Japan's Medium-term Economic Outlook -February 2014-

◆World economy over next ten years. With steady growth seen for the U.S. economy, the main risk factor is change in financial policy on the part of the advanced nations during the period covered by this outlook. Maintenance of financial policy provides the foundation for this outlook, and any changes could have a major impact on the economies of emerging nations. Factors which have inhibited equipment investment up to now (such as the decline in prospective profit and the increase in uncertainty) are gradually being removed, and we believe that it can be deduced that the global economy has now entered the expansionary phase of the business cycle.

◆Japan’s economy over the next ten years. The outlook for Japan’s real economic growth rate over the next ten years is an annual average of 1.5%. However, the pattern of said growth is expected to be different in the first and second halves of this period. While a growth rate of 1.7% is seen for the first half of the ten-year period, changes in government monetary policy are expected to erode the effects of the weak yen, causing growth to slow somewhat to 1.3% in the second half. Implementation of an effective growth strategy is essential to maintaining growth in the second half the period. The synergy effect of the 2020 Tokyo Olympics is much-anticipated.

◆BOJ will continue monetary easing. The decline in interest rates and the weak yen are expected to push the Japanese domestic economy up, but this is only a short-term, limited effect. The inflation target cannot be achieved through monetary policy alone. This must be combined with a growth strategy to become more effective.