Upload
ramv71
View
230
Download
0
Embed Size (px)
Citation preview
8/13/2019 Nomura on Japan
1/83
Nomura
See Appendix A-1 for analyst certification, importan
disclosures and the status of non-US analysts.
Any authors named on this report are research
analysts unless otherwise indicated.
The investment implication of Abenomics
June 2013
Buy Japan
Nomura Securities Co., Ltd.
8/13/2019 Nomura on Japan
2/83
Contributing authors and contacts
Source: Nomura
Managing Director
Head of FX Strategy, Japan
+81 3 6703 3885
Managing Director
Chief Economist Japan
+81 3 6703 1280
Managing Director
Chief Japan Rates Strategist
+81 3 6703 3864
Managing Director
Chief Equity Strategy Japan
+81 3 6703 1680
Managing Director
Global Head of Asset Allocation Strategy
+44 207 102 7800
1
Yunosuke Ikeda
Naka Matsuzawa
Kevin Gaynor
Tomo Kinoshita
Hiromichi Tamura
8/13/2019 Nomura on Japan
3/83
Introduction
8/13/2019 Nomura on Japan
4/83
Japan has embarked on aprocess from the lost
decades to a very different future.
Abenomics is merely the toolkit to deliver that future.
Investors need to understand both the problem being
addressed and what would constitute success.
The application of the 3 Arrow toolkit has identifiable
investment implications too. However, it is unlikely that
these implication will be linear from the old Japan to
the new Japan.
In any event, whether successful or not Japan and its
markets are likely to be an important factor for the
global economy and markets for several years andtherefore cannot be ignored.
This presentation tries, as best as can be done today,
to define what success looks like and the path from
here to there.
Japan has embarked on a multi-year process
Source: Nomura3
A multi year process
Gracefuldecline, but
turning intofuture crisis?
Abenomics
Trading thetoolkit
Arrow 1
Arrow 2
Arrow 3
Objectiveachieved?
What does itlook like?
Asset classwinners andlosers
New
Opportunities
1992-2012
The problem
2013-2015
Newdirection
2015->
Success
8/13/2019 Nomura on Japan
5/83
The old Japan
8/13/2019 Nomura on Japan
6/83
Decline in potential growth rate
Decline in population
Decline in international competitiveness
Deflation entrenched as the government and the corporate
sector failed to act when needed
Lag in restructuring balance sheets after demand shocks (1990 bubble
collapse, 2008 Lehman bankruptcy shock)
Fiscal stimulus lacked consistency and monetary easing fell behind the
curve
Current account surplus and deflation exacerbated strong JPY, pressuring
corporate earnings further
Ballooning government debt and risk of JGB sell-off?
Despite increases in government debt, private sectors surplus cash flows
back into capital markets, thus preventing a fiscal crisis.
Loss of corporate competitiveness led to a decline in foreign currency
reserves, gradually depleting domestic surplus cash.
Reliance on currency policies
With fiscal and monetary policy failing to bring about intended results, the
government would have little choice but to depend on a weak currency.
Domestic political instability and waning international
influence
Asset allocation
Very long cash and deposits, bonds and underweight equities
Large offshore holdings
Domestic credit market very small
No inflation hedging required and thus small linker market
Banks balance sheets swap from loans to government
bond holdings
Fixed income investment behaviour becomes focused on
particular modes of analysis such as carry and roll
Decline in growth potential and deepening deflation
Source: Nomura5
The problems The market implications
8/13/2019 Nomura on Japan
7/83
Potential growth declined after the 1990 bubble burst
Source: Cabinet Office
Real potential growth rate
Japans potential growth rate declined from above 4.0% to around 0.5% after the two
demand shocks (i.e., collapse of financial bubble in 1990, Lehman shock in 2008).
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1995 2000 2005 2010
(%)
6
8/13/2019 Nomura on Japan
8/83
Nominal GDP growth
With lower inflation rates, nominal GDP growth fell to zero
Source: Cabinet Office, Government of Japan
Japans GDP growth rate has been kept extremely low over the past two decades
7
-5
0
5
10
15
20
25
1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
(FY)
Nomura
Forecast
(12-15)
8/13/2019 Nomura on Japan
9/83
Long-term population trend
And the population peaked in 2010
Note: 1)Some data missing for periods of conflict. 2) Projections are median estimates from National Institute of Population and Social Security Research data.
Source: Nomura, based on Ministry of Internal Affairs and Communications, and National Institute of Population and Social Securities Research Data
Population decline and an aging society are hindering growth
8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
0
20
40
60
80
100
120
140
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Estimates
(mn) (%)
(CY)
Total Population(lhs)
% of population 65 years and
over (rhs)
8/13/2019 Nomura on Japan
10/83
Perhaps little surprise then that there has been instability in
Japan politics?
9
Source: Nomura, based on Nikkei
The big difference is, Prime Minister Abe has won great popularity unlike several previous Prime Ministers.
We finally see signs of political stabilization, which would be positive for the economy.
Liberal Democratic Party (majority) Democratic Party (the leading party) ?
LDP (the leading party ) LDP (majority) LDP (majority) The House of
Representatives
House of Councillors
Democratic Party
(majority)
0
10
20
30
40
50
60
70
80
90
01 03 05 07 09 11 13 15 17 CY
Koizumi
AbeFukuda
AsoHatoyama
Kan
Abe
cabinet support rating, %
Noda
29Jul 09 11 Jul 04
11 Jul 05
29 Jul 07
30 Aug 09
11 Jul 10
16 Dec 12
28 Jul 13
Dec16?
Jul 16
Cabinet support rating
8/13/2019 Nomura on Japan
11/83
120
130
140
150
160
170
180
190
200
210
220
2000 2002 2004 2006 2008 2010 2012 2014 (FY)
(as % o f no minal GDP)
And given this macro and political backdrop, debt levels have
continued to grow
Primary central and local government fiscal balance Japans government debt(vs. nominal GDP)
Source: Nomura and Japans MOF
10
Source: Nomura and Japans MOF
-8
-6
-4
-2
0
2
4
1990 1993 1996 1999 2002 2005 2008 2011 2014
If add itional s timulus is implemented in FY14/15
If no addi tional stimulus in FY14/15
Reduction target (half FY10 level)
(as % of no minal GDP)
(FY)
8/13/2019 Nomura on Japan
12/83
With large domestic holdings
11
Note: Figures are as of CY2002.
Source: Nomura, BOJ
JGBs are mainly held by domestic financial institutions
12.0
37.5
22.2
9.7
2.58.7
7.3
Bank of Japan
Depositary institution
Insurance & Pension
funds
General government
Households
Overseas
Breakdown of JGB holder (%)
8/13/2019 Nomura on Japan
13/83
Lack of growth and weak domestic capex has led to continued
corporate surplus and a tiny credit market
Source: Nomura, based on Bank of Japan data
Abenomics is trying to move frozen cash in corporate sector
Targeting 70trn capex from current 60+ trn level
12
Cash of Japanese companies Private capital expenditure
160
170
180
190
200
210
220
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
(trn)
Note: Total cash and deposits for nonfinancial business
50
55
60
65
70
75
80
2000 2004 2008 2012
(trn)
(FY)
70trn
8/13/2019 Nomura on Japan
14/83
And so while Japanese banks are some of the healthiest, they
have very high loan-to-deposit ratios
Source: Nomura, Company data 13
Ranking of Banking Systems Based on Banks Balance Sheet
Indicators, 2012:Q3 CET1 ratio (FY12)
Sources: Bloomberg L.P.; SNL Financial; and IMF staff estimates.Note: AT = Austria; CH = Switzerland; DE = Germany; ES = Spain; FR = France; GR = Greece; IE = Ireland; IT = Italy;
JP = Japan; NL = Netherlands; PT =
Portugal; SE = Sweden; UK = United Kingdom; US = United States. The closer a banking system is to the center of the
figure, the more balance sheet
adjustment it needs to undertake. Rankings are based on the aggregate position for a large sample of banks
headquartered in each country (more than 90
percent of the banking system in most cases) as of 2012:Q3 or as of the latest available data before then. Bank buffers
are the ratio of core Tier 1 capital and
loan loss reserves to impaired loans as reported in banks financial statements. The loan-to-deposit ratio is gross loans as
a percentage of deposits (for Italy
and Spain, adjusted for retail debt). Change in the impaired loan ratio is the annual change in impaired loans as a
percentage of gross loans. Return on assets
is average annualized retained earnings over the past year as a percentage of tangible assets minus derivatives. See
footnotes 17 and 18 in the main text.
