Japan 18-K Annual report (foreign governments)

Exhibit 1

Japan

     This description of Japan is dated September 9, 2005 and appears as Exhibit 1 to Japan’s Annual Report on Form 18-K to the U.S.  Securities and Exchange Commission for the fiscal year ended March 31, 2005.

     THE DELIVERY OF THIS DOCUMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS DOCUMENT (OTHERWISE THAN AS PART OF A PROSPECTUS CONTAINED IN A REGISTRATION STATEMENT FILED UNDER THE U.S. SECURITIES ACT OF 1933) DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF OR GUARANTEED BY JAPAN.

TABLE OF CONTENTS

GENERAL	4
Area and Population	4
Government	4
Political Parties	4
International Organizations	5
THE ECONOMY	6
General	6
Economic Policies	6
Gross Domestic Product and National Income	8
Industry	10
Energy	10
Price Indices	11
Labor	12
FOREIGN TRADE AND BALANCE OF PAYMENTS	13
Foreign Trade	13
Balance of Payments	16
Official Foreign Exchange Reserves	17
Foreign Exchange Rates	17
FINANCIAL SYSTEM	18
The Bank of Japan and Monetary Policy	18
Government Financial Institutions	18
Private Financial Institutions	18
GOVERNMENT FINANCE	19
Revenues, Expenditures and Budgets	19
Tax Structure	22
Fiscal Investment and Loan Program (“Zaito”)	23
DEBT RECORD	24
JAPAN PUBLIC DEBT	24
INTERNAL DEBT	25
Direct Debt of the Japanese Government	25
Debt Guaranteed by the Japanese Government	27
EXTERNAL DEBT	28
Debt Guaranteed by the Japanese Government	28
SUBSCRIPTIONS TO INTERNATIONAL FINANCIAL ORGANIZATIONS	29

FURTHER INFORMATION

     This document appears as an exhibit to Japan’s Annual Report filed with the U.S. Securities and Exchange Commission (the “Commission”) on Form 18-K for the fiscal year ended March 31, 2005. Additional information with respect to Japan is available in such Annual Report, in the other exhibits to such Annual Report and in amendments thereto. Such Annual Report, exhibits and amendments may be inspected and copied at the public reference room maintained by the Commission at: 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operations of the public reference room can be obtained by calling the Commission at 1-800-SEC-0330. The Annual Report and its exhibits and amendments are also available through the Commission’s Internet website at http://www.sec.gov.

     In this document all amounts are expressed in Japanese Yen (“¥” or “yen”), except as otherwise specified. The spot buying rate quoted on the Tokyo Foreign Exchange Market on September 7, 2005, as reported by The Bank of Japan at 5:00 p.m., Tokyo time, was ¥ 109.67 =$1.00, and the noon buying rate on September 6, 2005 for cable transfers in New York City payable in yen, as reported by the Federal Reserve Bank of New York, was ¥ 109.67 =$1.00. See “Foreign Trade and Balance of Payments — Foreign Exchange Rates”.

     References herein to Japanese fiscal years (“JFYs”) are to 12-month periods commencing in each case on April 1 of the year indicated and ending on March 31 of the following year. References to years not specified as being JFYs are to calendar years.

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Japan

GENERAL

Area and Population

     Japan, an archipelago in the western Pacific, consists of four main islands (Hokkaido, Honshu, Kyushu and Shikoku) which are mostly mountainous located in the same approximate range of latitude as the east coast of the United States north of Florida. The total area of Japan is approximately 146,000 square miles, which is slightly less than that of California and about 4% of the United States. It is bordered by the Sea of Japan to the west and north, and by the Pacific Ocean to the east and south.

     Japan has a total population of approximately 127.6 million (estimated as of March 2005). It has one of the highest population densities in the world and approximately 22% of its people are concentrated in three metropolitan areas (Tokyo, Osaka and Nagoya). Japan’s average annual rate of population increase during the years 2000-2004 was 0.11%. Japan’s population increased 0.05% during the 12 months ended December 1, 2004.

Government

     The legislative power in Japan is vested in the Diet, which currently consists of a House of Representatives having 480 members and a House of Councillors having 242 members. Members of both houses are elected by direct universal suffrage, except that some members of each house are elected by proportional representation. The power of the House of Representatives is superior to that of the House of Councillors in respect of approving the national budget and electing the Prime Minister.

     The executive power is vested in the Cabinet consisting of a Prime Minister, elected by the Diet from among its members, and other Ministers appointed by the Prime Minister, a majority of whom must be members of the Diet. The judicial power is vested in the Supreme Court and such lower courts as are established by law.

     Japan’s 47 prefectures, and its cities, towns and villages, have a certain degree of local autonomy through popularly elected legislative bodies and chief executives. The central government exercises its influence on local governments indirectly through financial aid and prescribing standards of local administration.

Political Parties

     Members of the House of Representatives are elected for four-year terms unless the House of Representatives is dissolved prior to expiration of their terms. The House of Representatives was dissolved on October 10, 2003 and an election was held on November 9, 2003. Three-hundred members were elected from single-member districts and 180 members were elected through a proportional representation process from 11 regional districts. The House of Councillors currently consists of 242 members who are elected for six-year terms with one-half of the membership being elected every three years. In an election in July 2004, 121 members were elected, of which 48 members were elected through a proportional representation system and 73 members were elected from 47 districts that correspond to one metropolis and 46 prefectures of Japan. Currently, the House of Councillors consists of 121 members who were elected in July 2001 and 121 members who were elected in July 2004.

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     The following tables sets forth the membership by political party of the House of Representatives as of April 28, 2005 and the House of Councillors as of August 17, 2005.

	House of
	Representatives
Liberal Democratic Party		250
Democratic Party of Japan and Club of Independents		176
New Komeito		34
Japanese Communist Party		9
Social Democratic Party		6
Independents		3
Vacancies		2
Total		480

	House of
	Councillors
Liberal Democratic Party		114
The Democratic Party and The Shin-Ryokufukai		84
New Komeito		24
Japanese Communist Party		9
Social Democratic Party		6
Independents		5
Greens		0
Vacancies		0
Total		242

International Organizations

     Japan is a member of the United Nations and other international organizations, including the International Monetary Fund, International Bank for Reconstruction and Development, International Development Association, International Finance Corporation, International Fund for Agricultural Development, Multilateral Investment Fund, Multilateral Investment Guarantee Agency, Asian Development Bank, African Development Bank, African Development Fund, European Bank for Reconstruction and Development, Inter-American Development Bank and Inter-American Investment Corporation. See “Subscriptions to International Financial Organizations”.

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THE ECONOMY

General

     Japan has a highly advanced and diversified economy, which has developed in response to changing conditions in Japan and the world. During the era of high economic growth in the 1960s and the early 1970s, the expansion was based on the development of heavy industries consuming large quantities of resources. During the 1980s, there was rapid growth in high value-added industries, such as electronics and precision instruments, which employ high level technology and consume relatively low quantities of resources. The service sector of the economy grew significantly during the 1980s and 1990s.

     The Japanese economy has experienced a significant downturn since the early 1990s, in the aftermath of the collapse of the “bubble” economy, which has been characterized by, among other things, a depreciation in asset values (particularly affecting the domestic real estate and securities markets), reduced capital investment and housing construction and the deterioration in credit quality of loans and other assets in the financial system. In the wake of failures of Japanese banks and other financial institutions, beginning in JFY 1997, a series of legislative measures were taken to stabilize the Japanese financial system, including legislation authorizing the Japanese government to temporarily nationalize financially troubled Japanese banks under certain circumstances. Several banks have been nationalized in recent years, and some of these banks have subsequently been returned to private sector ownership. The economic situation was extremely severe from the late 1990s to the early 2000s due to decreases in demand, including personal consumption, business investment and housing investment, reflecting the deterioration in consumer and corporate sentiments arising from concerns about employment prospects and the direction of the domestic and world economies.

     Since JFY 2002, there have been some signs of recovery in the Japanese economy, such as increases in corporate profits, exports and production. The provisional real growth rate of Japan’s GDP was 2.0% for JFY 2003 and 1.9% for JFY 2004, and Japan’s nominal GDP also grew by 0.8% for JFY 2004. In JFY 2005, the Japanese economy is expected to experience a moderate recovery led by private-sector demand.

Economic Policies

     In recent years, the Japanese government has implemented a series of policies intended to stimulate the Japanese economy, including fiscal stimulus packages, looser monetary policy, structural reform efforts, assistance to financial institutions and monitoring of the exchange rate between the yen and the United States dollar and other currencies.

     In June 2001, the Japanese government proposed a new policy package entitled “Structural Reform of The Japanese Economy: Basic Policies for Macroeconomic Management”, and is continuing to carry out economic and fiscal structural reforms. Additional economic recovery programs were established during JFY 2001 in order to support the policy package.

     The Japanese government’s structural reform efforts continued in JFY 2002, including the following:

• June 2002. The government announced the “Basic Policies for Economic and Fiscal Policy Management and Structural Reform 2002”, focusing on reform in the areas of tax and government expenditures as well as deregulation for potential high growth sectors. This reform was launched in an effort to restore fiscal primary balance and to reallocate economic resources, and in turn, to establish a more competitive economic system suitable for the 21st century.

• October 2002. The Japanese government compiled its “Comprehensive Measures to Accelerate Reforms” to strengthen policies designed to revitalize the Japanese economy.

