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

Quarterly Economic Outlook for FY2020-2021 (Update)June 8, 2020(JST), “SMBC NIKKO Japan Economic Outlook for FY2020-2021” has beenreleased, responding to the second preliminary pf GDP (January-March 2020 period)

Post-lockdown Japan and Risk of 2nd Wave
 Real GDP: FY20 -4.3%, FY21 +3.2%
 Nominal GDP: FY20 -4.6%, FY21 +3.7%

Sumｄmary
GDP growth outlook
We revise our outlook to reflect the second preliminary Jan-Mar 2020 GDP data. We forecast
real GDP growth of -4.3% YoY in FY20 and +3.2% in FY21, up 0.1ppt for FY20 and down
0.1ppt for FY21 from our previous estimates (as of 21 May), reflecting the upward revision tocapex in the second preliminary GDP data for Jan-Mar. Our fundamental view is unchanged.

Economic overview
Japan is in a recession after real GDP growth for Jan-Mar 2020 was -2.2% QoQ annualized,
the 2nd straight quarter of negative growth after -7.2% in Oct-Dec 2019 owing to theconsumption tax hike and super-typhoon. The Jan-Mar contraction largely reflected the plungein exports after Europe and North America locked down to contain the coronavirus. Private
consumption in Japan did fall, but this was minor compared to exports since Japan declared its
state of emergency in Apr, so stay-at-home requests and other measures came later thanoverseas. Still, the number of new Covid-19 cases has dropped sharply from Apr and the SOE
was lifted at end-May. We think Apr will be the bottom for the domestic economy.

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

Economic outlookWe expect the economy to gradually normalize now the SOE has been lifted.
Private consumption: We estimate non-essential consumption is worth about Y5.2tn in a single
month. It declined by just Y1tn in Jan-Mar, but if it falls to zero in Apr-June we would expect thedecline in private consumption to halt there. However, if job losses and lower bonuses lead tolower incomes, it could dampen any rebound in consumption. In this connection, we note thatwhile employee income is likely to fall by Y9.9tn in FY20, the government plans cash payouts ofY100,000 per resident, for a total amount of Y12.9tn. The decline in income and government
cash payouts should net out to a Y3tn rise in aggregate personal income. We therefore think acollapse in incomes is unlikely.
Capex: Companies put off capital investment in Oct-Dec 2019 owing to the super-typhoon, socapex increased in Jan-Mar 2020 in spite of Covid-19. We expect the investment environment
to stabilize further with the lifting of the SOE. The risk is a credit crunch, which could result in asharp decline in investment like that seen during the Lehman crisis. We note SMEs have ample
retained earnings, while the government is providing guarantees on SME loans as well as
no-interest, long-term loans. We currently see little risk of a credit crunch.
Exports: The plunge in exports reflects a global economic contraction, but the downturn has
been particularly bad in Europe and North America owing to lockdowns there to contain
Covid-19. That said, the number of new cases in Europe seems to be tapering off, and evendeclining modestly in the US. Some cities have already begun lifting restrictions on economic
activity, so we expect Apr-June could prove to be a bottom for Western economies as well.
Therefore we expect Japanese exports to rebound from a bottom in Apr-June.

Risk of post-lockdown 2nd wave
Lifting curbs on activity could spur both economic recovery as well as a reemergence of thevirus.
However, we think the risk of a 2nd wave of the virus is low in Japan, given that 1) the effective
reproduction number was below 1 before the SOE was announced, indicating virus infectivity
had already weakened, 2) the strain of the virus in Japan and the rest of Asia seems to be lessvirulent than stronger strains in Europe and North America, and 3) new clusters tend to emerge
at hospitals/care homes and nightlife establishments, which suggests targetedcountermeasures can be taken. We think it should be possible to resume activity in most areasof the economy other than those at risk of generating new clusters.
We expect Japan to achieve economic recovery the soonest among developed economies.
###2

Quarterly forecasts for Japanese economy《Actual》← →《Forecasts》
2019《A》← →《F》 (Unit:%)

2020

2021

2022

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Real GDP growth (QoQ)

0.6

0.5

0.0

-1.9

-0.6

-3.7

0.7

-0.1

0.8

1.0

1.0

1.0

1.0

(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)

