ABENOMICS IS PROGRESSING TOWARD THE REINVIGORATION OF THE JAPANESE ECONOMY

ABENOMICS IS PROGRESSING TOWARD THE REINVIGORATION OF THE JAPANESE ECONOMY September 016 For more detail, please visit the website: http://www.japan.go.jp/ abenomics/index.html

NEW LATEST DEVELOPMENT ECONOMIC STIMULUS PACKAGE Implementing a stimulus package of 8 trillion yen 1, to accelerate the positive cycle of Abenomics Stimulus Package Globally competitive SMEs and regional economies Diversity in the workforce Example Examples Reduce financial instability with lower interest rates on loans through financial support Support innovative R&D, digitization, operational efficiency as well as sales and marketing Subsidize local public bodies to further promote regional revitalization Examples Restore earthquake-affected areas, by speeding up construction Reinforce buildings, infrastructure and information systems to minimize damage in future natural disasters Recovery in corporate performance Increased capital investment Increased wages Positive cycle for sustainable economic growth Creation of new demand Higher employment and incomes Rise in domestic consumption Support children's day care centers with higher wages and efficiency improvements for administrative work to meet increasing demand Reduce number of workers leaving jobs to become fulltime caregivers to zero by supporting in-home and facility care services for seniors and the disabled Examples Improve transportation efficiency, by speeding up the implementation of maglev and bullet trains Upgrade capacity for inbound tourism and of agri-food exports Recovery and resilience Infrastructure for growth 1 Was announced on August nd, 016 and is expected to be implemented upon diet s approval 1

PROGRESS SO FAR 1 ECONOMIC RECOVERY Abenomics has set the economy on course to overcome deflation and make a steady recovery GDP/GNI Growth Rates¹ Cumulative increase (%) 3 1 0-1 - Before Abenomics 0.4-0.5-1.0-1.3 1.0 0. 0.9 0.0.0. 1.7 1.9.0 1.5-0.4-0.9.6.5 0.8... 0.9 Estimate 1. Real GDP growth rate Nominal GDP growth rate Real GNI growth rate Nominal GNI growth rate FY011 FY01 FY013 FY014 FY015 FY016 FY017 Forecast since the start of Abenomics² Nominal GDP +6.9% Real GDP +.7% Nominal GNI +7.7% Real GNI +5.4% Recent increase in the past year³ Nominal GDP +1.5% Real GDP +0.8% Nominal GNI +0.8% Real GNI +1.4% Source: Cabinet Office National Accounts ; Mid-Year Economic Projection for FY016 1 The Japanese fiscal year starts in April and concludes in March of the following year Change between Q4 01 and Q 016 (Seasonally adjusted figures) The forecast does not include the economic impact of Economic Measures for Realizing Investment for the Future 3 Change between Q 015 and Q 016

PROGRESS SO FAR 1 ECONOMIC RECOVERY Corporate recovery through increased profitability is driving improvement of employment conditions (JPY tril.) Corporate ordinary profits (Quarterly) (X) Jobs to applicants ratio and unemployment rate (%) 0.5 1.50 5.0 18.00 15.75 1.5 4.0 13.50 11.5 9.00 6.75 1.00 0.75 0.50 3.0.0 4.50.5 0.00 0.5 0.00 Job to applicants ratio (Left scale) Job to applicants ratio of regular employees (Left scale) Unemployment rate (Right scale) 1.0 0.0 00 04 06 08 10 1 14 16 01 13 14 15 16 Increase in annual corporate ordinary profits: 0 trillion yen (FY01 - FY015) Increase in annual capital investment: 8 trillion yen (FY01 - FY015) Increase in number of employees: 1.1 million (01-015) Unemployment rate: 3.0% (July 016) Average rate of wage hikes:.% in 015 (Highest in 17 years),.0% in 016 The weighted average of the minimum wage nationwide to be increased from 798 yen in 015 to 83 yen in 016. Target to reach 1,000 yen by increasing it at a rate of 3% per year Source: Left - Ministry of Finance "Financial Statements Statistics of Corporations by Industry" All industries, all (firm) sizes, Seasonally adjusted figures Right - Ministry of Health, Labor and Welfare "Statistics on Employment Referrals for General Workers" Seasonally adjusted figures; Ministry of Internal Affairs and Communications "Labor force survey ; Rengo "Results of spring wage negotiations as of June 3" 3

