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Revitalization of Japan

and
Investment Opportunity

May, 2015
OKASAN SECURITIES CO., LTD.
Chief Strategist
Kenya Sugiyama

Note: Not for public dissemination. Only for private use by the audience.
1
Contents

Japan, whats been changed?

Nuts and Bolts of Abenomics

Investment opportunities in Japan

Note: Not for public dissemination. Only for private use by the audience. 2
Japan, whats been changed?

Political stability
14 PMs in 20 years, and here comes Mr. Abe

BOJ Governor Mr. Kuroda


He knows rule of the game

Deflationary mind is about to change


Personal consumption is leading the economy

Corporate profit record high


Corporate Japan restoring earnings power
Note: Not for public dissemination. Only for private use by the audience. 3
Political stability
<PM Shinzo Abe>
Economy, among other
things, is the top priority
for Abe
Serving for the second time,
Abe is determined to pull the
economy out of deflation
Approval rating is still high for Abes
cabinet
Note: Not for public dissemination. Only for private use by the audience. 4
Nikkei225 and Exchange Rate
Nikkei 225 and Yen/USD Rate(1980~)
(yen) (yen/UDS)
40,000 300

35,000 NIKKEI 225


250
30,000

25,000
200

20,000

150
15,000

10,000
100
Yen/USD
5,000

0 50
1980 1985 1990 1995 2000 2005 2010 2015
As of pr. 30,2015

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Cabinet and Stock Market
(yen) NIKKEI 225 and Cabinet
40,000
Suzuki(LDP) Miyazawa(LDP) Obuchi(LDP) Aso(LDP)
Nakasone(LDP) Hosokawa(New Japan) Mori(LDP) Hatoyama(DPJ)
35,000 Takeshita(LDP) Hata(Shinsei) Koizumi(LDP) Kan(DPJ)
Uno(LDP) Murayama(Socialist) Abe(LDP) Noda(DPJ)
KaifuLDP) Hashimoto(LDP) Fukuda(LDP)
30,000
Abe(LDP)
25,000

20,000

15,000

10,000

5,000

0
1980 1985 1990 1995 2000 2005 2010 2015
As of 4/30/2015

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Issues achieved and coming
Issues till 2020
Tokyo Olympic
Primary Balance

Issues till 2017


Consumption Tax hike
8%10%
Lower House Election
Issues till 2015
TPP Issues till 2016
Lower House LDP Leader Election
Election Victory combat Deflation
Sep. 2015 Wage increase
Dec. 2014 70 years after the end
Consumption Tax Hike of WW
5%8
Apr. 2014
Upper House
Election Victory
Jul. 2013
Abes cabinet
Dec. 2012

2012 2013 2014 2015 2016 2017 2018 2019 2020 (year)

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BOJ Governor

<BOJ Gov., Haruhiko Kuroda>


Strong advocate of
aggressive monetary policy
Mr. Kuroda is a man who
knows rule of the game
Quantitative & Qualitative Mr. Kurodas Bio
Vice Minister of Finance for

Monetary Policy
international affairs at the
Ministry of Finance
(1999~2003)
President of ADB
(2005~2013)
Bank of Japan Governor
(March 2013~)

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Nuts and Bolts of Abenomics

3 Arrows
Aggressive Monetary Policy
GOAL
Dispel deflationary mindset
Overcoming
the deflation
Flexible Fiscal Policy
Bringing the
Ignite the damp economy economy
back on the
right track
New Growth Strategy
Restore the confidence of companies and people,
then change expectation into action

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Aggressive Monetary Policy

Quantitative and Qualitative


The 1st Arrow Monetary Policy

2% inflation target
(Accord bet. Government and BOJ)
Monetary base increase
Purchase of long-term JGB
Purchase of ETF(3 trillion yen/year),J-REIT
(90 billion yen/year)

Note: Not for public dissemination. Only for private use by the audience. 10
Deflation, out of the woods?
CPI target yet achieved
(%) Japan CPI and the target
4

2 Target:2% YoY

1 Consumption tax
hike(5%8% from
0 Apr.2014) effect
added base
-1

-2
National Core CPI(Ex-fresh food), YoY
-3 As of March 2015

00 02 04 06 08 10 12 14
(year)
Okasan Securities

Note: Not for public dissemination. Only for private use by the audience. 11
Labor index 15 years high
more wage increase is anticipated
unemployment rate and jobs-to-applicants ratio
(%)
6 Unemployment rate(left) 1.6

5 1.4

1.2
4
1
3
0.8
2
0.6
1 Jobs-to-applicants-ratio(right) 0.4
National Core CPI(Ex-fresh food), YoY
0 0.2
As of March 2015
90 95 00 05 10 15
(year)
Okasan Securities

