SUMMARY. IR Office: To Hong Kong and Seoul p. 6 Our IR activities in October: We visited Hong Kong and Seoul. The Ministry of Finance.

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1 JAPANESE GOVERNMENT BONDS Monthly Newsletter of the Ministry of Finance, Japan SUMMARY November 218 Our fundamental goal of debt management policy is to achieve stable and smooth financing for our national accounts and to minimize medium-to-long term financing costs. What s New: The Advisory Council on Government Debt Management p. 2-4 The 48th meeting of the Advisory Council on Government Debt Management was held on October 22, 218. The MOF starts discussions for the FY219 JGB annual issuance plan, considering the opinions mentioned in the meeting. Monthly Topics: The Bank of Japan s TANKAN p. 5 On October 1, the Bank of Japan (BOJ) released the TANKAN ( Short-Term Economic Survey of Enterprises in Japan ), quarterly survey of more than 9, enterprises. The index for all enterprises declines from 16 to 15 in September, while the index for nonmanufacturing of small enterprises shows its highest level in decades which is equal to the number of March 218. IR Office: To Hong Kong and Seoul p. 6 Our IR activities in October: We visited Hong Kong and Seoul. Statistics JGB Primary Market p. 7 Liquidity Enhancement Auctions and JGB Buy-Back p. 8 JGB Secondary Market p. 9 Investor Trends and JGB Outstanding p. 11 Economic and Financial Trends p. 15 Information p. 16 The Ministry of Finance -1-

2 What s New The 48 th meeting of the Advisory Council on Government Debt Management The 48 th meeting of the Advisory Council on Government Debt Management was held on October 22, 218. The agenda was as follows: (Agenda) 1. BOJ s Monetary Policy 2. Current Debt Management Policy The MOF starts discussions for the FY219 JGB annual issuance plan, considering the opinions mentioned in the meeting. [Summary of the MOF explanation on current debt management policy] 1 JGB issuance based on medium- to long-term (mid-long) market demands The basic objectives of the debt management policy have been: - Ensure stable and smooth issuance of JGBs and - Minimize medium- to long-term financing costs. In order to achieve them, it is necessary for the MOF to issue JGBs based on market demands. However, excessive response to temporary demands may raise funding costs by harming predictability for market participants or causing distortions in the market. Therefore, it is even more important to aim at stable and predictable issuance of JGBs considering mid- to long-term market demand. In this regard, the MOF showed expected supply and demand trends of JGBs in the mid- to long-term as follows. 2 JGB issuance and its outlook (supply side) Under the low interest rate environment, the annual issuance amount of super-long-term bonds has increased in recent years to reduce the future interest rate risks, while that of shortand medium-term bonds has decreased. As a result, the outstanding amount of super-longterm bonds has increased significantly and that of medium-term bonds has decreased. -2-

3 3 Investors trend (demand side) The MOF presented an analysis of the JGB investment trends of banks, the main investors for medium-term bonds, and life insurance companies, the main investors for super-long-term bonds. While banks had decreased JGB holdings substantially since FY213, it seems that they have been maintaining the amount recently. On the other hand, although life insurance companies had increased their super-long-term bond holdings, the increase of the outstanding amount is currently slowing down. Also, the future trend of their JGB demand is hard to foresee at the moment. After that, the MOF presented a duration analysis of private financial institutions liabilities, as a potential funding source for the respective Japanese and US bond markets. In the analysis, the MOF calculated the average duration of the private financial institutions liabilities, consisting of loan-deposit gap (private depositary institutions), insurance liability (insurance companies) and pension liability (private pensions DB) in Japan and the US, respectively, under certain hypothetical conditions. The analysis shows: - In Japan, indirect finance comprises a large part of the financial sector, which makes the amount of the loan-deposit gap of the private depositary institutions substantial. Therefore, the average duration of the private financial institutions liabilities is shorter than that of the US. In addition, the trend of the duration is declining. - In the US, as the loan-deposit gap increased after the financial crisis, the average duration of the private financial institutions liabilities declined. However, it has stabilized recently. (JAPAN) Financial institutions liabilities and the average duration 1,6 1,4 1, (FY) Loan-deposit gap (LHS) (Private depository institutions) Insurance liability (LHS) (Insurance companies) (year) [Reference] (JAPAN) Average maturity of government bond (year) 4 2 (US) Financial institutions liabilities and the average duration (1 billion dollar) (year) 1,6 16 1,4 1, (Source) BOJ Flow of Funds, FRB Financial Accounts of the United States, OECD (Note 1) Loan-deposit gap is calculated as the difference between loan and deposit of private depository institutions. (Note 2) The assumptions of the durations (years): Loan-deposit gap:.5 (the MOF s estimation based on the disclosures from the major private depository institutions in Japan and the US) Insurance liability: Japan 14., US 11.3 (cf. BOJ International comparison of insurance companies (in Japanese)) Pension liability: Japan 15, US 12 (The US figure is from TBAC(FY217 2Q). The MOF assumes Japan s figure considering the TBAC estimates(us 12. and UK 2).) (Note 3) The average maturities are on a stock basis. Data for Japan represent the average maturity of outstanding General Bonds. Data for the US include short-term (one-year and shorter) bills. (Year) Pension liability (LHS) Average duration of the liabilities (Private pensions DB) [Reference] (US) Average maturity of government bond (year)

