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Fidelity Japanese Values PLC

Final Results

For the year ended 31 December 2015

Investment Objective and Performance

The investment objective of the Company is to achieve long term capital growth from an actively managed portfolio of securities primarily of small and medium sized Japanese companies listed or traded on Japanese stockmarkets.

Performance (year ended 31 December 2015)
Net Asset Value (â€œNAVâ€) per Ordinary Share Total Return â€“ undiluted	+24.6%
Ordinary Share Price Total Return	+20.5%
Russell Nomura Mid/Small Cap Index Total Return (in sterling terms)*	+19.4%
* The Companyâ€™s Reference Index
As at 31 December 2015
Equity Shareholdersâ€™ Funds	Â£116.0m
Market Capitalisation	Â£99.8m
Capital Structure:
Ordinary shares of 25 pence each	114,218,356
Subscription shares of 0.001 pence each	22,527,339

Standardised Performance â€“ Total Return (%)
	01/01/2015 to 31/12/2015	01/01/2014 to 31/12/2014	01/01/2013 to 31/12/2013	01/01/2012 to 31/12/2012	01/01/2011 to 31/12/2011
NAV per ordinary share â€“ undiluted	+24.6	+3.1	+31.8	-6.6	-6.2
Ordinary share price	+20.5	?0.0	+39.5	-1.7	-8.3
Russell Nomura Mid/Small Cap Index (in sterling terms)	+19.4	+5.1	+21.7	-3.1	-9.3
Sources: Fidelity and Datastream Past performance is not a guide to future returns

Financial Summary

	2015	2014
Assets at 31 December
Total portfolio exposure1	Â£135.3m	Â£113.5m
Shareholdersâ€™ funds	Â£116.0m	Â£92.9m
Total portfolio exposure in excess of shareholdersâ€™ funds	16.6%	22.2%
NAV per ordinary share â€“ undiluted	101.56p	81.48p
NAV per ordinary share â€“ diluted2	99.08p	n/a
Stockmarket data at 31 December
Russell Nomura Mid/Small Cap Index (in sterling terms)	2.7042	2.2654
Yen/Â£ exchange rate	177.303	186.946
Ordinary share price at the year end	86.75p	72.00p
year high	88.00p	75.75p
year low	71.00p	64.75p
Discount â€“ undiluted at the year end	14.6%	11.6%
year high	17.7%	17.8%
year low	6.7%	2.8%
Subscription share price at the year end	3.13p	4.25p
year high	7.25p	4.25p
year low	1.50p	3.75p
Total returns for the year to 31 December
NAV per ordinary share â€“ undiluted	+24.6%	+3.1%
Ordinary share price	+20.5%	+0.0%
Russell Nomura Mid/Small Cap Index (in sterling terms)	+19.4%	+5.1%
Results for the year to 31 December
Revenue loss per ordinary share	(0.14p)	(0.45p)
Capital return per ordinary share	20.24p	2.91p
Total return per ordinary share	20.10p	2.46p
Ongoing charges for the year to 31 December3	1.52%	1.62%

¹ The total exposure of the investment portfolio, including exposure to the investments underlying the long CFDs

² There was no diluted net asset value per ordinary share at 31 December 2014 as the net asset value per ordinary share was below the 86.50 pence exercise price of a subscription share

³ Ongoing charges (excluding finance costs and taxation) as a percentage of average net asset values for the reporting year (prepared in accordance with methodology recommended by the Association of Investment Companies)

Chairmanâ€™s Statement

I have pleasure in presenting the Annual Report of Fidelity Japanese Values PLC for the year ended 31 December 2015.

PERFORMANCE REVIEW

Despite the major setback suffered by the Japanese market in the second half of 2015, arising from concerns over the slowdown in China and the likelihood of a rise in US interest rates, I am pleased to be able to report that over the year to 31 December 2015, the Companyâ€™s net asset value rose by 24.6% to 101.56p per share, substantially beating the Russell Nomura Mid/Small Cap Index, which rose by 19.4% in sterling terms. The share price also went up, but only by 20.5% per share to 86.75p, as the Companyâ€™s share discount to NAV widened to 14.6%. This was in line with a widening of discounts for Asian investment trusts and emerging market funds generally.

PORTFOLIO MANAGER

At the end of July 2015 we announced that the Companyâ€™s Portfolio Manager would change from Shinji Higaki to Nicholas Price, effective from 1 September 2015. The Board took this decision as it felt that the long term performance of the Company versus its peer group had not been satisfactory despite the Companyâ€™s outperformance of the Reference Index. We are grateful for Shinjiâ€™s eight years of service to the Company and the undoubted hard work that he put into the management of the Companyâ€™s portfolio. The Board also wishes him well in his new role as Finance Director of a small Japanese company.

In his successor, Nicholas Price, we believe we have managed to find a Portfolio Manager who will be a great fit for the Company. Nicholas is a highly experienced Japanese equities manager and has an excellent track record on the funds he has run to date. He is a â€œgrowth at a reasonable priceâ€ manager with a natural bias towards mid and small cap companies.

RESULTS AND DIVIDENDS

The revenue column of the Income Statement shows a net loss on ordinary activities after taxation for the year of Â£160,000 (2014: Â£509,000). As the revenue reserve remained substantially in deficit at 31 December 2015, the Directors do not recommend the payment of a dividend. However, as Japanese companies are beginning to raise their dividend pay-out ratios generally, this is an issue which the Board will continue to monitor closely.

GEARING

The Company is permitted to gear through the use of long Contracts for Difference (â€œCFDsâ€). Total portfolio exposure at the end of the year was Â£135.3m, equating to gearing of 16.6% compared with 22.2% at the end of 2014. Further information can be found in the Strategic Report.

With the change of Portfolio Manager, the Board concluded that a revision to the Companyâ€™s gearing guidelines would be appropriate. Whilst the previous Manager tended to remain fairly fully geared on the Boardâ€™s instruction, Nicholas Price has agreed with the Board that he is likely to want to use gearing more dynamically. The Board has therefore given him discretion to move between being 25% geared to holding 5% net cash.

The Board continues to be of the view that using CFDs provides more flexibility for the Companyâ€™s needs at a much lower cost than traditional bank debt, despite the low level of interest rates.

MANAGEMENT FEE ARRANGEMENTS AND ONGOING CHARGES

Shareholders may recall that the management fee was reduced on 1 January 2014 from 1.00% to 0.85% of gross assets. As a result ongoing charges were 1.62%. During 2015, Fidelity, on behalf of the Board, negotiated a reduction in fees paid to third party providers. These efforts resulted in a further decline in the Companyâ€™s ongoing charges to 1.52% in 2015. This places the Company below the average of the peer group (at 1.65%), but the Board will continue to monitor costs very closely and will keep the management fee under review.

THE BOARD

Following the recruitment of two new Board Directors in 2014, the Board has operated with six members since last yearâ€™s Annual General Meeting (â€AGMâ€). At the conclusion of this yearâ€™s AGM, David Miller will be stepping down from the Board, bringing the number back down to five. I would like to take this opportunity to thank him on behalf of the Board and shareholders for his invaluable contribution over the last eleven years, and for his support as Senior Independent Director. Philip Kay has kindly agreed to take over from David Miller as the Companyâ€™s Senior Independent Director following the AGM.

SUBSCRIPTION SHARES

On 26 August 2014, the Company undertook a bonus issue of subscription shares to ordinary shareholders on the basis of one subscription share for every five ordinary shares held. The subscription shares were allotted to qualifying ordinary shareholders at no cost. The exercise price was set at 86.50 pence.

The rights attaching to a total of 215,981 subscription shares were exercised in respect of the year ended 31 December 2015, at which point the total number of subscription shares in issue was 22,527,339. The final date for exercising the rights to subscription shares will be 29 April 2016. As at 29 March 2016, the diluted net asset value per ordinary share (including income) was 103.24p. Further details of the subscription shares may be found in the Directorsâ€™ Report and in Note 13 of the Report and Accounts.

SHARE REPURCHASES

Purchases of ordinary and subscription shares for cancellation are made at the discretion of the Company and within guidelines set from time to time by the Board. Share repurchases are made in the light of prevailing market conditions, together with their impact on liquidity and gearing. Shares will only be repurchased when the result is an enhancement to the net asset value of the ordinary shares for the remaining shareholders. No shares were repurchased during the year (2014: nil) for cancellation. Since 1 January 2016 and as at the date of this report, the Company has repurchased 420,000 ordinary shares.

TREASURY SHARES

In order to assist in managing the discount, the Board has decided to seek shareholder approval to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. The Treasury shares would carry no voting rights or rights to receive a dividend and would have no entitlement in a winding up of the Company. No more than 5% of the issued ordinary share capital of the Company would be held in Treasury. Any shares held in Treasury would only be re-issued at NAV per share or at a premium to NAV per share. This would ensure that the net effect of repurchasing and then re-issuing the ordinary shares would enhance NAV per share. The Board is seeking shareholder approval to implement these recommendations at the forthcoming AGM.

VIABILITY STATEMENT

In accordance with the 2014 UK Corporate Governance Code, the Directors are now required to report on the viability of the Company over a longer period than the twelve month period required by the Going Concern statement. This new statement can be found in the Strategic Report.

CONTINUATION VOTE

In accordance with the Articles of Association of the Company, an ordinary resolution that the Company continue as an investment trust for a further three years was passed at the 2013 AGM. A further continuation vote will be proposed at this yearâ€™s AGM.

The Companyâ€™s NAV total return over the last three years was 69.4% compared to the Reference Index return of 52.6%, whilst the share price rose by 68.0%. The Companyâ€™s share price has been at a discount to NAV in the past three years as follows: 8.9% (at 31.12.2013); 11.6% (at 31.12.2014); and 14.6% (at 31.12.2015).

As mentioned earlier in this report the Board took steps last year to change the Portfolio Manager in order to address the unsatisfactory long term performance of the Company against its peer group. Further, since the start of this year, the Board has worked closely with its broker on establishing a buyback programme in order to manage the Companyâ€™s discount, to the extent possible, having regard to recent market volatility and the size of the Company.

