demand. Our US economics team expects the stimulus to boost growth in H2 CY17 and likely CY18. Japan should be a big winner from stronger US growth, given its high exposure to the US economy in terms of exports and corporate profits (Chart 22 and Chart 23). On the negative side, aggressive protectionist trade measures, if implemented, would depress US growth and global trade further. If combined with a stronger yen, Japan’s economy would be hit hard. Chart 22: Japan's export exposure (% of total gross and value-added Chart 23: Breakdown of Japan exports to US by commodity, 2015 exports*) 6% 7% 30 ml 25 12% ai 22% 18 39% 10 5 0 USA CHN KOR TWN GER m Chemicals = Manufactured goods m Machinery m Electrical Machinery m Transport equipment Others mGross exports m Value-added basis Source: BofA Merrill Lynch Global Research, MoF Source: OECD Base case: “benign Trump” scenario For the moment, we are assuming limited positive and negative policy changes. Our US team expects uncertainty to cause a modest slowing of growth in the first half of next year, but this will be more than offset by fiscal stimulus in the second half and into 2018. But the size of the fiscal expansion will likely be smaller than promised, and the introduction of modest protectionist measures means that the boost to global trade will essentially be zero. Table 1 shows the impact on growth under two scenarios, based on different assumptions for global trade and FX. Under the upside case, Japan’s GDP could rebound towards 2%, as the economy benefits from a combination of stronger global trade and a weak currency. Under a downside “protectionist” scenario, 2017 growth would slow to around zero and would most likely tip Japan back into deflation. Table 1: Sensitivity of Japan's growth to global trade and foreign exchange rate (Assumptions) Baseline Case 1 - Upside Case 2 - Downside Global trade 0.0% 3.0% -10.0% % JPY appreciation (*) -1.0% -10.0% 10.0% (Simulation results) Change (Contribution) Chan