Japanese banks
0%
2%
4%
6%
8%
10%
12%
MUFG
SMFG
Mizu
ho
JPM
Citi
BOA
HSBC
Barc
lays
BNP
SG
Deu
tsc
he
CET1 ratio
Totally different from early 2000s when Japans banks faced a major NPL concern
8/13/2019 Nomura on Japan
15/83
Composition of household financial assets in Japan
Household asset allocations different from other G7 countries for
good reason
Cash has been king for the long deflation period in Japan
14
Cash & deposits,35.8%
Cash &deposits,
14.3%
Cash & deposits,55.2%
Bond s, 7.0%
Bonds, 9.5%
Bonds, 2.1%
Investment trusts,7.2%
Investment trusts,11.8%
Investment trusts,3.8%
Equities, investments,14.3%
Equiti es, investments,32.8%
Equities, investments,6.8%
Insurance andpension reserves,31.7%
Insurance andpension reserves,
28.1%
Insurance andpension reserves,
27.7%
Other total, 3.9%
Other total, 3.2%
Other total, 4.2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Euroarea
US
Japan
Source : Nomura, based on Bank of Japan data
TOTAL
USD15.9trn
USD54.4trn
USD25.4trn
8/13/2019 Nomura on Japan
16/83
Long-term household asset composition of equity and real interest rate
Japanese households portfolios badly protected against inflation risk
A rise in CPI may push households to shift deposits that have been steadily rising from late 1980s into risk
assets
15Source : Nomura, based on Ministry of Internal Affairs & Communications and Bank of Japan data
-5
-4
-3
-2
-1
0
1
25
10
15
20
25
30
79 82 85 88 91 94 97 00 03 06 09 12
Equities, investments & investment trusts (lhs) Real interest rate (deposit rate - CPI (ex food & energy))(rhs)% inv, %
CY
J i f d h d d J it
8/13/2019 Nomura on Japan
17/83
Weight of Japanese Equities in Corporate Pension Funds and GPIF
Japanese pension funds have decreased Japanese equity
allocation for more than a decade
Pension funds are possible net buyers of Japanese equities other than nonresident and individual investors
16
5
10
15
20
25
30
35
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Corporate Pension Funds GPIF(%)
Source : Nomura, based Government Pension Investment Fund and Pension Fund Association data
8/13/2019 Nomura on Japan
18/83
TOPIX 12 month forward P/E
No surprise that equities are cheap versus historical levels
Current P/E of 16.2x still lower than post-2000 average of 19.6x
17
0
10
20
30
40
50
60
70
80
90
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
(times)
Source: Nomura, based on Tokyo Stock Exchange and Toyo Keizai data
8/13/2019 Nomura on Japan
19/83
Source: MOF, Nomura
The earthquake changed current account dynamics
18
-16.8
-24.8
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
2007 2008 2009 2010 2011 2012
Export volume Import volume
Price Actual change
(JPYtrillion, annualized)
Cumulative change since April 20070
20
40
60
80
100
120
14070
80
90
100
110
120
130
140
150
160
170
180
1995 1997 1999 2001 2003 2005 2007 2009 2011
Terms of trade (lhs)
Oil price (rhs, inverted)
Terms of trade deteriorates Oil price rises
Cumulative changes in trade balance Terms of trade and oil price
8/13/2019 Nomura on Japan
20/83
Source: MOF, Nomura
Loss of nuclear generators had an impact too
19
Changes in nominal mineral fuels imports
(from Jan-Nov 2010 to Jan-Nov 2012)
Estimated capacity utilization ratio
of nuclear generators in Japan
32.3%27.9%
57.1% 50.1%
15.8%11.2%
6.6%
2.9%
-3.6%
22.5%
14.1%
1.1%
38.9%
30.8%
53.5%
72.6%
29.8%
12.3%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Mine ra l fue ls Crude o il Pe troleumproducts
LNG LPG Coal
Volume contribution
Price contribution
Percentage changes
5%
10%15%
64%
32%
21%
16%
5%0%
5% 5%
0%
5%
0%
10%
20%
30%
40%
50%
60%
70%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Before
quake
2011 2012 2013
Upside scenario (Ikata 3, Tomari 1&2, Shiga 2, andSendai 1&2 restart)
Current schedule (Ohi 3&4 restart)
8/13/2019 Nomura on Japan
21/83
FDI flows in Japan
Source: Nomura and the Bank of Japan20
-16,000
-14,000
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Overseas FDI by residents
Inward FDI by non-residents
JPYbn
FDI outflows have recovered since 2010
8/13/2019 Nomura on Japan
22/83
Defining Successthe new Japan
8/13/2019 Nomura on Japan
23/83
Return to positive trend growth in region of 1-1.25%
End psychology of deflation with return to stablepositiveinflation
Fiscal accounts on stable footing
Higher return on capital
Retain culture but modernise attitudes
Higher labour and social mobility
Political stability at home and more influence abroad
Asset allocation
Increased equity holdings
Reduced cash holdings
Higher credit exposure
Inflation protection to play a role
Real estate included
Ambiguous impact on net foreign holdings
Manage process of higher bond yields
Re-emergence of domestic credit market and linker market
Leveraged loan market and securitised asset market growth
Higher domestic and cross-border M&A volumes (inward
FDI higher too)
What is the objective?
Source: Nomura22
Success The market implications
8/13/2019 Nomura on Japan
24/83
Economic outlook: yearly
23
Forecast assumptionsNomuras outlook on Japans economy
Source: Nomura
Source: Nomura
, y-y, except where noted FY12 FY13 FY14 FY15
USD/JPY rate
(average)83.0 101.0 105.0 108.0
Consumption
tax rate (end-
fiscal year)
5.0 5.0 8.0 10.0
WTI spot
price110.0 100.0 97.0 96.0
FY10 FY11 FY12 FY13 FY14 FY15 CY10 CY11 CY12 CY13 CY14 CY15
(F) (F) (F) (F) (F) (F) (F)
Real GDP 3.4 0.2 1.2 2.5 1.8 1.9 4.7 -0.6 2.0 1.6 2.5 1.7 2.6 1.3 2.0 2.3 1.2 1.2 2.9 0.3 2.9 1.6 2.0 1.0
2.5 1.0 0.8 1.6 0.9 1.4 2.5 0.3 1.8 0.8 1.5 1.1
0.1 0.2 1.2 0.7 0.3 -0.2 0.4 -0.1 1.1 0.8 0.4 -0.1
0.8 -1.0 -0.8 0.2 0.7 0.7 1.7 -0.9 -0.9 0.0 0.5 0.7
Private consumption 1.7 1.5 1.6 2.1 0.1 0.8 2.8 0.4 2.3 1.6 1.2 0.3
Private housing investment 2.2 3.7 5.3 6.8 0.1 -2.1 -4.5 5.5 3.0 7.9 1.4 -1.1
Private capital expenditure 3.6 4.1 -1.5 0.4 6.3 6.8 0.3 3.3 2.0 -2.5 5.9 6.5
Changes in inventory investment 1.0 -0.5 -0.1 0.1 0.0 0.1 0.9 -0.5 0.0 0.0 0.0 0.1
Public consumption 2.0 1.4 2.6 1.7 1.2 1.4 1.9 1.4 2.6 1.9 1.2 1.4
Fixed public capital formation -6.4 -2.2 15.2 8.3 1.0 -8.9 0.7 -7.5 12.5 9.9 4.6 -7.1
Exports 17.2 -1.6 -1.3 4.0 8.5 9.4 24.4 -0.4 -0.1 1.4 8.0 9.2
Imports 12.0 5.3 3.8 3.0 5.0 5.9 11.1 5.9 5.4 1.5 5.3 5.8
Nominal net exports (as % of GDP) 0.9 -1.3 -2.2 -2.5 -2.0 -1.5 1.2 -0.9 -2.0 -2.5 -2.2 -1.7
Nominal GDP 1.3 -1.4 0.3 2.4 4.1 3.2 2.4 -2.5 1.1 1.0 4.3 3.2
GDP deflator -2.0 -1.7 -0.9 -0.1 2.2 1.2 -2.2 -1.9 -0.9 -0.6 1.8 1.5
Industrial production 9.3 -1.0 -3.4 3.7 3.5 3.4 16.4 -2.3 -0.3 -0.2 4.9 3.1
Corporate goods price index 0.4 1.3 -1.1 1.5 3.9 2.1 -0.1 1.5 -0.9 1.0 3.4 2.3
Consumer price index -0.6 -0.1 -0.3 0.3 2.9 1.8 -0.7 -0.3 0.0 -0.1 2.4 1.9
Excl. fresh food -0.9 0.0 -0.2 0.4 3.0 1.9 -1.0 -0.3 -0.1 0.1 2.4 1.9
Excl. fresh food and the impact of
consumption tax rate hike-0.9 0.0 -0.2 0.4 0 .7 1.1 -1.0 -0.3 -0.1 0.1 0.7 1.0
GDP deflator -2.0 -1.7 -0.9 -0.1 2.2 1.2 -2.2 -1.9 -0.9 -0.6 1.8 1.5
Unemployment rate 5.0 4.6 4.3 3.9 3.8 3.5 5.0 4.6 4.3 4.0 3.8 3.6
Customs cleared trade balance ( trn) 5.3 -4.4 -8.2 -10.3 -9.0 -7.6 6.6 -2.6 -6.9 -10.6 -9.3 -8.2
Balance of goods ( trn) 6.5 -3.5 -6.9 -8.7 -7.5 -6.0 8.0 -1.6 -5.8 -9.1 -7.8 -6.7
Balance of goods and services ( trn) 5.2 -5.3 -9.5 -9.7 -8.1 -6.5 6.6 -3.4 -8.3 -10.4 -8.4 -7.2
Current account balance ( trn) 16.7 7.6 4.3 6.0 8.9 11.2 17.9 9.6 4.8 5.0 8.2 10.4
Current account balance ($ bn) 194.8 96.5 51.4 59.5 84.5 103.6 203.9 119.0 60.9 51.4 79.1 96.4
As a % of nominal GDP 3.5 1.6 0.9 1.2 1.8 2.1 3.7 2.0 1.0 1.0 1.6 2.0
8/13/2019 Nomura on Japan
25/83
The 3 Arrows toolkit for achieving the policy objective
8/13/2019 Nomura on Japan
26/83
This is a multi-year process.
