Mitsubishi UFJ Financial : Financial report

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FINANCIAL REVIEW

Introduction

We, Mitsubishi UFJ Financial Group, Inc., or MUFG, are the holding company for MUFG Bank, Ltd., or "BK," Mitsubishi UFJ Trust and Banking Corporation, or "TB," Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (through Mitsubishi UFJ Securities Holdings Co., Ltd., an intermediate holding company), Mitsubishi UFJ NICOS Co., Ltd., and other subsidiaries. Through our subsidiaries and affiliated companies, we engage in a broad range of financial businesses and services, including commercial banking, investment banking, trust assets and asset management services, securities businesses, and credit card businesses, and provide related services to individuals primarily in Japan, Thailand and Indonesia and to corporate customers around the world.

For the purposes of this Report, we have prepared our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, except for otherwise specifically identified information, including business segment information, risk-adjusted capital ratios, leverage ratios, total loss-absorbing capacity, or TLAC, ratios, liquidity coverage ratios, or LCRs, and net stable funding ratios, or NSFRs. Unless otherwise stated or the context otherwise requires, all amounts in our unaudited condensed consolidated financial statements are expressed in Japanese yen.

In this Report, unless otherwise indicated or the context otherwise requires, all figures are rounded to the figures shown except for the capital ratios, capital components, risk-weighted assets, leverage ratios, TLAC ratios, LCRs and NSFRs of MUFG and its domestic subsidiaries, which are rounded down and truncated to the figures shown. In some cases, figures presented in tables are adjusted to match the sum of the figures with the total amount, and such figures are also referred to in the related text.

Our fiscal year ends on March 31 of each year. The "current six-month period" as used in this Report means the six-month period from April 1, 2023 to September 30, 2023.

Business Environment

Our results of operations and financial condition are exposed to changes in various external economic factors, including:

• general economic conditions,
• interest rates,
• foreign currency exchange rates, and
• stock prices.

General Economic Conditions

The global economy remained uncertain and vulnerable to external events during the first half of the fiscal year ending March 31, 2024. The global economy has been facing a sharp rise in energy prices triggered by the conflict in Ukraine. This has contributed to a rise in inflation globally, followed by the rapid monetary tightening that has taken place since 2022 in most major markets, which has been putting downward pressure on global economies. Nevertheless, economic activities continued to normalize in the post-COVID 19 environment and, overall, the global economy was beginning to recover gradually. However, there are signs that the conflict in Ukraine may continue for a longer period and the Israel-Hamas conflict may exacerbate, and the cumulative effects of monetary tightening have caused instability in the financial system particularly in the United States and Europe and have also increased downward pressure on the global economy. Also, the real estate market trends in some countries, including the United States and China, have shown signs of instability. As a result, there has recently been a marked slowing of economic growth. In addition, any new or expansion or prolongation of geopolitical conflicts, the financial system uncertainty that originated in the United States and Europe, and other uncertainties, events and developments may have a further adverse effect on the real economy.

Japan's economy showed a mixture of positive and negative trends during the six-month period ended September 30, 2023. Japan's real gross domestic product, or GDP, improved by 0.9% for the quarter ended June 30, 2023, and contracted by 0.7% for the quarter ended September 30, 2023, on a quarter-on-quarter basis. These fluctuations mainly reflected the stagnation of private consumption. On a year-on-year basis, Japan's real GDP improved by 2.2% for the quarter ended June 30, 2023 and by 1.5% for the quarter ended September 30, 2023. Japan's Consumer Price Index, or CPI, fluctuated between 0.0% and 0.6% on a month-on-month basis and between 3.0% and 3.5% on a year-over-year basis during the six months ended September 30, 2023. The unemployment rate in Japan remained low at 2.6% in September 2023 compared to 2.8% in March 2023. According to Teikoku Databank, a Japanese research institution, the number of companies that filed for legal bankruptcy in Japan between April 2023 and September 2023 was

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4,208, a 34.7% increase from the same period of the previous fiscal year. The total liabilities of companies that filed for legal bankruptcy during the six months ended September 30, 2023 were ¥1,587 billion, a decrease of 10.1% from the same period of the previous fiscal year. The Japanese economy remains subject to inflationary pressures, geopolitical developments, instability in the financial and other industries and markets, changes in the government's economic and monetary policies, increasing public debt, intensifying trade conflicts and global competition, declining domestic population, downward pressure on private consumption, and various other factors that could adversely affect economic conditions in Japan.

