Baillie Gifford Japan Trust : Interim Report for the period ended 28 February 2023

Benchmark

The portfolio benchmark against which performance is measured is the TOPIX total return (in sterling terms).

Principal Risks and

Uncertainties

The principal risks facing the Company are financial risk, investment strategy risk, discount risk, smaller company risk, environmental, social and governance ('ESG') risk, leverage risk, regulatory risk, political and associated economic risk, custody and depositary risk, reliance on third party service provider risk, cyber security risk and emerging risks. An explanation of these risks and how they are managed is set out on pages 8 to 10 of the Company's Annual Report and Financial Statements for the year to 31 August 2022 and is available on the Company's website: japantrustplc.co.uk.

The principal risks and uncertainties have not changed since the date of the Annual Report. Further details on the Company's risks can be found on pages 14 and 15.

Responsibility Statement

We confirm that to the best of our knowledge:

1. the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';
2. the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (being an indication of important events that have occurred during the first six months of the financial year, their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
3. the Interim Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board David Kidd Chairman

30 March 2023

The six month period to the end of February 2023 was a remarkably uneventful one for returns. During the period the NAV total return of your Company was -1.2% whilst the share price total return was -0.6%. The TOPIX total return (in sterling terms) was +0.6% during the same period.

There is also little to comment on in the performance of individual holdings. The three largest positive contributors to performance were Sumitomo Mitsui Trust (+0.5%), not holding Toyota Motor (+0.5%) and Shiseido (+0.4%). The three largest negative contributors to performance were GA Technologies (-0.6%), MonotaRO (-0.5%) and not holding Mitsubishi UFJ Financial Group (-0.5%). Finally gearing contributed +0.1% to performance. These contributions are small and unremarkable relative to those that have been experienced in the past.

More interesting are several macro-economic developments over the past six months.

First, Japan has re-opened its borders, initially to business travel and then to tourists. This reopening improves the business prospects of many domestic holdings which have been starved of foreign visitors. It is also likely to have positive effects on societal openness and ideas flow. Although it has taken longer in Asia than the West, we are now firmly past the pandemic phase of Covid.

Second, Japan has clearly experienced inflation. This is a continuation of its long post-bubble journey from deflation, through a period in recent years with neither significant inflation nor deflation, finally to positive inflation. Inflation can be currently seen in headline numbers, in raw material and producer prices, in consumer products, and perhaps most significantly in wages. The wage rises that we have seen being announced in the past few months alone exceed anything that we have seen in Japan for the past 30 years.

Third, there are signs that Japan may be moving away from zero interest rates, which is the logical expectation as inflation becomes embedded. The Bank of Japan made a small adjustment to its yield curve control policy in December, announcing that it would target 10-year Japanese Government Bonds to yield up to 0.5% compared to the previous limit

of 0.25%. Subsequently Mr Kuroda stepped down as Governor of the Bank of Japan and Mr Ueda has taken over.

Meantime we have continued with the steady process of trying to improve the long-term prospects of the portfolio. During the period we bought three new holdings and sold three holdings.

The new holdings are Kao, Demae-can and

Z Holdings. Kao is Japan's leading manufacturer of household products. The segments in which it operates have attractive characteristics of steady growth combined with strong entry barriers due to scale, brands and control of distribution. In the shorter term the company has experienced challenges from the lingering impacts of Covid restrictions and having to deal with rising input costs. However, we believe the company has the potential to grow its earnings substantially over the next decade by expanding into surrounding Asian markets and by improving the profitability of its domestic businesses. Demae-can is a leading Japanese online food ordering and delivery company. Following a review of the company we concluded that there remains a significant profit opportunity at scale. Meanwhile, Demae-can has continued to grow its sales rapidly and has put in place measures to strengthen its accounting systems which had been a previous concern. Given our updated view of the potential for the company, and lower expectations discounted in the share price, we decided to take a small holding again. Z Holdings was formed from the combination of Yahoo Japan and Line and has decent positions in online advertising and e-commerce. It also has exciting prospects in cashless payments through its large holding in PayPay. We expect cashless payments to show significant growth and PayPay to remain a dominant player. In the long-run the combination of businesses creates the prospects for Z Holdings to develop into a super-app comprising mutually reinforcing opportunities.

The sold holdings were Lifull, Shimano and Inpex. Lifull is a property aggregation website. In recent years it has suffered as a result of competition with Suumo, the property aggregation website of Recruit (a current holding of Japan Trust). Having come to the view that Suumo is the stronger business, we decided to sell the holding in Lifull. Shimano makes

gears for bikes. While the company has a strong market position we do not believe that the market will grow rapidly enough to support high sales growth and with margins already high we think it unlikely that they can show significant expansion. We commented in the Annual Report on the sale of Inpex following strong share price performance post the Russian invasion of Ukraine.

We maintained our optimistic stance about the potential for investment in Japan to generate good

returns. Backing this conviction net gearing ended the period at 18.0%, little-changed from the position six months prior. There remain many exciting growth businesses in Japan and expectations embedded in share prices seem low, creating firm foundations for long-term investment.

The principal risks and uncertainties facing the Company are set out on the inside front cover of this report.

New buys

Demae-can Z Holdings

Kao

Complete sales

Lifull

Inpex

Shimano