Deterioration in the Operating Environment Due to Low Interest Rates, Population Decline and Intensified Competition

「In the economy of the Tokai region, our Group’s main operating area, the tariff rate on automobiles exported to the United States was reduced from 27.5% to 15% in September following repeated negotiations between Japan and the United States. However, concerns remain over the impact on the automotive industry, a major industry, because the burden on related companies remains substantial.」

「In the economy of the Tokai region, our Group’s main operating area, production restraints in the automotive industry, a major industry, have continued due to certification irregularities and other issues, but their impact is gradually being resolved. Looking back at financial conditions, the yen appreciated sharply following the Bank of Japan’s decision on 31 July to raise interest rates, among other factors. This coincided with growing concerns over a US economic recession following the US employment report, and on 5 August the Nikkei Stock Average recorded its largest-ever decline of ¥4,451. Markets have since been regaining stability, but in September the Federal Reserve Board (FRB), the US central bank, decided to cut interest rates. Differences in the direction of monetary policy in Japan and the United States have also left financial markets unstable.」

「During the first 3 quarters of the current fiscal year, Japan’s economy continued to recover gradually. Personal consumption increased, including service consumption such as dining and accommodation, as economic activity normalized following the change in May to the classification of COVID-19 under the Infectious Diseases Control Law. However, although wage growth in the 2023 spring wage negotiations reached its highest level in approximately 30 years, price increases exceeded it, weighing on the recovery in consumption.」

「During the first 2 quarters of the current fiscal year, Japan’s economy recovered gradually. …At the Bank of Japan’s July Monetary Policy Meeting, the operation of yield curve control was made more flexible, and long-term interest rates rose to the upper 0.7% range at the end of September, their highest level in approximately 10 years. However, the interest-rate differential with the United States did not narrow, and the yen continued to depreciate against the dollar. The Nikkei Stock Average continued to set post-bubble highs in June due to the yen’s depreciation and the recovery in corporate earnings, ending trading at ¥31,857 at the end of September.」

「During the first quarter of the current fiscal year, Japan’s economy recovered gradually, partly because the classification of COVID-19 under the Infectious Diseases Control Law was changed in May, further advancing the normalization of economic activity under a policy of living with COVID-19. …Looking back at financial conditions, the yen depreciated again after the Bank of Japan decided at its April Monetary Policy Meeting to maintain its large-scale monetary easing measures, reaching the ¥145 range against the dollar at the end of June. The Nikkei Stock Average continued to set post-bubble highs due to the yen’s depreciation and the recovery in corporate earnings, ending trading at ¥33,189 at the end of June.」

「Concerns include the prolonged Ukraine crisis, the risk of a global economic slowdown due to monetary tightening by major overseas central banks, high inflation mainly caused by elevated energy and raw material prices, and the impact of financial instability originating in Europe and the United States. Uncertainty over the outlook has increased recently.」

「During the first 3 quarters of the current fiscal year, Japan’s economy continued to show gradual signs of recovery. Personal consumption recovered gradually as economic and social activity normalized amid the COVID-19 pandemic, aided by the recovery of service industries such as restaurants and travel. Meanwhile, prices continued to rise due to surging resource prices resulting from Russia’s invasion of Ukraine, strengthening consumers’ preference for saving. …Although production plans in the automotive industry, a major industry, continued to be revised downward due to semiconductor shortages and other factors, production has recently begun to recover, and an increase in production is expected going forward.」

「In the economy of the Tokai region, our Group’s main operating area, production plans in the automotive industry, a major industry, continue to be revised downward due to semiconductor shortages and other factors. …Capital investment has begun to address decarbonization and digitalization, but concerns remain that it will weigh on earnings because passing on increases in raw material prices and other costs is difficult. …In September, the Bank of Japan decided at its Monetary Policy Meeting to maintain large-scale monetary easing. Due to the resulting contrast in monetary policy with the United States, which was proceeding with interest-rate increases, the yen depreciated rapidly to the upper ¥145 range against the dollar. For the first time in 24 years, since 1998, foreign-exchange intervention was conducted to sell dollars and buy yen.」

「During the first quarter of the current fiscal year, Japan’s economy showed signs of recovery, although uncertainties such as the situation in Ukraine remained, partly because the priority preventive measures to prevent the spread of disease were lifted in March. …However, concerns have arisen over the impact of ongoing price increases on consumption. …Production volume forecasts for the automotive industry, a major industry, continue to be revised downward as difficulties procuring parts due to semiconductor shortages persist.」

「The business environment surrounding us has seen problems such as labor shortages and a lack of successors become more pronounced as regional economies contract due to population decline and the declining birthrate and aging population. As a result, the needs of local customers are diversifying, and financial institutions are increasingly required to expand and diversify the financial services they provide.」

「During the first 3 quarters of the current fiscal year, Japan’s economy showed signs of recovery as the difficult conditions caused by COVID-19 gradually eased. …However, concerns over the impact of COVID-19 variants have risen rapidly in recent months. …In the Tokai region, the automotive industry, a major industry, had been moving toward normalization after substantial production cuts in the summer, but the impact of difficulties procuring parts remains, including continued production stoppages at some plants.」