4 4 Liquidity of JGB market - Investors JGB transaction volume and the turnover ratio seem to be showing a slight recovery in terms of JGB market liquidity. In addition, the Bond Market Survey by the BOJ shows some recovery while the level of bond market functioning is still seen as low by market participants. - The JGB market liquidity from a micro perspective, issue-by-issue tradability, seems to remain low. Though the GC-SC spread was stable after the spike in March 217, it has been elevated recently. Usage of the BOJ s SLF has increased. - The tightening of supply-demand balance for specific issues occurs not only in the on-therun issues of 1-year or 5-year bonds, but also in the off-the-run issues because the BOJ purchases JGBs in a wide range in its operations. 5 Estimates for JGB issuance plan The actual revenues from JGB issuance have tended to exceed the issuance amount set in the JGB issuance plan because of conservative estimates and the recent low interest rate environment. The MOF explained how it has been addressing the refinement of estimates in formulating the JGB issuance plan. [Opinions from the participants] There were various opinions on the MOF s analysis of the average liability duration of the financial institutions. Many of the members noted that analysis of JGB demand from a macro perspective is important as well as the respective analysis of JGB demand by banks and insurance companies. A member added that it is important to consider the difference of the asset duration and the liability duration from a macro perspective for the FY219 JGB issuance plan because it would have long-term effects on the JGB market. Another member mentioned that the Japanese financial sector is holding interest rate risk because the average term to maturity of JGBs has been longer than that of the liabilities of the financial institutions in Japan. However, due to the JGB purchase by the Bank of Japan, the situation has changed. Under the recent situation, the BOJ seems to be bearing interest rate risk rather than the private sector. Furthermore, to adjust the average term to maturity of JGB stock to the global standard, another member mentioned, the policy of decreasing the super-long-term bonds issuance and increasing the short- to medium-term bonds issuance over a medium term is necessary. On the other hand, another member remarked that it is important to bear in mind that if the long-term interest rate rises, the share of the liability of the insurance companies could rise among the financial institutions liability as a whole, considering the rising demand for health and care insurance and pensions backed by the aging population. -4-

5 Monthly Topics The Bank of Japan s TANKAN (September 218 Survey) On October 1, the Bank of Japan (BOJ) released the TANKAN ( Short-Term Economic Survey of Enterprises in Japan ), quarterly survey of more than 9, enterprises. The points are as follows: The index for all enterprises declines from 16 to 15 in September, while the index for nonmanufacturing of small enterprises shows its highest level in decades which is equal to the number of March 218. The December forecast figures show some declines, mainly in medium-sized and small enterprises. (Diffusion index of "Favorable" minus "Unfavorable", % points) June. 218 Sept. 218 Change between June and Sept. Dec. 218 (Forecast) Change between Sept. and Dec. [Large Enterprises] Manufacturing Nonmanufacturing [Medium-sized Enterprises] Manufacturing Nonmanufacturing [Small Enterprises] Manufacturing Nonmanufacturing [All Enterprises] All industries (Source) Bank of Japan Tankan For more information, see: 1 (Sep 218) (Source) Bank of Japan Tankan -5-

