Japan 18-K Annual report (foreign governments)

Exhibit 1

Japan

This description of Japan is dated August 5, 2021, 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, 2021.

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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
Leadership	5
International Organizations	5
THE ECONOMY	8
General	8
Gross Domestic Product and National Income	12
Industry	14
Energy	14
Price Indices	16
Labor	16
Aging Workforce and Population Decrease	19
FOREIGN TRADE AND BALANCE OF PAYMENTS	21
Foreign Trade	21
Balance of Payments	24
Foreign Exchange Rates	25
FINANCIAL SYSTEM	28
The Bank of Japan and Monetary Policy	28
Government Financial Institutions	30
Private Financial Institutions	31
GOVERNMENT FINANCE	32
Revenues, Expenditures and Budgets	32
Tax Structure	37
Fiscal Investment and Loan Program	37
DEBT RECORD	38
JAPAN’S PUBLIC DEBT	38
INTERNAL DEBT	40
Direct Debt of the Japanese Government	40
EXTERNAL DEBT	44
Debt Guaranteed by the Japanese Government	44
SUBSCRIPTIONS TO INTERNATIONAL FINANCIAL ORGANIZATIONS	45

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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, 2021. 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 July 29, 2021 as reported by The Bank of Japan at 5:00 p.m., Tokyo time, was ¥109.87=$1.00, and the noon buying rate on July 23, 2021 for cable transfers in New York City payable in yen, as reported by the Federal Reserve Bank of New York, was ¥110.52=$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 125 million (estimated as of July 1, 2021). It has one of the highest population densities in the world and approximately 24.0% of its people (estimated as of October 1, 2020) are concentrated in three metropolitan areas (Tokyo, Osaka and Nagoya). Japan’s rate of population decrease during the years 2016-2020 was 0.6%. Japan’s population increased by 0.04% during the 12 months ended October 1, 2020 (estimated as of October 1, 2020).

Government

The legislative power in Japan is vested in the Diet, which currently consists of a House of Representatives having 465 members and a House of Councillors having 245 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 certain matters including 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 September 28, 2017 and an election was held on October 22, 2017. 289 members were elected from single-member districts and 176 members were elected through a proportional representation process from 11 regional districts. Pursuant to a revision of the Public Offices Election Act in July 2018, the number of seats in the House of Councillors was increased to 248 from 242. The members are elected for six-year terms with one-half of the membership being elected every three years. In an election in July 2019, 124 members were elected, of which 50 members were elected through a proportional representation system and 74 members were elected from 45 districts that correspond to the 47 prefectures of Japan. Currently, the House of Councillors consists of 121 members whose term expires in July 2022 and 124 members whose term expires in July 2025.

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The following tables set forth the membership by political party of the House of Representatives as of July 28, 2021 and the House of Councillors as of July 29, 2021.

	House of     Representatives
Liberal Democratic Party		276
The Constitutional Democratic Party of Japan and the Independent		113
Komeito		29
Japanese Communist Party		12
Nippon Ishin (Japan Innovation Party)		11
Democratic Party For the People		10
Independents		10
Vacancies		4
Total		465

Source: House of Representatives.

	House of         Councillors
Liberal Democratic Party and Voice of The People		112
The Constitutional Democratic Party of Japan and Social Democratic Party		45
Komeito		28
Nippon Ishin (Japan Innovation Party)		16
Democratic Party For the People and The Shin-Ryokufukai		15
Japanese Communist Party		13
Okinawa Whirlwind		2
REIWA SHINSENGUMI		2
Hekisuikai		2
Your Party		2
Independents		7
Vacancies		1
Total		245

Source: House of Councillors.

Leadership

Japan’s current Prime Minister is SUGA Yoshihide, a member of the Liberal Democratic Party of Japan and member of the House of Representatives in the Diet. SUGA Yoshihide was elected as Japan’s 99th Prime Minister on September 14, 2020, succeeding the former Prime Minister ABE Shinzo.

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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International Trade Agreements

Japan signed an agreement to join the Trans Pacific Partnership, or TPP, on February 4, 2016. Upon the ratification of the TPP, Japan and the other participating countries planned to not only eliminate tariffs on products but also liberalize services and investment, and establish rules in a wide range of fields, including intellectual property, e-commerce and the environment. Although Japan ratified the TPP on January 20, 2017, the United States announced its formal withdrawal from the TPP on January 23, 2017. On March 8, 2018, Japan and ten other countries excluding the United States signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, pursuant to which each signatory country agreed to start the necessary preparations for the implementation of the TPP. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership entered into force for Japan, Mexico, Singapore, New Zealand, Canada, and Australia on December 30, 2018, and for Vietnam on January 14, 2019. On February 1, 2021, the United Kingdom formally applied to join the TPP. Japan, as the chair of the TPP Committee for this year, intends to facilitate the process of commencing negotiations with the United Kingdom pursuant to the application procedures under the TPP and in cooperation with the other members.

Japan has also entered into Economic Partnership Agreements, or EPAs, with various countries, including Singapore, Mexico, Malaysia, Chile and Thailand. As of February 2021, Japan had entered into a total of 21 EPAs (including the TPP) with 23 countries as well as the EU. Pursuant to the EPAs, Japan will collaborate comprehensively with the counterparties to, among other things, reduce or eliminate tariffs, grant most-favored-nation status in the fields of investment, services and government procurement and expedite patent review and enhance patent protection in the field of intellectual property.

Japan is also a member of international organizations which are based on international trade treaties and other agreements which seek to promote free trade in the international market, including the following: the World Trade Organization, the Organization for Economic Co-operation and Development, the World Customs Organization and the International Trade Centre.

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The following is a map of Japan, illustrating its location with respect to neighboring countries:

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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.

While the Japanese economy expanded during the period from 2002 to 2007, amidst that expansion, and prior to the global economic crisis of 2008, Japan continued to face several domestic economic difficulties. Among other things, domestic consumption contributed to the economic recovery to a lesser degree than was the case in prior economic growth periods. Also, despite the improving employment environment at the time, the average wage failed to grow appreciably. While those Japanese manufacturing companies with a global competitive edge achieved growth on the back of the favorable world economy, small-to-medium enterprises and non-manufacturing sectors realized only limited productivity growth and profitability. This in turn caused imbalance in the level of economic recovery among the different regions in Japan. In the longer term, Japan faced a declining population, mass retirement of the baby boomer generation, environmental/energy conservation agenda, and fiscal deficit problem. Against this backdrop, the subprime loan crisis in the United States and increases in the prices of energy and raw materials precipitated weakness in the global economy, caused the Japanese economy to deteriorate. Throughout JFY 2008, the global economy continued to worsen, as the collapse of several major financial institutions in the United States and other factors contributed to a credit tightening, volatility in stock, currency and other markets, loss of consumer confidence and decrease in business and industrial activities on a global basis. The Japanese economy was also adversely affected by these factors, especially as Japan’s export sector was hit by the decline in global demand and appreciation of the yen against other major currencies. After February 2008, Japan had entered a recession. The Japanese economy in JFY 2010 picked up, despite a difficult situation where the unemployment rate remained at a high level.

On March 11, 2011, just as the Japanese economy was in a transition from the state of stagnation to recovery, the Great East Japan Earthquake (“Earthquake”) struck Japan. As a result, the Japanese economy posted negative growth for the first and second quarter in 2011. Unlike the cases of the Great Hanshin-Awaji Earthquake in 1995 or Hurricane Katrina in 2005, personal consumption declined on a nationwide basis, with consumer sentiment deteriorating sharply after the Earthquake. The Earthquake had a severe impact on production in Japan through the shutdown of damaged factories, disruptions of the supply chains and power supply constraints. In particular, the Earthquake affected Japan’s auto industry which depends on the Tohoku region for the supply of key parts including semiconductors and other electronic components. The supply constraints and the slower growth in corporate earnings in the aftermath of the Earthquake also put downward pressure on capital investment activities. The Earthquake was accompanied by a nuclear power plant accident, which not only caused power supply constraints but also had a chilling effect on certain business activities, such as in the tourism and leisure sectors. Following the Earthquake, the number of visitors to Japan from foreign countries dropped by approximately half from the monthly averages in the prior year. The Earthquake and its aftermath prompted the Government of Japan to compile a series of supplementary budgets to support reconstruction efforts. On May 2, 2011, a first supplementary budget of approximately ¥4 trillion was approved by the Diet to finance reconstruction relating to damages from the Earthquake and tsunami. The budget was aimed at disaster relief, including providing temporary housing, rebuilding of facilities and disaster assistance loans. On July 25, 2011, the Japanese government approved a second supplementary budget of approximately ¥2 trillion aimed at further disaster relief, including increasing the Contingency Reserve for Recovery from the Great East Japan Earthquake. On November 21, 2011, the Japanese government approved the third supplementary budget of approximately ¥12 trillion aimed at disaster relief, including provision of emergency support to people affected by the disaster and reconstruction of public utilities and facilities. On February 8, 2012, the Japanese government approved the fourth supplementary budget including the establishment of a government guaranteed ¥500 billion credit facility in response to the so-called “Overlapping Debt Problem”, whereby the burden of existing debt makes it difficult to raise funds for victims of the Earthquake. Thereafter, the Japanese government approved budgets of approximately ¥4 trillion for JFY 2012, ¥5 trillion for JFY 2013 and ¥4 trillion for JFY 2014 to finance reconstruction efforts.

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The Earthquake and the nuclear disaster in Fukushima were followed by severe flooding that occurred at the end of July 2011 in Thailand, one of Japan’s largest trading partners for both exports and imports. The suspended operations of the local factories in Thailand suppressed Japan’s Thailand bound exports of goods including intermediary materials for cars and electronics and thereby adversely affected the Japanese economy.

Thus, JFY 2011 started in a very challenging environment, with the Earthquake seriously crippling the economy, which posted negative growth for the first quarter. Over time, the government and the people joined forces in an all-out effort to rebuild the social and economic infrastructure, facilitating a rapid recovery of the supply chains and helping the economy on a track to a gradual recovery. Since the summer of 2011, however, the rapid appreciation of the yen, the reduced external demand due to the Thai flooding (as described above) and deceleration in the world economy stemming from the European sovereign debt crisis kept such recovery to a modest level.

In December 2012, the Cabinet Office of the Government of Japan announced “Abenomics” (named after the former Prime Minister ABE Shinzo), an economic strategy of pursuing an expansionary monetary policy, a flexible fiscal policy and an economic growth agenda that promotes private investment, with the goal of achieving GDP growth and job creation. Pursuant to this strategy, specific measures to be implemented include accelerating reconstruction efforts in areas damaged by the Great East Japan Earthquake, increasing stimulus spending and subsidies aimed at strategically important sectors and utilizing a more flexible approach to economic and fiscal management. Other more recent Abenomics measures include the liberalization of electricity retail sales in April 2016 and the liberalization of gas retail sales in April 2017.

Additionally, in January 2013, the Government of Japan and the Bank of Japan issued a joint statement announcing measures to overcome deflation and achieve sustainable economic growth with price stability in order to establish a sustainable fiscal structure and sound fiscal management. In March 2013, KURODA Haruhiko, former President of the Asian Development Bank, was appointed as governor of the Bank of Japan, or BOJ. In April 2013, the Bank of Japan announced its new quantitative and qualitative monetary easing policy, under which the Bank of Japan is aiming to achieve a price stability target of 2% in terms of the year-on-year rate of change in the consumer price index at the earliest possible time, with a time horizon of about two years. However, due primarily to the impact of the COVID-19 pandemic, nominal GDP decreased by 3.9% during JFY 2020, and the annual growth rate of real GDP was -4.6%. The Japanese Diet has passed comprehensive social security and tax reform, including an increase in the consumption tax rate from 5% to 8% in 2014, and from 8% to 10% in 2015. Accordingly, the consumption tax rate was increased to 8% in April 2014. The increase in the consumption tax rate from 8% to 10% was postponed but introduced in October 2019. Due in part to this increase in the consumption tax, real GDP decreased during the fourth quarter of 2019 by 1.9% compared to the prior quarter. In addition to the increase in the consumption tax rate, as part of the tax reform, the statutory corporate income tax rate was reduced from 34.62% to 32.11% for JFY 2015 and it was further reduced to 29.97% for JFY 2016 and to 29.74% for JFY 2018.

The Japanese economy faces certain challenges. Challenges for the Japanese economy include, as further described herein, an increased dependence on LNG and other energy imports as a result of the nuclear accident at the Fukushima Daiichi Nuclear Plant and suspension of operations at other nuclear power plants and, over the long term, demographic challenges, such as the decline in the labor market due to the population aging and decreasing population, and the high levels of public debt and associated debt servicing payments.

In addition, in December 2019, the emergence of COVID-19 was reported in Wuhan, Hubei Province, China and COVID-19 has subsequently spread throughout the world, including in Japan. On January 30, 2020, the World Health Organization declared COVID-19 a public health emergency of international concern and, on March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic is currently having an adverse impact on the global economy, the severity and duration of which is difficult to predict.

