CFO Insight Japan 2014 Q2

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The CFO Program | Japan

Contents

Japan Economic Outlook P 2

Accounting News P 5

Tax News P 8

M&A News P 10

Japan Sentiment Survey P 12

Next Generation CFOs P 14

CFO Insight Japan | 2014 Q2

Japan Economic Outlook Worrying about rising tax

The national consumption tax was raised for the first time in 14 commercial sales indicated strong growth of 2.2 percent years, from 5 percent to 8 percent, which many fear may throw month over month in January, but growth fell in February to an a wrench into the economy’s recent growth momentum. After eight-month low of -1.3 percent. Similar patterns were seen in growing at a slower pace than expected in Q4 2013, Japan’s the monthly consumer spending index, which rose 1.6 percent economy may not improve substantially in Q1 2014 either. The month over month in January and fell -1.5 percent in February bigger concern is that growth in the coming quarters may stall (figure 1). or may even fall substantially due to a rise in the national sales tax. Similar patterns were observed in the production side of the economy (figure 1). In January 2014 the industrial production index for mining and manufacturing registered the highest Signs of economic weakness before tax hike month-over-month growth, 3.8 percent, in over two years. But the growth fell sharply, by 2.3 percent, in the subsequent A few monthly releases in Q1 2014 indicate that the impacts of month, primarily due to a decline in the production of transport the tax rise on demand and production are probably in effect equipment, business-oriented machinery, and electronics already. After a strong rise in January, some indices weakened equipment. Production in large passenger cars and auto parts in February. experienced the biggest fall. On the demand side, the seasonally adjusted trends in total

Figure 1. Signs of weakening demand and resulting weakening production

Source: Statistics Bureau, Ministry of Internal Affairs and Communications, February 2014; Deloitte Services LP economic analysis.

Graphic: Deloitte University Press DUPress.com

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Surveys point to weak second quarter

According to the Bank of Japan’s (BOJ) Tankan survey in While some of the weakness in economic activities in February March 2014, domestic demand conditions for products and could partly be due to bad weather, the probable impact of the services surpassed the December 2013 forecast, as tax rise cannot be ruled out entirely. As consumers cut consumers rushed to make purchases prior to the rise in sales spending after they have built up inventories in advance of the tax. However, demand is expected to fall post the sales tax tax hike, companies will likely cut down production to keep hike that came into effect on April 1, 2014, as shown in figure inventories low in anticipation of a fall in demand. The 2.1 Consumer confidence too has been on a steady decline production data for March may marginally gain 0.9 percent since December 2013, as consumers worry about the impact month over month to support a last-minute rise in consumer of taxes on their purchasing power. spending, as forecast by the Ministry of Economy, Trade, and Industry, though the production number for April is forecast to Many companies are wary about prospects amid fears of be -0.6 percent.3 The ministry is upbeat about the economy weakening demand after the consumption tax hike. The BOJ’s and predicts that the fall in production will be limited in coming Tankan index in March 2014 indicates that business months since companies are making long-term demand sentiments among large manufacturers improved for five projections and keeping production and inventory under straight quarters. However, sentiments are expected to control. However, the fall in growth will likely be substantial in 2 deteriorate for the industry in the next three months (figure 2). the second quarter. What remains to be seen is whether or not the economy can bounce back in subsequent quarters.

Figure 2. Surveys point to an expected fall in demand and production in Q2 2014

Source: Bank of Japan, Tankan summary, March 2014; Deloitte Services LP economic analysis.

Graphic: Deloitte University Press | DUPress.com

Can Abenomics help?