There are several failure
modes and dates to get
through.
Ultimate success is not
guaranteed, which implies
market returns will not move in
a straight line.
Reforms like this almost
always generate unintended
consequences and unknown
unknowns we have to keep
monitoring.
However, falling at the first
hurdle seems unlikely plus
sensible policymakers always
make the cost of reversal higher
than the cost of moving on (c.f.
the euro area).
Investors may believe or be
sceptical but the process is
likely to be live and important
globally for several years.
What is the package of tools?
Source: Nomura25
Observations Three Arrows to re-engineer Japans economic engine
represents three arrows under
Abenomics
standsfor the effects that have
already materialised whileshows effects that have partiallymaterialised
Aggressive
monetary
policy
Flexible
fiscal
policy
Growth
strategy
(including taxreform)
Higher
importprices
Break away from deflation
Shrinkage of
deflation gap
Rise incorporate
profit
Weakeryen
Higher
stockprices
Creation of effectivedemand = higher
growth
Increase in
privateconsumption
Increase inpublic
investmentHigherwages
Increase in
corporate capex
Increase in
exports
Wealtheffects
Financial
markets
Expectationeffects
8/13/2019 Nomura on Japan
27/83
8/13/2019 Nomura on Japan
28/83
132.0
200.0
270.0
0
50
100
150
200
250
300
1980 1985 1990 1995 2000 2005 2010 2014
Current account
Currency in circulation
Banknote
Monetary base
JPY, trn target
Aiming to control monetary base rather than interest rate
Monetary base: actual value and target by the BOJ
Note: December's average figures are used for actual figures. For target figures, year-end figures are used.
Source: The Bank of Japan and Nomura Securities Co. 27
Th BOJ di it b l h t i l
8/13/2019 Nomura on Japan
29/83
The BOJ expanding its balance sheet aggressively
The Bank of Japans balance sheet
28Source: The Bank of Japan and Nomura Securities Co.
Others
11 1Q 59.1 0.3 0.2 0.2 0.02 82.6 18.2 53.9 - 0.6 1.5 0.2 126.2 40.8 80.9 4.5 142.42Q 60.9 1.6 0.6 0.3 0.02 66.1 19.3 35.3 0.2 0.0 1.5 0.1 117.0 33.2 79.3 4.5 129.63Q 62.0 1.5 1.1 0.6 0.05 72.5 22.4 39.4 0.4 0.0 1.4 0.1 118.0 34.6 78.9 4.5 137.74Q 66.1 2.0 1.5 0.8 0.06 72.5 24.1 36.0 0.5 0.0 1.5 0.1 125.1 36.5 84.0 4.5 143.0
12 1Q 70.7 1.6 2.0 0.8 0.07 64.3 16.6 35.4 0.5 0.0 1.4 0.1 119.8 34.4 80.8 4.5 139.52Q 77.5 1.9 2.2 1.3 0.09 60.6 16.7 32.4 0.4 0.0 1.4 0.0 128.9 43.1 81.2 4.5 143.6
3Q 81.7 1.4 2.7 1.4 0.10 62.7 21.2 30.7 0.4 0.0 1.3 0.0 129.4 44.0 80.9 4.5 149.94Q 89.2 3.3 2.1 2.9 1.5 0.11 59.3 24.5 26.9 0.4 0.0 1.4 0.0 138.5 47.2 86.7 4.6 158.4
13 1Q 91.3 3.4 1.2 2.9 1.5 0.12 63.8 34.0 21.7 0.4 0.0 1.4 0.0 146.0 58.1 83.4 4.5 164.3
12 1 67.9 1.7 1.7 0.8 0.07 64.7 14.6 37.2 0.5 0.0 1.5 0.1 114.6 29.9 80.2 4.5 136.9
2 70.1 1.6 1.8 0.8 0.07 69.8 14.5 42.6 0.5 0.0 1.5 0.1 113.0 28.0 80.5 4.5 144.2
3 70.7 1.6 2.0 0.8 0.07 64.3 16.6 35.4 0.5 0.0 1.4 0.1 119.8 34.4 80.8 4.5 139.5
4 73.2 1.6 2.0 0.9 0.08 63.4 17.2 34.7 0.5 0.0 1.4 0.1 123.1 36.4 82.2 4.5 141.2
5 76.3 1.7 2.2 1.1 0.09 61.5 16.8 33.3 0.5 0.0 1.4 0.1 115.7 30.9 80.3 4.5 142.8
6 77.5 1.9 2.2 1.3 0.09 60.6 16.7 32.4 0.4 0.0 1.4 0.0 128.9 43.1 81.2 4.5 143.6
7 79.9 1.7 2.4 1.3 0.09 60.1 17.8 31.0 0.4 0.0 1.4 0.0 122.5 36.8 81.1 4.5 145.5
8 82.9 1.5 2.6 1.3 0.09 61.5 19.7 30.6 0.4 0.0 1.4 0.0 122.6 37.0 81.1 4.5 150.0
9 81.7 1.4 2.7 1.4 0.10 62.7 21.2 30.7 0.4 0.0 1.3 0.0 129.4 44.0 80.9 4.5 149.9
10 86.1 1.5 2.9 1.4 0.11 61.7 21.5 29.0 0.4 0.0 1.4 0.0 128.5 42.8 81.3 4.5 153.7
11 88.9 1.9 3.0 1.5 0.11 60.9 22.7 27.0 0.4 0.0 1.4 0.0 125.9 39.7 81.7 4.5 156.4
12 89.2 3.3 2.1 2.9 1.5 0.11 59.3 24.5 26.9 0.4 0.0 1.4 0.0 138.5 47.2 86.7 4.6 158.4
13 1 91.3 3.3 2.0 3.0 1.5 0.11 58.5 27.3 23.3 0.4 0.0 1.4 0.0 130.9 43.7 82.6 4.6 159.8
2 92.9 3.3 2.0 3.0 1.5 0.12 60.6 29.0 23.6 0.4 0.0 1.4 0.0 131.3 43.9 82.9 4.5 163.53 91.3 3.4 1.2 2.9 1.5 0.12 63.8 34.0 21.7 0.4 0.0 1.4 0.0 146.0 58.1 83.4 4.5 164.3
4 98.1 3.4 1.4 2.9 1.7 0.13 67.1 36.0 23.1 0.4 0.0 1.4 0.0 155.3 66.2 84.5 4.6 174.7
Outlook
140 13.0 2.2 3.2 2.5 0.14 59.0 - - - - - - 200.0 107.0 88.0 5.0 220.0
190 18.0 2.2 3.2 3.5 0.17 72.9 - - - - - - 270.0 175.0 90.0 5.0 290.0
End-2013
End-2014
CP
(repos)
Short-
term
JGBs
(net)
Fund
supply
operation
s
against
pooled
collateral
Funds-Supplying
Operation
to Support
Financial
Institution
s in
Disaster
Areas
PecuniaryTrusts
Japan Real
Estate
Investment
Trusts [J-
REITs] Held
as Trust
Property
Stock
(amount
outstanding)
Pecuniary
Trusts
Index-
Linked
Exchange-
Traded
Funds[ETFs
] Held as
Trust
Property
JGBs
(Outright
Purchases)
Breakdown of the BOJ's Balance Sheet and their Outlook Monetary base
Money
in
trust
(stock)
Commercial
paper
Corporate
bond
Loan
Support
Program
CoinsLoans
Current
acct
deposits
BoJ
Accounts/Total
Assets
Bank
notes
Th BOJ t t b b t 75% f l i d JGB
8/13/2019 Nomura on Japan
30/83
The BOJ set to buy about 75% of newly-issued JGBs
Comparison of monthly JGB issuance with BOJ purchases of JGBs
Note: Bond issuance data are monthly amounts for FY13 while the bond purchase figures are monthly averages for May 2013 through end-2014.