6 IR Office In October 218, Mr. Ohata, Director for Debt Management and JGB Investor Relations, Mr. Suzuki, Section Chief of Overseas JGB Investor Relations, and Ms. Sato, Officer, made a business trip to Asia, Hong Kong and Seoul, to provide timely and precise information on JGBs, the Japanese economy, etc. We visited 11 investors in the two cities. During these meetings, we mainly explained the current Japanese economy and debt management and then exchanged views on the Japanese economy, the JGB market and debt management policy with them. Although it was the first IR tour for the new team of the Office of Debt Management and JGB Investor Relations, these meetings were very fruitiful, thanks to the investors deep and broad knowledge about the Japanese economy and the JGB market. So, we would like to express our gratitude to the investors for taking their precious time to meet us. Sometimes, it suddenly started raining heavily when moving to the next meeting place. The weather was unpredictable, but this experience was also a good and unforgettable one for the team. If you have any questions regarding the contents of this newsletter, please do not hesitate to contact us at: JGB-IR@mof.go.jp -6-

7 JGB Primary Market Auction Date Type of Security Issue Number Maturity Date Auction Results (Bonds) Nominal Coupon Amounts of Competitive Bids Amounts of Bids Yield at the Lowest Price Yield at the Average Price Amounts of Non-Competitive Bids Tendered / Amounts of Bids at the Non-pricecompetitive Auction Ⅰ Amounts of Bids at the Non-pricecompetitive Auction Ⅱ 8/2/218 1-year 351 6/2/228.1% 7, , %.126% /7/218 1-year Inflation-Indexed Bonds 23 3/1/228.1% 1, % /9/218 3-year 59 6/2/248.7% 2, %.85% /16/218 5-year 136 6/2/223.1% 6, , %.76% /21/218 2-year 165 6/2/238.5% 3, %.67% /3/218 2-year 392 9/1/22.1% 9,.2 1, %.112% /5/218 1-year 351 6/2/228.1% 8,15.3 1, %.113% /11/218 3-year 59 6/2/248.7% 2, %.838% /13/218 5-year 136 6/2/223.1% 9,6.3 1, %.71% /2/218 2-year 165 6/2/238.5% 3, %.618% /26/218 4-year 11 3/2/258.8% 1, % /28/218 2-year 393 1/1/22.1% 7, , %.112% /2/218 1-year 352 9/2/228.1% 7,46.4 1, %.141% /11/218 3-year 6 9/2/248.9% 2, %.898% /16/218 5-year 137 9/2/223.1% 7, , %.55% /18/218 2-year 166 9/2/238.7% 3, %.683% /25/218 2-year /1/22.1% 9, , %.117% Auction Date Type of Security Issue Number Maturity Date Auction Results (Treasury Discount Bills) Amounts of Competitive Bids Amounts of Bids Yield at the Lowest Price Yield at the Average Price Amounts of Bids at the Non-pricecompetitive Auction Ⅰ 8/3/218 3-month /5/218 16,28.1 3, %.1587% /9/218 6-month 775 2/12/219 9, , %.1549% /1/218 3-month /12/218 12, , %.1635% /16/218 1-year 777 8/2/219 9, , %.1557% /17/218 3-month /19/218 16, , %.1643% /24/218 3-month /26/218 14, , %.1551% /31/218 3-month 78 12/3/218 12,989. 