Economic activity in Japan has been significantly restricted by the COVID-19 pandemic and the measures implemented to slow the spread of the disease. Due primarily to the impact of the COVID-19 pandemic, real GDP decreased by 4.6% during JFY 2020. In response to this pandemic, the Japanese government and the BOJ have announced a number of fiscal, monetary and economic measures aimed at mitigating the resulting economic impact. While the COVID-19 pandemic is expected to continue to have a significant negative impact on the Japanese economy, the duration and extent of the economic impact of COVID-19 remain highly uncertain.

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In order to slow the spread of COVID-19, the Japanese central and local governments have implemented a number of measures. Since April 2020, the Prime Minister of Japan has declared a state of emergency four times, the most recent one being in effect for Tokyo and Okinawa until August 22, 2021. The key measures have included advising restaurants and bars that provide alcoholic beverage and karaoke facilities to close, advising restaurants other than the foregoing to shorten business hours, advising businesses to reduce the number of workers physically commuting to work by around 70%, advising individuals to avoid outings in the evening and restrictions on the capacity and ending hours of certain events. Economic activities will continue to be subject to different degrees of restrictions throughout the country based on their COVID-19 risk profile and citizens are being encouraged to change their activities, including by adhering to social distancing guidelines, in ways that could discourage normal economic activity. Furthermore, international travel restrictions by the Japanese government remain in place; as of July 21, 2021, 159 countries/regions are subject to travel restrictions. Citizens of such countries and regions generally remain prohibited from entering Japan under the current travel restrictions, which has had a severe impact on both business travel and inbound international tourism, an important and formerly growing sector of the Japanese economy. Though the Japanese government and the Bank of Japan have also announced and implemented a number of fiscal, monetary and economic measures aimed at mitigating the resulting economic impact, the significant disruption in economic activity as a result of the COVID-19 pandemic and the measures taken in response to the pandemic are expected to have a significant negative impact on overall economic conditions in Japan. According to the Monthly Economic Report published by the Cabinet Office of Japan for July 2021 published on July 19, 2021, although there are signs that the declining trend in economic conditions in Japan is starting to ease (such as an increase in exports and signs of improving business investment, industrial production, corporate profits and employment situation), economic conditions in Japan continue to be weak as a result of the COVID-19 pandemic, including negative consumer spending. As a result of gradual resumption of socio-economic activities and implementation of various COVID-19 related measures and progress in vaccine development and distribution, the economy is expected to move toward improvement. However, the duration and extent of the economic impact of COVID-19 still remain highly uncertain.

Moreover, Japan’s economy continues to face challenges due to the impact of trade disputes on the global economy and uncertainties surrounding overseas economies, as well as the effects of fluctuations in financial and capital markets. The Japanese economy is also exposed to uncertainty in geopolitical conditions, including concerns over North Korea’s nuclear weapons program and continued instability in the Middle East.

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Summary of Key Economic Indicators

The following tables set forth information regarding certain of Japan’s key economic indicators for the periods indicated:

	JFY 2016			JFY 2017			JFY 2018			JFY 2019			JFY 2020
	(yen amounts in billions, except percentages and index)
Percentage Changes of GDP from Previous Year
At Nominal Prices		0.8	%		2.0	%		0.1	%		0.3	%		-3.9	%
At Real Prices(a)		0.8			1.8			0.2			-0.5			-4.6
Total Revenues of Consolidated General and Special Accounts(b)	¥	259,413		¥	244,729		¥	243,868		¥	251,292		¥	357,202
Total Expenditures of Consolidated General and Special Accounts(b)		241,061			229,389			226,661			232,905			352,007
Surplus of Consolidated Revenues over Consolidated Expenditures(b)		18,353			15,340			17,206			18,387			5,195
Public Debt		908,093			934,321			954,863			965,926			993,542

(a) Real prices are based on calendar year 2011.

(b) The data for JFY 2020 is the provisional results as of December 31, 2020.

Source: Economic and Social Research Institute; Cabinet Office; and Ministry of Finance.

	2016			2017			2018			2019			2020
	(yen or dollar amounts in billions, except percentages and index)
Unemployment Rate		3.1	%		2.8	%		2.4	%		2.4	%		2.8	%
Consumer Price Index(a)		99.9			100.4			101.3			101.8			101.8
Annual Change		-0.1	%		0.5	%		1.0	%		0.5	%		0.0	%
Corporate Goods Price Index(b)		96.5			98.7			101.3			101.5			100.3
Annual Change		-3.5	%		2.3	%		2.6	%		0.2	%		-1.2	%
Current Account regarding Balance of Payments	¥	21,391		¥	22,778		¥	19,505		¥	19,273		¥	17,535
Official Foreign Exchange Reserves	$	1,217		$	1,264		$	1,271		$	1,324		$	1,395

(a) Calendar year 2015=100.

(b) Calendar year 2015=100. Indices are calculated using the monthly averages.

Source: Ministry of Internal Affairs and Communications “Labor Force Survey”; Consumer Price Index, Statistics Bureau, Ministry of Internal Affairs and Communications; Domestic Corporate Goods Price Index, Bank of Japan; and Ministry of Finance.

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Gross Domestic Product and National Income

In December 2016, the methodology of calculating Japan’s GDP was revised to implement the System of National Accounts 2008 (2008 SNA), the latest version of the international statistics standard for the national accounts adopted by the United Nations Statistical Commission, as well as other changes including revising the benchmark year for real prices from 2005 to 2011. Revised GDP figures based on this methodology were published for prior years starting from JFY 1994. The GDP figures set forth in the tables below reflect this revised methodology.

The following table sets forth information pertaining to Japan’s gross domestic product for JFY 2016 through JFY 2020. Nominal GDP decreased by 3.9% during JFY 2020, and the annual growth rate of real GDP was -4.6%. While the duration and extent of the economic impact of COVID-19 remain highly uncertain, it is likely that the continued spread of COVID-19 will have a significant negative impact on the Japanese economy, including with respect to nominal and real GDP.

Gross Domestic Product^(a)

	JFY 2016			JFY 2017			JFY 2018			JFY 2019			JFY 2020			Percentage of JFY 2020 GDP
	(yen amounts in billions)
Total Consumption
Private sectors	¥	298,334		¥	303,046		¥	305,086		¥	304,197		¥	285,915			53.3	%
Public sectors		106,798			107,709			109,099			111,715			114,574			21.4
		405,132			410,755			414,185			415,912			400,489			74.7
Total Gross Capital Formation
Private sectors
Producers’ Durable Equipment		87,001			90,108			91,765			91,550			84,854			15.8
Residential Construction		21,251			21,255			20,531			21,382			19,949			3.7
Public sectors		27,085			27,687			28,384			29,259			30,609			5.7
		135,337			139,050			140,680			142,190			135,412			25.3
Additions to Business Inventories
Private sectors		210			1,749			2,375			2,106			826			0.2
Public sectors		-281			89			-71			-6			8			0.0
		-71			1,838			2,304			2,100			834			0.2
Net Exports of Goods and Services		4,430			4,044			-749			-1,938			-471			-0.1
Nominal Gross Domestic Expenditures	¥	544,827		¥	555,687		¥	556,419		¥	558,265		¥	536,264			100.0	%
Real Gross Domestic Expenditures(b)	¥	543,463		¥	553,171		¥	554,348		¥	551,471		¥	526,362
Surplus of the Nation on Current Account
Exports of Goods and Services and Other Receipts from Abroad		29,191			31,346			33,880			34,469			31,723
Less: Imports of Goods and Services and Other Payments Abroad		10,037			11,025			12,155			12,446			10,569
		19,154			20,320			21,726			22,023			21,154
Gross National Income	¥	563,981		¥	576,008		¥	578,145		¥	580,287		¥	557,418
Percentage Changes of GDP from Previous Year
At Nominal Prices		0.8	%		2.0	%		0.1	%		0.3	%		-3.9	%
At Real Prices(b)		0.8			1.8			0.2			-0.5			-4.6
Deflator(c)		0.0			0.2			-0.1			0.9			0.6

(a) GDP financial data are subject to change.

(b) Real prices are based on calendar year 2011.

(c) Deflator is a price index used to convert nominal prices into real prices. Deflator is derived by dividing nominal GDP by real GDP.

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 March 31, 2021.

	Quarterly Gross Domestic Product(a)
	2019						2020								2021
	Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter
	(yen amounts in billions)
Nominal Gross Domestic Expenditures(b)	¥	561,039	¥	562,779	¥	556,198	¥	553,126	¥	510,113	¥	538,437	¥	551,576	¥	544,400
Real Gross Domestic Expenditures(b)(c)	¥	556,916	¥	557,624	¥	547,000	¥	544,231	¥	500,232	¥	526,697	¥	541,512	¥	536,090
Percentage Changes of GDP from the Previous Quarter At Nominal Prices(d)		0.3%		0.3%		-1.2%		-0.6%		-7.8%		5.6%		2.4%		-1.3%
At Real Prices(c)(d)		0.1		0.1		-1.9		-0.5		-8.1		5.3		2.8		-1.0
Deflator(e)		0.2		0.2		0.8		-0.0		0.3		0.2		-0.4		-0.3

(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 2011.

(d) Percentage changes are based on seasonally-adjusted GDP figures.

(e) Deflator is a price index used to convert nominal prices into real prices. Deflator is derived by dividing nominal GDP by real GDP.

Source: Economic and Social Research Institute, Cabinet Office.

Per Capita Gross Domestic Product

The following table indicates per capita gross domestic product for the last five years.

	Per Capita GDP
JFY	Amount   (in thousands of yen)	Year-on-year change (%)
2015	¥4,255	3.4
2016	4,293	0.9
2017	4,386	2.2
2018	4,404	0.4
2019	4,437	0.7

National Income

The following table sets forth national income for calendar year 2015 through calendar year 2019.

	National Income
	2015			2016			2017			2018			2019
	(yen amounts in billions)
Domestic Factor Income	¥	368,281		¥	374,254		¥	380,613		¥	381,457		¥	380,074
Net Income from Abroad		21,163			18,943			20,461			21,185			21,696
National Income at Factor Cost	¥	389,445		¥	393,197		¥	401,074		¥	402,641		¥	401,771
Percentage Changes of Income at Factor Cost from Previous Year		4.1	%		1.0	%		2.0	%		0.4	%		(0.2	)%

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 calendar year 2015 through calendar year 2019.

GDP by Industrial Sectors (at nominal prices)

	2015		2016		2017		2018		2019
Industry
Agriculture, forestry and fishing		1.0%		1.1%		1.1%		1.0%		1.0%
Mining		0.1		0.1		0.1		0.1		0.1
Manufacturing		20.5		20.3		20.4		20.7		20.3
Electricity, gas and water supply and waste management service		2.9		2.9		2.9		2.9		3.0
Construction		5.2		5.4		5.4		5.4		5.3
Wholesale and retail trade		13.0		12.9		13.0		12.7		12.5
Transport and postal services		5.3		5.2		5.3		5.3		5.3
Accommodation and food service activities		2.4		2.6		2.6		2.5		2.4
Information and communications		4.9		5.0		4.8		4.9		4.9
Finance and insurance		4.3		4.1		4.0		4.1		4.1
Real estate		12.0		11.9		11.8		11.7		11.7
Professional, scientific and technical activities		7.8		8.0		8.0		8.1		8.1
Public administration		4.9		4.9		4.9		4.9		5.0
Education		3.5		3.5		3.4		3.4		3.4
Human health and social work activities		7.4		7.7		7.6		7.7		7.9
Other service activities		4.2		4.1		4.1		4.0		4.0
Total		99.4%		99.6%		99.5%		99.6%		99.1%

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 2015 through JFY 2019.

	Total Primary Energy Supplied     (peta-joules)	Sources of Primary Energy Supplied(a)
JFY		Oil			Coal			Nuclear			Natural     Gas			Other
2015	20,019		40.6	%		25.7	%		0.4	%		23.3	%		9.9	%
2016	19,862		39.7			25.4			0.8			23.8			10.4
2017	20,098		39.0			25.1			1.4			23.4			11.1
2018(b)	19,724		37.6			25.1			2.8			22.9			11.7
2019(b)	19,124		37.1			25.3			2.8			22.4			12.3

(a) Figures represent the proportion of each source as a share of the domestic primary energy supplied. Domestic primary energy supplied is total primary energy supplied less exports and inventory adjustments.

(b) Standard heating value by energy source, which is used to create total primary energy supplied statistics, is revised every five years. Figures for 2018 through 2019 represent the revised standard heating value by energy source.

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

14

Since JFY 2011, largely due to the effects of the Earthquake, the import of oil and natural gas as alternatives to nuclear energy increased significantly as the demand increased for power generation at thermal power stations.

The table below sets forth information regarding crude oil imports for JFY 2016 through JFY 2020.