The U.S. economy also exhibited a mixture of positive and negative trends during the six months ended September 30, 2023, with U.S. real GDP improving by 2.1% for the quarter ended June 30, 2023 and by 4.9% for the quarter ended September 30, 2023, on a quarter-on-quarter annualized basis. On a year-on-year basis, U.S. real GDP improved by 2.4% for the quarter ended June 30, 2023 and by 2.9% for the quarter ended September 30, 2023. The unemployment rate increased to 3.8% in September 2023 from 3.5% in September 2022. The long-term prospects of the U.S. economy remain uncertain in light of the impact of continuing inflationary pressures, geopolitical developments relating to Ukraine and Israel, changes in the political leadership and the government's economic, monetary, trade and foreign relations policies, instability in the financial and other industries and markets, and various other factors.

The Eurozone economy showed some signs of recovery during the six months ended September 30, 2023, with Eurozone real GDP improving by 0.1% for the quarter ended June 30, 2023 and contracting by 0.1% for the quarter ended September 30, 2023, on a quarter-on-quarter basis. On a year-over-year basis, Eurozone real GDP improved by 0.6% for the quarter ended June 30, 2023 and remained unchanged the quarter ended September 30, 2023. The unemployment rate in the Eurozone was 6.5% in September 2023 compared to 6.7% in September 2022. The Eurozone economy remains subject to various uncertainties, including continuing inflationary pressures, instabilities resulting from the geopolitical developments relating to Ukraine and Israel, instability in the financial and other industries and markets, and other factors.

In Asia excluding Japan, economic conditions in ASEAN (Association of Southeast Asian Nations) and NIEs (Newly Industrializing Economies) generally improved but the economic improvement remained relatively modest during the six months ended September 30, 2023. The economic conditions of these regions remain subject to various uncertainties, including economic trends in China, particularly the real estate industry, and fluctuations in the global and local economies as well as geopolitical developments.

Interest Rates

Interest rates remained at historical low levels in Japan under the Bank of Japan's monetary policy. The yield on 10-year Japanese government bonds fluctuated between 0.351% and 0.765% during the six months ended September 30, 2023. The yield has been fluctuating between 0.639% and 0.961% since October 2023. The Bank of Japan has maintained its quantitative and qualitative monetary easing policy with yield curve control currently applying a negative interest rate of minus 0.1% to the "Policy-Rate Balances," which are a part of current account amounts held by financial institutions at the Bank of Japan, and aiming to keep the yield of 10-year Japanese government bonds around zero percent, and with exchange-traded fund, bond and commercial paper purchase programs. In October 2023, the Bank of Japan announced that it would purchase 10-year Japanese government bonds in amounts necessary to maintain the yield of such bonds around zero percent without setting an upper limit while regarding one percent as its reference upper bound. The Bank of Japan also stated its intent to retain its monetary easing policy until such time as the 2% CPI inflation target is achieved and maintained in a stable manner, accompanied by wage increases.

In the United States, the Federal Open Market Committee continuously raised the target for the federal funds rate from March 2022 to July 2023, with the target range increasing from 0.25% to 0.50% in March 2022 to 3.00% to 3.25% in September 2022 and from 4.75% to 5.00% in March 2023 to 5.25% to 5.50% in July 2023. Following the meeting in December 2023, the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 5.25％ to 5.50%, whiling signaling three quarter- point rate cuts in 2024. The Committee is expected to continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to two percent over time, the Committee is expected to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee is expected to continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. The 10-year U.S. Treasury bond yield increased from 3.470% at the end of March 2023 to 4.572% at the end of September 2023, while fluctuating between 3.308% and 4.609% during the period. The yield has been fluctuating between 4.105% and 4.991% since October 2023.

Foreign Currency Exchange Rates

The Japanese yen depreciated against the U.S. dollar from ¥133.53 to the U.S. dollar as of March 31, 2023 to ¥149.58 to the U.S. dollar as of September 30, 2023. The Japanese yen has been fluctuating around ¥140 to ¥152 to the U.S. dollar since October

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2023. The exchange rate may be affected by expected or implemented changes in the monetary policy in Japan or the United States and by any intervention by government agencies, including the Ministry of Finance of Japan.

The Japanese yen also depreciated against the euro during the six months ended September 30, 2023, with the exchange rate being ¥158.00 to the euro as of September 30, 2023 compared to ¥145.72 to the euro as of March 31, 2023. The Japanese yen has been fluctuating between ¥155 and ¥165 to the euro since October 2023.

The Japanese yen was on a generally depreciating trend against the Thai baht during the six months ended September 30, 2023, with the exchange rate being ¥4.09 to the Thai baht as of September 30, 2023 compared to ¥3.91 to the Thai baht as of March 31, 2023. The Japanese yen has been fluctuating between ¥4.01 and ¥4.28 to the Thai baht since October 2023.

