8 December 2015 World Out€ook 2016: Managing with less liquidity Japan: Return to steady recovery trend • We forecast the Japanese economy to return to underlying trend growth of real GDP at annualized 1.0-1.5% after a temporary soft patch in Q2 and Q3 2015. • We see low likelihood of meaningfully negative second-round effects from the global slowdown to domestic non-manufacturers despite an inevitable impact on the Japanese manufacturers. A soft patch, not a roots: eon Real GDP shrank 0.20/agog (annualized -0.8%) in Q3, the second consecutive negative contraction, but we do not think this means the economy has entered a recession because of the large negative inventory contribution in O3 growth and the low accuracy of Japanese preliminary GDP estimate. Our Nowcast index (DBNCI) has been revised upward and is now trending gradually higher. We think the Japanese economy was in a soh patch in Q2 and O3 but these instances were mild and transitory and should be followed by real final sales (GDP minus inventories) growth at an underlying trend of an annualized 1.0-1.5%. Resiliency of non-manufacturing sector Because the scale of the ongoing global economic slowdown from early 2015 is limited compared to the collapse of the IT bubble in 2000-2001 or the global financial crisis of 2007-08, we forecast a low likelihood of meaningfully negative second-round effects from the global slowdown to domestic nonmanufacturers, thus leading to a recession, despite an inevitable impact on the Japanese manufacturers. Predicting an expansion in domestic demand (mainly private consumption) Although we predict a return to an economic expansion with annualized growth of 1.0-1.5% from O4 2015, this is likely to be driven not by exports but rather by domestic demand (in particular private consumption). Nominal so aggregate wages (= total cash earnings per person x number of employees) are maintaining growth of an annualized 2.0-2.5% and inflation is predicted to converge at around 1%, so 1.0-1.5% growth in real aggregate wages is probably the underlying trend. Therefore, we think real private consumption could maintain annualized growth of 1.0-1.25%. f'itjui.o 1. DaNCI turned to norrenci — 194low IS plow 1$ nan'ramcrr..nw.1425nveladil 100*¢SOld Sown &outset* ant Reseenth Figure 2: Rising nomina€ wages —rrmuw1gTpr•rp•a. awn. —Itivinsi wage index pitapat Ynma —Diploma Ma 116 10500. CY 2010105 se Figure 3: Macro-economic activity & inflation forecasts: Japan Economic activity 2015 2010 2015F 2oier 20I7F (St goo Mai 01 02 03 0.4F 01F Q2F 03F 04F 1,0 yoy % yoy '1.0 yoy GDP 4.6 -0.7 -05 3.4 1.8 1.1 1.6 1.8 0.7 1.5 OS Private consumption 1,7 -2.3 2.1 1.4 14 1.4 1.4 2.4 -0.6 1.3 -0.2 Investment 6.4 -0.4 -2.7 2.0 1.8 0.7 1.2 1.6 0.0 0.8 1.0 Gov't consumption 1.1 2.6 1.2 1.2 1.2 1.2 1.2 1.2 1.4 1.3 1.2 Exports 8.0 -181 10.9 4.6 5.8 6.6 7.4 7.8 3.3 5.1 6.9 Imports 7.8 -10.8 7.1 -0.5 5.4 at 6.6 7.1 0.7 4.1 4.7 Contribution (pp): Private inventory 12 0.9 -1.9 0.5 0.2 0.0 0.0 -0.4 0.3 -0.1 -0.1 Net trade 0.2 -1.3 0.8 0.9 0.2 -0.1 0.3 0.3 0.5 0.3 0.5 Industrial production 6.3 -5.5 -5.2 3.0 2.6 ao 3.4 4.1 -09 1.4 1.7 Unemployment rate, % 3.5 13 3.4 14 3.4 14 3.4 34 3.4 3.4 3.3 Prates & vvages yuy) CPI 2.3 0.5 0.1 0.3 0.6 0.5 0.8 1.0 0.8 0.7 2.1 ONO CPI 2.0 0.5 0.8 0.9 1.1 1.1 1.0 1.0 1.1 12 12 Producer prices 0.5 -2.2 -3.6 -2.8 -0.9 -0.9 0.4 1.3 -2.0 0.0 2.8 Compensation per ennui. 0.6 0.2 0.8 1.3 1.9 1.9 1.9 1.7 0.7 1.9 1.8 Productivity -1.8 1.3 1.0 1.2 1.1 1.1 1.7 1.0 0.4 1.2 0.5 Ito 106 1W so 2020 2003 2026 20O2 2012 2015 Sane WILW. ONSSCIM oral Minch Souct NiOartilathentra, Decent.* Ant "sir°, Page 32 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0119139 CONFIDENTIAL SDNY_GM_00265323 EFTA01458968