Provisional translation

Press Conference by Toshimitsu Motegi,Minister for Financial Services

(Excerpt)

August 2, 2008

[Opening Remarks by Minister Motegi]

I am Toshimitsu Motegi. I have been appointed minister for financial services, administrative reform and civil servant system reform.

Yesterday, the Prime Minister told me at his official residence, "I would like you to fulfill your duties as minister for reform." When he provided me with a written notice of appointment today, he told me again to proudly fulfill my duties as minister for reform. The Prime Minister issued instructions regarding the two points that I mentioned yesterday. If necessary, I will talk about those points again.

[Questions and Answers]

Q.

In light of the Prime Minister's instructions, what, specifically, are the pending tasks that you, as minister for administrative reform and financial services, must tackle urgently? Also, could you tell me what measures you intend to take and what timetable you have in mind for their implementation?

A.

First, I would like to talk about the financial sector.

Although the subprime mortgage problem has caused the global financial turmoil, the financial system in Japan is relatively stable compared with those in the United States and Europe, as I said yesterday. However, tensions remain in the global financial market, so the most important thing to do now is to keep a close watch on future developments with a heightened level of vigilance. The surge in the prices of crude oil and raw materials has increased downside risks for the Japanese economy. As small- and medium-size enterprises in particular face a very severe situation, the financial intermediary function of financial institutions is extremely important. Of course, it is necessary for financial institutions to maintain the soundness of their financial condition. At the same time, however, it is important to ensure smooth financing for small- and medium-size enterprises.

Also, the Prime Minister asked me yesterday to make efforts to develop Tokyo into a financial center that can rival London and New York, so that Japan's financial and capital markets can become more competitive internationally. As you know, the Better Market Initiative was adopted in December last year in order to strengthen the international competitiveness of the Japanese markets, and I would like to promote this initiative steadily.

Regarding the reform of the civil servant system, the headquarters for the promotion of this reform was established under the cabinet, following the enactment of the basic act for this reform in the Diet in June this year, and its first meeting was held on July 15. The Prime Minister has always been saying that conducting administration from the people's viewpoint is most important, and I also believe that it is important to create an environment that enables individual civil servants to have a strong sense of ethics as servants working for the entire population, enhance their own capabilities, and devote themselves to their duties with pride. Within one year, the cabinet personnel affairs bureau will be established. Frankly speaking, there are a variety of wasteful expenditures, and I feel that the people have a very critical view of the conduct of administration and civil servants. So it is important to regain the trust of the people by steadily implementing the reform.

As for administrative reform, it is important to ensure the implementation of the plan for consolidating and rationalizing incorporated administrative agencies through strict monitoring. Also, the bill for amending the act for general rules for incorporated administrative agencies and related bills were submitted to the previous Diet session, so I would like to do my utmost to have the bills enacted as soon as possible in an extraordinary Diet session in the autumn - although it is not clear when it will be held.

Q.

Prime Minister Fukuda has dubbed the new cabinet a "cabinet for the sake of the people's sense of safety." Specifically, how do you plan to ensure a sense of safety in your areas of responsibility, namely, administrative reform and financial affairs?

A.

Although a sense of safety is necessary in various areas, the financial sector has a very significant role to play in supporting the people's lives and economic activities, so it is very important to check whether individual financial institutions are exercising their financial intermediary function properly, as I said earlier. In particular, we are listening to various opinions regarding financing for small- and medium-size enterprises, and I believe that it is important to facilitate financing for them. At the opposite end of a sense of safety is concern or discontent, and, unfortunately, the greatest source of concern or discontent is the administrative organization. Therefore, we must consider how to reform the administrative organization and entities such as incorporated administrative agencies, and what duties national civil servants as a whole - rather than individual ministries and agencies - should perform. Of course, what we should do, rather than find satisfaction in bashing civil servants, is establish an organization that can be trusted by the people, and foster personnel who can win the people's trust.

Q.

