The Other Half of Macroeconomics and the Fate of ... - IMAS · Australia -7.81 0.09-0.19 Ireland...

Connecting Markets East & West

March 2018

The Other Half of Macroeconomics and the Fate of Globalization

Richard C. Koo, Chief Economist

Nomura Research Institute, Tokyo+81-3-5877-7401

[email protected]

See Appendix A-1

for important disclosures and

the status of non-US analysts.

1

Exhibit 1. Politics in Disarray because Economies Are in the

Overlooked Other-half of Macro-Economics

Yes No

Ye

s

1 3

No 2 4

Borrowers (=investors)

Le

nd

ers

(=sa

ve

rs)

Textbook world(private sector

maximizing profits)

Overlooked other-half(private sector

minimizing debt)

1. Lenders and borrowers are present in sufficient numbers (textbook world)

⇒Ordinary interest rates

2. Borrowers are present but not lenders due to the latter's bad loan problems (financial crisis, credit crunch)

⇒Loan rates much higher than policy rate

3. Lenders are present but not borrowers due to the latter's balance sheet problems and/or lack of investment

opportunities (balance sheet recession, "secular" stagnation) ⇒Ultra-low interest rates

4. Borrowers and lenders both absent due to balance sheet problems for the former and bad loan problems

for the latter (aftermath of a bubble burst) ⇒Ultra-low interest rates, but only for highly rated borrowers

advanced economiesare all here

2

Exhibit 2. Private Sector1, 2, 3 Borrowers Disappeared5

after 2008

(% of GDP) (% of GDP)

5 years to

Q3 2008

from Q4

2008 to

present4

latest 4

quarters

5 years to

Q3 2008

from Q4

2008 to

present4

latest 4

quarters

UK -0.02 2.11 -1.32 Germany 8.46 6.41 7.99

US 0.53 4.94 3.76 France 2.42 2.33 1.21

Canada -0.02 -1.57 -2.16 Italy 1.48 3.21 6.71

Japan 7.68 8.65 7.13 Spain -8.03 6.99 5.15

Korea -1.89 3.94 3.65 Greece 0.39 1.56 -0.06

Australia -7.81 0.09 -0.19 Ireland -4.88 7.41 -2.44

Eurozone 1.66 4.94 4.25 Portugal -3.97 4.24 1.69

1. private sector = household + corporate + financial sectors

2. Entered balance sheet recession in 1990 (see Exhibits 12, 13)

3. Entered balance sheet recession in 2000

4. Until Q3 2017.

5. Except Canada and France

Source: Nomura Research Institute, based on these countries' flow of funds and national accounts data

Average Annual Private Sector Financial Surplus(+) or Deficit(-)

2

3

5

5

Exhibit 3. Drastic Liquidity Injections Resulted in minimal

Increases in Money Supply and Credit (I): US

3

50

100

150

200

250

300

350

400

450

500

Monetary Base

Money Supply (M2)

Loans and Leases in Bank Credit

(Aug. 2008 =100, seasonally adjusted)

100

0.5

1.0

1.5

2.0

2.5

3.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

(%, yoy) Consumer SpendingDeflator (core)

Note: Commercial bank loans and leases, adjustments for discontinuities made by Nomura Research Institute.Sources: Federal Reserve Board; US Department of Commerce

456

178

131

+1.52%


Increases in Money Supply and Credit (II): Eurozone

4

75

100

125

150

175

200

225

250

275

300

325

350

375

Base Money

Money Supply (M3)

Credit to Euro Area Residents


100

0.4

0.8

1.2

1.6

2.0

2.4

07/1 07/7 08/1 08/7 09/1 09/7 10/1 10/7 11/1 11/7 12/1 12/7 13/1 13/7 14/1 14/7 15/1 15/7 16/1 16/7 17/1 17/7 18/1

(%, yoy)CPI core

Note: Base money's figures are seasonally adjusted by Nomura Research Institute.Sources: European Central Bank; Eurostat

130

102

+1.0%

338


Increases in Money Supply and Credit (III): UK

5

50

100

150

200

250

300

350

400

450

500

550

600

650

700

Reserve Balances + Notes & Coins

Money Supply (M4)

Bank Lending (M4)


1

100

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CPI (ex. Indirect Taxes)(%, yoy)

Notes: 1. Reserve balances data are seasonally unadjusted. 2. Money supply and bank lending data exclude intermmediate financial institutions.