Therefore your Board recommends that shareholders vote in favour of the continuation vote. If the vote is passed, a further continuation vote will take place at the Annual General Meeting in 2019.

AGM

The AGM will be held at 12:00pm on 24 May 2016 at the offices of Fidelity at 25 Cannon Street, London EC2M 5TA (St Paulâ€™s or Mansion House tube station) and all investors are encouraged to attend. The Board looks forward to the opportunity to speak to shareholders of the Company. The Portfolio Manager will attend and will give a presentation on the past year and the prospects for the coming year.

OUTLOOK

It appears that the Japanese market continues to offer exciting opportunities. With the potential shift from deflation to inflation and from contraction to growth, Japan is arguably on the cusp of a sustained recovery.

Unemployment has declined and is approaching 3%, which means that more households are earning an income, and the prospects for further wage increases are improving. While the core CPI number is still running below the Bank of Japanâ€™s 2% target, it has been substantially affected by the drop in the oil price over the past year. However, this energy price decline is actually a huge boost for Japan as a country which imports all required fossil fuels. So-called â€œcore-coreâ€ inflation, which strips out the effects of falling oil prices, is around 1%. This means that as individuals and companies make decisions about consumption and investment, they are more likely to make positive choices.

The key challenge for Japan is to remain focused on the reform agenda. Japan has had loose monetary policy for a sustained period of time and what is really needed is a fundamental pick up in end demand. The employment picture is improving, inflation is gradually picking up and what really matters now is the continuation of the governmentâ€™s reform agenda. In this respect, Upper House elections in the summer, and possibly a general election, will be crucial for Prime Minister Abe in retaining the level of support required to push his reform agenda through.

The improvements in corporate governance that we are seeing are very important for equity investors. Japanese companies are actively taking steps to improve capital efficiency and return on equity (â€œRoEâ€), and are delivering record levels of cash to shareholders. Fidelity believes that the Japanese marketâ€™s RoE should average around 11% over the next 2-3 years.

The worldâ€™s third biggest economy may be on the verge of returning to economic relevance for capital markets. This is not factored into share prices and it is certainly not reflected in investorsâ€™ portfolios. Japan has an improving fundamental story, micro-level reforms are progressing well and valuations are reasonable.

David Robins

Chairman

31 March 2016

Portfolio Managerâ€™s Review

PORTFOLIO MANAGER AND INVESTMENT APPROACH

Nicholas began his investment career over 20 years ago as a research analyst at Fidelityâ€™s Tokyo office and has been running Japanese equity portfolios for both domestic and overseas clients for 15 years. Through more than two decades of experience, he has developed a rigorous, bottom-up investment approach based on in-depth fundamental research of individual companies, underpinned by a strong sell discipline.

Nicholas follows a â€˜growth at a reasonable priceâ€™ approach, utilising Fidelityâ€™s local research capability as well as its broader global network. In addition, he also conducts his own research, looking for undercovered names by joining the dots between multiple information sources in order to get ahead of the market. In this way, he uses input from a number of perspectives, including venture capital companies, regulators, academic research, non-listed companies etc. Nicholas typically attends more than 300 company and related meetings per year and looks closely at a companyâ€™s business model, particularly in terms of sustainability and barriers to entry, valuations, liquidity and potential upside versus downside.

Detecting signs of change is also a key pillar of his investment approach:

â€¢ Changes in fundamentals â€“ internally driven, such as market share growth stemming from the introduction of highly competitive new products or a company going global.

â€¢ Changes in environment â€“ such as a change in consumer mindset and greater willingness to buy online, fuelling strong growth in internet sales.

â€¢ Changes in sentiment â€“ such as the gap between mid term growth opportunities and overly pessimistic short term market sentiment.

â€¢ Changes in valuations â€“ such as valuation criteria changing from price-to-book (liquidation value) to price-to-earnings (going-concern value).

Overall, Nicholas tends to invest more in mid cap growth companies where he believes he can find better business models and RoE, and where management is more incentivised in terms of shareholder returns. Being relatively young and dynamic, small companies are often able to create their own niche market and may therefore be capable of expanding their business regardless of the external economic environment. Over time, areas such as internet services, Asian consumption, finance and environmental themes have yielded rewarding investment ideas.

TRANSITION OF THE PORTFOLIO

Following the transition of Portfolio Manager, the Company has shifted slightly up the market cap scale, with a weighted median market cap of Â£2.7 billion. This compares with Â£1.2 billion under the previous Portfolio Manager and Â£3.4 billion for the Reference Index. The Company continues to show a clear tilt towards mid and small cap growth stocks. Since the transition, the Company has looked to invest in stocks and sectors which are showing signs of improving corporate governance resulting from the Abenomics programme, and has also taken advantage of the theme of Chinese tourist spending in Japan. Since the transition, there has been a significant increase in the Companyâ€™s weighting in the Machinery, Chemicals and Other Finance sectors. In Machinery, the Company has taken a positive view of companies which benefit from automation, such as the mechanisation of agriculture across emerging Asia. In the Chemicals sector, attractive opportunities have been identified in fields such as veterinary drugs for animals, whilst in the Other Financials area, the Company has initiated positions in non-bank financial services companies, which have tended to offer better opportunities for growth, as well as higher shareholder returns. On the other hand, since the transition the Company has reduced weightings in the Precision Instruments and Insurance sectors as better opportunities were identified elsewhere.

MARKET REVIEW

The year under review was a tale of two halves for the Japanese equity market. The market performed strongly in the first half as economic conditions continued to recover from the recession of 2014 triggered by the hike in consumption tax. There was a notable pickup in buying by overseas investors as signs of improving corporate governance and expectations for further growth in corporate earnings bolstered sentiment. Large cap stocks generally performed well, as the yen continued to gently depreciate against the backdrop of the Bank of Japanâ€™s quantitative easing programme.

However, Japanese stocks corrected sharply in August as shares and commodity prices fell globally amid intensifying concerns about a slowdown in China and problems in emerging markets more generally. In the third quarter, the broad-based TOPIX index suffered its worst quarterly decline since June 2010. Overseas investors were aggressive net sellers of Japanese stocks as the sell-off in global equity markets continued into September. Prime Minister Shinzo Abe laid out three new policy arrows (a strong economy, parenting support and social security reform), but the announcement was light on details and the market impact was muted. After a slight recovery in October and November, the market ended the year on a weak note, with a further big sell-off in December.

Against this backdrop, the performance gap between domestic and external demand-oriented stocks widened significantly. Defensive stocks and beneficiaries of lower oil prices outperformed, whereas the energy, materials and industrials sectors were conspicuous laggards.

PERFORMANCE REVIEW

As noted in the Chairmanâ€™s Statement, the Companyâ€™s NAV increased from 81.48p to 101.56p during the year under review, and outperformed the Reference Index.

As demonstrated by the attribution analysis below, the marketâ€™s movement contributed 13.2% to the increase in the NAV per share, whilst stock selection and gearing both added 2.5%, respectively. The appreciation of the yen against the pound, particularly during the second half of the year, produced a positive exchange rate effect, which contributed 6.3% to the increase in the Companyâ€™s NAV.

The attribution analysis below shows how the increase in NAV has been achieved.

Analysis of change in NAV during the year (%)
Impact of:
Reference Index (in yen terms)	+13.2
Reference Index income (in yen terms)	+1.9
Stock selection (relative to the Index)	+2.5
Gearing (yen)	+2.5
Exchange rate	+6.3
Charges	-1.8
Total return for the year ended 31 December 2015	+24.6

Over the year, stock selection in the services sector was the principal driver of the Companyâ€™s outperformance relative to the Reference Index. Three of the top ten contributors to performance over the year were online businesses, namely Kakaku.com, Septeni Holdings and M3. In addition, hotel and resort operator Fujita Kanko, a recent addition to the portfolio, performed well on an increase in hotel room rates and a recovery at its hot spring resort business.

Among financials, notable performers included Anicom Holdings, a pet insurance company, and Financial Products Group, a provider of financial services for small companies seeking tax-efficient investments. These stocks have added value over a number of years, but as their valuations started to look stretched, these positions were sold.

In the retail sector, MonotaRO, an online supplier of factory-use consumables, and Seria, an operator of discount stores, made material contributions to returns. However, this was tempered by the disappointing performance of some inbound tourism-based stocks towards the end of the year. Both positions were sold.

Elsewhere, holdings in Asahi Intecc, a maker of specialised medical tools, and Ono Pharmaceutical, a mid-sized drug company renowned for its anti-cancer treatments, were notable outperformers. Some profits were taken following their share price gains, but overweight positions in both companies were retained.

Conversely, stock selection in the information and communication sector detracted from performance. One of the largest detractors in 2014, WirelessGate (a provider of Wi-Fi services in public spaces) continued to struggle and the position was sold. Mobile Create Company, a provider of mobile management systems to transportation operators, lost ground as rising development costs resulted in disappointing earnings results. This stock was also sold. A new position in mobile carrier SoftBank also hurt performance, but looks attractive from a mid to long term perspective.

The tables below show the principal five contributors to, and principal five detractors from, the Companyâ€™s performance relative to the Reference Index. Conversely, holdings in the retail trade sector performed poorly,

Principal contributors to relative return	Sector	Relative average weight (%)	Contribution to relative returns (%)
Anicom Holdings	Insurance	1.6	1.3
Asahi Intecc	Precision Instruments	1.8	1.3
MonotaRO	Retail Trade	0.9	1.3
Kakaku.com	Services	1.6	0.9
Seria	Retail	2.0	0.9

Principal detractors to relative return	Sector	Relative average weight (%)	Contribution to relative returns (%)
Mobile Create Company	Information & Communications	1.2	-1.3
WirelessGate	Information & Communications	1.9	-1.3
Rohm	Electrical Appliances	2.4	-1.2
SoftBank	Information & Communications	1.3	-0.7
Nihon Nohyaku	Chemicals	0.8	-0.7

Principal Contributors
Anicom Holdings is a niche insurance company that specialises in policies for pets, commanding 60% of Japanâ€™s pet insurance market. The company reported solid results for the financial year to 31 March 2015 and the first half of the financial year to 31 March 2016. In addition to an increase in insurance premiums, growth in new policies and measures to hold down the loss ratio contributed to a clear improvement in profitability. Although these measures are expected to continue to contribute to margin expansion in the near term, they have been fully discounted in the price and valuations appeared expensive. Therefore, the stock was sold in September 2015.