	JFY 2016		JFY 2017		JFY 2018		JFY 2019		JFY 2020
Volume of imports (thousand kilo-liters per day)		521		501		475		471		385
Cost of imports (c.i.f. in billions of yen)	¥	6,181	¥	7,283	¥	8,721	¥	7,980	¥	4,057
Average price (c.i.f. in yen kilo-liters)	¥	32,523	¥	39,828	¥	50,274	¥	46,389	¥	50,213

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. Oil price has fluctuated significantly in recent years, reaching approximately ¥75,000 yen per kilo-liter in January 2014, then dropping below ¥37,000 yen per kilo-liter in February 2015, and increasing again to approximately ¥50,000 yen per kilo-liter in June 2015. In the first quarter of 2016, oil price dropped below ¥30,000 yen per kilo-liter due to oversupply and uncertainties regarding the Chinese economy. After the first quarter, oil price began increasing due to the mild recovery of the world economy and the OPEC agreement to reduce production. Although the oil price significantly declined soon after the outbreak of COVID-19 in 2020, below ¥20,000 yen per kilo-liter in May 2020, it has steadily increased since then, as the world economy has gradually recovered from the impact of COVID-19.

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 2015 through JFY 2019.

	JFY 2015		JFY 2016		JFY 2017		JFY 2018		JFY 2019
Electric power generating capacity(a):		(megawatts)
Fossil Fuel		190,805		194,669		193,462		193,026		189,784
Hydro-electric		50,035		50,117		50,014		50,037		50,033
Nuclear		42,048		41,482		39,132		38,042		33,083
Other		8,949		13,092		16,600		18,988		20,997
Total		291,836		299,362		299,209		300,093		293,897
Electric power generation:		(gigawatt-hours)
Fossil Fuel		908,779		877,016		861,435		823,589		792,810
Nuclear		9,437		17,300		31,278		62,109		61,035
Hydro-electric		91,383		84,570		90,128		87,398		86,314
Other		14,580		19,024		24,500		27,311		30,611
Total		1,024,179		997,911		1,007,341		1,000,409		970,771

(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.

15

Price Indices

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

	Corporate Goods Price Index(a)				Consumer Price Index(b)
	Index(c)		Annual % Change		Index		Annual % Change
2016		96.5		-3.5		99.9		-0.1
2017		98.7		2.3		100.4		0.5
2018		101.3		2.6		101.3		1.0
2019		101.5		0.2		101.8		0.5
2020		100.3		-1.2		101.8		0.0

(a) All commodities. Calendar year 2015=100. Source: Domestic Corporate Goods Price Index, Bank of Japan.

(b) General index. Calendar year 2015=100. Source: Consumer Price Index, Statistics Bureau, Ministry of Internal Affairs and Communications.

(c) Indices are calculated using the monthly averages.

Labor

The number of employees increased from 2004 to 2007 and decreased from 2008 to 2012. After recovering in 2013, the number of employees increased from 2014 to 2019, followed by a decrease in 2020, the first in eight years. In 2019, average employment was estimated at 67.2 million, of which 23.3% were employed in mining, manufacturing and construction, 3.3% were employed in agriculture, forestry and fisheries, and 73.4% were employed in services and other sectors. In 2020, the average employment was estimated at 66.8 million, of which 23.1% were employed in mining, manufacturing and construction, 3.2% were employed in agriculture, forestry and fisheries, and 73.8% in services and other sectors. The unemployment rate (seasonally adjusted) in Japan gradually increased from 2008 to the middle of 2009, but has gradually decreased since the end of 2009. In 2020, the unemployment rate increased for the first time in eleven years. It ranged between 2.4% and 3.1% during 2020. The seasonally adjusted unemployment rate was 2.9% for February, 2.6% for March, 2.8% for April, 3.0% for May and 2.9% for June in 2021, the most recent five months for which statistics are available. As a result of the COVID-19 pandemic and the resulting wide-scale disruption of business activities, employment conditions in Japan have been negatively affected. However, the duration and extent of the impact on employment in Japan remain highly uncertain. (Note: Due to the impact of the Great East Japan Earthquake, it has become difficult to conduct a labor search in the following prefectures: Iwate, Miyagi and Fukushima. For this reason, the nationwide unemployment rate for the period between March 2011 and August 2011 does not account for these three prefectures.)

The following table indicates unemployment statistics for Japan for each of the last five years:

Calendar Year	Unemployment Rate (%)
2016	3.1
2017	2.8
2018	2.4
2019	2.4
2020	2.8

Source: Ministry of Internal Affairs and Communications “Labor Force Survey”.

16

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

	Wage Index(a)			Industrial Production Index(b)
	Index(c)	Annual % Change		Index	Annual % Change
2016	100.7		0.6	100.0		0.0
2017	101.1		0.4	103.1		3.1
2018	102.5		1.4	104.2		1.1
2019	102.1		-0.4	101.1		-3.0
2020	100.9		-1.2	90.6		-10.4

(a) Calendar year 2015=100. Source: Monthly Labor Survey, Ministry of Health, Labor and Welfare.

(b) Calendar year 2015=100. Source: Ministry of Economy, Trade and Industry.

(c) Indices are calculated using the monthly averages.

The following table shows selected employment information by industry.

	2016			2017			2018			2019			2020
	(all figures in percentages, except as indicated)
Employed persons (in thousands of persons)		64,650			65,300			66,640			67,240			66,760
Employment by Industry:
Agriculture, forestry and fisheries		3.45	%		3.38	%		3.42	%		3.30	%		3.19	%
Mining, manufacturing and construction		23.87			23.78			23.50			23.26			23.05
Services and other sectors		72.68			72.83			73.08			73.44			73.76
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Source: Ministry of Internal Affairs and Communications “Labor Force Survey”.

17

The following table shows employment rate by age and gender.

	2016			2017			2018			2019			2020
	(all figures in percentages)
Total		58.1	%		58.8	%		60.0	%		60.6	%		60.3	%
Employment rate by age:
15 – 64 years old		74.3			75.3			76.8			77.7			77.3
15 – 24 years old		42.4			42.5			45.9			47.5			46.4
25 – 34 years old		82.5			83.6			84.8			85.3			85.1
35 – 44 years old		82.7			83.6			85.0			85.6			85.0
45 – 54 years old		84.6			85.1			85.7			86.4			86.0
55 – 64 years old		71.4			73.4			75.2			76.3			76.7
55 – 59 years old		79.9			81.0			81.7			82.3			82.2
60 – 64 years old		63.6			66.2			68.8			70.3			71.0
65 and over		22.3			23.0			24.3			24.9			25.1
65 – 69 years old		42.8			44.3			46.6			48.4			49.6
70 – 74 years old		25.0			27.2			30.2			32.2			32.5
75 and over		8.7			9.0			9.8			10.3			10.4
25 – 44 years old		82.6			83.6			84.9			85.5			85.0
Employment rate by gender:
Male		68.1			68.4			69.3			69.7			69.3
Female		48.9			49.8			51.3			52.2			51.8
Source: Ministry of Internal Affairs and Communications “Labor Force Survey”.
The following table shows employment data by type of employment.
	2016			2017			2018			2019			2020
	(in thousands of persons)
Employee (except for executive of company or corporation)		54,000			54,690			56,050			56,690			56,290
Regular employee		33,760			34,320			34,850			35,030			35,390
Non-regular employee		20,230			20,360			21,200			21,650			20,900

Source: Ministry of Internal Affairs and Communications “Labor Force Survey”.

18

Aging Workforce and Population Decrease

One of the risks that the Japanese economy bears is the issue of the aging of the population accompanied with an overall population decrease. Population aging and decrease have placed downward pressure on economic growth. The negative impact can be reduced by enhancing productivity and competitiveness through the further opening of the Japanese economy to the world. They have an impact not only on the macro growth rate but also on consumption patterns (such as the older generations spending more than younger generations on service consumption) and, consequently, the country’s economic structure.

The impact of the aging and shrinking population on Japan’s fiscal structure looms as a long-term risk. Social security benefit payments under the current system continues to increase. The ratio of pensions to national income are expected to remain at the same level, but that of welfare including medical benefits and nursing-care benefits have continuously increased and is expected to further grow. Population aging and decrease will thus modify the Japanese revenue structure. Furthermore, amid increasing capital mobility, it is imperative for Japan to foster an environment attractive to business enterprises. Under these circumstances, it has become more and more difficult to impose additional tax burdens on the income of individuals and corporations. The effects of the aging and shrinkage of the population would also be prominent in Japan’s regional economies.

The following table indicates the age distribution of Japan’s population:

Population and Percentage distribution by Age (5-Year Age Group)

	Both sex
Age groups	2016		2017		2018		2019		2020*
	Population (in thousands of persons)
Total		126,933		126,706		126,443		126,167		125,708
0 – 4 years old		4,963		4,909		4,838		4,758		4,669
5 – 9		5,303		5,251		5,184		5,101		5,018
10 – 14		5,514		5,432		5,392		5,351		5,338
15 – 19		6,040		5,995		5,907		5,820		5,663
20 – 24		6,150		6,228		6,330		6,388		6,376
25 – 29		6,393		6,291		6,223		6,240		6,279
30 – 34		7,257		7,112		6,936		6,752		6,576
35 – 39		8,117		7,884		7,694		7,551		7,396
40 – 44		9,713		9,443		9,093		8,718		8,396
45 – 49		9,282		9,457		9,666		9,802		9,797
50 – 54		7,904		8,156		8,360		8,567		8,683
55 – 59		7,546		7,592		7,651		7,711		7,901
60 – 64		8,160		7,804		7,591		7,523		7,425
65 – 69		10,275		9,921		9,368		8,709		8,246
70 – 74		7,408		7,749		8,234		8,686		9,222
75 – 79		6,526		6,738		6,932		7,241		7,104
80 – 84		5,181		5,293		5,347		5,328		5,423
85 – 89		3,275		3,396		3,514		3,612		3,751
90 – 94		1,479		1,582		1,674		1,761		1,841
95 – 99		383		405		439		479		527
100 and over		66		67		69		69		76
Regrouped
0 – 14 years old		15,780		15,592		15,415		15,210		15,025
15 – 64		76,562		75,962		75,451		75,072		74,492
65 and over		34,591		35,152		35,578		35,885		36,191
65 – 74 years old		17,683		17,670		17,603		17,395		17,468
75 and over		16,908		17,482		17,975		18,490		18,723

19

	Both sex
Age groups	2016		2017		2018		2019		2020*
	Percentage Distribution (%)
Total		100.00		100.00		100.00		100.00		100.00
0 – 4 years old		3.91		3.87		3.83		3.77		3.71
5 – 9		4.18		4.14		4.10		4.04		3.99
10 – 14		4.34		4.29		4.26		4.24		4.25
15 – 19		4.76		4.73		4.67		4.61		4.50
20 – 24		4.85		4.92		5.01		5.06		5.07
25 – 29		5.04		4.97		4.92		4.95		4.99
30 – 34		5.72		5.61		5.49		5.35		5.23
35 – 39		6.39		6.22		6.08		5.98		5.88
40 – 44		7.65		7.45		7.19		6.91		6.68
45 – 49		7.31		7.46		7.64		7.77		7.79
50 – 54		6.23		6.44		6.61		6.79		6.91
55 – 59		5.94		5.99		6.05		6.11		6.29
60 – 64		6.43		6.16		6.00		5.96		5.91
65 – 69		8.09		7.83		7.41		6.90		6.56
70 – 74		5.84		6.12		6.51		6.88		7.34
75 – 79		5.14		5.32		5.48		5.74		5.65
80 – 84		4.08		4.18		4.23		4.22		4.31
85 – 89		2.58		2.68		2.78		2.86		2.98
90 – 94		1.17		1.25		1.32		1.40		1.46
95 – 99		0.30		0.32		0.35		0.38		0.42
100 and over		0.05		0.05		0.05		0.05		0.06
Regrouped
0 – 14 years old		12.43		12.31		12.19		12.29		11.95
15 – 64		60.32		59.95		59.67		59.50		59.26
65 and over		27.25		27.74		28.14		28.44		28.79
65 – 74 years old		13.93		13.95		13.92		13.79		13.90
75 and over		13.32		13.80		14.22		14.66		14.89

(Note) * Figures are subject to change based on the result of “Population Census” conducted during 2020.

If the population of Japan continues to decrease, it may have a material adverse impact on Japan’s overall socioeconomics in the future, including with respect to economic scale, standard of living and sustainability of the social security system.

20

FOREIGN TRADE AND BALANCE OF PAYMENTS

Foreign Trade

Japan is one of the leading trading nations of the world, ranking fifth to China, the United States, Germany and the Netherlands in merchandise exports and ranking fifth to the United States, China, Germany and the United Kingdom in merchandise imports among the IMF member countries in 2020.

The trade deficit slightly increased from ¥2,565 billion in 2011 to ¥2,792 billion in 2015 despite an increase in exports for three consecutive years, meaning that Japan had a trade deficit for five consecutive years. The primary reasons for the trade deficit include increased imports of oil and natural gas as alternatives to nuclear energy. Imports of fossil fuels increased as the demand increased for power generation at thermal power stations after the nuclear accident at the Fukushima Daiichi Nuclear Plant caused suspension of operations at other nuclear plants, resulting in reduced energy supply. Due to increased imports of fossil fuels, Japan’s trade balance in 2011 turned to a deficit for the first time in 31 years. In 2012, the trade deficit expanded and it hit a record high in 2014. In 2015, it decreased substantially again and back to the level of 2011. In 2016, the drop in total amount of imports was larger than the drop in total amount of exports, and as a result, Japan had a trade surplus of ¥3,994 billion, reversing a trend of five consecutive years of trade deficits since 2011. In 2017, although the increase in total amount of imports was larger than the increase in total amount of exports, Japan still had a trade surplus of ¥2,907 billion as an overall result. In 2018, Japan had a trade deficit of ¥1,225 billion due to increased imports of oil and natural gas. In 2019, Japan had a trade deficit of ¥1,668 billion due to a decrease in exports including automobile parts and steel, which was partially offset by a decrease in imports including crude oil and petroleum products. In 2020, Japan had a trade surplus of ¥563 billion due to decrease in imports of mineral fuels because of the deterioration of resources and material market. Exports from Japan were negatively impacted in the first half of the year 2020 due to decline in external demand caused by the COVID-19 pandemic, but it shows signs of recovery after the latter half of the year. However, the impact of the global COVID-19 pandemic on exports, imports and the overall trade balance is highly uncertain.

