Provisional translation

Press Conference by Toshimitsu Motegi, Minister for Financial Services

(Excerpt)

September 2, 2008

[Opening Remarks by Minister Motegi]

Good morning.

Details of today's cabinet meeting and informal meeting of cabinet ministers will be explained by the Chief Cabinet Secretary. The Prime Minister told us: "I have made the decision (to resign) because I have concluded that it is necessary to form a new cabinet that can avoid a stalemate in the conducting of national politics, so I would appreciate your understanding." As the implementation of administration must not be allowed to be interrupted in any situation, all cabinet ministers confirmed their resolve to continue performing their duties until the end.

At the cabinet meeting, I reported on the trip I took to the United States last week. I visited the United States from August 27 for a two-night stay and held meetings with officials, such as FRB (Federal Reserve Board) Chairman Bernanke, SEC (Securities and Exchange Commission) Chairman Cox, Federal Reserve Bank of New York President Geithner and IMF Managing Director Strauss-Kahn. In the meetings, I shared with them the view that the subprime mortgage crisis is a serious problem, affecting the economies of individual countries through the global financial markets as its impact has spread worldwide, and I agreed with them on the importance of strengthening cooperative relations between Japan and the United States. In addition, we held frank discussions from various perspectives on how the financial market turmoil in the United States and Europe could affect Japanese financial institutions and Japan's entire financial system.

Furthermore, I also had frank exchanges of views, not only with the U.S. financial authorities, but also with U.S. market participants, from the viewpoint of strengthening the international competitiveness of Japan's financial and capital markets.

I reported these matters at the cabinet meeting. I believe it was very meaningful for me to meet and hold frank exchanges of views with the U.S. financial authorities and top officials of financial institutions, in this severe situation immediately after I was appointed as the minister for financial services.

At the cabinet meeting, Mr. Tanigaki, the minister of land, infrastructure and transport, made this statement: "Regarding regional financing, as local construction and real estate industries seek to implement measures to strengthen their management, it is particularly important that they raise funds from financial institutions smoothly, so I would like to ask relevant cabinet ministers to pay special consideration to this point." At the informal meeting of cabinet ministers, I made this statement: "The FSA (Financial Services Agency) dispatched senior officials to various regions in August, in an effort to precisely grasp the current state of financing for small- and medium-size enterprises (SMEs) and to strengthen surveillance, with a view to ensuring smooth financing. In addition, following the adoption of a package of emergency measures to ensure life security, the FSA plans to ask financial institutions today to facilitate financing for SMEs. The FSA intends to continue to do its utmost to facilitate financing for SMEs and to strengthen cooperation and the exchange of information with the Small and Medium Enterprise Agency, which is responsible for overseeing the implementation of relevant economic measures, and other ministries and agencies concerned, so I would like to ask for your continued support."

I will elaborate a little further on this point. As I have been saying since last month, hearings regarding SME financing, conducted by FSA officials visiting various regions, have mostly been completed, so we must now come up with measures to cope with the situation based on the results of the hearings.

First, I will explain the outline of the hearings. The FSA dispatched senior officials to 15 prefectures to cover all of the 11 regions that are under the jurisdiction of the Local Finance Bureaus. Hearings were held with a total of 51 SMEs and related organizations and 16 regional financial institutions. These hearings concerned business conditions for SMEs and their state of fund-raising as well as financial institutions' lending stance. At the same time, a questionnaire survey was conducted with around 450 officials, who are responsible for providing management guidance to SMEs, at chambers of commerce and industry in all of the country's 47 prefectures. We are now compiling the results of this survey and we will probably be able to announce the results at an appropriate time in September. Regarding the hearings conducted so far by dispatched officials, I will explain the key points. The first point is that many SMEs cited severe economic conditions, although the view of the conditions varied from industry to industry. The second point is that although some companies pointed out that financial institutions' screening has become cautious, others noted that regional financial institutions in particular are making serious efforts regarding loans to SMEs. In contrast, some companies pointed out that major banks have become cool toward loans to SMEs. The third point is that many companies expressed opinions and made requests regarding guarantees provided by credit guarantee associations and government-affiliated financial institutions.

In light of these findings, as for future actions to be taken in order to facilitate financing for SMEs, an appropriate and active exercise of the financial intermediary function is necessary, first of all, as SMEs face very severe business conditions. In this situation, it is important that private financial institutions take risks and conduct precise risk management in a manner suited to the management condition and characteristics of borrower companies, in order to create a virtuous cycle of the facilitation of their provision of funds to SMEs, leading to the maintenance of their own sound financial conditions.