Asahi Intecc manufactures medical tools, as well as industrial-use stainless wire rope. The company continued to generate strong profit momentum as it increased its market share for mainstay products (both in Japan and overseas) and enhanced its product line-up. Demand for Asahi Inteccâ€™s niche guide wires (used to navigate medical devices) and micro catheters remains strong. We expect the company to continue to achieve high growth owing to its expanding market share.

MonotaRO is an online supplier of factory-use consumables to small businesses. It has gained significant market share in the maintenance, repair, and operations market for small factories through its e-commerce model. The company maintained robust levels of sales growth, supported by its superior products and aggressive promotion strategy. Its margins also improved because of higher royalty income and operational streamlining. Although MonotaRO continues to generate strong earnings momentum, the positive story is already priced in and its valuation appears expensive. The stock was therefore sold in September 2015.

Kakaku.com operates online price comparison and restaurant services websites. The company announced favourable interim results, supported by firm growth in sales at Tabelog (an extensive online directory of information about restaurants and eating places in Japan) and new media. It also reasserted its commitment to increase shareholder returns and to maintain a 40% RoE over the medium term. Kakaku.com remains a top pick as a structural winner in the expanding e-commerce market.

Seria operates a nationwide chain of 100-yen shops in Japan, the equivalent of a pound store in the UK. It has the second largest share of the domestic market and a strong track record in generating same-store sales. The companyâ€™s competitive advantage lies in its precise control of inventory, which has contributed to top-line growth and improved profit quality. On the expectation that margins would falter as a weaker yen inflated its costs, the stock was sold in September 2015.

Principal detractors

Mobile Create Company provides information technology (IT) services (including vehicle tracking, wireless communication and electronic payment systems) predominantly to the taxi and bus industries in Japan. It reported lower-than-expected earnings results and issued weak forecasts due to rising development costs for its main product â€“ integrated circuit cards (also known as smart rechargeable cards) used on trains and buses. As a result, the stock was sold in October 2015.

WirelessGate a provider of Wi-Fi services in public spaces in Japan, continued to struggle. Its profit margins came under pressure owing to the start-up costs of a new high-speed connection service. Its share of large Wi-Fi infrastructure projects for corporate customers remained limited. Increased competition in the personal SIM card segment represented an additional headwind. In light of these factors, the position was sold in October 2015.

Rohm is a leading manufacturer of custom integrated circuits and semiconductor devices with a high in-house production ratio. Concerns about a correction in the semiconductor market continued to weigh on the companyâ€™s share price. However, Rohm remains well placed to capitalise on the structural growth in automotive and industrial semiconductors. Its commitment to enhancing shareholder returns by returning 100% of free cashflow is also appealing, so the position remains in the portfolio.

SoftBank is a leading provider of communication and internet services, and ranks among Japanâ€™s top three mobile carriers. The stock was added to the portfolio in September and whilst performance has improved, the stock has continued to lag the Reference Index primarily due to significant uncertainty surrounding potential regulatory changes. The lack of near term momentum at its overseas businesses, particularly its US wireless unit Sprint, has also weighed on its shares. However, SoftBankâ€™s domestic telecommunications business remains a stable source of income. Furthermore, the turnaround at Sprint is also on track and therefore SoftBankâ€™s share price appears to be fundamentally undervalued.

Nihon Nohyaku is a leading producer of insecticides and fungicides. Its weak share price performance reflected concerns about a short term slowdown in earnings, as an increased inventory of insecticides in Brazil appeared likely to decrease royalty income from Bayer Corp Science for the use of Nihon Nohyakuâ€™s products. In addition to the near term downside in earnings, the likely impact of a patent expiry in 2019 for Nihon Nohyakuâ€™s main product, Belt, could be more severe than initially expected. As a result, the position was sold in May 2015.

OUTLOOK

The external economic environment, centred on China and other emerging markets, is generating a high level of uncertainty. However, conditions in developed countries are relatively firm and the recent market correction in Japan appears excessive relative to the change in external fundamentals. Monetary conditions in Japan should remain highly accommodative throughout 2016, contrasting with the onset of a moderate tightening cycle in the US. The Japanese market should continue to recover, supported by gradual wage hikes. This being the case, corporate Japan can be expected to deliver another year of positive earnings growth in 2016.

The three arrows of Abenomics (Prime Minister Shinzo Abeâ€™s economic policies) have produced mixed results, with success in monetary policies and micro-level reforms contrasting with the lack of progress on deregulation and other complex structural issues. Abenomics 2.0 aims to boost the momentum of the initial policy agenda and to tackle Japanâ€™s longer term challenges. The coming year will therefore mark the start of a medium term initiative, which should form the basis for sustainable growth in the domestic economy. Measures to lift productivity and deal with Japanâ€™s declining population will be key.

We are also likely to see progress in the introduction of new technologies, (including self-driving vehicles, robotics and artificial intelligence), as well as support for both working seniors and families.

The desire for reform in Japan remains firm and the corporate sector is changing for the better. Japanese companies are committed to improving capital efficiency and RoE, and many are actively using free cash flow to improve shareholder returns. Established companies are refocusing on core competencies, and cash-rich corporates are starting to deploy more of their surplus funds towards investment. As pressure mounts on companies to explain the economic rationale for cross shareholdings between companies, the pace of share buybacks is likely to accelerate. While the rate of change varies on a company-by-company basis, this commitment to broad-based reforms is clearly good news for investors and should contribute to the performance of your Company.

Nicholas Price

Portfolio Manager

31 March 2016

Strategic Report

The Directors have pleasure in presenting the Strategic Report of the Company. It provides a review of the Companyâ€™s business and describes the principal risks and uncertainties it faces. An analysis of the performance of the Company during the financial year and the position at the year end is included taking into account its objective, strategy and risks and how these are measured using key performance indicators. The Chairmanâ€™s Statement and Portfolio Managerâ€™s Review form part of the Strategic Report.

BUSINESS AND STATUS

The Company carries on business as an investment trust and has been accepted as an approved investment trust by HM Revenue & Customs under Sections 1158 and 1159 of the Corporation Tax Act 2010, subject to the Company continuing to meet eligibility conditions. The Directors are of the opinion that the Company has conducted its affairs in a manner which will satisfy the conditions for continued approval.

The Company is registered as an investment company under Section 833 of the Companies Act 2006 and operates as such. It is not a close company and has no employees.

OBJECTIVE

The Companyâ€™s objective is to achieve long term capital growth from an actively managed portfolio of securities primarily of small and medium sized Japanese companies listed or traded on Japanese stockmarkets.

STRATEGY

In order to achieve this objective, the Company operates as an investment company which has an actively managed portfolio of investments, consisting of Japanese listed companies.

As part of the strategy, the Board has delegated the management of the portfolio and other services. The Portfolio Manager aims to achieve a total return on the Companyâ€™s total assets over the longer term in excess of the Reference Index, the Russell Nomura Mid/Small Cap Index, as expressed in sterling. The stock selection approach adopted by the Portfolio Manager is considered to be well suited to achieving the objective. The Board takes the view that investing in equities is a long term process, and that the Companyâ€™s returns to shareholders will vary from year to year. The Board takes the view that long term returns for shareholders can be enhanced by the use of gearing in a carefully considered and monitored way. The level of gearing is reviewed by the Board and the Portfolio Manager on a regular basis.

The Board has reviewed the summary of the yearâ€™s activities and is in agreement with the indications of likely future developments and the factors likely to affect these which are given in the Chairmanâ€™s Statement and in the Portfolio Managerâ€™s Review.

INVESTMENT POLICY

The markets in which the Company may invest will comprise primarily the Tokyo Stock Exchange, the Jasdaq and the regional stockmarkets of Fukuoka, Nagoya, Osaka and Sapporo.

No material change will be made to the investment policy without shareholder approval.

INVESTMENT MANAGEMENT PHILOSOPHY, STYLE AND PROCESS

The Portfolio Managerâ€™s investment approach is focused on â€˜growth at a reasonable priceâ€™, utilising Fidelityâ€™s extensive research capability. His investment approach and bias towards mid and small cap growth stocks fits well with the Companyâ€™s investment philosophy and style.

INVESTMENT RESTRICTIONS

In order to diversify the Companyâ€™s portfolio, the Board has set the following investment guidelines for the Portfolio Manager:

â€¢ A maximum of 7.5% in the aggregate of all securities of any one company or other investment entity (10% for any group of companies) at the time of purchase, which is further limited to 12% of the Companyâ€™s equity portfolio based on the latest market value.

â€¢ A maximum of 5% of its assets (at the time of acquisition) in securities which are not listed on any stock exchange or traded on the Jasdaq market (the Company would not normally make any such investment except where the Manager expects that the securities would shortly become registered for trading on the OTC market or become listed on a Japanese stockmarket).

â€¢ A maximum of 30% of its assets (at the time of acquisition) in equity-related and debt instruments. The Company may also invest in derivatives for e?cient portfolio management to protect the portfolio against market risk. Any such investment would normally be at a low level as the Company invests primarily in shares.

â€¢ A maximum of 15% of the Companyâ€™s total assets may be invested in the securities of other investment trust companies.

â€¢ The maximum that the Company can hold in cash would be 25% of the total value of the Companyâ€™s assets. This limit will not include any cash or cash equivalent paid as collateral for unrealised losses on CFDs. In practice the cash position will normally be much lower. Currently the Portfolio Manager has discretion to hold 5% net cash.