• December 2002. The Japanese government implemented the “Program to Accelerate Reforms”, which supplements and bolsters the “Comprehensive Measures to Accelerate Reforms”, announced in October 2002. The Japanese government also began to privatize special public corporations pursuant to the “Reorganization and Rationalization Plan for Special Public Corporations”.

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• January 2003. Concluding that deflation and non-performing loans are the two problems that most urgently need to be addressed, the Japanese government issued “Reform and Perspectives—FY2002 Revision”, which sets forth a revised policy that builds on previous policy packages to accelerate structural reforms. One of the Japanese government’s aims, according to this policy, is to hold the ratio of its general expenditures to GDP at or below the ratio for JFY2002 through FY2006 and achieve a surplus in the primary balance in the early 2010s.

     Based on an evaluation of the progress of structural reform, the Japanese government issued the “Basic Policies for Economic and Fiscal Management and Structural Reform 2003” in June 2003. These basic policies set out seven reforms: regulatory reform and establishment of special structural reform zones; reform to direct funds to the private sector as well as financial and industrial revitalization; tax reform; employment and human resource strategy; reform of the social security system; reform of central and local governments; and reform of the budget formulation process. In line with these basic policies, the Japanese government undertook further structural efforts in JFY 2003, including the following:

• efforts aimed to eliminate the problem of non-performing loans by JFY 2004,

• establishment of special zones for structural reform for such purposes as promotion of services dedicated to the betterment of individuals’ lives and creation of new business opportunities,

• a major job creation program,

• a program for the promotion of foreign direct investment into Japan,

• formulation of Measures to Reform and Vitalize the Securities Market in May 2003,

• use of the Industrial Revitalization Corporation to support viable but struggling companies, following the enactment of the Industrial Revitalization Corporation Law in April 2003, and

• capital infusion or public management of certain formerly private banks to prevent financial crises.

     Based on the “Basic Policies for Economic and Fiscal Management and Structural Report 2004”, the government’s task after JFY2005 is to make further full-fledged efforts towards the implementation of reforms carried out thus far, such as the principles of “from Public Sector to Private Sector” and “from the State to the Regions”, and to establish a basis for growth under the changing circumstances facing Japan, such as a population decrease and changes in the international environment. In addition, the government intends to ensure a breakaway from deflation through its policy efforts together with the Bank of Japan. Under the “Economic Outlook for FY2005 and Basic Economic and Fiscal Management Measures”, the Japanese government will:

• drive regulatory reform and opening up to the private sector in the fields directly relating to daily lives and contributing to create business chances;

• aim to achieve a financial system which is satisfactory from the point of view of users of financial services;

• take appropriate measures regarding the proportional across-the-board tax credit, the taxation of housing, financial services and securities;

• further promote expenditure reforms based on the “Basic Principles of FY2005 Budget Formulation”;

• implement necessary measures for the reforms of the state subsidy system, the transfer of tax sources and the reform of local allocation tax;

• practice reforms of the social security system; and

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• promote regional revitalization that expands responsibility and authority of local governments.

Gross Domestic Product and National Income

     The following table sets forth information pertaining to Japan’s gross domestic product for JFY 2000 through JFY 2004.

     In November 2004, Japan announced revised GDP financial data for JFY 1994 through to JFY2003. The revisions were due to the implementation by Japan of a new chain-linking method for calculating GDP. The following data reflect the November 2004 revisions.

Gross Domestic Product

																Percentage
																of JFY
	JFY			JFY			JFY			JFY			JFY			2004
	2000			2001			2002			2003			2004			GDP
	(yen amounts in billions)
Total Consumption
Private sectors	¥	286,116		¥	285,235		¥	284,302		¥	283,749		¥	285,809			56.5	%
Public sectors		84,903			86,986			87,536			88,002			89,519			17.7
		371,019			372,221			371,838			371,751			375,328			74.2
Total Gross Capital Formation
Private sectors
Producers’ Durable Equipment		80,783			76,061			71,537			75,378			78,391			15.5
Residential Construction		20,310			18,496			17,888			17,809			18,270			3.6
Public sectors		34,374			32,045			30,025			27,229			23,284			4.6
		135,467			126,602			119,450			120,416			119,946			23.7
Additions to Business Inventories
Private sectors		681			(1,366	)		68			354			1,157			0.2
Public sectors		116			(44	)		(23	)		(67	)		163			(0.0	)
		797			(1,410	)		45			287			1,320			0.3
Net Exports of Goods and Services		6,196			3,869			6,197			9,195			8,929			1.8
Nominal Gross Domestic Expenditures	¥	513,478		¥	501,281		¥	497,530		¥	501,649		¥	505,522			100.0	%
Real Gross Domestic Expenditures(a)	¥	515,110		¥	509,459		¥	513,536		¥	524,008		¥	534,047
Surplus of the Nation on Current Account Exports of Goods and Services and Other Receipts from Abroad		12,198			13,716			12,518			12,787			14,749
Less: Imports of Goods and Services and Other Payments Abroad		(5,248	)		(5,174	)		(4,477	)		(4,001	)		(4,721	)
		6,950			8,542			8,041			8,786			10,028
Gross National Income	¥	520,428		¥	509,822		¥	505,571		¥	510,435		¥	515,551
Percentage Changes of GDP from Previous Year
At Nominal Prices		1.0			-2.4	%		-0.7	%		0.8	%		0.8	%
At Real Prices(a)		2.5			-1.1			0.8			2.0			1.9
Deflator		-1.4			-1.3			-1.5			-1.2			-1.1

(a)	Real prices are based on calendar year 2000.
Source: Economic and Social Research Institute, Cabinet Office.

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     The following table sets forth information pertaining to Japan’s gross domestic product, as seasonally adjusted, for each of the eight quarters ended June 30, 2005.

     In November 2004, Japan announced revised GDP financial data for JFY 1994 through to JFY2004. The revisions were due to the implementation by Japan of a new chain-linking method for calculating GDP. The following data reflect the November 2004 revisions.

Quarterly Gross Domestic Product(a)

	JFY 2003									JFY 2004												JFY 2005
	Second			Third			Fourth			First			Second			Third			Fourth			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
	(yen amounts in billions)
Nominal Gross Domestic Expenditures	¥	498,687		¥	502,469		¥	507,513		¥	504,399		¥	503,953		¥	504,999		¥	508,180		¥	508,220
Real Gross Domestic Expenditures(b)(c)	¥	519,328		¥	527,745		¥	534,514		¥	532,915		¥	531,888		¥	532,619		¥	539,711		¥	541,154
Percentage Changes of GDP from Corresponding Quarter of Previous Year
At Nominal Prices(d)		-0.0	%		0.2	%		3.2	%		1.3	%		1.3	%		0.3	%		0.3	%		0.6	%
At Real Prices(c)(d)		1.1			1.7			4.5			3.2			2.6			0.6			1.3			1.4
Deflator		-1.0			-1.5			-1.2			-1.8			-1.4			-0.4			-1.1			-0.8

(a)	Quarterly GDP financial data are subject to change.
(b)	Numbers are based on seasonally-adjusted GDP figures.
(c)	Real prices are based on calendar year 2000.
(d)	Percentage changes are based on original GDP figures.
Source: Economic and Social Research Institute, Cabinet Office.

     The following table sets forth national income for JFY 1999 through JFY 2003.

National Income

	JFY			JFY			JFY			JFY			JFY
	1999			2000			2001			2002			2003
	(yen amounts in billions)
Domestic Factor Income	¥	373,340		¥	379,066		¥	368,374		¥	362,118		¥	368,659
Net Income from Abroad		6,340			6,950			8,542			8,041			8,786
National Income at Current Prices	¥	379,680		¥	386,016		¥	376,916		¥	370,159		¥	377,445
Percentage Changes of Income at Current Prices from Previous Fiscal Year		-1.7	%		1.7	%		-2.4	%		-1.8	%		2.0	%

Source:  Economic and Social Research Institute, Cabinet Office.

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Industry

     The following table sets forth the proportion of gross domestic product contributed by major industrial sectors of the economy for 1999 through 2003. These figures have been revised to reflect the new method for calculating GDP, as discussed above.

GDP by Industrial Sectors (at nominal prices)

	1999			2000			2001			2002			2003
Industry
Agriculture, Forestry and Fisheries		1.5	%		1.4	%		1.3	%		1.3	%		1.3	%
Mining		0.1			0.1			0.1			0.1			0.1
Manufacturing		21.9			21.9			20.8			20.4			20.8
Construction		7.6			7.4			7.2			6.9			6.8
Electric Power Generation, Gas and Water		2.8			2.8			2.9			2.8			2.8
Wholesale and Retail Trade		14.4			13.7			13.7			13.6			13.3
Finance and Insurance		6.0			6.1			6.6			6.8			7.0
Real Estate		12.8			13.0			13.3			13.7			13.9
Transportation and Communication		6.5			6.4			6.5			6.4			6.4
Services		19.9			20.3			20.5			20.8			20.9
Total		93.5			93.1			92.9			92.9			93.3
Public Services
Electric Power Generation, Gas and Water		0.9			0.9			1.0			1.0			1.0
Services		2.7			2.7			2.7			2.8			2.7
Public Administration		5.1			5.1			5.3			5.5			5.4
Total		8.6			8.7			9.0			9.2			9.2
Non-Profit Services		2.0			1.8			1.9			2.0			2.0
Total		104.1	%		103.6	%		103.7	%		104.1	%		104.4	%

Source: Economic and Social Research Institute, Cabinet Office, Annual Report on National Accounts.

