Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

April 1, 2008

[Opening Remarks by Minister Watanabe]

Good morning.

As the reference paper distributed to you shows, the transitional period for specified insurance business operators following a revision of the Insurance Business Act expired yesterday (March 31). A survey on the future outlook of specified insurance business operators revealed that, as of the end of yesterday, 379 business operators out of the total of 430 (88.1%), were expected to continue to provide insurance coverage in some forms. Business operators categorized in "a" to "e" in the reference paper are those expected to continue to provide insurance coverage in some forms. There are 186 business operators expected to go out of business. Meanwhile, the purpose of the revision of the Insurance Business Act is to protect insurance policyholders. In light of the fact that nearly 90% of all specified insurance business operators are expected to continue to provide insurance coverage, I believe that the current situation mostly conforms to the purpose of the revision of the Insurance Business Act, which is to protect insurance policyholders. For details, please refer to the Supervisory Bureau's Insurance Business Division.

Turning to another matter, a bill for the basic act on the reform of the national civil service system, which had been a pending issue, was broadly approved at today's informal meeting of Cabinet members. The government gave approval at this time as the ruling parties are scheduled to begin earnest discussions on the bill today.

This is all I have to say.

[Questions and Answers]

Q.

Although it may not be timely for an incident from the previous fiscal year to be discussed on the first day of a new fiscal year, I would like to ask you about the previous fiscal year's stock price drop of about 27% (as measured by the 225-issue Nikkei stock average). I think that the subprime mortgage problem is a major factor behind it but that it is also due in large part to domestic issues, such as the recent political turmoil in Japan. Could you tell us what you think in this regard?

A.

Regrettably, stock prices have fallen to a very low level. As I have repeatedly pointed out, foreign investors account for about 60 to 70% of trading activity on the Japanese stock market. Foreign investors assess Japanese stock prices in dollar terms. The Nikkei stock average's margin of decline in dollar terms is small relative to its decline in yen terms, as the yen's value vis-à-vis the dollar has risen, and the margin of decline is similar to the rate of New York stocks' decline. In yen terms, however, the margin of the Nikkei stock average's decline appears larger due in part to the exchange rate factor. I think the stock price drop may partly reflect factors related to the dependence of Japan's economic recovery on exports.

That aside, a policy plan for shifting Japan's economy to a domestic demand-led one is expected to soon be drawn up under the leadership of Minister (for Economic and Fiscal Policy) Ota. I believe that the important thing is to exploit the potential of Japan's economy. We will strive to encourage Japanese investors to become willing to buy Japanese stocks.

Q.

Regarding the Bank of Japan's "tankan" report (on short-term business sentiment), which was announced this morning, how do you assess the current condition of Japan's economy in relation to the deterioration of the business sentiment diffusion index (DI) for large companies, and what impact do you expect this to produce on the management of financial institutions?

A.

Although I will refrain from commenting on the tankan report as I am not at all aware of its contents, I would like to remind you that exporting companies' earnings have been pressured by the dollar's remarkable downtrend over the past few months, which I had mentioned earlier. Anyway, the important thing is to implement policy measures in order to expand domestic demand.

Q.

What about the impact on financial institutions?

A.

Generally speaking, non-performing loans tend to increase if downside risks for the real economy grow. Therefore, we will have to further raise the level of our vigilance. For the moment, the situation is not such that Japan's financial system would be greatly damaged. Nonetheless, we will further raise the level of our vigilance.

Q.

I hear that today's Cabinet meeting was prolonged partly because Cabinet members expressed a variety of opinions about the Cabinet decision concerning the bill for the basic act on the reform of the national civil service system. Could you describe the discussions conducted on this issue?

A.

I would like you to ask the Chief Cabinet Secretary about this. Anyway, I do not think that the meeting was prolonged because of discussions about the reform of the national civil service system.

Q.

Regarding the subprime-related turmoil in the United States, Treasury Secretary Paulson announced a plan to reform the system of financial supervision. The market turmoil triggered by the subprime mortgage problem has led to a plan to reform the U.S. supervisory authorities. What do you think of the U.S. move?

A.

I think that the U.S financial regulatory system has a very complex structure. For example, there is no separate supervisory body responsible specifically for overseeing systemic risks under the current system, which is based on regulation by business type. It has been pointed out that this system is hampering the introduction of new products and deterring innovation. It has also been pointed out that there are overlaps of regulatory work as there are a number of regulatory bodies. Therefore, the need for review and reform has been under debate for some time, as I understand it.

Following the announcement of the drastic financial regulation reform plan, Congressional procedures will have to be followed before the plan is implemented. I would like to keep watch on future developments.

Incidentally, Japan has been engaged in fierce debate on how the country's financial authorities should operate for more than ten years. Japan's financial authorities in the current form represent the result of this debate. I do not think that this should be their final form. We can say, however, that the operations of Japan's regulatory authorities are now very simple compared with their previous state.

Q.

You said that the government's plan for the reform of the civil service system was formulated today. You have been saying that you intend to draw up a plan that is in line with a report submitted by the experts' panel (on administrative streamlining and enhancement of efficiency). Please tell us whether the plan was drawn up mostly as you intended and whether a Cabinet decision will be made as early as this week.

A.

This bill may not be perfect with regard to details. However, I think it deserves a passing grade in most respects. It should be given a very high grade. I think this bill represents a very high level of achievement. As ruling parties' procedures have to be followed, I would like to request the Liberal Democratic Party and the New Komeito to conduct frank debate and reach a conclusion within this week by all means.

Q.

You said that the bill was "broadly" approved. Does that mean that some dissent still remains within the Cabinet?

A.

Some opinions were expressed.

Q.

Could you give us an example?

A.

Since this is a program bill, it does not specify details of the system. I understand that the opinions expressed concerned specific issues related to the designing of the system that will have to be addressed in the future.

Q.

Starting today, the gasoline price probably dropped at some gas stations (because of the expiry of the provisional gasoline tax rate). Within the ruling parties, there are strong calls for seeking the passage (of a bill aimed at maintaining the provisional gasoline tax rate) again. What do you think of this issue?

A.

The Prime Minister has set forth a clear policy concerning this issue: the government will seek to establish an arrangement for using gasoline tax revenue for general purposes, all of the revenue for general purposes, starting in the next fiscal year. The Administrative Reform Promotion Act (Act on the Promotion of Administrative Reform to Realize Simple and Efficient Government) stipulates that the tax rate that was effective in fiscal 2005 should be maintained. As a precondition for this, it also stipulates the need to establish an arrangement for using the tax revenue for general purposes and to give consideration to environmental impact. Therefore, I believe that the policy set forth by the Prime Minister is exactly in line with the philosophy of the Administrative Reform Promotion Act.

In short, the key is what to call the tax. Should we call the provisional portion of 25 yen and the remaining 25 yen by the same name? Or, should we call one a gasoline tax and the other an environment tax? Of course, I am talking with the assumption that the tax revenue will be used for general purposes, not for a specified purpose. I think that what to call the tax is important. This is similar to a past situation in which the name given to a medical system for elderly people, &quotmedical system for the late-stage elderly," created a very bad impression.

Q.

This is another question about the gasoline tax. I understand that the Administrative Reform Promotion Act stipulates that the provisional rate should be maintained when an arrangement for using the tax revenue for general purposes is introduced. What do you think of the argument that it would be difficult to raise the tax rate again once it was reduced.

A.

It is up to the Diet to decide whether the provisional rate will be restored in a month or if it will take longer. I hope that the situation will be normalized as soon as possible.

(End)