Q&As on the Presentation of Financial Statements for FY2006.3 Third Quarter

A1 : In the medium-term management plan that we announced two years ago, we indicated that half of the improvement in profitability in comparison with the fiscal year ended March 31, 2004, would be achieved through growth in sales and the remainder through cost reductions, including the lowering of personnel, manufacturing, and other costs as well as improvements in operational efficiency. Among these factors, cost reductions and the implementation of measures to increase efficiency are moving more slowly than anticipated, but we believe that the positive effects of our efforts are gradually beginning to emerge. However, we believe the issue here is sales growth. In the new field of professional audio equipment, sales are expanding steadily, but sales in musical instrument fields are somewhat weak. In particular, growth in sales of electronic musical instruments is weak in comparison with the previous period. By geographical area, performance in North America is relatively steady, but we are experiencing difficulties in Japan.

A2 : We believe it will be very difficult to attain operating income of ¥30 billion for the next fiscal year. The biggest issue will be the weakness in sales of electronic musical instruments. On the other hand, while there have been some delays in achieving improvement in profitability through structural reforms, we remain committed to achieving these objectives.

A3 : Our inventories of electronic musical instruments and string and percussion instruments are increasing in all regions. The principal reason for this has been our misjudgments in forecasting sales.

A4 : Taking into account the effects of foreign currency rate changes, the actual decline in sales for the third quarter was ¥5.4 billion. Although we reported gains from foreign exchange, operating income declined substantially not only because of the decline in sales but also because of the changes in composition of sales. In Japan, sales of ElectonesTM and certain other products decreased, and, while sales of professional audio equipment and other products expanded in the United States, we experienced difficulties in the electronic musical instruments business. Moreover, the trend toward lower-priced pianos is continuing, and these factors have led to an overall decline in gross profits. In the fourth quarter, we are now forecasting that actual sales, excluding the effects of foreign currency rates, will be ¥500 million lower than our previous forecast. However, we now anticipate that gross profit will be ¥3 billion lower than previously forecast. Factors accounting for this will be the sale of inactive inventory, cutbacks in production, and changes in the composition of sales.

A5 : When we prepared our plans at the beginning of the year, we believed these sales goals were attainable, but prices of home theater system products declined more than we had anticipated, making it difficult to attain our planned level of sales. We introduced new products, including the "YSP," which were well received by the market, but, unfortunately, sales of these products were not sufficient to make up for the overall decline. In the IT business, the router market has become more competitive. The main issue going forward will be how to add value to these products. Amid these conditions, we implemented organizational changes in January 2006 to facilitate the smooth development and marketing of new products that will link sound, telecommunications, and network functions.

A6 : Sales in January were on track with plans announced this time. However, in the semiconductor business, we believe there are some uncertainties. In addition, we cannot rule out the possibility that the AV/IT business may experience further significant market deterioration.

A7 : Performance in the recreation segment has deteriorated more than we expected initially. The only factor contributing to improvement in profitability is the decline in depreciation made possible through the recognition of impairment losses in the previous period. We will adopt a policy of examining the performance of each of our facilities and consider taking decisive measures for those facilities that have shown losses for two consecutive periods.

A8 : Our plans call for step-by-step consolidation over a period of four to five years. This will include not only consolidating plant workspace but also implementing production reforms and transferring the skills and craftsmanship of experienced employees. At present, everything is moving according to plan. In addition, we are scheduled to review our production facilities worldwide.

A9 : We believe the musical instruments business will perform according to plan. The semiconductor business may perform above expectations. In the lifestyle-related products segment, we are making some forward-looking expenditure on advertising and promotion with an eye to contributing to performance in the next fiscal year. We believe there are possibilities for somewhat higher profits in this segment.

A10 : Profitability in the electronic equipment and metal products segment, which previously had generated ¥30 billion in operating income, has deteriorated, and we have been working to implement measures to make up for the decline in this area though improved performance in the musical instrument segment. This basic plan remains unchanged at present. If we can make decisive improvements in the profitability of the musical instruments segment, we believe that overall profitability is certain to improve. We think there will be many business opportunities for Yamaha as the ways of enjoying music expand along with the trends toward digitization and network access.

A11 : Electones™ are a product developed originally by Yamaha. Thus far, we have perhaps focused too much on demand in the educational sector. To remedy this, we have introduced new concepts, but these have not yet caught the full attention of and permeated the market. In the area of medium- to low-priced electronic pianos, competitors have built a presence in this market. We would like to introduce new products in this price segment as quickly as possible. Traditionally, we have been strong in the portable keyboard area; however, our products recently have been losing market share to low cost electronic piano models of our competitors. Our approach will be to conduct a review of our product offerings in this field and make a comeback in this area.