【NEWS RELEASE】
September 8, 2021
SMBC Nikko Securities Inc.

Quarterly Economic Outlook for FY2021-2022(Update)

September 8, 2021(JST), “SMBC NIKKO Japan Economic Outlook for FY2021-2022” has beenreleased, responding to the second preliminary of GDP (April-June 2021 period)

Japan’s Economy to Recover with Vaccinations◆Real GDP: FY21 +3.3%, FY22 +2.8%◆Nominal GDP: FY21 +3.4%, FY22 +3.7%

SummaryGDP growth rate outlook
We revise our outlook to reflect the second preliminary Apr-Jun 2021 GDP data. We forecast
real GDP growth of 3.3% YoY in FY21 and 2.8% in FY22. Our new FY21 forecast represents
an upward revision of 0.2ppt from our previous outlook (as of 20 Aug). This reflects the upwardrevision to Apr-Jun GDP. Our outlook for economic recovery is unchanged.

This material is an English translation of Japanese announcement made on September 8, 2021. 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
Real GDP grew QoQ in Apr-Jun despite the 3rd lockdown, reflecting a sharp spike in private
consumption from March. On a monthly basis, however, private consumption has been
declining since April, indicating no recovery in overall trend. Jul-Sep remains uncertain with the4th lockdown underway.
We think the Japanese economy will still sway on CV19 infections, and the three focus points
are: 1) new case count, 2) risk of healthcare system collapse; and 3) vaccinations.
New CV19 infections are starting to peak out, as we suggested in our previous outlook. The
effective reproduction number, which has a major impact on new case numbers, has fallen to0.8, so we expect the number of new cases to continue falling as well. We expect risks of ahealthcare system collapse to fade as 1) infected individuals with mild systems recuperate athome, and 2) the amended Infectious Diseases Control Law prompts private hospitals to admit
CV19 patients.
Vaccinations: Pfizer and Moderna vaccines are highly effective in preventing hospitalizations ofdelta patients, so we watch for them to keep severe case and death rates down. Death rates
have in fact dropped sharply, and vaccinations will likely enable Japan to reach herd immunity
in September at the current pace. In Japan, only around 11% of people do want to be
vaccinated, so vaccination rates should ultimately reach 80-90%.
Lower new infections and reaching herd immunity in September should allow the easing ofbusiness restrictions and set the stage for an economic recovery. Disposable income has
recovered to pre-pandemic levels, and excess savings have reached around Y35tn (Y620,000
per household). With the carrying over of the FY20 budget, the government has plenty ofcapacity to immediately provide around Y36tn in funds.
From Oct-Dec we look for a full-scale recovery in the Japanese economy with the containmentof CV19 and stimulus measures.

RisksRisks to our outlook come in the form of CV19 variants and higher US interest rates. As theformer is unpredictable, we discuss the latter here.
US interest rates currently remain low and stable, reflecting fiscal and monetary policy.
Government fund distributions are a fiscal factor, but this will likely taper off.
Monetary policy factors involve the Fed's new policy strategy. The new strategy is to continue
monetary easing to the extent it does not lead to inflation or a bubble. The Fed says the current
acceleration is temporary, but there are signs of a housing bubble with inflation already above
3%. The Fed rethinking its inflation approach would represent a clear shift to tightening. In thiscase, long-term interest rates could rise to around 1.8%. However, the economy is unlikely toslow given that the natural rate of interest is around 2.5% in the US. In equity markets,
US-Japan relative share prices could reverse, making Japanese stocks more attractive.
###2

Quarterly forecasts for Japanese economy《Actual》← →《Forecasts》
2020《A》← →《F》 (Unit:%)

2021

2022

2023

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Real GDP growth (QoQ)

-0.6

-7.9

5.4

2.8

-1.1

0.5

0.1

1.3

0.9

0.7

0.5

0.6

0.5

(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 (YoY)
Trade balance (Y tn, SAAR)

-2.3
-0.3
-0.8
-3.7
1.1
0.1
-0.3
-4.7
-3.0
-0.5
-4.7
1.2

-28.1
-5.1
-8.3
0.6
-6.0
3.0
-2.9
-17.5
-0.7
-7.6
-20.7
-9.6

23.2
2.7
5.3
-5.7
-2.1
0.6
2.6
7.3
-8.2
5.4
-12.7
3.2

11.9
1.8
2.3
0.0
4.3
0.9
1.0
11.7
4.8
2.3
-4.2
7.9

-4.2
-0.8
-1.3
1.0
-1.3
-1.1
-0.3
2.4
4.0
-1.1
-1.5
3.7

1.9
0.8
0.9
2.1
2.3
-1.7
-0.4
2.8
5.0
-0.1
19.9
2.7

0.4
0.2
-0.6
0.5
0.0
-0.1
0.0
1.0
1.0
1.3
10.5
0.5

5.1
1.3
1.8
-0.5
1.2
0.5
0.0
1.0
1.0
1.4
5.6
0.4

3.6
0.9
1.5
-0.5
1.5
0.3
0.0
0.8
1.0
1.0
5.3
0.1

2.7
0.6
1.0
1.0
0.8
0.3
0.1
0.8
0.5
0.8
4.0
0.3

2.1
0.5
0.5
0.5
1.0
-0.7
0.0
0.5
0.5
0.7
3.5
0.2

2.3
0.6
0.5
0.0
0.8
-0.7
0.0
0.5
0.5
0.7
3.0
0.1

1.8
0.5
0.5
-0.5
0.8
-0.7
0.0
0.5
0.5
0.6
2.0-0.1

Unemployment rate (%)

2.4

2.7

3.0

3.0

2.8

2.9

2.8

2.7

2.7

2.6

2.6

2.5

Core CPI (YoY)

0.6

0.1

-0.2

-0.9

-0.4

-0.2

0.4

0.6

0.8

1.0

1.1

1.3

-0.4

-0.9

-1.2

-0.9

-0.4

-0.2

0.4

0.6

0.8

1.0

1.1

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

US real GDP growth (QoQ annualized)

-5.1

-31.2

33.8

4.5

6.3

9.2

6.9

5.6

3.8

US unemployment rate (%)

3.8

13.0

8.8

6.7

6.2

5.9

5.7

5.5

US core CPI (YoY)

2.2

1.3

1.7

1.6

1.4

3.7

4.2

4.0

(Ex effects of consumption tax hike)Fed rate (Eop)FY20

FY21FY22FY21

FY22-4.4-3.8-5.8-7.2-6.84.2
-0.6
-10.4
-6.8
-3.9
-9.9
1.3

3.3
3.4
3.2
1.4
3.9
-1.5
-0.1
13.7
9.9
3.4
10.0
0.9

2.8
2.8
3.7
0.7
3.9
-0.2
0.0
2.9
2.8
3.7
3.1
0.1

0.2
0.2
0.0
0.0
0.6
-0.3
0.0
-0.2
-0.1
0.1
0.0
0.9

0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
-0.1

2.5

2.9

2.8

2.5

0.0

0.0

1.4

-0.4

0.4

1.2

0.0

0.0

1.3

1.4

-0.9

0.4

1.2

0.0

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

3.0

2.6

2.3

2.3

-3.4

6.1

4.3

0.0

0.0

5.2

5.0

4.8

4.5

4.2

8.1

5.8

4.9

0.0

0.0

3.8

3.4

3.2

3.2

3.2

1.7

3.3

3.4

0.0

0.0

0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.375 0.375 0.625

0.125

0.125

0.375

0.00

0.00

Assumptions: Forex rate (annual mean): Y110.5/$ in FY21 and Y113.3/$ in FY22.
Crude oil price (WTI annual mean): $63.1/bbl in FY21 and $60.0/bbl in FY22.
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, ppt)

8

Our outlook

63.3 %
2.8 %

420-2
Consumption
tax hike-4-6-4.4 %-8

Covid-19-102015

Comparison w ith
previousforecasts(as at 20 Aug

20162017

2018

2019

Private consumption
Capex
Government expenditure
Exports

2020

2021

2022

Private residential investm ent
Private inventory
Imports
Real GDP

Sources: Cabinet Office, 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 its
affiliates, 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 underFIEA, 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 security
in 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