Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

May 9, 2008

[Opening Remarks by Minister Watanabe]

Good morning. Please feel free to ask me questions.

[Questions and Answers]

Q.

First, I would like to ask you about the reform of the civil servant system. Deliberations (in the Diet) will start today. Please tell us what you think of the prospect of the bill's enactment and your resolve toward enacting it.

A.

Now that we have submitted this bill to the Diet, we will seek to enact it. I strongly hope that it will be enacted during the current Diet session. If the bill fails to be enacted, it will only delight people wishing to maintain the status quo. It will be very sad if the bill fails to be enacted, as the Democratic Party of Japan (DPJ) seeks to distinguish its position from ours despite the fact that we are both seeking to go in the same direction with regard to this reform. I strongly hope for an enactment of the bill.

Q.

In relation to the basic concept concerning financial experts announced by the Financial Services Agency's (FSA) study group on financial experts, you referred in your book to a professional qualification system for the “financial service officer”. It is too early to predict how this plan will develop as you are just starting to seek public opinions, and some people in the private sector are wary about the purpose of the plan. Could you tell me again what you think of the qualification system?

A.

We have not made up our mind as to whether we should create a qualification system. What we have done is to present the following question: what should we do in order to foster financial experts? The study group is discussing various issues, including a private-sector qualification system. If financial experts, particularly those adept in compliance issues, are spread across various sectors, I believe that sharing of a common view of compliance will proceed in a substantial manner. If such experts are spread across various sectors-at issuer companies, securities companies, self-regulatory organizations and supervisory authorities-it will contribute to the maintaining of an “eco-system” in the financial sector. This will help prevent administrative costs from ballooning.

As part of liberalization, we have abolished the so-called “convoy” system, namely that we have abolished an ex-ante regulation system. The administrative cost involved in the ex-ante regulation can be kept very low. As all activities are strictly controlled by laws and regulations, the costs of actual administrative work are relatively low. However, once we switch to an ex-post regulation, we will let the private sector do as it pleases while we tighten enforcement against violations. In this case, the administrative costs could rise sharply. Therefore, we have considered how to allow the private sector to engage in economic activities more freely while curbing administrative costs, and concluded that we need many more financial experts, thus presenting this proposal. We are looking forward to receiving various opinions on this matter.

Q.

As for civil service reform, the current Diet session has already entered the latter half of the current period, and a second vote on the special act on the fund source for road improvement is scheduled. In this context, scheduling seems to be very tight. What is your outlook on Diet deliberations on the civil service reform?

A.

The Chairman of the LDP (Liberal Democratic Party)'s Diet Affairs Committee and other relevant people have assured me that they intend to take charge of Diet affairs, and so I would like, if possible, to rest assured about Diet deliberations. However, if I am to consider the scheduling situation, I cannot rest assured and I am indeed very worried. Even a single day's delay would significantly diminish the chance of enactment during the current Diet session. I would very much appreciate it if the people in charge of Diet affairs would share our resolve to enact the bill during the current Diet session by whatever means necessary.

Q.

Regarding the subprime mortgage problem, there has been a media report that the FSA has asked domestic financial institutions to disclose their holdings of subprime-related products and amounts of losses when they announce their financial results. Could you tell me whether the FSA has made such an unusual request?

A.

We have not done anything unusual. Rather, we have always been asking them to make appropriate disclosure. Losses have spread from subprime-related products to other securitization products over the past six months or so. Therefore, it is quite natural for us to request appropriate disclosure with regard to such products. Beyond this, it will be a matter of management decisions by individual banks, and so it is important for them to act proactively in order to avoid feeding speculations.

As I have repeatedly stated, losses incurred by Japanese banks (in relation to the subprime mortgage problem) are significantly smaller than those incurred by their U.S. and European counterparts. Nonetheless, since it is true that losses related to securitization products are increasing, we must enhance our level of vigilance.

Q.

I would like to ask you a related question. Detailed disclosure standards regarding subprime-related items were set forth by a report issued by the FSF (Financial Stability Forum) at the recent G-7 meeting. Do you intend to ask major banks to make disclosures in accordance with to those standards when they announce their financial results?

A.

As you know, the FSF report explains the importance of disclosure by financial institutions in very thorough detail. The FSA has always been requesting disclosure from the viewpoint of ensuring public trust in the market and will continue to do so.

Q.

Do you mean that you are hoping that they will make disclosure when they announce their financial results for the year ending in March or that you are asking them to do so?

A.

We are not demanding that disclosure be enhanced with regard to the financial results for the year ending in March specifically. We are only repeating what we have always requested, rather than urging them to make more strict disclosure with regard to financial results specifically for the year ending in March.

Q.

As for civil service reform, you stated that scheduling is tight. Considering that the DPJ has put forward a counterproposal, what do you think will be the key to whether the bill can be enacted?

A.

One key point will be the DPJ's engagement in forward-looking debate. Once backward-looking debate commences, it will only result in bringing points of contention into sharp relief. Once both sides agree on the direction and basic principles of reform, we should seek to overcome differences over details-a constructive compromise necessary for Diet deliberations. Therefore, at a recent question-and-answer session before the Committee on Cabinet, the Chief Cabinet Secretary asked the DPJ to present a counterproposal, and the DPJ did so accordingly, although their proposal did not come in the form of a bill. I am hoping to reach a forward-looking conclusion through questions and answers in the Diet. If the points of contention between the two sides are excessively emphasized, it will lead to the preservation of the status quo and will only benefit people who hope to maintain it. I hope that they will engage in Diet deliberations with this in mind.

Q.

While you refer to the possibility of a compromise, do you think that the DPJ in its present state will be able to engage in such debate and achieve results?

A.

If such a constructive debate can be conducted, I expect it to serve as a model for deliberations in the divided Diet.

Q.

Do you mean that the government is ready to amend the bill in accordance with demands from the DPJ?

A.

We should not act on the assumption of a future amendment. We should first initiate Diet deliberations and then consider what to do next during the course of debate.

(End)

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