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

December 16 , 2005

Minister's Statement

In relation to the Financial Services Agency (FSA), the Cabinet approved the revising of the government ordinance for the examination system under the Certified Public Accountant Law, to reduce the maximum frequency of examinations from five times to twice and to make slight amendments to the examination fee as well.

After the Cabinet meeting, the task force for promoting the reform of policy-based finance convened for a meeting, where Ministers expressed their opinions. At the end, Prime Minister Mr. Junichiro Koizumi urged us to tackle reform by giving priority to national interest instead of ministerial interest.

Q & A

Q.

Were any new policies decided at the task force's meeting today?

A.

No. There were none. I explained the background and stated that the policies for the Japan Bank for International Cooperation (JBIC) will be decided subject to review under the Chief Cabinet Secretary.

The first meeting of the so-called review board under the Chief Cabinet Secretary is scheduled to take place this afternoon, and I have been invited to take part in this meeting as well. The role I have been given for the meeting this afternoon is to provide members with an accurate explanation and report of the background, the facts and other matters based on facts.

Q.

The outline of the tax reform has been decided by the ruling parties, involving a tax increase as large as two trillion yen. How much will it affect the economy? In particular, the burden on households appears to be heavier; how much will it affect consumer spending?

A.

The biggest component of the reform package is the abolition of the fixed-rate tax reduction. As you already know, the fixed-rate tax cut arrangement was introduced as an extraordinary measure at a time when the economic climate was characterized by extremely low consumer spending and an ever-increasing demand-and-supply gap. The Liberal Democratic Party (LDP) conducted a detailed study on this matter at the end of last year, and LDP's Research Commission on the Tax System would have done the same this year too.

Mr. Hakuo Yanagisawa, Chairman of the Research Commission on the Tax System, asked us about the estimated magnitude of the economic impact of the abolition of the fixed-rate tax reduction. As a result of conducting a detailed study on this, Mr. Honma at the Council on Fiscal and Economic Policy reported that the impact on the economic growth rate will be around 0.2%, which is expected to be absorbed by the economy as a whole. I provided an explanation matter-of-factly to that effect to Mr. Yanagisawa and other members of the ruling parties before the decision was made.

Q.

There is a growing trend among securities companies that profited from buying shares released as a result of a botched sell order to voluntarily return the profits in the form of donations to charity funds and the like. What do you think of this?

A.

Regrettably, I have not received any reports from the FSA about such facts or trends in detail. It is probably because facts that are worthy of reporting have not yet been identified. As my knowledge is on the same level as that of the mass media, I cannot present any new facts to you today.

Q.

Yesterday, in a trial concerning the collection of money based on revolving credit by a consumer finance company, the Supreme Court ruled in favor of the debtor's claim that the portion exceeding the limit set forth by the Interest Rate Restriction Law should be refunded. What is your opinion on this ruling, including its impact on the consumer finance sector?

A.

Although I do not know the details, the Interest Rate Restriction Law is not the only law that restricts the interest rate itself; the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits and the Money-Lending Business Control and Regulation Law also do the same. It is true that some money lenders have long been crafty in various ways to get around the cap set forth by the Interest Rate Restriction Law. As a judicial precedent, it is extremely important that a judicial decision has been made on interest rates of revolving credit that virtually exceed the cap set forth by the Money-Lending Business Control and Regulation Law. The impact on the money lending industry is deemed to be insignificant.

Q.

The subcommittee on monetary policy launched by the LDP yesterday mentioned that it will consider the possibility of introducing a nominal growth rate target. The advisory board is also planning to discuss a yardstick for price stability as part of the comprehensive reform of government revenue and expenditure. What are your thoughts on these discussions?

A.

I assume this question is about an inflation target, which is an extremely broad concept. The nature of the inflation target varies significantly depending on what you advocate.

While it is natural for the Government and the ruling parties to say a thing or two about BOJ's policies, I think it is extremely important to do so based on logical reasoning in a sober atmosphere. As can be seen from many examples of other countries, the government and the central bank do not necessarily agree with each other, but their approach is to have discussions in a calm and rational manner. As the Japanese Government and the BOJ have always held discussions in such an atmosphere in the past, I intend to properly fulfill my role as the Minister of State for Economic and Fiscal Policy and to accurately report the views of the BOJ executives, the views of the Government, or the general sentiment in the Government and the ruling parties.

Q.

Mr. Yanagisawa, Chairman of the LDP's Research Commission on the Tax System, has indicated his intention to consider the issue of consumption tax in parallel and jointly with the discussions on the comprehensive reform of government revenue and expenditure held in the advisory board. What is your view on this?

A.

It goes without saying that the comprehensive reform of government revenue and expenditure will involve radical cuts in government expenditure. Such expenditure cuts will probably be painful; on the other hand, I think however the term ''comprehensive'' means that it must be accompanied by discussions on what kind of revenue-boosting measures should be taken. I believe Mr. Yanagisawa is talking about conducting a study on taxation in general. I am completely guessing, but I think he means that he has no intention to avoid the areas referred to in your question.

Q.

With respect to the botched sell order for shares by Mizuho Securities, the Tokyo Stock Exchange (TSE) is apparently considering introducing a system that cancels trades executed as a result of erroneous orders. What is your view on this?

A.

Since the incident, my office received a number of emails, one of which was from a Japanese employee of a foreign securities company. The email gave some examples of stock exchanges in other countries--botched orders can be cancelled in other countries with a system that allows investors to trade with peace of mind. Regardless of what should be done, the TSE has systemic problems and should obviously improve its system and rules to deal with mass transactions and so on, considering that the turnover has increased so much and the trading style has substantially changed since the early days.

Q.

In regards to the Mizuho Securities incident, the substantial holdings report released yesterday revealed that an individual--not a securities company--who bought the shares in large volumes is presumed to have made a profit exceeding 500 million yen. This may be an individual matter, but what do you think about this?

A.

I did not think much of it, apart from ''Oh, he lives near me, he is a Roppongi resident''. Then I was surprised to learn how young he was according to newspaper reports.

Q.

Another question on the inflation target: the stable commodity price target being shared by the Government and the BOJ might serve as an effective framework for preventing the economy from falling back into deflation. However, judging from what you just said, you do not appear to be so enthusiastic about the idea. Is this correct?

A.

This is a simple matter if one reads the Bank of Japan Law: the BOJ's target is to stabilize commodity prices, which means that a non-deflationary, non-inflationary state is desirable. My understanding is that the BOJ will contemplate matters and decide the policies according to the spirit of the Bank of Japan Law.

(End)