Abenomics - Third Arrow What you need to know as an investor CHARLES YANG, CFA CFA INSTITUTE BOARD OF GOVERNORS 2009 - 2015

What is Abenomics? “Japan Revitalization Strategy” to eliminate deflationary mindset First Arrow – Easy Monetary Policy Second Arrow – “Flexible” Fiscal Policy Third Arrow – Growth Strategy/Deregulation

Impact from First and Second Arrow Period :Jan 2010 – Aug 2015 Source : Nikkei Inc. , Bloomberg

Impact from First and Second Arrow （%） Period: Jan 2010 – Aug 2015 Source :Bloomberg

Impact from First and Second Arrow Period: Jan 2008 – Aug 2015 Source :Bloomberg

Impact from First and Second Arrow Period: Jan 2010 – Aug 2015 Source :Bloomberg

Impact from First and Second Arrow Nominal GDP (Fiscal Year) (JPY in bn) Source :Cabinet Office

Third Arrow – More than Stewardship Code and Corporate Governance Code GPIF (Government Pension Investment Fund) Reform “Womenomics” University Reform “Cool Japan”/Tourism

Japan Stewardship Code “Principles for Responsible Institutional Investors” Draft version in December 2013/Final version approved in February 2014 Adopted by 127 institutions (June 2014) 7 Principles, but boils down to ENGAGEMENT!

Corporate Governance Code Key element of government’s growth strategy from June 2014 Based on OECD Principles of Corporate Governance Code finalized in March 2015 Applies to wider range of companies than similar codes in other countries Specifies 5 General Principles and 30 Principles “Comply or Explain”

Toshiba – Embarrassment for Abe Toshiba is a multinational conglomerate known for consumer electronics, semiconductors, nuclear energy, among others 200,000+ employees globally, 2.4 billion USD operating income revealed overstatement of operating income by 1.2 billion USD over seven years resignations from CEO, 2 ex-CEOs & six company directors

As investors, need to follow progress in.. Profitability Popularity Board Composition Diversity

Return on Equity Date : Nikkei Newspaper 4/7/2015 Source :Nikkei Inc

As investors, need to follow progress in.. Profitability Popularity Board Composition Diversity

Approval rating for the Abe Cabinet Source :Nikkei Inc

Stable leadership is a must Years served as prime minister (post world war)

Stable leadership is a must Increase in stock price during administration Source : Bloomberg

As investors, need to follow progress in… Profitability Popularity Board Composition Diversity Source : Bloomberg

Independent Directors Number of firms with an independent director (as of July 2015) Source : Nikkei Inc

As investors, need to follow progress in… Profitability Popularity Board Composition Diversity Source : Bloomberg

Number of companies with female director 10.5% (for TSE1) Source: Bloomberg (3/11/2015)

Proportion of female directors 1.5% (for TSE1) Source: Bloomberg (3/11/2015)

To summarize… “Success” of Abenomics depends on Third Arrow Adoption of Stewardship Code and Corporate Governance Code within 15 months was AMBITIOUS Don’t expect quick overall progress, but focus on process and “small wins”

Thank you!

2015 Forecasting Dinner Keynote Speaker Charles J. Yang, CFA Questions

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