The anticipation of poor growth and weaker-than-expected tax hikes. However, he also added that the BOJ will adjust business sentiments in the coming quarter has heightened policy if necessary4. An aggressive monetary policy will likely market expectations of the BOJ further easing monetary be implemented later this year to support economic recovery. policies in the coming months. The government passed a supplementary stimulus package of According to press reports, the governor of the BOJ has 5.5 trillion Japanese yen in December 2013 to soften the expressed confidence about Japan’s growth ability post the impact of the tax rise. The government has already indicated

CFO Insight Japan | 2014 Q2

that consumption tax rates for daily necessities will be reduced. growth in the long term. It also aims to speed budget spending for 2014 to cope with any downside risks stemming from a planned sales tax hike.5 More importantly, the pace of structural and regulatory reforms However, with public debt hovering above 227 percent of GDP will have a significant impact on business sentiments. So far and a fiscal deficit of 10 percent of GDP in 2013, the the pace of reforms has remained sluggish—which may not government may not have much flexibility in spending. Any change much this year. That said, deregulations will help the further rise in debt will impact investors’ sentiments and impact labor market as well as business investment.

Any further rise in debt will impact investors’ sentiments and impact growth in the long term.

Tax hike could be beneficial On the plus side, the rise in taxes is expected to contain the Minister Shinzo Abe has failed to persuade companies to raise deficit and debt. In addition, the tax rise bodes well for prices. wages despite rising corporate profits in response to a weaker Recent data suggest that inflationary pressures have yen and recent policy initiatives. Price acceleration will re-emerged in Japan; seasonally adjusted consumer prices strengthen his case to persuade businesses to increases went up 1.5 percent year over year in February. According to a wages. survey conducted by the Cabinet Office in March, about 72 percent of respondents believe that prices will go above 2 However, if the government fails to convince businesses, a percent in a year.6 The tax hike will accelerate the price rise, rise in prices will result in a decline in real wages. This will though it will take time to reach the BOJ’s target of 2 percent. further dampen consumption spending. Global demand holds the key for the trade-dependent economy: Stronger demand The price rise will also incentivize businesses to increase from the United States, China, and Eurozone will likely help wages. So far wages have remained stagnant as businesses Japan’s current account and compensate for the fall in lack confidence to raise wages for their workers. Prime domestic demand.

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Endnotes 1. The “demand minus supply” estimate for products and services rose in March 2014 to its highest (less negative) since the pre-crisis period and is expected to rebound to low levels (more negative) in the next three months. “Less negative” suggests a fall in excess supply. This time the fall has been due to rise in demand. Business conditions above zero imply a greater percentage share of the number of respondents who choose favorable over unfavorable business environment alternatives. 2. Only business conditions for manufacturing are reported here. 3. Ministry of Economy, Trade, and Industry, “The survey of production forecast in manufacturing,” Indices of industrial production: Preliminary report, February 2014, http://www.meti.go.jp/english/statistics/tyo/iip/index.html. 4. Reuters, “BOJ’s Kuroda voices confidence of meeting 2 percent inflation target,” March 19, 2014, http://www.reuters.com/article/2014/03/19/us-japan-economy-kuroda-idUSBREA2I09720140319. 5. Forty percent of budget is to be spent focusing on public works by the end of June, and another 60 percent by the end of September. 6. Cabinet Office, “Price expectations,” Consumer confidence survey, March 12, 2014, http://www.esri.cao.go.jp/en/stat/shouhi/shouhi-e.html.

For more information please visit: x Global Economic Outlook - http://dupress.com/periodical/global-economic-outlook/ x Asia Pacific Economic Outlook - http://dupress.com/periodical/asia-pacific-economic-outlook/

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Accounting News IFRSs The amendments clarify that a revenue-based method is not considered to be an appropriate manifestation of consumption. IFRS 14 Regulatory Deferral Account, issued in There are limited circumstances when the presumption can be January 2014 overcome:

IFRS 14 permits first-time adopters of IFRSs to continue to The intangible asset is expressed as a measure of account, with some limited changes, for ‘regulatory deferral revenue; and account balances’ in accordance with their previous GAAP, it can be demonstrated that revenue and the consumption both upon initial adoption of IFRS and in subsequent financial of economic benefits of the intangible asset are highly statements. Regulatory deferral account balances, and correlated. movements therein, are presented separately in the statement of financial position and statement of profit or loss and other The amendments are effective for annual periods beginning comprehensive income, and specific disclosures are required. on or after 1 January 2016. Earlier application is permitted. IFRS 14 applies to an entity’s first annual IFRS financial statements for a period beginning on or after 1 January 2016. Early adoption is permitted. US GAAP

