【NEWS RELEASE】
December 8, 2020
SMBC Nikko Securities Inc.

Quarterly Economic Outlook for FY2020-2021(Update)

December 8, 2020(JST), “SMBC NIKKO Japan Economic Outlook for FY2020-2021” has beenreleased, responding to the second preliminary of GDP (July-September 2020 period)

Fewer New Cases, Vaccines, Growth Strategy to Sustain Recovery
 Real GDP: FY20 -5.3%, FY21 +3.6%
 Nominal GDP: FY20 -4.4%, FY21 +5.3%

Summary
GDP growth outlook
We revise our outlook to reflect the second preliminary Jul-Sep 2020 GDP data. We forecast
real GDP growth of -5.3% YoY in FY20 and +3.6% in FY21. Our forecasts are unchanged fromour previous outlook (as of 19 Nov).

This material is an English translation of Japanese announcement made on December 8, 2020. Although the company intended tofaithfully translate the Japanese document into English, the accuracy and correctness of this translation are not guaranteed and thus you
are encouraged to refer to the original Japanese document.



Economic outlook
While the number of Covid-19 cases in Japan is rising and clouding visibility, we expect newcase numbers to peak out from the start of 2021, helping to normalize consumer behavior andreopen the economy. We also expect release of pent-up demand that has accumulated amid
the pandemic, vaccine rollout, and the Suga administration's growth strategies to contribute togrowth. Below, we outline our short-, medium-, and long-term outlooks.
Short term: New Covid-19 cases are rising at present, likely because 1) December is typicallythe peak for economic activity in the year, necessarily meaning more-frequent interpersonal
contact, and 2) partitioning and ventilation measures at bars/restaurants are inadequate.
However, there is generally a seasonal dip in economic activity from January, with February
typically marking the trough in each year. We expect the number of new cases to naturally
decline as interpersonal contact becomes less frequent, and we believe the government willcontinue with efforts to reopen the economy.
Medium term: Release of pent-up demand and vaccine rollout could add to momentum into
next year. The pandemic has prevented many replacement purchases of durable goods, andthe release of this pent-up demand could push demand up to pre-Covid levels.
We also expect vaccine rollout to start in 2H 2021. Vaccines in development by Pfizer andModerna have produced favorable results in clinical trials (and Japan's government has alreadycontracted with them to supply vaccines), and we expect the start of vaccine rollout in Japan
will tamp down case count. Improved consumer sentiment should enable further reopening,
adding to economic momentum.
Long term: Government growth strategies will be key over the long term. The digital andenergy reforms announced by PM Suga represent more sweeping and transformational growthstrategies than Abenomics. Increased productivity moves large quantities of people, things,
and money at low cost, but digital reform achieves that by delivering them instantaneously inthe form of information. This could be the most influential reform since the Industrial Revolution.
Higher productivity boosts investment returns, which in turn stimulates investment. By inducing
investment, which is the root of economic growth, the digital and energy revolutions should
translate directly into economic expansion.
In summary, we expect Japan's economy will emerge from the worst of the pandemic as newcases slow and vaccines are rolled out. The release of pent-up demand and Sugaadministration growth strategies should boost medium and long-term growth potential. Risks
include the emergence of a mutated, more virulent form of the virus and the re-imposition ofeconomic lockdowns.
###2Quarterly forecasts for Japanese economy《Actual》← →《Forecasts》
2019

2020

《A》← →《F》 (Unit:%)
2021

2022

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Real GDP growth (QoQ)0.6

0.1

0.2

-1.9

-0.5

-8.3

5.3

0.8

0.9

0.4

0.4

0.7

0.7

(annual rate)
Domestic demand, contribution (QoQ)
Private consumption (QoQ)
Capex (QoQ)
Residential investment (QoQ)
Public investment (QoQ)
Foreign demand, contribution (QoQ)
Exports (QoQ)
Imports (QoQ)
Nominal GDP growth (QoQ)
Industrial production (QoQ)
Trade balance (Y tn, SAAR)