Sources: Bank of England; Office for National Statistics, UK

698

139

91

2.8%


Increases in Money Supply and Credit (IV): Japan

6

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

Monetary Base

Money Supply (M2)

Bank Lending

QuantitativeEasing

(1990 Q1 = 100, seasonally adjusted)

Bubble Burst

Quantitative and Qualitative Easing

100

-3

-2

-1

0

1

2

3

4

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

(%, yoy)

CPI Core (ex. fresh food)

Notes: 1. Figures for bank lending are seasonally adjusted by Nomura Research Institute.2. Excluding the impact of consumption tax.

Source: Bank of Japan

Earthquake

1309

213

0.9%2

1201

7

Exhibit 7. No Acceleration in Private Sector Credit or Money Supply

Growth after the BOJ’s QQE

80

100

120

140

160

180

200

220

240

260

280

300

320

340

360Monetary Base

Money Supply (M2)

Bank Lending

(2013 Mar. = 100, seasonally adjusted)

Gov. Kuroda

100

Gov. Shirakawa

-1

0

1

2

12/1 12/7 13/1 13/7 14/1 14/7 15/1 15/7 16/1 16/7 17/1 17/7 18/1

(%, yoy) CPI Core(ex. fresh food)

Notes: 1. Figures for bank lending are seasonally adjusted by Nomura Research Institute.2. Excluding the impact of consumption tax.

Sources: Bank of Japan and Ministry of Internal Affairs and Communications

345

118

0.9%2

115

Exhibit 8. Europe & US Experienced House Price Bubbles,

except Germany

8

75

100

125

150

175

200

225

250

275

300

325

350

375

400

425

450

475

500

525

550

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Ireland

Greece

Spain

Germany

Netherlands

US

(end of 1995 = 100)

92

303

342

513

276

293

Ireland384

Greece189

Spain222

Germany127

Netherlands271

Notes: 1. Ireland's figures before 2005 are existing house prices only.2. Greece's figures are flats' prices in Athens and Thessaloniki.

Sources: Nomura Research Institute, calculated from Bank for International Settlements and S&P Dow Jones data.

US283

Exhibit 9. Japan’s GDP Grew despite major Loss of Wealth

and Private Sector De-leveraging

9

down87%

25

40

55

70

85

100

115

130

145

0

20

40

60

80

100

120

140

160

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Land Price Index in Six Major Cities(Commercial, Left Scale)

(Sep.1990=100, seasonally adjusted)

Real GDP(Right Scale)

(Sep. 1990 = 100)

Sources: Cabinet Office,Japan; Japan Real Estate Institute

Nominal GDP (Right Scale)

Likely GDP Path w/o Government Action

Last seen in 1973

Reported Fiscal Multiplier

Actual Fiscal

Multiplier

US GNP Shrunk 46% 1929→1933

Cumulative 90-05 GDP

Supported by

Government Action:

~ ¥2000 trillion

Cumulative Loss of

Wealth on

Shares and Real Estate

~ ¥1500 trillion

Exhibit 10. Japan’s Challenge: Overcoming Problems of

Balance Sheets and Inferior Return on Capital

10

Global Financial

Crisis

Private Sector

Savings:7.13% of GDP

Note: All entries are four-quarter moving averages. For the latest figures, four-quarter averages ending in 2017 Q3 are used.Sources: Bank of Japan, Flow of Funds Accounts, and Government of Japan, Cabinet Office, National Accounts