ASU No. 2014-08, Reporting Discontinued Accounting for Acquisitions of Interests in Joint Operations and Disclosures of Disposals of Operations – Amendments to IFRS11, issued in Components of an Entity May 2014 FASB amends the definition of a discontinued operation in The acquirer of an interest in a joint operation, in which the ASC 205-20 to narrow down the scope of discontinued activity constitutes a business, is required to apply all of the operations and to introduce new presentation/disclosure principles on business combinations accounting in IFRS 3. requirements around discontinued operations. Public business Accordingly, a joint operator that is an acquirer of such an entities will apply the new ASU prospectively to relevant interest has to: transactions that occur in periods beginning on or after 15 measure most identifiable assets and liabilities at fair December, 2014. value; expense acquisition-related costs (other than debt or Other recent standards and exposure documents: equity issuance costs); recognize deferred taxes; FASB issued the following ASUs that affect public business recognize any goodwill or bargain purchase gain; entities on narrowly defined topics, arising mostly from EITF perform impairment tests for the cash generating units to consensus which goodwill has been allocated; ASU No. 2014-06, Technical Corrections and disclose information required relevant for business Improvements Related to Glossary Terms combinations. ASU No. 2014-05, Service Concession Arrangements The amendments are effective for annual periods beginning ASU No. 2014-04, Reclassification of Residual Real on or after 1 January 2016. Early application is permitted. Estate Collateralized Consumer Mortgage Loans Upon Foreclosure ASU No. 2014-01, Accounting for Investments in Clarification of Acceptable Methods of Qualified Affordable Housing Projects Depreciation and Amortization (Amendments to IAS 16 and IAS 38), issued in May 2014

CFO Insight Japan | 2014 Q2

Other Major Developments as a separate right-of-use asset and lease liability, while the FASB supported a dual-model approach that requires a lessee (IFRS and US GAAP) to use the straight-line expense pattern that do not qualify as financing/sales. However, IASB and FASB’s models are still Revenue from Contracts with Customers converged in terms that both require on-balance treatment of A long-awaited comprehensive new standard on revenue all leases. recognition that substantially converge IFRSs and US GAAP is Regarding lessor accounting, both Boards have tentatively now expected to be finalized in May 2014. The new standard agreed to substantially retain existing accounting models, is expected to become effective for reporting periods while diverging on certain aspects for lessor accounting model, beginning on or after 1 January, 2017 (for IFRS reporters) and in particular, the recognition criteria of Day 1 gain. reporting periods beginning after 15 December, 2016 (for USGAAP reporters). Insurance contracts

Financial Instruments The FASB tentatively decided to abandon its convergence efforts with the IASB and focus on targeted improvements to Despite repeated calls by G20 for convergence in accounting existing GAAP. for financial statements is now clearly fading since the IASB and FASB could not reach an agreement with regard to the classification and measurement model as well as the IASB issued Exposure Draft, Disclosure initiative impairment model, although some level of convergence (both – proposed amendments to IAS 1 boards are expected to adopt a common credit loss model) is expected. The IASB plans to issue its final comprehensive This Exposure Draft (ED/2014/1) is part of the IASB’s broader standard on financial instruments replacing IAS39 (and Disclosure Initiative that is meant to explore possible ways to previous versions of IFRS9) in Q2 2014 (or potentially July), improve disclosure requirements under IFRSs. The ED after having completed substantial deliberation in March 2014. provides additional guidance on 1) materiality for presentation The FASB is targeting to issue its final standard on financial and disclosure, 2) line items and use of subtotals, 3) structure instrument covering classification and measurement and of notes, 4) accounting policy disclosure, and 5) OCI impairment in the second half of 2014 following continued presentation related to the equity method of accounting. deliberations. Comments are due by July 23, 2014.