GEARING

The Companyâ€™s policy is to be geared in the belief that long term investment returns will exceed the cost of gearing. This gearing is obtained through the use of CFDs to obtain exposure to Japanese equities selected by the Manager. The e?ect of gearing is to magnify the consequence of market movements on the portfolio and if the portfolio value rises the NAV will be positively impacted, but if it falls the NAV will be adversely impacted.

The aggregate exposure of the Company to Japanese equities, whether held directly or through CFDs, will not exceed shareholdersâ€™ funds by more than 30% at the time any CFD is entered into or a security acquired. The Board also intends that the exposure will not exceed shareholdersâ€™ funds by more than 40% at any other time unless exceptional circumstances exist. Currently the Portfolio Manager has discretion to be 25% geared.

At the year end the Company was 16.6% geared (2014: 22.2%).

PERFORMANCE

The Companyâ€™s performance for the year ended 31 December 2015 and details on trends and factors that may impact the future performance of the Company are included in the Chairmanâ€™s Statement and the Portfolio Managerâ€™s Review. The Portfolio Listing, Gearing, Distribution of the Portfolio, Ten Year Record and Summary of Performance Charts can be found in the Annual Report and Accounts.

RESULTS

The Companyâ€™s results for the year ended 31 December 2015 are set out in the Income Statement of the Report and Accounts. The total return per ordinary share was 20.10 pence of which the revenue return was a loss of 0.14 pence.

KEY PERFORMANCE INDICATORS

The key performance indicators (â€œKPIsâ€) used to determine the performance of the Company and which are comparable to those reported by other investment trusts are set out below.

	Year ended 31 December 2015 %	Year ended 31 December 2014 %
NAV per share1 (undiluted)	+24.6	+3.1
Share Price1	+20.5	+0.0
Russell Nomura Mid/Small Cap Index1	+19.4	+5.1
Discount to NAV (undiluted)	14.6	11.6
Ongoing Charges2	1.52	1.62

¹ Total returns (includes reinvested income)

² The Board regularly considers the costs of running the Company to ensure they are reasonable and competitive

Sources: Fidelity and Datastream

Past performance is not a guide to future returns

As well as the KPIs above, the Board regularly reviews the Companyâ€™s performance against its peer group of investment trusts. Long term performance is also monitored and the Ten Year Record and the Summary of Performance Charts in the Report and Accounts show this information.

PRINCIPAL RISKS AND UNCERTAINTIES

As required by provision C.2.1 of the UK Corporate Governance Code 2014, the Board has a robust ongoing process for identifying, evaluating and managing the principal risks faced by the Company and this is reviewed on a regular basis.

The Board is responsible for the Companyâ€™s system of risk management and of internal controls and for reviewing its effectiveness. It determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives. An internal controls report providing an assessment of risks, together with controls to mitigate these risks, is prepared by the Manager and considered by the Audit Committee at each of its meetings.

The Alternative Investment Fund Manager, FIL Investment Services (UK) Limited, also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal risks and to ensure that the Board can continue to meet its UK corporate governance obligations.

The Board considers the following as the principal risks and uncertainties faced by the Company:

Market Risk

The Companyâ€™s assets consist mainly of listed securities and the principal risks are therefore market related such as market downturn, interest rate movements and exchange rate movements. The Portfolio Managerâ€™s success or failure to protect and increase the Companyâ€™s assets against this background is core to the Companyâ€™s continued success.

Risks to which the Company is exposed and which form part of the market risk category are included in Note 16 to the Financial Statements together with summaries of the policies for managing these risks. These comprise: market price risk (comprising interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instruments risk.

Performance Risk

The Board reviews risk at each Board meeting, considers the asset allocation of the portfolio and the risk associated with Japan and industry sectors within the parameters of the investment objective and strategy. The Portfolio Manager is responsible for actively monitoring the portfolio selected in accordance with the asset allocation parameters and seeks to ensure that individual stocks meet an acceptable risk/reward profile. The emphasis is on long term results as the Company risks volatility of performance in the shorter term.

The Board appointed a new Portfolio Manager from 1 September 2015. This change incurred a degree of transition risk as the new Portfolio Manager made changes to the portfolio and gearing levels.

Discount Control Risk

The Board cannot fully control the discount at which the Companyâ€™s ordinary share price trades in relation to net asset value. However, it can have a modest influence in the market by maintaining the profile of the Company through a marketing campaign and, under certain circumstances, through repurchasing shares. The Companyâ€™s share price, NAV and discount volatility are monitored daily by the Manager and considered by the Board regularly.

Gearing Risk

The Company has the option to make use of loan facilities or to use CFDs to invest in equities. The principal risk is that, while in a rising market the Company will benefit from gearing, in a falling market the impact would be detrimental. Other risks are that the cost of gearing may be too high or that the term of the gearing is inappropriate in relation to market conditions. The Company currently has no bank loans and gears through the use of long CFDs. Utilising long CFDs for gearing purposes provides greater flexibility and has been significantly cheaper than traditional bank loans. The Board regularly considers the level of gearing and gearing risk and sets limits within which the Portfolio Manager must operate.

Currency Risk

The functional currency of the Company in which it reports its results is UK sterling; however, most of its assets and its income are denominated in yen. Consequently, it is subject to currency risk on exchange rate movements between UK sterling and yen. It is the Companyâ€™s policy not to hedge against currency risks. Further details can be found in Note 16 to the Financial Statements.

Tax and Regulatory Risks

A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status, resulting in the Company being subject to tax on capital gains. A breach of other legal and regulatory rules may lead to suspension from listing on the London Stock Exchange or a qualified audit report. The Board receives regular reports from the Manager confirming regulatory compliance during the year.

Operational Risks

The Company has no employees and relies on a number of third party service providers, principally the Manager, Registrar, Custodian and Depositary. The Company is dependent on the Managerâ€™s control systems and those of its Registrar and Custodian both of whom are monitored and managed by the Manager in the context of the Companyâ€™s assets and interests on behalf of the Board. The Depositary, under a tri-partite agreement, oversees the custody of investments and cash. The security of the Companyâ€™s assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements, among other things, rely on the effective operation of such systems.

The Manager, Registrar and Custodian are subject to a risk-based programme which is monitored by the Manager. In addition, service providersâ€™ own internal controls reports are received by the Board and any concerns investigated.

Although the likelihood of poor governance, compliance and operational administration by third party service providers is low, the financial consequences could be serious, including the associated reputational damage to the Company.

Other Risks

A continuation vote takes place every three years. There is a risk that shareholders may not vote in favour of continuation during periods when performance is poor. The next continuation vote will take place at this yearâ€™s AGM on 24 May 2016.

VIABILITY STATEMENT

In accordance with provision C.2.2 of the UK Corporate Governance Code, issued by the Financial Reporting Council in September 2014, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the â€œGoing Concernâ€ provision. The Company is an investment trust with an objective of achieving long term capital growth and the Board consider three years is an appropriate investment horizon to assess the viability of the Company. This time period is also consistent with the Companyâ€™s continuation vote which takes place every three years, the next one taking place at this yearâ€™s AGM.

The Board has taken account of the Companyâ€™s current position, the principal risks that it faces and their potential impact on its future development and prospects, the Companyâ€™s investment objective and strategy, the investment capabilities of the Manager and the current outlook for the Japanese economy and equity market. The Directors, therefore, confirm that they have a reasonable expectation that, subject to shareholders voting in favour of continuation at this yearâ€™s AGM, the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of assessment.

BOARD DIVERSITY

The Board carries out any candidate search against a set of objective criteria on the basis of merit, with due regard for the benefits of diversity on the Board, including gender. As at 31 December 2015, there were five male Directors and one female Director on the Board.

EMPLOYEE, SOCIAL, COMMUNITY, HUMAN RIGHTS AND ENVIRONMENTAL ISSUES

The Company has no employees and all of its Directors are non-executive and it therefore has no disclosures to make in respect of employees and human rights.

The Companyâ€™s financial reports are printed by a company which has won awards for its environmental awareness and further details of this may be found on the back cover of this report.

Details about Fidelityâ€™s own community involvement may be found on its website at www.fidelity.co.uk.

SOCIALLY RESPONSIBLE INVESTMENT

The Manager believes that high standards of corporate social responsibility (â€œCSRâ€) make good business sense and have the potential to protect and enhance investment returns. Consequently, its investment process takes social, environmental and ethical issues into account when, in its view, these have a material impact on either investment risk or return.

GREENHOUSE GAS EMISSIONS

The Company has no premises, consumes no electricity, gas or diesel fuel and consequently does not have a measurable carbon footprint. FIL Investments International is registered with the Carbon Reduction Commitment Energy Efficiency Scheme administered by the Environment Agency.

CORPORATE ENGAGEMENT

The Board believes that the Company should, where appropriate, take an active interest in the affairs of the companies in which it invests and that it should exercise its voting rights at their general meetings. Unless there are any particularly controversial issues (which are then referred to the Board) it delegates the responsibility for corporate engagement and shareholder voting to the Manager. These activities are reviewed annually.

FUTURE DEVELOPMENTS

Some trends likely to affect the Company in the future are common to many investment companies together with the impact of regulatory change. The factors likely to affect its future development, performance and position are set out in the Chairmanâ€™s Statement and the Portfolio Managerâ€™s Review.

By order of the Board

FIL Investments International

Secretary

31 March 2016

Portfolio Listing as at 31 December 2015

The Portfolio Exposures shown below measure exposure to market price movements as a result of owning shares and long CFDs. The Fair Values shown measure the actual value on the Balance Sheet.

