Daiwa Securities Group Annual Report 2012 Corporate Summary Executive Messages Business Strategy Management Systems & CSR Financial Section Other Information 54 The 2011 earthquake and tsunami created extensive turmoil in  Japan’s financial markets, but the Bank of Japan’s policy response  was very effective in preserving faith in the overall financial system.  This prevented an earthquake-inspired crisis, but by the July– September quarter, as concerns about the debt crisis in Europe  and the US intensified, volatility returned to international financial  markets and Japanese stock prices fell sharply. Overseas investors,  seeking a safe haven for their assets, began to purchase the yen,  which was viewed as the most stable of the major currencies. As a  In the newly industrializing countries, the pace of economic  growth began to slow in response to tighter monetary policy  stances and the effect of slow economic growth in the leading  industrialized countries. Nevertheless, economic growth remained  stronger than in the industrialized regions. However, despite their  tighter monetary policies, many emerging countries continued to  experience high rates of inflation. This has become a serious issue  for the respective governments, but with industrialized economies  at a near standstill, they also need to avoid a sudden plunge in  domestic economic growth. Therefore, several countries reversed  course and loosened monetary policy a notch. Brazil lowered inter- est rates in August 2011, China lowered its deposit reserve ratio  requirements in December and India lowered its cash reserve ratio  requirement in January 2012. Although emerging economies need  to keep a lid on inflation, all are moving cautiously and trying to  engineer a “soft landing.” Meanwhile, severe floods in Thailand  during October 2011 had a substantial short-term impact on manu- facturing and exports for many emerging Asian economies. As  rebuilding activity began to kick in during the January–March 2012  quarter, this impact receded. (FRB) had brought an end to its quantitative easing (QE2) policy in  June of 2011. However, in order to ensure that the financial turmoil  did not snuff out the budding economic recovery, the Federal Open  Market Committee (FOMC) announced after a meeting in August  that there was a high probability that the FRB would keep interest  rates at their ultra-low level, at least through the middle of 2013.  This clear expression of plans to keep monetary policy loose suc- ceeded in calming the markets. In January 2012, the FRB intro- duced a long-term inflation target, in order to ease the policy  stance a bit further, and confirmed its view that interest rates would  remain near zero until the latter half of 2014. This extremely loose  stance encouraged consumer spending, which in turn drove a  gradual recovery in US economic growth. supplementary budget of FY2011, which included a reintroduced  subsidy program for eco-friendly automobiles. In addition to the  pickup in auto sales and production, the yen weakened slightly  from mid-February through the end of the fiscal year, and employ- ment conditions showed signs of improvement. As the period  came to an end, the outlook had improved. Rebuilding demand  associated with the 2011 earthquake and tsunami are likely to  support a gradual recovery in the near future. Domestic manufacturing activity was battered in the immediate  aftermath of the earthquake, due to severe damage to the supply  chains and enforced inactivity during rolling electric power black- outs. This naturally made it difficult to transport products, and  severely depressed exports. However, companies responded to the  crisis well, considering the situation. Production lines resumed  operation sooner than expected and as supply capabilities recov- ered, manufacturing activity resumed growth from April 2011  onward. Manufacturing activity faced some difficulty during the  summer due to a shortage of electric power, but nationwide efforts  to save energy, coupled with measures by the electric power com- panies to increase capacity, succeeded in limiting the impact on  output. The government’s reintroduced subsidy program for eco- friendly automobiles contributed to a rebound in automobile pro- duction during early 2012, which drove growth in domestic  industrial output as a whole. Exports rose earlier in the year as  production activity recovered, but the strong yen and weak eco- nomic growth overseas caused exports to stall in September 2011.  The floods in Thailand in October caused both exports and produc- tion activity in some sectors to contract temporarily, but the impact  gradually faded as facilities were rebuilt. The balance of trade for  the full fiscal year showed a trade deficit for the first time in three  years as factors like the earthquake, flooding and a strong yen hurt  exports and as high raw materials prices and the use of oil and gas  to offset the suspension of nuclear power generators pushed up  imports. Consumer spending improved from the start of the fiscal  year through October in response to improving consumer confi- dence and a better employment market. Thereafter, consumer  confidence weakened and personal consumption stalled temporar- ily, but it recovered again in early 2012 thanks to the reintroduced  subsidy program for eco-friendly cars and a rise in automobile  purchases. By the end of FY2011, consumer spending showed  signs of recovery. <Japan> The Japanese economy was hit by a severe shock on March 11,  2011, when the East Japan Earthquake shattered the northeast of  the country. Manufacturing industries began to recover during the  period, however, supported by rebuilding demand. Economic  growth was moving onto a growth track in the early part of the year,  through August, but thereafter encountered the headwinds of over- seas economic turmoil, a strong yen, and fading demand from the  earthquake recovery effort. Domestic manufacturers experienced a  sharp drop in exports, and this dispelled any momentum the econ- omy had experienced earlier in the year. The floods in Thailand  during October were yet another blow to exports, which remained  weak through the end of the year. The domestic economy con- tracted once again in the October–December quarter before  moving back onto a growth trajectory in January–March 2012. Part  of the fourth-quarter rebound was due to the government’s fourth 