In addition, the IASB has issued the Discussion Paper, FASB proposed Concept Statement, Conceptual Accounting for Dynamic Risk Management: a Portfolio Framework for Financial Reporting – Chapter 8: Revaluation Approach to Macro Hedging (DP/2014/1) in April Notes to Financial Statements 2014seeking for constituents’ feedback by October 17, 2014. The DP features a model that results in revaluation of the net This Exposure Draft proposes to add a new chapter to FASB’s open position of the managed exposure for changes in Conceptual Framework to establish FASB’s decision process managed risk, with risk management instruments such as in identifying items required to be disclosed. One of the derivatives being fair valued. This is the first step by the IASB primary objectives of the proposal is to ensure that reporting to supplement the new general hedge accounting model that entities clearly communicate the information that is important they completed in 2013. to users of financial statements. Comments are due by July 14, 2014. Lease FASB issued proposed ASU on Pushdown In March, the IASB and FASB tentatively reached a diverging accounting decision on a lessee accounting model. IASB voted for a single model approach under which each leases is recorded Under the proposed ASU, acquired entities would evaluate

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and choose to elect the option to apply pushdown accounting an entity cannot complete business combinations accounting. “for each individual change-in-control event in which an The major part of the proposal is to require that an entity adjust acquirer obtains control of the acquired entity.” The proposed past quarterly reports retrospectively once such provisional ASU would also require acquired entities that have elected to accounting becomes final. The Comment period was closed apply pushdown accounting to provide disclosures that let on 24 April, 2014. financial statement users evaluate the effect of pushdown accounting on the entities’ financial statements. Comments Other Recently Issued Exposure Document: are due by July 31, 2014. Exposure Draft of Practical Solution on Accounting for Leases FASB proposed ASU, Classification of Certain by Lessees under the New Measures to Promote Investment Government-Guaranteed Residential Mortgage in Facilities Using Lease Methods (Exposure Draft of PITF No. Loans upon Foreclosure – a consensus of the 40) was released by the ASBJ on March 7, 2014. The ED aims FASB EITF to provide accounting guidance for lease transactions involving a specified scheme, recently introduced by the METI The proposed ASU would amend the guidance in ASC 310-40 of Japan. The comment period was closed on May 7, 2014. by requiring a “residential mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the loan has both of the following characteristics: Other Financial Reporting The loan has a government guarantee that is not Developments in Japan: separable from the loan before foreclosure entitling the creditor to the full unpaid principal balance of the loan. The Financial Services Agency (FSA) of Japan At the time of foreclosure, the creditor has the intent to simplified presentation and disclosure make a claim on the guarantee and the ability to recover requirements in statutory (nonconsolidated) the full unpaid principal balance of the loan through the financial statements. guarantee. The FSA finalized the ordinance governing presentation and

Upon foreclosure, the separate other receivable would be disclosure in the separate financial statements in a regulatory measured based on the current amount of the loan balance filing such as the annual security report (Yukashoken expected to be recovered under the guarantee.” Houkokusho) by Japanese public companies, upon meeting certain conditions, effective from the fiscal year ended March Comments were requested by April 30, 2014. 2014. This decision is based on the recommendations in the June 2013 report “The Present Policy on the Application of the International Financial Reporting Standards (IFRS)” issued by Japanese GAAP the Japanese Business Accounting Council.

