6 .7

9 8 6 .2

1 , 2 0 4 .4

6 9 0 .9

7 6 7 .9

1 , 3 2 8 .6

6 9 8 .4

9 9 9 .9

1 , 2 7 4 .9

6 4 1 .5

7 2 3 .9

1 , 0 2 5 .7

（Unit: trillion yen）

Outstanding at the end of FY

(14 ) T rading V olume of J GB Futures 2 Secondary Market for Gov ernment Bonds

FY2005 FY2006 FY2005 FY2007

F Y2FY2006 0 0 6 FY2008 F Y2FY2007 0 0 7 FY2009 F Y2FY2008 0 0 8 FY2010 F Y2FY2009 0 0 9 FY2011 F Y2FY2010 0 1 0 FY2012 F Y2FY2011 0 1 1 FY2013

4,177.8 T rading V olume 6,548.8

Trading V olume

4,177.8 8,921.2 1 , 1 8 0 .1 6,548.8 7,166.81 , 1 8 0 .1

（Unit: trillion yen） 30.2 Outstanding 34.2 at the end ofInterest FY Open

30.2 49.5 34.2 23.3 49.5 15.9 23.3 15.2

1 , 4 0 9 .0 8,921.2 4,571.01 , 4 0 9 .0 8 6 8 .1 7,166.8 4,215.3 8 6 8 .1

15.9 25.4 15.2 23.5

7 0 7 .6 4,571.0 4,682.9 7 0 7 .6 8 0 0 .2 4,215.3 5,002.7 8 0 0 .2

25.4 26.4 23.5 30.8

7 2 3 .5 4,682.9 6,238.0 7 2 1 .0 9 5 0 .2 5,002.7 7,004.9 9 4 8 .1

F Y2FY2012 0 1 2 FY2014 6,238.0 FY2013 0 1 V 3 olume is the total amount 8 5 8 .4 of buying 8 5 6 .9 Note.1:F T Y2 rading and selling.

26.4

( Unit: trillion y en)

( End of F Y)

1 3 .6

1 3 .6

1 2 .7

1 2 .7

4 .1

4 .1

5 .9

5 .9

5 .1

5 .1

7 .7

7 .7

1 0 .1

1 0 .1

1 0 .3

1 0 .3

Note.2: T he Outstanding at the end of fiscal year is the total outstanding by securities companies and by financial institutions for dealing. Note.3:F T Y2 rading and outstanding end of fiscal year FY2014 0 1 volume 4 9 0 8 at.3the 7,004.9 9 0 are 3 .9 on a nominal basis. 0 .630.8 8 .7 (Source: Japan Securities Dealers A ssociation) Note.1: T rading V olume is the total amount of buying and selling. F Y2 0 1 5 8 5 1 .9 8 4 9 .1 0 .3 7 .3 Note.2: T he Outstanding at the end of fiscal year is the total outstanding by securities companies and by financial institutions for dealing. Note.3: T rading volume and outstanding at the end of fiscal year are on a nominal basis. (Source: Japan Securities Dealers A ssociation)

8 .7

0 .0

7 .2

0 .0

(15 ) T rading V olume of B ond Gensaki

（Unit: trillion yen）

(15 ) T rading V L ending olume of B ond Gensaki W ith collateral

FY2005 F Y2 0 0 6 FY2006 F Y2 0 0 7 FY2005 FY2007 F Y2 0 0 8 FY2006 FY2008 F Y2 0 0 9 FY2007 FY2009 F Y2 0 1 0 FY2008 FY2010 F Y2 0 1 1 FY2009 FY2011 F Y2 0 1 2 FY2010 FY2012 F Y2 0 1 3 FY2011 FY2013 F Y2 0 1 4 FY2012 FY2014

128

W ithout collateral

Borrow ( Unit: trillion y ings en)