Energy

     The following table sets forth the total amounts of primary energy supplied and the percentages supplied by different sources for JFY 1999 through JFY 2003.

			Sources of Primary Energy Supplied
	Total Primary Energy
JFY	Supplied (peta-joule)		Oil			Coal			Nuclear			Natural Gas			Other
1999		23,141		51.2	%		17.2	%		12.9	%		12.6	%		6.0	%
2000		23,537		51.0			17.8			12.3			13.1			5.8
2001		22,867		49.2			19.0			12.6			13.4			5.8
2002		22,980		49.7			19.5			11.6			13.5			5.7
2003		23,076		50.0			20.1			9.4			14.3			6.3

Source: Agency of Natural Resources and Energy, Ministry of Economy, Trade and Industry, Report on Energy Supply and Demand.

     The table below sets forth information regarding crude oil imports for JFY 2000 through JFY 2004.

	JFY		JFY		JFY		JFY		JFY
	2000		2001		2002		2003		2004(a)
Volume of imports (thousand kilo-liters per day)		689		652		671		671		666
Cost of imports (c.i.f. in billions of yen)	¥	4,931	¥	4,435	¥	5,150	¥	5,132	¥	6,361
Average price (c.i.f. in yen kilo-liters)	¥	19,617	¥	18,645	¥	21,034	¥	20,955	¥	26,154

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(a)	Data for JFY2004 are provisional.
Source: Customs and Tariff Bureau, Ministry of Finance.

     Japan has historically depended on oil for most of its energy requirements and almost all its oil is imported, mostly from the Middle East. Oil price movements thus have a major impact on the domestic economy. Recently, as the geopolitical tension in the Middle East worsened and culminated in war in Iraq, crude oil prices increased significantly. While crude oil prices began to decrease for a few months after March 2003, they have been rising since June 2003.

     Japan has worked to reduce its dependence on oil by encouraging energy conservation and the use of alternative fuels. In addition, a restructuring of industry, with emphasis shifting from primary industries to processing and assembly type industries and from manufacturing industry to service industry, has also contributed to the reduction of oil consumption.

     The following table sets forth information relating to total electric power generating capacity and electric power generation for JFY 1999 through JFY 2003.

	JFY		JFY		JFY		JFY		JFY
	1999		2000		2001		2002		2003
Electric power generating capacity(a):					(megawatts)
Fossil Fuel		161,869		166,648		168,729		172,889		174,721
Nuclear		45,248		45,248		45,907		45,907		45,742
Hydro-electric		45,860		46,325		46,387		46,545		46,781
Other		567		617		708		787		1,043
Total		253,544		258,838		261,730		266,129		268,287
Electric power generation:
Fossil Fuel		650,448		669,177		658,475		710,575		745,488
Nuclear		316,616		322,050		319,859		295,095		240,013
Hydro-electric		95,577		96,817		93,872		91,801		104,138
Other		3,488		3,457		3,683		3,789		4,317
Total		1,066,130		1,091,500		1,075,890		1,101,260		1,093,956

(a)	At the end of fiscal year — March 31.
Source: Handbook of Electric Power Industry, Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry.

Price Indices

     The table below sets forth information concerning changes in Japan’s wholesale and consumer price indices for the periods indicated.

	Corporate Goods				Consumer Price
	Price Index(a)				Index(b)
			Annual				Annual
	Index(c)		% Change		Index		% Change
2000		100.0		0.0		100.0		-0.7
2001		97.7		-2.3		99.3		-0.7
2002		95.7		-2.0		98.4		-0.9
2003		94.9		-0.8		98.1		-0.3
2004		96.1		1.3		98.1		0.0

(a) All commodities. Calendar year 2000=100. Source: Domestic Corporate Goods Price Index, Bank of Japan.

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(b)	General index. Calendar year 2000=100. Source: Consumer Price Index, Statistics Bureau & Statistics Center, Ministry of Public Management, Home Affairs, Posts and Telecommunications.
(c)	Indices are calculated using the monthly averages.

Labor

     Japan’s labor force (seasonally adjusted) expanded steadily until 1998 but has been decreasing since 1999. In 2003, average employment (seasonally adjusted) was estimated at 63.2 million, including 4.6% employed in agriculture, forestry and fisheries, 28.3% in mining, manufacturing and construction and 67.1% in services and other sectors. In 2004, average employment (seasonally adjusted) was estimated at 63.3 million, including 4.5% employed in agriculture, forestry and fisheries, 27.5% in industry and 68.0% in services and other sectors. The unemployment rate (seasonally adjusted) in Japan has gradually increased since 1993 and it ranged between 4.5% and 5.0% during 2004. The unemployment rate for the beginning of 2005 was 4.7% for February, 4.5% for March and 4.4% for April, the most recent three months for which statistics are available.

     The table below sets forth information regarding wage index (total cash earnings (nominal)) and industrial production index (manufacturing and mining) for the periods indicated.

					Industrial
	Wage Index(a)				Production Index(b)
			Annual				Annual
	Index		% Change		Index		% Change
2000		100.0		0.1		100.0		5.7
2001		98.4		-1.6		93.2		-6.8
2002		95.5		-2.9		92.0		-1.3
2003		94.8		-0.7		95.0		3.3
2004		94.1		-0.7		100.2		5.5

(a)	Calendar year 2000=100. Source: Monthly Labour Survey, Ministry of Health, Labour and Welfare.
(b)	Calendar year 2000=100. Source: Ministry of Economy, Trade and Industry.
(c)	Indices are calculated using the monthly averages.

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FOREIGN TRADE AND BALANCE OF PAYMENTS

Foreign Trade

     Japan is one of the leading trading nations of the world, ranking third to Germany and the United States in merchandise exports and ranking sixth in merchandise imports among the IMF member countries in 2003.

     Both imports and exports increased in 2000, and the trade surplus declined to ¥10,716 billion as imports grew faster than exports. In 2001, the trade surplus declined further to ¥6,564 billion due to a decrease in exports and an increase in imports, but in 2002 the trade surplus rebounded to ¥9,881 billion, as exports increased while imports decreased slightly. In 2003, the trade surplus increased further, as exports grew more than imports. This trend continued in 2004, and the trade surplus expanded to ¥11,954 billion as growth in exports outpaced growth in imports.

     The following tables set forth information relating to foreign trade for the years indicated. In these tables exports are stated on an f.o.b. basis and imports on a c.i.f. basis. Monetary figures are based on actual movements of goods as calculated by the Ministry of Finance. (This method of computation differs from that used in calculating balance of payments, in which both exports and imports are stated on an f.o.b. basis.)

Foreign Trade of Japan

													Terms of
	Value Index(a)				Quantum Index(a)				Unit Value(a) Index				Trade(b)
	Exports		Imports		Exports		Imports		Exports		Imports		Index
2000		100.0		100.0		100.0		100.0		100.0		100.0		100.0
2001		94.8		103.6		90.5		98.0		104.7		105.7		99.1
2002		100.9		103.1		97.7		100.0		103.2		103.2		100.1
2003		105.6		108.4		102.5		107.1		103.0		101.2		101.8
2004		118.4		120.2		113.4		114.6		104.4		104.9		99.5

(a)	Calendar year 2000=100.
(b)	Unit value index of exports divided by unit value index of imports, multiplied by 100.
Source: Japan Tariff Association, Ministry of Finance.

-13-

Composition of Japan’s Exports and Imports

	2000				2001				2002				2003				2004
	(yen amounts in billions)
JAPAN’S EXPORTS
Textile Products	¥	915	1.8	%	¥	916	1.9	%	¥	918	1.8	%	¥	900	1.7	%	¥	932	1.5	%
Metals and Metal Products		2,852	5.5			2,889	5.9			3,227	6.2			3,388	6.2			4,061	6.6
Machinery and Equipment:
Ships		1,052	2.0			1,003	2.0			1,124	2.2			1,101	2.0			1,252	2.0
Motor Vehicles		6,930	13.4			7,211	14.7			8,775	16.8			8,895	16.3			9,214	15.1
TV and Radio Receivers		480	0.9			484	1.0			569	1.1			584	1.1			591	1.0
Motorcycles		562	1.1			574	1.2			561	1.1			533	1.0			596	1.0
Scientific and Optical Instruments		2,626	5.1			2,504	5.1			1,897	3.6			2,038	3.7			2,499	4.1
Other		26,717	51.7			23,749	48.5			24,616	47.2			26,146	47.9			29,547	48.1
Total Machinery and Equipment		38,367	74.3			35,525	72.5			37,542	72.0			39,297	72.0			43,698	71.4
Chemicals		3,805	7.4			3,739	7.6			4,174	8.0			4,525	8.3			5,221	8.5
Foods and Beverages		227	0.4			364	0.7			269	0.5			267	0.5			283	0.5
Other Exports		5,488	10.6			5,546	11.3			5,979	11.5			6,171	11.3			6,975	11.4
Grand Total	¥	51,654	100.0	%	¥	48,979	100.0	%	¥	52,109	100.0	%	¥	54,548	100.0	%	¥	61,170	100.0	%
JAPAN’S IMPORTS
Foods and Beverages	¥	4,966	12.1	%	¥	5,251	12.4	%	¥	5,282	12.5	%		5,105	11.5		¥	5,302	10.8	%
Raw Materials		2,642	6.5			2,586	6.1			2,522	6.0			2,659	6.0			3,079	6.3
Chemicals		2,855	7.0			3,101	7.3			3,239	7.7			3,458	7.8			3,816	7.8
Mineral Fuels:
Petroleum		4,819	11.8			4,718	11.1			4,573	10.8			5,328	12.0			6,065	12.3
Coal		583	1.4			753	1.8			786	1.9			744	1.7			1,094	2.2
Other		2,915	7.1			3,053	7.2			2,815	6.7			3,278	7.4			3,512	7.1
Total Mineral Fuel		8,317	20.3			8,524	20.1			8,174	19.4			9,350	21.1			10,671	21.7
Machinery and Equipment		12,924	31.6			13,216	31.2			13,434	31.8			13,974	31.5			15,394	31.3
Other Imports		9,234	22.6			9,738	23.0			9,576	22.6			9,817	22.1			10,954	22.3
Grand Total	¥	40,938	100.0	%	¥	42,416	100.0	%	¥	42,228	100.0	%	¥	44,362	100.0	%	¥	49,217	100.0	%

Source: The Summary Report on Trade of Japan, Japan Tariff Association, Ministry of Finance.