Exposure Drafts of Proposed Amendments to Mr. Yukio Ono was appointed Chairman of the Accounting Standard for Quarterly Financial Accounting Standards Board of Japan (ASBJ). Reporting and the Implementation Guidance Mr. Ono succeeded Mr. Ikuo Nishikawa and will serve as full On February 25, 2014, the Accounting Standards Board of time ASBJ Chair from April 1, 2014 until March 31, 2016 as the Japan (ASBJ) released for public comments the Exposure first term. Mr. Ono was previously the Chairman of the Drafts of Proposed Amendments to Accounting Standard (No. Japanese member firm of Deloitte. 12) for Quarterly Financial Reporting as well as its Implementation Guidance (No. 14) as a follow up to amendments to Accounting Standard (No. 21) for Business FSA designated additional IFRSs for voluntary Combinations, on provisional accounting requirements when IFRS adopters

CFO Insight Japan | 2014 Q2

The FSA has designated all the pronouncements issued by the For more information please visit: IASB up until December 31, 2013, including IFRS9 (2013). x IASPlus.com - http://www.iasplus.com/en (IFRS) x USGAAPPlus.com - http://www.iasplus.com/en-us (USGAAP) The designated IFRSs are identical to the effective IFRSs as issued by the IASB. or Speak to our Deloitte experts: Shinya Iwasaki, Partner ([email protected]) or Laurent Fougerolle, Senior Manager ([email protected]).

Tax News The 2014 Japan Tax Reforms

On 20 March 2014, the Japanese Diet passed the 2014 tax reform (the “Reform”), and the amended laws were promulgated on 31 March 2014. The Reform supports the government’s efforts to revitalize the Japanese economy through tax incentives aimed at encouraging investment and consumption by corporations. In addition, the new legislation will change the way permanent establishments (“PEs”) are taxed in Japan.

Topic Impact for Business Corporate Tax A. Special reconstruction corporation surtax Positive B. Taxation of permanent establishments Positive C. National strategic special zones (“NSSZs”) Positive

D. Deductibility of entertainment expenses Positive E. Tax credit or special depreciation for expenditure on certain production improving assets Positive F. Other changes related to tax credits Positive G. Revisions to local inhabitants and enterprise tax Neutral H. Investment loss reserve deductions Positive Consumption Tax

I. Multi-rate consumption tax system - J. Consumption tax on digital content - Individual Tax K. Employment income deduction Negative

Corporate Tax

A. Special reconstruction corporation surtax corporate tax rate of a company with its headquarters in Tokyo will be reduced from approximately 38% to 35.64% for fiscal The 10% special reconstruction corporation surtax imposed on years beginning on or after 1 April 2014. the national corporate tax introduced under the 2012 Tax Reform for a period of 3 years (36 months) for fiscal years beginning on or after 1 April 2012 is to be abolished one year B. Taxation of permanent establishments early. This will result in a reduction in the Japanese Under the new legislation, Japan will adopt the attribution corporation effective tax rate. For example, the effective approach for allocating profits to a permanent establishment of

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a foreign enterprise located in Japan instead of the “force of entertainment expenses up to JPY 8 million. Under the Reform, attraction” approach it has used in the past. This will move SMEs may elect to apply the current rule or apply the general Japan closer to the preferred profit allocation method 50% deductibility rule. advocated by the OECD.

Some key features of the adopted attribution approach are: E. Tax credit or special depreciation for expenditure on certain production improving A PE will be treated as a separate and independent assets enterprise for purposes of allocating profits and losses, including those resulting from intra-company transactions Qualifying corporate taxpayers may elect to take a tax credit between the PE and its foreign head office. up to 20% of the taxpayer’s tax liability or expense the cost of certain state-of-the-art assets acquired and placed into Profits attributed to the PE will be considered Japan services between the effective date of the act and 31 March source income. 2016. A reduced tax credit or depreciation deduction up to A foreign tax credit system will be established to provide 50% of such state-of-the-art assets would be available if a credit for taxes paid by the PE on its foreign source acquired and placed into service on or after 1 April 2016 to 31 income. March 2017. Records and proper documentation of PE transactions will need to be maintained and available upon request by F. Other changes related to tax credits the tax authorities during an audit of the PE. The above measures are to be effective for corporate tax Tax credit relating to wage increases – the conditions for purposes for tax years beginning on or after 1 April 2016 and obtaining this credit, which was introduced as part of the for income tax purposes from 2017. 2013 tax reform, are being relaxed to allow more corporations to qualify. This incentive has been extended two years to tax years beginning on or before 31 March C. National strategic special zones (“NSSZs”) 2016.