Source: Japan Ministry of Finance, the Bank of Japan and Nomura Securities Co. 29
(trn) (trn)
Remaining maturity
Up to 1 year 0.22
2-year bonds 2.90
5-year bonds 2.70
10-year bonds 2.40
20-year bonds 1.20
30-year bonds 0.57 More than 10 years 0.801.20
40-year bonds 0.13
0.05 0.01
Floating-rate bonds 0.07
9.95 7.50
Amount of JGBs to be purchased by the BOJ per
month
Gross JGB issuance per month
Type of JGBs Type of JGBs
Bonds w ith couponsBonds with coupons
Inf lation-linked bonds Inflation-linked bonds
TotalTotal
5.60More than 1 year
and up to 5 years3.003.50
1.90
More than 5 years
and up to 10 years
3.003.50
>
>
8/13/2019 Nomura on Japan
31/83
The maturity of JGBs held by the BOJ set to rise
JGBs held by the Bank of Japan as of end-February 2013
30
Source: Nomura Global Economics from the BOJ and the MOF of Japan
JPY trn
Remainingmaturity
(years)
JGB held by the BOJ
APP Other Total holdings
8/13/2019 Nomura on Japan
32/83
3
4
5
6
7
8
9
0
20
40
60
80
100
120
140
160
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Issued JGBs outstanding (lhs)
Average years to maturity (rhs)
trn
FY
ears
Longer maturity for BOJ purchases to help JGB market
Amount of issued JGBs outstanding and average years to maturity
Note: Actual figures through FY11; budget draft for FY12
Source: Nomura, based on MOF data 31
J t it f d fl ti i t
8/13/2019 Nomura on Japan
33/83
Japan to exit from deflation environment
Source: Nomura, based on BOJ and Cabinet Office data
Forecasts of the majority of Policy Board Members
32
-0.2
0.7
1.4
1.9
0.90.8
1.6
2.2
0.4
0.7
1.1
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2012 2013 2014 2015
Forecasts of the majority of Policy Board Members Upper bound
Forecasts of the majority of Policy Board Members Mediun
Forecasts of the majority of Policy Board Members Lower bound
Nomura's forecast
%
Fiscal year average
8/13/2019 Nomura on Japan
34/83
-10
-8
-6
-4
-2
0
2
4
6
-3
-2
-1
0
1
2
3
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
Core CPI (lhs)Supply/demand gap (lagged by 2 quarters, rhs)
(% y-y) (%)
(CY)
2% inflation is a challenging target
33
Core CPI (all items less fresh food) and output gap simulation
Note: (1) Actual output gap figures are Cabinet Office assumptions, forecasts by Nomura.
(2) We assume potential growth rate of 0.5%, the same as the figure used by the BOJ. For estimates, we use the median forecast of the majority of policy board
members, as shown in the BOJ's Outlook Report (April). (3) Core CPI is extrapolated from the future supply/demand gap.
Source: Nomura, based on BOJ, Cabinet Office, and MIAC data
2% i fl ti t t i h ll
8/13/2019 Nomura on Japan
35/83
2% inflation target is a challenge
Historical CPI inflation
34Note: Core CPI is CPI excluding fresh food.
Source: Nomura, based on Ministry of Internal Affairs and Communications data
-4
-2
0
2
4
6
8
10
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Headline CPI
Core CPI ( = CPI excluding fresh food)
Core core CPI ( = CPI excluding energy and food)
2% level
% y-y
8/13/2019 Nomura on Japan
36/83
L i d ll
8/13/2019 Nomura on Japan
37/83
-15
-10
-5
0
5
10
02 03 04 05 06 07 08 09 10 11 12 13
Total loans Large enterprises
Individuals Small enterprises
% y-y
Loans increase gradually
36
Source: Nomura, based on CEIC and BOJ data
Domestic bank loan growth
8/13/2019 Nomura on Japan
38/83
SECOND ARROW: large economic impact through Q1 2014
8/13/2019 Nomura on Japan
39/83
0
500
1,000
1,500
2,000
2,500
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
(annualized, bn)
2011 2012 2013 2014
FY11 2nd
budget
FY11 1st supplementary budget
FY11 3rd budget
FY12 budgetforreconstruction
FY12 1st economic stimuluspackage
FY12supplementary
budget
FY11 4th
budget
FY12 2nd economic stimuluspackage
FY13 reconstruction package
2015
FY14 economicstimulus package
FY14 reconstruction package
FY15 economicstimulus package
Forecasts for public works spending as part of reconstruction efforts and economic stimulus
Source: Nomura Global Economics and MOF38
g p g Q
Economic packages
8/13/2019 Nomura on Japan
40/83
Economic packages
Emergency economic stimulus package to revive the Japanese economy
Note: Figures for public works spending are Nomura estimates based on Cabinet Office estimates of project sizes.
Source: Nomura, based on MOF and Cabinet Office data39
JPY trn
MeasuresFiscal
Spendingoutlay
Reconstruction and disaster management 3.8 5.5
Acceleration of post-quake reconstruction 1.6 1.7
Disaster prevention and mitigation 2.2 3.8
Wealth creation through growth 3.1 12.3
Enhancing growth potential by attracting private investment 1.8 3.2
Support for SMEs, small businesses, and
agriculture/forestry/fisheries0.9 8.5
Support for Japanese companies overseas 0.1 0.3Training and employment 0.3 0.3
Ensuring the livelihood of the public and the revitalization of regional
areas3.1 2.1
Public livelihood (healthcare, childcare, etc) 0.8 0.9
Regional revitalization (help for farmers, etc) 0.9 1.2
Help with regional funding, rapid implementation of these
measures1.4
State's share of multiyear public works projects 0.3 0.3
Total for economic stimulus measures 10.3 20.2
Of which, public works spending 4.7 6.8
Implementation of 50% government contribution to state pensions, etc 2.8
Total for supplementary budget 13.1 20.2
Consumption tax is set to be the biggest source of tax revenue
8/13/2019 Nomura on Japan
41/83
40
Tax revenue by major taxes
Source: Nomura, based on MOF data
Consumption tax is set to be the biggest source of tax revenue
4
6
8
10
12
14
16
18
20
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Income tax
Corporate tax
Consumption tax
(trn)
FY
Nomura est
Fiscal challenges facing Japan
8/13/2019 Nomura on Japan
42/83
120
130
140
150
160
170
180
190
200
210
220
2000 2002 2004 2006 2008 2010 2012 2014 (FY)
(as % o f no minal GDP)
g g p
Primary central and local government fiscal balance Japans government debt(vs. nominal GDP)
Source: Nomura and Japans MOF
41
Source: Nomura and Japans MOF
-8
-6
-4
-2
0
2
4
1990 1993 1996 1999 2002 2005 2008 2011 2014
If add itional s timulus is implemented in FY14/15
If no addi tional stimulus in FY14/15
Reduction target (half FY10 level)
(as % of no minal GDP)
(FY)
THIRD ARROW: growth strategy under a new framework
8/13/2019 Nomura on Japan
43/83
Framework for planning and implementing Abenomics
Source: Nomura Global Economics and CEIC data 42
Consists of private-sector
participants
Will submit a proposal in June 2013
Consists of ministers and private-sector participants, headed by PMAbe
Submitted a proposal in June 2013
collaboration
Microeconomicpolicy Macroeconomicpolicy
Consists of ministers, h eaded by PM Abe Consists of ministers, BOJ
Governor and private-sectorparticipants, headed by PM Abe
Will announce in June the
Basic Policies for Economic and
Fiscal Management andStructural Reform
IndustrialCompetitiveness
Council
Headquarters forJapans Economic
Revitalization
Council onEconomic and Fiscal
Policy
Regulatory reformpanel
collaboration
Growth strategy will be announced in mid-June
8/13/2019 Nomura on Japan
44/83
Growth strategy-related schedule
Source: Nomura, based on various news reports43
From mid-MayIndustrial CompetitivenessCounc il to formulate growthstrategies
21 July (tentative)Upper House elections
Post-Upper House electionsSubmission to th e Diet of the Act to Strengthen IndustrialCompetitiveness (provisional title)Further d ebate in the Regulatory Reform Council and other forums onemployment system reform
28 JuneEnd o f current Diet session
4 July (tentative)Official announcement of Upper Houseelections
By mid-MayCouncil for Science and Technology Policy and RegulatoryReform Council to rep ort their discussions
By 1718 JuneGovernment to officially announce growth strategies (and the BasicPoli cies for Economic and F iscal Management and Structural Reform)
By end-MayEducation Rebuilding
Implementation Council to report itsdiscussions
Mid-MayEstablis hment of agriculture
ind ustry-related council within th ePrime Minis ters Office
Mid-MayAhead-of- schedule announcement
of g rowth strategies? (second time)
Mr. Abes first announcement
8/13/2019 Nomura on Japan
45/83
Source: Nomura, based on Prime Ministers Office data44
Category Target
Foreign policy Advance economic partnership talks with Asia-Pacific and Europe
Launch economic diplomacy drive, including overseas visits by top officials
Promote concept of leading-edge healthcare centers on PM's visit to Russia
Promote concept of leading-edge healthcare centers on PM's visit to UAE, aim to reach agreement
Medical servicesLaunch public-private initiative Medical Excellence Japan with view to promoting Japanese healthcare
internationally
and healthcare Provide around 110bn of assistance for iPS cell research over 10 years
Amend Pharmaceutical Affairs Act in order to significantly reduce screening times
for regenerative medicine products
Allow outsourcing of cell culturing to private sector
Shorten certification review periods for medical equipment and support market entry by smaller companies
Move from an approval system to a registration system for medical equipment manufacturers
Establish a Japanese version of the National Institutes of Health (NIH)
Promote measures to tackle intractable diseases
Labor and employmentFacilitate shift of human resources from mature industries to growth industries (by increasing support
subsidies for labor movement, etc)
Expand trial employment system that supports three-month trial employment
Establish a voluntary career advancement system that helps individuals gain qualifications
Extend period in which third-year university students are prohibited
from job hunting to March, from December
Introduce mandatory practical English tests for public sector workers
Women in the workplace Call on Japanese industry to ensure at least one female is appointed to the board of every listed company
Target women accounting for at least 30% of leadership positions by 2020
Aim to eliminate childcare waiting lists by FY17
Extend eligibility for financial support to extended-hours childcare at kindergartens
Ease subsidy requirements for childcare facilities inside business premises
Call on Japanese industry to allow childcare leave to be taken until a child reaches three years old
Provide support to individuals returning to the workplace following childcare leave (retraining subsidies, etc)
Growth strategies announced by Prime Minister Abe at 19 April press conference
Mr. Abes second announcement
8/13/2019 Nomura on Japan
46/83
45
Note: Of the growth strategies mentioned in Prime Minister Shinzo Abe's speech on 17 May, we have li sted those that are not among the growth
strategies proposed by the Industrial Competitiveness Council and theme-based committees.