1 PROGRESS SO FAR STEADY PROGRESS OF FISCAL CONSOLIDATION Tax revenue is expected to increase, and dependency ratio on Japanese Government Bonds (JGBs) is declining steadily Primary deficit to GDP ratio has been reduced to target level, halving from FY010 to FY015* (FY010-6.6% à FY015-3.% à FY016-3.1%) Moving forward to achieve a primary surplus by FY00 a. Formulated Basic Policy on Economic and Fiscal Management and Reform 015 in June 015 which includes the fiscal consolidation plan. Set up benchmarks such as bringing primary deficit down to approximately 1% of GDP in FY018, etc. b. Plan to implement consumption tax rate increase from 8% to 10% in Oct. 019 Dependency ratio on JGBs (JPY tril.) (%) 60 48.0 47.9 47.6 46.3 50 43.0 57.6 45 54.5 50 50.0 40 37.6 38.3 46.1 44.3 44.3 44. 4.3 4.9 35.6 35 40 40.9 43.1 41.3 30 37.4 36.9 30 33.3 34.4 5 0 0 15 10 10 5 0 0 FY009 FY010 FY011 FY01 FY013 FY014 FY015 FY016 Amount of JGBs issued (Left scale) *Based on projections of the FY015 primary deficit to GDP ratio Tax revenues (Left scale) Level of dependence on JGBs (Right scale) Source: Ministry of Finance Japan's Fiscal Condition 4

THE SECOND STAGE OF ABENOMICS OPPORTUNITIES FOR FURTHER GROWTH Continued efforts on structural reforms: Accelerating the third arrow to reach 600 trillion yen* GDP 1. Set the foundation for the fourth industrial revolution Generate 30 trillion yen in added value by 00 Establish the Public-Private Council for the Fourth Industrial Revolution to drive use of IoT, big data, artificial intelligence and robots Identify necessary regulatory reforms for a business-friendly environment such as simplifying the process for foreign investments Accelerate data utilization to foster areas such as autonomous driving and drones Provide IT support to SMEs Support the development of skilled human resources to lead change * 5.9 trillion USD (based on the average rate of Aug. 016. USD = 101.3 JPY). Position Japan as a world leader in healthcare Expand the market from 16 trillion to 6 trillion yen by 00 Create a framework for private firms to provide medical-related services not covered by public insurance Alleviate nursing care burden by utilizing robots and sensors Provide customized healthcare services based on personal data collected by wearable devices Enhance R&D in drug development and treatments by leveraging big data analytics Further promote Japanese medical services and devices overseas Longevity in Japan Female life expectancy: 86.8 Longest in the world Male life expectancy: 80.5 6 th in the world (WHO World Health Statistics 016 ) 5

3. Stimulate investment in a deregulated energy market Increase the value of energy-related investments from 18 trillion to 8 trillion yen by 030 Extend the Energy Efficiency Benchmark Program to cover 70% of all industries Ensure higher market penetration of electric and fuel cell vehicles Revise the FIT to allow compatibility between maximum introduction and expansion, and to inhibit public burden Secure a consistent supply of domestic and marine energy resources, as well as an efficient rare earth recycling supply chain Energy consumption rate in Japan Japan s energy efficiency (consumption per GDP) continues to be internationally best in class (Ministry of Economy, Trade and Industry, Outline of the FY015 Annual Report on Energy (Energy White Paper 016) ) 4. Leverage commercial interests in the sports sector Triple the market size from 5.5 trillion to 15 trillion yen by 05 Provide guidance and support to boost profitability of stadiums and other sports facilities Encourage collaboration with health, fashion, tourism and other sectors 5. Activate the market for used homes Double the market size from 11 trillion to 0 trillion yen by 05 Establish a more reliable asset value rating system to promote quality-based transactions of residential properties 6. Further opportunities in overseas growing markets Raise the FTA coverage ratio from 39.5% to 70% by 018 Increase infrastructure exports from 19 to 30 trillion yen by 00 Encourage the early entry into force and the expansion of TPP and promote negotiations on other economic partnership agreements Promote quality infrastructure investment in accordance with G7 Ise-Shima Principles 6