Shares and long CFDs	Portfolio Exposure Â£â€™000	%1	Fair Value Â£â€™000
Kubota Manufacturer of tractors and heavy equipment	7,611	6.6	7,611
AEON Financial Service Provider of loans, credit cards and customer instalment credits	7,324	6.3	7,324
Nissan Chemical Industries Producer of chemicals, agrochemicals and pharmaceutical products	7,173	6.2	7,173
Kakaku.com Provider of price comparison services, product information and internet advertising services	5,602	4.8	5,602
Orix (long CFD)2 Provider of leasing, real estate loans, life insurance, banking and consumer finance	4,673	4.0	(35)
SoftBank (long CFD)2 Provider of telecommunication services including ADSL and fibre optic Internet connection	4,584	4.0	(107)
Rohm (long CFD)2 Manufacturer and distributor of electronic components	4,036	3.5	(975)
Zojirushi Manufacturer of kitchen appliances, heat-insulating containers and environmental equipment	3,747	3.2	3,747
Makita Manufacturer of electric power tools	3,634	3.1	3,634
Mazda Motor (shares and long CFD)2 Manufacturer of cars, trucks and auto parts	3,506	3.0	2,183
Ten largest exposures (2014: 26.0%)	51,890	44.7	36,157
Keyence	3,215	2.8	3,215
Rinnai	3,021	2.6	3,021
J Front Retailing	2,965	2.6	2,965
M3 (long CFD)2	2,890	2.5	152
Nippon Shinyaku	2,842	2.5	2,842
Shionogi	2,805	2.4	2,805
Kao	2,345	2.0	2,345
Ferrotec	2,282	2.0	2,282
Ono Pharmaceutical (long CFD)2	2,202	1.9	892
Fujita Kanko	2,181	1.9	2,181
Ryohin Keikaku	2,168	1.9	2,168
Ai Holdings	2,161	1.9	2,161
H.I.S.	2,040	1.8	2,040
Aska Pharmaceutical	2,030	1.8	2,030
NITTA Corporation	1,949	1.7	1,949
ASICS Corporation	1,948	1.7	1,948
Septeni Holdings	1,927	1.7	1,927
Shinoken Group	1,912	1.6	1,912
Hoshizaki Electric	1,816	1.6	1,816
Sakata INX Corporation	1,781	1.5	1,781
Okamoto Industries	1,755	1.5	1,755
THK Co	1,725	1.5	1,725
Tasaki Shinju	1,507	1.3	1,507
Eiken Chemical	1,444	1.2	1,444
Asahi Intecc	1,431	1.2	1,431
Kotobuki Seika	1,268	1.1	1,268
Kyoritsu Maintenance	1,203	1.0	1,203
Descente	1,164	1.0	1,164
Start Today	1,150	1.0	1,150
Open House	1,136	1.0	1,136
Piolax	1,078	0.9	1,078
Nichias	1,025	0.9	1,025
PC Depot	1,024	0.9	1,024
Nihon Flush	1,016	0.9	1,016
Optex	1,007	0.9	1,007
Nakamura Choukou	971	0.8	971
Juki	913	0.8	913
Mitsubishi Pencil	913	0.8	913
Sinko Industries	895	0.8	895
Yamabiko	830	0.7	830
Daikin Industries	823	0.7	823
Gurunavi	788	0.7	788
Apamanshop Holdings	786	0.7	786
Yamaha Motor	777	0.7	777
Nifco	672	0.6	672
Fuji Corporation	625	0.5	625
Ride On Express	609	0.5	609
NEXT Co	548	0.5	548
Jamco	544	0.5	544
Yonex	519	0.4	519
Nojima	485	0.4	485
Sagami Rubber Industries	485	0.4	485
Takuma	476	0.4	476
CAC	443	0.4	443
PAL Co	427	0.4	427
Komehyo	350	0.3	350
Chugai Pharmaceutical	344	0.3	344
Freund	328	0.3	328
Taikisha	327	0.3	327
VT Holdings	308	0.3	308
Eizo Corporation	280	0.2	280
Iino Kaiun Kaisha	276	0.2	276
Universal Entertainment	269	0.2	269
Bengo4.com	264	0.2	264
Creek & River	235	0.2	235
Pressance	233	0.2	233
Kusuri No Aoki	227	0.2	227
N Field	201	0.2	201
Yamaya	193	0.2	193
Sawada Holdings	188	0.1	188
Information Services International-Dentsu	181	0.1	181
Nitori Holdings	63	â€“	63
Samantha Thavasa Japan	39	â€“	39
Kuriyama Holdings	28	â€“	28
Sysmex	26	â€“	26
Suzuki Motor	23	â€“	23
Ezaki Glico	15	â€“	15
Shinsei Bank	13	â€“	13
Hokkaido Chuo Bus	9	â€“	9
Total Portfolio Exposure	135,252	116.6
Total Portfolio Fair Value3			115,471
Net current assets excluding derivatives			529
Shareholdersâ€™ Funds (per the Balance Sheet)			116,000
1 Portfolio Exposure is expressed as a percentage of Shareholdersâ€™ Funds 2 Investment via long contracts for difference (â€œCFDsâ€) provides exposure to the underlying share price in excess of the fair value 3 Total Portfolio Fair Value comprises (per the Balance Sheet) investments Â£115,532,000 plus derivative assets Â£1,056,000 less derivative liabilities Â£1,117,000

Gearing as at 31 December 2015

	PPPortfolio Exposure
Shares and long CFDs	2015 Â£â€™000	2014 Â£â€™000
Investments â€“ shares	115,532	82,486
Derivative instruments â€“ long CFDs	19,720	31,063
Total Portfolio Exposure	135,252	113,549
Shareholdersâ€™ Funds	116,000	92,886
Gearing â€“ Total Portfolio Exposure in excess of Shareholdersâ€™ Funds	16.6%	22.2%

Distribution of the Portfolio as at 31 December 2015

	Portfolio Exposure
Sector	2015 %1	2014 %1
Machinery	17.5	4.9
Services	15.9	20.9
Electrical Appliances	12.6	18.1
Chemicals	10.3	11.0
Other Financing Business	10.3	1.5
Pharmaceuticals	10.1	4.8
Retail Trade	8.6	9.4
Other Products	5.1	0.6
Information & Communications	4.5	9.5
Transport Equipment	4.2	5.6
Rubber Products	3.6	â€“
Metal Products	3.5	0.4
Real Estate	3.5	4.5
Wholesale Trade	1.9	4.8
Precision Instruments	1.2	5.5
Foods	1.1	â€“
Textiles & Apparel	1.0	3.2
Glass & Ceramics	0.9	0.6
Construction	0.3	3.8
Marine Transportation	0.3	â€“
Securities & Commodity Futures	0.2	1.1
Insurance	â€“	3.3
Banks	â€“	2.4
Non-ferrous Metals	â€“	2.3
Land Transportation	â€“	2.2
Iron & Steel	â€“	1.3
Electric Power & Gas	â€“	0.5
Total Portfolio Exposure	116.6	122.2
1 Portfolio Exposure is expressed as a percentage of Shareholdersâ€™ Funds

Ten Year Record

Historical Record as at 31 December	2015	2014	2013	2012	2011	2010	2009	2008	2007	2006	2005
Total portfolio exposure (Â£m)1	135	114	105	70	77	79	68	75	79	92	137
Shareholdersâ€™ funds (Â£m)	116	93	902	58	63	65	53	51	65	78	121
NAV per ordinary share (p) â€“ undiluted	101.56	81.48	79.02	59.94	64.17	68.44	55.56	53.58	66.67	79.59	123.56
NAV per ordinary share (p) â€“ diluted	99.08	n/a	n/a	59.91	62.79	66.21	55.47	n/a	n/a	n/a	n/a
Ordinary share price (p)	86.75	72.00	72.00	51.63	52.50	57.25	48.50	41.75	58.50	73.50	130.25
Subscription share price (p)	3.13	4.25	n/a	0.80	5.70	11.75	8.28	n/a	n/a	n/a	n/a
Discount/(premium) to NAV % â€“ undiluted	14.6	11.6	8.9	13.9	18.2	16.4	12.7	22.1	12.3	7.7	(5.4)
Discount to NAV % â€“ diluted	12.4	n/a	n/a	12.8	16.4	13.5	12.6	n/a	n/a	n/a	n/a
Revenue (loss)/return per ordinary share (p)	(0.14)	(0.45)	(0.30)	(0.06)	0.02	(0.30)	(0.73)	(0.12)	(0.49)	(0.68)	(1.02)
Ongoing charges (%) (cost of running the Company)	1.52	1.62	1.80	2.00	1.98	2.08	2.17	1.98	1.65	1.46	1.83
Gearing (%)3	16.6	22.2	16.8	21.0	23.2	20.9	3.8	28.5	20.7	16.9	11.5
NAV per ordinary share total return performance â€“ undiluted (%)	+24.6	+3.1	+31.8	-6.6	-6.2	+23.2	+3.7	-19.6	-16.2	-35.6	+73.4
NAV per ordinary share total return performance â€“ diluted (%)	+21.6	n/a	n/a	-5.7	-5.2	+19.4	n/a	n/a	n/a	n/a	n/a
Ordinary share price total return performance (%)	+20.5	0.0	+39.5	-1.7	-8.3	+18.0	+16.2	-28.6	-20.4	-43.6	+110.9
Russell Nomura Mid/Small Cap Index total return (in sterling terms) (%)	+19.4	+5.1	+21.7	-3.1	-9.3	+18.6	-6.3	+4.4	-8.5	-18.5	+44.5

¹ The total exposure of the investment portfolio, including exposure to the investments underlying the long CFDs. The amounts prior to 2009 represent total assets less creditors, excluding bank loans

² The issue of 17,232,149 ordinary shares, on the exercise of subscription share rights, contributed Â£9.4 million to the increase in shareholdersâ€™ funds

³ Total portfolio exposure in excess of shareholdersâ€™ funds. The amounts prior to 2009 represent total assets, less bank loans plus cash at bank, in excess of shareholdersâ€™ funds

Sources: Fidelity and Datastream

Past performance is not a guide to future returns

Directorsâ€™ Report

GOING CONCERN

The Directors have considered the Companyâ€™s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio (being mainly securities which are readily realisable) and its expenditure and cash flow projections and have concluded that the Company has adequate resources to continue to adopt a going concern basis in preparing these Financial Statements.