3, %.1531% /6/218 6-month 781 3/11/219 8, , %.1563% /7/218 3-month /1/218 15,4.7 3, %.1391% /14/218 3-month /17/218 17, , %.1244% /18/218 1-year 784 9/2/219 8, , %.1358% /21/218 3-month /25/218 15, , %.1142% /28/218 3-month 786 1/9/219 18, , %.231% /5/218 3-month 787 1/15/219 15,297. 3, %.2847% /9/218 6-month 788 4/1/219 7, , %.3% /12/218 3-month 789 1/21/219 13, , %.2943% /18/218 1-year 79 1/21/219 7,99.3 1, %.1681% /19/218 3-month 791 1/28/219 13,24.7 3, %.2966% /26/218 3-month 792 2/4/219 12, , %.3211% 88.9 Auction Calendar for Nov. 218 Jan. 219 Auction Date Issue Auction Date Issue Auction Date Issue Auction Date Issue 11/1(Thu) 1-year 11/22(Thu) Liquidity Enhancement Auction 12/19(Wed) T-Bills (1-year) 1/18(Fri) (remaining maturities of years) Liquidity Enhancement Auction (remaining maturities of years) Liquidity Enhancement Auction (remaining maturities of 1-5 years) 11/2(Fri) T-Bills (3-month) 11/27(Tue) 4-year 12/21(Fri) T-Bills (3-month) 1/22(Tue) Liquidity Enhancement Auction 11/6(Tue) 1-year Inflation-Indexed Bonds 11/29(Thu) 2-year 12/21(Fri) (remaining maturities of years) 1/24(Thu) 2-year 11/8(Thu) T-Bills (6-month) 11/3(Fri) T-Bills (3-month) 12/26(Wed) 2-year 1/25(Fri) T-Bills (3-month) Liquidity Enhancement Auction 11/8(Thu) (remaining maturities of 1-5 years) 12/4(Tue) 1-year 1/8((Tue) T-Bills (3-month) 1/29(Tue) 4-year 11/9(Fri) T-Bills (3-month) 12/6(Thu) T-Bills (6-month) 1/8(Tue) 1-year 1/31(Thu) 2-year Liquidity Enhancement Auction 11/13(Tue) 3-year 12/6(Thu) (remaining maturities of years) 1/9(Wed) T-Bills (6-month) 11/15(Thu) 5-year 12/7(Fri) T-Bills (3-month) 1/1(Thu) 3-year 11/16(Fri) T-Bills (3-month) 12/11(Tue) 3-year 1/11(Fri) T-Bills (3-month) 11/19(Mon) T-Bills (1-year) 12/13(Thu) 5-year 1/16(Wed) 5-year 11/2(Tue) 2-year 12/14(Fri) T-Bills (3-month) 1/17(Thu) T-Bills (1-year) 11/22(Thu) T-Bills (3-month) 12/18(Tue) 2-year 1/18(Fri) T-Bills (3-month) Note.1: The above calendar may be changed or added in light of changes in circumstances. In such cases, it will be announced in advance. Note.2: Each issue amount will be announced about one week prior to each auction date. (Until 31 October 218) (Until 31 October 218) Top 1 PDs by Total Purchase in Auctions (Calculated by Duration) (Apr. 218 ~ Sep. 218) 1 Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. 6 JPMorgan Securities Japan Co., Ltd. 2 Nomura Securities Co., Ltd. 7 Merrill Lynch Japan Securities Co., Ltd. 3 Mizuho Securities Co., Ltd. 8 Deutsche Securities lnc. 4 Daiwa Securities Co. Ltd. 9 SMBC Nikko Securities Inc. 5 BNP Paribas Securities (Japan) Limited 1 Goldman Sachs Japan Co., Ltd. -7-