-18

-15

-12

-9

-6

-3

0

3

6

9

12

15

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

(Financial Deficit)

(Financial Surplus)

(as a ratio to nominal GDP, %)

Households

Rest of the World

Corporate Sector(Non-Financial Sector +

Financial Sector)

General Government

Financial Surplus or Deficit by Sector

Balance SheetRecession

Exhibit 11. Japanese Non-financial Companies Are Finally

Beginning to Borrow, but Are still Net Savers

11

-25

-20

-15

-10

-5

0

5

10

15

20

25

30-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

right scale

Note: For the latest figures, four-quarter averages ending in 2017 Q3 are used.Sources: Bank of Japan, Flow of Funds Accounts, and Government of Japan, Cabinet Office, National Accounts

Financial Liabilities

Financial Assets

left scale

(FY)

(as a percentage of nominal GDP) (as a percentage of nominal GDP, inverted)

12

Exhibit 12. Three Stages of Economic Development: Urbanization,

Industrialization and Globalization

Source: Nomura Research Institute

L

S

D3

A

B

C

D

EF I J M

H K

D2D1

Golden Erawhere everyone benefits from economic growth

Urbanization phasewhere capitalists prosper

Worker's share(consumption)

Capital's share(investment)

wages

(i)

(ii)

G

Wage level high enough to invite foreign

competition

Take-off periodUrbanization

Widening income inequalityStrong investmentWeak consumption

Pursued phasewhere only those with

advanced ideas prosper

Fast growthExport-led globalization

Narrowing income inequalityRapid increase in investment

Rapid increase in consumption

Weak growthImport-led globalization

Re-widening income inequalityShrinking investment opportunities

Very careful consumers

Industrialization

Labor supply curve

Labor demand curve

number of workers

Lewis Turning Point(LTP)

P

N

Q

D4

Advancedcountries are

all here

13

Exhibit 13. Effectiveness of Monetary & Fiscal Policies in Three Stages

of Economic Development

• Flat wages and prices

• Return on capital higher abroad but households still saving

• Government must borrow and spend excess private savings on

self-financing projects

• Rising wages and prices

• Strong demand for funds from businesses for capacity and

productivity enhancing investments

• Central bank must remain highly vigilant toward inflation

• Flat wages and prices

• Strong demand for funds from public sector for

needed infrastructure

Effectiveness

Pursued EraGolden Era Urbanizing Era

Fiscal Policy(B/S recession) (ordinary times)

Time

Monetary Policy(ordinary times) (B/S recession)

Exhibit 14. US Nonfinancial Companies’ Demand for Funds

Shrunk after 1990

14

-20

-15

-10

-5

0

5

10

15

20-20

-15

-10

-5

0

5

10

15

20

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

(as a ratio to nominal GDP, %, seasonally adjusted) (as a ratio to nominal GDP, %, inverted, seasonally adjusted)

Financial Assets


right scale left scaleFinancial

Surplus/Deficit

left scale

Notes: Latest figures are for 2017 Q3.Sources: Nomura Research Institute, based on flow of funds data from FRB and US Department of Commerce

Exhibit 15. US Monetary Policy Has Grown Less Effective

Starting in 1990s

15

0

2

4

6

8

10

12

14

16

-2

-1

0

1

2

3

4

5

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Note: In the Chicago Fed’s national financial conditions index (NFCI), 0 represents the average from 1971 to the present. Prior to 1987, when the Fed began targeting fed funds rate, the policy rate in the graph refers to the official discount rate. Since the Fed began targeting a corridor of values for fed funds, the graph shows the top end of the Fed’s target range.