-14-

Geographic Distribution of Japan’s Exports and Imports

	2000				2001				2002				2003				2004
JAPAN’S EXPORTS
Asia	¥	21,254	41.1	%	¥	19,732	40.3	%	¥	22,439	43.1	%	¥	25,318	46.4	%	¥	29,637	48.5	%
China		3,274	6.3			3,764	7.7			4,980	9.6			6,635	12.2			7,994	13.1
(Asia NIES)		12,356	23.9			10,626	21.7			11,805	22.7			12,803	23.5			15,103	24.7
(ASEAN)		7,381	14.3			6,592	13.5			6,970	13.4			7,080	13.0			7,893	12.9
Oceania		1,110	2.1			1,131	2.3			1,278	2.5			1,416	2.6			1,603	2.6
Australia		924	1.8			933	1.9			1,039	2.0			1,147	2.1			1,277	2.1
North America		16,162	31.3			15,509	31.7			15,791	30.3			14,267	26.2			14,557	23.8
U.S.A.		15,356	29.7			14,711	30.0			14,873	28.5			13,412	24.6			13,731	22.4
Canada		806	1.6			797	1.6			918	1.8			855	1.6			826	1.4
Central and South America		2,265	4.4			2,168	4.4			2,036	3.9			1,930	3.5			2,345	3.8
Western Europe		9,000	17.4			8,326	17.0			8,164	15.7			8,929	16.4			9,790	16.0
EU		8,432	16.3			7,810	15.9			7,663	14.7			8,351	15.3			9,462	15.5
Central and Eastern Europe, Russia etc.		271	0.5			297	0.6			364	0.7			554	1.0			841	1.4
Russia		61	0.1			87	0.2			118	0.2			204	0.4			337	0.6
Middle East		1,047	2.0			1,277	2.6			1,423	2.7			1,489	2.7			1,565	2.6
Africa		544	1.1			538	1.1			614	1.2			645	1.2			828	1.4
Total	¥	51,654	100.0	%	¥	48,979	100.0	%	¥	52,109	100.0	%	¥	54,548	100.0	%	¥	61,170	100.0	%
JAPAN’S IMPORTS
Asia	¥	17,063	41.7	%	¥	17,987	42.4	%	¥	18,358	43.5	%	¥	19,727	44.5	%	¥	22,224	45.2	%
China		5,941	14.5			7,027	16.6			7,728	18.3			8,731	19.7			10,199	20.7
(Asia NIES)		5,008	12.2			4,642	10.9			4,440	10.5			4,512	10.2			5,044	10.2
(ASEAN)		6,424	15.7			6,604	15.6			6,465	15.3			6,780	15.3			7,298	14.8
Oceania		1,929	4.7			2,090	4.9			2,074	4.9			2,068	4.7			2,457	5.0
Australia		1,596	3.9			1,756	4.1			1,753	4.2			1,744	3.9			2,103	4.3
North America		8,728	21.3			8,622	20.3			8,140	19.3			7,704	17.4			7,680	15.6
U.S.A.		7,779	19.0			7,671	18.1			7,237	17.1			6,825	15.4			6,763	13.7
Canada		938	2.3			941	2.2			895	2.1			871	2.0			910	1.8
Central and South America		1,183	2.9			1,178	2.8			1,198	2.8			1,210	2.7			1,488	3.0
Western Europe		5,567	13.6			5,981	14.1			6,081	14.4			6,322	14.3			6,830	13.9
EU		5,043	12.3			5,412	12.8			5,482	13.0			5,670	12.8			6,209	12.6
Central and Eastern Europe, Russia etc.		624	1.5			623	1.5			570	1.3			653	1.5			814	1.7
Russia		494	1.2			468	1.1			410	1.0			490	1.1			617	1.3
Middle East		5,310	13.0			5,384	12.7			5,095	12.1			5,928	13.4			6,782	13.8
Africa		535	1.3			551	1.3			710	1.7			749	1.7			941	1.9
Total	¥	40,938	100.0	%	¥	42,416	100.0	%	¥	42,228	100.0	%	¥	44,362	100.0	%	¥	49,217	100.0	%

Source: The Summary Report on Trade of Japan, Japan Tariff Association, Ministry of Finance.

-15-

Balance of Payments

     In 2000, the Current Account surplus slightly decreased to ¥12,876 billion, primarily due to a decrease in the Trade Balance surplus partially offset by a decrease in the deficit in Services. In 2001, the Current Account surplus decreased to ¥10,652 billion, principally due to a decrease in Exports and an increase in Imports. In 2002, however, the Current Account surplus rebounded to ¥14,140 billion, as Exports increased while Imports slightly decreased. In 2003, the Current Account surplus increased to ¥15,767 billion, primarily due to an increase in the Trade Balance and a decrease in the deficit in Services. In 2004, the Current Account surplus expanded further to ¥18,618 billion due to a substantial increase in exports that outpaced growth in imports.

Balance of Payments of Japan

	2000			2001			2002			2003			2004
Current Account	¥	12,876		¥	10,652		¥	14,140		¥	15,767		¥	18,618
Balance on Goods and Services		7,430			3,212			6,469			8,355			10,196
Trade Balance(a)		12,372			8,401			11,550			11,977			13,902
Exports (f.o.b.)		49,526			46,584			49,480			51,934			58,295
Imports (f.o.b.) (a)		37,154			38,182			37,929			39,958			44,393
Services(a)		(4,942	)		(5,189	)		(5,081	)		(3,622	)		(3,706	)
Income		6,505			8,401			8,267			8,281			9,273
Current Transfers		(1,060	)		(960	)		(596	)		(870	)		(851	)
Capital and Financial Account(b)		(9,423	)		(6,173	)		(8,478	)		7,734			1,737
Balance on Financial Account		(8,429	)		(5,826	)		(8,056	)		8,201			2,250
Assets		(1,452	)		343			322			1,280			(21,390	)
Liabilities		(6,977	)		(6,169	)		(8,378	)		6,921			23,640
Capital Account		(995	)		(346	)		(422	)		(467	)		(513	)
Changes in Reserve Assets		(5,261	)		(4,936	)		(5,797	)		(21,529	)		(17,268	)
Errors and Omissions		1,809			457			135			(1,972	)		(3,088	)

(a)	Numbers were revised on June 30, 2005, to reflect a new method of calculating shipments.
(b)	Numbers in parentheses indicate outflows of capital resulting from either increases in assets or decreases in liabilities.
Source: Balance of Payments Monthly, Bank of Japan.

-16-

Official Foreign Exchange Reserves

     The following table shows the breakdown of Japan’s official foreign exchange reserves as of the end of the years indicated.

Official Foreign Exchange Reserves(a)

					IMF		Special
			Foreign		Reserve		Drawing
As of December 31,	Gold(b)		Exchange		Position		Rights		Total
	(in millions)
2000	$	6,737	$	347,212	$	5,253	$	2,436	$	361,638
2001		6,803		387,727		5,051		2,378		401,959
2002		8,542		451,458		7,203		2,525		469,728
2003		10,241		652,790		7,733		2,765		673,529
2004		10,776		824,264		6,701		2,802		844,543

(a)	The foreign exchange reserves, which are officially recorded in U.S. dollars by the Ministry of Finance, do not include: (i) net balance of bilateral accounts between the Bank of Japan and foreign central banks, and (ii) foreign exchange holdings of commercial banks.
(b)	Until 1999, gold was valued at SDR 35 per ounce. Since 2000, the valuation of gold has been changed to reflect marked-to-market values.
Source: International Reserves/Foreign Currency Liquidity, Ministry of Finance.

Foreign Exchange Rates

     The following table sets forth the high, low and average daily interbank rate for the U.S. dollar in the Tokyo foreign exchange market for the years indicated.

	2000		2001		2002		2003		2004
Average (Central Rate)	¥	107.78	¥	121.58	¥	125.14	¥	115.94	¥	108.17
High		114.98		132.08		135.04		121.48		114.80
Low		101.46		113.57		115.63		106.93		101.83

Source: Foreign Exchange, Bank of Japan.