8 Liquidity Enhancement Auctions and JGB Buy-Back Auction Date Amounts of Competitive Bids Amounts of Bids (billion yen) Results of Liquidity Enhancement Auctions Average Spread Highest Spread 8/23/218 1, %.2% 8/28/218 1, %.5% 9/3/218 1, %.14% 9/7/218 1, %.5% 1/4/ %.37% 1/23/218 1, %.2% Issues Re-opened 1-year(33, 331, 332, 333, 334, 339, 34, 343, 349) 2-year(64, 65, 67, 69, 7, 71, 81, 82, 94, 95, 96, 112) 3-year(13) 2-year(149, 15, 152, 153, 154, 164) 3-year(14, 15, 18, 21, 22, 28, 29, 33, 34, 35, 36, 37, 38, 39, 4, 42, 44, 45, 46, 51, 57) 4-year(3, 4, 5, 7, 9) 1-year(33, 331, 332, 333, 334, 34, 341, 343, 349, 35) 2-year(64, 67, 72, 79, 86, 95, 112, 124, 138, 14, 142, 146, 147) 3-year(3, 5, 13) 2-year(38) 5-year(128, 131, 135) 1-year(31, 311, 322, 323, 324, 325, 328) 2-year(43, 48, 58, 59) (Until 31 October 218) 2-year(149, 15, 162, 165) 3-year(15, 16, 18, 22, 23, 25, 26, 27, 28, 29, 3, 32, 34, 35, 36, 37, 38, 44, 59) 4-year(1, 2, 4, 5, 6) 1-year(332, 334, 335, 336, 338, 339, 34, 341, 342, 343, 346, 349, 35) 2-year(72, 73, 77, 78, 79, 8, 82, 83, 84, 85, 16, 11, 114, 115, 12, 121, 126, 128, 13, 131, 142) Target Zones of Liquidity Enhancement Auctions for the Third Quarter of FY 218 1Remaining maturity : approx.1 ~5 year 7, 6,5 6, 5,5 5, 4,5 4, 3,5 3, 2,5 2, 1,5 5 JN382 JN383 JS JN384 JN385 JN386 Amount issued by Liquidity Enhancement Auction JS JL44 JL45 JN387 JN388 JN389 JS JL46 JN39 JN391 JN392 JS JL47 JS JL48 JS Outstanding amount in the market (excluding amount issued by Liquidity Enhancement Auction) 314 JL49 JL5 JS JL51 JS JL52 JS JL53 JL54 JS JL55 JS JL56 JL57 JS JL58 JS JL59 JL6 JS JL61 JS JL62 JL JL (Remaining maturities) 2Remaining maturity : approx.5 ~15.5 year 5, 4,5 4, 3,5 3, 2,5 2, 1, JL65 JL JL67 JL68 JL JL7 JL JL72 Amount issued by Liquidity Enhancement Auction JL73 JL JL75 JL76 JL JL78 JL79 JL8 34 JL81 JL JL83 JL JL85 JL86 JL JL88 JL JL9 JL JL JL93 JL JL95 JL Outstanding amount in the market (excluding amount issued by Liquidity Enhancement Auction) JL97 JL JL99 35 JL1 JL JL12 JL13 JL14 JL15 JL16 JL17 JL18 JL19 JL11 JL111 JL112 JL113 JX1 JL114 JL115 JX2 JL116 JL117 JX3 JL118 JL119 JL12 JL121 JL122 JX4 JL123 JL124 JL125 JL126 JL127 JX5 JL128 JL129 JL13 JL131 JX6 JL132 JL133 JL134 JL135 JL136 JX7 JL137 JL138 JL139 JL14 JX8 JL141 JL142 JX9 JL143 JL144 JX1 JL145 JX11 JL146 JX12 JL147 JX13 JL148 JX14 3Remaining maturity : approx.15.5 ~39 year Amount issued by Liquidity Enhancement Auction 4, 3,5 3, 2,5 2, 1,5 5 JL149 JX JL15 (Remaining maturities) JX16 JL151 JX17 JL152 JX18 JL153 JX19 JL154 JX2 JL155 JX21 JL156 JX22 JL157 JX23 JL158 JX24 JL159 JX25 JL16 JX26 JL161 JL162 JX27 JL163 JL164 JX28 JL165 JX29 Outstanding amount in the market (excluding amount issued by Liquidity Enhancement Auction) JX3 JX31 JX32 JX (Remaining maturities) Note1: JN shows 2 year JGBs. JS shows 5 year JGBs. JL shows 2 year JGBs. JX shows 3 year JGBs. JU shows 4 year JGBs. Outstanding amount is as of the end of September 218. Note2: All issues in the graph above will be eligible afterward. 1-year Inflation-Indexed Auction Date Amounts of Competitive Bids Amounts of Bids Buy-back Results Average Spread (yen) JX34 JX35 JX36 JX37 JX38 JX39 Highest Spread (yen) 4/11/ , 21, 22 6/2/ , 23 8/17/ , 19, 2, 21, 22, 23 1/12/ , 21, 22, 23 JX4 JX41 JX42 JX43 JX44 JX45 JX46 JX47 JX48 JX49 JX5 JX51 JX52 JX53 JX54 JX55 JX56 JX57 JX58 JU1 JX59 Issue Numbers JU2 JU3 JU4 JU5 JU6 JU7 JU8 JU9 JU1 (Until 31 October 218) -8-