Stock Prices

The closing price of the Nikkei Stock Average, which is the average of 225 blue chip stocks listed on the Tokyo Stock Exchange, increased from ¥28,041.48 on March 31, 2023 to ¥31,857.62 on September 30, 2023. The closing price of the Nikkei Stock Average has been fluctuating between ¥30,500 and ¥33,625 since October 2023.

Recent Developments

During the current six-month period, we engaged in transactions to ensure adequate capital base and structure, while pursuing strategies to improve our capital management and streamline our group companies. Japan faces some challenges such as a declining birth rate, an aging society and a shrinking population, while low growth has become normalized throughout the world. The environment we operate in has been affected by issues including significant inflationary price trends, instability in the financial system, geographical conflicts, growing awareness of environmental and social issues, and advances in digital technologies that enable the entry of new competitors in the financial sector. These developments are changing the business environment in significant ways and with unprecedented speed. MUFG seeks to meet these changes with clear visions and to make the most of these challenges as opportunities for growth. Under our medium-term business plan for the three years ending in the fiscal year ending March 31, 2024, we aim to leverage our financial and digital strengths to provide value to our stakeholders around the world.

Implementation of Share Repurchase Program and Cancellation of Repurchased Shares

On November 14, 2023, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to the lesser of 400,000,000 shares of our common stock and ¥400.0 billion between November 15, 2023 and March 31, 2024. Under this share repurchase program, we repurchased 40,214,100 shares of our common stock for ¥51,012,638,435 in November 2023. Based on information used to calculate our capital ratios under applicable Japanese regulations as of September 30, 2023, we estimate that, assuming we repurchase ¥400.0 billion of our common stock pursuant to this program, each of our Common Equity Tier 1 capital ratio, our Tier 1 capital ratio and our total capital ratio would decline by approximately 0.3 percentage points. In addition, we canceled 350,000,000 shares of our common stock held in treasury on November 30, 2023.

We intend to agilely engage in repurchases of shares of our own stock as a means to return profits to shareholders and improve capital efficiency, taking into account our business performance and capital position, opportunities for growth investments, and market conditions including stock prices. As a general policy, we intend to cancel treasury shares to the extent that such shares exceed approximately 5% of our total issued shares (including treasury shares).

Issuances of TLAC Eligible Senior Debt

During the six months ended September 30, 2023, we obtained $2.5 billion, or ¥374.0 billion, ¥255.0 billion, and €0.5 billion, or ¥79.0 billion, aggregate principal amount of external TLAC eligible senior debt financing in the form of securities and borrowings.

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As of September 30, 2023, our external TLAC ratios were 20.44% on a risk-weighted assets basis and 10.09% on a total exposure basis. We are required to maintain external TLAC ratios of 18% on a risk-weighted assets basis and 6.75% on a total exposure basis as of the same date. See "Capital Adequacy" below and "Item 4.B. Information on the Company-Business Overview -Supervision and Regulation-Japan-Totalloss-absorbing capacity" in our annual report on Form 20-F for the fiscal year ended March 31, 2023.

Issuances of Basel III-Compliant Subordinated Debt

During the six months ended September 30, 2023, we obtained ¥443.0 billion aggregate principal amount of perpetual subordinated Additional Tier 1 debt financing in the form of securities and borrowings in Japan. In October 2023, we obtained ¥143.0 billion and $0.75 billion, or ¥112.3 billion, aggregate principal amount of perpetual subordinated Additional Tier 1 debt financing in the form of securities issued in and outside Japan, respectively. In November 2023, we obtained ¥10.0 billion aggregate principal amount of perpetual subordinated Additional Tier 1 debt financing in the form of borrowings in Japan. These securities and borrowings are subject to our discretion to cease interest payments and a write-down of the principal upon the occurrence of certain events, including when our Common Equity Tier 1 capital ratio declines below 5.125% (but, following any such write-down, the principal may be reinstated if the ratio improves and to the extent permitted by the Japanese banking regulator), when we are deemed to have reached the point of non-viability (PONV) or when we become subject to bankruptcy proceedings.

During the six months ended September 30, 2023, we obtained ¥210.0 billion aggregate principal amount of subordinated term Tier 2 debt financing in the form of securities issued in Japan. We can be exempted from the obligation to pay principal of and interest on the securities when we are deemed to have reached the PONV.

According to the FSA's approach, PONV will be deemed to have been reached when the Prime Minister of Japan, following deliberation by Japan's Financial Response Crisis Council pursuant to the Deposit Insurance Act of Japan ("DIA"), confirms that Specified Item 2 Measures need to be applied to MUFG under circumstances where its liabilities exceed or are likely to exceed its assets, or it has suspended or is likely to suspend payment of its obligations.