THE SECOND STAGE OF ABENOMICS CIRCULATE GROWTH RESULTS INTO REGIONAL ECONOMIES Escalate transformation in related industries to cascade sustainable growth across the nation 1. Boost productivity in the service industry at a regional level Extend added values services from 343 trillion to 410 trillion yen by 00 Double labor productivity growth to % in an industry which accounts for 70% of GDP Customize plans for intensive legal restructuring, tax reductions or financial support in seven key sectors* *Accommodation, Truck transportation, Restaurants, Medical, Nursing care, Childcare, Wholesale and Retail. Modernize SMEs to comply with global standards Double exports from 13.8 trillion to 5. trillion yen by 00 Encourage financial institutions to engage in the profitability enhancement of companies and review the creditguarantee system Accelerate the establishment of data utilization platforms and provide IT support to increase productivity Support the international expansion of SMEs,particularly Japan s numerous hidden champions 3. Gain international competitiveness in the agri-food sector Double the integrated market value* from 5.1 trillion to 10 trillion yen by FY00 Foster a more open and international competitive system through improvement of wholesale distribution system Encourage cross-industry collaboration to spur smart farming *Includes production, processing, retail and distribution 7

4. Reinforce tourism as the center piece of regional revitalization Increase number of inbound tourists from 0 million to 40 million by 00, and to 60 million by 030 Increase expenditure by inbound tourists from 3.5 trillion to 8 trillion yen by 00, and to 15 trillion yen by 030 Form world-class DMOs 1 and train tourism management specialists Promote branding of national parks, usage of cultural properties, and create globally attractive travel routes Improve tourist experience with additional free Wi-Fi spots, 3,000 ATMs equipped for international transaction, double the number of "Hands-Free Travel" counters, smoother airport security procedures, etc. Growth in the number of inbound tourists and expenditure (10K),000 1,800 1,600 1,400 1,00 1,000 800 600 400 00 Number of inbound tourists (Left axis) 19.74 million Expenditures by inbound tourists (Right axis) 3.48 trillion yen (JPY tril.) 3.5 3.0.5.0 1.5 1.0 0.5 Regions with high growth rate of inbound tourists (Growth from 01 to 015) Growth of inbound tourism in regional areas is eclipsing growth in Tokyo TOKYO - 010 011 01 013 014 015 0.0 1 DMO = Destination Management/ Marketing Organization Excluding day trip travelers Source: Japan National Tourism Organization White Paper on Tourism in Japan ; Annual Statistics on Overnight Travelers 8

THE SECOND STAGE OF ABENOMICS REFORM OF BEDROCK REGULATIONS AGRICULTURE First major structural reform and deregulation in 60 years HEALTHCARE A shot in the arm to energize the healthcare industry ENERGY A comprehensive reform for the first time in 60 years Open the door to new and modern business opportunities - Reform the Agricultural Cooperative system to encourage entrepreneurialism and seek new market entrants 1 - Relax requirements for the ownership of farmland by Agricultural Production Corporations - Reform Rice Production Adjustment program Consolidate scattered farmland and optimizing use - Establish Public Corporation for Farmland Consolidation for core farmers through renting and subleasing - Reform Agricultural Committee to promote utilization of Farmland 3 Establish the nation-wide export promotion institutions of major products to promote exports Accelerate the practical usage of regenerative medicine 4 - Allow outsourcing of cell culturing and processing - Enact an adaptive licensing approval system, making Japan the leading country in the practical usage of regenerative medicine Create a new system for combining insured and uninsured medical services 5 - Allow patients to receive prompt advanced medical care at preferred medical institutions upon request Promote business alliances through a new healthcare corporation system 6 - Allow for consolidated and integrated management of multiple medical corporations à Provide efficient and high-quality medical and nursing services in each region Achieve full liberalization of the electricity retail market 6 - Establish the Organization for Cross-regional Coordination of Transmission Operators 7, and development of electricity transmission and distribution networks for cross-regional electricity use - Activate entries to the retail market across sectors and regions - Mandate legal unbundling of transmission/ distribution sector 8 Achieve full liberalization of the gas retail market 9 - Mandate legal unbundling of pipeline service sector from the three major gas companies 10 Reference: Record high of 745.1 billion yen in exports of agriculture / forestry / fishery products and foods (+1.8% Y0Y) 1,&3 Act enacted in Aug. 015 4 Act took effect in Nov. 014 5 Act enacted in May 015 6 Act enacted in Sep. 015 6 Implemented in Apr. 016 7 Established in Apr. 015 8 Act enacted in Jun. 015, aim to achieve by Apr. 00 9 Act enacted in Jun. 015, aim to achieve by 017 10 Aim to achieve by Apr. 0 9