The FSA (Financial Services Agency) has been persistently accused of being a culprit of the "government-induced recession" because of its jurisdiction over the triple suspected causes of the recession, namely inspection of financial institutions, a revision of the Money Lending Control Act, and the enactment of the Financial Instruments and Exchange Act. Before you became minister, from the standpoint of an outside observer, how did you view the issue of the triple causes associated with the alleged government-induced recession?

A.

I think that it would be difficult to attribute any particular economic phenomenon to an individual legal revision or institutional reform. For example, although stock prices declined slightly yesterday, this could have been caused by a variety of factors, including the cabinet reshuffle, as you know.

That said, it is necessary to examine what effects institutional reforms will produce on the economy and industries.

Q.

Regarding the need to facilitate financing for small- and medium-size enterprises, your predecessor as minister for financial services, Mr. Watanabe, has expressed concern about banks' moves to curb new loans. Do you think that banks are curbing loans?

A.

I believe that it is important that as the minister in charge, I always maintain concern over the possibility of banks curbing loans. Now that I have taken office as the minister, I will judge whether banks are actually curbing loans after closely examining the situation.

Q.

Through the cabinet reshuffle carried out at this time, the so-called "rising-tide faction" (a group of politicians favoring economic stimulus measures, rather than fiscal reconstruction based on a tax increase) has been expelled from the cabinet. How do you view the new cabinet line-up?

A.

I do not know with which faction you associate me. In any case, I find it difficult to draw the simplistic dividing line between the rising-tide faction and the tax increase faction as various discussions are - frankly speaking, we are debating various issues. In a situation like this, we cannot say, for example, that Mr. Yosano belongs to this faction, or that Mr. Nakagawa belongs to that faction. More than anything, we need to improve the economic condition. Also, we must proceed with fiscal reconstruction. I suppose that nobody would insist that only one or the other should be done. I think that what the Prime Minister would like to do from now on is to achieve one result after another steadily, so I would like to fulfill my duties under this policy.

Q.

Regarding the Better Market Initiative, you expressed an intention to implement the provisions of the amended Financial Instruments and Exchange Act. Given that you previously put forward recommendations regarding M&A rules, I understand that you are well-versed in the issue of corporate governance. Could you tell me whether there is anything you can do, in your capacity as minister for financial services, with regard to the relation between the strengthening of the market and corporate governance, when promoting the Better Market Initiative?

A.

I think that the strengthening of the functions of the markets as a whole and the enhancement of the corporate governance of individual companies are not quite proceeding in step with each other. For example, compared to U.S. and European companies, Japanese companies generally still need to do much more to improve their corporate governance, and thorough efforts must be made in this area.

Meanwhile, regarding M&A rules, although I must admit that Japan has undergone some trial-and-error process during the debate conducted over the past several years, a direction, or an outline of the institutional framework has now been set. So what we need to do now, is to build a framework adapted to the evolving market - which is constantly changing - while watching future developments.

Anyway, we must create an attractive market. After my recent visit to Southeast Asia, I feel that we must make the Tokyo market and Japan attractive to the eyes of investors around the world, and that we must implement necessary deregulation measures while exerting regulation properly where necessary.

Q.

What do you think of the argument that anti-takeover defense measures adopted by Japanese companies are partly to blame for foreign investors' moves to shun the Japanese market?

A.

Although there may be such an argument, there are also significant differences between M&A rules in the United States and those in Europe, as you know. In Japan, we are at a stage where we should examine how rules set by Japan will function, now that the design of the institutional framework has been set.

Q.

In relation to the need to facilitate financing for small- and medium-size companies that you spoke of earlier, I think that regional financial institutions have a very important role to play in doing that. Across Japan, there are a total of 550 regional financial institutions, including regional banks, Shinkin Banks and credit associations, and there are also Japan Post Bank and agricultural credit cooperatives. This situation is creating excessive competition. As you call for financing for small- and medium-size companies to be facilitated in a situation like this, how do you view the condition of regional financial institutions? Also, do you think that some policy measures will have to be implemented, too?