Trading V olume Outstanding at the end of4,883.2 F Y 304.8 6,494.2 6,799.0 L ending Borrow ings 8 .8 collateral 3 4 .2 368.5 7,955.4 W ithout collateral 8,324.0 6 , 5 W 4 ith 6,425.1 304.8 6,494.2 6,799.0 4,883.2 8 , 9 2 1 .2 4 9 .5 321.6 9,915.2 10,236.8 8,274.3 368.5 7,955.4 8,324.0 7 , 1 6 6 .8 7,733.2 6,425.1 2 3 .3 97.5 7,830.7 6,122.1

10,236.8 5,580.2 5,626.5 4 , 5 7 1 .0 9,915.2 7,733.2 7,830.7 4 , 2 1 5 .3 5,196.0 5,239.7 5,580.2 5,626.5 4 , 6 8 2 .9 5,212.6 5,232.1 5,239.7 6,379.0 6,397.5 5 , 0 0 2 .7 5,196.0 5,212.6 5,232.1 6 , 2 3 8 .0 6,946.1 6,965.7 6,379.0 6,397.5 7 , 0 0 4 .9 8,328.5 8,347.4

Short-term bonds

321.6 1 5 .9 46.3 97.5 1 5 .2 43.7 46.3 2 5 .4 19.5 43.7 2 3 .5 18.6 19.5 2 6 .4 19.5 18.6 3 0 .8 18.8 19.5 3 0 .5

8,274.3 3,591.3 6,122.1 3,960.8 3,591.3 4,132.0 3,960.8 4,550.3 4,132.0 5,271.8 4,550.3 6,616.5

W ith collateral

yen） W （Unit: ithouttrillion collateral

4,541.3 341.9 W ith collateral W ithout collateral 5,938.6 486.5 4,541.3 341.9 7,810.4 463.9 5,938.6 486.5 5,952.8 169.2 7,810.4 3,500.1 5,952.8 3,858.6

463.9 91.2 169.2 102.2

4,052.3 5,186.7 4,472.1 6,547.9

79.7 85.1 78.2 68.5

3,500.1 4,052.3 3,858.6 4,472.1

91.2 79.7 102.2 78.2

F Y2 may 0 1 5 not sum up to6,965.7 7 , 4 8 of6 rounding. .9 6,946.1 5,271.8 5,186.7 FY2013 85.1 Note.1: Figures the total because Note.2: T rading volume is the total of contracts from both members of Japan Securities Dealers A ssociation (Securities Companies) and special members (registered financial 18.8 are not includedin 8,347.4 6,616.5 68.5 Note.1 FY2014 : Trading V olume is the total amount of buy ing and selling. institutions for dealing). T ransactions conducted by8,328.5 investment accounts of the members the trading volume6,547.9 since January 2009. Note.2 : The Outstanding the endA ssociation) of fiscal y ear is the total outstanding by securities companies and by financial (Source: Japan SecuritiesatDealers Note.1: institutions Figures may not sum up to the total because of rounding. for dealing. Note.2: T rading volume is the total of contracts from both members of Japan Securities Dealers A ssociation (Securities Companies) and special members (registered financial institutions for dealing). ( Source: Japan Securities DealersT ransactions Association)conducted by investment accounts of the members are not includedin the trading volume since January 2009. (Source: Japan Securities Dealers A ssociation)

Ⅲ (16) T rading V olume of B ond- Lending

（Unit: trillion y en）

( Unit: trillion y en)

(16) T rading V Lending olume Lending Totalof B ondC all options With collateral Without collateral

Without collateral

(17) O p en I nterest Amounts of B ond- Lending C all Put

( Unit: trillion y en)

4 8 6 .5 4 6 3 .9 1 6 9 .2 9 1 .2 1 0 2 .2 7 9 .7 7 8 .2 8 5 .1 6 8 .5 7 2 .7 2 0 0 9 .

