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Summary of Remarks by Yoshimi Watanabe, Minister of State for Financial Services at the Committee on Financial Affairs of the House of Representatives and at the Committee on Financial Affairs of the House of Councillors

The 168th Extraordinary Diet Session
October 23, 2007

Thank you. I would like to give a few remarks on the current status of financial regulation in our country.

Enhancing the functioning of financial intermediation and improving customer protection and customer convenience

Japan's financial system as a whole is becoming increasingly sound, as shown by a decline in the ratio of non-performing loans. In this context, it is becoming more and more important for financial institutions to take on risks in financial intermediation on their own responsibility and judgment, and perform the function of allocating resources appropriately.

In order to further enhance the functioning of financial intermediation, we intend to keep in place the framework for encouraging voluntary and sustained efforts by financial institutions, including through promotion of relationship-based banking in regional finance.

Regarding the subprime loan problem that occurred recently in the United States and Europe, we do not think it will have a serious impact on Japan's financial system under the present circumstances. In response to this market turbulence, however, we will pay due attention to the status of risk management by financial institutions and the conditions of financial markets from a wide range of standpoints, while cooperating with other authorities in Japan and abroad.

From the viewpoint of improving customer protection and customer convenience, we will endeavor to ensure that the Financial Instruments and Exchange Act, which was put into force fully at the end of September this year, takes root smoothly and is implemented in an appropriate manner. In addition, in order to resolve the problem of multiple debts, we will smoothly carry out institutional reforms regarding money lending business, while implementing the ''Program to Rectify the Problem of Multiple Debts'' in an effective manner in collaboration with the other ministries and agencies concerned.

Regarding Japan Post Bank and Japan Post Insurance Co., both of which started operating this month following the privatization of Japan Post, we intend to conduct appropriate supervision in accordance with relevant laws and regulations.

Strengthening the competitiveness of Japan's financial and capital markets

Next, I will explain our efforts toward strengthening the competitiveness of Japan's financial and capital markets. In order to establish a society in which people can actually feel affluence amid the trend of ''from savings to investment,'' it is important that Japan's financial and capital markets provide a variety of opportunities for Japanese households to make investment with the use of their financial assets, which are worth more than 1,550 trillion yen (about 13 trillion US dollars). At the same time, it is necessary to make Japan's financial and capital markets more attractive as a place for fund-raising by Japanese and foreign companies. We believe that increasing attractiveness will contribute to revitalizing Japan's markets and eventually lead to sustainable growth of the Japanese economy.

Doing this will require a comprehensive set of measures, including improvement in market infrastructure such as exchanges, efforts made by financial institutions and other market participants, and establishment of a better regulatory environment. We will do our utmost to formulate a program to strengthen the competitiveness of Japan's financial and capital markets by the end of this year, based on the results of deliberations by the Financial System Council. Regarding the establishment of a better regulatory environment, we will also advance on our efforts toward improving the quality of financial regulation, or ''better regulation,'' including by placing greater emphasis on encouraging self-help efforts by financial institutions and by prioritizing our work on important issues.

Conclusion

Through the measures I have mentioned, we will continue to do our utmost to ensure the stability of the financial system, to enhance customer protection and convenience, and to put in place fair, transparent and vibrant markets. I would truly appreciate the understanding of the chairman and all other members of the committee.

(End)

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