Press Conference by Kaoru Yosano, Minister of State for Economic and Fiscal Policy and Financial Services

(Excerpt)

November 1, 2005

Q.

This is a question about the financial sector: the Tokyo Stock Exchange (TSE) seems to have suspended trading due to a system failure this morning. What are your views and opinions on this incident?

A.

I have been informed of this incident by the administration staff as soon as I came here immediately after the Cabinet meeting. As the TSE is linked to markets all over the world, it is extremely regrettable that the system outage occurred and brought spot trading and convertible bonds trading to halt.

It is also truly regrettable that trading at other markets which rely on TSE's system has also been suspended. I am hoping for a quick recovery. Once it has recovered, I hope the reasons for the system shutdown are properly identified and measures are taken to prevent this from happening again.

I expect the responsible officials of the TSE will hold a press conference shortly and provide you with a clear explanation of the current situation. At this stage, the Financial Services Agency (FSA) has not received any detailed reports on what caused the system shutdown.

Q.

Yesterday, the Bank of Japan (BOJ) published an economic outlook report predicting that the consumer price index (CPI) would increase year-on-year for the first time in eight years and that the possibility of terminating the quantitative relaxation policies would increase as we move into fiscal 2006. What do you think of the BOJ's schedule regarding the termination of the quantitative relaxation policies?

A.

The specific conditions under which the quantitative relaxation policies would be sustained were determined when the BOJ adopted those policies in the first place. In a nutshell, they are to be terminated when deflation is resolved--although the conditions are a bit stricter than that. Accordingly, if that is the BOJ's understanding, the Government is in no position to tell them what to do considering that they independently decided to take a certain course of action in regards to quantitative relaxation when they adopted quantitative relaxation in the first place.

Q.

On the other hand, the Government's schedule is to put together a comprehensive package of reforms for government revenue and expenditure in the middle of the next year. Its effectiveness is likely to be demonstrated after that. Is it no big deal that quantitative relaxation will to be terminated prior to such reform?

A.

Actually, there are a number of extremely important factors associated with executing the reform of government revenue and expenditure: namely, the economic growth rate and the trends in the long-term interest rate. As 150-trillion-yen worth of Japanese government bonds--new bonds and refinancing bonds combined--have to be redeemed per year, a one-percent increase in the interest rate translates into a 1.5-trillion-yen rise in the fiscal burden. The comprehensive reform of government revenue and expenditure is aimed at fiscal rehabilitation, so in that sense, the long-term interest rate should be stabilized at low levels in the long run in light of fiscal rehabilitation.

In this regard, I am honestly interested in what will happen to buying operations.

Q.

It is understood that the Government has no intention to make any comments about the current monetary policy, but in consideration of the scenario shown in the economic outlook report published yesterday, there is growing speculation that the BOJ will meet the three conditions around next spring.

On the other hand, some people may argue that the consumer price index (CPI) needs a buffer of about 1%. Bearing this in mind, what do you think of the timing for terminating quantitative relaxation?

A.

When the BOJ originally adopted the quantitative relaxation policy, it was asked about the duration of the policy and responded that it would continue until certain conditions are met. If the BOJ has determined that those conditions have been met now, it is fair that the BOJ makes its own independent judgment.

Q.

You mentioned your interest in the buying operations regarding Japanese government bonds. Are you concerned about how much it will decrease in amount?

A.

Buying operations are probably in the order of one trillion plus hundreds of billions of yen at the moment, and there is no doubt that such buying operations are affecting the trends in the long-term interest rate. So to be honest, it is inevitable that I am interested in the BOJ's monetary policy aimed at stabilizing the long-term interest rate at low levels, in view of fiscal rehabilitation.

(End)