PILOT INITIATIVES IN NATIONAL STRATEGIC SPECIAL ZONES Leverage reforms in the 10 strategic pilot initiatives to cultivate regional economic growth and create role models for other areas Total of 0 reforms undertaken Amended the Act on National Strategic Special Zones in May 016 to extend and further advance reforms in focus areas by end of FY017 Achievements range from urban rejuvenation, business establishment, expatriate opportunities, and near-term technology, to healthcare, nursing care, children s day care, employment, education, agriculture, fisheries and tourism TOKYO AREA : Business establishment Reform: Create a One-stop Business Center which centralizes related application and consultation services in Tokyo Objective: Improve accessibility to boost market entry of foreign capital companies and start-up venture businesses Achievements: A total of approximately,700 cases (as of August 016) STRATEGIC SPECIAL ZONES TOKYO and KANSAI AREAS : Expatriate opportunities Reform: Enable certified private companies to hire expatriates in the field of housekeeping services in Tokyo, Kanagawa and Osaka Objective: Promote women's active social participation and ensure mid- to long-term economic growth Achievements: Four companies certified to accept expatriate housekeepers in the first 6 months SENBOKU NIIGATA SENDAI TOKYO and KANSAI AREAS : Tourism Reform: Deregulate private room rentals for lodging in Tokyo and Osaka Objective: Increase capacity and variety of accommodations for tourists Achievements: 60 rooms authorized within the first 6 months FUKUOKA KITAKYUSHU HIROSHIMA IMABARI YABU KANSAI AREA AICHI TOKYO AREA OKINAWA 10

THE SECOND STAGE OF ABENOMICS LABOR MARKET REFORM Broaden opportunities to promote a more inclusive work environment New working styles To facilitate progress in a holistic manner, a minister for special missions has been appointed, and an advisory board organized under the Prime Minister Promote corporate initiatives to correct the practice of prolonged working hours 1 Create a new system for white collar workers which values performance instead of hours worked Encourage wage increase for part-time workers by realizing Equal pay for equal work More women in business Resolve the waiting list issue for publicly certified nursery schools by; - Securing additional childcare capacity for approximately 500,000 children by the end of FY017 - Increasing benefits and rewards for nursery school teachers - Constructing more large apartments with attached nursery schools facilities Foster diversity in corporate culture and management systems by; - Providing female candidates with executive leadership training programs from the world s leading business scholars - Increasing childcare leave benefits from 50% to 67%, applied to the first 6 months of leave 3 - Initiating private company initiatives to secure more childcare resources for employees - Utilizing ICT to alleviate daily workload, allowing more time for childcare 1~ Bill submitted to the ordinary Diet session in 015 3 Act took effect in Apr. 014 11

More expatriate career opportunities Promote expatriate entrepreneurship and increase expatriate housekeeping support workers in Tokyo, Kanagawa and Osaka by leveraging the National Strategic Special Zones 4 Expand job categories, increase admission quotas and extend training periods from 3 to 5 years by revising the current Technical Intern Training Program 5 Expedite permanent residency by introducing Japanese Green Card for Highly Skilled Foreign Professionals Relax requirements for expatriates to be accredited as Highly Skilled Foreign Professionals 6 Set target to double expatriate workers in the ICT field from 30,000 to 60,000 by 00 Create more working opportunities for nationally certified expatriate care workers by revising legal framework 7 Progress in labor market reform Over 1 million more women in the workforce since 01 Women in management positions in the private sector approaches 10% 157% increase in highly skilled foreign professionals since May 015 (10K people),701,79,754 (Percent in management) 6.9 7.5 8.3 8.7 (Total recognized) 3,379 5,89,654 01 013 014 015 Source: Ministry of Internal Affairs and Communications: Labor force survey 01 013 014 015 Source: Ministry of Health, Labor and Welfare: Basic Survey on Wage Structure 4 Act took effect in Sep. 015 5,7 Bills submitted to the ordinary Diet session in 015 6 Act took effect in Apr. 015 1 537 1,404 May May May May May 01 013 014 015 016 Source: Ministry of Justice: Number of recognitions of highly skilled professionals 1

