Provisional translation

Press Conference by FSA Commissioner Takafumi Sato

(Excerpt)

August 11, 2008

[Opening Remarks by FSA Commissioner Sato]

I do not have any particular statement to make.

[Questions and Answers]

Q.

I heard that at a consultation meeting of the government and the ruling parties held earlier today, the government unveiled a basic policy concerning the planned comprehensive package of economic measures. I understand that specific measures will be worked out based on this policy by the end of this month. Could you tell me what specific measures the FSA (Financial Services Agency) can take?

A.

Today, a policy concerning a comprehensive package of measures to ensure safety and security was adopted at a relevant consultation meeting of the government and the ruling parties. The pillars of this policy are: (i) resolving the people's concern over their everyday lives amid the rising inflation, (ii) implementing reform measures necessary for accelerating a shift to a ''sustainable society'' and (iii) implementing measures necessary for facilitating adaptation to a new pricing system.

The FSA intends to make as much contribution as possible to this economic package in line with this policy.

As is pointed out in a statement of this policy, the worldwide surge in the prices of crude oil and food and concerns over the economic downturn are starting to have serious effects on small- and medium-size enterprises (SMEs), so the FSA recognizes that SMEs face severe business conditions. In addition, the balance of outstanding loans to SMEs has been declining since September last year, so we understand that they face difficulty raising funds. We believe that facilitating financing for SMEs is one of financial institutions’ most important roles, so it is important that financial institutions make increased efforts to facilitate financing for SMEs by properly taking risks while conducting appropriate risk management. In this respect, it is also important that financial institutions keep sound financial conditions, both from the viewpoint of maintaining prudence and from executing the function of the financial intermediary function, which involves risk-taking. It is important that we encourage financial institutions to meet these requirements - executing the financial intermediary function and keeping sound financial conditions - by complementing these two elements.

From this perspective, the FSA has been holding hearings with financial institutions and chambers of commerce and industry, and opened a hotline for consultations regarding the facilitation of financing in order to collect the opinions of SMEs and other borrowers from far and wide. It is important to more precisely grasp the actual state of financing and reflect the findings in our inspection and supervision. As part of efforts to more precisely assess the actual state, the Local Finance Bureaus will conduct a survey regarding the trend in loans provided by financial institutions and senior FSA officials will visit various regions in order to directly listen to the voices of local borrowers. In any case, the FSA intends to contribute as much as possible to the economic package and do its utmost to facilitate financing for SMEs.

Q.

As you mentioned in your answer, I understand that last week, the FSA started dispatching senior officials across the country in order to conduct hearings. Could you tell me about details such as the method and period of the hearings, and how do you intend to reflect the findings in financial regulation?

A.

Through the Local Finance Bureaus across the country, we are conducting a questionnaire survey of people providing consulting services to local SMEs. We plan to summarize the findings of the survey in September. Of course, this is intended to precisely gauge the condition of SMEs and the state of loans provided by financial institutions. As for the dispatch of senior FSA officials to various regions, we intend to conduct hearings in August in order to directly listen to the voices of local SMEs and financial institutions and assess the state of financing for SMEs. We started the hearings last week. For the moment, we cannot say anything definitive with regard to how the findings of the surveys will be reflected in financial regulation as we have to examine the results first. In any case, we intend to consider specific measures with due consideration of the viewpoint I mentioned.

Q.

Recently, LDP Secretary-General Aso proposed that dividends on an individual's shareholdings totaling up to 3 million yen should be made tax-free, and Minister for Financial Services Motegi said that full consideration should be given to the proposal. How do you think the FSA should respond to this proposal? Do you think that the proposal should be included in the FSA's budget request to be submitted by the end of this month, for example?

A.

As the FSA's stance is to promote a shift from savings to investment, we have already implemented various measures with regard to the taxation related to securities investment. As you know, about half of financial assets held by Japanese individuals, which total about 1,500 trillion yen, are held in the form of cash and deposits. In order to create a society in which each citizen can feel affluent, it is becoming increasingly important to provide appropriate opportunities for the investment of such financial assets. In any case, we will submit our request for tax revisions to the tax authorities by the end of August, so we will consider what we will request with due consideration of the opinions of the people concerned before submitting the request at the end of August.

Q.

By last week, all major banks announced their financial results for the April-June quarter - this was already discussed at your press conference last week - and the results indicated their poor performance, with some of them incurring losses. How do you view the profitability of and the business environment for financial institutions?

A.

All major banks announced their financial results for the first quarter of fiscal 2008, or the April-June period, by last week. I already talked about my assessment before all of them announced their results, and I do not need to change that assessment. Namely, their net core business profits generally declined by 20-30% compared with the same period of last year, and many of them posted a drop in their net profit, too.

These results came about against the background of - I also talked about this recently - firstly, the losses that are still arising at Japanese financial institutions amid the continued tensions in the global markets, although the amount of losses is declining. Secondly, an increase in credit-related expenses, such as the cost of disposing of non-performing loans, that was caused by growing downside risks for the economy due to the surge in the prices of crude oil and raw materials. And thirdly, the weakness of the growth in their core businesses, such as lending and fee income businesses.

In any case, we will keep a close watch on developments in the global financial markets and their impact on the management of Japanese financial institutions, while maintaining cooperation with the relevant authorities in and outside Japan.

Q.

Regarding the taxation related to securities investment, tax revisions for fiscal 2009 and 2010 were outlined at a consultation meeting of the ruling parties last year. Am I correct in understanding that the FSA will review the taxation related to securities investment separately from the outlined revisions?

A.

Conclusions reached on tax revisions last year were based on deliberations conducted in the preceding years.

We will conduct our deliberations in preparation for the submission of our request for tax revisions, while paying attention to the outlined tax revisions and their background. As I said earlier, the FSA has been working on the revision of the taxation related to securities investment with a view to promoting a shift ''from savings to investment,'' so our deliberations will be based on this stance.

Q.

How do you feel about the remarks made by Secretary-General Aso in relation to a tax-free treatment of dividends?

A.

We, the FSA staff, are not in a position to directly comment on his remarks. The FSA's stance regarding the taxation related to securities investment is to promote a shift ''from savings to investment,'' so I take his remarks from that standpoint.

Q.

Some people within the ruling parties, including New Komeito, and other parties criticize tax breaks (for stock investment) as preferential treatment of rich people and question the wisdom of implementing a measure that does not bring any benefits to people who do not own stocks. How do you position tax breaks for stock investment as you promote a shift from savings to investment?

A.

The criticism that you mentioned was discussed in debate on tax revisions conducted within the government and within the ruling parties last year. I understand that the tax revisions outlined at the end of last year were agreed upon and decided as a result of discussions that took into consideration such matters. In any case, providing appropriate opportunities and options for the investment of individuals' financial assets amounting to 1,500 trillion yen is a critical challenge. That would greatly contribute to invigorating Japan's financial and capital markets, so we will take steps, including discussions by the ruling parties, to promote these measures with due consideration of various opinions.

(End)