Source: Board of Governors of the Federal Reserve System, The Federal Reserve Bank of Chicago, “National Financial Conditions Index”

Looser financial conditions

Tighter financial conditions

Chicago Fed’s National Financial Condition Index

(lhs)Policy rate (rhs)

(%)

Exhibit 16. US Private Sector Has Been Saving 4.94% of

GDP on Average with Zero Interest Rates since 2008

16

Private sector savings 3.76%

of GDP(average

4.94% since 2008)

-15

-10

-5

0

5

10

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Housing Bubble

IT Bubble

(Financial Surplus)

(Financial Deficit)

(as a ratio to nominal GDP, %, quarterly)

Rest of the World

Households

General Government

Corporate Sector(Non-Financial Sector +

Financial Sector)

Financial Surplus or Deficit by Sector

Note: All entries are four-quarter moving averages. For the latest figures, four-quarter averages ending in 2017 Q3 are used.Sources: FRB, US Department of Commerce

Exhibit 17. Some US Households Are Starting to

Borrow Money

17

-20

-15

-10

-5

0

5

10

15-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17


Financial Assets

Financial Liabilities right scale

left scale Financial Surplus/Deficit

left scale

Notes: Latest figures are for 2017 Q3.Sources: Nomura Research Institute, based on flow of funds data from FRB and US Department of Commerce

Exhibit 18. Spanish Households Have Been Deleveraging

since 2008

18

-20

-16

-12

-8

-4

0

4

8

12

16-16

-12

-8

-4

0

4

8

12

16

20

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Notes: Seasonal adjustments by Nomura Research Institute. Latest figures are for 2017 Q3.Sources: Nomura Research Institute, based on flow of funds data from Banco de España and National Statistics Institute, Spain

right scale

left scale

left scale

FinancialAssets Financial

Surplus/Deficit



Exhibit 19. Irish Households Increased Borrowings after

the Dotcom Bubble: Now They Are Deleveraging

19

-20

-15

-10

-5

0

5

10

15

20

25-25

-20

-15

-10

-5

0

5

10

15

20

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

right scale

left scaleleft scale

Financial Assets Financial Surplus/Deficit


(as a ratio to nominal GDP, %, seasonally adjusted)

Notes: Seasonal adjustments by Nomura Research Institute. Latest figures are for 2017 Q3.Source: Nomura Research Institute, based on flow of funds data from Central Bank of Ireland and Central Statistics Office, Ireland

(as a ratio to nominal GDP, %, inverted seasonally adjusted)

Exhibit 20. Italian Households Stopped Borrowing Money

after 2011

20

-18

-15

-12

-9

-6

-3

0

3

6

9-9

-6

-3

0

3

6

9

12

15

18

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

right scale

left scale

left scale

Financial Assets

Financial Surplus/Deficit



Notes: Seasonal adjustments by Nomura Research Institute. Latest figures are for 2017 Q3.Source: Nomura Research Institute, based on flow of funds data from Banca d'Italia and Italian National Institute of Statistics

Exhibit 21. Greek Households Are Deleveraging but also

Withdrawing Past Savings to Survive

21

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25-25

-20

-15

-10

-5

0

5

10

15

20

25

30

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

right scale

left scale left scaleFinancial Assets Financial Surplus/Deficit



Notes: Seasonal adjustments by Nomura Research Institute. Latest figures are for 2017 Q3.Sources: Nomura Research Institute, based on flow of funds data from Bank of Greece and Hellenic Statistical Authority, Greece

Exhibit 22. German Households Stopped Borrowing

altogether after the 2000 Dotcom Bubble

22

-12

-10

-8

-6

-4

-2

0

2

4

6

8-8

-6

-4

-2

0

2

4

6

8

10

12

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

right scale

left scale left scaleFinancial Assets Financial

Surplus/Deficit


(as a ratio to nominal GDP, %, seasonally adjusted)

Note: Seasonal adjustments by Nomura Research Institute. Latest figures are for 2017 Q3.Sources: Nomura Research Institute, based on flow of funds data from Bundesbank and Eurostat

(as a ratio to nominal GDP, %, inverted, seasonally adjusted)

