Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

July 11, 2008

[Opening Remarks by Minister Watanabe]

I visited South Korea on July 8. I attended the World e-Government Mayors Forum in Seoul and explained Japan's administrative reform and e-government initiative.

I also had meetings with South Korean officials such as the minister in charge of administrative reform, the Minister of Public Administration and Security, the chairman of the Financial Supervisory Commission and the Minister of Finance (Minister of Strategy and Finance). With the chairman of the Financial Supervisory Commission, I exchanged views about strengthening cooperation between the financial authorities of Japan and South Korea and responses to the subprime mortgage problem. I am keenly aware that Japan and South Korea are in the same boat. That is to say, the worsened terms of trade are starting to have significant effects on the economies of both countries. In this respect, I felt that South Korea faces a more serious situation than Japan.

I do not have any further statements to make.

[Questions and Answers]

Q.

I would like you to comment on the (G-8) summit meeting, in which measures against speculative funds in relation to the crude oil price surge were discussed. What are your thoughts regarding this issue?

A.

At the summit meeting, I think that participants expressed their resolve to implement structural policy measures while continuing to conduct proper macroeconomic management, in order to ensure economic stabilization and growth amid concern about surges in the prices of primary goods and inflationary pressures. I suppose that issues like specific regulatory measures have probably been left for discussion at G-7 meetings (meetings of Ministers of Finance and central bank governors from the Group of Seven countries) and other conferences. The surge in the prices of primary goods poses a problem not only to Japan but to the world. If we do not take any action as the transfer of wealth to oil-producing countries continues, due to deterioration of the terms of trade, we will lose our wealth. So we will have to take some measures.

If the current prices of primary goods reflect future demand, they may not drop all the way to their previous levels. However, regarding the portion of the prices that has been inflated by speculative funds, we must consider why such price bubbles have occurred. As I have been saying, the lessons Japan has learned from its past experiences should be used as a reference when we consider why the stock market has been destabilized since the emergence of the subprime mortgage problem. In short, liquidity crises involve the issue of solvency (the ability to make payments) - the solvency not only of individual financial institutions, but also of the entire financial system. If a fundamental solution is achieved from this perspective, I expect that the instability of the capital markets will be substantially overcome. If that happens, we may expect that the extraordinary price surges in the markets for crude oil and commodities, which are smaller than in the capital markets, will be somewhat normalized accordingly.

Q.

What do you think of the plan to strengthen the U.S. FRB's (Federal Reserve Board's) authority over the handling of financial crises?

A.

For over 10 years, we have engaged in in-depth debate about bankruptcy and pre-bankruptcy procedures for financial institutions. The lessons Japan has learned will be very useful in this regard, too. About 11 years ago, when I was a rookie lawmaker, I proposed schemes for bankruptcy and pre-bankruptcy procedures. One of the proposed schemes intended to resolve a crisis by shutting down the troubled bank in question, which could be done in a variety of ways, such as by a bridge bank or a payoff (limited deposit protection). The other scheme was intended to support the troubled bank without shutting it down, under an arrangement called open bank assistance. In light of the systemic risk - a chain reaction that is of particular concern to the financial system - I thought that the open bank assistance arrangement should be accepted as a pre-bankruptcy procedure for the financial system, which constitutes the very foundation of credit creation. Japan has a proper legal framework like this in place, and I would recommend it as a useful reference source. If there is not a sufficient scheme for bankruptcy and pre-bankruptcy procedures regarding large and complex financial institutions in the United States - such as investment banks, which are equivalent to securities companies in Japan - it would be highly desirable for the U.S. Treasury Department or the FRB to consider the matters I have mentioned.

Q.

The headquarters for the promotion of the reform of the national civil servant system will be launched today. Also, an order for the appointment of the secretary-general has been issued. Could you tell me about the schedule for the headquarters' activities and your hopes for the headquarters?

A.

The headquarters will be launched today. The appointment of Mr. Hiroshi Tachibana as secretary-general was decided at today's cabinet meeting. For the headquarters to function properly, in line with its mission as specified by the basic act (for the reform of the national civil servant system), it is very important who is appointed for its posts. I believe that Secretary-General Tachibana and his two deputies, Mr. Takatoshi Matsuda and Mr. Yoshiro Okamoto, are all very reform-minded people. All of them have plenty of experience with administrative reform. In addition, their appointments are epoch-making in that they represent a pioneering model of lowering the barrier between the public and private sectors, an objective of the basic act.

Furthermore, the appointments mark a significant victory over the seniority-based personnel management system. Mr. Okamoto, who is 49 years old, and Mr. Matsuda, who is 60 and formerly served as vice minister, will together support the secretary general as his deputies. Their appointments represent a symbolic step to overcoming ministerial sectionalism and the barrier between the public and private sectors.

The appointments of councilors and lower-ranking officials need to be made quickly. I will discuss this matter properly with the Prime Minister. I hope to hold the first meeting as soon as possible.

Q.

I would like to ask you about the Japan Pension Organization. The other day, a draft basic plan for the Japan Pension Organization was rejected at a division meeting of the LDP (Liberal Democratic Party). Do you plan to hold another meeting of the council on the rehabilitation of pension operations and organizations?

A.

Regarding the mission of this council, the Japan Pension Organization Act stipulates that the government should seek the views of academicians who are capable of making neutral and fair judgments before deciding a basic plan for the initial operation management of the organization. Therefore, when the Minister of Health, Labor and Welfare decided the basic plan, academicians expressed various opinions, and the basic plan has now moved out of my area of responsibility, namely out of the responsibility of the panel of experts. As the basic plan is currently undergoing an advance screening by the ruling parties ahead of a cabinet decision, it is important that active discussions are held on it within the ruling parties as well.

Q.

I have a related question. According to a media report, the Minister of Health, Labor and Welfare said after the LDP division meeting that he would like to consider whether it is possible to revise the basic plan within the framework of the final report. Do you think that the basic plan should be confined within the framework of the final plan?

As I said earlier, what is legally required is that the government seeks the views of academicians who are capable of making neutral and fair judgments before it decides the basic plan. It is in no way legally required that the basic plan be confined within the framework of the final report of the council on the rehabilitation of pension operations and organizations.

The basic plan's proposal to allow the employment of people who have been punished for a limited period has drawn criticism within the party (LDP). What do you, as the minister who had jurisdiction over this council, think of such criticism?

A.

It is very good that the LDP, as a ruling party, and lawmakers, as representatives of the people, voice a variety of opinions. Among the panel of experts, academicians specializing in labor laws also pointed out various issues, such as the risk of lawsuits. With issues like this in mind, the final report was wrapped up the way it was. As party officials will have various opinions from the perspective of politics, I welcome discussions on this issue before a cabinet decision.

(End)