End of F Y) C all

(18 ) T rading V olume of J GB O p tion by O T C (18 ) T

F Y2 0 0 6 F Y2 0 0 5 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2 F Y2

0 0 7 0 0 65 0 F 0 Y28 0 0 76 F Y2 0 0 9 0 F 0 Y287 0 F 1 Y20 0 0 98 F Y2 0 F 1 Y21 0 10 09 0 F 1 Y22 0 F 1 Y210 0 F 1 Y23 0 1 21 F Y2 0 1 4 0 1 32

（Unit: trillion y en） （Unit:Put trillion y en）

2 .5 .1 （Unit:Put trillion 1 y en） 12 .0.5 Put 01 .4.1 012 .6.0.5 001 .5.4.1 110 .0.5.6 10 .7.5.4 110 .8.5.6 110 .2.7.5

1 .8.5 1 .7.2 .8 （Unit: billion 1 y en） 1 .2 Total （Unit: billion y en）

( 9 9 , 4 3 6 .2 ) 2 4 .1 ( 5 6 , 1 6 7 .0 ) 2 2 1 .1 ( 2 9 1 , 0 7 1 .7 ) ( 2 3 , 2 2 2 .7 ) 1 5 5 .4 ( 1 0 6 , 2 6 1 .2 ) 2 5 .7 ( 5 , 9 8 4 .6 ) 1 2 .2 3 .8 − − 4 0 -y ear bonds 3 0 -y ear of bonds 1 0 -y O ear 5 -y ear bonds 2 -y ( ear bonds Total rading V olume J GB 2 0 -yO earp bonds tion by T bonds C Unit: trillion y en)

0 0 0 0 0

0

0

0

0

0

− − 4 0 −-y ear bonds− ( 9 9 .9 ) − − − ( 7 2 7 .7 ) 2 0 0 6 .0 ( 9 9 .9−) − 0 7 2 0 .3 ( 1 , 9 5 4 .3 ) ( 7 ( 92 97 .9.7 ) 20 0 − 8 .0 02 0 9 .3 ( 3 , 1 9 9 .8 ) 2 0 .3.0 ( 1 ( , 97 52 47 .3.7 ) 1 0 3 1 2 1 .4 ( 4 , 9 2 4 .1 ) 2 0 .3 ( 31 , 19 95 94 .8.3 ) 3 1 5 2 .8 ( 6 , 6 3 6 .1 ) 32 1 20 3 .4.3 ( 43 , 91 29 49 .1.8 ) 3 1 9 4 .3 ( 8 , 4 9 3 .4 ) 3 52 .8.4 ( 64 , 69 32 64 .1 ) 1 5 3 9 .6 ( 1 0 , 4 4 5 .5 ) 3 95 .3.8 ( 86 , 46 93 36 .4.1 )

( 8 , 1 7 8 .8 ) 3 5 6 .7 5 , 9 8 4 .6 ) 1 2 3 0 -y3 .8 ear ( bonds Total 1 3 2 .3 ( 1 0 , 7 3 4 .0 ) 4 ( 85 , 19 78 84 .8.6 ) 1 32 5 63 .7.8 1 1 2 0 .88 0 .8( 1 4 , 1 2 4 .3 ) 5 1 35 26 .3.7 ( 1 ( 08 , 71 37 48 .0.8 ) 43 2 4 8 .7 1 2 0 .8 ( 2 0 , 1 6 8 .1 ) 1 0 1 13 2 0 .8.30 0 .6( 1 40 , 17 23 4 .3.0 ) 54 1 1 1 9 .83 2 .5( 2 6 , 9 8 6 .0 ) 1 4 1 21 0 .8 ( 21 04 , 1 62 84 .1.3 ) 1 50 1 6 4 .6 1 2 1 3 .87 1 .8( 3 5 , 2 4 9 .3 ) 1 6 1 12 90 .8 ( 2 60 , 91 86 68 .0.1 ) 1 40 1 3 1 6 .70 0 .6( 4 3 , 8 4 7 .1 ) 2 1 1 21 139 .81 4 .3( 32 56 , 29 48 96 .3.0 ) 1 64 1 4 1 3 .10 2 .3( 5 3 , 2 7 4 .0 ) 2 3 1 32 63 .7.8 ( 43 35 , 82 4 79 .1.3 ) 21 16 6 5 .8 1 4 3 .3 ( 6 4 , 2 1 1 .4 ) 2 4 1 43 36 .1.7 ( 54 3 , 28 74 47 .0.1 ) 2 31

( 3 3 , 7 5 1 .3 ) 1 6 4 .7 ( 1 3 7 , 3 7 0 .7 .5 0 6 , 2 6 1 .2 , 2 2 2 .7 ) 1 5 0 5 -y.4 ear( 1 bonds .20 -y ear( 2 3 bonds C all options ( 4 4 , 3 7 7 .8 ) 8 3 .2 ( 1 6 3 , 6 9 4 .5 .7 ( 1 30 76 , 32 76 01 .7.2 ( 32 3 , 72 52 12 .3.7 ) 1 65 45 .7.4Offer .5.2 .3 7 ( 5 5 6 .3, 0 5 7 .7 ) 1 2 0 .5 ( 16 8 6 5 .5, 5 1 6 .4 ( 43 34 , 37 75 71 .8.3 ) 1 86 34 .2.7 ( 1 63 37 , 63 97 40 .5.7 .7.5 7 3 .4 5 9 .2 ( 7 1 , 4 1 3 .1 ) 1 4 8 .1 ( 2 1 4 , 3 9 6 .7 .4 .3.7 5 ( 54 6 64 .4, 03 75 7 .7.8 ) 1 28 03 .5.2 ( 14 86 8 53 .5, 56 19 64 .4.5 .4 4 ( 8 1 8 .8, 7 5 7 .8 ) 1 5 6 .5 ( 2 4 9 5 .5, 2 5 2 .4 .3.4 5 ( 75 3 16 .5, 40 15 37 .1.7 ) 1 42 80 .1.5 ( 213 18 6 45 .1, 35 91 6 .7.4 .2 ( 17 0 6 4 .9, 2 8 2 .0 ) 1 6 6 .0 ( 23 7 0 6 .8, 6 1 2 .3 ( 87 81 , 74 15 73 .8.1 ) 1 54 68 .5.1 ( 2 41 54 , 23 59 26 .4.7 .4 4 .2 ( 1 2 6 1 .0, 7 6 9 .9 ) 1 5 8 .9 ( 21 9 8 5 .3, 8 2 7 .6 .2.4 ( 13 ( 08 9 48 .9, 27 58 27 .0.8 ) 1 65 6 .0.5 ( 22 74 2 65 .3, 62 15 2 .3.4 .8 ( 14 3 1 9 .5, 1 4 2 .0 ) 1 5 2 .5 ( 21 9 8 9 .2, 1 7 4 .5 .2 ( 1 20 14 , 72 68 92 .9.0 ) 1 56 86 .9.0 ( 2 97 56 , 86 21 72 .6.3 3 2 .8 9 .1 .5 ( 1 5 7 , 0 0 0 .2 ) 1 3 8 .5 ( 2 9 8 , 0 5 5 .7 .8.2 ( 1 32 91 , 17 64 29 .0.9 ) 1 5 28 .5.9 ( 2 9 95 , 18 72 47 .5.6

) 3 1 .7 ( 1 2 7 , 6 0 3 .7 ) 7 .7 ( 5 1 , 1 9 9 .1 ) 9 9 , 4 3 6 .2 ) 2 2 4 -y.1 ear( 5 bonds ) 2 5 5 -y.7 ear( bonds 6 , 1 6 7 .0 ) Put options ) 3 1 .7 ( 1 4 2 , 6 3 3 .9 ) 1 .0 ( 5 1 , 9 1 9 .6 ) ) 32 15 .7 ( 1 ( 29 79 , 64 03 36 .7.2 ) 2 74 .7.1 ( Offer 5 16 , 1 96 97 .1.0 ) ) 3 1 .8 ( 1 3 7 8 ,0 3 .33 1 .7 ) 1 .9 ( 4 8 , 1 5 6 7 8 .1 .7) ) 3 1 .7 ( 1 42 27 , 6 30 3 .9.7 ) 17 .0.7 ( 5 1 , 91 19 9 .6.1 ) 5 5 .4 6 0 .7 ) 3 4 .7 ( 1 3 4 , 8 9 9 .2 ) 6 .2 ( 5 2 , 4 5 5 .4 ) ) 3 1 .8.7 ( 1 34 4 82 ,6 36 .43 13 .7.9 ) 1 .9.0 ( 45 81 , 19 51 4 79 9 .1.6 .2) ) 3 3 .1 ( 1 3 2 6 ,8 2 .85 5 .2 ) 3 .6 ( 6 2 , 3 4 3 9 2 .0 .3) ) 3 41 .7.8 ( 1 3 48 , 83 93 91 .2.7 ) 61 .2.9 ( 54 28 , 41 5 57 .4.1 ) 3 6 .0 3 8 .9 ) 3 0 .7 ( 1 3 2 7 ,6 6 .67 9 .1 ) 1 .2 ( 6 7 , 4 9 3 3 7 .1 .4) ) 3 34 .1.7 ( 1 3 64 , 28 59 59 .2 ) 36 .6.2 ( 65 2 , 34 45 95 .0.4 ) ) 2 5 .3 ( 1 4 1 3 ,5 5 .83 6 .1 ) 0 .6 ( 6 8 , 4 9 2 7 0 .0 .5) ) 3 03 .7.1 ( 1 3 2 76 ,4 62 .675 95 .1.2 ) 13 .2.6 ( 6 72 , 43 94 2 39 7 .1.0 .5) ) 2 4 .6 ( 1 5 1 3 ,9 3 .98 3 .2 ) − ( 7 0 , 1 7 2 2 2 .0 .6) ) 23 50 .3.7 ( 1 43 37 , 56 37 69 .1 ) 01 .6.2 ( 6 87 , 4 9 73 .0.1 ) 1 1 .3 1 2 .6 ) 1 6 .6 ( 1 5 8 , 2 6 0 .0 ) − ( 6 9 , 1 5 2 .9 ) ) 2 45 .6.3 ( 1 54 3 , 35 83 36 .2.1 ) 0 − .6 ( 76 08 , 14 79 27 .0 )

（Unit: billion y en）

2 6 4 .2 ( 3 5 8 , 1 (2 9 1 ,0 2 2 1 .1 Total 2 5 2 .9 ( 4 1 3 , 4 2 62 41 .2.1 ( 32 59 81 , 10 2 9 0 .2 ( 4 4 2 , 9 2 56 24 .9.2 ( 43 15 38 , 41 3 4 0 .4 ( 4 9 5 , 2 2 95 02 .2.9 ( 4 41 23 , 94 3 4 7 .6 ( 5 6 2 , 8 32 49 0 .4.2 ( 4 94 52 , 29 3 7 0 .3 ( 6 2 6 , 2 3 4 70 .6.4 ( 54 69 25 , 82 3 7 8 .6 ( 6 8 0 , 1 3 74 07 .3.6 ( 65 26 62 , 28 3 8 3 .3 ( 7 2 3 , 6 3 7 80 .6.3 ( 6 82 06 , 12 3 6 2 .6 ( 7 5 7 , 1 3 87 38 .3.6 ( 76 28 30 , 61

Note.2> :Outstanding Trading volume is onof nominal basis. Book-entry Transfer JGBs at the end of each period ( Outstanding amount of JGBs q ualified for STRIPS)