English Translation of Excerpts from Quarterly Securities Report Filed in Japan
This document is an English translation of selected information included in the Quarterly Securities Report for the quarter ended December 31,
2018 filed by Mitsubishi UFJ Financial Group, Inc. (MUFG or we) with the Kanto Local Financial Bureau, the Ministry of Finance of Japan, on February 14, 2019 (the Quarterly Securities Report). An English
translation of certain information included in the Quarterly Securities Report was previously submitted in a report on Form 6-K dated February 4, 2019. Accordingly, this document should be read together with the previously submitted report.
The Quarterly Securities Report has been prepared and filed in Japan in accordance with applicable Japanese disclosure requirements as well as
generally accepted accounting principles in Japan (J-GAAP). There are significant differences between
J-GAAP
and generally accepted accounting principles in the United States. In addition, the
Quarterly Securities Report is intended to update prior disclosures filed by MUFG in Japan and discusses selected recent developments in the context of those prior disclosures. Accordingly, the Quarterly Securities Report may not contain all of the
information that is important to you. For a more complete discussion of the background to information provided in the Quarterly Securities Report disclosure, please see our annual report on Form 20-F for the fiscal year ended March 31, 2018 and
the other reports filed with or submitted to the U.S. Securities and Exchange Commission by MUFG.
Risks Relating to Our Business
We describe below some major developments and changes to update our risk factor disclosure previously included in our annual securities report
for the fiscal year ended March 31, 2018 filed in Japan on June 28, 2018. The updates below are not a complete update of the prior disclosure, but instead intended to explain only the significant developments and changes that we believe may
have a material impact on the risks to our business and other risks. The discussion below contains forward-looking statements, which, unless specifically described otherwise, reflect our understanding as of the date of filing of the Quarterly
Securities Report. On April 1, 2018, our major subsidiary, The Bank of Tokyo-Mitsubishi UFJ, Ltd., was renamed MUFG Bank, Ltd.
The
numbering of the subheading of the risk disclosure below corresponds to the numbering of the subheading of the same risk disclosure in Risks Relating to Our Business in our most recent annual securities report filed in Japan.
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Risks relating to our financial markets operations
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We undertake extensive financial market operations involving a variety of financial instruments, including derivatives, and hold large volumes
of such financial instruments. As a result, our financial condition and results of operations are subject to the risks relating to these operations and holdings. The primary risks are fluctuations in interest rates in and outside of Japan, foreign
currency exchange rates and securities prices. For example, an increase in interest rates in and outside of Japan may adversely affect the value of our fixed income securities portfolio. Specifically, interest rates may increase in the event that
Japanese government bonds decline in value due to such factors as a heightened market expectation for tapering, cessation or revision of the quantitative and qualitative monetary easing with yield curve control program in response to
further progress in the anti-deflation measures in Japan and a decline in confidence in Japans fiscal health and sovereign creditworthiness, or in the event that interest rates on U.S. Treasury securities rise due to such factors as
acceleration in the pace of interest rate increases in the United States. If interest rates in and outside of Japan rise for these or other reasons, we may incur significant losses on sales of, and valuation losses on, our government bond portfolio.
In addition, an appreciation of the Japanese yen will cause the value of our foreign currency-denominated investments on our financial statements to decline and may cause us to recognize losses on sales or valuation losses. We manage market risk,
which is the risk of incurring losses due to various market changes including interest rates in and outside of Japan, foreign currency exchange rates and securities prices, by separating market risk into general market risk and
specific risk. General market risk is the risk of incurring losses due to changes in overall markets, while specific risk is the risk of incurring losses due to changes in the prices of individual financial instruments, including stocks
and bonds, which fluctuate separately from changes in the overall direction of the market. To measure these risks, we use a method that statistically estimates how much the market value of our portfolio may decline over a fixed period of time in the
future based on past market changes, and we consider the sum of our general market risk and specific risk calculated by this method as our market risk exposure. However, because of its inherent nature, our market risk exposure calculated in this
manner cannot always reflect the actual risk that we face, and we may realize actual losses that are greater than our estimated market risk exposure.
In addition, if the quantitative and qualitative monetary easing with yield curve control program is maintained in Japan for an
extended period, or if the negative interest rate is lowered from the current level, market interest rates may decline further, and the yield on the Japanese government bonds and other financial instruments that we hold may also decline.
Furthermore, we may voluntarily modify, or may be required by changes in accounting rules or otherwise to modify, the valuation method and
other accounting treatment we apply to the financial instruments we hold in connection with our markets operations. In such case, our results of operations may be adversely affected.
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