MUFG to Acquire PT Mandala Multifinance Tbk

In June 2023, MUFG Bank and its consolidated subsidiary PT Adira Dinamika Multi Finance Tbk ("ADMF", a finance company in Indonesia) agreed with PT Jayamandiri Gemasejati and certain other shareholders on the acquisition of 81% of the shares in PT Mandala Multifinance Tbk ("MFIN"), at a cost of approximately IDR7,042 billion, or ¥66 billion. The acquisition is expected to be completed by early calendar year 2024, subject to the receipt of approvals from the relevant regulatory authorities. The completion of this acquisition will result in MUFG Bank becoming the largest shareholder in MFIN by directly holding 71% of shares, while ADMF would be directly holding 10% of the shares of MFIN.

MFIN is an Indonesian company which mainly provides auto loans for new motorbikes and multi-purpose loans secured by motorbikes in the domestic market, with strong presence especially in eastern Indonesia. MUFG Bank and ADMF intend to leverage MFIN's strengths, in both products and geography, to further reinforce and expand our auto loan business in Indonesia.

Acquisition of HC Consumer Finance Philippines, Inc & PT Home Credit Indonesia

In June 2023, MUFG Bank and its subsidiary, Krungsri, acquired HC Consumer Finance Philippines, Inc. ("HC Philippines") for approximately €468 million, or ¥61,605 million. In October 2023, Krungsri and PT. Adira Dinamika Multi Finance, a subsidiary of MUFG Bank ("ADMF"), acquired HC Home Credit Indonesia ("HC Indonesia") for approximately €200 million, or ¥31,000 million. Each of HC Philippines and HC Indonesia is a leading point-of-sale lender in its respective market.

As a result of the acquisition, Krungsri holds 75% of the shares of HC Philippines and 75% of the shares of HC Indonesia, MUFG Bank holds 25% of the shares of HC Philippines, and ADMF holds 9.83% of the shares of HC Indonesia.

See Note 2 to our unaudited condensed consolidated financial statements for additional information.

Acquisition of Additional Shares of U.S. Bancorp Common Stock

In August 2023, MUFG Bank acquired 24,000,000 shares of the common stock of U.S. Bancorp ("USB"), which constituted an additional investment in USB, for a purchase price of approximately $936 million, or ¥136.8 billion, based on a per share price of $39.00 (the "Investment"). Following this Investment, MUFG Bank's total shareholding in USB increased to 4.39%.

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The proceeds received by USB for the Investment were paid to MUFG's subsidiary, MUFG Americas Holdings Corporation, to reduce USB's $3.5 billion outstanding obligation due within five years of the closing date of the sale of MUFG Union Bank, N.A. ("Union Bank"), which was December 1, 2022, under the Share Purchase Agreement, dated September 21, 2021, with respect to the sale of Union Bank. This payment is not reflected in the consolidated financial statements as of and for the six months ended September 30, 2023 because the MUFG Group consolidates Mitsubishi UFJ Americas Holdings based on its financial information as of and for the six months ended June 30, 2023. The six-month period of Mitsubishi UFJ Americas Holdings, which ends on June 30, and MUFG's six-month period, which ends on September 30, are treated as coterminous.

In addition, for purposes of strengthening sustainable non-Japanese yen funding capacity, MUFG Bank has entered into an agreement, which is contractually available for complementary U.S. dollar liquidity support, with U.S. Bank National Association, a bank subsidiary of USB.

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Planned Acquisition of Link Administration Holdings Limited

On December 18, 2023, Mitsubishi UFJ Trust and Banking Corporation (TB) decided to acquire 100% of the issued shares of Link Administration Holdings Limited ("Link"), an Australian listed pension and stock administration company, and to commence the process of incorporating Link as its subsidiary (the "Acquisition").

The Acquisition is subject to a number of conditions, including the approval of the proposed Acquisition at a shareholders' meeting of Link's shareholders, the approval of the Australian court and the approval of the Australian Foreign Investment Review Board. Subject to fulfilling the conditions, TB plans to acquire all of Link's shares, including the shares held by those shareholders who did not vote and those shareholders who voted against the Acquisition.

The purchase price is AUD 1,110 million and the share purchase is expected to take place from June 2024 onwards if the transaction proceeds as scheduled.

The acquisition of the global pension and stock administration functions of Link is expected to further enable MUFG to accelerate its global business expansion, with access to Australian pension funds and global corporate clients for the Global Investor Services Business to offer a broad range of financial solutions, allowing it to strengthen its global reach, develop growth opportunities and expand the business scale.

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