Note: Not for public dissemination. Only for private use by the audience. 12
Tax hike damage is absorbed
1Q2015 GDP +2.4%(est.+1.6%)
GDP growth rate(real growth rate, APR)
(%)
6
market estimates
4

-2

-4

-6

-8 As of 1Q 2015

12 13 14 15 (year)

Okasan Securities

Note: Not for public dissemination. Only for private use by the audience. 13
New Growth Strategy

Pro-business, Private Sector revival


The 3rd Arrow Regaining competitive edge

Revitalization of Japanese Industry

Restoring Japans earnings power

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Growth Strategy

Restoring Japans earnings power

Corporate-governance code
GPIF reforms
Speed up the restructuring of industries
Bolster scientific and technological innovations
Lowering the corporate tax
Deregulation of corporate ax rules
Deregulation of the farming industry

Note: Not for public dissemination. Only for private use by the audience. 15
NIKKEI 225 New Stage
NIKKEI 225 at 15 years high New Stage
(yen)
21,000 Flexible
20,000 Fiscal Policy

Aggressive Aggressive
19,000 Monetary
Monetary
18,000 Policy (1) Policy (2)

17,000 From policy driven to


autonomous, private-
16,000 sector driven move
15,000
14,000
13,000
New Growth
12,000
Strategy
11,000
10,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 As of May 22,2015

Note: Not for public dissemination. Only for private use by the audience. 16
Capital Market Transformation

Cabinet, BOJ Corporates

Abenomics continue Shareholder ReturnDividend,


BOJ QE continue Buybacks
GPIF Reform Profitability, Competitive clout
Wage increase

Capital Market

Corporate-Governance Code Yen depreciation


Stewardship Code Falling crude oil prices
ROE-Forcused Management Anticipated real wage increase

17
Whos buying ?
100million yen
Year Institutional Individual
Mutual
Month Foreigner Financial Institution
Corporate Fund Margin Cash Total
Week Insurance Bank Trust Bk
2012 28,264 6,977 1,627 10,193 4,023 459 5,774 24,886 19,112
2013 151,196 10,751 2,830 39,664 6,297 4,267 29,774 117,282 87,508
2014 8,527 5,038 1,290 27,848 11,018 2,105 13,189 49,512 36,323
2015 18,925 3,344 897 2,427 1,646 2,830 4,032 33,723 29,691
Jan 8,932 323 181 5,262 1,620 432 2,643 878 3,522
Feb 2,015 822 275 2,809 631 1,120 2,363 14,166 16,529
Mar 5,306 1,043 157 1,226 8 1,255 3,009 4,072 1,063
Apr 20,527 1,125 723 4,158 549 770 696 15,353 16,049
May 584 2 9 111 21 386 125 518 393
Jan 1w 4,349 1 24 688 671 559 1,739 3,096 4,836
Jan 2w 4,504 36 100 1,452 604 228 1,045 1,753 2,798
Jan 3w 683 242 40 1,429 192 126 493 1,932 2,425
Jan 4w 762 117 64 1,693 153 480 352 2,039 1,687
Feb 1w 2,364 9 143 654 1,005 336 201 1,168 1,369
Feb 2w 158 70 97 1,123 38 431 666 3,337 4,004
Feb 3w 1,538 365 241 434 179 110 993 5,699 6,692
Feb 4w 2,682 395 80 599 233 243 502 3,962 4,464
Mar 1w 2,100 273 45 34 287 234 544 1,712 1,167
Mar 2w 3,062 176 181 355 141 316 669 2,089 1,421
Mar 3w 1,334 176 81 1,346 261 212 804 709 95
Mar 4w 1,191 419 211 509 175 493 992 438 1,429
Apr 1w 4,454 225 655 1,194 300 53 374 2,556 2,929
Apr 2w 5,910 300 75 1,379 200 103 55 3,587 3,642
Apr 3w 3,084 298 13 598 124 86 459 3,926 3,468
Apr 4w 7,080 303 6 987 174 805 725 5,284 6,010
Apr 5w 574 29 68 150 68 503 1,314 492 822
May 1w 584 2 9 111 21 386 125 518 393 Source: TSE

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Whos the shareholder?
Foreigner is gaining shares
(%)
Shareholder structure of Corporate Japan
40

35

Foreigner
30

Financial
25 Institution

Corporates
20
Indivisuals

15
00 01 02 03 04 05 06 07 08 09 10 11 12 13 (year) Source: TSE

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From Savings to Investment
Individual Assets
Households Asset of Japan Households Asset of US
(as of Dec. 2014) (as of Dec. 2014)
others Others Cash,
Deposit
Insurance,
Insurance,
Pension
Pension
Fund
Fund Bond
Cash,
Total Deposit Total
Asset Asset
13.8 66.8 Mutual
trillion trillion Fund
USD USD