Regional financial institutions are required to exercise their financial intermediary function in their regions by further promoting "relationship banking," in particular. Meanwhile, major banks - as I said earlier, there are reports that their lending stance has become cool - should also make decisions on loans carefully, in light of the management conditions and characteristics of borrower companies, and provide sufficient explanations to customers.

Based on this basic concept, we intend to implement several specific measures. The first of them is to grasp the current situation. We have already conducted a questionnaire survey in various regions, the results of which show that the current economic condition is still severe, so we will periodically conduct surveys with chambers of commerce and industry. The second is to ask financial institutions to take necessary action. As I said at the informal meeting of cabinet ministers, we will today issue a written request for financial institutions to facilitate financing for SMEs. Also, we will encourage private financial institutions to cooperate with credit guarantee associations in efforts to facilitate financing for SMEs. The third measure is to promote the carrying out of appropriate inspection and supervision suited to the actual situation. When conducting inspection in the future, we will make sure to communicate some important matters regarding the conduct of inspections to all inspectors, financial institutions and SME managers, and put the matters into practice. One of those matters concerns our basic policy for inspections. As our basic policy, we will mainly examine whether financial institutions have established arrangements and procedures for smoothly and actively exercising their financial intermediary function, in a manner suited to the actual situation of SMEs. We will improve the quality of inspection and conduct priority-driven inspection, which means that rather than concentrating on trivial issues, we will focus on important matters so that our inspections can give a sense of satisfaction to financial institutions and encourage them to make voluntary improvement. In addition, we will seek to reduce the burden related to inspection. Inspection is said to impose a heavy paperwork burden. We would like to streamline necessary paperwork and reduce its volume, roughly speaking, to two-thirds of the current level.

Regarding the "Supplement to the Financial Inspection Manual: Treatment of Classifications Regarding Credits to Small- and Medium-sized Enterprises," we will make further public relations efforts to ensure that its purpose is widely recognized. We will strive to properly communicate the purpose to all financial institutions and SME managers, not to mention inspectors.

For details of the measures I mentioned, please consult the FSA staff in charge. We will compile briefing materials in order to provide explanations to you.

I do not have any further statements to make.

[Questions and Answers]

Q.

As you mentioned, Prime Minister Fukuda announced his resignation last evening, becoming the second prime minister to step down abruptly in less than a year, after former Prime Minister Abe, and drawing accusations of irresponsibility. As a member of the Fukuda cabinet, how do you view his resignation, particularly given that you were appointed as a result of a cabinet reshuffle only a month ago?

A.

The Prime Minister's decision - he made the decision without consulting anybody - was abrupt, and frankly speaking, I am quite surprised. However, economic and financial affairs, for which I am responsible, are moving on a day-to-day basis, and we are now at a critical juncture in relation to financing for SMEs. Therefore, I will perform my duties so as to keep the conduct of administration going without any interruption.

Q.

There is strong concern that political chaos like this will have a negative impact on the economy, which has entered a recession. What is your view in this regard?

A.

We will strive to avoid a negative impact. We will do our utmost to dispel such concern by implementing the measures regarding financing for SMEs that I mentioned earlier.

Q.

I have one more question, which concerns your meeting with (SEC) Chairman Cox during your U.S. trip. I understand that you discussed international accounting standards with him. Yesterday, the Japanese Institute of Certified Public Accountants (JICPA) expressed the view that Japan should adopt international accounting standards for application to the consolidated financial results of listed companies. For its part, the government plans for the moment to promote convergence (of Japanese standards toward international standards). What do you think of the JICPA's view?

A.

In the United States, I had a frank exchange of opinions with Chairman Cox on this matter. I understand that the U.S. stance on this matter is basically the same as the Japanese stance. The EU is scheduled to conclude its equivalence assessment of accounting standards by the end of the year. As this deadline is approaching, convergence has emerged as a top priority matter. Next year and beyond, we will strive toward achieving convergence by 2011, in accordance with the Tokyo Agreement. In this sense, there are some differences between the situations of Japan and the United States and the situations of other countries, such as Canada, South Korea and China. I will explain the current state of the use of international accounting standards in Japan. Currently, Japan allows the use of international accounting standards by foreign companies that make disclosure in countries that have adopted such standards. Furthermore, in a market for specified investors, or professional investors, that will be established under the revised Financial Instruments and Exchange Act, Japan will allow the use of accounting standards based on decisions made for trading reasons, with international accounting standards in mind. In addition, regarding whether or not to allow Japanese companies in general to use international accounting standards, we must conduct a further study on several points of debate, and discussions involving the wide range of domestic parties concerned need to be held. Therefore, I raised some issues in my meeting with Chairman Cox. One of the issues was appropriateness of financial reporting based on international accounting standards. Another was the progress in the reform of the governance of the International Accounting Standards Committee Foundation. Chairman Cox thanked me for raising this issue. The third issue was the current and future status of the education and training of investors and auditors, and the fourth issue was the current status of the use of international accounting standards in foreign markets and existing markets for professional investors. We need to intensify debate on these issues. As I held in-depth discussions with Chairman Cox the other day, the FSA will maintain and strengthen cooperation with the United States, which is in a similar situation to Japan's in relation to international standards. According to media reports - although there are some differences in detail between the reports - the United States will allow the use of international standards by 110 companies starting in 2009 and then gradually obligate the use of these standards in 2011 and later. As a final decision will be made in 2011, the basic concept is apparently not very different from Japan's concept. Over the coming years, Japan will hold further discussions, and it is important to conduct a further study, mainly on the four issues I mentioned.