THE SECOND STAGE OF ABENOMICS SUPPORTING CORPORATE ACTIVITIES Promote corporate investment through tax reforms, as well as through corporate governance Growth-oriented corporate tax reform Effective corporate tax rate reductions Reduced the effective corporate tax rate below the 30% mark Reinforced corporate governance Japan s Stewardship Code Accepted by 13 institutional investors 1 (%) 36 34 3 30 8 Effective corporate tax rates 34.6 3.11 9.97 9.74 Japan s Corporate Governance Code Applied to more than,000 companies and as a result; - 60% of major companies reduced cross-shareholdings in FY014 - Percentage of listed companies 3 with outside directors rose to nearly 100% 35% Listed companies with outside directors⁴ (50%) 99% 6 FY014 FY015 FY016 FY018 Property tax reduction for SMEs Halve the property tax for facilities improving productivity invested by SMEs from FY016 to FY018 Outlook Capital investments for the manufacturing sector is projected to grow 6% in FY016 (Bank of Japan Tankan July 016) 005 006 007 008 009 010 011 01 013 014 015 016 Effective disclosure of corporate information Eliminate redundant disclosure rules 5 to create more efficiency Efficient Shareholder s meeting process Expedite provision of information (relevant documents) to shareholders by electronic transfer 1 Since Feb. 014 Since Jun. 015 3 Companies listed on the First Section of the Tokyo Stock Exchange 4 Tokyo Stock Exchange: Status report on the appointment of independent outside directors of listed companies 5 Provided by the Companies Act, the Financial Instruments and Exchange Act, and stock exchange listing rules, etc. 13

THE SECOND STAGE OF ABENOMICS DRIVING FOREIGN DIRECT INVESTMENT Create a more universal business environment for foreign businesses operating in Japan Extend national and regional efforts to earn foreign direct investment Increase the amount of inward FDI from 4.4 trillion to 35 trillion yen by 00 Enhance strategies that support local governing bodies to attract foreign businesses Promote investment and alliances between domestic SMEs and foreign businesses Create a more livable and workable environment for expatriates Simplify regulations and administrative procedures Five Promises for Attracting Foreign Businesses to Japan (Announced in March 015) 1. Overcome language barriers at retailers and restaurants. Facilitate better Internet connectivity 3. Accommodate business jets at local airports 4. Enhance educational environment for expatriate children 5. Strengthen advisory and consultation services to support foreign businesses Policy Package for Promoting FDI into Japan to Make Japan a Global Hub (Announced in May 016) 1. Attract foreign companies by leveraging Japan's strengths Disseminate information through FDI seminars Support domestics SMEs to engage in business matching opportunities with foreign counterparts Promote large scale hub establishments in regional areas. Resolve issues hindering the foreign companies' entrances Relax regulations and improve administrative procedures Attract and foster globally competitive human resources Improve the living environment for foreign nationals 14

THE SECOND STAGE OF ABENOMICS DRIVING FOREIGN DIRECT INVESTMENT Come and Invest in Japan Watch videos on the five cases Net amount of inward FDI in 015 marked a record high of 4.4 trillion yen 1. Mingly Corp. (Zao, Miyagi). Bosch Japan (Shibuya, Tokyo) 3. Amazon.com Inc. (Tajimi, Gifu) The Hong Kong based company restored a traditional Japanese-style inn in Miyagi Pref. By making its facility more internationalized and modernized, the inn is attracting more visitors both from within Japan and overseas. The Germany based manufacturer conducts research on automated driving in Japan, as the nation aims to implement the system by 00. Japan s complex and sophisticated traffic infrastructure has offered valuable insight for development. The U.S. based online retailer built its fulfillment center in Gifu Pref., chosen for its central location and efficient transportation network. Establishing a good working relationship with the local community has led the company to success. 4. RepliCel (Kobe, Hyogo) 5. Teradyne Inc. (Ozu, Kumamoto) The Canada based regenerative medicine company chose to work with a Japanese firm to develop practical applications for its hair regeneration treatment as it expects the regenerative medicine market to expand rapidly. The U.S. based manufacturer of automatic test equipment built its new R&D and manufacturing facility in Kumamoto Pref. This facility functions as a central business hub for the Asia Pacific region, leading the company to great success. 1 3 4 5 Source: Ministry of Finance International Investment Position of Japan 15