2.6
0.1
0.1
1.4
-0.5
2.4
0.5
-1.8
-4.5
1.1
-2.1
-3.4

2.1
0.8
0.5
-0.2
0.9
1.7
-0.3
0.2
1.8
0.6
0.0
-1.0

0.0
0.2
0.4
1.2
0.2
1.0
-0.2
-0.6
0.7
0.4
-1.1
-0.8

-7.2
-2.4
-2.9
-2.3
-4.8
0.5
0.5
0.4
-2.4
-1.5
-3.7
2.7

-2.2 -13.9-0.4 -2.6
-0.8 -3.9-4.2 -3.1
1.9 -2.0-0.6 -1.0-0.2 -1.1-6.0 -12.4-4.9 -6.1-0.5 -4.5
0.4 -4.0
1.6 -4.8

2.9
0.7
1.0
0.0
0.8
0.0
0.0
-1.0
-1.0
0.9
-2.0
2.2

-0.4
0.1
-0.5
0.8
1.5
1.0
-0.2
0.0
1.0
0.2
1.0
0.5

3.4
0.6
0.8
1.0
0.7
0.9
0.2
2.5
1.2
0.7
1.0
-0.1

4.0
0.7
1.0
0.8
0.5
0.6
0.3
2.6
0.9
1.1
0.5
-0.5

3.9
0.8
1.0
0.8
0.8
0.2
0.2
2.0
0.8
1.1
0.5
-1.2

4.0
0.8
1.0
0.8
1.0
0.1
0.2
2.0
0.8
1.1
2.0
-2.0

3.9
0.8
1.0
0.8
1.0
-0.2
0.2
2.0
0.8
1.1
2.0
-1.8

FY19

FY20

FY21

0.0
-4.3
0.2
-3.2
-0.6
-5.1
0.5
-6.4
-0.2
-1.4
3.3
-0.2
-0.2
-1.1
-2.7 -16.4-1.7 -10.5
0.8
-4.6
-3.6
-6.5
0.6
-0.5

3.2
3.0
3.1
3.2
3.3
1.9
0.2
7.5
3.3
3.7
4.4
-1.4

Comparison w ithprevious forecasts(as at 21 May 2020)

FY20

FY21

0.1
0.3
0.0
0.4
1.7
-0.1
-0.2
-3.7
-2.8
0.1
0.0
-1.2

-0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-0.1
0.3
-1.3

Unemployment rate (%)

2.5

2.4

2.3

2.3

2.4

2.6

2.7

3.3

3.3

3.1

2.9

2.8

2.7

2.4

3.0

2.9

0.1

0.0

Core CPI (YoY)

0.8

0.8

0.5

0.6

0.6

-0.2

-0.1

-0.7

-0.8

-0.4

-0.2

0.1

0.3

0.0

0.0

0.0

-0.5

-0.7

0.8

0.8

0.5-0.4

-0.4

-1.2

-1.1

-0.7

-0.8

-0.4

-0.2

0.1

0.3

0.1

-0.9

-0.0

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

-0.1
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

0.0

0.0

0.0

0.0

US real GDP growth (QoQ annualized)

3.1

2.0

2.1

2.1

-5.0 -30.0

15.08.0

5.0

4.2

3.6

3.0

2.0

0.3

-0.5

3.2

0.0

0.0

(Ex effects of consumption tax hike)

US unemployment rate (%)

3.9

3.6

3.6

3.5

3.8

14.0

12.0

10.0

9.0

8.0

7.0

6.0

5.0

3.6

11.3

6.5

-0.7

0.0

US core CPI (YoY)

2.1

2.1

2.3

2.3

2.2

1.3

1.0

1.0

1.0

1.2

1.4

1.5

1.7

2.2

1.1

1.5

0.6

-0.5

0.125 0.125 0.125

0.00

0.00

Fed rate (Eop)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

Assumptions: Forex rate (annual mean): Y109.4/$ in FY20 and Y110.0/$ in FY21
Crude oil price (WTI annual mean): $37.3/bbl in FY20 and $47.0/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)