A.

If I said that the current situation represents "overbanking," it would make news headlines. However, from region to region - I am a native of Tochigi Prefecture - the local circumstances, the conditions of borrowers, and the needs for advanced financial services differ, so I find it difficult to say whether the description "overbanking" should be applied universally to all regions. Business integration should in principle be implemented based on financial institutions' own decisions, and, at least, I believe that the authorities should not either give guidance on whether to proceed with business integration or take the leadership in promoting industry realignment.

Q.

Yesterday, Minister for Economic and Fiscal Policy Yosano said that the Japanese economy may have entered a recession near the end of last year. I would like to first ask you about your assessment of the current economic condition, and my second question concerns the increasing number of bankruptcies, which has led to a rise in major banks' non-performing loans, as shown by their first quarter financial results. In light of this, although it may partly overlap with my first question, how do you assess the management condition of financial institutions?

A.

I am aware that regarding the current economic condition, Minister Yosano made remarks to that effect yesterday. Since the beginning of this year, we have seen high prices of crude oil and raw materials, and food prices have also surged. So there is no doubt that we must closely watch future developments.

As for the financial results of major financial institutions in the first quarter of fiscal 2008, as you know, their net core business profits generally dropped by 20 to 30% year-on-year, and many banks posted a decline in net profit, too. One reason for this is an increase in credit-related expenses, and another is a decline in fee revenue from the sales of investment trusts and other products due to the deterioration of the market condition. As for losses related to securitized products, including subprime-related ones, although the amount of losses has declined, losses continue to arise, so I think that tensions in the market remain.

As I said at the beginning of this press conference, Japan's financial institutions and financial systems have received only small damage from the subprime mortgage problem and are relatively stable in light of numerical data, compared with their U.S. and European equivalents. If we look at the amount of cumulative losses between July last year and June this year, for example, losses related to securitized products as broadly defined totaled some 5.85 trillion yen for Citigroup, 4.4 trillion yen for Merrill Lynch and 2.43 trillion yen for Bank of America. Meanwhile, valuation and realized losses related to securitized products as narrowly defined, namely subprime-related products, totaled some 850 billion yen for Japanese deposit-taking financial institutions as a whole. As for their losses related to securitized products more broadly defined, like those cited for Citigroup and Merrill Lynch, the total amount stands at around 2,436 billion yen, and so we can say the condition of Japanese financial institutions is relatively stable. However, since Japanese deposit-taking financial institutions still own around one trillion yen's worth of subprime-related products, we will need to keep watching future developments.

Q.

I will ask you about the reform of the civil servant system. The ruling parties are divided into various groups, including one that is cautious about the reform and another that is positively supporting it, and the division has hampered progress in the reform. Former Minister Watanabe took the approach of pushing ahead with the reform by setting a goal himself and gaining the support of the people for its achievement. What do you think is important for promoting the reform?

A.

I feel that Minister Watanabe has made very significant achievements. The basic act for the reform of the civil servant system has been enacted as a program law, through coordination of views within the government and with the support of the Democratic Party of Japan, despite a difficult situation created by the divided Diet (the House of Representatives controlled by the ruling parties and the House of Councillors dominated by the opposition camp). I intend to properly promote this reform toward the next step. The people will appreciate the reform, only after they begin to see its benefits, as we steadily implement one necessary measure after another. The enactment of the law is one step forward, to be sure. However, the enactment alone would not bring any visible change for the people to see, so it is necessary to lead the enactment of the law to concrete actions - this will probably take about five years. We must make sure to first establish the cabinet personnel affairs bureau and then do what must be done within three years, and what must be done within five years. In doing so, however, we must always attach importance to the people's viewpoint. I think that it would be difficult to regain the trust of the people in the conduct of administration and civil servants, unless we enhance transparency and change practices that appear abnormal from their common-sense viewpoint.

Q.

Former Minister Watanabe established his own advisory group called the Financial Markets Strategy Team and put forward a variety of recommendations. Do you have any plan to establish your own advisory group or something like that?

A.

At this time, I do not have clear plans as to what kind of advisory group to set up or what policy lines to pursue. However, when I served as minister in charge of IT around 2003 to 2004, for example, I set up an expert committee to evaluate the achievements made so far under an IT promotion plan ("e-Japan Strategy") that was launched in 2001. At that time, I also established two advisory groups on international issues, as I recognized the need to promote the internationalization of IT and formulate an Asia strategy in particular. The establishment of such groups was very effective at least in the field of IT, and it will be important to make use of private-sector knowledge and various personal views of experts for the conduct of administration, including the handling of a variety of financial issues.

Q.

Given that this cabinet is committed to giving consideration to the viewpoint of consumers, I expect that you will need to coordinate policies with Minister (of Consumer Affairs) Noda, as the FSA would share the jurisdiction over the Money Lending Control Act with the planned consumer agency. How will you relate to the conduct of consumer affairs and respond to the establishment of the planned consumer agency?

A.

Establishing the consumer agency - the name is still provisional - is the Prime Minister's policy, and I think that this reflects the needs of our time. I hope that cooperation between the FSA and the consumer agency, which will manage the conduct of administration with a focus on the interests of consumers, will enhance the protection of consumers and the convenience for users in the financial sector. As Minister Noda and I became lawmakers at the same time and - though personal friendship alone would not count much - we can engage in frank exchanges of views, I would like to use this relationship to achieve better results.

Q.

Regarding the conduct of consumer affairs, the nonpayment of insurance claims and overcharging of insurance premiums - these matters were taken up in newspapers again today - have stirred controversy for the past several years in the financial sector. What are your thoughts on these matters?

A.

As I took office just today, I will review the events and incidents that have occurred, including those matters, and take necessary steps properly.

Q.

In relation to the question about private advisory groups, the condition of the global financial and capital markets has undergone very rapid changes since the subprime mortgage problem emerged. Could you tell me how you intend to gather information concerning the international financial situation?

A.

I think that the capability of Japan as a whole - not only the government - to gather and analyze information and use it for carrying out reforms is weak, and this weakness concerns not only the financial markets but also a variety of other matters, such as diplomacy, national security and food security. Although I do not have concrete plans at this time, I believe that Japan must strengthen its capability to gather information concerning developments in the global financial markets.

Q.

I will ask you about Ashikaga Bank, which is based in your home prefecture of Tochigi. This bank made a fresh start in July under the umbrella of the Nomura Securities Group. How do you - I understand that you have made a variety of comments since the failure of this regional bank as a lawmaker representing its region - assess the process of selecting the buyer of the bank and the selection decision made?

A.

When Ashikaga Bank fell into the state of negative net worth and was nationalized in November 2003, I was serving as minister, and I have a vivid memory of that incident. At that time, the people in the bank's service area were worried about the future of financing there and faced a huge challenge. However, Ashikaga Bank has made institution-wide efforts, such as sharply reducing salaries and suspending bonus payments, over the past four years and several months, according to the management plan adopted by the new management team. At the same time, the bank provided loans to small- and medium-size companies in a conscientious manner and implemented drastic management reforms, and I believe that these measures have led to improved management, with the improvement reflected clearly in the bank's financial results. When former Ashikaga Bank President Ikeda recently visited me after his retirement, he told me about his difficult experiences and about several future challenges for the bank. Ashikaga Bank made a fresh start as an ordinary regional bank on July 1, when all shares in the bank were transferred from Deposit Insurance Corporation to Ashikaga Holdings, marking the end of temporary nationalization. The FSA hopes that Ashikaga Bank will continue to play its financial intermediary function in regional financing activities in Tochigi Prefecture and the surrounding areas.

(End)