Q.

I have two questions regarding loans to SMEs. My first question is: do you think, in light of the results of the recent questionnaire survey and hearings, that megabanks have become cool toward loans to SMEs? Secondly, how effective do you think the written notice to banks that you mentioned will be, and how much binding power will it have? How do you expect the current situation to change after the notice is issued?

A.

Regarding the first question, I cited the view - although this was a minority view - that megabanks have become cool compared with the serious efforts of regional financial institutions regarding financing for SMEs, because I think it is better to give an example of frank opinions - though it would not be good to give a misleading impression - in order to show that we also properly listen to minority voices and take necessary action. As I said earlier, it is necessary (for major banks) to make decisions on loans carefully, in light of the management conditions and characteristics of borrower companies, and provide sufficient explanations to customers.

The written request we will issue today does not have any binding power. However, we intend to improve the situation through the implementation of inspections based on our basic concept of inspection, and through the combined effects of various measures, rather than merely through the issuance of a written request. In the current situation, in which borrower companies face a severe operating environment due to the high prices of crude oil and raw materials, for example, efforts by SMEs alone or efforts by private financial institutions alone would not be successful. Furthermore efforts by government-affiliated financial institutions alone would not be successful, either. Therefore, it is an important task of the government, to maintain proper collaboration between the borrower companies and financial institutions and coordinate their activities.

Q.

Could you tell me why your inspection of the Vocational Museum, scheduled for today, has been cancelled? Regarding the review of the Employment and Human Resources Development Organization, you have indicated a policy of dissolving it and abolishing its functions. Will the Prime Minister's resignation affect the results of the review or the schedule of the abolition?

A.

I have postponed - I do not know how the decision was explained to you - the inspection of the Vocational Museum scheduled for today. Given the situation overnight, I have concluded that it is important to remain here and stay in command. Although I may inspect the museum in the near future, I have decided to postpone the inspection as it is the duty of a minister to remain in Tokyo given the current situation.

As for the Employment and Human Resources Development Organization, I have never mentioned a plan to abolish the entire organization. We will examine whether the individual functions of the organization are necessary and whether they should be undertaken by the organization. As a result, we may conclude that some facilities and functions should be abolished or transferred to local governments, private companies or other organizations.

Q.

Will the Prime Minister's resignation affect the plan?

A.

I do not think so. I think it should not be affected.

Q.

The Prime Minister's resignation is hard to understand from the people's viewpoint and has drawn criticism from them. How do you view his resignation?

A.

I am aware of how the people feel about the resignation as I have watched their responses in television news programs and have been reading about them in newspaper articles since yesterday. I will use their various opinions as reference points for my future actions.

Q.

Regarding the election of the next president (of the Liberal Democratic Party), who do you think is suited to become the president. Do you have an intention - I am asking this just in case - to stand for the election?

A.

For now, I am a member of the Fukuda cabinet. As I said at the beginning of this press conference, financial and economic affairs are moving on a day-to-day basis, making it essential to keep the conduct of administration going without any interruption, so I am concentrating on fulfilling my duties for now.

Q.

In order to implement the comprehensive economic package recently adopted, including measures to support SMEs, it is necessary to enact a supplementary budget in the coming extraordinary Diet session. Amid speculation over the timing of a snap general election, do you think that the top priority should be enacting a supplementary budget first?

A.

In light of the current economic condition, the top priority should be speedy implementation of the comprehensive economic package intended to ensure life security.

Q.

Some people speculate that the House of Representatives will be dissolved (for a snap election) at an early date. Despite such speculation, do you think that the top priority should be enacting a supplementary budget first?

A.

Diet affairs are hard to predict. However, I believe that the top priority should be speedy implementation of the comprehensive economic package intended to ensure life security.

(End)