As part of Prime Minister Abe’s growth strategy, the Tax credit relating to research and development (R&D) – government has designated certain NSSZs with the purpose there will be an increase to the percentage of R&D of encouraging investment from home and abroad through expenses allowable as a credit under the Incremental deregulation and tax incentives. R&D credit regime from 5% up to 30% depending on the amount of increase in R&D expenses. This incentive has Tax incentives announced include allowing qualifying been extended for 3 years to tax years beginning on or companies in an NSSZ to elect a special 50% depreciation or before 31 March 2017. 15% tax credit on the acquisition cost of certain assets (25% Tax credit for job creation – this tax credit, which allows depreciation and 8% tax credit applies to buildings and corporations to take a JPY400,000 tax credit of per new structures) placed into service between 1 April 2014 and 31 employee hired, has been extended two years to tax March 2016. years beginning on or before 31 March 2016.

D. Deductibility of entertainment expenses G. Revisions to local inhabitants and enterprise tax

The new legislation will allow corporations a tax deduction for There is a rebalancing of the local inhabitants and enterprise up to 50% of meal expenses for two years (excluding meals for taxes effective for tax years beginning on or after 1 October employees/directors). Previously, meal and entertainment 2014, however, these revisions, taken in aggregate, should not expenses were generally not deductible for Japanese impact a company’s current effective tax rate. corporate income tax purposes. Small and Medium Sized Enterprises are provided an exception under the general rule allowing them to claim a tax deduction for meal and

CFO Insight Japan | 2014 Q2

H. Investment loss reserve deductions

2) Investment in venture businesses – a deduction for 1) Business reorganizations - a deduction for qualified qualified investment loss reserves associated with an investment loss reserves associated with the reduction in investment in a venture business through an Investment value of certain assets acquired in business Limited Partnership will be allowed. reorganization will be allowed.

Consumption Tax

I. Multi-rate consumption tax system transactions and digital content) from overseas has been postponed. Currently, services where the place of supply is The government is considering providing reduced outside of Japan may be outside the scope of Japanese consumption tax rates on daily necessities at the time the consumption tax and seen to unfairly advantage foreign consumption tax rate increases to 10%, i.e., 1 October 2015. A service providers over domestic suppliers whose services are final decision on whether Japan will increase the consumption subject to consumption tax. Expanding the scope of tax rate from 8% to 10% is expected in August 2014, with consumption tax to include services supplied from overseas details of a multi-rate system expected by December 2014. would even the playing field between foreign and domestic service providers.

J. Consumption tax on digital content For more information please contact us at: [email protected] Legislation expected to broaden the scope of Japanese or visit: consumption tax to the provision of services (including internet http://www.tohmatsu.com/inboundtaxnewsletter

M&A News Japan Market Trend – Q1 2014

Deal Value

Disclosed deal values increased 49.3% from 1,758 billion yen Top 3 deals occurred in Q1’14 are as follows: Suntory in Q4’13 to 2,626 billion yen in Q1’14. This was the second Holdings’ acquisition of Beam (USA, consumer business) in largest first quarter, in terms of disclosed deal values, since JPY 1,679,360 m; Osaka Gas & Chubu Electric acquired Q1’08, with Q1’11 being 4% higher. It is important to note that Freeport LNG Expansion (USA, Energy & Resources) in JPY for Q1’14, 51% of announced deals did not disclose a deal 120,000 m; Nippon Paint acquired Nippon Paint (HK & China, value. On a monthly basis, disclosed deal values declined Manufacturing) in JPY 103,300 m. 72% from 632 billion yen in Feb-14 to 177 billion yen in Mar-14.