-17-

FINANCIAL SYSTEM

The Bank of Japan and Monetary Policy

     The Bank of Japan, with 55% of its capital owned by the government, is the central bank and sole bank of issue, as well as the depository and fiscal agent for the government. As of August 10, 2005, the Bank of Japan had total assets of ¥151,652 billion.

     In addition to issuing bank notes, the Bank of Japan executes monetary policy by adjusting the official discount rate and deposit reserve requirements and through its open market operations. In recent years, the Bank of Japan has implemented a policy of quantitative monetary easing by conducting money market operations to adjust the outstanding balance of the current accounts at the Bank. For example, in June 2005, the Bank of Japan’s policy board, headed by Governor Toshihiko Fukui, voted to maintain the target amount of the outstanding current accounts that private financial institutions may hold at the Bank of Japan to between ¥30 trillion and ¥35 trillion, to which it was raised in January 2004 from the previous range of between ¥27 trillion to ¥32 trillion.

     The following table sets forth the principal economic indicators relating to monetary policy from 2000 through 2004.

	Current								Monetary Base										Loan and Discounts
	Account								Average Amounts										Domestically Licensed
	Balance		Discount Rate(a)						Outstanding					Money (Stock)(b)					Banks
											Annual					Annual					Annual
			High			Low			Total		% Change			Total(c)		% Change			Total(d)		% Change
	(yen amounts in billions)
2000	¥	5,538		0.50	%		0.50	%	¥	64,508		7.6	%	¥	629,284		2.1	%	¥	463,916		-1.0	%
2001		6,361		0.50			0.10			69,302		7.4			646,803		2.8			448,223		-3.4
2002		16,387		0.10			0.10			87,111		25.7			668,197		3.3			431,643		-3.7
2003		26,991		0.10			0.10			101,429		16.4			679,482		1.7			413,853		-4.1
2004		32,750		0.10			0.10			108,654		7.1			692,051		1.8			404,001		-2.4

(a)	Bank of Japan basic discount rate (the “official discount rate”).
(b)	Cash and demand, savings and time deposits, generally referred to as “M2 plus CD”.
(c)	Average amounts outstanding.
(d)	At the end of each calendar year indicated.
Source: Financial and Economic Statistics Monthly, Bank of Japan.

Government Financial Institutions

     The activities of private institutions are supplemented by a number of financial institutions under government supervision, whose senior officials are appointed or approved by the government and whose funds are supplied principally by the government. Among these are the Development Bank of Japan whose main purpose is to supplement and encourage the lending and other services provided by ordinary financial institutions, and Japan Bank for International Cooperation whose main purpose is to contribute to the sound development of Japan and the international economy and community through undertaking lending and other financial operations. They also include The Shoko Chukin Bank, Japan Finance Corporation for Municipal Enterprises, National Life Finance Corporation, The Government Housing Loan Corporation, Agriculture, Forestry and Fisheries Finance Corporation, The Okinawa Development Finance Corporation, and Japan Finance Corporation for Small and Medium Enterprise, whose purposes are to supplement private financing in their respective fields of activity.

Private Financial Institutions

     According to the Financial Service Agency, the private banking system included six city banks, as of April 15, 2005, and 113 local banks (including the Saitama Resona Bank), as of October 1, 2004, whose business corresponds roughly to that of commercial banks in the United States, as well as five major trust banks. In addition, one long-term credit bank mainly supplies long-term funds to industry for expenditures on plant and equipment.

-18-

     There are also credit associations, credit cooperative associations, labor credit associations and the national federations of each of such associations, which are engaged mainly in making small business loans. Agriculture cooperatives, prefectural credit federations of such cooperatives and The Norinchukin Bank operate in the field of agricultural credit.

GOVERNMENT FINANCE

Revenues, Expenditures and Budgets

     The responsibility for the preparation of the budget and the administration of government finances rests with the Ministry of Finance. The fiscal year commences on April 1, and the Cabinet usually submits the budget to the Diet for its decision in the preceding January. Supplementary budgets revising the original budget may be submitted to the Diet from time to time during the fiscal year.

     The Japanese government’s FY2005 budget was formed in accordance with following basic guidelines.

• Based on the “Basic Policies for Economic and Fiscal Management and Structural Reform 2004”, the government is to maintain and strengthen its commitment in the fiscal restructuring policy, under which general expenditures and general account expenditures have been budgeted at an equal or below level of the previous year’s budget.

• Reviews of all expenditure items will be carried out more strictly than ever before and containment of expenditure levels and prioritization and efficiency improvement in budget allocation will be implemented across the board, to improve the general government’s primary balance and restrain the issuance of government bonds to the minimum level.

     Based on the above concepts, the JFY 2005 budget sets the general account total expenditures at a level lower than the provisional general account total expenditures for JFY 2004.

     The fiscal and financial operations of the government and its agencies are budgeted and recorded in the following three sets of accounts:

• General Account. The General Account is used primarily to record operations in basic areas of governmental activity.

• Special Accounts. Special Accounts are set up for certain government functions to achieve more effective budgetary control and administration. Special Accounts can be generally classified as follows: (i) government activities of a specialized nature such as postal services, postal savings, national forest services and road improvement, (ii) control programs under which certain items such as foodstuffs and foreign exchange are bought, financed and sold, (iii) insurance funds which transact all government insurance business, including welfare insurance, labor insurance and postal life insurance, (iv) investment accounts which invest in various loans and securities, including obligations of the government and Government Affiliated Agencies, and (v) other special accounts such as the Government Bonds Consolidation Fund.

• Government Affiliated Agencies. Government Affiliated Agencies are government-owned corporations which consist of six financial corporations and two special banks.

     The settlement of accounts for revenues and expenditures is made by the Ministry of Finance, based on reports submitted by the respective Ministers. The settlement of accounts is required by law to be audited annually in detail by the Board of Audit, an organ independent of the Cabinet, and submitted by the Cabinet to the Diet in the following fiscal year.

-19-

     The following tables set forth information with respect to the General Account, the Special Accounts and the Government Affiliated Agencies for JFY 2000 through JFY 2003, the provisional results or budget for JFY 2004 and the budget for JFY 2005.

Summary of Consolidated General and Special Accounts(a)

									JFY
									2004
									(Provisional
									results as of
	JFY		JFY		JFY		JFY		December 31,		JFY
	2000		2001		2002		2003		2004)		2005 Budget
	(in billions)
REVENUES
Total Revenues, General Account	¥	93,361	¥	86,903	¥	87,289	¥	85,623	¥	88,634	¥	82,183
Total Revenues, Special Accounts		341,146		396,224		399,746		385,755		427,705		449,150
Less: Inter-Account Transactions(b)		199,838		207,400		219,958		219,676		245,686		255,891
Total Consolidated Revenues	¥	234,670	¥	275,727	¥	267,077	¥	251,702	¥	270,653	¥	275,442
EXPENDITURES
Total Expenditures, General Account	¥	89,321	¥	84,811	¥	83,674	¥	82,416	¥	88,526	¥	82,183
Total Expenditures, Special Accounts		305,776		363,337		373,898		357,691		383,679		411,944
Less: Inter-Account Transactions(b)		195,631		199,805		212,196		209,253		220,267		254,472
Total Consolidated Expenditures	¥	199,466	¥	248,343	¥	245,376	¥	230,854	¥	251,938	¥	239,655
Surplus of Consolidated Revenues over Consolidated Expenditures	¥	35,204	¥	27,384	¥	21,701	¥	20,848	¥	18,715	¥	35,787

(a)	Because of the manner in which the government accounts are kept, it is not practicable to show a consolidation of the Government Affiliated Agencies with the General and Special Accounts.
(b)	Inter-Account Transactions include transfers between the General Account and the Special Accounts, transfers between the Special Accounts, and transfers between sub-accounts of the Special Accounts.
Source: Budget, Ministry of Finance.

-20-

General Account

										JFY		JFY
										2004		2005
	JFY		JFY		JFY			JFY		Budget		(Initial
	2000		2001		2002			2003		(Revised (b))		budget)
	(in billions)
REVENUES
Tax and Stamp Revenues	¥	50,712	¥	47,948	¥	43,833		¥	43,282	¥	44,041	¥	44,007
Carried-over Surplus		5,339		4,040		2,092			3,615		1,491		52
Government Bond Issues		33,004		30,000		34,968			33,345		36,590		34,390
Income from operation		—		—		—			17		17		17
Gains from deposition of assets		—		—		—			441		262		256
Miscellaneous Receipts		4,306		4,915		6,396			2,923		4,478		3,461
Total Revenues	¥	93,361	¥	86,903	¥	87,289		¥	85,623	¥	86,879	¥	82,183
EXPENDITURES
Local Allocation Tax Grants, etc.	¥	15,829	¥	16,706	¥	16,479		¥	17,399	¥	17,662	¥	16,089
National Debt Service		21,446		15,829		15,600			15,544		18,278		18,442
Social Security		17,636		19,291		19,633			19,720		20,395		20,381
Public Works		11,910		10,820		9,162			9,359		8,903		7,531
Education and Science		6,872		6,677		6,731			6,472		6,230		5,723
National Defense		4,907		4,969		4,920			4,927		4,913		4,856
Government Employee Pensions and Others		1,418		1,350		1,282			1,207		1,132		1,069
Economic Assistance		1,012		961		838			900		782		740
Major Foodstuff Measures		247		738		735			744		675		675
Energy Measures		677		632		563			557		504		495
Small and Medium-sized Businesses		933		425		628			241		295		173
Transfer to the Industrial Investment Special Account		159		664		2,034			102		99		71
Financial aid upon repayment of Public Investments in connection with the Structural Reform		—		—		—			—		1,281		369
Miscellaneous		6,276		5,749		5,070			5,243		5,431		5,217
Contingencies		0		0		0			0		30		350
Other Expenditures		0		0		1	(a)		0		0		0
Total Expenditures	¥	89,321	¥	84,811	¥	83,674		¥	82,416	¥	86,879	¥	82,183
Surplus of Revenues over Expenditures	¥	4,040	¥	2,092	¥	3,615		¥	3,207	¥	—	¥	—

(a)	The JFY 2002 data include a reversal of funds to make up for deficits incurred in connection with the JFY 2001 settlement of accounts.
(b)	As of the date of this Annual Report on Form 18-K, the provisional results for JFY 2004 General Accounts are not available.
Source: Budget, Ministry of Finance.