Source: Nomura, based on Prime Minister Shinzo Abe's speech
Growth strategies included for the first time
Measures to promote capex using leases
Break from practice of requiring startups to provide personal guarantees
Easing of visa requirements for people from Southeast Asia, including Thailand, Malaysia, and Vietnam
Creation of plan to double agricultural income
Establishment of agricultural development fund
Direct payment system for farming households
Establishment of public-private Cool Japan Promotion fund
Creation of single point of contact for processing rights related to content exports
Some numerical targets for growth strategies unveiled at news conference
Current Target Period
Private-sector capex 63trn 70trn 3 years
Overseas infrastructure order receipts 10trn 30trn 2020
Agricultural income - Double 10 years
Agriculture, forestry, and fisheries exports 450.0bn 1trn 2020
Market size of senary industry 1trn 10trn 10 years
Number of visitors to Japan 8mn people a year 1020mn -
Exports of broadcasting content - 3x or more 5 years
Non-Japanese university professors - Double 3 years
Number of universities ranked among the world's top 100
universities 2 universities 10 universities 10 years
Growth strategies announced by Prime Minister Abe on 17 May
8/13/2019 Nomura on Japan
47/83
Key components of growth strategy (1)
8/13/2019 Nomura on Japan
48/83
Growth strategy proposals by the Industrial Competitiveness Council and theme-based committees(1)
Note: The above lists various items presented by theme-based committees prior to the Industrial Competitiveness Council meeting of 23 April.
Source: Nomura, based on Industrial Competitive Council materials
47
Agenda items for theme-based committees and growth strategy candidates
Promoting industrial metabolism
Encourage industry consolidation, business restructuring Create new industries (businesses), further expand existing industries
Maintain the industrial baseMake the next five years a period of focused structural reforms to industry. Initiatives to include the introduction of a Japanese limited liability company (LLC) system (whereby profit/loss can be
offset between parent and subsidiary); greater clarification of rules and regulations for termination of employment; simplification/expansion of angel investor tax procedures; a tax regime to
promote intra-company ventures, carve outs and spinoffs; incentives for replacement of aging facilities and equipment; and corporate tax breaks to stimulate investment within Japan and f rom
overseas.
Strengthening of the human resource pool, and employment reforms
Promote measures to tackle the dwindling birth rate Reform education
Reform employment Promote employment of youth, women and the elderly
Examine ways to stem the population decline and maintain the population at a certain size. Examples include: tax breaks for c ompanies that offer childcare support; use of TOEFL in university
entrance exams and other areas; establishment of international universities either by invitation to leading overseas universit ies or jointly by Japanese universities; large-scale expansion of
student capacity at technical colleges; c reation of mid-to-long-term internships as part of formal education programs; greater diversification of work contracts (fixed contracts of over three years,
region-, job- and project-specific contracts, etc); rationalization/clarification of rules of employment; wider scope of eligibility for government subsidies, inc luding for trial employment; regional
ransfer and opening-up to the private sector of the Hello W ork scheme; establishment of social systems to support September university entrance and Gap Year programs.
Enhancing Japan's competitiveness as a place to do businessImprove the regulatory environment Rectify high-cost structures
Enhance traffic and urban infrastructures Improve urban environments
Internationalize the business environment Promote Abenomics strategy zones (tentative name) that feed directly through to
economic growthAugment measures to stimulate regional economies
Make effective use of government assets and household financial assets
Take steps to rectify areas that make it diffi cult to do business globally. Examples include: reduction in corporate tax; international leading-edge tests and their trial introduction in special zones;
separation of power transmission & distribution operations at an early stage (introduction of "negawatt" trading by this summer); implementation of the internet/ICT AutoBAHN concept; extensive
improvements to airports in the greater Tokyo area; easing of regulations on plot ratios and property uses in metropolitan areas; measures to make active use of big data and open data;
promotion of Abenomics strategy zones (tentative name); promotion of Doshusei system; sale of low-priority government assets; study into best practices for investing public and quasi-public
funds and managing associated risk.
Achieving balanced supply-demand for clean, economic energy
Supply-side (procurement) initiatives Demand-side (consumption) initiatives
Distribution initiativesAdopt policies to support the areas of supply, demand and distribution/logistics in order to secure an affordable and stable supply of the energy Japan needs. Supply-side initiatives inc lude the
early restart of nuclear power plants verified as safe, greater efficiencies in coal-fired thermal power generation via use of gas turbine combined cycle and other systems, sourcing of LNG more
widely and affordably, deregulation to promote wind power generation. Demand-side initiatives include the introduction of a purchasing scheme for cogeneration power, the introduction of
energy-saving homes equipped with energy management systems, the development and promotion of next-generation automobiles, installation of smart meters and other infrastructure (demand-
response infrastructure), promotion of the Energy Bank concept (battery development), study into possible introduction of summer time. Initiatives in the area of distribution include electricity
system reform (the establishment of wide-area regional transmission organizations, full liberalization of retail electricity sales) and the strengthening of electricity cooperation (expansion of
capacity of systems to convert frequency).
Key components of growth strategy (2)
8/13/2019 Nomura on Japan
49/83
Growth strategy proposals by the Industrial Competitiveness Council and theme-based committees(2)
Note: The above lists various items presented by theme-based committees prior to the Industrial Competitiveness Council meeting of 23 April.
Source: Nomura, based on Industrial Competitive Council materials
48
Agenda items for theme-based committees and growth strategy candidates
Creating a long-living society
Build a society in which people can live a healthy, long life Provide impetus to the healthcare industry, build a society in which everyone can receivethe world's highest levels of healthcare
Enable people to return to normal life quickly via access to high-quality healthcare
Build a society in which the health of the populace supports economic growth
Consider taking the following steps to create a society in which people live long and healthy lives: lay foundations for affordable, simple medical consultations ("one-coin consultations"); lower
medical fee deductions for the elderly; promote iPS cell research; ease regulations for approval of medical equipment; introduce a Japan-style NIH system and manage budgets of relevant
ministries/agencies on an integrated basis; introduce a "my number" system and basic income program; eliminate elderly waitlists for special homes for the aged; create a healthcare REIT market;
conduct a national debate on broader acceptance of migrant workers.
Expand agriculture exports and boost competitiveness of agriculture industry
Consolidate farmland Provide direct income compensation
Encourage corporate entry into agriculture industry (revise requirements for gaining status of
agricultural production corporation)
Promote greater industrialization of agriculture and use of ICT
Human resource development and R&D
Set up growth industry fund for agriculture, forestry and fisheries (sixth-order industry fund)Establish an export structure
Public-private initiatives with overseas partners (such as mutually beneficial partnerships in
food, energy)Agricultural special zones
Agricultural export special zones Initiatives in forestry/fishery industries
Maintain functions of farming communities
Reorient agriculture industry to one focused on the consumer rather than the producer, and aim to turn agriculture into a growth industry and an export industry. Specific initiatives include:
deregulation to support large-scale business enterprise in agriculture; use of trusts to match farmland to producers; incentives to increase use of vegetable factories; establishment of agricultural
schools and business schools; creation of an accreditation system to boost value added via introduction of Japan-style agricultural occupancy condition (AOC) scheme; establishment of agricultural
export special zones; creation of agricultural export business model with the aim of achieving Japan-style "food valleys"; construction of healthcare and long-term care facilities in farming
communities.
Enhancement of science & technology innovation and IT
Appreciably strengthen frameworks for promoting innovation in science & technology Step up public-private R&D investmentStrengthen activities to support innovation by the private sector
Enhance functions of universities and public research institutes
Enhance IP strategies, standardization strategies
Consider the following measures to promote innovation as a key source of industrial competitiveness: Reorganize the existing Council for Science and Technology Policy and strengthen its
command functions; set up the FIRST-II program as a successor to the FIRST project for leading-edge R&D; ensure an equal footing in terms of plant, property and equipment tax, etc; provide IP
support for small and midsize enterprises.
The TPP should benefit Japans economy
8/13/2019 Nomura on Japan
50/83
Impact of TPP on GDP growth
Source: Nomura, based on the Government of Japan
49
ItemImpact on GDP
(JPYtrn)% GDP
Consumption 3.0 0.61
Investment 0.5 0.09
Exports 2.6 0.55
Imports -2.9 -0.60
Net impact on GDP growth 3.2 0.66
The government looks likely to
underestimate the real economic impact of
the TPP as it merely takes into account the
impact from reducing tariffs to zero.
The TPPs actual benefits stem not only
from reduced tariffs but also from (1)
harmonized trade rules, (2) liberalized
service trade, and (3) fewer restrictions oncross-border investment activity.
The TPP is also likely to generate further
benefits by spurring negotiations for a
Japan-China-Korea FTA and RCEP
(ASEAN+6).
8/13/2019 Nomura on Japan
51/83
Other areas of growth strategy
8/13/2019 Nomura on Japan
52/83
New growth strategies featured in newspaper reports (including items under consideration)
Note: Collated from articles between 23 April and 9 May in the Nikkei, Yomiuri Shimbun, Asahi Shimbun, Mainichi Shimbun, and Sankei Shimbun. Includes items
still under consideration, so all may not be included in the final growth strategies.
Source: Nomura, based on various news reports
51
Introduction of special zones, including Abenomics strategic zones
Revival of domestic infrastructure using PFIs
Export of high-efficiency coal-fired power generation technology
Easing of regulations on industrial robot installation (to reduce factory construction costs)
Initiatives to promote wider use of affordable long-term care robots
Establishment of "human resource bank" (tentative name) as a means of providing support to SMEs when female workers take maternityand childcare leave
Initiatives to raise minimum wage
Easing of visa restrictions for Southeast Asians (Thailand, Malaysia, Vietnam, etc)
Placement of Japan tourism advertisements in overseas magazines and on television
Study into legalizing casinos
Establishment of farmland middle management organization (tentative name) to support consolidation of farmland, elimination of uncultivated farmland
Study into export of agricultural production data system in which produce cultivation technology is collated in digital form
Introduction of private-sector English language tests such as TOEFL as part of career bureaucrat examinations for new ministry and agency workers from FY16
8/13/2019 Nomura on Japan
53/83
Investment themes: Equities
8/13/2019 Nomura on Japan
54/83
Japan again: Recent TOPIX has exceeded 20-year movingaverage
8/13/2019 Nomura on Japan
55/83
Historical trend of TOPIX
Japanese stock market has seen a sudden surge after the long slump
54
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1968 72 76 80 84 88 93 98 2003 08 13
TOPIX 20-yr moving average
(FY)
Source: Nomura, based on TSE data
Market outlook: Corporate earnings and stock prices
8/13/2019 Nomura on Japan
56/83
Russell/Nomura Large Cap Recurring Profits and TOPIX
Estimated recurring profit levels returning to pre-Lehman-crisis levels, while the index is still at half the pre-
Lehman level
55
Note: Latest data as of 21 May. Recurring profits for FY12 and thereafter are based on Nomura estimates
Source: Nomura, based on Tokyo Stock Exchange
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
5
10
15
20
25
30
35
40
95 97 99 01 03 05 07 09 11 13 15
Russell/Nomura Large Cap Recurring Profits (lhs) TOPIX (rhs)(trn) TOPIX
FY
Market outlook: historically low P/E supporting bullishoutlook
8/13/2019 Nomura on Japan
57/83
TOPIX 12 month forward P/E
Current P/E of 16.2x still lower than the post-2000 average of 19.6x
56
0
10
20
30
40
50
60
70
80
90
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
(times)
Source: Nomura, based on Tokyo Stock Exchange and Toyo Keizai data
8/13/2019 Nomura on Japan
58/83
Market outlook : What does the success of Abenomicsimply?
8/13/2019 Nomura on Japan
59/83
Nikkei 225 and corporate profits
Source: Nomura from Bloomberg data
We estimate 2018 N225 at the 25,000 level, based on 1,650 EPS & 15x P/E
58
-500
0
500
1,000
1,500
2,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
85 90 95 00 05 10 15
Nikkei Average (lhs) N225-EPS (rhs)
\
yy
N225-EPS \
Japanese Banks are healthy compared with US and EUBanks
8/13/2019 Nomura on Japan
60/83
Source: Nomura, Company data 59
Ranking of Banking Systems Based on Banks Balance Sheet
Indicators, 2012:Q3 CET1 ratio (FY12)
Sources: Bloomberg L.P.; SNL Financial; and IMF staff estimates.
Note: AT = Austria; CH = Switzerland; DE = Germany; ES = Spain; FR = France; GR = Greece; IE = Ireland; IT = Italy;
JP = Japan; NL = Netherlands; PT =Portugal; SE = Sweden; UK = United Kingdom; US = United States. The closer a banking system is to the center of the
figure, the more balance sheet
adjustment it needs to undertake. Rankings are based on the aggregate position for a large sample of banks
headquartered in each country (more than 90
percent of the banking system in most cases) as of 2012:Q3 or as of the latest available data before then. Bank buffers
are the ratio of core Tier 1 capital and
loan loss reserves to impaired loans as reported in banks financial statements. The loan-to-deposit ratio is gross loans as
a percentage of deposits (for Italy
and Spain, adjusted for retail debt). Change in the impaired loan ratio is the annual change in impaired loans as a
percentage of gross loans. Return on assets
is average annualized retained earnings over the past year as a percentage of tangible assets minus derivatives. See
footnotes 17 and 18 in the main text.
Japanese banks
0%
2%
4%
6%
8%
10%
12%
MUFG
SMFG
Mizu
ho
JPM
Citi
BOA
HSBC
Barc
lays
BNP
SG
Deu
tsc
he
CET1 ratio
Totally different from early 2000s when Japans banks faced major NPL concerns
Signs of leveraging increasing by Japanese companies;bank lending steadily increasing
8/13/2019 Nomura on Japan
61/83
Loan growth of Japanese banks y-o-y
60
-6
-5
-4
-3
-2
-1
01
2
3
4
5
01 02 03 04 05 06 07 08 09 10 11 12 13
(%)
Source: Nomura, based on BOJ
Individual investors starting to come back into theJapanese equity market
8/13/2019 Nomura on Japan
62/83
61
Share of brokered trading turnover on Japans three main
markets
Net subscription of publicly offered Japanese equities
investment trusts
-400
-200
0
200
400
600
800
1,000
Mar-
10
May-1
0
Ju
l-10
Sep-1
0
Nov-1
0
Jan-1
1
Mar-
11
May-1
1
Ju
l-11
Sep-1
1
Nov-1
1
Jan-1
2
Mar-
12
May-1
2
Ju
l-12
Sep-1
2
Nov-1
2
Jan-1
3
Mar-
13
May-1
3
(bln yen)
0
10
20
30
40
50
60
70
80
00 01 02 03 04 05 06 07 08 09 10 11 12 13
(%)
(CY)
Nonresident investors
Retail investors
Japanese institutional investors
Source: Nomura, based on Tokyo Stock Exchange Source: Nomura, based on Japan Investment Trusts Association
Implementation of individual savings account from Jan 2014 hasbig potential to move retail investors cash in to riskier assets
8/13/2019 Nomura on Japan
63/83
62
Value of stock ISA's in UK
Composition of household financial assets in Japan, the US,
and Europe
16
26.330.3
34.5
46.8
55.1
70.4
80.1 78.6
116.1
173.5
192.7
0
20
40
60
80
100
120
140
160
180
200
00 01 02 03 04 05 06 07 08 09 10 11
(bln pounds)
Cash &deposits,
35.8%
Cash &deposits,
14.3%
Cash &deposits,
55.2%
Bonds, 7.0%
Bonds, 9.5%
Bonds, 2.1%
Investmenttrusts, 7.2%
Investmenttrusts, 11.8%
Investmenttrusts, 3.8%
Equities,investments,
14.3%
Equities,investments,
32.8%
Equities,investments,
6.8%
Insurance andpension
reserves,31.7%
Insurance andpension
reserves,28.1%
Insurance andpension
reserves,27.7%
Other total,3.9%
Other total,3.2%
Other total,4.2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Euroarea(USD25.1trn)
US(USD54.4trn)
Japan(USD15.5trn)
Note: Data after 2009 includes Personal Equity Plan.
Source: Nomura, based on Financial Services Agency
Note: Data for Japan and the US as of end-Dec 2012; data for Europe as of
end-Sep 2012.
Source: Nomura, based on BOJ
When the current growth strategy is a success,government debt outlook should stabilize
8/13/2019 Nomura on Japan
64/83
Government Outlook for Outstanding Debt
63
Assumption of Growth Strategy
Scenario: The average annual growth rate
for the FY2011FY2020 period is projected
to reach approximately 3% in nominal and
2% in real terms. The rate for change in
the Consumer Price Index is projected to
turn positive in FY2012, and to stay as
high as around 2%over the medium to
long term.
Assumption of Prudent Scenario: The
average annual growth rate for the
FY2011FY2020 period is projected to
reach mid-1% in nominal and over 1% in
real terms. The rate of change in the
Consumer Price Index is projected to turn
positive in FY2012, and to stay as high as
around 1% over the medium to long term.
Source: Nomura, based on Cabinet Office
100
125
150
175
200
225
250
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Actual
Prudent Scenario
Growth Strategy Scenario
(FY)
(% of nominal GDP)
8/13/2019 Nomura on Japan
65/83
8/13/2019 Nomura on Japan
66/83
8/13/2019 Nomura on Japan
67/83
Investment Themes: Rates
Market forecast
(%)
8/13/2019 Nomura on Japan
68/83
67
Source: Nomura
- We expect 10yr yields to trade at around 0.80% at end-June and 0.70% at end-December. We expect the next major
market downturn to take place sometime in January-March 2014.
- We expect 10yr UST yields to trade in a 1.8-2.2% range at end-June and trade in a 1.8-2.2% at end-December.
- As the amount of JGB purchases by the BOJ is set to exceed the national budget deficit, JGB supply and demand
should tighten if investors simply replace redeemed bonds.
- The BOJ is unlikely to increase JGB purchases further. It could increase equity purchases if conditions warrant. We
think the Japanese government will devise a supplementary budget after the July upper house election.
- Fed officials will likely tone down their language on an early QE3 exit toward summer.
- As US rates rise, major domestic investors and retail investors (via toshin) could shift funds out of JGBs.
-Weaker JPY could cause investor selling of super-long JGBs that exceeds BOJ purchases.
(%)
Latest
7-Jun
Japan
Basic loan rate 0.30 0.30 0.30 0.30 0.30 0.30 0.30
Unsecured O/N call 0.08 0.08 0.00 ~ 0.10 0.08 0 .00 ~ 0.10 0.08 0.00 ~ 0.10 0.08 0 .00 ~ 0.10 0.08 0.00 ~ 0.10 0.08 0 .00 ~ 0.10 3M Tibor 0.23 0.22 0.20 ~ 0.23 0.20 0.18 ~ 0.23 0.20 0.18 ~ 0.23 0.20 0.18 ~ 0.23 0.20 0.18 ~ 0.23 0.20 0.18 ~ 0.23
2yr JGB 0.13 0.13 0.10 ~ 0.16 0.11 0.10 ~ 0.16 0.11 0.10 ~ 0.16 0.13 0.10 ~ 0.18 0.15 0.11 ~ 0.20 0.15 0.11 ~ 0.20
5yr JGB 0.28 0.33 0 .23 ~ 0.50 0.25 0 .20 ~ 0.45 0.25 0 .20 ~ 0.45 0.33 0 .20 ~ 0.55 0.43 0 .25 ~ 0.60 0.43 0 .25 ~ 0.60
10yr JGB 0.84 0.80 0.60 ~ 1.00 0.70 0.60 ~ 0.95 0.70 0.60 ~ 0.95 0.80 0.60 ~ 1.10 0.95 0.65 ~ 1.20 0.95 0.65 ~ 1.20
20yr JGB 1.66 1.60 1.45 ~ 1.80 1.55 1.45 ~ 1.80 1.55 1.45 ~ 1.80 1.70 1.45 ~ 1.95 1.80 1.50 ~ 2.05 1.80 1.50 ~ 2.05
30yr JGB 1.80 1.75 1.60 ~ 1.95 1.70 1.60 ~ 1.95 1.70 1.60 ~ 1.95 1.90 1.50 ~ 2.15 2.00 1.70 ~ 2.25 2.00 1.70 ~ 2.25
USD/JPY 97.56 98 94 ~ 105 98 94 ~ 105 100 94 ~ 105 103 96 ~ 106 105 98 ~ 110 105 98 ~ 110
EUR/JPY 128.96 127 123 ~ 135 127 123 ~ 135 128 123 ~ 135 130 125 ~ 135 132 125 ~ 138 132 125 ~ 138
Nikkei 225 (K) 12.88 13.5 12.0 ~ 15.0 13.5 12.0 ~ 15.0 14.0 13.0 ~ 16.0 14.5 13.0 ~ 16.0 15.5 14.0 ~ 16.5 15.5 14.0 ~ 16.5
2013 2014
June September June September December March
Key issues
8/13/2019 Nomura on Japan
69/83
BOJ: Market stabilization measures, policy duration, further easing
options
Government: Stimulus measures, fiscal reform, consumption tax hike
Investors: Domestic accounts reducing yen bond exposure, their
alternative investment options, foreign investor trends
Money flow: A decline in current account surplus and capital flight,bank deposit-loan balance, retail investors toshin flow
US and eurozone economies: Monetary easing (exit), Japanization of
euro area and US markets
68
8/13/2019 Nomura on Japan
70/83
Summary of long-term views
8/13/2019 Nomura on Japan
71/83
Long-term views (from end-2013; accelerated growth, end to monetary easing)
- Weak yen should encourage investor and corporate funds to shift into foreign markets; yen
rates to trade in higher ranges as deflationary pressures decrease.
- Retirement of baby-boomers helps companies reduce payrolls (2012~); wage deflation eases.
However, we expect CPI inflation to remain in a 0.5-1.0% range, with the BOJ missing its 2.0%
inflation target.
- A consumption tax hike from April 2014; decrease in bank deposits and increase in public
pension funds to create flattening pressure; ahead of a consumption tax hike, last-minutepurchases should boost spending in H2 2013.
- UST rates back up as the Fed exits QE3. Major banks incur valuation losses on foreign bonds
and reduce exposure to yen bonds.
- BOJ should begin to decrease JGB purchases in January-March 2016.
- Rates downside risks: Downshift in growth expectations; slowing corporate capital spending.- Rates upside risks: Japanese governments greater reliance on a weak-yen policy; decrease in
the current account surplus; increase in capital flight.
70
Recommended investments
8/13/2019 Nomura on Japan
72/83
Short term (to September 2013)
- Long 5s (at 0.40%, target of 0.25-0.30%)
- Long 10s (at 0.90%, target of 0.65%)
- Long 20s (at 1.75%, target of 1.50%)
- Long 20yr Asset Swaps (at 0bp, target of -10bp)
Long term (from end-2013; assuming accelerated growth and end to monetary easing)
Short 20s (at 1.50%, target of 1.80%); caution needed in timing the entry due to negative
carry.
5s20s steepener (at 125-130bp, target of 145bp); caution needed in timing the entry due
to negative carry.
71
Is inflation target a downside or upside factor for JGB rates?
8/13/2019 Nomura on Japan
73/83
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
0.00 1.00 2.00 3.00 4.00 5.00
10yr JGB yields (%)
5yr1m swaps rate
10yr forward rates vs. 10yr JGB yields
If the market factors in a 2% inflation rate, 1% real growth, and 2.5% short-term rates in five
years, 10yr JGB yields should be trading slightly below 2.0%.
Assuming that the BOJ fails to achieve its inflation target within two years and continues
with JGB purchases for a sustained period, interest rates should be kept down.
Source: Bloomberg, Nomura Securities Co., Ltd.
72
5yr and 10yr forward rates
0
1
2
3
4
5
6
1996 1998 2000 2002 2004 2006 2008 2010 2012
10yrf 1m 5yrf 1m
(%)
Source: Bloomberg, Nomura Securities Co., Ltd.
10yr JGB yields and 10yr OIS rates 10yr UST yields and 10yr OIS rates
Rates continue to sell off despite improved supply and demanddue BOJ purchases
8/13/2019 Nomura on Japan
74/83
0
0.1
0.2
0.3
0.4
0.5
1
1.5
2
2.5
3
3.5
4
4.5 [a] less [b] 10yr UST yields (RHS) [a] 10yr USD OIS [b]
(%) (%)
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6 [a] less [b] 10yr JGB yields (RHS) [a] 10yr JPY OIS [b]
(%) (%)
Source: Bloomberg
10yr JGB yields and 10yr OIS rates 10yr UST yields and 10yr OIS rates
As BOJ purchases brought the JGB-OIS spreads close to zero, JGB rates would be unlikely
to decline further on improved supply and demand conditions. The rates backup since theQQE adoption was not caused by the widening of JGB-OIS spreads, but rather by a rise in
OIS rates.
When 10yr OIS rates were above 1.0% in Japan, those in the US were at 3.5%. A QE3 exit
alone should not be enough to cause 10yr JGB yields to trade consistently above 1.0%. 73
8/13/2019 Nomura on Japan
75/83
8/13/2019 Nomura on Japan
76/83
Summary
The BOJs impact on the JGB market: The BOJ is going to purchase about 70% of monthly JGB issuance.
8/13/2019 Nomura on Japan
77/83
76
e OJ s pact o t e JG a et e OJ s go g to pu c ase about 0% o o t y JG ssua ce
The share of the BOJ in total JGB outstanding is expected to rise to 20% from 12% currently.
The direct impact throu gh po rt fo l io rebalancing: Households own less than 3% of JGBs, so institutional
investors (Banks: 38%, Insurance: 19%, and Pensions: 10%) must move. Insurance companies are buyers of
the super long zone, while banks trade at the shorter end. Pensions are investing more broadly.
The FX impact f rom port fo l io rebalancing: The FX impact may be smaller than expected.
Banks: Fund in local currencies when investing in foreign bonds.
Pensions: Contrarianscan be forced to change reference portfolios, but can still be dip buyers.
Lifers: Most natural alternative investment is hedged basis foreign bonds.
Indirect impact thro ugh r isk appet i te channel: More important for FX.
Retai l in vestors: Sentiment is clearly improving.
Confidence indicators are at their highest levels in 10 years.
The BOJs most recent policy announcements should improve risk appetite further
30%:BRL, TRY:20%, MXN:10%, ZAR:10%, RUB:10%?
Lifers: A lower hedge ratio is more likely for high yield currencies: AUD in G10
Major government bond index: MXN, PLN, ZAR
The imp act on f ixed incom e: Lifers may still prefer core, semi-core eurozone bonds (France and the
Netherlands). UST investment will likely shift to the longer end to increase carry. US mortgage and EM bonds
(MXN, PLN, AUD) are also likely targets, in our view.
8/13/2019 Nomura on Japan
78/83
FX: Money flow is structurally supporting JPY decline
Trade balance has shifted from surplus to deficit since 2011
8/13/2019 Nomura on Japan
79/83
78
Trade Balance & Current Account Balance Trade Balance
Note: Nomura estimates CY13 toCY15
Source : Nomura, based on Trade Statics of Japan Source : Nomura, based on Trade Statics of Japan
-40
-30
-20
-10
0
10
20
30
40
88 90 92 94 96 98 00 02 04 06 08 10 12
Trade balance
Trade balance (ex. fossil fuels)
Fossil fuels
(as % of nominal GDP)
(CY)
-15
-10
-5
0
5
10
15
20
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E
14E
15E
trillion yen
CY
Trade Balance
Current Account Balance
Trade balance has shifted from surplus to deficit since 2011
FX: Relatively more monetary easing has meant depreciationof JPY
BOJ is getting more dovish than the Fed
8/13/2019 Nomura on Japan
80/83
Monetary base ratio of US/Japan, and the USD/JPY rate
BOJ is getting more dovish than the Fed
79
0
10
20
30
40
50
60
70
80
90
100
110
60
70
80
90
100
110
120
130
140
150
160
90 92 94 96 98 00 02 04 06 08 10 12 14
USD/JPY(lhs)
US/Japan monetary base ratio(rhs)
US/Japan monetary base ratio forecast(rhs)
(end 1989 = 100)
Source: Nomura, based on Bloomberg and Bank of Japan
Disclosure Appendix A1
8/13/2019 Nomura on Japan
81/83
80
ANALYST CERTIFICATIONSWe, Yunosuke Ikeda, Tomo Kinoshita, Naka Matsuzawa, Hiromichi Tamura and Kevin Gaynor, hereby certify (1) that the views expressed in this report accurately reflect my personal views about any or all
of the subject securities or issuers referred to in this report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report and
(3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
IMPORTANT DISCLOSURESOnline availability of research and additional conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/researchor requested from Nomura Securities International, Inc., on 1-877-
865-5752. If you have any difficulties with the website, please email [email protected] technical assistance.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities.
Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not
be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Nomura Global Financial Products Inc. (NGFP), Nomura Derivative Products Inc. (NDP) and Nomura International plc. (NIplc) are registered with the Commodities Futures Trading Commission as a
major swap participant and a swap dealer, respectively, and each is a member in good standing of the National Futures Association. NGFP, NDP, and NIplc are generally engaged in the trading of futures
and derivative products, any of which may be the subject of this report.
ADDITIONAL DISCLOSURES REQUIRED IN THE U.S.
Principal Trading: Nomura Securities International, Inc. and its affiliates will usually trade as principal in the fixed income securities (or in related derivatives) that are the subject of this research report.
Analyst Interactions with other Nomura Securities International, Inc. Personnel: The fixed income research analysts of Nomura Securities International, Inc. and its affiliates regularly interact with sales andtrading desk personnel in connection with obtaining liquidity and pricing information for their respective coverage universe.
Valuation methodologyFixed Income
Nomuras Fixed Income Strategists express views on the price of securities and financial markets by providing trade recommendations. These can be relative value recommendations, directional trade
recommendations, asset allocation recommendations, or a mixture of all three.
The analysis which is embedded in a trade recommendation would include, but not be lim ited to:
Fundamental analysis regarding whether a securitys price deviates from its underlying macro - or micro-economic fundamentals.
Quantitative analysis of price variations.
Technical factors such as regulatory changes, changes to risk appetite in the market, unexpected rating actions, primary market activity and supply/ demand considerations.
The timeframe for a trade recommendation is variable. Tactical ideas have a short timeframe, typically less than three months. Strategic t rade ideas have a longer timeframe of typically more than three
months.
http://www.nomura.com/researchmailto:[email protected]:[email protected]:[email protected]:[email protected]://www.nomura.com/research8/13/2019 Nomura on Japan
82/83
Disclosure Appendix A1
Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that
may be associated with any investment decision Nomura Group produces a number of different types of research product includi ng among others fundamental analysis quantitative analysis and short term
8/13/2019 Nomura on Japan
83/83
82
may be associated with any investment decision. Nomura Group produces a number of different types of research product includi ng, among others, fundamental analysis, quantitative analysis and short term
trading ideas; recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons,
methodologies or otherwise. Nomura Group publishes research product in a number of different ways including the posting of product on Nomura Group portals and/or distribution directly to clients. Different
groups of clients may receive different products and services from the research department depending on their individual requirements. Clients outside of the US may access the Nomura Research Trading
Ideas platform (Retina) at http://go.nomuranow.com/equities/tradingideas/retina/
Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future performance. Where the information contains an indication of
future performance, such forecasts may not be a reliable indicator of future performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the
future distribution of returns.
Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment.
The securities described herein may not have been registered under the US Securities Act of 1933 (the 1933 Act ), and, in such case, may not be offered or sold in the US or to US persons unless they have
been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be
executed via a Nomura entity in your home jurisdic tion.
This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised by the Prudential Regulation Authority (PRA), regulated by
the Financial Conduct Authority and the PRA and .i s a member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable regulations in
the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This document is intended only for investors who are 'eligible counterparties' or
'professional clients' for the purposes of applicable regulations in the UK, and may not, therefore, be redistributed to pers ons who are 'retail clients' for such purposes. This document has been approved by
NIHK, which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been approved for distribution in Australia by NAL, which is
authorized and regulated in Australia by the ASIC. This document has also been approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal
responsibility for the content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or
institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document in Singapore should contact NSL in respect of matters arising from, or in connection with, thisdocument. Unless prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its contents in
accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934.
This document has not been approved for distribution to persons other than Authorised Persons, Exempt Persons or Institu tions (as defined by the Capital Markets Authority) in the Kingdom of Saudi
Arabia (Saudi Arabia) or to clients other than 'professional clients' (as defined by the Dubai Financial Services Authority) in the United Arab Emirates (UAE) by Nomura Saudi Arabia, NIplc or any other
member of Nomura Group, as the case may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do
so into Saudi Arabia or in the UAE or to any person other than Authorised Persons, Exempt Persons or Institutions located in Saudi Arabia or to clients other than 'professional clients' in the UAE. By
accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are an Authorised Person, an Exempt Person or an Insti tution in Saudi Arabia or that you are a
'professional client' in the UAE and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE or Saudi Arabia.
NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II) REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A
MEMBER OF NOMURA GROUP. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information
could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this document, which
may arise as a result of electronic transmiss ion. If verification is required, please request a hard-copy version.
Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality
policies) as well as through the maintenance of Chinese walls and employee training.Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspxhttp://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx