Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

August 1, 2008

[Opening Remarks by Minister Watanabe]

Good morning.

[Questions and Answers]

Q.

The Prime Minister has expressed his intention of carrying out a cabinet reshuffle today. Did he say anything about this at a cabinet meeting or an informal meeting of cabinet members?

A.

The Prime Minister did not say anything particular about that. He only told us about the timing of an extraordinary cabinet meeting.

Q.

What do you think of the decision to carry out a cabinet reshuffle at this time?

A.

Although not all of the various pending matters have been settled, we have reached a turning point now; what remains to be done has become clear, and necessary policy measures have been presented. The Prime Minister has apparently made the decision after considering how to implement those measures and what cabinet line-up would be the best suited to do the job.

Q.

Most banks have announced their financial results for the April-June quarter, which showed very poor business performance. How do you view the results? Also, as a supervisor, what points will you pay attention to in the future?

A.

It seems to me that the amount of losses related to subprime mortgages and securitized products was not very large. Meanwhile, the steep increase in the amount of losses related to bad loan disposals is evidence of a sharp downturn of the Japanese economy. Therefore, I think that the results provide a symbolic indication of the condition of the Japanese economy. I am very worried.

Also, we see a broad trend of declining fee revenue from the sales of investment trusts. This is quite disappointing, too. In any case, it is extremely important that financial institutions properly take risks and exercise their financial intermediary functions, so I strongly hope that they will follow the aggressive approach of taking risks.

Q.

Also in the April-June quarter, the U.S. GDP (gross domestic product) grew 1.9% from the previous quarter in real terms, a much slower growth than market expectations. What do you think of this figure? Also, what impact do you expect the severe U.S. economic condition to have on the Japanese economy?

A.

Unfortunately, the tax rebate may not have made significant contributions to GDP. It is very problematic that the U.S. economy, which has led the global economy, is slumping in this way. Countries which have depended on the U.S. economy for their own economic recovery, including Japan, must now make efforts to realize a recovery on their own. In the medium to long term, the challenge for Japan will be how to change its economic structure into one led by domestic demand.

Q.

Could you sum up your achievements during your tenure as minister and tell me what you would like the next cabinet to do?

A.

I have served as minister for financial services for nearly one year. Also, I have served as minister in charge of administrative reform for about one year and seven months. I believe that I have steadily performed my twin duties as the minister concurrently serving in these two posts, yet there are a number of unfinished tasks. These unfinished tasks must by all means be completed.

Regarding the civil servant system reform, for example, although the basic act has been enacted, specifics will have to be worked out from now on. In next year’s Diet session, the task of enacting an amendment bill necessary for the proposed cabinet personnel affairs bureau awaits us. The establishment of integrated control over the appointment of senior officials will be a breakthrough, so we must aim to draft the bill in ways to prevent it from being watered down. Regarding the reform of incorporated administrative agencies, deliberations on a bill for general rules for such agencies will be carried over to the next Diet session. This task must be finished, too. As for my duties as minister for financial services, the Better Market Initiative will be implemented from now on. As this initiative includes a number of various schemes, we should inject vitality into the Japanese economy by implementing them.

Meanwhile, as I said earlier, concern over a U.S. economic recession is growing, so we must keep a close watch on the relationship between the U.S. economy and the financial and capital markets. The crisis we are witnessing now is of such a large scale as to deserve to be described as the biggest since the end of World War II. Therefore, Japan will need to consider various crisis management measures with a heightened level of vigilance.

Q.

Do you think that you have a chance to be reappointed in a new cabinet?

A.

Last year, I talked about my gut feeling, which proved to be wrong, so I will not say anything this time. As I have no control over my fate, I will keep quiet.

Q.

In reference to the financial results of banks, you said you are worried about the economic condition. Do you think the current situation will continue for one year or so?

A.

Regarding the prospect of the economy, I would like you to ask Minister Ota. Generally speaking, a sharp increase in losses related to bad loan disposals is evidence of an economic downturn, so we must reverse this trend as soon as possible.

(End)