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

	Value Index(a)				Quantum Index(a)				Unit Value Index(a)				Terms of Trade(b)
	Exports		Imports		Exports		Imports		Exports		Imports		Index
2016		92.6		84.2		100.5		98.8		92.2		85.3		108.1
2017		103.5		96.1		105.9		102.9		97.8		93.4		104.7
2018		107.8		105.5		107.7		105.8		100.1		99.7		100.4
2019		101.7		100.2		103.0		104.6		98.8		95.9		103.0
2020		90.5		86.4		90.9		97.6		99.5		88.5		112.4

(a) Calendar year 2015=100.

(b) Unit value index of exports divided by unit value index of imports, multiplied by 100.

Source: Japan Tariff Association, Ministry of Finance.

21

Composition of Japan’s Exports and Imports

	2016				2017				2018				2019				2020
	(yen amounts in billions)
JAPAN’S EXPORTS
Textile Products	¥	863	1.2	%	¥	886	1.1	%	¥	901	1.1	%	¥	886	1.2	%	¥	754	1.1	%
Metals and Metal Products		5,219	7.5			5,907	7.5			6,257	7.7			5,659	7.4			5,205	7.6
Machinery and Equipment:
Ships		1,325	1.9			1,322	1.7			1,368	1.7			1,493	1.9			1,142	1.7
Motor Vehicles		11,333	16.2			11,825	15.1			12,307	15.1			11,971	15.6			9,580	14.0
TV and Radio Receivers		120	0.2			107	0.1			117	0.1			116	0.2			89	0.1
Motorcycles		261	0.4			320	0.4			337	0.4			267	0.3			225	0.3
Scientific and Optical Instruments		2,046	2.9			2,416	3.1			2,314	2.8			2,130	2.8			1,968	2.9
Other(a)		30,336	43.3			34,143	43.6			35,501	43.6			32,700	42.5			29,454	43.1
Total Machinery and Equipment		45,421	64.9			50,133	64.0			51,944	63.8			48,678	63.3			42,457	62.1
Chemicals		7,123	10.2			8,192	10.5			8,922	10.9			8,739	11.4			8,534	12.5
Foods and Beverages		607	0.9			645	0.8			741	0.9			754	1.0			790	1.2
Other Exports(b)		10,802	15.4			12,524	16.0			12,714	15.6			12,216	15.9			10,660	15.6
Grand Total	¥	70,036	100.0	%	¥	78,286	100.0	%	¥	81,479	100.0	%	¥	76,932	100.0	%	¥	68,400	100.0	%
JAPAN’S IMPORTS
Foods and Beverages	¥	6,363	9.6	%	¥	7,018	9.3	%	¥	7,247	8.8	%	¥	7,192	9.1	%	¥	6,678	9.8	%
Raw Materials		4,012	6.1			4,725	6.3			4,992	6.0			4,861	6.2			4,595	6.8
Chemicals		7,111	10.8			7,567	10.0			8,550	10.3			8,163	10.4			7,794	11.5
Mineral Fuels:
Petroleum		5,532	8.4			7,155	9.5			8,906	10.8			7,969	10.1			4,647	6.8
Coal		1,665	2.5			2,570	3.4			2,812	3.4			2,528	3.2			1,704	2.5
Other(c)		4,855	7.4			6,115	8.1			7,576	9.2			6,453	8.2			4,904	7.2
Total Mineral Fuel		12,052	18.2			15,840	21.0			19,294	23.3			16,951	21.6			11,255	16.6
Machinery and Equipment		22,131	33.5			24,490	32.5			25,952	31.4			25,319	32.2			22,958	33.8
Other Imports(d)		14,373	21.8			15,740	20.9			16,669	20.2			16,114	20.5			14,557	21.5
Grand Total	¥	66,042	100.0	%	¥	75,379	100.0	%	¥	82,703	100.0	%	¥	78,600	100.0	%	¥	67,837	100.0	%

(a) This category includes general machinery, electronic components including semiconductors and electronic equipment including electronic circuit.

(b) This category includes raw materials, mineral fuels and vehicle parts.

(c) This category includes liquid natural gas and petroleum products.

(d) This category includes clothing and accessories thereof, non-ferrous metal and scientific and optical instruments.

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

22

Geographic Distribution of Japan’s Exports and Imports

	2016				2017				2018				2019				2020
	(yen amounts in billions)
JAPAN’S EXPORTS
Asia	¥	37,107	53.0	%	¥	42,920	54.8	%	¥	44,736	54.9	%	¥	41,327	53.7	%	¥	39,220	57.3	%
China		12,361	17.7			14,890	19.0			15,898	19.5			14,682	19.1			15,082	22.0
(Asia NIES)		15,094	21.6			17,048	21.8			16,888	20.7			15,597	20.3			14,808	21.6
(ASEAN)		10,378	14.8			11,872	15.2			12,634	15.5			11,578	15.1			9,843	14.4
Oceania		2,010	2.9			2,301	2.9			2,402	2.9			2,053	2.7			1,688	2.5
Australia		1,532	2.2			1,796	2.3			1,886	2.3			1,580	2.1			1,295	1.9
North America		15,029	21.5			16,189	20.7			16,500	20.3			16,222	21.1			13,385	19.6
U.S.A.		14,143	20.2			15,113	19.3			15,470	19.0			15,255	19.8			12,612	18.4
Canada		886	1.3			1,076	1.4			1,029	1.3			968	1.3			773	1.1
Central and South America		3,002	4.3			3,154	4.0			3,399	4.2			3,221	4.2			2,285	3.3
Western Europe		8,179	11.7			9,053	11.6			9,389	11.5			9,010	11.7			7,652	11.2
EU(a)		7,982	11.4			8,657	11.1			9,209	11.3			8,955	11.6			6,460	9.4
Central and Eastern Europe, Russia etc.		1,286	1.8			1,475	1.9			1,719	2.1			1,757	2.3			1,514	2.2
Russia		555	0.8			674	0.9			805	1.0			783	1.0			628	0.9
Middle East		2,585	3.7			2,350	3.0			2,434	3.0			2,356	3.1			1,809	2.6
Africa		839	1.2			843	1.1			900	1.1			984	1.3			848	1.2
Total	¥	70,036	100.0	%	¥	78,286	100.0	%	¥	81,479	100.0	%	¥	76,932	100.0	%	¥	68,400	100.0	%
JAPAN’S IMPORTS
Asia	¥	33,199	50.3	%	¥	37,026	49.1	%	¥	39,218	47.4	%	¥	37,413	47.6	%	¥	34,643	51.1	%
China		17,019	25.8			18,459	24.5			19,194	23.2			18,454	23.5			17,493	25.8
(Asia NIES)		6,241	9.4			7,162	9.5			7,859	9.5			7,231	9.2			6,699	9.9
(ASEAN)		10,047	15.2			11,545	15.3			12,399	15.0			11,757	15.0			10,665	15.7
Oceania		3,843	5.8			4,969	6.6			5,659	6.8			5,587	7.1			4,348	6.4
Australia		3,321	5.0			4,365	5.8			5,053	6.1			4,958	6.3			3,821	5.6
North America		8,331	12.6			9,325	12.4			10,318	12.5			9,935	12.6			8,598	12.7
U.S.A.		7,322	11.1			8,090	10.7			9,015	10.9			8,640	11.0			7,437	11.0
Canada		1,003	1.5			1,226	1.6			1,295	1.6			1,286	1.6			1,153	1.7
Central and South America		2,726	4.1			3,156	4.2			3,226	3.9			3,169	4.0			2,955	4.4
Western Europe		8,777	13.3			9,421	12.5			10,370	12.5			10,394	13.2			8,972	13.2
EU		8,152	12.3			8,757	11.6			9,718	11.8			9,722	12.4			7,790	11.5
Central and Eastern Europe, Russia etc.		1,868	2.8			2,308	3.1			2,546	3.1			2,333	3.0			1,839	2.7
Russia		1,227	1.9			1,551	2.1			1,723	2.1			1,561	2.0			1,146	1.7
Middle East		6,501	9.8			8,243	10.9			10,375	12.5			8,852	11.3			5,559	8.2
Africa		798	1.2			931	1.2			991	1.2			918	1.2			921	1.4
Grand Total	¥	66,042	100.0	%	¥	75,379	100.0	%	¥	82,703	100.0	%	¥	78,600	100.0	%	¥	67,837	100.0	%

Source: Press Releases, Ministry of Finance.

(a) Data for 2015 through 2019 include the United Kingdom, as the United Kingdom exited the European Union (EU) on January 31, 2020.

23

Balance of Payments

In 2016, the trade deficit turned into trade surplus, and Current Account surplus increased to ¥21,391 billion. In 2017, Current Account surplus continued and increased to ¥22,778 billion with trade surplus. In 2018, Current Account surplus decreased to ¥19,505 billion. In 2019, Current Account surplus decreased to ¥19,273 billion. In 2020, Current Account surplus decreased to ¥17,535 billion.

In October 2013, Ministry of Finance and the Bank of Japan announced that they will revise balance of payments statistics, to be based on IMF Balance of Payments Manual, 6^th Edition, starting with transactions in January 2014. The information below reflects the updated statistics.

Balance of Payments of Japan

	2016		2017		2018		2019		2020
	(in billions)
Current Account	¥	21,391	¥	22,778	¥	19,505	¥	19,273	¥	17,535
Balance on Goods and Services		4,389		4,221		105		-932		-725
Trade Balance		5,518		4,911		1,127		150		3,011
Exports (f.o.b.)		69,093		77,254		81,226		75,775		67,370
Imports (f.o.b.)		63,575		72,342		80,100		75,625		64,360
Services		-1,129		-691		-1,021		-1,082		-3,736
Primary Income(a)		19,148		20,684		21,402		21,575		20,809
Secondary Income(b)		-2,146		-2,127		-2,003		-1,370		-2,549
Capital Account		-743		-280		-211		-413		-184
Financial Account(c)		28,606		18,811		20,136		24,884		15,395
Assets		11,142		-10,738		-3,279		-9,864		-13,179
Liabilities		-17,464		-29,549		-23,415		-34,748		-28,574
Net Errors and Omissions		7,958		-3,687		842		6,024		-1,955

(a) Primary Income mainly shows balance of payments of interests and dividends from external financial credits and debts and includes such items as receipt and payment of dividends and interests between parent companies and their subsidiaries, receipt and payment of stock dividends and bond interests, and receipt and payment of interests related to loans, borrowings, and deposits.

(b) Secondary Income shows balance of payments of provision of assets unaccompanied by consideration between residents and non-residents and includes such items as receipt and payment of financial support, donations, and gifts by the government or by the people.

(c) Positive figures (+) show increases in net assets, negative figures (-) show decreases in net assets in “Financial Account”.

Source: Balance of Payments, Ministry of Finance.

Official Reserves Assets

As of December 31,	Gold(a)		Foreign Currency     Reserves		IMF Reserve     Position		SDRs (Special     Drawing Rights)		Other Reserve     Assets		Total
	(in millions of dollars)
2016	$	28,516	$	1,157,790	$	12,019	$	18,087	$	491	$	1,216,903
2017		31,897		1,202,071		10,582		19,195		538		1,264,283
2018		31,531		1,208,958		11,464		18,484		538		1,270,975
2019		37,469		1,255,322		11,202		19,176		581		1,323,750
2020		46,526		1,312,160		15,147		20,215		632		1,394,680

(a) The valuation of gold reflects marked-to-market values.

Source: International Reserves/Foreign Currency Liquidity, Ministry of Finance.

24

Foreign Exchange Rates

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

	2016		2017		2018		2019		2020
Average (Central Rate)	¥	108.77	¥	112.13	¥	110.40	¥	108.99	¥	106.73
High		121.49		118.18		114.55		112.24		112.18
Low		99.00		107.59		104.64		104.46		101.60

Source: Status of Transactions on Tokyo Foreign Exchange Market, Bank of Japan.

Foreign Direct Investment

The following table sets forth information regarding annual foreign direct investment in Japan and annual foreign direct investment abroad for the periods indicated.