「In the economy of the Tokai region, our Group’s main operating area, the automotive industry, a major industry, is facing difficult conditions, with parts shortages caused by semiconductor shortages and the spread of infections in Southeast Asia leading to temporary production stoppages at domestic and overseas plants.」

「During the first quarter of the current fiscal year, Japan’s economy remained in a difficult situation due to the impact of COVID-19, but signs of recovery continued, although the recovery lacked strength. …The automotive industry, a major industry, is on a recovery trend from its sharp decline last year. However, the impact of production cuts due to semiconductor shortages is also evident.」

「During the third quarter of the current consolidated cumulative period, Japan's economy remained in difficult conditions due to the effects of COVID-19, although signs of recovery were evident. Personal consumption had been recovering partly due to the effects of policies such as the Go To Travel campaign, but the campaign was temporarily suspended nationwide in late December as infections resurged, raising concerns about the outlook. Capital investment remained cautious amid declining corporate earnings and growing uncertainty about the outlook.」

「During the second quarter of the current consolidated cumulative period, Japan's economy remained in difficult conditions due to the effects of COVID-19, although signs of recovery had recently emerged.」

「During the first quarter of the current consolidated cumulative period, Japan's domestic economy showed signs of rapidly deteriorating as economic and social activity stagnated due to the spread of COVID-19. Although conditions were extremely severe, the decline was beginning to bottom out.」

「Japan's economy continued to recover moderately during the current consolidated fiscal year, but became difficult toward the end of the period as the spread of COVID-19 exerted significant downward pressure. …The operating environment for financial institutions has become increasingly severe amid concerns over the contraction of regional economies due to population decline and the progression of the declining birthrate and aging population, intensifying competition including the advance of FinTech and entry into banking by companies from other industries, and the prolonged period of low interest rates accompanying continued monetary easing policies.」

「During the third quarter of the current consolidated cumulative period, the Japanese economy continued to recover moderately overall, although exports, production and some other areas showed weakness due to the slowdown in overseas economies. Personal consumption showed signs of stalling in its recovery, despite continued improvement in income and employment conditions, partly because of the reactionary decline following the consumption tax increase.」

「During the second quarter of the current consolidated cumulative period, the Japanese economy continued to recover moderately, although exports showed some weakness. …Meanwhile, exports continued to decline year on year, partly because exports to China were weakening.」

「During the first quarter of the current consolidated cumulative period, the Japanese economy was in a moderate recovery phase, but signs of a pause emerged due to weakness in exports and other areas. Personal consumption continued to recover, supported by the continued moderate rise in wages and the effect of the 10-day holiday associated with the imperial succession, while capital investment continued to increase as corporate earnings remained at a high level. Meanwhile, exports of machine tools and semiconductor-related components continued to decline, affected by the slowdown in the Chinese economy and other factors.」

「In the Tokai region, the principal operating area of our group, the automotive industry, a major local industry, was at times forced to suspend production because of natural disasters such as the Hokkaido earthquake, but remained firm partly because production recovery efforts were undertaken to make up for delays. Looking at the financial environment, the Nikkei Stock Average rose to levels near a 27-year high in early October, but fell sharply from late December, and its year-end close fell below the previous year-end level for the first time in 7 years. In the foreign exchange market, the yen appreciated to around ¥110 to the US dollar, while long-term interest rates fell to negative 0.01%, their lowest level in 1 year and 3 months.」

「During the second quarter of the current consolidated cumulative period, concern arose over the economic impact of a succession of natural disasters, but the Japanese economy continued to recover moderately. …Looking at the financial environment, there were risk factors including intensifying trade friction between the United States and China,」

「During the first quarter of the current consolidated cumulative period, the Japanese economy continued to recover moderately, although concern about trade friction between the United States and major countries was spreading. …Long-term interest rates remained low due to the Bank of Japan's interest rate policy.」

「Japan's record-long economic recovery continued, driven by growing exports against the backdrop of a sustained recovery in the global economy and a moderate increase in capital investment as corporate earnings improved.」

「During the third quarter of the current consolidated cumulative period, the Japanese economy continued to recover moderately.」

「During the second quarter of the current consolidated cumulative period, the Japanese economy continued to recover moderately and was in a record-long recovery phase.」

「The economic recovery remained stalled toward the second half of the period, with personal consumption showing little growth.」

「During the nine-month period of the third quarter, there were no new business or other risks, or significant changes to the business and other risks described in the annual securities report for the previous fiscal year.」

「During the cumulative second quarter under review, there were no new business or other risks, nor any material changes to the business or other risks described in the securities report for the previous fiscal year.」

「During the cumulative first quarter under review, there were no new business or other risks, nor any material changes to the business or other risks described in the securities report for the previous fiscal year.」

「The operating environment for financial institutions is becoming increasingly severe due to growing uncertainty about the economic outlook amid changes in overseas economic conditions, a further decline in market interest rates, and intense competition stemming from market contraction associated with population decline.」