【NEWS RELEASE】
September 8, 2022
SMBC Nikko Securities Inc.

Quarterly Economic Outlook for FY2022-2023(Update)

September 8, 2022(JST), “SMBC NIKKO Japan Economic Outlook for FY2022-2023” has beenreleased, responding to the second preliminary of GDP (April-June 2022 period)

Japan's Consumers Wake From CV19 SlumberReal GDP: FY22 +2.2%, FY23 +2.1%

Nominal GDP: FY22 +2.7%, FY23 +3.1%

SummaryGDP growth outlook
We revise our outlook to reflect the second preliminary Apr-Jun 2022 GDP data. We forecast
real GDP growth of +2.2% YoY in FY22 and +2.1% in FY23, raising our FY22 forecast by
0.2ppt vs previously (18 Aug). This reflects the upward revision to Apr-Jun capex.

This material is an English translation of Japanese announcement made on September 8, 2022. 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
Japan's real GDP growth for Apr-Jun was +3.5% QoQ annualized (Y544tn), above pre-CV19levels. The economy has finally broken out of its CV19-induced slump over the past nine
quarters, with key points ahead the outlook for CV19, purchasing power, and inflation.
Life with CV19: CV19 cases have risen six times in the past but households have graduallyloosened purse strings. We think they are no longer dismayed by CV19 numbers and recognize
the limited danger of the virus, including the low fatality rate. The recent Omicron BA.5 variant's
fatality rate is currently around 0.03%, around one-third that for influenza. The real danger level
is less than influenza, so we think private consumption could return to pre-CV19 levels, and it
actually topped them in Apr-Jun. Assuming CV19 continues to weaken, we expect householdspending to continue to recover.
Purchasing power: We think consumption is unlikely to weaken further as a result of inflation.
Household real disposable income is currently around Y312tn, down around Y3tn due to recent
inflation. However, this is still around Y15tn higher than consumption. Factoring in excess
household savings (around Y49tn), it is around Y64tn higher than the value of consumption.
Household purchasing power is well above consumption levels, so we don't think income is alimiting factor.
Inflation: In Japan it's largely due to rising commodity prices caused by soaring energy and foodprices, but in global commodity markets, crude oil and grain prices are now peaking out. We
expect inflation to cool as the Fed ramps up QT in earnest while gasoline and wheat prices inJapan are being kept in check by the government's price measures. We expect the CPI to slow
rapidly from around the start of next year.
Thus, we expect a solid recovery in the Japanese economy as CV19 weakens, purchasing
power is sufficient to withstand inflation, and inflation subsides.



US inflation and rate hikes
US rate hikes: US inflation is skewed to the services sector; it is home-grown inflation driven byrising wages. To curb services consumption, the Fed will probably keep hiking the federal funds(FF) rate to encourage a shift from spending to savings. With the resultant decline in
consumption (accounts for about 70% of GDP), the US economy is almost certain to fall into a
recession.
L-shaped recovery: However, given that the Fed tightening is likely a measure to lift labor
supply (cause of current US inflation), we would expect it to continue throughout and after therecession until labor supply recovers, resulting in an L-shaped rather than V-shaped recovery.

###2

Quarterly forecasts for Japanese economy《Actual》← →《Forecasts》
2021《A》← →《F》 (Unit:%)

2022

2023

2024

FY21

FY22

FY23

Comparison withprevious forecasts(as at 18 Aug
2022)

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Real GDP growth (QoQ)

-0.3

0.4

-0.4

1.0

0.1

0.9

0.5

0.7

0.6

0.5

0.4

0.5

0.4

(annual rate)(Calender year base)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 (YoY)
Trade balance (Y tn, SAAR)
Unemployment rate (%)

-1.3

1.5

-1.8

3.9

0.2

3.5

1.9

2.9

2.2

1.9

1.7

2.0

1.7

-0.4
-0.6
0.7
0.9
-0.2
0.1
2.3
1.8
-0.6
-1.8
3.1
2.9

0.6
0.4
1.6
1.0
-2.5
-0.2
3.0
4.4
-0.3
18.4
-0.4
2.9

-0.6
-0.9
-1.8
-2.0
-3.3
0.2
0.0
-1.1
-0.4
6.6
-3.7
2.8

0.9
2.4
-1.3
0.2
-3.7
0.0
0.6
0.4
0.4
1.1
-5.2
2.7

0.5
0.3
-1.4
-0.1
-3.2
-0.5
0.9
3.5
0.4
-0.6
-11.6
2.7

0.8
1.2
-1.9
2.0
1.0
0.1
0.9
0.6
0.6
-3.6
-21.6
2.6

0.5
0.5
0.0
1.0
0.5
0.0
1.0
0.8
1.1
0.2
-15.7
2.6

0.7
0.8
0.2
1.4
0.8
0.0
0.7
0.6
1.2
1.5
-14.6
2.6

0.5
0.5
0.2
1.0
0.3
0.0
0.6
0.5
0.9
1.7
-12.4
2.5

0.5
0.3
0.2
1.2
0.3
0.0
0.6
0.5
0.9
4.6
-11.3
2.5

0.5
0.4
0.2
0.9
0.3
0.0
0.6
0.8
0.6
4.1
-10.5
2.4

0.5
0.5
0.2
0.9
0.3
0.0
0.6
0.8
0.3
3.5
-11.3
2.4

0.5
0.4
0.2
0.9
0.3
0.0
0.6
0.8
0.4
4.1
-12.2
2.3

Core CPI (YoY)

-0.5

-0.6

0.0

0.4

0.6

2.1

2.4

2.6

2.4

1.8

1.2

0.5

0.3

0.1

2.4

0.9

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)

6.3

6.7

2.3

6.9

-1.6

-0.6

-2.0

-1.0

2.0

1.5

1.5

1.5

1.5

5.7

1.1

0.6

0.0

0.0

US unemployment rate (%)

6.2

5.9

5.1

4.2

3.8

3.6

3.7

3.8

3.8

3.7

3.6

3.6

3.6

5.4

3.7

3.7

0.0

0.0

1.4

3.7

4.1

5.0

6.3

6.0

5.5

5.0

4.7

4.5

4.2

4.1

4.1

3.6

5.7

4.4

0.0

0.0

0.125 3.375 3.875

0.0

0.00

US core CPI (YoY)

0.125 0.125 0.125 0.125 0.375 1.625 2.875 3.375 3.875 3.875 3.875 3.875 3.875

Fed rate (Eop)

2.3
1.7
1.5
2.6
-1.6
0.6
-7.5
0.8
12.5
7.2
1.3
5.9
-5.3
2.8

2.2
1.7
2.4
3.3
-3.8
3.3
-2.9
-0.2
3.2
4.2
2.7
-0.1
-16.1
2.6

Assumptions: Forex rate (annual mean): Y132/$ in FY22 and Y128/$ in FY23.
Crude oil price (WTI annual mean): $93/bbl in FY22 and $85/bbl in FY23.
Notes: US GDP on a calendar basis, US unemployment rate is the average for the period, FF rate is at end of year.
Sources: Cabinet Office, Ministry of Internal Affairs and Communications,
Ministry of Economy, Trade and Industry, and Bank of Japan, SMBC NIKKO estimates

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

Our outlook
2.3%

4

2.2%

2.1%

2
0
-2
-4
-6
-4.6%

-8

2018

2019

2020

2021

Private consumption
Capex
Government expenditure
Exports

2022

2023

(FY)

Private housing investment
Private inventory
Imports
Real GDP

Sources: Cabinet Office, SMBC NIKKO estimates

3

2.1
2.3
2.1
1.9
0.8
4.3
1.5
-0.1
2.6
2.6
3.1
4.0
-11.3
2.4

FY22

FY23

0.2
0.2
0.2
0.0
0.0
0.7
0.0
0.0
0.0
-0.2
0.3
0.1
0.1
0.1

0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.1

APPENDIX
This research was prepared by non-U.S. analysts employed by SMBC Nikko Securities Inc., an unregistered broker-dealer located in Japan thatis not a member of FINRA or SIPC. “SMBC NIKKO” refers to SMBC Nikko Securities, Inc., its affiliate SMBC Nikko Securities America, Inc. (“SI”),
a registered U.S. broker-dealer and member firm of FINRA and SIPC, and their other affiliates, as applicable by law. To the extent a non-U.S.
analyst(s) was involved in the preparation of this research report, whether in whole or in part, he or she is not registered/qualified as a researchanalyst with FINRA. Any such non-U.S. analyst may not be an associated person of SI and therefore may not be subject to FINRA Rule 2241
and 2242 restrictions on communications with a subject company, public appearances and trading securities held in a research analyst account.
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DISTRIBUTION OF INVESTMENT RATINGS
The following table shows (1) the distribution of investment ratings for all SMBC NIKKO coverage universe stocks and (2) the proportions of stocksof each rating to which SMBC NIKKO has provided investment banking (IB) services within the past 12 months (updated as of 07 September, 2022)
1-Outperform

2-Neutral

3-Underperform

Others(1) Companies under coverage

38%

57%

3%

1%

(2) Proportion of stocks of each rating in (1) with IB relationships

26%

29%

29%

33%

Note: For the purposes of mandatory regulatory disclosures, 1-Outperform corresponds to a “buy” rating, 2-Neutral to a “hold” rating, and3-Underperform to a “sell” rating. However, SMBC NIKKO investment ratings are assigned relative to an analyst or analyst team's sector
coverage as defined below and are thus different from "buy", "hold", and "sell" ratings as defined by FINRA. "Others" refers to Not Rated, Rating
Suspended, and Restricted stocks.
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Target prices assigned by research analysts reflect the estimated share price level the analyst forecasts the stock to reach within the next six to12
months. For valuation methodology and risks, please refer to the report or web disclosure:https://researchdirect.smbcnikko.co.jp/disclosure/disclosure.php
Each coverage stock is assigned an investment rating relative to the analyst or analyst team's coverage sector universe which encompasses
said stock. Investment ratings are defined as below; the effective rating period is six to 12 months.
1-Outperform:
An individual stock's investment return, as forecast by the research analyst, is expected to exceed the median investment
return of all stocks within the coverage universe.
2-Neutral:
An individual stock's investment return, as forecast by the research analyst, is expected to be in line with the medianinvestment return of all stocks within the coverage universe.
3-Underperform: An individual stock's investment return, as forecast by the research analyst, is expected to be below the medianinvestment return of all stocks within the coverage universe.
NR:
Not Rated
RS:
Rating Suspended
Sector ratings are defined as below; the effective rating period is six to 12 months. The market as it pertains to Japan is TOPIX.
Overweight:
The investment return of the sector coverage universe, as forecast by the research analyst, is expected to exceed themarket average.
Equal weight:
The investment return of the sector coverage universe, as forecast by the research analyst, is expected to be in line withthe market average.
Underweight:
The investment return of the sector coverage universe, as forecast by the research analyst, is expected to be below themarket average.
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research coverage universe do not necessarily correspond to, nor are intended to match, respectively, the fundamental investment/sector ratings
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