Foreign direct investment in Japan (by industry)^(a)

	2016		2017		2018		2019		2020
	(in billions of yen)
Manufacturing (total)(b)	¥	1,366.0	¥	1,016.6	¥	1,188.5	¥	612.9	¥	34.9
Food		46.1		28.8		9.8		58.2		-27.2
Textile		2.1		2.8		-4.2		2.7		4.0
Lumber and pulp		1.9		-0.1		0.4		2.3		1.0
Chemicals and pharmaceuticals		51.0		15.1		298.6		118.6		-222.7
Petroleum		-145.9		19.3		1.3		-93.7		7.7
Rubber and leather		—		0.1		-0.8		—		-0.6
Glass and ceramics		-1.1		11.0		2.0		-17.3		24.3
Iron, non-ferrous, and metals		-7.3		-1.1		7.3		11.7		3.5
General machinery		128.5		172.9		25.7		-54.1		25.4
Electric machinery		812.5		419.5		529.5		339.3		32.5
Transportation equipment		403.2		362.4		180.3		244.0		199.2
Precision machinery		-11.4		-31.3		2.7		-14.1		-3.1
Non-manufacturing (total)(c)		740.1		32.8		-88.4		883.6		1,060.0
Farming and forestry		-0.4		1.4		3.7		0.5		0.3
Fishery and marine products		—		—		1.7		0.9		1.2
Mining		1.7		18.5		3.3		4.2		1.5
Construction		10.8		3.4		-29.6		20.4		-0.8
Transportation		161.1		86.1		5.6		22.9		25.6
Communications		112.8		-74.9		-384.4		-32.7		-44.5
Wholesale and retail		-262.7		-599.6		-570.4		-683.3		-400.4
Finance and insurance		378.6		171.1		702.1		1292.3		1,244.5
Real estate		40.0		47.8		78.9		32.7		-19.6
Services		165.9		270.7		10.5		141.2		195.0
Total	¥	2,106.1	¥	1,049.4	¥	1,100.1	¥	1,496.5	¥	1,094.8

(a) Starting with transactions recognized in January 2014, the Bank of Japan began using the Sixth Edition of “Balance of Payments and International Investment Position Manual” (BPM6) released by International Monetary Fund in 2008 to calculate the data provided in this table. With respect to transactions recognized before January 2014, the Bank of Japan used the Fifth Edition of “Balance of Payments Manual” (BPM5) released by International Monetary Fund in 1993 to calculate the data provided in this table.

(b) The total amounts for Manufacturing include other types of manufacturing not separately listed in the table and therefore are different from the sum of listed subcategories of manufacturing.

(c) The total amounts for Non-manufacturing include other industries not separately listed in the table and therefore are different from the sum of listed subcategories of Non-manufacturing industries.

Source: Outward / Inward Direct Investment, breakdown by Region and Industry, Ministry of Finance.

25

Foreign direct investment in Japan (by region)^(a)

	2016		2017		2018		2019		2020
	(in billions of yen)
North America	¥	487.0	¥	436.9	¥	642.1	¥	1,381.9	¥	813.2
Asia		774.8		341.4		-6.6		553.7		497.9
Europe		692.1		-150.1		-125.4		-704.2		-130.4
Other regions		152.2		421.2		590.0		265.1		-85.9
Total	¥	2,106.1	¥	1,049.4	¥	1,100.1	¥	1,496.5	¥	1,094.8

(a) Starting with transactions recognized in January 2014, the Bank of Japan began using the Sixth Edition of “Balance of Payments and International Investment Position Manual” (BPM6) released by International Monetary Fund in 2008 to calculate the data provided in this table. With respect to transactions recognized before January 2014, the Bank of Japan used the Fifth Edition of “Balance of Payments Manual” (BPM5) released by International Monetary Fund in 1993 to calculate the data provided in this table.

Source: Outward / Inward Direct Investment, breakdown by Region and Industry, Ministry of Finance.

Foreign direct investment abroad (by industry)^(a)

	2016		2017		2018		2019		2020
	(in billions of yen)
Manufacturing (total)(b)	¥	5,925.5	¥	6,209.9	¥	6,365.9	¥	11,324.1	¥	7,260.5
Food		398.9		1,137.7		65.7		593.0		1,579.9
Textile		169.4		91.6		184.5		71.1		43.8
Lumber and pulp		126.9		44.8		171.9		138.7		288.5
Chemicals and pharmaceuticals		854.3		1,047.4		1,617.8		4,577.9		1070.2
Petroleum		6.6		21.1		67.7		18.2		31.6
Rubber and leather		395.5		105.9		192.4		213.1		163.7
Glass and ceramics		126.6		170.3		222.8		241.4		217.2
Iron, non-ferrous, and metals		432.7		415.8		414.1		415.4		160.1
General machinery		672.3		1,036.6		834.9		706.0		-171.9
Electric machinery		1,089.8		684.7		1,036.2		1,389.9		1,656.4
Transportation equipment		1,379.2		947.0		1,219.6		2,452.1		1,940.0
Precision machinery		132.9		325.0		128.7		306.6		148.2
Non-manufacturing (total)(c)		11,039.3		12,251.3		9,643.5		14,053.5		5,093.6
Farming and forestry		-14.2		-12.8		8.0		6.3		39.2
Fishery and marine products		21.0		5.7		7.4		3.7		2.8
Mining		684.7		124.0		1,062.6		1,060.1		769.5
Construction		187.0		173.6		258.3		201.9		174.0
Transportation		233.3		133.3		242.4		238.6		208.2
Communications		1,926.7		2,636.5		4,179.4		639.7		-2,367.7
Wholesale and retail		2,038.1		3,194.1		1,508.7		6,340.0		1,136.4
Finance and insurance		937.9		3,691.8		2,826.4		4,038.6		3,721.0
Real estate		563.8		725.1		424.5		1,185.0		272.5
Services		4,091.7		1,013.8		-1,456.5		-211.2		522.3
Total	¥	16,964.8	¥	18,461.2	¥	16,009.4	¥	25,377.5	¥	12,354.1

(a) Starting with transactions recognized in January 2014, the Bank of Japan began using the Sixth Edition of “Balance of Payments and International Investment Position Manual” (BPM6) released by International Monetary Fund in 2008 to calculate the data provided in this table. With respect to transactions recognized before January 2014, the Bank of Japan used the Fifth Edition of “Balance of Payments Manual” (BPM5) released by International Monetary Fund in 1993 to calculate the data provided in this table.

(b) The total amounts for Manufacturing include other types of manufacturing not separately listed in the table and therefore are different from the sum of listed subcategories of manufacturing.

(c) The total amounts for Non-manufacturing include other industries not separately listed in the table and therefore are different from the sum of listed subcategories of Non-manufacturing industries.

Source: Outward / Inward Direct Investment, breakdown by Region and Industry , Ministry of Finance.

26

Foreign direct investment abroad (by region)^(a)

	2016		2017		2018		2019		2020
	(in billions of yen)
North America	¥	5,680.1	¥	5,244.5	¥	2,192.4	¥	5,519.2	¥	4,087.6
Asia		1,507.7		4,480.9		5,570.2		5,575.0		3,882.0
Europe		6,002.4		6,275.8		5,157.9		11,630.0		884.8
Other regions		3,774.6		2,460.0		3,088.8		2,653.3		3,499.8
Total	¥	16,964.8	¥	18,461.2	¥	16,009.4	¥	25,377.5	¥	12,354.1

(a) Starting with transactions recognized in January 2014, the Bank of Japan began using the Sixth Edition of “Balance of Payments and International Investment Position Manual” (BPM6) released by International Monetary Fund in 2008 to calculate the data provided in this table. With respect to transactions recognized before January 2014, the Bank of Japan used the Fifth Edition of “Balance of Payments Manual” (BPM5) released by International Monetary Fund in 1993 to calculate the data provided in this table.

Source: Outward / Inward Direct Investment, breakdown by Region and Industry, Ministry of Finance.

27

FINANCIAL SYSTEM

The Bank of Japan and Monetary Policy

The Bank of Japan (“BOJ”), with 55% of its capital owned by the government, is the central bank and sole issuing bank, as well as the depository and fiscal agent for the government. As of the end of March 2021, the BOJ had total assets of ¥714,557 billion.

One of the missions of the BOJ is to contribute to the sound development of the national economy, through the pursuit of price stability. In order to fulfill this mission, the BOJ controls the overall volume of money in the economy and through market operations, along with monetary policy decided at the BOJ Policy Board Meeting. From March 2001 to March 2006, in order to fight deflation and revive the Japanese economy, the BOJ implemented a quantitative easing policy by conducting money market operations to adjust the outstanding balance of the current accounts at the BOJ. And in March 2006, the BOJ announced an exit from the quantitative easing policy and a return to monetary policy that targeted policy interest rate (uncollateralized overnight call rate). At the same time, the BOJ decided to encourage the rate to remain at effectively zero percent. Then, the BOJ increased the policy interest rate to 0.25% in July 2006, and to 0.5% in February 2007. From the Fall of 2008, however, when the turmoil in global financial markets intensified, the BOJ implemented various monetary policy measures including reductions in the policy interest rate. It decreased the policy interest rate to 0.3% in October 2008, and further to 0.1% in December 2008. Furthermore, in October 2010, in order to further enhance monetary easing, the BOJ implemented a comprehensive monetary easing policy, which included the establishment of an Asset Purchase Program (APP) to purchase financial assets, including risk assets, as well as to provide loans. Since the APP’s introduction, the BOJ has repeatedly and significantly increased the maximum amount outstanding of the APP, from about 35 trillion yen to about 101 trillion yen at the end of 2013. Moreover, in February 2012, the BOJ decided to pursue powerful monetary easing by conducting its virtually zero interest rate policy and by implementing the APP, with the aim of achieving the goal of 1% in terms of the year-on-year rate of change in the consumer price index (CPI). In order to state clearly the shared understanding concerning the roles of the government and the BOJ, the BOJ decided to release “Measures Aimed at Overcoming Deflation” in October 2012. In January 2013, the BOJ introduced the “price stability target” of 2% in terms of the year-on-year rate of change in the CPI. The BOJ also introduced the “open-ended asset purchasing method”, aimed at achieving this target. It released a joint statement with the government to announce that in order to overcome deflation early and achieve sustainable economic growth with price stability, the government and the BOJ would strengthen their policy coordination and work together. Furthermore, in April 2013, the BOJ introduced a policy of “quantitative and qualitative monetary easing”, aimed at achieving this target at the earliest possible time. In order to do so, under this policy, the BOJ would enter a new phase of monetary easing both in terms of quantity and quality. The BOJ would double the monetary base in two years by conducting money market operations so that the monetary base would increase at an annual pace of about 60-70 trillion yen. The BOJ would also purchase Japanese government bonds (“JGBs”) so that their amount outstanding would increase at an annual pace of about 50 trillion yen, and the average remaining maturity of the BOJ’s JGB purchases would be extended from slightly less than three years at the time to about seven years, which was equivalent to the average maturity of the amount outstanding of JGBs issued. Additionally, the BOJ would purchase exchange-traded funds (“ETFs”) and Japan real estate investment trusts (“J-REITs”) so that their amounts outstanding would increase at an annual pace of about 1 trillion yen and about 30 billion yen, respectively. In October 2014, the BOJ expanded its quantitative and qualitative monetary easing measures to further increase its purchases of JGBs, ETFs and J-REITs to achieve an increase in its purchases of JGBs, ETFs and J-REITs at an annual pace of about 80 trillion yen, 3 trillion yen and 90 billion yen, respectively. In order to maintain momentum towards 2% “price stability target,” in January 2016, the BOJ adopted “quantitative and qualitative monetary easing with a negative interest rate,” under which (i) a negative interest rate of minus 0.1% is applied to a part of BOJ accounts held by financial institutions^(a) (if judged necessary by the BOJ, the rate will be lowered even further), (ii) the BOJ will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen, and (iii) the BOJ will purchase assets as follows: (1) purchase JGBs so that their amount outstanding will increase at an annual pace of about 80 trillion yen, (2) purchase ETFs and J-REITs so that their amounts outstanding will increase at an annual pace of about 3 trillion yen (decided further expansion to about 3.3 trillion yen and to about 6 trillion yen in April 2016 and July 2016, respectively) and about 90 billion yen, respectively, and (3) maintain the amounts outstanding of commercial paper and corporate bonds at about 2.2 trillion yen and about 3.2 trillion yen, respectively. In September 2016, the BOJ announced a new framework for strengthening monetary easing by adopting a program of “quantitative and qualitative monetary easing with yield curve control”, or QQE with yield curve control, under which the BOJ (i) set guidelines for market operations that specify (1) a short-term policy interest rate (set at the minus 0.1% level adopted in January 2016) and (2) a target level of a long-term interest rate (target yield of the 10-year JGB set at around 0%, to be facilitated through continued BOJ purchases of JGBs) and (ii) introduced new tools of market operations so as to control the yield curve smoothly, consisting of (1) outright purchases of JGBs with yields designated by the BOJ and (2) fixed-rate funds-supplying operations for a period of up to ten years. With regard to asset purchase except for JGB purchases, the BOJ also set the following guidelines: (i) purchase ETFs and J-REITs so that their amounts outstanding will increase at an annual pace of about 6 trillion yen and about 90 billion yen, respectively, and (ii) maintain the amounts outstanding of commercial paper and corporate bonds at about 2.2 trillion yen and about 3.2 trillion yen, respectively. Finally, the BOJ announced its “inflation-overshooting commitment, under which it will continue with QQE with yield curve control, aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining the target in a stable manner, and will continue to expand the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds the price stability target of 2% and stays above the target in a stable manner. In July 2018, to maintain strong monetary easing, the BOJ decided to strengthen the framework for continuous strong monetary easing. The BOJ introduced forward guidance for policy rates and announced its intent to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike in October 2019. Also, it was announced that the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices^(b). In addition, with regard to ETFs and J-REIT unit purchases, the BOJ announced that it may increase or decrease the amount of purchases depending on market conditions. Further, in April 2019, to make its policy to persistently continue with strong monetary easing clearer, the BOJ clarified its forward guidance for policy rates: The BOJ intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the consumption tax hike.

28

Furthermore, on March 16, 2020, in response to the adverse impact of the global spread of COVID-19 on the Japanese economy, the BOJ announced its plan to further strengthen its monetary easing policy, including (1) ensuring ample supply of yen funding through active purchases of JGBs and the following measures as well as providing U.S. dollar liquidity, (2) the introduction of special operations to support companies under which the BOJ will extend zero-interest rate loans collateralized by corporate debt as well as increasing the upper limit for its purchases of commercial paper and corporate bonds by 2 trillion yen until the end of September 2020, resulting in an upper limit for its balance of outstanding commercial paper and corporate bonds of 3.2 trillion yen and 4.2 trillion yen, respectively and (3) an increase in the upper limit for its purchases of ETFs and J-REITs to 12 trillion yen and 180 billion yen, respectively. On April 27, 2020, given the increasingly severe situation due to impact of the spread of COVID-19, the BOJ decided to further enhance monetary easing through (1) an increase in purchases of commercial paper and corporate bonds, to be conducted through the end of September 2020, setting the maximum amount of additional purchase to 7.5 trillion yen for each asset, (2) strengthening the BOJ’s Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), which were introduced and became effective in March 2020, and (3) further active purchases of JGBs and treasury discount bills. On June 18, 2021, the BOJ extended the duration of the Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 and the duration of purchase of commercial paper and corporate bonds, with an upper limit on the amount outstanding of about 20 trillion yen in total, until the end of March, 2022. The BOJ referred to these measures as the Special Program to Support Financing in Response to the COVID-19.

(a) More specifically, accounts held by financial institutions are divided into three levels referred to as “basic balance” (a positive interest rate of 0.1% is applied), “macro add-on balance” (a zero interest rate is applied), and “policy-rate balance” (a negative interest rate of minus 0.1% is applied). “Policy-rate balance” is the balance in excess of “basic balance” and “macro add-on balance.”

(b) In case of rapid increases in the yields, the BOJ will purchase JGBs promptly and appropriately.

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The following table sets forth the principal economic indicators relating to monetary policy from 2016 through 2020.

	Current Account Balances(a)		Monetary Base			Money Stock			Loans and Bills Discounts Domestically Licensed Banks
			Total(a)		Annual % Change	Total(a)		Annual % Change	Total(a)		Annual % Change
			(yen amounts in billions)
2016		290,611		391,421	25.2		936,870	3.4		460,360	2.7
2017		352,883		458,104	17.2		973,993	4.0		475,148	3.2
2018		382,178		491,499	7.3		1,002,453	2.9		488,331	2.8
2019		396,404		509,008	3.6		1,026,992	2.4		500,517	2.5
2020		438,051		555,229	9.0		1,093,628	6.5		524,164	4.7

(a) Average amounts outstanding.

Source: Bank of Japan Statistics, Bank of Japan.

Government Financial Institutions

The activities of private institutions are supplemented by a number of financial institutions under government supervision, the appointment of whose senior officials is subject to approval by the government and whose funds are supplied principally or partially by the government. Among these are Japan Finance Corporation (“JFC”), the successor to National Life Finance Corporation (“NLFC”), Japan Finance Corporation for Small and Medium Enterprise (“JASME”), and Agriculture, Forestry and Fisheries Finance Corporation (“AFC”), whose main purposes are to contribute to the improvement of the quality of the national life. They also include Japan Bank for International Cooperation (“JBIC”) and The Okinawa Development Finance Corporation (“ODFC”), whose purposes are to supplement private financing in their respective fields of activity, and Development Bank of Japan Inc. (“DBJ”) and The Shoko Chukin Bank (“SCB”), which will be privatized.

The central government has been steadily promoting reform of governmental financial institutions. The “Outline of Administrative Reforms” decided by the Cabinet on December 1, 2000, requires that the businesses and organizational forms of all special public institutions, which include governmental financial institutions, undergo a thorough review. Pursuant to the Act on Promotion of Administrative Reform for Realization of Small and Efficient Government (the “Administrative Reform Promotion Act”), which was enacted on May 26, 2006, (1) the former Development Bank of Japan was succeeded to by DBJ as of October 1, 2008, which is currently wholly owned by the Japanese government and will be privatized, (2) the international financial operations of JBIC, together with the functions of NLFC, JASME, AFC were transferred to JFC as of October 1, 2008, and the overseas economic cooperation operations of JBIC were transferred to the Japan International Cooperation Agency, and (3) as of October 1, 2008, Japan Finance Corporation for Municipal Enterprises was succeeded by Japan Finance Organization for Municipalities, which is funded by local governments. Each of these measures was implemented through individual laws that were enacted in 2007, pursuant to which these successor institutions were formed on October 1, 2008.

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With regard to (1) above, as originally enacted, the Development Bank of Japan Inc. Act (Act No. 85 of 2007), as amended (the “DBJ Act”), contemplated full privatization of DBJ over a period of five to seven years from its establishment on October 1, 2008. During that time period, the DBJ Act (as originally enacted) provided that the Japanese government would dispose of all of the common stock of DBJ that it currently owns (the “full privatization”), and that steps would be taken to abolish the DBJ Act promptly after the full privatization. On June 26, 2009, the Japanese Diet approved the Act for Partial Amendment of the Development Bank of Japan Inc. Act (Act No. 67 of 2009) (the “2009 Amendment Act”), which, as part of the Japanese government’s response to economic and financial crises, enables the Japanese government to strengthen DBJ’s financial base through capital injections up to the end of March 2012. In addition, under the Amendment Act, the targeted timing for the full privatization of DBJ has been extended to approximately five to seven years from April 1, 2012. Further, the Amendment Act provides that the Japanese government is to review the organization of DBJ, including the way of the Japanese government’s holding of the DBJ shares, by the end of fiscal year 2011, and until such time, the Japanese government shall not be disposing of the DBJ’s shares held by it. Additionally, on May 2, 2011, in order to address the Great East Japan Earthquake of March 11, 2011, the Japanese Diet approved the Act for Extraordinary Expenditure and Assistance to Cope with the Great East Earthquake (Act No. 40 of 2011) (the “Extraordinary Expenditure Act”). The Extraordinary Expenditure Act enables to the Japanese government to strengthen DBJ’s financial base through capital injection through March 2015 so that DBJ can smoothly implement its crisis response operations. In addition, under Extraordinary Expenditure Act, the targeted timing for the full privatization of DBJ has been extended to approximately five to seven years from April 1, 2015. Further, the Extraordinary Expenditure Act provides that the Japanese government is to review the organization of DBJ, including the way of the Japanese government’s holding of the DBJ’s shares by the end of fiscal year 2014, and until such time, the Japanese government shall not dispose of the DBJ’s shares held by it. On May 13, 2015, the Japanese Diet approved the Act for Partial Amendment of the Development Bank of Japan Inc. Act (Act No. 23 of 2015) (the “2015 Amendment Act”), under which the specific targeted timing for the full privatization of DBJ has been withdrawn and, taking into consideration the current business environment in the private financial sector, DBJ, utilizing its investment and loan functions, is to take measures necessary for implementing the its crisis response operations and supply of growth capital — that is, DBJ is to take all possible measures to supply funds to deal with large-scale disasters, economic crises and so forth, and to promote the supply of growth capital to revitalize regional economies and to reinforce the competitiveness of enterprises. In order to assure the sufficient implementation of the necessary operations, under the 2015 Amendment Act, the Japanese government shall maintain its stake in excess of one-third for DBJ’s crisis response operations, and one half or more for DBJ’s special investment operations, for as long as the government shall take such measures. Furthermore, on May 22, 2020, the Act for Partial Amendment of the Development Bank of Japan Inc. Act (Act No. 29 of 2020) was promulgated, under which, the time limit of DBJ’s special investment operations has been extended by 5 years.

With regard to (2) above, The Japan Bank for International Cooperation Act (the “JBIC Act”) was passed into law on April 28, 2011 to spin off the Japan Bank for International Cooperation Operations from the domestic financial operations of the Japan Finance Corporation. Pursuant to the JBIC Act, Japan Bank for International Cooperation was newly established on April 1, 2012.

Private Financial Institutions

According to the Financial Services Agency, as of April 5, 2021, the private banking system included four city banks, 13 trust banks, and 16 other banks, as well as 62 1st local banks as of January 1, 2021, 38 2nd local banks as of January 1, 2020 and the Saitama Resona Bank, which is categorized as neither a 1st nor 2nd local bank. In addition, 55 foreign banks had branches in Japan as of July 7, 2021.

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. Agricultural cooperatives, prefectural credit federations of such cooperatives and The Norinchukin Bank operate in the field of agricultural credit.

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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.

For advancing fiscal consolidation, the Cabinet approved the “Basic Framework for Fiscal Consolidation: Medium-term Fiscal Plan” on August 8, 2013. This plan provided the following targets for achieving fiscal consolidation.

• Halving the primary deficit of the national and local governments to GDP ratio by JFY 2015 from the ratio in JFY 2010 (This target is achieved.);

• Achieving a primary surplus of the national and local governments to GDP ratio by JFY 2020; and

• Steadily reducing the public debt to GDP ratio.

These targets were firmly maintained in the “Basic Policies for the Economic and Fiscal Management and Reform 2015” decided by the Cabinet on June 30, 2015, including “The Plan to Advance Economic and Fiscal Consolidation”, or the fiscal consolidation plan, which the government believes would be an effective and concrete plan for achieving the primary surplus target by JFY2020, covering a five-year period (JFY2016-JFY2020). Under the fiscal consolidation plan, the government was committed to assessing the progress of reforming expenditure and revenue measures by using several benchmarks. However, the actual improvement in the primary balance was slower than the estimate under the “Plan to Advance Economic and Fiscal Revitalization”, or the Revitalization Plan, owing to more moderate growth in tax revenue than the initial assumption due to a decline in economic growth, as well as the impact of the postponement of the consumption tax rate hike to 10% from 8%, and the addition of supplementary budgets. Furthermore, in the “New Economic Policy Package”, the government revised the purposes of use of the tax revenue generated from the consumption tax rate hike in October 2019 to ensure stable fiscal resources in preparation for the human resources development revolution. Due to these factors, it has become difficult to achieve the primary surplus target by JFY2020.

Given the changing population structure including as a result of the aging population and decreasing working population, it is necessary to strengthen the basis for the social security system by the time the baby-boomer generation starts reaching 75 years of age and to ensure establishment of a path for fiscal consolidation by the time every member of the baby-boomer generation reaches 75 years of age. From these viewpoints, the new fiscal consolidation targets were set in the “Basic Policy on Economic and Fiscal Management and Reform 2018” by the Cabinet on June 15, 2018, which aims for a primary surplus of the central and local governments by JFY2025 by steadily implementing economic revitalization and fiscal consolidation measures. At the same time, the government will firmly maintain its aim of steadily reducing the public debt to GDP ratio.

In order to achieve the primary surplus target, the government will implement steadily the expenditure reforms on all fronts in parallel with economic revitalization.

On April 7, 2020, the Prime Minister of Japan announced Emergency Economic Measures to Cope with COVID-19, which were further revised on April 20, 2020, including (i) measures to prevent the spread of infection and secure resources and infrastructure for medical treatment, (ii) measures to protect employment and support businesses including ensuring the availability of interest-free, unsecured loans, deferral of national taxes and social security premiums for affected businesses and cash payments to all residents in Japan and small and medium-sized businesses affected by COVID-19, (iii) demand stimulus measures to be implemented after the pandemic is contained targeting affected industries such as tourism, transportation, food services and entertainment as well as regional economic development, (iv) measures to develop a resilient economic structure including support for development of business supply chains, support for agricultural exports and domestic supply and promotion of digital technologies in education and business and (v) securing contingency funds to address COVID-19. On December 8, 2020, the Prime Minister of Japan announced Comprehensive Economic Measures to Secure People`s Lives and Livelihoods toward Relief and Hope, including (i) containment measures for COVID-19 pandemic, (ii) measures to promote economic structural change and positive cycles for Post-Corona era, (iii) measures to secure safety and relief, including disaster prevention and mitigation and promotion of national land toughening and (iv) proper and timely implementation of the Contingency funds for measures against the COVID-19. In connection with these measures, the Diet approved three supplementary budgets for JFY 2020 in April and June 2020 and in January 2021. The total expenditures from the general account increased to ¥175.7 trillion with these supplementary budgets. The expenditures increased in the supplementary budgets were largely financed through issuances of government bonds.

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.    The accounts of the central government consist of the general account and special accounts. Special accounts can be set up to carry out specific projects, to manage specific funds, and for other purposes. Special accounts can be set up when the government (i) implements a specific program such as insurance and public works, (ii) possesses and manages special funds such as Fiscal Loan Program Funds and Foreign Exchange Funds, and (iii) uses a certain revenue to secure a special expenditure and thus needs to deal with such revenue and expenditure on a separate basis from the general revenue and expenditure such as Local Allocation and Local Transfer Tax and Government Bonds Consolidation Funds. As of April 2021, the government had 13 special accounts.

• Government-Affiliated Agencies.    The government-affiliated agencies are government-owned corporations which consist of three financial corporations.

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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.

The following tables set forth information with respect to the General Account, the Special Accounts and the Government Affiliated Agencies for JFY 2015 through JFY 2020, and the budget for JFY 2021.

Summary of Consolidated General and Special Accounts^(a)

	JFY 2015		JFY 2016		JFY 2017		JFY 2018		JFY 2019		JFY 2020 (Provisional results as of December 31, 2020)		JFY 2021 Initial Budget
	(in billions of yen)
REVENUES
Total Revenues, General Account	¥	102,175	¥	102,774	¥	103,644	¥	105,697	¥	109,162	¥	182,266	¥	106,610
Total Revenues, Special Accounts		402,884		410,161		386,487		381,177		386,552		429,722		495,725
Less: Inter-Account Transactions(b)		257,143		253,522		245,402		243,007		244,423		254,786		306,085
Total Consolidated Revenues	¥	247,917	¥	259,413	¥	244,729	¥	243,868	¥	251,292	¥	357,202	¥	296,250
EXPENDITURES
Total Expenditures, General Account	¥	98,230	¥	97,541	¥	98,116	¥	98,975	¥	101,366	¥	181,360	¥	106,610
Total Expenditures, Special Accounts		386,214		395,361		374,150		368,936		374,170		422,840		493,699
Less: Inter-Account Transactions(b)		255,695		251,842		242,877		241,249		242,631		252,193		304,162
Total Consolidated Expenditures	¥	228,749	¥	241,061	¥	229,389	¥	226,661	¥	232,905	¥	352,007	¥	296,147
Surplus of Consolidated Revenues over Consolidated Expenditures	¥	19,167	¥	18,353	¥	15,340	¥	17,206	¥	18,387	¥	5,195	¥	103

(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.

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General Account

	JFY 2015		JFY 2016		JFY 2017		JFY 2018		JFY 2019		JFY 2020    Revised Budget(a)		JFY 2021 Initial Budget
REVENUES
Tax and Stamp Revenues	¥	56,285	¥	55,468	¥	58,787	¥	60,356	¥	58,442	¥	55,125	¥	57,448
Carried-over Surplus		5,866		3,945		5,232		5,528		6,723		1,218		—
Government Bond Issues		34,918		38,035		33,555		34,395		36,582		112,554		43,597
Income from Operations		45		47		50		51		51		50		52
Gains from Deposition of Assets		349		384		278		268		226		238		245
Miscellaneous Receipts		4,712		4,895		5,741		5,098		7,139		6,503		5,267
Total Revenues	¥	102,175	¥	102,774	¥	103,644	¥	105,697	¥	109,162	¥	175,688	¥	106,610
EXPENDITURES
Local Allocation Tax Grants, etc.	¥	16,801	¥	15,339	¥	15,567	¥	16,026	¥	16,032	¥	16,256	¥	15,949
National Debt Service		22,464		22,086		22,521		22,529		22,286		23,025		23,759
Social Security		31,401		32,208		32,521		32,569		33,501		44,179		35,842
Public Works		6,378		6,710		6,912		6,913		7,610		9,269		6,069
Education and Science		5,571		5,598		5,703		5,748		5,911		9,377		5,397
National Defense		5,130		5,150		5,274		5,475		5,627		5,676		5,324
Former Military Personnel Pensions		387		335		286		241		202		175		145
Economic Assistance		661		743		651		642		653		790		511
Food Supply		1,276		1,140		1,181		1,122		1,121		1,843		1,277
Energy		968		973		969		973		1,049		1,024		889
Promotion of SMEs		340		430		319		525		779		26,177		175
Miscellaneous		6,854		6,830		6,211		6,212		6,596		27,747		5,773
Contingency funds for measures against the COVID-19												9,650		5,000
Contingencies		—		—		—		—		—		500		500
Total Expenditures	¥	98,230	¥	97,542	¥	98,116	¥	98,975	¥	101,366	¥	175,688	¥	106,610
Surplus of Revenues over Expenditures	¥	3,945	¥	5,232	¥	5,528	¥	6,723	¥	7,796	¥	—	¥	—

(a) As of the date of this Annual Report on Form 18-K, details for the provisional results for JFY 2020 General Accounts are not available. Reflect the revised budget for JFY 2020 approved by the Diet on January 28, 2021.

Source: Budget, Ministry of Finance.

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Special Accounts

	JFY 2015				JFY 2016				JFY 2017				JFY 2018				JFY 2019				JFY 2020 Revised Budget(a)				JFY 2021 Initial Budget
	Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.
	(in billions of yen)
Fiscal Investment and Loan Program	¥	33,360	¥	32,503	¥	42,124	¥	41,166	¥	28,207	¥	27,409	¥	26,070	¥	25,175	¥	28,484	¥	27,873	¥	53,912	¥	53,814	¥	72,898	¥	72,624
Government Bonds Consolidation Fund		201,927		198,309		198,994		195,911		191,227		188,134		186,158		183,082		186,970		183,878		191,860		191,860		264,789		246,789
Foreign Exchange Fund		3,163		46		2,948		70		2,808		70		3,101		85		3,599		160		3,154		982		2,465		1,079
Local Allocation and Local Transfer Tax		55,638		53,398		53,577		52,590		52,517		51,780		52,483		51,596		51,985		51,488		51,762		51,325		51,982		51,805
Measure for Energy		8,993		8,363		9,608		9,082		10,191		9,742		10,613		10,158		10,887		10,377		14,428		14,428		14,054		14,054
Pensions		85,293		81,705		90,142		85,786		90,158		87,413		91,700		89,464		93,209		90,919		95,293		95,293		96,512		96,512
Stable Supply of Foodstuff		1,095		975		940		820		979		842		970		814		968		851		1,273		1,267		1,225		1,216
Debt Management of National Forest and Field Service		321		321		329		329		342		342		349		349		356		356		363		363		362		362
Trade Reinsurance(b)		59		21		37		12		—		—		—		—		—		—		—		—		—		—
Automobile Safety		567		403		606		426		625		431		672		451		684		500		595		514		530		453
Labor Insurance		6,880		6,330		6,296		5,941		6,040		5,656		6,073		5,735		6,371		5,928		10,595		10,458		7,685		7,609
Reconstruction from the Great East Japan Earthquake		5,134		3,710		4,105		2,961		2,924		2,188		2,532		1,868		2,587		1,677		1,687		1,687		932		932
Others		452		131		456		267		469		143		456		158		452		164		340		289		291		264
Total Revenues and Expenditures(c)	¥	402,884	¥	386,214	¥	410,162	¥	395,361	¥	386,487	¥	374,150	¥	381,177	¥	368,936	¥	386,552	¥	374,170	¥	425,263	¥	422,281	¥	495,725	¥	493,699

(a) As of the date of this Annual Report on Form 18-K, details for the provisional results for JFY 2020 Special Accounts are not available. Reflect the revised budget for JFY 2020 approved by the Diet on January 28, 2021.

(b) The account was abolished effective JFY 2017.

(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.

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Government Affiliated Agencies

	JFY 2015				JFY 2016				JFY 2017				JFY 2018				JFY 2019				JFY 2020 Revised Budget(a)				JFY 2021 Initial Budget
	Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.		Rev.		Exp.
	(in billions of yen)
Total	¥	1,092	¥	920	¥	1,065	¥	906	¥	1,130	¥	962	¥	1,231	¥	1,064	¥	1,265	¥	1,064	¥	2,432	¥	2,537	¥	2,678	¥	3,234

(a) There were no revisions to the relevant information for Government Affiliated Agencies in the revised budget for JFY 2020 approved by the Diet on January 28, 2021. As of the date of this Annual Report on Form 18-K, details for the provisional results for JFY 2020 Government Affiliated Agencies are not available.

Source: Budget, Ministry of Finance.

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Tax Structure

The central government derives tax revenues (including stamp revenues) through taxes on income, consumption and property, etc. The taxes on income, consumption and property (including stamp revenues, etc.) account for 50.2%, 44.7% and 5.1%, respectively, of the total central government taxes and stamp revenues in the JFY 2021 initial national account budget.

The individual national income tax is progressive, with rates currently ranging from 5% to 45% of taxable income, and the local taxes are a 10% single rate. Interest income is generally taxed at the rate of 20.315%, including both national and local taxes, separately from other types of income, and subject to certain exemptions. The corporate tax rate was reduced from 23.4% in JFY 2016 to 23.2% in JFY 2018, except that, for small and medium corporations, the first ¥8 million of income is taxed at 15%. In addition, corporations are subject to local income taxation. The statutory corporate income tax rate (national and local) was reduced from 29.97% in JFY 2016 to 29.74% in JFY 2018.

Comprehensive Reform of Social Security and Tax. Japan’s fiscal conditions face challenges, with its tax revenues covering about 54% of its expenditures under the initial budget for JFY 2021, and with the ratio of long-term debt outstanding of central and local governments to gross domestic product expected to have reached 198% at the end of JFY 2019. The ratio of long-term debt outstanding of central and local governments to gross domestic product is expected to be increased to 225% at the end of JFY 2020 and to 217% at the end of JFY 2021. They may further increase in subsequent fiscal years due to the negative impact of COVID-19 on gross domestic product and additional government debt issued in connection with stimulus measures implemented in response to COVID-19. See also “Japan’s Public Debt” below. The Government of Japan seeks to tackle these fiscal challenges through the “comprehensive reform of social security and tax”, which was approved by the Diet in August 2012, and thereby maintain the market’s and the international community’s confidence in Japan and build the foundation for stable economic growth. In the reform, the government planned to set aside consumption tax revenues for social security payments, and, on the condition that the economic situation improves, gradually increase the consumption tax rate to 8% in April 2014 and to 10% in October 2015. In accordance with the plan, consumption tax rate was increased to 8% in April 2014. However, the government decided to postpone the implementation date of further consumption tax hike to 10% from October 1, 2015 to April 1, 2017, as a result of taking comprehensive account of the economic condition and other factors, and on June 1, 2016, the former Japan Prime Minister ABE Shinzo announced a plan to further postpone the consumption tax hike to 10% from April 1, 2017, to October 1, 2019. Consumption tax rate has been increased to 10% since October 1, 2019.

Fiscal Investment and Loan Program

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

Under the FILP plan, funds are supplied to government-related entities such as public corporations, government affiliated agencies, special accounts and local governments. The total amount of the initial plan for JFY 2021 is ¥40,906 billion. The sources of funds for the initial plan in JFY 2021 are Fiscal Loan (¥38,303 billion), Industrial Investment (¥363 billion), Government-Guaranteed domestic bonds (¥1,065 billion) and Government-Guaranteed foreign bonds (¥1,134 billion) and Government-Guaranteed long-term borrowings in foreign currencies (¥42 billion). The Fiscal Loan utilizes the Fiscal Loan Fund consisting of funds procured through the issuance of FILP bonds and reserves or surplus funds deposited from government special accounts to provide long-term, fixed and low-interest loans to such entities as special government accounts, local governments, government-affiliated agencies, incorporated administrative agencies, etc.

The following table (the “FILP Classification Table by Purpose”) shows the uses of funds allocated under the initial plan for the periods indicated.

(Note) The FILP Classification Table by Purpose has been prepared and published to specify fields where FILP contributes to the national economy or livelihood. Classification of the table had been almost the same from JFY 1961 to JFY 2014. However, the classification became to be inappropriate for reflecting realities of recent FILP-target projects, it was revised in JFY 2015 by sorting out the classification or putting some classifications together.

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Old classification	JFY 2011		JFY 2012		JFY 2013		JFY 2014
	(in billions)
Housing	¥	578	¥	923	¥	929	¥	942
Living environment		2,725		2,713		2,805		2,306
Social welfare		550		743		703		920
Education		1,176		1,232		1,522		1,278
Small and medium enterprises		3,627		4,323		4,197		3,861
Agriculture, forestry and fisheries		345		373		407		476
National land conservation/disaster recovery		180		645		348		477
Road construction		2,248		2,813		2,939		2,270
Transportation/communications		408		384		519		629
Regional development		467		447		372		259
Industry/technology		625		2,015		2,005		1,448
Trade/economic cooperation		1,978		1,039		1,644		1,313
Total	¥	14,906	¥	17,648	¥	18,390	¥	16,180

New classification	JFY 2014		JFY 2015		JFY 2016		JFY 2017		JFY 2018		JFY 2019		JFY 2020		JFY 2021
	(in billions)
SMEs and micro enterprises	¥	3,750	¥	3,448	¥	3,182	¥	2,969	¥	2,912	¥	2,997	¥	2,903	¥	14,521
Agriculture, forestry and fisheries		318		280		322		339		573		604		590		759
Education		1,134		1,038		1,055		932		943		930		898		4,859
Welfare/medical care		772		773		811		670		627		541		477		2,042
Environment		50		61		61		64		61		33		54		57
Industry/innovation		834		939		864		822		919		1,019		1,166		1,213
Housing		849		742		621		541		461		546		521		792
Social capital		4,467		3,999		3,087		5,093		4,761		3,745		3,752		3,065
Overseas investment and loans		1,547		1,378		2,000		2,455		2,003		1,857		2,039		2,029
Others		2,460		1,964		1,477		1,243		1,204		849		821		11,568
Total	¥	16,180	¥	14,622	¥	13,481	¥	15,128	¥	14,463	¥	13,119	¥	13,220	¥	40,906

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’S 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.

Outstanding government bonds reached ¥947 trillion at the end of JFY 2020. The amount of public bonds issued by the Japanese government as a percentage of its general account total revenues was 64.1% under the third revised budget for JFY 2020 and 40.9% under the initial budget for JFY 2021. The amount of the government bond issuances in the JFY 2021 initial budget is ¥43,597 billion and is less than the JFY 2020 third revised budget level of ¥112,554 billion.

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Summary of Japan’s Public Debt

	Funded				Floating       Internal
At the end of JFY	Internal		External
	(in billions)		(in thousands)		(in billions)
2016		908,093		—		163,467
2017		934,321		—		153,492
2018		954,863		—		148,491
2019		965,926		—		148,614
2020		993,542		—		222,921

As of March 31, 2021 Japan had guaranteed payment of principal and interest of various internal yen obligations in the aggregate principal amount of ¥27,207 billion and of various external obligations aggregating the equivalent of ¥6,765 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, 2021 for the periods indicated.

Principal Payments on Direct Funded Debt of Japan

JFY	Internal
	(in billions)
2021	¥	99,826
2022		111,270
2023		76,606
2024		73,239
2025 to 2059		632,560
Total	¥	993,501

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INTERNAL DEBT

Direct Debt of the Japanese Government

Funded Debt

Title and Interest Rate	Year of Issue		Year of Maturity		Principal Amounts Outstanding as of March 31, 2021         (in millions)
1. Bonds
Interest-Bearing Treasury Bond — 40 years, 13 Series (0.4-2.4%)		2007-2021		2048-2060	¥	30,453,000
Interest-Bearing Treasury Bond — 30 years, 69 Series (0.3-2.9%)		1999-2021		2029-2050		137,857,950
Interest-Bearing Treasury Bond — 20 years, 125 Series (0.2-2.4%)		2001-2021		2021-2040		270,828,242
Interest-Bearing Treasury Bond — 15 years, 10 Series (variable rate)		2006-2008		2021-2023		7,123,900
Interest-Bearing Treasury Bond — 10 years, 47 Series (0.1-1.2%)		2011-2021		2021-2030		316,538,402
Interest-Bearing Treasury Bond for Individual Investors — 10 years, 102 Series (variable rate)		2011-2021		2021-2031		10,006,040
Inflation-Indexed Bonds —10 years, 9 Series (0.1-0.2%)		2013-2021		2023-2030		11,069,763
Interest-Bearing Treasury Bond — 5 years, 19 Series (0.1%)		2016-2021		2021-2025		135,198,700
Interest-Bearing Treasury Bond for Individual Investors — 5 years, 60 Series (0.05%)		2016-2021		2021-2026		1,228,152
Interest-Bearing Treasury Bond for Individual Investors — 3 years, 36 Series (0.05%)		2018-2021		2021-2024		1,761,963
Interest-Bearing Treasury Bond — 2 years, 24 Series (0.1%)		2019-2021		2021-2023		60,130,900
6% Bereaved Family Treasury Bond, 8 Series		2012-2019		2021-2028		2
6% Repatriation Treasury Bond, 1 Series		2014		2024		0
Non-interest Special Benefit Treasury Bond, 1 Series		2013		2023		2
Non-interest Special Benefit Treasury Bond IV, 2 Series		2013-2016		2023-2026		6
Non-interest Special Benefit Treasury Bond X, 2 Series		2013-2016		2023-2026		28
Non-interest Special Benefit Treasury Bond XIII, 1 Series		2016		2021		59
Non-interest Special Benefit Treasury Bond XVII, 3 Series		2012-2016		2022-2026		152
Non-interest Special Benefit Treasury Bond XXII, 7 Series(a)		2011-2017		2021-2027		786

40

Title and Interest Rate	Year of Issue		Year of Maturity		Principal Amounts Outstanding as of March 31, 2021         (in millions)
Non-interest Special Benefit Treasury Bond XXVII, 6 Series(a)		2013-2020		2023-2030		28,616
Non-interest Special Benefit Treasury Bond XXVIII, 1 Series		2016		2021		186
Non-interest Treasury Bond for Special Condolence XI, 1 Series		2020		2025		80,605
Total Bonds					¥	982,307,453
2. Borrowings
Former Temporary Military Expenditure(b)		1943-1945			¥	41,422
Allotment of Local Allocation and Local Transfer Tax		2007		2037		9,342,104
Former National Centers for Advanced and Specialized Medical Care		2010		2022-2035		25,098
Special Account for Energy Policy (0.01-1.4 %)		2008-2021		2021-2035		115,010
Special Account for Stable Food Supply (0.01-1.3%)		2009-2021		2022-2034		30,116
Special Account for National Forest Debt Management (0.0-0.06%)		1996-2021		2021-2033		1,165,455
Special Account for Motor Vehicle Safety (0.0-0.7%)		2002-2021		2021-2041		515,271
Total Borrowings					¥	11,234,474
Total Direct Internal Funded Debt					¥	993,541,927

(a) The amounts outstanding for Non-interest Special Benefit Treasury Bond XXII, 7 Series and for Non-interest Special Benefit Treasury Bond XXVII, 6 Series are higher than the amounts outstanding for the other Non-interest Special Benefit Treasury Bond series listed in this table because these bonds relate to “special benefit for the wives of the war dead, etc.”, for which benefit payments are high compared to other special benefits.

(b) 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.

41

Floating Debt

Title	Interest			Year of Maturity		Principal Amounts Outstanding as of March 31, 2021 (in millions)
1. Bonds
Treasury Discount Bills
Food Financing Bills		Non-interest bearing			2021		114,000
Foreign Exchange Fund Financing Bills		Non-interest bearing			2021		89,022,100
Petroleum Financing Bills		Non-interest bearing			2021		1,162,900
Treasury Bills, 24 Series		Non-interest bearing			2021-2022		83,094,780
Note in Substitution for Currency of the International Monetary Fund		Non-interest bearing			Payable on demand		3,542,794
Note for Contribution to the Special Funds of the Asian Development Bank		Non-interest bearing			Payable on demand		61,149
Note in Substitution for Currency of the African Development Fund		Non-interest bearing			Payable on demand		50,369
Note in Substitution for Currency of the Multilateral Investment Fund of the Inter-American Development Bank		Non-interest bearing			Payable on demand		2,998
Note in Substitution for Currency of the International Fund for Agricultural Development		Non-interest bearing			Payable on demand		3,189
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		50,780
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 Green Climate Fund		Non-interest bearing			Payable on demand		59,794
Government Bonds issued to Development Bank of Japan		Non-interest bearing			Payable on demand		1,324,665
Government Bonds issued to Nuclear Damage Liability Facilitation Fund		Non-interest bearing			Payable on demand		3,660,900
Total Bonds						¥	182,151,139
2. Borrowings
Special Account for Local Allocation Tax		0.000-0.004	%		2021	¥	31,173,776
Special Account of Pension		0.004	%		2021		1,446,630
Special Account for Energy Policy		0.000	%		2021-2022		8,149,895
Total Borrowings						¥	40,770,301
Total Direct Internal Floating Debt						¥	222,921,440
Total Direct Internal Debt						¥	1,216,463,367

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Debt Guaranteed by the Japanese Government

Title	Interest			Year of Issue		Year of     Maturity		Principal Amounts     Outstanding as of     March 31, 2021 (in millions)
1. Bonds Issued by Government-Affiliated Corporations
Japan Finance Corporation		0.001-1.100	%		2011-2021		2021-2031	¥	815,000
Japan Expressway Holding and Debt Repayment Agency		0.001-2.700	%		2006-2021		2021-2061		14,901,500
New Kansai International Airport Co., Ltd.		0.105-2.400	%		2007-2019		2021-2029		296,470
Development Bank of Japan		0.001-2.200	%		2006-2020		2021-2060		1,720,000
Deposit Insurance Corporation of Japan		0.100	%		2017-2020		2021-2024		1,850,000
Banks’ Shareholdings Purchase Corporation		0.100	%		2018-2019		2020-2021		—
Nuclear Damage Compensation and Decommissioning Facilitation Corporation		0.001	%		2017-2020		2021-2023		800,000
The Corporation for Revitalizing Earthquake-Affected Business		0.001	%		2017		2021		20,000
Private Finance Initiative Promotion Corporation of Japan		0.001-0.145	%		2017-2019		2027		68,000
Fund Corporation for the Overseas Development of Japan’s ICT and Postal Services Inc.		0.110	%		2021		2031		10,000
Organization for Promoting Urban Development		0.020-0.699	%		2013-2021		2023-2041		85,800
Central Japan International Airport Co., Ltd.		0.001-0.900	%		2012-2020		2022-2030		139,200
Japan Finance Organization for Municipalities		0.001-2.200	%		2006-2020		2021-2030		4,922,860
Total								¥	25,628,830
2. Borrowings of Government-Affiliated Corporations
Incorporated Administrative Agency — Farmers Pension Fund		0-0.102	%		2017-2021		2021-2024	¥	247,300
Japan Railway Construction, Transport and Technology Agency		0	%		2020		2021		1,755
Japan Oil, Gas and Metals National Corporation		0	%		2020-2021		2021-2022		641,584
Banks’ Shareholdings Purchase Corporation		0	%		2021		2022		150,000
Deposit Insurance Corporation of Japan		0	%		2020-2021		2021-2022		73,000
Japan Investment Corporation		0	%		2020-2021		2021-2022		255,000
Nuclear Damage Compensation and Decommissioning Facilitation Corporation		0	%		2020		2021		200,000
The Corporation for Revitalizing Earthquake-Affected Business		0	%		2020		2021		3,600
Organization for Promoting Urban Development		0.081	%		2017		2021		5,800
Total								¥	1,578,039
Total Internal Debt Guaranteed by the Japanese Government								¥	27,206,869

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EXTERNAL DEBT

Debt Guaranteed by the Japanese Government

	Interest			Year of Loan		Year of     Maturity		Principal Amounts     Outstanding as of     March 31, 2021 (in thousands)
Japan Bank for International Cooperation		0.375-3.500	%		2013-2021		2021-2031	$	44,050,000
		0.375	%		2021		2026	£	250,000
Japan International Cooperation Agency		1.000-3.375	%		2016-2020		2026-2030	$	2,000,000
Development Bank of Japan		0.500-3.250	%		2014-2021		2021-2031	$	11,800,000
		4.750	%		2007		2027	€	700,000
		1.050-2.300	%		1998-2006		2022-2028	¥	280,000,000
Japan Finance Organization for Municipalities		4.000	%		2011		2021	$	—
Totals by currency								$	57,850,000
								£	250,000
								€	700,000
								¥	280,000,000

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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, 2020.

Organization	Subscription     Amount
	(in USD millions)
International Monetary Fund	$	43,679(a)
International Bank for Reconstruction and Development		23,280(b)
International Development Association		46,996(c)
International Finance Corporation		1,239(d)
Multilateral Investment Guarantee Agency		97(e)
International Fund for Agricultural Development		603(f)
Asian Development Bank		23,860(g)
African Development Bank		11,192(h)
African Development Fund		4,803(i)
European Bank for Reconstruction and Development		3,145(j)
Inter-American Development Bank		8,878(k)
Inter-American Investment Corporation		72(l)
Multilateral Investment Fund		627(m)

(a) Equivalent of SDR 30,820.5 million as of March 31, 2021.

(b) As stated in IBRD Financial Statements as of June 30, 2020.

(c) As stated in IDA Financial Statements as of June 30, 2020.

(d) As stated in IFC Financial Statements as of June 30, 2020.

(e) As stated in MIGA Financial Statements as of June 30, 2020.

(f) As stated in IFAD Financial Statements as of December 31, 2020.

(g) As stated in ADB Financial Statements as of December 31, 2020.

(h) As stated in AfDB Financial Statements as of December 31, 2020. Equivalent of UA 7,771 million.

(i) As stated in AfDF Financial Statements as of December 31, 2020. Equivalent of UA 3,335 million.

(j) As stated in EBRD Financial Statements as of December 31, 2020. Equivalent of € 2,557 million.

(k) As stated in IDB Financial Statements as of December 31, 2020.

(l) As stated in IIC Financial Statements as of December 31, 2020.

(m) As stated in MIF Financial Statements as of December 31, 2020.

45