The Board has also taken into consideration the fact that a continuation vote is proposed at this yearâ€™s AGM and the likelihood of shareholders voting in favour of continuation.

Statement of Directorsâ€™ Responsibilities

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial period. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice.

The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss for the period.

In preparing these Financial Statements, the Directors are required to:

â€¢ select suitable accounting policies and then apply them consistently;

â€¢ make judgements and estimates that are reasonable and prudent;

â€¢ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;

â€¢ prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

â€¢ confirm, to the extent possible, that the Financial Statements are fair, balanced and understandable.

The Directors are responsible for ensuring that adequate accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directorsâ€™ Report, a Corporate Governance Statement and a Directorsâ€™ Remuneration Report that comply with that law and those regulations.

The Directors have delegated responsibility for the maintenance and integrity of the corporate and financial information included on the Companyâ€™s pages of the Managerâ€™s website at www.fidelity.co.uk/its. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the financial statements may differ from legislation in their own jurisdictions.

We confirm that to the best of our knowledge the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and the Strategic Report and Directorsâ€™ Report include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties it faces. We confirm that we consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Companyâ€™s position and performance, business model and strategy.

Approved by the Board on 31 March 2016 and signed on its behalf by:

David Robins

Chairman

Income Statement for the year ended 31 December 2015

			2015			2014
		revenue	capital	total	revenue	capital	total
	Notes	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
Gains on investments at fair value through profit or loss	9	â€“	21,132	21,132	â€“	1,053	1,053
Gains on derivative instruments at fair value through profit or loss	10	â€“	2,717	2,717	â€“	2,848	2,848
Income	3	1,728	â€“	1,728	1,366	â€“	1,366
Investment management fee	4	(1,130)	â€“	(1,130)	(954)	â€“	(954)
Other expenses	5	(508)	â€“	(508)	(711)	â€“	(711)
Exchange losses on other net assets		(22)	(762)	(784)	(26)	(589)	(615)
		----------	----------	----------	----------	----------	----------
Net return/(loss) before finance costs and taxation		68	23,087	23,155	(325)	3,312	2,987
Finance costs	6	(88)	â€“	(88)	(77)	â€“	(77)
		----------	----------	----------	----------	----------	----------
Net (loss)/return on ordinary activities before taxation		(20)	23,087	23,067	(402)	3,312	2,910
Taxation on (loss)/return on ordinary activities	7	(140)	â€“	(140)	(107)	â€“	(107)
		----------	----------	----------	----------	----------	----------
Net (loss)/return on ordinary activities after taxation for the year		(160)	23,087	22,927	(509)	3,312	2,803
		==========	==========	==========	==========	==========	==========
(Loss)/return per ordinary share â€“ undiluted and diluted	8	(0.14p)	20.24p	20.10p	(0.45p)	2.91p	2.46p
		==========	==========	==========	==========	==========	==========

There are no gains and losses other than those reported in this Income Statement.

The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations and no operations were acquired or discontinued in the year.

Statement of Changes in Equity

			share	capital
		share	premium	redemption	other	capital	revenue	total
		capital	account	reserve	reserve	reserve	reserve	equity
	Note	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
Year ended 31 December 2015
As at 1 January 2015		28,501	6,741	2,621	57,568	11,766	(14,311)	92,886
Issue of ordinary shares on exercise of rights attached to subscription shares	13	54	133	â€“	â€“	â€“	â€“	187
Net return/(loss) on ordinary activities after taxation for the year		â€“	â€“	â€“	â€“	23,087	(160)	22,927
		----------	----------	----------	----------	----------	----------	----------
As at 31 December 2015		28,555	6,874	2,621	57,568	34,853	(14,471)	116,000
		==========	==========	==========	==========	==========	==========	==========
Year ended 31 December 2014
As at 1 January 2014		28,489	6,712	2,621	57,568	8,454	(13,802)	90,042
Issue of ordinary shares on exercise of rights attached to subscription shares	13	12	29	â€“	â€“	â€“	â€“	41
Net return/(loss) on ordinary activities after taxation for the year		â€“	â€“	â€“	â€“	3,312	(509)	2,803
		----------	----------	----------	----------	----------	----------	----------
As at 31 December 2014		28,501	6,741	2,621	57,568	11,766	(14,311)	92,886
		==========	==========	==========	==========	==========	==========	==========

The Notes form an integral part of these Financial Statements.

Balance Sheet as at 31 December 2015

Company number 2885584

		2015	2014
	Notes	Â£â€™000	Â£â€™000
Fixed assets
Investments at fair value through profit or loss	9	115,532	82,486
		----------	----------
Current assets
Derivative assets at fair value through profit or loss	10	1,056	7,296
Debtors	11	1,063	930
Cash at bank		220	3,176
		----------	----------
		2,339	11,402
		----------	----------
Creditors
Derivative liabilities at fair value through profit or loss	10	(1,117)	(139)
Creditors	12	(754)	(863)
		----------	----------
		(1,871)	(1,002)
		----------	----------
Net current assets		468	10,400
		----------	----------
Net assets		116,000	92,886
		==========	==========
Capital and reserves
Share capital	13	28,555	28,501
Share premium account	14	6,874	6,741
Capital redemption reserve	14	2,621	2,621
Other reserve	14	57,568	57,568
Capital reserve	14	34,853	11,766
Revenue reserve	14	(14,471)	(14,311)
		----------	----------
Total equity shareholdersâ€™ funds		116,000	92,886
		==========	==========
Net asset value per ordinary share
Undiluted	15	101.56p	81.48p
Diluted	15	99.08p	n/a
		==========	==========

The Financial Statements were approved by the Board of Directors on 31 March 2016 and were signed on its behalf by:

David Robins

Chairman

Notes to the Financial Statements

1 PRINCIPAL ACTIVITY

Fidelity Japanese Values PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Companyâ€™s registration number is 2885584, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act, 2010 and intends to conduct its affairs so as to continue to be approved.

2 ACCOUNTING POLICIES

The Company has for the first time applied the revised UK Generally Accepted Accounting Practice (â€œUK GAAPâ€), issued by the Financial Reporting Council (â€œFRCâ€) and these Financial Statements have been prepared in accordance with FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland, effective for accounting periods beginning on or after 1 January 2015. The Company has early adopted the amendments to FRS 102: Fair value hierarchy disclosures, issued by the FRC in March 2016. The Financial Statements have also been prepared in accordance with the revised Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (â€œSORPâ€) issued by the Association of Investment Companies (â€œAICâ€), in November 2014.

As a result of the adoption of the revised UK GAAP and SORP, presentation formats have been amended where appropriate. The Reconciliation of Movements in Shareholdersâ€™ Funds has been renamed the Statement of Changes in Equity. A Cash Flow Statement has not been presented. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Companyâ€™s investments are highly liquid and are carried at market value. The net return on ordinary activities after taxation for the year and total shareholdersâ€™ funds remain unchanged from what was reported under the former UK GAAP basis applied in the 2014 Annual Report and the 2014 figures have not required restatement.

a) Basis of accounting â€“ The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of fixed asset investments and derivative assets and liabilities.

A resolution proposing the continuation of the Company as an investment trust will be put to shareholders at the AGM on 24 May 2016. The Directors are recommending that shareholders vote in favour of this resolution. In accordance with this recommendation and given that the Companyâ€™s assets consist mainly of securities which are readily realisable and that the Directors have a reasonable expectation that the Company has adequate resources to continue for the foreseeable future, the Directors believe that it is appropriate to prepare the Financial Statements on a going concern basis. Accordingly the Financial Statements do not include any adjustments that may arise from a reconstruction or liquidation of the Company. Such adjustments would include expenses of reconstruction or liquidation along with any costs associated with realising the portfolio.

b) Segmental reporting â€“ The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

c) Income â€“ Income from equity investments is credited to the Income Statement on the date on which the right to receive the payment is established. Overseas dividend income includes withholding tax deducted at source. Interest receivable on short term deposits is dealt with on an accruals basis. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital column of the Income Statement. Derivative income from dividends on long contracts for difference (â€œCFDsâ€) is credited to the revenue column of the Income Statement on the date on which the right to receive the payment is established.

d) Special dividends â€“ Special dividends are treated as a capital receipt or a revenue receipt depending on the facts and circumstances of each particular case.

e) Expenses â€“ Expenses, including investment management fees, are accounted for on an accruals basis and are charged in full to the revenue column of the Income Statement.

f) Finance costs â€“ Finance costs represent interest paid on long CFDs and are accounted for on an accruals basis using the effective interest method. They are charged in full to the revenue column of the Income Statement.

g) Taxation â€“ Deferred taxation is recognised in respect of all timing differences that have originated, but not reversed, at the Balance Sheet date, where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred. A deferred taxation asset is only recognised when it is more likely than not that the asset will be recoverable.

h) Foreign currency â€“ The Directors, having regard to the currency of the Companyâ€™s share capital and the predominant currency in which its investors operate, have determined the functional currency to be UK sterling. Transactions denominated in foreign currencies are translated into UK sterling at the rate of exchange ruling as at the date of the transaction. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. All capital gains and losses, including exchange movements on the translation of foreign currency assets and liabilities, are dealt with in the capital column of the Income Statement.

i) Investments â€“ The portfolio of investments and derivative instruments is managed and its performance is evaluated on a fair value basis in accordance with a documented investment strategy. Information about the portfolio is provided on this basis to the Companyâ€™s Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as follows:

â€¢ Investments listed overseas are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed, or otherwise, at fair value based on published price quotations.