9 JGB Secondary Market JGB Yield Curves Yield and Volatility (1Yr) (Until 3 September 218) Source: Japan Bond Trading Co.,Ltd. Source: Bloomberg, Calculation by the Ministry of Finance Yields of JGB (Until 3 September 218) Source: Bloomberg Long - Term Interest Rates (1Yr) (Until 3 September 218) Source: Bloomberg 5% Break-Even Inflation Rates (Until 3 September 218) 4% 3% 2% 1% % BEI (Japan : 1 year) BEI (U.S.A. : 1 year) BEI (U.K. : 1 year) -1% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Note: BEI (Japan: 1 year) is calculated based on the compound interest rate of the new Inflation-Indexed Bonds and the 1-Year Bonds Source: Japan: Calculation by the Ministry of Finance based on the information on interest rates offered by NIKKEI QUICK. U.S.A., U.K.: Bloomberg. -9-

10 .5%.4%.3% Short-Term Interest Rates (Until 3 September 218) Call Rate (Uncollateralized Overnight) TIBOR 3-months (Euro-Yen) Basic Loan Rate.2%.1%.% -.1% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Bank of Japan, Japanese Bankers Association JGB Over-the-Counter Trading Volume (TOKYO) 1,4 1,3 Treasury Discount Bills 1, Medium Term Bonds 1,1 Long Term Bonds Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Japan Securities Dealers Association 12 Trading Volume of 1-Year JGB Futures Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Tokyo Stock Exchange (until Mar.214), Osaka Exchange (from Apr. 214) 2,5 Repurchase Transactions 2, Bond-Lending Bond-Gensaki 1,5 5 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Japan Securities Dealers Association -1-

11 Investor Trends and JGB Outstanding 7. Net Purchase Trends in JGBs Transactions (by investor type) City Banks 2. Net Purchase 1.5 Regional banks Super long-term Long-term Medium-term T-bills 億円 JanAprJul OctJanAprJul OctJanAprJul OctJanAprJul OctJanAprJul OctJanAprJul Net Sale Net Purchase Source: Japan Securities Dealers Association Loans Cash and Deposits Government Bonds Municipal Bonds Corporate Bonds Equities Foreign Securities Life and non-life insurance companies Net Sale -1. JanAprJul OctJanAprJul OctJanAprJul OctJanAprJul OctJanAprJul OctJanAprJul City Banks Net Sale -1. JanApr Jul OctJanApr Jul OctJanApr Jul OctJanApr Jul OctJanApr Jul OctJanApr Jul Net Purchase Trends in Bank Assets by Types Foreigners -2. Net Sale -4. JanAprJul OctJanAprJul OctJanAprJul OctJanAprJul OctJanAprJul OctJanAprJul Regional Banks Source: Bank of Japan Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Apr 213 (Actual) Sep 218 (Actual) Monetary Base JGBs CP Corporate Bonds ETFs J-REITs BOJ Trends QQE QQE2 Total Assets Monetary Base Total Assets Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 Sep-18 Source: Bank of Japan -11- JGBs

12 Transactions of Foreign Securities by Residents (by Investor types) Short-term debt securities Long-term debt securities Equity and investment fund shares Net Purchase -4-5 Net Sales -6 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Ministry of Finance Banks(Banking Accounts) Short-term debt securities Long-term debt securities Equity and investment fund shares Net Purchase -.5 Net Sales -1 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Ministry of Finance Life Insurance Companies Transactions of Domestic Securities by Non-Residents Net Purchase 45% 4% 35% Outstanding of Repurchase Agreements (by Investor types) City Banks Trust Banks Insurance Companies Foreigners 4 3% 2 25% 2% -2 15% -4-6 Net Sales Short-term debt securities Long-term debt securities Equity and investment fund shares -8 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Ministry of Finance 1% 5% % Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Japan Securities Dealers Association 6% 5% 4% 3% 2% 1% Foreign Investors Presence 1Market Share of Foreign Investors (JGB Futures Market) 2Market Share of Foreign Investors (JGB Market) 61.1% 32.7% 12% 11 % 1 % 8. 8 % 7.3 3JGB Holdings by Foreign Investors 11.5% % 9 % 7 % 6 % 5 % 4 % 2 % JGBs Holdings by Foreign Investors Amount of JGBHoldings (right) Proportion of JGB Holdings (left) % Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Note.1: Quarterly basis. Note.2: JGB includes T-Bills. The figures of 2excludes dealers transactions. Source: Bank of Japan, Japan Securities Dealers Association, Tokyo Stock Exchange, Osaka Exchange 1% Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Note.1: Quarterly basis. Note.2: JGB includes T-Bills. Source: Bank of Japan 4-12-