Collapse of the Dotcom

Bubble

The reason for German house prices falling

noted on page 8

Exhibit 23. The Collapse of Neuer Markt in 2001 Pushed the

German Economy into Balance Sheet Recession

23

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

(Dec. 31, 1997 = 1000)

Source: Bloomberg, as of February 27, 2018

TecDAX

9694.07

306.32

-97%

2621.55

Exhibit 24. Peripheral Eurozone Countries Are Doing

Better Because of Fall in Wages

24

80

90

100

110

120

130

140

150

160

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Germany

Spain

Greece

Ireland

Portugal

(2000 = 100, Seasonally adjusted)

Source: Nomura Research Institute, based on OECD data

Competitiveness Gap

European Unit Labor Costs

Exhibit 25. Eurozone Economy Supported

by External Surplus

25

-30

-20

-10

0

10

20

30

40

50

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

(EURbn, seasonally adjusted)

Source: Eurostat

Exhibit 26. QE Exit Is more difficult than QE Entrance: QE Central

Banks Must Retract Reserves to Avoid Credit Explosion

26

Bank Reserves as Multiples of Required Reserves

0

5

10

15

20

25

30

35

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Japan

U.S.

Eurozone

U.K.

Switzerland

(x)

Bank reserves ÷statutory reserves

10.7x

33.1x

16.4x

11.8x

29.5x

Note: The Bank of England has suspended reserve requirement in March 2009. The post-March 2009 figures are based onthe assumption that the original reserve requirement is still applicable.

Sources: Nomura Research Institute, based on BOJ, FRB, ECB, BOE and SNB data

normallevel of

reserves

27

Exhibit 27. Asset Price Bubbles Are also Prompting the Fed to

Normalize Monetary Policy

80

100

120

140

160

180

200

220

240

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Note: "Policy Statement on Prudent Commercial Real Estate Loan Workouts" (October 30, 2009) Source: Nomura Research Institute, based on the data from Real Capital Analytics; "Moody’s/REAL CPPI," and S&P Dow Jones Indices; "S&P CoreLogic Case-Shiller Home Price Indices"

(Dec. 2000 = 100)

S&P CoreLogic Case-Shiller Home Price Index: San Francisco

RCA commercial real estste index

(major 6 cities, all uses)

US enacts "Pretend & Extend"*

(Oct. 2009)

+39.0%

+15.6%

28

Exhibit 28. Fed’s Balance Sheet Normalization Process

0

1000

2000

3000

4000

5000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Actual reserves Currency in circulation Required reserves

($bn)

Note: Reserve balances, currency in circulation, and required reserves are assumed to follow the trends observed from January 2015 to May 2017.

Source: Nomura Research Institute, based on Fed data; estimates by Nomura Research Institute

Normalizationstarted(Oct. 2017)

Actual reserves = Required reserves

(Jun. 2021)

29

Exhibit 29. Additional Private Savings Required

as Fed Stops Reinvesting in USTs and MBS

180

360 360270

120

240 240

180

0

200

400

600

800

1000

1200

1400

2017 2018 2019 2020 2021 2022

Notes: US fiscal accounting year runs from October to following September. MBS = mortgage backed secirities

Source: Nomura Reserch Institute

($bn)

(FY)

US budget

deficit for

2016

300

600 600

450

MBS

USTreasuries

3.23% of GDP

may expand under Trump

30

Exhibit 30. Additional Private Savings Required if ECB

Stops Reinventing

16.3

227.5

325.1 325.1

162.5

0

100

200

300

400

500

600

2017 2018 2019 2020 2021

Notes: Assumes US-style normalization will be conducted from Oct 2017 to Jun 2021. Fiscal deficit represents net borrowings of general government.