Stock

Stock
Mutual
Fund Bond
Source: Bank of Japan

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Prevailing Return Revolution
GPIF Asset Allocation change
GPIF Asset(as of Dec. 2014) GPIF basic portfolio(old)
Short Term
Asset
Domestic Domestic Foreign Foreign Short term
4.3% Asset
Bond Equity Bond Equity Asset
Foreign
percentage 60% 12% 11% 12% 5%
Equity
19.6% diremption 8 6 5 5 -

1.14 Domestic
trillion Bond
USD 43.1%
Foreign GPIF basic portfolio(new)
Bond
13.1% Domestic Domestic Foreign Foreign
Asset
Bond Equity Bond Equity
percentage 35% 25% 15% 25%
Domestic diremption 10 9 4 8
Equity
19.8%
Source: GPIF GPIF announced new portfolio on Oct. 31st 2014

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Japan at the crossroad
Market Cap largest ever
TSE 1st Section Market Capitalization Now and Then
700
Dec. 1989 May 2015
600
Market
590 trillion 591 trillion
500 Capitalization
Foreigners
400 8% market turnover 68%
share
300 Foreigner holding
4% 31%
share
200
Number of listed
1165 1883
100 companies

0 62 PER 17
89 91 93 95 97 99 01 03 05 07 09 11 13 15

Source: TSE

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Top Companies Now and Then
Corporate Japan revival
Top 10 Market Cap names Now and Then
Dec-89 May-15
Market Market
Code Name Code Name
Cap(bil yen) Cap(bil yen)
1 9432 22,932 7203 Toyota 28,789
2 8302 IBJ 15,002 8306 Mitsubishi UFJ 12,848
3 8318 Sumitomo Bk 10,549 9432 9,855
4 8317 Fuji Bk 9,988 2914 9,278
5 8311 Daiichi Bk 9,214 9437 T Docomo 9,150
6 8315 Mitsubishi Bk 9,164 9984 Softbank 8,662
7 9501 TEPCO 8,127 8316 Sumitomo Mitsui 7,642
8 8320 Sanwa Bk 8,092 9433 7,611
9 7203 Toyota 7,708 7267 Honda 7,526
10 8604 Nomura Sec 6,735 6954 Fanuc 6,240

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NIKKEI 225 still way to go
EPS growth still ongoing
EPS for NIKKEI 225 EPS forecast for fiscal
1,250 year end
yen

1,200
EPS level
PE
1,150 May 18th forcast
multiple
1229 1350
1,100

15 18,435 20,250
1,050
16 19,664 21,600
1,000
17 20,893 22,950

950 18 22,122 24,300


Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15
(yen)

Okasan Securities

Note: Not for public dissemination. Only for private use by the audience. 24
Restoring earning power
Profit still way to go
EPS for NIKKEI
(trillion
yen) Net225
profit for listed companies
1
25 SourceAstra,
16/3
Company forecast for the fiscal year16/3
307/3
Companies listed on TSE 1st section, excluding financials

20

15

10

-5
(year/month)
07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3

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Here comes the 4th arrow

One more gigantic arrow


Aggressive Monetary Policy

Flexible Fiscal Policy

New Growth Strategy

2020 Tokyo Olympic


and Paralympic Game
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Tourism Promotion
Tourist visiting Japan
(million)
Target 30 million For the first time, the
by the year 2030 number of tourist visiting
30
Japan has surpassed 10
million in 2013,and it
25 reached 13 million in 2014.

20
Above is achieved by VISA
relaxation measures for
15
ASEAN countries

10
Japan is targeting 30 million
tourist by the year 2030
5

0
05 10 15 2030
(est.)
(year)
Source: JNTO

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What to Expect in Japan
Foreigners Expectation for Japan
Biggest expectation before Top expectations before
coming to Japan going to Japan among
foreigners are eating
Japanese food

others Japanese
Washoku=Japanese food is
26% Food
34% designated as intangible
cultural heritage by UNESCO
in 2013
Hot springs
6% Michelin awards
Shight City Total
seeing
Tokyo 12 53 161 226
Shopping 14%
Theme park
7%
13% Paris 9 14 62 85
New York 6 9 58 73
Source: JNTO
Source: Michelin guide

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Japanese Equity Investment Ideas

TOYOTA (7203)
Stock Chart2013
yen One of the largest auto-
9,000 manufactures in the world
8,500
8,000 Hybrid technology among
7,500 other things are the world top
7,000
class
6,500
6,000 Yen depreciation, expansion in
5,500
north America helped achieve
record profit in fiscal year
5,000
2015
4,500
4,000
Launch of Hydrogen fuel cell
3,500
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
vehicle (FCV) MIRAI ,
strategic alliance with MAZDA
As of 5/22
are another driver for stock

