Press Conference by Yoshimi Watanabe, Minister for Financial Services
April 8, 2008
[Opening Remarks by Minister Watanabe]
Good morning. Please ask me questions.
[Questions and Answers]
I will ask you about the appointment of a new governor of the Bank of Japan (BOJ). Mr. Masaaki Shirakawa (who is currently the deputy BOJ governor) is likely to be promoted to the post of the governor, according to some media reports. You have been saying that the important thing is not who will be appointed but what will be done. In light of what Mr. Shirakawa has said, what do you think of his likely appointment. Also, the nomination of Mr. Watanabe (professor at Hitotsubashi University Graduate School of Commerce and Management and former vice minister of finance for international affairs) for the post of deputy governor has drawn objections from the Democratic Party of Japan (DPJ) because he is a former official of the Ministry of Finance. Please tell me what you think of these matters.
I welcome the introduction of rules requiring hearings at the Committees on Rules and Administration (of the House of Representatives and the House of Councillors) because such hearings ensure a more transparent process than before. Such hearings, if they are to be held at all, should be exhaustive. This time, the results of hearings from BOJ Governor Nominee Shirakawa will be no different from those of the previous hearings, and so the focus will be on the nominee for deputy governor, Mr. Hiroshi Watanabe. I think that the global financial markets have regained a certain measure of stability. This does not rule out the possibility that the markets will be rocked again, however. Therefore, we must study how monetary policy should be managed with such a possibility in mind. We may face a situation in which we will need a framework of international cooperation. In this respect, The BOJ has explained in the past that the its monetary policy has no relation to the foreign exchange market. What he meant seemed to be that the monetary policy should not be managed for the purpose of affecting the foreign exchange market. Then, how should transparency of monetary policy management be ensured? Although there are calls for the adoption of inflation targeting, he has taken the traditional standpoint of the BOJ and said that such a policy target should not be adopted. I think that he should be questioned on issues like this. Naturally, if he is to take the traditional standpoint of the BOJ, he would say that monetary policy should not be managed in ways to affect the foreign exchange market. I would like to know what he thinks with regard to a framework for international cooperation.
I will ask you about a plan by TCI (the Children's Investment Fund) to acquire additional shares in J-Power (Electric Power Development Co.), an issue on which the Ministry of Economy, Trade and Industry (METI) will begin deliberations soon. According to a media report, the vice minister of economy, trade and industry indicated at a press conference yesterday that METI planned to recommend a revision or suspension of the plan to acquire additional shares. Although this should not be seen in the same light as the issue of restrictions on foreign ownership of airports, some market experts warn that movements like this could discourage foreign investment in Japan. What do you think in this regard?
This time, there is no opportunity for holding consultations on laws and regulations. I mean that this is an issue to be decided by METI in relation to the application of the Foreign Exchange and Foreign Trade Act. Therefore, I have no authoritative leverage with regard to this issue.
As I have repeatedly said, generally speaking, it is not desirable for Japan, which is promoting foreign investment as a national policy, to create the impression that it is a closed country. After it has reached a conclusion on this issue, METI should provide proper explanations so as to make clear that its decision does not run counter to the policy of promoting investment and that it is not seeking to have Japan closed to the outside world.
Regarding the appointment of a new BOJ governor and deputy governors, the DPJ appears to be divided over whether to agree to the appointment of Mr. Watanabe as deputy governor. Considering that this will be the third time for the government to propose its nominees and a G-7 meeting is scheduled for this weekend, would you like the DBJ to agree to the appointment?
My understanding is that the DPJ plans to make a decision after questioning Mr.Watanabe about his view on monetary policy. Therefore, I suppose that the DPJ has not yet made up its mind as to whether it should agree to or reject the appointment.
What impact do you expect if the DPJ refuses to agree again?
I would like the DPJ to earnestly listen to what Mr. Watanabe says in order to understand his stance on monetary policy. Judging from the conversations I have had with him since he was vice minister of finance for international affairs, Mr. Watanabe understands the market very well, is well versed in the mechanism of the flow of money and is a man who understands the global background of monetary and financial affairs well. Therefore, although I have not heard him speak frankly of his support for inflation targeting as Mr. Haruhiko Kuroda (president of the Asian Development Bank and former vice minister of finance for international affairs) did, his stance on monetary policy will be indicated during the hearing process. I would like members of the DPJ to make a decision based on what he says.
Another question about the appointment of a new BOJ governor. You have been saying that the important thing is not who will be appointed but what will be done. The Monetary Policy Meeting, which concerns "what will be done," is starting today. After this meeting, Mr. Shirakawa is expected to be appointed as the new governor. Although it may have been difficult to prevent the Monetary Policy Meeting and Diet procedures over the appointment from coinciding with each other, I think there should have been some way or other to avoid this situation. What do you think?
I think it is coincidental that the meeting and the Diet procedures are taking place on the same day. If I remember correctly, the meeting will be held for two days, with the first day spent on reports about various situations. Under the present circumstances, I think it could not be helped.
In a speech you delivered before the ACCJ (American Chamber of Commerce in Japan), you said in relation to sovereign wealth funds, "We should consider wise investment of foreign exchange reserves while keeping the reserves in dollars." May I understand that you think that investment using foreign exchange reserves should be diversified although you are cautious about excluding U.S. government bonds as an investment target in light of the fact that most of Japan's foreign exchange reserves are now invested in U.S. government bonds?
Issues like this are now under intense debate in the Financial Markets Strategy Team, which is my advisory panel. As I said yesterday, there are both people who are supportive of diversification and those who are cautious. Moreover, there are various opinions among supporters. Mr. Takatoshi Ito (Professor at University of Tokyo), for example, has argued that foreign exchange reserves equivalent in amount to the FBs (financing bills) used to finance foreign exchange interventions should be invested with due consideration of the duration gap (difference between the duration of assets and liabilities). Meanwhile, the portion of reserves that exceeds the FB amount, which grows about 10% per year in dollar terms as shown by data announced yesterday, may be invested with a more aggressive stance, according to his argument. Anyway, we will actively debate issues like this in the Financial Markets Strategy Team.
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