In accordance with the AIC SORP, the Company charges transaction costs incidental to the purchase or sale of investments to â€˜Gains on investments at fair value through profit or lossâ€™ in the capital column of the Income Statement. These costs are disclosed in Note 9 below.

j) Derivative instruments â€“ Some of the Companyâ€™s portfolio exposure to Japanese equities is achieved by investment in long CFDs. Long CFDs are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of long CFDs is measured as follows:

â€¢ Long CFDs are valued at the difference between the price of the shares underlying the contract when the contract was opened and their closing price at the valuation date (calculated in accordance with policy 2(i) above).

k) Capital reserve â€“ The following are accounted for in capital reserve:

â€¢ Gains and losses on the disposal of investments and derivative instruments;

â€¢ Changes in fair value of the investments and derivative instruments held at the year end;

â€¢ Foreign exchange gains and losses of a capital nature; and

â€¢ Dividends receivable which are capital in nature.

As a result of technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/10: Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, changes in fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as â€˜capital reserveâ€™ in the Statement of Changes in Equity and on the Balance Sheet. At the Balance Sheet date all investments held by the Company were listed on a recognised stock exchange and were considered to be readily convertible to cash.

		Year ended 31.12.2015	Year ended 31.12.2014
		Â£â€™000	Â£â€™000
3	INCOME
	Income from investments at fair value through profit or loss
	Overseas dividends	1,404	1,071
	Income from derivative instruments at fair value through profit or loss
	Dividends on long CFDs	324	295
		----------	----------
	Total income	1,728	1,366
		==========	==========

A summary of the terms of the Management Agreement is given in the Directorsâ€™ Report in the Annual Report and Accounts.

		year ended 31.12.2015	year ended 31.12.2014
		Â£â€™000	Â£â€™000
5	OTHER EXPENSES
	AIC fees	7	6
	Custody fees	12	11
	Depositary fees1	14	4
	Directorsâ€™ expenses	41	38
	Directorsâ€™ fees2	142	118
	Legal and professional fees	48	103
	Marketing expenses	77	84
	Printing and publication expenses	51	48
	Registrarsâ€™ fees	33	26
	Subscription share issue costs	â€“	193
	Sundry other expenses	59	57
	Fees payable to the Companyâ€™s Independent Auditor for the audit of the annual financial statements	24	23
		----------	----------
		508	711
		==========	==========
	1 The Depository was appointed with effect from 17 July 2014 2 Details of the breakdown of Directorsâ€™ fees are provided in the Directorsâ€™ Remuneration Report in the Annual Report and Accounts.

		year ended 31.12.2015	year ended 31.12.2014

		Â£â€™000	Â£â€™000
7	TAXATION ON RETURN ON ORDINARY ACTIVITIES
	a) Analysis of taxation charge for the year
	Overseas taxation suffered (Note 7b)	140	107
		==========	==========

b) Factors affecting the taxation charge for the year

The taxation charge for the year is lower than the standard rate of UK corporation tax of 20.25% (2014: 21.49%). A reconciliation of the taxation charge based on the standard rate of UK corporation tax to the actual taxation charge is shown below:

	year ended 31.12.2015	year ended 31.12.2014

	Â£â€™000	Â£â€™000
Net return on ordinary activities before taxation	23,067	2,910
	==========	==========
Net return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 20.25% (2014: 21.49%)	4,671	626
Effects of:
Gains on investments not taxable1	(4,675)	(712)
Income not included for taxation purposes	(285)	(230)
Increase in excess expenses for the year	289	316
Overseas taxation	140	107
	----------	----------
Taxation charge for the year (Note 7a)	140	107
	==========	==========
1 Investment trust companies are exempt from UK corporation tax on capital gains if they meet the HM Revenue & Customs criteria set out in Section 1159 of the Corporation Tax Act 2010

c) Deferred taxation

A deferred taxation asset of Â£3,601,000 (2014: Â£3,901,000), in respect of excess expenses of Â£20,005,000 (2014: Â£18,578,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.

year
ended
31.12.2015

year
ended
31.12.2014

revenue

capital

total

revenue

capital

total

(LOSS)/RETURN PER ORDINARY SHARE â€“ UNDILUTED AND DILUTED

Net (loss)/return per ordinary share â€“ pence

(0.14)

20.24

20.10

(0.45)

2.91

2.46

==========

Net (loss)/return on ordinary activities after taxation for the year â€“ Â£â€™000

(160)

23,087

22,927

(509)

3,312

2,803

==========

The (loss)/return per ordinary share is based on 114,076,562 ordinary shares (2014: 113,966,379) being the weighted average number of ordinary shares in issue during the year. There are no diluted (losses)/returns for the year (2014: none) as in both years the average ordinary share price was below the exercise price of the subscription shares in issue.

Opening fair value of investments
Opening book cost	75,964	80,293
Opening investment holding gains	6,522	3,738
	----------	----------
	82,486	84,031
Movements in the year
Purchases at cost	165,380	64,119
Sales â€“ proceeds	(153,466)	(66,717)
Sales â€“ realised gains/(losses) on sales	12,378	(1,731)
Movement in investment holding gains in the year	8,754	2,784
	----------	----------
Closing fair value of investments	115,532	82,486
	==========	==========
Closing book cost	100,256	75,964
Closing investment holding gains	15,276	6,522
	----------	----------
Closing fair value of investments	115,532	82,486
	==========	==========

	year ended 31.12.2015	year ended 31.12.2014
	Â£â€™000	Â£â€™000
Gains on investments at fair value through profit or loss for the year
Realised gains/(losses) on sales of investments	12,378	(1,731)
Investment holding gains	8,754	2,784
	----------	----------
	21,132	1,053
	==========	==========
Costs of investment transactions for the year
Transaction costs incurred on the acquisition and disposal of investments, which are included within gains on investments above, were as follows:
Purchase transaction costs	97	61
Sales transaction costs	93	52
	----------	----------
	190	113
	==========	==========

The portfolio turnover rate for the year ended 31 December 2015 was 128.7% (2014: 56.7%).

		2015		2014
		fair value	portfolio exposure	fair value	portfolio exposure
		Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
10	DERIVATIVE INSTRUMENTS
	Derivative instruments at fair value through profit or loss
	Long CFDs â€“ assets	1,056	6,426	7,296	28,109
	Long CFDs â€“ liabilities	(1,117)	13,294	(139)	2,954
		----------	----------	----------	----------
		(61)	19,720	7,157	31,063
		==========	==========	==========	==========

	year ended 31.12.2015	year ended 31.12.2014
	Â£â€™000	Â£â€™000
Gains on derivative instruments at fair value through profit or loss
Gains on long CFD positions closed	9,935	1,533
Movement in investment holding (losses)/gains on long CFDs	(7,218)	1,315
	----------	----------
	2,717	2,848
	==========	==========

		2015	2014
		Â£â€™000	Â£â€™000
11	DEBTORS
	Securities sold for future settlement	752	375
	Amount receivable on ordinary shares issued	â€“	1
	Accrued income	243	187
	Other debtors	68	367
		----------	----------
		1,063	930
		==========	==========

		2015	2014
		Â£â€™000	Â£â€™000
12	CREDITORS
	Securities purchased for future settlement	255	404
	Other creditors	499	459
		----------	----------
		754	863
		==========	==========

		2015		2014
		number of shares	Â£â€™000	number of shares	Â£â€™000
13	SHARE CAPITAL
	Issued, allotted and fully paid:
	Ordinary shares of 25 pence each
	Beginning of the year	114,002,375	28,501	113,954,834	28,489
	Issue of ordinary shares on the conversion of rights attached to subscription shares	215,981	54	47,541	12
		----------	----------	----------	----------
	End of the year	114,218,356	28,555	114,002,375	28,501
		==========	==========	==========	==========
	Subscription shares of 0.001 pence each
	Beginning of the year	22,743,320	â€“	â€“	â€“
	Bonus issue of subscription shares	â€“	â€“	22,790,861	â€“
	Exercise of rights attached to subscription shares and conversion into ordinary shares	(215,981)	â€“	(47,541)	â€“
		----------	----------	----------	----------
	End of the year	22,527,339	â€“	22,743,320	â€“
		==========	==========	==========	==========
	Total share capital		28,555		28,501
			==========		==========

A bonus issue of subscription shares to ordinary shareholders took place on 27 August 2014 and was on the basis of one subscription share for every five ordinary shares held. Each subscription share gives the holder the right, but not the obligation, on the last business day of each month to subscribe for one ordinary share upon payment of the subscription price of 86.50 pence.

The final date to exercise these rights is 29 April 2016. After 29 April 2016, the Company will appoint a trustee who will exercise any rights remaining that have not been exercised by shareholders, providing that by doing so a profit can be realised. To realise a profit, the sale proceeds from selling the resulting ordinary shares in the market would need to be in excess of the 86.50 pence per share cost of exercising the rights, plus any related expenses and fees. Any resulting profit will be paid to the holders of those outstanding subscription shares.

14 RESERVES

The share premium account represents the amount by which the proceeds from the issue of ordinary shares, on the exercise of rights attached to subscription shares, exceeds the nominal value of those ordinary shares. It cannot be used to fund share repurchases and it is not distributable by way of dividend.

The capital redemption reserve maintains the equity share capital of the Company and represents the nominal value of shares repurchased and cancelled. It cannot be used to fund share repurchases and it is not distributable by way of dividend.

The other reserve was created in 1999 when the share premium account at that time was cancelled. It can be used to fund share repurchases.

The capital reserve reflects realised gains or losses on investments and derivatives sold, unrealised increases and decreases in the fair value of investments and derivatives held and other income and costs recognised in the capital column of the Income Statement. It can be used to fund share repurchases and it is distributable by way of dividend. The Board has no current intention to pay dividends out of this reserve.

The revenue reserve represents the retained revenue losses recognised in the revenue column of the Income Statement. It could be distributed by way of dividend if it were not in deficit.

15 NET ASSET VALUE PER SHARE

The undiluted net asset value per ordinary share is based on net assets of Â£116,000,000 (2014: Â£92,886,000) and on 114,218,356 (2014: 114,002,375) ordinary shares, being the number of ordinary shares in issue at the year end.