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Japanese Equity Investment Ideas

PANASONIC (6752)
Stock Chart2013
yen One of the largest manufactures
2,000 of electronic products

1,800
Restructuring and turnaround
1,600 plan is taking effects, ready to
spend 1tril yen(8.3bil UDS) on
1,400
growth
1,200

1,000 Vehicle installation products and


housing related business helped
800
to turnaround
600

400 Giga-factory project of Tesla


Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Motors US would be a game
changer for lithium-ion battery
As of 5/22
business for Panasonic

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Japanese Equity Investment Ideas

SONY (6758)
Stock Chart2013 One of the leading manufactures
yen of IT products, home video game
4,000 consoles, music devices. Other
business includes music, pictures,
3,500
computer entertainment
3,000
Restructuring and turnaround is
2,500
still going on. SONY used to be
2,000
considered laggards in
restructuring among Japanese
1,500 electronic makers, but now ready
to go offensive
1,000

500 CMOS sensors whose high-speed


Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 characteristics can be essential
for smart-phone recording and
As of 5/22 vehicle installed cameras

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Japanese Equity Investment Ideas

NIDEC CORPORATION (6594)


Stock Chart2013 World leading manufacturer of
yen small precision motors mainly
10,000 used in HDD and optical disk
drives.
9,000

8,000
Extended its focus to the home
7,000 appliances and automotive
markets
6,000

5,000 Fiscal year 2015 was capped with


4,000 sales over 1tril yen (8.3bil UDS)
for the first time
3,000

2,000 Targeting sales goal of 2tril


Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 yen(17bil USD) until fiscal year
2020
As of 5/22

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Japanese Equity Investment Ideas

MITSUI FUDOSAN (8801)


Stock Chart2013
yen One of the largest Real estate
3,800 developer and service provider
in Japan

3,400
Engaged in development,
leasing, sales and maintenance
3,000 of office building and residential
houses
2,600
Nihonbashi-Muromachi renewal
plan is one of the main on-going
2,200
big projects

1,800
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
One of the prominent stocks
related to Abenomics and Tokyo
As of 5/22
Olympic as well

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Japanese Equity Investment Ideas

DAIKIN INDUSTRIES (6367)


Stock Chart2013
yen

Largest manufacturer of air
10,000
conditioning equipment for
9,000 household and commercial use
8,000
Also a producer of fluorine
7,000
chemical products such as
6,000 fluorinated hydrocarbon gas
5,000
Strong foothold in overseas
4,000 markets such as US, China,
3,000 ASEAN counties etc.

2,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Fiscal year 2015 was capped
with record sales and record
As of 5/22 profit

Note: Not for public dissemination. Only for private use by the audience. 34
Japanese Equity Investment Ideas

ORIENTAL LAND (4661)


Stock Chart2013
yen

10,000 Operator of Tokyo Disney
Resort. The Company also
9,000 operates restaurants within the
8,000
complex and sells Disney
merchandise
7,000

6,000 Visitor numbers are record high


3 years in a row thanks to the
5,000
new attraction and huge visitors
4,000 from overseas

3,000
Tourism promotion is the big
2,000 tailwind and should bring more
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 visitors from Asian countries
As of 5/22

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Japanese Equity Investment Ideas

EAST JAPAN RAILWAY (9020)


Stock Chart2013
yen

12,000
Operator of rail transportation in
the Kanto and Tohoku regions
11,000 including Tokyo

10,000
The service includes Shinkansen
9,000 (bullet train) network and the
Tokyo metropolitan train
8,000 network
7,000
East Japan Railway also
6,000 operates hotel, travel and
restaurant business
5,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
One of the biggest winner of
As of 5/22 tourist promotion

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Japanese Equity Investment Ideas

SEVEN & I HOLDINGS (3382)


Stock Chart2013
yen

5,500
Holding company which was
established through the merger
5,000 of Ito-Yokado(shopping center)
and Seven Eleven (convenience
4,500 store)

4,000
Largest convenience store
3,500 operator in Japan where sales
are still growing. Sales profit for
3,000 the fiscal year 2015 was record
high for 4 years in a row
2,500 spearheaded by Seven Eleven

2,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Same store sales for Seven
Eleven are up for 32nd
As of 5/22
consecutive months

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Japanese Equity Investment Ideas

FAST RETAILING (9983)


Stock Chart2013
yen

55,000
Operator of a chain of clothing
stores. UNIQLO throughout
50,000 Japan and in other overseas
markets including UK, US,
45,000 Singapore, China etc. Trying to
catch up with ZARA, H&M.
40,000

35,000 The Company designs,


manufactures, and retails its
30,000
own line of casual clothing
25,000
Domestic retail store amounts
20,000
to more than 800, overseas
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
more than 700
As of 5/22

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