13 JGB Holders Households Pension Funds % 3.1% Foreigners Public Pensions % Life and Non-life Insurance,etc % % Banks,etc % Others % Total trillion yen Breakdown by JGB and T-Bill Holders (The end of Jun. 218 QE) 2.8% Public Pensions % General Government (ex Public Pensions) 3.5.3% BOJ % Fiscal Loan Fund..% Foreigners % Pension Funds 31.3 JGB and T-Bill Holders Households % Life and Non-life Insurance,etc % Others % Banks,etc % Total 1,1. trillion yen Source: Bank of Japan Flow of Funds Accounts (Preliminary Figures) Note1: JGB includes FILP Bonds. Note2: Banks, etc. includes Japan Post Bank, Securities investment trust and Securities companies. Note3: Life and Non-life insurance, etc. includes Japan Post Insurance. General Government (ex Public Pensions) 3.5.3% Fiscal Loan Fund..% BOJ % Households..% Foreigners % Others..% T-Bill Holders General Government (ex Public Pensions)..% Fiscal Loan Fund..% BOJ % Pension Funds..% Total 1.3 trillion yen Banks,etc % Life and Non-life Insurance,etc % Public Pensions..% Breakdown of Outstanding Amount of General Bonds by Remaining Years to Maturity % 4.6% 3.6% 14.9% % 2.7% 14.4% 4.4% 14.8% 5.2% 5.6% 4.7% 5.1% 4.8% 5.% 5.2% 4.8% 6.2% 5.5% 5.2% 4.6% 5.5% 4.9% 4.7% 4.9% 5.6% 5.2% 8.4% 7.8% 5.3% 8.8% 8.4% 9.% 8.6% 8.4% 9.2% 7.9% 8.6% 8.5% % 15.6% 4.3% 4.7% 5.3% 4.5% 4.4% 4.7% 4.8% 5.2% 4.9% 5.1% 4.5% 4.5% 5.% 4.8% 5.% 5.% 4.3% 4.4% 4.8% 4.7% 4.2% 5.% 4.2% 4.4% 5.% 7.8% 7.8% 7.4% 7.8% 6.8% 6.8% 8.1% 8.1% 8.2% 7.8% 8.2% 7.1% 8.1% 7.8% 7.8% 7.9% 7.7% 8.2% 8.9% 12.5% 11.9% 12.4% 12.% 13.% 11.1% 1.6% 1.5% 1.5% 11.4% 17.% 17.8% 18.3% 18.2% 17.9% 17.3% 16.4% 15.1% 14.3% 13.4% % 16.5% 4.6% % 1.1% 9.4% 8.3% 19.2% 19.6% 18.4% 17.7% 4.2% 4.5% 4.1% 4.% 2 yrs- 1-2 yrs 9-1 yrs 8-9 yrs 7-8 yrs 6-7 yrs 5-6 yrs 4-5 yrs 3-4 yrs 2-3 yrs 1-2 yrs -1 yr FY8 FY9 FY21 FY211 FY212 FY213 FY214 FY215 FY216 FY217 Average YTM * 6Y3M 6Y5M 6Y8M 7YM 7Y3M 7Y7M 8YM 8Y5M 8Y7M 8Y1M Average YTM * (excluding saving bonds) 6Y4M 6Y6M 6Y1M 7Y1M 7Y5M 7Y8M 8YM 8Y5M 8Y8M 8Y11M (at the end of FY) *years to maturity -13-