-21-

Special Accounts

																	JFY
																	2004
																	(Provisional
																	results as of				JFY
	JFY				JFY				JFY				JFY				December 31,				2005
	2000				2001				2002				2003				2004)				(Initial budget)
	Rev.		Exp.		Rev.		Exp.		Rev.		Exp.						Rev.		Exp.		Rev.		Exp.
Trust Fund Bureau	¥	16,406	¥	12,879	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—
Fiscal Loan Program Funds		—		—		58,453		55,544		45,027		41,418		52,104		48,418		61,673		57,984		51,971		48,311
Government Bonds Consolidation Fund		126,742		113,230		138,538		124,337		154,193		142,293		169,141		154,202		198,242		165,368		221,702		191,702
Foreign Exchange Fund		2,349		116		2,189		15		1,901		166		3,668		23		2,118		207		2,461		1,094
Local Allocation and Local Transfer Tax		54,995		53,999		61,005		60,273		64,573		63,889		67,427		66,673		69,865		68,205		71,410		70,189
Measures for Petroleum and the Advancement of Energy Demand and Supply Structure		1,097		550		1,144		621		1,013		474		1,685		1,156		2,394		2,064		2,454		2,399
National Schools(a)		3,157		2,872		2,974		2,854		3,293		2,985		3,006		2,959		—		—		—		—
Welfare Insurances		40,198		38,241		39,772		39,391		40,352		40,510		40,773		41,091		44,238		42,983		52,652		52,652
Seamen’s Insurances		84		87		83		86		75		79		76		73		72		72		69		67
National Hospitals(a)		1,148		1,087		1,078		1,059		1,034		993		1,006		973		—		—		—		—
National Advanced Medical Center		—		—		—		—		—		—		—		—		151		151		160		160
National Pensions		23,093		21,709		23,354		22,063		22,069		20,729		22,698		21,210		23,639		22,880		24,447		24,447
Foodstuff Control		4,148		4,135		4,092		4,083		3,969		3,960		3,509		3,454		2,844		2,844		3,323		3,323
Agricultural Mutual Aid Reinsurance		119		60		114		47		115		52		167		142		121		100		105		95
National Forest Service		513		505		505		500		522		512		530		523		579		583		516		516
National Land Improvement		658		636		620		603		611		578		597		559		590		572		540		540
Trade Reinsurance		139		40		192		37		242		79		269		20		355		158		327		151
Compensation Reinsurance for Motor Vehicle Damages		2,861		584		2,967		573		868		761		819		675		598		530		326		261
Harbor Improvement		605		555		552		510		508		482		451		432		475		472		353		353
Airport Improvement		525		475		559		528		516		479		506		476		517		501		497		497
Postal Service(b)		7,170		7,172		6,976		6,985		6,752		6,741		—		—		—		—		—		—
Postal Savings(b)		17,178		16,509		12,136		10,930		13,100		10,391		—		—		—		—		—		—
Postal Life Insurance(b)		19,247		14,021		19,030		15,087		18,218		18,218		—		—		—		—		—		—
Labor Insurance		8,319		7,662		8,848		8,294		8,870		8,100		8,122		7,313		8,204		7,492		8,672		8,125
Road Construction and Improvement		5,778		5,146		5,933		5,041		5,642		4,849		5,302		4,349		5,807		5,794		3,893		3,893
Others		4,617		3,504		5,110		3,876		6,280		5,159		3,900		2,970		5,224		4,718		3,270		3,170
Total Revenues and Expenditures(c)	¥	341,146	¥	305,776	¥	396,224	¥	363,337	¥	399,746	¥	373,898	¥	385,755	¥	357,691	¥	427,705	¥	383,679	¥	449,150	¥	441,944

(a)	Accounts abolished after April, 1, 2004.
(b)	Removed from the national budget as the postal services were reorganized into a public corporation effective April 1, 2003.
(c)	Without adjustment for inter-account transactions. Total Revenues and Expenditures may differ from the actual totals of the listed accounts due to rounding.
Source: Budget, Ministry of Finance.

Government Affiliated Agencies

																	JFY				JFY
																	2004				2005
	JFY				JFY				JFY				JFY				Budget				Budget
	2000				2001				2002				2003				(Revised)(a)				(Initial)
	(in billions)
	Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.
Total	¥	7,019	¥	6,988	¥	6,584	¥	6,628	¥	5,864	¥	5,997	¥	5,433	¥	5,206	¥	5,528	¥	5,325	¥	5,073	¥	4,678

(a)	As of the date of this Annual Report on Form 18-K, the JFY 2004 provisional results are not available.
Source: Budget, Ministry of Finance.

Tax Structure

     The central government derives tax revenues through taxes on income, consumption and property. The taxes on income, consumption and property account for 54.6%, 40.4% and 5.0%, respectively, of the total central government tax revenues in the JFY 2005 budget.

     The individual income tax is progressive, with rates ranging from 10% to 37% of taxable income. Interest income is generally taxed at the rate of 20%, including both national and local taxes, separately from other types of income, and subject to certain exemptions. The corporate tax is based on a rate of 30% except that, for small and

-22-

medium corporations, the first ¥8 million of income is taxed at 22%. In addition, individuals and corporations are subject to local income taxation.

     Currently, the consumption tax rate is 5%, including 1% for local consumption tax.

     In JFY 2003 and 2004, the Japanese government implemented numerous tax measures intended to stimulate the Japanese economy. These measures include tax cuts in the total amount of ¥1.5 trillion in JFY 2004. Also, a new tax treaty was signed between Japan and the United States in November 2003 and became effective in March 2004, which is expected to contribute to the economic revitalization of Japan. For example, the treaty provides a significant reduction in the withholding tax rate for investment income, which includes dividends, interest and royalties.

Fiscal Investment and Loan Program (“Zaito”)

     The Fiscal Investment and Loan Program is formulated at the same pace as the General Account budget. The plan details the allocation of public funds to various special accounts, government affiliated agencies, local governments, public corporations and other public institutions.

     The Fiscal Investment and Loan Program system was fundamentally changed on April 1, 2001 from a scheme with compulsory deposit of Postal Savings and Pension Reserves into a fund-raising scheme to raise in the financial markets only the necessary amount of funds for Fiscal Investment and Loan Program agencies’ projects.

     Under the Zaito plan, funds are lent to government-related entities such as public corporations, special accounts and local governments. The total funds allocated under the initial plan for JFY 2005 is ¥17,152 billion. The sources of funds for the plan in JFY 2005 are the Fiscal Loan Fund (¥11,034 billion), Postal Savings Fund (¥430 billion), Postal Life Insurance Fund (¥750 billion), the Industrial Investment Special Account (¥106 billion), government-guaranteed domestic bonds (¥4,123 billion) and government-guaranteed foreign bonds (¥709 billion).

     The following table shows the uses of funds allocated under the initial plan for the periods indicated.

	JFY		JFY		JFY		JFY		JFY
	2001		2002		2003		2004		2005
	(in billions)
Housing	¥	9,734	¥	6,171	¥	3,276	¥	1,537	¥	1,278
Living Environment		6,468		5,756		5,249		5,375		3,941
Social Welfare		1,253		1,019		1,018		1,042		787
Education		922		881		855		842		844
Small and Medium-sized Businesses		5,248		4,734		4,212		3,890		3,797
Agriculture, Forestry and Fisheries		788		695		807		888		522
National Land Preservation and Reconstruction in the Event of Disaster		752		712		802		593		463
Road Construction		3,633		3,666		3,978		3,661		3,175
Transportation and Communications		747		617		678		438		414
Regional Development		1,118		1,058		1,054		817		572
Industry/Technology		326		195		291		333		261
Trade/Economic Cooperation		1,559		1,287		1,191		1,075		1,098
Total	¥	32,547	¥	26,792	¥	23,412	¥	20,489	¥	17,152

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DEBT RECORD

     There has been no default in the payment of interest or principal of any internal Japanese government obligation since the establishment of the modern Japanese state in 1868 or of any external Japanese government obligation within a period of 20 years prior hereto.

JAPAN PUBLIC DEBT

     The following table summarizes, as of the dates indicated, the outstanding direct internal and external funded and floating debt of Japan. The term “floating debt” is used herein to mean all debt with maturities of one year or less from the date of issue. All other debt is classified as “funded debt.” Detailed debt tables are presented below.

     Japan’s fiscal conditions are extremely severe, with outstanding government bonds expected to reach nearly 538 trillion yen at the end of JFY2005. The amount of public bonds issued by the Japanese government as a percentage of its general account total revenues was 42.1% under the revised budget for JFY2004 and 41.8% under the initial budget for JFY2005. The Japanese government is to continue promoting fiscal structural reform from both aspects of expenditures and revenues, with the goal of achieving a primary surplus in the early 2010s.

Summary of Japan’s Public Debt

	Funded				Floating
At the end of JFY	Internal		External		Internal
	(in billions)		(in thousands)		(in billions)
2000	¥	414,596		—	¥	120,991
2001		478,233		—		129,079
2002		526,058		—		142,702
2003		523,970		—		179,178
2004		584,701		—		196,850

     As of March 31, 2005, Japan had guaranteed payment of principal and interest of various internal yen obligations in the aggregate principal amount of ¥54,305 billion and of various external obligations aggregating the equivalent of ¥3,762 billion.

     The following table sets forth the aggregate annual payments of principal in respect of the direct internal funded debt of Japan outstanding as of March 31, 2006 for the periods indicated.

Principal Payments on Direct Funded Debt of Japan

JFY	Internal
	(in billions)
2006	¥	200,707
2007		84,318
2008		67,167
2009		53,101
2010 to 2035		338,552
Total	¥	743,845

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INTERNAL DEBT

Direct Debt of the Japanese Government

   Funded Debt

					Principal
					Amounts
					Outstanding as
					of March 31,
					2005
Title and Interest Rate	Year of Issue		Year of Maturity		(in millions)
1. Bonds
Interest-Bearing Treasury Bond — 30 years, 17 Series (1.1-2.9%)		1999-2005		2029-2034	¥	6,301,400
Interest-Bearing Treasury Bond — 20 years, 74 Series (0.8-7.3%)		1986-2005		2007-2025		51,476,047
Interest-Bearing Treasury Bond — 15 years, 26 Series (variable rate)		2000-2005		2015-2020		25,279,700
Interest-Bearing Treasury Bond — 10 years, 90 Series (0.5-4.0%)		1995-2005		2005-2015		279,964,055
Interest-Bearing Treasury Bond for Individual Investors — 10 years, 9 Series (variable rate)		2003-2005		2013-2015		10,125,508
Inflation-Indexed Bonds — 10 years, 3 Series (0.5-1.2%)		2004		2014		894,299
Interest-Bearing Treasury Bond — 6 years, 7 Series (0.7-1.6%)		1999-2001		2005-2007		8,076,868
Interest-Bearing Treasury Bond — 5 years, 42 Series (0.2-1.3%)		2000-2005		2005-2010		133,154,276
Interest-Bearing Treasury Bond — 2 years, 24 Series (0.1-0.2%)		2003-2005		2005-2007		57,960,553
Discount Treasury Bond — 5 years, 3 Series		2000		2005		212,072
Discount Treasury Bond — 3 years, 4 Series		2002		2005		498,045
6% Bereaved Family Treasury Bond, 9 Series		1996-2004		2005-2013		14
6% Repatriation Treasury Bond, 8 Series		1995-2002		2005-2012		0
Non-interest Special Benefit Treasury Bond, 1 Series		2003		2013		3
Non-interest Repatriation Special Benefit Treasury Bond, 8 Series		1995-2002		2005-2012		1
Non-interest Special Benefit Treasury Bond IV, 2 Series		1996-2003		2006-2013		22
Non-interest Special Benefit Treasury Bond X, 5 Series		1995-2003		2005-2013		432
Non-interest Special Benefit Treasury Bond XIII, 1 Series		2001		2006		162
Non-interest Special Benefit Treasury Bond XIV, 1 Series		2000		2005		0
Non-interest Special Benefit Treasury Bond XVII, 8 Series		1996-2004		2006-2014		4,451
Non-interest Special Benefit Treasury Bond XVIII, 1 Series		1996		2006		7,058
Non-interest Special Benefit Treasury Bond XIX, 2 Series		2000-2004		2005-2009		1
Non-interest Special Benefit Treasury Bond XX, 1 Series		2001		2006		14
Non-interest Special Benefit Treasury Bond XXI, 2 Series		2003-2004		2007-2009		127
Non-interest Special Benefit Treasury Bond XXII, 2 Series		2003-2004		2013-2014		268,146
Non-interest Treasury Bond for Special Condolence VI, 1 Series		1995		2005		54,736
Non-interest Treasury Bond for Special Condolence VII, 1 Series		1999		2005		2,345
Total Bonds					¥	574,274,332
2. Borrowings
Extraordinary Military Expenditure(a)		1943-1945				41,422
Local Allocation and Local Transfer Tax(b)		1995		2005		119,240
JNR Settlement Corporation		1991-1995		2005-2011		67,735
Ex-Japan National Railways		1987-1995		2005-2011		2,532,679
Honshu-Shikoku Bridge Authority		2003		2009-2011		154,900
National Property Special Consolidation Fund (1.1-2.9%)		1997-2001		2008-2014		171,485
National Schools (0.5-8.0%)		—		—		0
National Center for Advanced and Specialized Medical Care (0.5-8.5%)		1980-2005		2005-2030		235,064
National Forest Service (0.273-3.4%)		1996-2005		2005-2033		1,279,558
Government Operated Land Improvement Project (0.7-8.0%)		1980-2005		2010-2029		838,200
Airport Improvement (0.0-6.6%)		1987-2005		2007-2035		927,700
Finance for Urban Redevelopment (0.8-3.65%)		1995-2005		2005-2013		119,389
Petroleum and Sophisticated Structure of Energy of Supply and Demand (0.48-5.5%)		2000-2005		2005-2017		584,752
Total Borrowings					¥	7,072,124
Total Direct Internal Funded Debt					¥	581,346,465

(a)	Represents borrowings by the government from special corporations of currencies of areas under Japanese control during World War II. The maturity of such borrowings and other matters relating to such borrowings remain undetermined.
(b)	Represents borrowing which was transferred from a Special Account to the General Account by recent legislation.

-25-

     Floating Debt

				��
						Principal Amounts
						Outstanding as of
						March 31, 2005
Title	Interest			Year of Maturity		(in millions)
1. Bonds
Financing Bills						¥	96,076,160
Treasury Financing Bills	Non-interest bearing				2005		0
Food Financing Bills	Non-interest bearing				2005		525,000
Foreign Exchange Financing Bills	Non-interest bearing				2005		94,720,660
Fiscal Loan Fund Financing Bills	Non-interest bearing				2005		0
Oil Financing Bills	Non-interest bearing				2005		830,500
Treasury Bills, 18 Series	Non-interest bearing				2004-2005		33,395,850
Note in Substitution for Currency of the International Monetary Fund	Non-interest bearing			Payable on demand			1,698,679
Note in Substitution for Currency of the Global Environment Facility Trust Fund of the International Bank for Reconstruction and Development	Non-interest bearing			Payable on demand			45,939
Note in Substitution for Currency of the International Development Association	Non-interest bearing			Payable on demand			171,526
Note in Substitution for Currency of the Asian Development Bank	Non-interest bearing			Payable on demand			883
Note for Contribution to the Special Funds of the Asian Development Bank	Non-interest bearing			Payable on demand			108,485
Note in Substitution for Currency of the African Development Fund	Non-interest bearing			Payable on demand			55,234
Note in Substitution for Currency of the Multilateral Investment Fund of the Inter-American Development Bank	Non-interest bearing			Payable on demand			20,020
Note in Substitution for Currency of the International Fund for Agricultural Development	Non-interest bearing			Payable on demand			914
Note in Substitution for Currency of the African Development Bank	Non-interest bearing			Payable on demand			550
Note in Substitution for Currency of the Multilateral Investment Guarantee Agency	Non-interest bearing			Payable on demand			721
Note in Substitution for Currency of the Common Fund for Commodities (First Account)	Non-interest bearing			Payable on demand			1,523
Note in Substitution for Currency of the Common Fund for Commodities (Second Account)	Non-interest bearing			Payable on demand			0
Note in Substitution for Currency of the European Bank for Reconstruction and Development	Non-interest bearing			Payable on demand			5,706
Total Bonds						¥	227,658,350
2. Borrowings
Local Allocation and Local Transfer Tax		0.001%-0.9	%		2005	¥	50,223,333
Welfare Insurance		0.6%-0.9	%		2005		1,479,228
Special Accounts for Petroleum and Sophisticated Structure of Energy of Supply and Demand		0.021%-0.025	%		2005-2006		337,500
Total Borrowings						¥	52,040,061
Total Direct Internal Floating Debt						¥	279,698,411
Total Direct Internal Debt						¥	861,044,876

-26-

Debt Guaranteed by the Japanese Government

								Principal Amounts
								Outstanding as of
								March 31, 2005
Title	Interest			Year of Issue		Year of Maturity		(in millions)
1. Bonds Issued by Government-Affiliated Corporations
National Life Finance Corporation		0.40-1.50	%		2000-2005		2005-2015	¥	655,000
The Government Housing Loan Corporation		1.30-1.90	%		2000-2001		2010-2011		711,600
Agriculture, Forestry and Fisheries Finance Corporation		0.50-1.50	%		2001-2003		2006-2013		41,000
Japan Finance Corporation for Small and Medium Enterprise		0.20-3.30	%		1996-2005		2005-2014		2,685,000
Japan Finance Corporation for Municipal Enterprises		0.50-3.70	%		1995-2005		2005-2015		16,021,230
Development Bank of Japan		0.80-3.10	%		1996-2005		2006-2015		400,000
Japan Highway Public Corporation		0.50-3.40	%		1995-2005		2005-2015		8,712,780
Metropolitan Expressway Public Corporation		0.90-3.30	%		1995-2005		2005-2015		1,078,630
Incorporated Administrative Agency—Japan Water Agency		2.60-3.40	%		1995-1997		2005-2007		50,000
Hanshin Expressway Public Corporation		0.50-3.30	%		1996-2005		2006-2015		685,710
Japan Railway Construction, Transport and Technology Agency		1.20-3.70	%		1995-1999		2005-2009		555,144
Narita International Airport Corporation		0.60-1.50	%		2002-2005		2012-2015		71,763
Japan Oil, Gas and Metals National Corporation		2.00-3.30	%		1996-1998		2005-2008		3,222
Honshu-Shikoku Bridge Authority		0.60-3.00	%		1995-2005		2005-2015		324,880
Urban Renaissance Agency		1.90-3.30	%		1995-1999		2005-2009		180,050
Welfare and Medical Service Agency		2.60-3.30	%		1995-1997		2005-2007		40,020
Japan Bank for International Cooperation		2.90-3.00	%		1995-1996		2005-2006		25,000
Deposit Insurance Corporation of Japan		0.10-1.50	%		2001-2005		2005-2012		12,180,000
Banks’ Shareholdings Purchase Corporation		0.30-0.70	%		2004-2005		2008-2009		200,000
Electric Power Development Co., Ltd.		1.10-3.30	%		1995-2001		2005-2011		556,170
Kansai International Airport Co., Ltd.		0.20-3.30	%		1996-2004		2006-2014		524,710
Trans-Tokyo Bay Highway Corporation		2.10-3.40	%		1995-1997		2005-2007		173,350
Organization for Promoting Urban Development		0.80-3.30	%		1996-2005		2006-2015		6,105
Central Japan International Airport Co., Ltd.		0.80-2.10	%		1999-2004		2009-2014		222,320
Total								¥	46,103,684
2. Borrowings of Government-Affiliated Corporations
Japan Oil, Gas and Metals National Corporation		0.568-0.860	%		2002-2005		2005-2008	¥	339,889
Japan Nuclear Cycle Development Institute		0.4576-0.803	%		2003-2005		2006-2007		10,982
Environmental Restoration and Conservation Agency of Japan		0.682	%		2004		2007		500
Incorporated Administrative Agency—Agriculture, Forestry and Fisheries Credit Foundations		0.859-1.227	%		2003-2004		2007-2008		4,839
Incorporated Administrative Agency—Farmers Pension Fund		0.603-1.300	%		2002-2005		2007-2010		308,745
Japan Railway Construction, Transport and Technology Agency		0.3019-0.4724	%		2004-2005		2005-2006		52,905
Deposit Insurance Corporation of Japan		0.001-0.038	%		2004-2005		2005-2006		4,690,400
Organization for Environment Improvement around Airport		0.750-2.300	%		2001-2005		2005-2009		1,109
Life Insurance Policyholders Protection Corporation of Japan		0.590-0.70	%		2005		2010		81,500
Industrial Revitalization Corporation Japan		0.001-0.024	%		2004-2005		2005		835,500
Organization for Promoting Urban Development		0.745-1.400	%		2002-2005		2005-2008		579,608
Banks’ Shareholdings Purchase Corporation		0.001-0.110	%		2004-2005		2005-2006		1,264,109
Japan Environmental Safety Corporation		0.485-0.830	%		2004-2005		2008-2009		30,950
Total								¥	8,201,035
Total Internal Debt Guaranteed by the Japanese Government								¥	54,304,719

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EXTERNAL DEBT

Debt Guaranteed by the Japanese Government

				Principal Amounts		Principal Amounts
				Outstanding as of		Outstanding as of
				March 31, 2005		March 31, 2005
	Interest	Year of Loan	Year of Maturity	(in thousands)		(in thousands)
Development Bank of Japan	6.875%	1999	2011	$	750,000	€	—
	5.625%	2001	2011	€	750,000		750,000
	1.050-2.875%	1996-2004	2006-2028	¥	505,000,000		—
Japan Bank for International Cooperation	4.125-7.125%	1993-2005	2005-2014	$	5,050,000		—
	3.250-4.500%	2003-2004	2008-2014	€	1,750,000		1,750,000
	0.350-2.875%	1995-2003	2005-2008	¥	120,000,000		—
	5.750%	1997	2007	DM	1,000,000		511,292
	8.000%	1997	2007	£	400,000		—
	5.750-6.625%	1996-1997	2007-2008	FFr	3,500,000		533,572
Japan Finance Corporation for Municipal Enterprises	5.875-7.375%	1995-2001	2005-2011	$	2,950,000		—
	3.000-5.000%	1995-1998	2005-2008	SFr	460,000		—
	5.000-6.875%	1995-1998	2005-2008	DM	700,000		357,904
	5.750-8.375%	1996-1999	2006-2019	£	300,000		—
	5.750%	1997	2007	DFL	300,000		136,134
	5.875%	1997	2007	FFr	1,000,000		152,449
	6.750%	1997	2007	NZ$	100,000		—
	4.500%	2004	2014	€	900,000		900,000
	1.350-1.550%	2002-2003	2012-2013	¥	330,000,000		—
Japan Finance Corporation for Small and Medium Enterprise	floating rate	2002	2009	€	300,000		600,000
	4.125%	2003	2010	€	300,000
	1.100%	2004	2011	¥	40,000,000		—
Japan Highway Public Corporation	3.375-7.500%	1995-2004	2005-2013	$	3,750,000		—
The Metropolis of Tokyo	6.125-7.125%	1996-2001	2006-2011	$	1,030,000		—
	5.750%	1997	2007	FFr	1,700,000		259,163
	4.500%	1999	2009	€	150,000		150,000
Yokohama City	3.250-3.750%	1997-1999	2007-2009	SFr	235,000		—
	6.500-7.000%	1995-1999	2005-2009	$	530,000		—
Kobe City	6.500%	1995	2005	$	230,000		—
Electric Power Development Co., Ltd.	5.625%	1997	2007	FFr	1,800,000		274,408
	1.800%	2000	2010	¥	38,000,000		—
	4.875%	1999	2006	€	250,000		250,000
Kansai International Airport Co., Ltd.	7.250%	1996	2006	$	200,000		—
	7.375%	1997	2007	£	115,000		—
	3.250%	1998	2005	SFr	220,000		—
Trans-Tokyo Bay Highway Corporation	6.875%	1996	2006	$	200,000		—
	3.750-4.000%	1996-1997	2006-2007	SFr	390,000		—
	Totals by currency			$	14,690,000	€	—
				SFr	1,305,000		—
				DM	1,700,000		869,196
				FFr	8,000,000		1,219,592
				£	815,000		—
				€	4,400,000		4,400,000
				¥	1,033,000,000		—
				DFL	300,000		136,134
				NZ$	100,000		—
						€	6,624,922

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SUBSCRIPTIONS TO INTERNATIONAL FINANCIAL ORGANIZATIONS

     The following table sets forth information relating to Japan’s obligations to contribute to the capital and financing requirements of international financing organizations in which it participates as of March 31, 2005.

Organization	Subscription Amount
	(in millions)
International Monetary Fund	$	20,113	(a)
International Bank for Reconstruction and Development		15,321	(b)
International Development Association		26,515	(c)
International Finance Corporation		141	(d)
International Fund for Agricultural Development		265	(e)
Multilateral Investment Fund		500	(e)
Multilateral Investment Guarantee Agency		97	(f)
Asian Development Bank		8,547	(g)
African Development Bank		1,838	(h)
African Development Fund		2,653	(h)
European Bank for Reconstruction and Development		2,317	(i)
Inter-American Development Bank		5,050	(j)
Inter-American Investment Corporation		24	(k)

(a)	Equivalent of SDR13,312.8 million. Of Japan’s past subscriptions, 4% was initially paid in gold, 19% in SDRs and 77% in yen, including non-interest bearing demand notes payable in yen.
(b)	Of this amount, 6% has been paid and the balance is callable by the IBRD if required to meet its obligations in respect of funds borrowed or indebtedness guaranteed by the IBRD.
(c)	As stated in IDA Financial Statements as of June 30, 2004.
(d)	As stated in IFC Financial Statements as of June 30, 2004.
(e)	As of May 18, 2005 (IFAD staff data).
(f)	As stated in MIGA Financial Statements as of June 30, 2004.
(g)	Of this amount, 7% represents paid-in capital and the balance is callable by the ADB if required to meet its obligations in respect of funds borrowed or indebtedness guaranteed by the ADB.
(h)	As stated in AfDB / AfDF Financial Statements as of December 31, 2004.
(i)	Equivalent of €1,703.50 million. The amount in US dollar as of December 31, 2003, the end of the fiscal year of the EBRD.
(j)	Includes $5,050 million as a subscription to ordinary capital and $622 million as a contribution to the IADB’s Fund for Special Operations. As stated in IDB Financial Statements as of December 31, 2004.
(k)	As stated in IIC Financial Statements as of December 31, 2004.

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