SMBC Group 【NEWS RELEASE】 August  20,  2024 SMBC  Nikko  Securities  Inc. Quarterly Economic Outlook for FY2024-2025 August 20, 2024(JST), “SMBC NIKKO Japan Economic Outlook for FY2024-2025” has been released, responding to the first preliminary of GDP (April-June 2024 period) Japan to Recover as Inflation Subsides Real GDP: +0.7% in FY24, +1.5% in FY25 Nominal GDP: +2.6% in FY24, +3.1% in FY25 Summary GDP growth outlook We revise our outlook to reflect the first preliminary Apr-Jun 2024 data. We forecast real GDP growth of +0.7% YoY in FY24 and +1.5% in FY25. Compared to our previous outlook (10 June), we raise our FY24 forecast by 0.2ppt and lower our FY25 forecast by 0.1ppt. We raise the former to reflect stronger-than-expected Apr-Jun results, but lower the latter to reflect lower public investment. Share the Future NIKKO This translation is based on the press release in Japanese announced on August 20, 2024. The content of the translation may not be coincident with the original.
Outlook for the economy
Real GDP growth in Apr-Jun 2024 was +3.1% QoQ annualized, up from -2.3% in Jan-Mar. There were rebounds in consumer durables, auto exports, and capex as major production cutbacks due to the auto certification misconduct eased in Jan-Mar. That said, annualized average growth for Jan-Mar and Apr-Jun was low at around +0.4% QoQ. Real GDP is still well below nominal GDP, so high inflation is curbing demand. Getting inflation to cool down is key, and with recent yen weakness correcting, upward pressure on domestic prices from imports should fade. We expect real wages to rise as inflation subsides and private consumption and the domestic economy start recovering from around 2H 2025.
BOJ monetary policy
Upside risks to domestic inflation are diminishing as yen weakness reverses. In addition, the output gap, which affects the underlying inflation rate, is likely to remain roughly flat based on the BOJ's GDP outlook and potential GDP estimates, so we do not expect inflation to suddenly accelerate due to tightness in the output gap. We expect the BOJ to look for an accommodative monetary stance for the time being as it monitors economic and price trends while monitoring the potential for sustained yen gains. Quarterly forecasts for Japan's economy
Assumptions: Forex rate (annual mean): Y150/$ in FY24 and Y141/$ in FY25. Crude oil price (WTI annual mean): $77/bbl in FY24 and $70/bbl in FY25. 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). Estimates are SMBC NIKKO estimates. Sources: Cabinet Office, MIC, METI, BOJ, SMBC NIKKO estimates Outlook for real GDP growth
Sources: Cabinet Office, SMBC NIKKO estimates This translation is based on the press release in Japanese announced on August 20, 2024. The content of the translation may not be coincident with the original.
APPENDIX
This research was prepared by non-U.S. analysts employed by SMBC Nikko Securities Inc., an unregistered broker-dealer located in Japan that is 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 research analyst 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. By acceptance of this report, each investor agrees that it will not distribute or provide this report to any other person. Any person in the US receiving this report, or any other US person, who would like to trade any of the securities discussed in this report should contact SI and should not contact SI's non-US affiliates. SI accepts responsibility for the content of this report when distributed in the US or to US persons.
ANALYST'S CERTIFICATION
Each analyst shown on the first page of this research report prepared and issued by SMBC NIKKO is primarily responsible for the preparation and content of this research report. Each analyst certifies that the opinions contained herein accurately reflect the analyst's individual views for the subject securities and issuers. Each analyst also certifies that no part of the analyst's compensation was in the past, at present, or in the future, directly or indirectly related to the specific recommendations or views expressed in this research report.
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 stocks
Note: For the purposes of mandatory regulatory disclosures, 1-Outperform corresponds to a "buy" rating, 2-Neutral to a "hold" rating, and 3-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.
EXPLANATION OF TARGET PRICES AND STOCK RATINGS
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
Individual stock/sector recommendations and share price forecasts contained in SMBC NIKKO's technical analysis reports are based on a variety of technical analysis techniques that take historical share price performance, position analysis, and other technical factors into consideration, but are not based on a fundamental analysis of those stocks/sectors in question. Accordingly, stock/sector recommendations and share price forecasts based on the technical analysis of individual stocks/sectors that are also within the SMBC NIKKO fundamental equity research coverage universe do not necessarily correspond to, nor are intended to match, respectively, the fundamental investment/sector ratings and target prices determined by SMBC NIKKO's fundamental equity research analysts responsible for covering those same stocks/sectors.
OTHER IMPORTANT US DISCLOSURES
Analyst compensation, including the compensation of the analyst(s) directly involved in the preparation of this report, is based upon (among other factors) the overall profitability of SMBC NIKKO, which includes the overall profitability of investment banking services. SMBC NIKKO is not aware of any other material conflict of interest of the research analyst or SMBC NIKKO that the research analyst or an associated person of SMBC NIKKO with the ability to influence the content of this research report knows or has reason to know at the time of the publication or distribution of this report. 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 or summarized. 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. 4 This translation is based on the press release in Japanese announced on August 20, 2024. The content of the translation may not be coincident with the original. This research report has been produced by SMBC NIKKO for informational purposes only. It does not constitute solicitation of the sale or purchase of securities or other investments. SMBC NIKKO does not 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 to provide 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. In the US the report is intended for distribution solely to institutional investors. Non-research departments of SMBC NIKKO may provide commentary to clients and their proprietary trading departments that are inconsistent with or incompatible with investments or opinions recommended in this research report. SMBC NIKKO may make investment decisions on the basis of such commentary. In addition, SMBC NIKKO and its employees 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.
OTHER IMPORTANT NON-US DISCLOSURES
This research report has been produced by SMBC NIKKO for informational purposes only. It does not constitute solicitation of the sale or purchase of securities or other investments. SMBC NIKKO does not 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 to provide 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 may provide commentary to clients and their proprietary trading departments that are inconsistent with or incompatible with investments or opinions recommended in this research report. SMBC NIKKO may make investment decisions on the basis of such commentary. In addition, SMBC NIKKO, as well as its employees, 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. SMBC NIKKO is not a party to an agreement with the issuer(s) relating to production of a recommendation. This research report is distributed by SMBC NIKKO. The information contained herein is for client use only. SMBC Nikko Securities Inc. 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, please contact 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 SMBC NIKKO 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 of odd-lot remainders), a commission of up to a maximum of 1.265% of the contract settlement amount (Note: The minimum commission is 5,500 yen) 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 require that the client pay accrued interest if separate from the purchase price). For trades involving products denominated in foreign currencies, an exchange of products denominated in yen and another currency, or an exchange of products denominated in different currencies, the applicable exchange rate will be determined by SMBC Nikko Securities Inc. For fees mentioned above that are subject to consumption tax, the rates and amounts include the consumption tax portion.
Risks
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Company Name
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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, the Type II Financial Instruments Firms Association, and the Japan Security Token Offering Association.
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