14 Time-to-Maturity Structure of Outstanding JGB(Jun. 218) Average remaining years to maturity: 8 years and 11 months Treasury Bills 2-yr bonds JGBs for retail investors (3-yr-Fixed-rate) JGBs for retail investors (5-yr-Fixed-rate) 5-yr bonds Inflation-Indexed bonds JGBs for retail investors (Floating-rate) 1-yr bonds 15-yr-floating-rate bonds 2-yr bonds 3-yr bonds 4-yr bonds (FY) Source: Ministry of Finance Scheduled redemption of JGB at maturity in November, 218 Types The amount of redemption at maturity Scheduled redemption date 15-Year Floating-Rate Bonds 662. November 2 2-Year Bonds 2,635.3 November 15 Treasury Bill 2,. November 2 Total 5,297.3 Note.1: The figures are based on the outstanding JGBs at the end of September, 218. Note.2: The figures are the scheduled redemption at maturity and may be different from the actual redemption due to Buy-back of JGBs. Note.3: The figures do not include "JGB for Retail Investors". Note.4: If the redemption date coincides with bank holiday, the payment of redemption is carried out on the following business day. Note.5: Figures may not sum up to total because of rounding. Market-held Balance of the Inflation-Indexed Bonds (as of the end of September, 218) 2, 2,1 2, 1,9 1,8 1,7 1,6 1,5 1,4 1,3 1, 1, Outstanding amount (excl. BOJ holding) BOJ holding Source: Ministry of Finance, Bank of Japan (issue number) General Bonds Issuance Amount and Outstanding 18 Outstanding (right-hand scale) Issuance Amount (left-hand scale) Note 1: Issuance Amount: revenue basis, FY7-216: Actual, FY217: Supplementary budget, FY218: Initial budget Note 2: Outstanding: nominal basis, FY7-216: Actual, FY217 Supplementary budget, FY218: Initial budget Source: Ministry of Finance

15 Economic and Financial Trends (%) Annualized rate of Change from the previous quarter (Seasonally adjusted) Private Demand Public Demand -1. Foreign Demand Real GDP -12. Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Source: Cabinet Office Real GDP Growth Rate (CY) (%) Change from the previous year 4 CPI CPI excluding food (excluding alcohilic beverages) and energy Apr.4, 213 BOJ released QQE Prices -1 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Source: Ministry of Internal Affairs and Communications 1.2%.1% 6.% 5.5% 5.% 4.5% 4.% 3.5% 3.% Jul, 9 5.5% Employment Conditions Unemployment rate (left scale) (ratio) 1.8 Sep, times Changes in Current Account % 2.% 1.5% 6 Aug, 9.42times Job opening-to-application ratio (right scale) 1.% Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Ministry of Health, Labor and Welfare Ministry of Internal Affairs and Communications Monetary Base Sep, % Primary Income Services Current Account Trade Balance Secondary Income 9Q1 9Q2 9Q3 9Q4 21Q1 21Q2 21Q3 21Q4 211Q1 211Q2 211Q3 211Q4 212Q1 212Q2 212Q3 212Q4 213Q1 213Q2 213Q3 213Q4 214Q1 214Q2 214Q3 214Q4 215Q1 215Q2 215Q3 215Q4 216Q1 216Q2 216Q3 216Q4 217Q1 217Q2 217Q3 217Q4 218Q1 218Q2 Source: Ministry of Finance (21 average=1 Seasonally Adjusted Index) 16 Indices of Industrial Production 5 4 Banknotes in Circulation Coins in Circulation Current Account Balances Production Inventory Shipments Inventory Ratio Source: Bank of Japan 7 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Source: Ministry of Economy, Trade and Industry (Diffusion index) 3% TANKAN (Business Conditions) 1,1 Total Value of Machinery Orders (Private Sector exc. Volatile orders) 2% Monthly Quarter (Mean) 1% % 9-1% -2% 8-3% -4% -5% -6% Large enterprises/manufacturing Large enterprises/non-manufacturing Small enterprises/manufacturing Small enterprises/non-manufacturing 7 6-7% Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Source: Bank of Japan Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 5 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Source: Cabinet Office -15-

16 Information English Publications on JGBs Frequency URL Debt Management Message from the Financial Bureau As needed About JGBs As needed About the Debt Management Policy As needed JGB Issuance Plan As needed Auction Calendar Auction Calendar Monthly Historical Data of Auction Results Each Auction Topics Product Characteristics of the JGB As needed Treasury Discount Bills (T-Bills) Annual Japanese Government Guaranteed Bonds Annual Interest Rate Swap Semiannual Taxation of Government Bonds As needed For Individual Investors As needed Data Central Government Debt Quarterly Interest Rate Daily STRIPS Monthly Dialogue with the market Advisory Councils on Government Debt Management Each Meeting Meeting of JGB Market Special Participants Each Meeting Meeting of JGB Investors Each Meeting Publications Debt Management Report Annual JGB Newsletter Monthly To subscribe to our Newsletter mailing list, please Debt Management Policy Division, Financial Bureau, Ministry of Finance Kasumigaseki, Chiyoda-ku, Tokyo Japan Phone: Web: