EFTA01458969.pdf

8 December 2015 World Outlook 2016: Managing with less liquidity Little hope for en export recovery Figure 4 : Export volume of major We do not carry high hopes for exports to recover due to Japan-specific countries factors (continued outward foreign direct investment, low price elasticity for luxury goods exports, an exclusion of Japanese manufacturers from the global — TOM (36000084) US 046.404 —or. supply chain since the Greet East Japan Earthquake) as well as a global factor, — J•34. se° tees CY 3310.100 namely the shift to a closed economy regime (disappearance of growth frontiers: decline in benefits of international trade). fro CPI inflation to comerps at around I The level of CPI excluding energy clearly turned around in HI 2013 after 15 years of declines up to 2012, and has maintained an upward trend of around 1% annualized since then. Deflation has clearly ended. mainly as the result of GE that started at a cautious pace under former-BoJ Governor Shirakawa in 2012. There is an argument that inflation will slow from now on due to a stable JPY exchange rate and a weak rise in wages: however, the fact that the Japanese economy is moving from the flat section on the Phillips curve to the Nat recallable. Magnin EtA *pet Goma frail Moan am NagKass rad& Tnn aware awe steeper section indicates that an economic expansion will have larger impact as ..weed fro" an. 20:6 Scow. Nov *Woks L Dam's ant 8~0 on inflation than before. This regime shift should fully offset possible drags on inflation from a stable JPY exchange rate and slow wage growth. Not predicting additional monetary easing Based on the facts that the BoJ at present is promising an almost open-ended easing with no set limit on the timeline and that the scale of the monetary base increase is an annual JPY80trn (16% of GDP), an overwhelming scale Figure 5 : Consumer price index compared to other countries, we forecast monetary policy is likely to maintain —Omsk °eat eseldn0 Gam good the current easing stance (no more rounds of easing). Were the BoJ to enact coaxing Sun food aid apy additional monetary easing reluctantly, we believe this would only occur in the 109 It CY 2010.101 se case of a sharp slowdown in the global economy, JPY appreciation, and a 107 slump in share prices. 105 Japanese economy almost reaches its new steady state 103 We have reiterated several times that the new steady state of the Japanese 101 economy since the introduction of QQE in April 2013 is 2% nominal GDP growth, 1% CPI inflation. 1% 10-year JGB yield, and 5% M2 growth. The as Japanese economy has been in the transition process and seems to be very 97 close to this new steady state. 1905 2000 2005 2010 2015 Now Eakeing at anapwrian sae Nk• area Samar AlC Danes ark Ikeesaf Figure 7: Other indicators & financial forecasts 2014 20 I bl 20113F 2017F Figure 6 : Nominal GDP and M2 growth, % 3.4 3.8 4.8 5.1 industrial production Fiscal balance, 0/0 of GDP -52 -5A -42 -3.4 00.6184100:0001 ••••••htgrdnaGI:e(l/n) Public debt. %of GDP 213.6 211.6 210.5 208.4 JPY On. fa 126 Inelex.CY2010•100. 550 Trade balance, USD bn -99.8 -9.3 -22.6 -23.5 116 Scream 540 Trade balance, %of GDP -2.2 -0.2 -0.5 -0.5 Ito 530 Current account, USD bn 24.9 137.0 152.4 1682 105 520 Current account, %of GDP 0.5 3.3 3.6 3.9 100 510 95 Wor; 111,, Current 01-2016 02.2010 04-2010 500 50 480 Official 0.10 0.10 0.10 0.10 85 480 3M rate 0.17 0.15 0.15 0.15 75 470 10Y yield 0.32 0.40 0.45 0.55 460 70 JPY per USD 123 127 128 128 65 460 JPY per [OR 134 128 124 115 2001 203128052037 2809 2011 2013 2015 2017 2019 cane Aleocnal stansact Deasehe fin Re.e.tak as ofDenman, 07 NO* Eflowedtam 04 :on San. Cants Olikt MEIC Nail WM. Own** an Ffraoraf Mikihiro Matsuoka, Deutsche Bank AG/London Page 33 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0119140 CONFIDENTIAL SDNY_GM_00265324 EFTA01458969