Values Domestic Outbound Inbound Total Deal Volume (JPYbn) Q4’13 306 (18%) 1,288 (73%) 164 (9%) 1,758 Deal Volume decreased 1% from 582 deals in Q4’13 to 574 Q1’14 280 (11%) 2,208 (84%) 138 (5%) 2,626 deals in Q1’14. On a monthly basis, deal volumes increased

% Change -8% 71% -16% 49% 12% from 194 deals in Feb-14 to 217 deals in Mar-14.

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Volumes Domestic Outbound Inbound Total Q4’13 394 (68%) 142 (24%) 46 (8%) 582

Q1’14 409 (71%) 132 (23%) 33 (6%) 574

% Change -8% -7% -28% -1%

Deal Value by Sector (1Q 2014)

Note: x IN-IN: Acquisition of Japanese companies by Japanese companies x IN-OUT: Acquisition of non-Japanese companies by Japanese companies x OUT-IN: Acquisition of Japanese companies by non-Japanese companies

Deal Value by Region (1Q 2014)

For more information please visit: http://www.tohmatsu.com/fas/en/

CFO Insight Japan | 2014 Q2

Japan Sentiment Survey

In May 2014, a survey of 40 executives of international companies in Japan has been conducted. Taking the pulse of the foreign business community in Japan and understanding the effect of policy changes on the Japanese operations of global players was the purpose – and revealed interesting findings summarized below.

Do you believe that the economic stimulus measures taken by the Japanese government have been effective?

Only four percent of respondents found the economic stimulus measures by Japanese government not effective – and the Highly effective 11% majority of 85% found them somewhat effective. 11% found the stimulus measures highly effective. Somewhat effective 85% It seems the benefits of the economic stimulus measures are not living up to the governments’ promise of creating a significant Not effective 4% change for the business climate.

0% 20% 40% 60% 80% 100%

Do you believe that the economic stimulus measures will create a sustainable positive effect for business in Japan?

The majority of executives surveyed do not expect a sustainable positive effect for business in Japan. Only a small proportion 11% believed sustainable results will be achieved, and 41% of Yes participants were neutral. 44% Maybe This picture might be owed to the fact that the stimulus measures 41% No target the broader Japanese business environment instead of foreign companies.

How did the economic stimulus measures influence your company in the last 12 months?

Six out of ten executives experienced significant or slight Influence significantly 22% influence by the economic stimulus measures in last 12 months (59% in total – thereof 22% significant influence, 37% slight Influence slightly 37% influence).

Not at all 30% Thirty percent of survey participants did not experience any influence of the stimulus measures on their business. N/A 11%

0% 10% 20% 30% 40%

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Compared to three months ago, how do you feel about the financial prospects for your company for the next 5 years?

Compared to three months ago, more than half of surveyed Significantly more optimistic 0% executives (56%) do not feel many changes in the financial prospects for their companies over the next 5 years. Somewhat more optimistic 22% Around one in five executives is somewhat more optimistic, and Broadly unchanged 56% none of the executives is significantly more optimistic. One in ten executives is less optimistic than a few months ago. Somewhat less optimistic 11% In general, international executives were more or less neutral for Significantly less optimistic 0% the financial prospects of their companies. N/A 11%

0% 10% 20% 30% 40% 50% 60%

Which industries do you believe have the largest opportunities for foreign companies in Japan in the next 5 years?

Banking & Insurance 4% Opportunities for growth: three out of four executives believe the Energy & Renewables 56% healthcare sector with life sciences and medical devices Healthcare 74% provides opportunities for foreign companies in Japan. 56% of Information technology 4% respondents believe that the energy and renewables sector is a Manufacturing 4% promising playing field while aging infrastructure/ services and Retail and wholesale 11% Telecommunications 7% congestion/ urbanization provides room for growth as well (30% Transport and logistics 4% and 26% respectively). Aging infrastructure/services 30% Perceived business opportunities align with emerging mega Congestion/urbanization 26% trends that shape Japan like sustainable energy management Others 4% and an ageing society. (multiple choice question) N/A 11% 0% 20% 40% 60% 80%

What are the key risks for your company in the next 5 years?

One in three executives believe a weak Japanese Yen, market Weak Japanese Yen 33% uncertainty, or skill shortages are the key risks in the next years. Market uncertainty 33% Funding 7% Consumer spending and growth constraints are also high on the Commodity prices 4% list of potential headaches. Skills shortage 33% Regulatory issues 19% Uncertainty of the business and regulatory environment are Government policy uncertainty 19% considered general risks in Japan while funding, liquidity and Growth constraints 26% commodity prices don’t seem to be reason for concern for Capital liquidity 4% foreign executives. (multiple choice question) Consumer spending 30% Others 0% N/A 11% 0% 5% 10% 15% 20% 25% 30% 35%

CFO Insight Japan | 2014 Q2

Next Generation CFOs

More than half of CFOs surveyed have a direct report who will be CFO-ready within one year, and nearly 90% have at least one who will be ready in one to three years, according to the findings of Deloitte LLP’s CFO Signals™ survey for the first quarter of 2014 (North America).

The quarterly survey reflects the thinking and actions of more than 100 CFOs from North American organizations averaging more than $5 billion in annual revenue; 69% of the organizations are publicly traded.

Number of CFO-ready direct reports Percentage of CFOs naming CFO-ready direct reports (n=106)

Note: Stark outliers to the high side are not included; each charts accounts for at least 90% of responses Source: Deloitte CFO Signals Survey, 1Q 2014

CFO Readiness Within One Year Just over half (52%) of the CFOs surveyed have a direct report who will be CFO-ready within one year, while only 12% have more than one. The median number is one. Forty-six percent have a male who will be ready, and 15% have a woman who will be ready.

CFO Readiness in One to Three Years Nearly ninety percent (88%) of CFOs have at least one direct report who will be CFO-ready in one to three years: The median is 1.5, and 50% report having two or more direct reports who will be CFO-ready in one to three years. Seventy-eight percent have at least one male who will be ready, and 38% have at least one woman who will be ready.

Gender Imbalance The findings show the CFO pipeline is clearly filled with more men than women, with 46% of CFOs saying they have a male finance team member who will be ready within a year, and 78% saying they have at least one male finance team member who will be ready within one to three years. For women, the numbers are 15% and 38%, respectively.

For more information please visit: http://deloitte.wsj.com/cfo/

The CFO Program for Foreign Companies

Deloitte’s Chief Financial Officer (CFO) Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead in the face of growing challenges and demands. The Program harnesses our organization’s broad capabilities to deliver forward thinking and fresh insights for every stage of a CFO’s career – helping CFOs manage the complexities of their roles, tackle their company’s most compelling challenges and adapt to strategic shifts in the market. Deloitte’s vision is clear: To be recognized as the pre-eminent advisor to the CFO.

The CFO Program in Japan hosts regular events for executives of foreign companies to provide insights and networking opportunities.

Contact: Michael M. Laurer | [email protected] Website: www.tohmatsu.com/cfo/en/

Deloitte Touche Tohmatsu (Japan Group) is the name of the group consisting of member firms in Japan of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee, and Deloitte Touche Tohmatsu (Japan Group) provides services in Japan through Deloitte Touche Tohmatsu LLC, Deloitte Tohmatsu Consulting Co., Ltd., Deloitte Tohmatsu Financial Advisory Co., Ltd., Deloitte Tohmatsu Tax Co., and all of their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu (Japan Group) is among the nation’s leading professional services firms and each entity in Deloitte Touche Tohmatsu (Japan Group) provides services in accordance with applicable laws and regulations. The services include audit, tax, consulting, and financial advisory services which are delivered to many clients including multi-national enterprises and major Japanese business entities through nearly 7,300 professionals in almost 40 cities of Japan. For more information, please visit Deloitte Touche Tohmatsu (Japan Group)’s website at www.deloitte.com/jp.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. Member of © 2014. For information, contact Deloitte Touche Tohmatsu LLC. Deloitte Touche Tohmatsu Limited