Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

August 1, 2008

[Opening Remarks by Minister Watanabe]

I tendered my resignation at an extraordinary cabinet meeting earlier today.

My tenure as a cabinet member, through it was brief, has provided me with rich experiences. Regarding administrative reform, we passed very important bills last year and this year. Various advisory groups have submitted reports concerning major tasks. In addition to a report concerning the reform of the civil servant system, a report was compiled with regard to the reform of policy-based finance, for example. We have also carried out the reform of the incorporated administrative agencies and worked to revise the Act on General Rules for Incorporated Administrative Agencies, while the council on the rehabilitation of pension operation and organization debated what the proposed Pension Fund Organization should be like.

Meanwhile, after an eight-month interval from the end of my tenure as a senior vice minister for financial affairs, I came back to the FSA as minister. After I took office, the Better Market Initiative was adopted and enacted in the Diet, as you know. It is essential to implement this initiative steadily. The turmoil in the global financial and capital markets triggered by the subprime mortgage problem has not yet subsided, so it is important to conduct crisis management steadily while staying alert to crises like this.

It has been repeatedly pointed out that Japan's bureaucratic system lacks the ability to plan and design comprehensive national strategies because of its horizontal compartmentalization. When I was a rookie lawmaker, Japan faced a great crisis. I felt regret at the failure of the government at the time to find the right solution to the unprecedented crisis. Now, after more than 10 years since that time, I am increasingly convinced that what Japan needs are comprehensive national strategies.

Unfortunately, Japan's political and administrative models have been very outdated for some time. As for the administrative model, it seems to me that we are mired in a system that hampers bold changes and forces us to maintain the status quo in various areas, including personnel appointment, budget compilation, management of the quotas of regular employees and screening of laws and regulations. I believe we must use the reform of the civil servant system as the first step of a drastic national rebuilding.

At the same time, we must revolutionalize the political model. Japan is supposed to have abandoned the political model that was used in an era when a medium-size electoral district system was in place - a model based on factional balance and seniority. However, I feel that a part of that era remains. I believe that a revolution of the political model will become necessary. The goal of realizing a true parliamentary cabinet system is a pipe dream if prime ministers change frequently. The Koizumi cabinet had the slogan “One cabinet, one team of ministers.” I believe that this approach was quite right as a step toward realizing a true parliamentary cabinet system. The situation in which ministers change in less than a year in an annual ritual makes it impossible for politicians to exert their initiative in administration. As we aim for a revolution of the administrative model, we also need to seek a revolution of the political model.

I do not have any further statement to make.

[Questions and Answers]

Q.

At your press conference this morning, you said that you have no control over your fate. Has the Prime Minister talked to you about retaining you as a cabinet minister?

A.

No, he has not.

Q.

You have told us about your self-assessment of the achievements you have made since you started serving as a cabinet minister in the Abe cabinet. Could you tell us about what you have left undone?

A.

The important thing to do from now on is to work out specific measures. Regarding financial affairs, the Act for the Amendment of the Financial Instruments and Exchange Act has already been enacted, so what we need to do is to implement the provisions of the amended act as soon as possible. As I said earlier, the impact of the turmoil in the financial and capital markets has spilled over to various markets around the world and triggered a surge in the prices of foods and resources. Efforts to resolve problems like this must be made from a global perspective. It is important for Japan to continue to stress the lesson it has learned from its own past crises and help to build an international framework.

Regarding administrative reform, as I said earlier, we need to work out specific

measures for a historic revolution, including the establishment of the proposed cabinet personnel management bureau. As for the reform of incorporated administrative agencies, we are moving a system modeled on the British independent agency system to a new stage and working to revise the Act on General Rules for Incorporated Administrative Agencies. It is important to implement reform measures steadily by enacting the bill for revising this act in the upcoming extraordinary Diet session and bills related to the civil servant system, such as the one for the establishment of the cabinet personnel management agency, in next year's ordinary Diet session.

Q.

I have another question. The Prime Minister is now working on the reshuffle of the cabinet and the leadership team of the LDP (Liberal Democratic Party). According to media reports, Chief Cabinet Secretary Machimura will be retained in the new cabinet and Mr. Aso will be appointed LDP secretary-general. What do you expect of the new cabinet and the new LDP leadership team?

A.

From my viewpoint, a resolve to carry out reform steadily is essential. The reform must in no way be suspended or diluted. I hope that they will tackle the reform with a resolve to carry it out by all means.

Q.

Regarding what remains to be done in relation to financial affairs, you said it is important to implement the Better Market Initiative. If you were to prioritize necessary measures, what should be the first thing to do?

A.

In short, we must make Japan's markets accessible and convenient enough to draw funds from around the world. It is important to ensure that the markets are reformed in ways to attract a variety of investors and inject vitality into the economy.

Q.

I have two questions, the first question is how you assess the impact the subprime mortgage problem has produced over the past year and when you expect this long-lasting problem to subside. The second question is - I understand that you have a strong sense of crisis about a U.S. economic recession, and you have repeatedly said that the Japanese authorities as well as Japanese financial institutions must remain highly alert, too - what message you would like to send to the top management of financial institutions, including with regard to risk management in a broad sense?

A.

As I always say, Japan's lesson fits the current situation perfectly. The issue of solvency lies behind the liquidity crisis. The recent revelation of the problems of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corp.) apparently means that the issue of solvency has come to the fore. When Japan faced its own financial crisis a decade ago, a major incident occurred once every six months or so. At that time, financial results were announced on a semi-annual basis. Now, they are announced on a quarterly basis, so a major problem emerges once every three or four months. A situation like this has continued for more than a year. In light of this, it is important - Japan was reminded of this importance by its crisis - to estimate the extent of losses first. However, the difficulty in determining the amount of losses, which is mainly due to the continuing drop in housing prices, has undermined the U.S. economy. Therefore, we must constantly estimate through simulation how much housing prices would fall.

Japan was the first developed country to face a financial crisis after the fall of the Berlin Wall. Now, U.S. and European financial institutions are confronted with the same structural problems as those faced by Japan at that time, namely the bad-loan problem and the solvency problem. In light of this, now is the time for Japanese financial institutions, which have already overcome these problems, to turn adversity into opportunity. In times like this, they should go on the offensive. Although risk management is extremely important, financial institutions cannot earn profits unless they take risk in the first place. They should never lose the daring spirit.

Q.

I would like to ask you about the appointment of LDP executives. An informal decision was made to appoint Mr. Taro Aso as LDP secretary-general apparently in preparation for the next general election because of his popularity with the people. What do you think of his appointment?

A.

This will be the second time for Mr. Aso to serve as LDP secretary-general. I believe that LDP President (Prime Minister) Fukuda has picked Mr. Aso as the person best suited to support the Fukuda cabinet due to his rich experience and popularity.

Q.

Do you think that this will give a popularity boost to the Fukuda cabinet, whose approval rating has been slumping?

A.

In short, what is important when reshuffling the cabinet and the LDP leadership team - although there is talk about political calculations regarding popularity - is basically, to do it from the viewpoint of what should be accomplished by the government. I believe that Prime Minister Fukuda is making selection from the viewpoint of who is suited to tackle the various tasks that his cabinet aims to accomplish. Popularity would be a secondary element. Mr. Aso has not been selected because of his popularity. Rather, the selection made from the viewpoint I mentioned has resulted in Mr. Aso, who happens to be popular. .

Thank you very much.

(End)