2.3
0.1
-0.1
2.7
-0.7
2.2
0.4
-1.6
-3.9
1.2
-2.1
-2.4

0.3
0.4
0.4
1.6
0.2
-0.7
-0.3
-0.11.7
0.5
0.0
-0.5

0.7
0.4
0.5
0.0
1.0
1.2
-0.3
-0.5
1.0
0.4
-1.1
-1.5

-7.2
-2.5
-3.1
-1.8
-4.6
1.2
0.6
0.2
-3.1
-1.5
-3.7
2.7

-2.1
-0.2
-0.6
-3.7
1.4
0.0
-0.4
-5.3
-3.1
-0.4
0.4
1.4

-29.2
-5.2
-8.3
0.5
-5.7
1.9
-3.1
-17.1
1.4
-7.8
-16.9
-10.4

22.9
2.6
5.1
-5.8
-2.4
0.5
2.7
7.0
-8.8
5.2
8.8
3.2

3.1
0.9
2.2
-1.0
-1.0
0.6
-0.15.0
5.5
3.5
3.0
3.9

3.5
0.6
0.8
0.0
0.7
0.8
0.3
4.0
2.0
0.8
1.0
3.9

1.7
0.6
0.8
0.3
0.5
0.6
-0.2
3.0
4.0
0.6
0.5
1.0

1.5
0.6
0.8
0.4
1.0
0.2
-0.2
3.0
4.0
0.5
0.5
-2.2

2.8
0.8
1.0
1.0
1.2
0.1
-0.1
3.0
3.5
0.9
2.0
-5.0

2.9
0.9
1.0
1.0
1.5
-0.2
-0.1
3.0
3.5
0.9
2.0
-6.9

FY19

FY20

-0.3 -5.3-0.1 -4.0-0.9 -5.4
2.5 -7.9-0.6 -8.6
1.5
3.9-0.2 -1.3-2.6 -13.3-1.2 -5.9
0.5 -4.4-3.6 -11.5
0.5
0.2

FY21

3.6
3.7
5.2
-0.7
1.6
2.0
-0.2
15.4
12.0
5.3
8.1
-3.3

Comparison w ith
previous forecasts(as at 19 Nov 2020)

FY20

FY21

0.0
0.1
0.0
2.6
-0.4
1.3
0.0
0.1
0.4
0.6
0.0
1.9

0.0
0.0
0.1
0.6
0.2
0.0
-0.1
0.0
0.8
1.8
0.0
3.1

Unemployment rate (%)

2.5

2.4

2.3

2.3

2.4

2.8

3.0

3.1

3.0

2.92.8

2.7

2.7

2.4

3.0

2.8

0.2

0.3

Core CPI (YoY)

0.8

0.8

0.5

0.6

0.6

0.1

-0.2

-0.7

-0.8

-0.6

-0.2

0.1

0.3

0.6

-0.4

-0.1

0.0

0.0

0.8

0.8

0.5

-0.4

-0.4

-0.9

-1.2

-0.7

-0.8

-0.6

-0.2

0.1

0.3

0.4

-0.9

-0.1

0.0

0.0

IOER (Eop)YCC 10y JGB yields target (Eop)

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.10.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

-0.1
0.0

0.0

0.0

0.0

0.0

US real GDP growth (QoQ annualized)

2.9

1.5

2.6

2.4

-5.0 -31.4

33.1

4.0

3.6

3.2

3.2

3.0

2.0

2.2

-3.5

4.0

-0.1

-1.0
0.1

(Ex effects of consumption tax hike)

US unemployment rate (%)

3.9

3.6

3.6

3.5

3.8

13.0

8.8

6.7

6.7

6.4

6.1

5.7

5.4

3.6

8.8

5.9

0.0

US core CPI (YoY)

2.1

2.1

2.3

2.3

2.21.3

1.7

1.6

1.6

1.6

1.7

1.7

1.7

2.2

1.6

1.7

0.0

0.0

0.125 0.125 0.125

0.00

0.00

2.375 2.375 1.875 1.625 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125

Fed rate (Eop)Assumptions: Forex rate (annual mean): Y106.6/$ in FY20 and Y110.0/$ in FY21
Crude oil price (WTI annual mean): $41.0/bbl in FY20 and $50.9/bbl in FY21
Notes: 1) US GDP on a calendar basis, US unemployment rate is the average for the period, FF rate is at end of year.
2) Actual figures from Cabinet Office (CAO), Ministry of Internal Affairs and Communications (MIC), Ministry of Economy,
Trade and Industry (METI), and Bank of Japan (BOJ). Forecasts by SMBC NIKKO.
Sources: CAO, MIC, METI, BOJ, SMBC NIKKO estimates

Outlook for real GDP growth(YoY % chg, contribution, ppt)

Our outlook

864
20-2
Consumption
tax hike-4
Consumption tax hike

-6-8
-10

Covid-19
2012

2013

2014

2015

2016

Private consumption
Capex
Government expenditure
Exports

2017

2018

2019

2020

2021 (FY)

Private residential investment
Private inventory
Imports
Real GDPSources: CAO, SMBC NIKKO estimates

3APPENDIXGeneral Disclaimer

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Aforementioned commissions and risks differ by financial instrument and clients should carefully examine all relevant documentation, including
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Company NameSMBC Nikko Securities Inc. is a financial instruments dealer governed by the Financial Instruments and Exchange Act, registered with the Kanto
Local Finance Bureau, Registration No. 2251.

Member Associations

SMBC Nikko Securities Inc. is a member of the Japan Securities Dealers Association, the Japan Investment Advisers Association, The FinancialFutures Association of Japan and the Type II Financial Instruments Firms Association.

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