Source: Nomura Reserch Institute based on ECB and Eurrostat data

(€bn)

(CY)

Eurozonebudget deficit

for 2016

3.03% of GDP

31

Exhibit 31. Additional Private Savings Required if BOE

Stops Reinventing

19.0

107.6

126.5 126.5

31.6

0

20

40

60

80

100

120

140

160

180

2017 2018 2019 2020 2021

Notes: Assumes US-style normalization will be conducted from Oct 2017 to Jun 2021. UK fiscal accounting year runs from April to following March. Fiscal deficit represents net borrowings of national government

Source: Nomura Reserch Institute

(GBP bn)

(FY)

UKbudget deficit

for 2016

6.52% of GDP

32

Exhibit 32. Additional Private Savings Required if BOJ

Stops Reinventing

14.2

80.4

94.6 94.6

23.7

0

20

40

60

80

100

120

140

160

2017 2018 2019 2020 2021

Notes: Assumes US-style normalization will be conducted from Oct 2017 to Jun 2021. Japan's fiscal accounting year runs from April to following March.

Source: Nomura Reserch Institute, based on MOF and BOJ data

(¥tn)

(FY)

Japan's budget

deficit for 2016

17.63% of GDP

Exhibit 33. QE ‘Trap’: Long-term Interest Rates or Exchange Rates Could

Go sharply higher when the QE Is Unwound

33

Images of Long-term Interest Rates with and without QE

t0 t1 t2

BubbleCollapse

(Long-term interest rate)

without QE

with QE

Beginning of Economic Recovery with QE

QE "Trap"

Beginning of Economic Recovery without QE

(Time)

34

-20

-15

-10

-5

0

5

10

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

(as % of GDP)

(% points)

Sources: Nomura Research Institute, based on the data from FRB, "Factors Affecting Reserve Balances of Depository Institutions andCondition Statement of Federal Reserve Banks (as of June 28, 2017)", "Federal Reserve Banks Combined Quarterly Financial Report (as of June 30, 2017)," Federal Reserve Bank of New York, "System Open Market Account Holdings (as of June 28, 2017)," US Economic Analysis, "Gross Domestic Product," BOJ, "Bank of Japan Accounts" and "Japanese Government Bonds Held by the Bank of Japan" as of November 10, 2017; and Cabinet Office, Report on National Accounts.

FRB (Treasury + MBS)

BOJ

Exhibit 34. Fed and BOJ Losses under Various

Yield Scenarios as % of GDP

35

Exhibit 35. Trump May Run into Capital Flight Problem if He Pushes

Dollar down too far

2

3

4

5

6

7Japanese 10-year government bondyield (left scale)

"Tateho Shock*"

7

8

9

10

11

150 bpt.

270 bpt.

30-year US treasury bond

yield (right scale)

120

130

140

150

160(Yen)

(%)

(%)

1987

Dollar falling below ¥150 triggered both sell-off of US Treasuries and purchases of

JGBs.

Yen-dollar exchange rate (left scale)

$ = 150 Yen

Jan. Feb. Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Black Monday

*: Japanese chemical company Tateho loses massively in JGB futures trading, triggering panic in the JGB market.Sources: Federal Reserve Bank of New York, Board of Govenors of the Rederal Reserve, Japan Bond Trading Company

36

Appendix A-1

DisclaimersThis publication contains material that has been prepared by the Nomura Group entity identified on page 1 and, if applicable, with the contributions of one or more Nomura Group entities whose employeesand their respective affiliations are specified on page 1 or identified elsewhere in the publication. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiariesincluding: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Instinet, LLC ('ILLC'); Nomura International(Hong Kong) Ltd. (‘NIHK’), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (‘NFIK’), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA')can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (‘NSL’), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); NomuraAustralia Ltd. (‘NAL’), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; PTNomura Sekuritas Indonesia (‘PTNSI’); Nomura Securities Malaysia Sdn. Bhd. (‘NSM’), Malaysia; NIHK, Taipei Branch (‘NITB’), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited(‘NFASL’), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111;CIN No: U74140MH2007PTC169116, SEBI Registration No. for Stock Broking activities : BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034; SEBIRegistration No. for Merchant Banking : INM000011419; SEBI Registration No. for Research: INH000001014 and NIplc, Madrid Branch (‘NIplc, Madrid’). ‘CNS Thailand’ next to an analyst’s name on thefront page of a research report indicates that the analyst is employed by Capital Nomura Securities Public Company Limited (‘CNS’) to provide research assistance services to NSL under an agreementbetween CNS and NSL. ‘NSFSPL’ next to an employee’s name on the front page of a research report indicates that the individual is employed by Nomura Structured Finance Services Private Limited toprovide assistance to certain Nomura entities under inter-company agreements. The "BDO-NS" (which stands for "BDO Nomura Securities, Inc.") placed next to an analyst’s name on the front page of aresearch report indicates that the analyst is employed by BDO Unibank Inc. ("BDO Unibank") who has been seconded to BDO-NS, to provide research assistance services to NSL under an agreementbetween BDO Unibank, NSL and BDO-NS. BDO-NS is a Philippines securities dealer, which is a joint venture between BDO Unibank and the Nomura Group.

THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR ASOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) OTHER THAN DISCLOSURES RELATINGTO THE NOMURA GROUP, BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP.

Other than disclosures relating to the Nomura Group, the Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable anddoes not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent permissible all warranties and other assurances by the Nomura Groupare hereby excluded and the Nomura Group shall have no liability for the use, misuse, or distribution of this information.

Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions and estimates contained herein, are subject tochange without notice. The Nomura Group is under no duty to update this document. Any comments or statements made herein are those of the author(s) and may differ from views held by other partieswithin Nomura Group. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including taxadvice. The Nomura Group does not provide tax advice.

The Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise, or have long or short positions in, orbuy or sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers or securities mentioned herein. The Nomura Group companies may also act asmarket maker or liquidity provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with thedefinition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures.

This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproduction and distribution of third-party content in any form isprohibited except with the prior written permission of the related third-party. Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, includingratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third-party content providers give noexpress or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect,incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use oftheir content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase hold or sell securities. They do not address the suitability ofsecurities or the suitability of securities for investment purposes, and should not be relied on as investment advice.

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Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (‘MSCI’). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not bereproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of thisinformation. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness,merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, orrelated to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.

The intellectual property rights and any other rights, in Russell/Nomura Japan Equity Index belong to Nomura Securities Co., Ltd. ("Nomura") and Frank Russell Company ("Russell"). Nomura and Russell donot guarantee accuracy, completeness, reliability, usefulness, marketability, merchantability or fitness of the Index, and do not account for business activities or services that any index user and/or itsaffiliates undertakes with the use of the Index.

Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, thatmay be associated with any investment decision. Nomura Group produces a number of different types of research product including, among others, fundamental analysis and quantitative analysis;recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies orotherwise. The Nomura Group publishes research product in a number of different ways including the posting of product on the Nomura Group portals and/or distribution directly to clients. Different groups ofclients may receive different products and services from the research department depending on their individual requirements.

Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future performance. Where the information contains an indication offuture performance, such forecasts may not be a reliable indicator of future performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect thefuture distribution of returns. Any figure, strategy or index created and published for illustrative purposes within this document is not intended for “use” as a “benchmark” as defined by the EuropeanBenchmark Regulation.

Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment.

The securities described herein may not have been registered under the US Securities Act of 1933 (the ‘1933 Act’), and, in such case, may not be offered or sold in the US or to US persons unless theyhave been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should beexecuted via a Nomura entity in your home jurisdiction.

This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised by the Prudential Regulation Authority and regulated by theFinancial Conduct Authority and the Prudential Regulation Authority. NIplc is a member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning ofapplicable regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This document is intended only for investors who are 'eligiblecounterparties' or 'professional clients' for the purposes of applicable regulations in the UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document hasbeen approved by NIHK, which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been approved for distribution in Australia byNAL, which is authorized and regulated in Australia by the ASIC. This document has also been approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSLaccepts legal responsibility for the content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expertor institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document in Singapore should contact NSL in respect of matters arising from, or in connection with,this document. Unless prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its contents inaccordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. The entity that prepared this document permits its separately operated affiliates within the Nomura Group tomake copies of such documents available to their clients.

