Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

July 25, 2008

[Opening Remarks by Minister Watanabe]

Good morning.

A paper entitled "Concerning the Implementation of Reform of the Civil Servant System" has been distributed to you. This is my message to the staff of the secretariat of the headquarters for the promotion of the reform of the national civil servant system, which started full operation this week.

In order to write this paper, I held a free discussion session with the staff the day before yesterday. All of the staff members with ranks between section chief and deputy director-general who were available participated in the session. I listened to their frank discussions on what the problems of the existing system are and what reforms they would like to carry out. In particular, there were young staff members who voiced a strong sense of crisis regarding the current bureaucratic system and expressed eagerness to change it. I was very much impressed. This has renewed my resolve to reform the civil servant system in ways to enable them to work with pride and motivation.

This paper sets forth five principles of reform implementation that I have worked out in light of the hopes expressed by the staff during the discussion session and their perspectives on problems. Although this is my message or instructions to the staff, I have concluded that I should make it clear to the people that we intend to carry out reform in this way, so I have distributed the paper to you for reference.

I do not have any further statements to make.

[Questions and Answers]

Q.

In the second trial of the Livedoor case, a high court earlier today upheld the first trial verdict that sentenced Livedoor President Horie to a prison term without any suspension. This case has raised a variety of issues, including how information disclosure to the market should be conducted. Could you tell me how you feel about this case? My second question concerns the consumer price index announced this morning. The index - although this is not an area of your jurisdiction - posted the biggest rise in 15 and a half years, increasing the impression that prices of daily goods are rising at an accelerating pace. How do you feel about this?

A.

I would like to refrain from commenting on the court ruling regarding the criminal case involving Livedoor as this is a matter concerning an individual company. Generally speaking, the act of deceiving investors and causing them to suffer losses is a crime. It is important that market rules are properly followed. If investors cannot make investments with a sense of safety, a capital market cannot function. Therefore, acting in accordance with rules should be the primary principle. With this as the precondition, our basic idea is that the market should be given as much freedom as possible.

As for consumer prices - this was also announced at today's cabinet meeting - the index for May was up 1.3% compared with a year before and the index for this month was up 2%, meaning that the margin of increase expanded by 0.7 of a percentage point over a one-month period. Meanwhile, the core index excluding the prices of foods and energy was up only 0.1%, indicating that the prices of foods and energy, imported crude oil in particular, has risen sharply. This means an acceleration of the import price inflation, which is equivalent in effect to a tax hike. Under these circumstances, trade losses are arising, with wealth continuing to flow out of Japan to resource-rich countries. According to the traditional economic development model, this would mean Japan will become poor. In a situation like this, monetary policy measures would work little. Namely, we cannot implement an interest rate hike on the ground that prices are rising. That is because it is all but impossible to curb the rising prices by raising interest rates in Japan, since this is import price inflation. There is an argument that an interest rate hike may curb a rise in import prices, as it leads to an appreciation of the yen. However, that would cause a negative side effect in the form of additional damage to the export industries that have supported the Japanese economy.

If we consider why the import price inflation has occurred and why the prices of crude oil, foods and grains have risen, we realize that the greatest cause is the sense of uncertainty prevailing in the financial and capital markets. Since the so-called subprime shock occurred last year, funds have flown into the small crude oil and energy market, so it is essential to remove this sense of uncertainty. As I have been saying, Japan's lessons should be used as a reference source. In any case, finally, the injection of public funds will probably become necessary for resolving this problem.

Q.

I will ask you about the reform of the civil servant system. The fifth of the five principles refers to "full opening to the public of all meetings." Are you considering applying this principle not only to the headquarters' meetings attended by the Prime Minister, but also to meetings of the study group on labor-management relations and the council of advisors? Does the "full opening to the public" mean that these meetings will be fully open to the mass media?

A.

Opening discussions on matters like this to the public is a very important process. Meetings of the study group on the planned center for personnel exchanges, between the public and private sectors, and the study group on institutional reforms have been open to the mass media and broadcast live via the Internet. When carrying out a major reform like this, it is important to take account of the people's viewpoint, so I would like to ensure a process that gives consideration to that.

Q.

Do you mean that the meetings will be fully open to the mass media?

A.

As that has been the usual practice until now, we will need to continue an open process. Details such as whether TV cameras should be allowed in are to be decided through future consultations.

Q.

Regarding the same matter, the fifth item refers to the need to "start collecting the people's opinions in the initial stage" and "to constantly listen to the people's voices." Could you give me an idea of what these things mean?

A.

When I wrote this, I had in mind the reform of the mindset of civil servants that the Prime Minister is always talking about and his belief that civil servants must always think from the people's viewpoint. Until now, our approach has been to seek public comments after details have been decided, for example. This time, I am considering disclosing information and inviting public comments at the same time, even while discussions are ongoing.

Q.

The fourth principle reads, "In order to prevent the reformed system from becoming ineffective in the operation stage, a specific incentive should be provided for civil servants to sincerely work for the people." Could you give me an idea of the "specific incentive" that you have in your mind?

A.

This was proposed during the free discussion session, and I will study possible options.

Q.

Would it be a performance-based reward or something like that? Could you explain this further?

A.

In short, this would be an incentive intended to prevent the reformed system from becoming ineffective. We aim to motivate civil servants to sincerely work for the people, rather than for the interests of their ministries, by showing that they will receive some benefits if they do so, and we will consider specifically how we can do that. As long as the people have a sense of distrust, it will be difficult to obtain their understanding. However, if we can reform the system into one that is trusted by the people, civil servants' work will be appreciated by the people. Therefore, basically, the incentive will be considered with such things in mind.

(End)