The diluted net asset value per ordinary share is calculated on the basis of what the financial position would have been if all the rights attaching to the 22,527,339 outstanding subscription shares at 31 December 2015 had been exercised on that date. This basis of calculation is in accordance with guidelines laid down by the Association of Investment Companies. Undiluted and diluted net asset values per ordinary share are provided to the London Stock Exchange on a daily basis. There was no dilution of the net asset value per ordinary share at 31 December 2014 because the net asset value per ordinary share was below the 86.50 pence per share exercise price of the subscription shares in issue.

16 FINANCIAL INSTRUMENTS

MANAGEMENT OF RISK

The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Strategic Report. This note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments.

The Companyâ€™s financial instruments comprise:

â€¢ Equity shares held in accordance with the Companyâ€™s investment objective and policies;

â€¢ Derivative instruments which comprise of long CFDs; and

â€¢ Cash, liquid resources and short term debtors and creditors that arise from its operations.

The risks identified arising from the Companyâ€™s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instruments risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies have remained unchanged since the beginning of the accounting period.

Market price risk

Interest rate risk

The Company finances its operations through share capital and its retained reserves. In addition, the Company has a geared exposure to Japanese equities through the use of long CFDs which incur funding costs and provide collateral in yen. The Company is, therefore, exposed to financial risk as a result of increases in yen interest rates.

Interest rate risk profile

The values of the Companyâ€™s financial instruments that are exposed to movements in interest rates are shown below:

	2015	2014
	Â£â€™000	Â£â€™000
Exposure to financial instruments that bear interest
Long CFDs â€“ portfolio exposure less fair value	19,781	23,906
Less: exposure to financial instruments that earn interest
Cash at bank	(220)	(3,176)
	----------	----------
Net exposure to financial instruments that bear interest	19,561	20,730
	==========	==========

Foreign currency risk

The Companyâ€™s net return on ordinary activities after taxation for the year and net assets are affected by foreign exchange movements because the Company has income, assets and liabilities which are denominated in yen, whereas, the Companyâ€™s base currency is UK sterling. The Company may also be subject to short term exposure from exchange rate movements, for example, between the date when an investment is bought or sold and the date when settlement of the transaction occurs.

The Company does not hedge the UK sterling value of investments or other assets priced in yen by the use of derivative instruments. Long CFDs are held for gearing purposes.

Three principal areas have been identified where foreign currency risk could impact the Company:

â€¢ Movements in exchange rates affecting the value of investments and long CFDs;

â€¢ Movements in exchange rates affecting short term timing differences; and

â€¢ Movements in exchange rates affecting income received.

Currency exposure of financial assets

The currency exposure profile of the Companyâ€™s financial assets is shown below:

2015
investments at fair value through profit or loss		portfolio exposure through long CFDs	short term debtors	cash	total
	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
Financial assets held in yen	115,532	19,720	995	218	136,465
	----------	----------	----------	----------	==========

2014
investments at fair value through profit or loss		portfolio exposure through long CFDs	short term debtors	cash	total
	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000	Â£â€™000
Financial assets held in yen	82,486	31,063	844	3,169	117,562
	----------	----------	----------	----------	==========

Currency exposure of financial liabilities

The Companyâ€™s financial liabilities comprise the gearing effect of the long CFDs held, which is the portfolio exposure to the investments underlying the long CFDs less the fair value of those long CFDs, and other short term creditors. The currency profile of these financial liabilities is shown below:

	2015
	gearing effect of exposure to long CFDs	short term creditors	total
	Â£â€™000	Â£â€™000	Â£â€™000
Financial liabilities held in yen	19,781	255	20,036
	----------	----------	----------

	2014
	gearing effect of exposure to long CFDs	short term creditors	total
	Â£â€™000	Â£â€™000	Â£â€™000
Financial liabilities held in yen	23,906	405	24.311
	----------	----------	----------

Other price risk

Other price risk arises mainly from uncertainty about future prices of financial instruments owned by the Company. It represents the potential loss the Company may suffer through holding market positions in the face of price movements. The Manager is responsible for actively monitoring the existing portfolio, which is selected in accordance with the overall asset allocation parameters described above, and the Manager seeks to ensure that individual stocks also meet an acceptable risk/reward profile.

Liquidity risk

The Companyâ€™s assets mainly comprise readily realisable securities, which can be sold easily to meet funding commitments if necessary. Short term flexibility is achieved by the use of overdraft facilities as required.

Counterparty risk

All securities and derivative instruments are transacted with brokers and carry the risk that the counterparty to a transaction may not meet its financial obligations. In accordance with the risk management process which the Manager employs, the Manager will seek to minimise such risk by only entering into transactions with counterparties which it believes have an adequate credit rating, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk through the use of internal and external credit agency ratings and evaluates derivative instrument credit risk exposure.

For Over The Counter (â€œOTCâ€) derivative transactions, in accordance with the terms of International Swap Dealers Association (â€œISDAâ€) market standard derivative contracts, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At 31 December 2015, Â£92,000 (2014: Â£7,916,000) was held in government bonds on behalf of the Company, in a segregated collateral account, to reduce the exposure to counterparty risk of the Company.

Credit risk

Investments may be adversely affected if any of the institutions with which money is deposited suffers insolvency or other financial difficulties. All transactions are carried out with a large number of brokers and are settled on a delivery versus payment basis and limits are set by the Manager on the amount that may be due from any one broker. All security transactions are through brokers which have been approved as an acceptable counterparty. This approval is reviewed on an ongoing basis. At the year end, the exposure to credit risk includes outstanding securities transactions, the fair value of long CFDs and cash at bank.

Derivative instruments risk

The risks and risk management processes which result from the use of derivative instruments are included within the other risk categories disclosed previously. Derivative instruments are used by the Manager to gain unfunded long exposure to equity markets, sectors or single stocks. â€œUnfundedâ€ exposure is exposure gained without an initial outflow of capital. The risk and performance contribution of these instruments to the Companyâ€™s portfolio is overseen by the Managerâ€™s specialist derivative instruments team which draws on over forty years of specialist experience in derivative risk management. This team uses portfolio risk assessment tools to advise on portfolio construction.

RISK SENSITIVITY ANALYSIS

Risk sensitivity analysis is used by the Manager to measure the Companyâ€™s exposure to risks.

Interest rate risk sensitivity analysis

If interest rates had increased by 0.25% and the Companyâ€™s net exposure to financial instruments that bear interest at 31 December 2015 had been held throughout the year, with all other variables remaining constant, net return on ordinary activities after taxation for the year and net assets would have decreased by Â£49,000 (2014: Â£52,000). A decrease in interest rates by 0.25% would have had an equal but opposite effect.

Foreign currency risk sensitivity analysis

If the UK sterling exchange rate had strengthened against the yen by 10% at 31 December 2015, with all other variables remaining constant, net return on ordinary activities after taxation for the year and net assets would have decreased by Â£10,584,000 (2014: Â£8,477,000). A 10% weakening of the UK sterling exchange rate against the yen would have increased net return on ordinary activities after taxation for the year and net assets by Â£12,936,000 (2014: Â£10,361,000).

Other price risk sensitivity analysis

Changes in market prices other than those arising from interest rate risk or foreign currency risk may also affect the value of the Companyâ€™s net assets and its total return on ordinary activities. Details of how the Board sets risk parameters and performance objectives can be found in the Strategic Report.

Investments exposure sensitivity analysis

An increase of 10% in the price of shares held as investments at 31 December 2015 would have increased net return on ordinary activities after taxation for the year and net assets by Â£11,553,000 (2014: Â£8,249,000). A decrease of 10% would have had an equal but opposite effect.

Derivatives instruments exposure sensitivity analysis

The Company also invests in long CFDs to gain exposure to the equity markets. An increase of 10% in the price of shares underlying the long CFDs at 31 December 2015 would have increased net return on ordinary activities after taxation for the year and net assets by Â£1,972,000 (2014: Â£3,106,000). A decrease of 10% would have had an equal but opposite effect.

FAIR VALUE HIERARCHY

The Financial Reporting Council defines a fair value hierarchy that classifies financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to measure their fair value.

Classification Valued by reference to

Level 1 The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3 Inputs are unobservable (i.e. for which market data in unavailable) for the asset or liability.

The table below sets out the fair value hierarchy of the Companyâ€™s financial instruments held at fair value on the Balance Sheet.

2015

2014

Level
1

Level
2

Total

Level
1

Level
2

Total

Â£â€™000

Financial instruments held
at fair value

Fixed assets â€“ investments in listed equities

115,532

â€“

115,532

82,486

â€“

82,486

Derivative assets â€“ long CFDs

â€“

1,056

â€“

7,296

Derivative liabilities â€“ long CFDs

â€“

(1,117)

â€“

(139)

==========

115,532

(61)

115,471

82,486

7,157

89,643

==========

17 CAPITAL MANAGEMENT

The Company does not have any externally imposed capital requirements. The capital of the Company comprises its gearing, which is managed by the use of long CFDs, and its issued share capital and reserves, as disclosed on the Balance Sheet above. Capital is managed in accordance with the Companyâ€™s investment policy and in pursuit of its investment objective, both of which are detailed in the Strategic Report. The principal risks facing the Company and their management are disclosed in the Strategic Report and in Note 16 above.

18 RELATED PARTY TRANSACTIONS

The Company has identified the Directors as related parties. Key management compensation paid was Â£155,000 (2014: Â£130,000). This includes fees and travel expenses paid to the Directors and Â£13,000 (2014: Â£12,000) of Employerâ€™s National Insurance contributions. Details of Directorsâ€™ remuneration and their interests in the shares of the Company are disclosed in the Directorsâ€™ Remuneration Report in the Report and Accounts.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement

For further information, please contact:

Natalia de Sousa â€“ Company Secretary

01737 837846

FIL Investments International

31 March 2016

ENDS

A copy of the Annual Report and Accounts will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The Annual Report and Accounts will also be available on the Company's website at www.fidelity.co.uk/its where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found

Fidelity Japan Trust (FJV)

Wednesday, 22nd May 2024

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year ended
31.12.2015

year
ended
31.12.2014

INVESTMENT MANAGEMENT FEE

Investment management fee

==========

==========

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