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This document has not been approved for distribution to persons other than ‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ (as defined by the Capital Markets Authority) in the Kingdom of SaudiArabia (‘Saudi Arabia’) or 'professional clients' (as defined by the Dubai Financial Services Authority) in the United Arab Emirates (‘UAE’) or a ‘Market Counterparty’ or ‘Business Customers’ (as defined bythe Qatar Financial Centre Regulatory Authority) in the State of Qatar (‘Qatar’) by Nomura Saudi Arabia, NIplc or any other member of the Nomura Group, as the case may be. Neither this document nor anycopy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do so into Saudi Arabia or in the UAE or in Qatar or to any person other than‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ located in Saudi Arabia or 'professional clients' in the UAE or a ‘Market Counterparty’ or ‘Business Customers’ in Qatar . By accepting to receive thisdocument, you represent that you are not located in Saudi Arabia or that you are an ‘Authorised Person’, an ‘Exempt Person’ or an ‘Institution’ in Saudi Arabia or that you are a 'professional client' in theUAE or a ‘Market Counterparty’ or ‘Business Customers’ in Qatar and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE orSaudi Arabia or Qatar.

Notice to Canadian Investors: This research report is not a personal recommendation and does not take into account the investment objectives, financial situation or particular needs of any particularindividual or account. It is made available to you in reliance on NI 31-103, section 8.25.

For report with reference of TAIWAN public companies or authored by Taiwan based research analyst:

THIS DOCUMENT IS SOLELY FOR REFERENCE ONLY. You should independently evaluate the investment risks and are solely responsible for your investment decisions. NO PORTION OF THE REPORTMAY BE REPRODUCED OR QUOTED BY THE PRESS OR ANY OTHER PERSON WITHOUT WRITTEN AUTHORIZATION FROM NOMURA GROUP. Pursuant to Operational Regulations GoverningSecurities Firms Recommending Trades in Securities to Customers and/or other applicable laws or regulations in Taiwan, you are prohibited to provide the reports to others (including but not limited torelated parties, affiliated companies and any other third parties) or engage in any activities in connection with the reports which may involve conflicts of interests. INFORMATION ON SECURITIES /INSTRUMENTS NOT EXECUTABLE BY NOMURA INTERNATIONAL (HONG KONG) LTD., TAIPEI BRANCH IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT BE CONSTRUED AS ARECOMMENDATION OR A SOLICITATION TO TRADE IN SUCH SECURITIES / INSTRUMENTS

NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II) REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF AMEMBER OF NOMURA GROUP. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as informationcould be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this document, whichmay arise as a result of electronic transmission. If verification is required, please request a hard-copy version.

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Disclaimers required in JapanCredit ratings in the text that are marked with an asterisk (*) are issued by a rating agency not registered under Japan’s Financial Instruments and Exchange Act (“Unregistered Ratings”). For details onUnregistered Ratings, please contact the Research Product Management Dept. of Nomura Securities Co., Ltd.

Investors in the financial products offered by Nomura Securities may incur fees and commissions specific to those products (for example, transactions involving Japanese equities are subject to a salescommission of up to 1.404% on a tax-inclusive basis of the transaction amount or a commission of ¥2,808 for transactions of ¥200,000 or less, while transactions involving investment trusts are subject tovarious fees, such as commissions at the time of purchase and asset management fees (trust fees), specific to each investment trust). In addition, all products carry the risk of losses owing to pricefluctuations or other factors. Fees and risks vary by product. Please thoroughly read the written materials provided, such as documents delivered before making a contract, listed securities documents, orprospectuses.

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Nomura Securities Co., Ltd.

Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142)

Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association of Japan; and Type II Financial Instruments Firms Association.

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