6Our outlook

420-2
Consumption
tax hike-4

Consumption tax hike

-6-8

2012

2013

2014

2015

2016

20172018

2019

Covid-19
2020 2021

Private residential investm ent
Private inventory
Imports
Real GDP

Private consumption
Capex
Government expenditure
Exports

Sources: CAO, SMBC NIKKO estimates3(FY)APPENDIX
General Disclaimer

This research report has been produced by SMBC NIKKO for informational purposes only. It does not constitute solicitation of the sale orpurchase of securities or other investments. The information contained herein is derived from sources that SMBC NIKKO believes to be reliable,
but SMBC NIKKO does not guarantee the accuracy or completeness of said information. In some cases, such information may be incomplete orsummarized. Prices, numbers, and similar data contained herein include past results, estimates, and forecasts, all of which may differ from actual
data. These prices, numbers, and similar data may also change without prior notification. This research report does not guarantee future
performance, and the information contained herein should, for whatever purpose, be used solely at the discretion and responsibility of the client.
Neither SMBC NIKKO nor its affiliates accept any liability or responsibility for any results in connection with the use of such information. This
research report does not take into account specific financial situations, needs, or investment objectives of any client, and it is not intended toprovide tax, legal, or investment advice. Clients are responsible for making final investment decisions and should do so at their own discretion
after careful examination of all documentation delivered prior to execution, explanatory documents pertaining to listed securities, etc.,
prospectuses, and other relevant documents. Non-research departments of SMBC NIKKO and its affiliates may provide commentary to clientsand their proprietary trading departments that are inconsistent with or incompatible with investments or opinions recommended in this research
report. SMBC NIKKO and its affiliates may make investment decisions on the basis of such commentary. In addition, SMBC NIKKO and itsaffiliates, as well as employees of either, may trade in the securities mentioned in this research report, their derivatives, or other securities issued
by the same issuing companies in this research report. This research report is distributed by SMBC NIKKO and/or its affiliates. The information
contained herein is for client use only. SMBC NIKKO holds the copyright on this research report. Any unauthorized use or transmission of any
part of this research report for any reason, whether by digital, mechanical, or any other means, is prohibited. If you have any questions, pleasecontact your sales representative. Additional information is available upon request
Certain company names, product and/or service names that appear in this research report are trademarks or registered trademarks of SMBCNIKKO or other companies mentioned in the report.

Important notes concerning Article 37 of the Financial Instruments and Exchange Act (Advertising Regulations,etc.)
Commissions (below figures do not apply to certain customers, such as non-residents in Japan and professional investors under
FIEA, for whom commissions are set on an individual basis)
When a trade is executed based on information contained in this research report, a predetermined brokerage commission may be charged. For
example, when an order is placed at a branch to buy or sell a stock or other security on a securities exchange in Japan (with the exception ofodd-lot remainders), a commission of up to a maximum of 1.265% of the contract settlement amount (Note: The minimum commission is 5,500yen) is charged to the client for each product trade executed. Clients will only be charged for the purchase price of a bond, stock or other securityin trades executed as part of a primary offering, secondary distribution, or with a counterparty (Note: In the case of bonds, the trade may requirethat the client pay accrued interest if separate from the purchase price). For trades involving products denominated in foreign currencies, anexchange of products denominated in yen and another currency, or an exchange of products denominated in different currencies, the applicableexchange rate will be determined by SMBC NIKKO. For fees mentioned above that are subject to consumption tax, the rates and amounts
include the consumption tax portion.

Risks

Each product entails the risk of a partial loss of the amount of invested capital (the risk of a partial loss of principal) or a loss equal to or greaterthan the amount of invested capital (the risk of a loss equal to or exceeding principal) due to a variety of factors, which may include price varianceand fluctuations in stock markets, interest rates, exchange rates, real estate markets, and commodity markets, and deterioration in thecreditworthiness (including the financial and management condition) of issuers of securities. When executing margin or derivative transactions(“derivatives”), there is a risk the amount of derivatives transaction exposure could exceed the client’s margin collateral or margin deposit(“margin collateral amount”), and there is also a risk of loss exceeding the client’s margin collateral should prices of securities or values ofindexes underlying such transactions fluctuate (the risk of a loss equal to or exceeding principal). When executing over-the-counter derivativetransactions, there may be a spread between the ask and bid prices on financial instruments quoted by SMBC NIKKO. For asset-backed
securities, interest, dividends, repayment of principal and other elements may be affected by changes in conditions in certain assets. Suchchanges may result in losses relating to early sale or redemption of such assets.
Aforementioned commissions and risks differ by financial instrument and clients should carefully examine all relevant documentation, including
documentation delivered prior to execution, prospectuses, and other material provided. Clients may contact any SMBC NIKKO branch forquestions regarding such documentation.

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 Financial
Futures Association of Japan and the Type II Financial Instruments Firms Association.

4