Provisional translation

Press Conference by Toshimitsu Motegi, Minister for Financial Services

September 5, 2008

[Opening Remarks by Minister Motegi]

As we notified you in advance, a meeting of the panel of advisers under the headquarters for the promotion of the civil servant system reform was held at the Cabinet Office immediately after today's cabinet meeting, from 10:30 a.m. to noon, so this press conference has been delayed. I would like to apologize for the delay.

At an informal meeting of cabinet ministers held after the cabinet meeting, relevant cabinet ministers made references to the implementation status of the emergency economic package intended to ensure safety, security and future action. For my part, I reported on the FSA's (Financial Services Agency's) efforts regarding the facilitation of financing for small- and medium-size enterprises (SMEs). First, the FSA dispatched senior officials to various regions across the country in August to hold hearings directly with not only financial institutions, but also with their borrowers, namely SMEs, in order to examine the actual state of financing for SMEs. As a result, in the hearings, many SMEs mentioned the severe condition of the real economy, although the situation varies from industry to industry. SMEs thus face extremely severe business conditions, so I understand that there is a strong need for financial institutions to exercise their financial intermediary functions properly and actively.

In a situation like this, I believe that it is important for private financial institutions to take and manage risks carefully, in a manner suited to the management conditions of borrower companies and their characteristics, so that the provision of financing for SMEs, and the maintenance of the soundness of their own financial positions work in a positive cycle. In most cases, documents compiled by the FSA put risk management before risk-taking, This time, however, I made a point of explaining risk-taking before risk management.

Now, I would like to talk about the three measures included in "Regarding Future Measures to Facilitate Financing for Small- and Medium-Size Enterprises," which was released on Tuesday, September 2. The first measure is to carefully examine the actual state of financing and strengthen monitoring, in order to ensure smooth financing for SMEs, and the second measure is to ask financial institutions to make efforts to facilitate financing. The third measure is to promote appropriate inspection and supervision that reflect the actual state of affairs. We will strive to facilitate financing for SMEs through these three measures.

Specifically, on September 2, we immediately issued a written request for all private financial institutions, including major banks, to facilitate financing for SMEs.

In future financial inspections, we intend to focus on whether financial institutions have established a control environment that enables them to exercise their financial intermediary function smoothly and actively in ways that reflect the actual circumstances of SMEs. Furthermore, our inspections will focus on important matters so as to encourage financial institutions to make voluntary management improvement efforts. In other words, we will avoid inspections that would pick on trivial issues or prompt overcautious reactions. Also, we will try to reduce the burden of inspection on financial institutions. In order to put these policies into practice, we will ensure that all inspectors become familiar with and follow these policies and fully explain the policies to financial institutions and SME managers.

We regard the provision of smooth financing as one of the most important tasks for financial institutions, so we will continue to implement a variety of measures to facilitate the provision of funds by private financial institutions to SMEs.

These are the matters that I reported at the informal meeting of cabinet ministers.

I do not have any further statements to make.

[Questions and Answers]

Q.

According to a foreign media report, Mitsubishi UFJ Financial Group is planning to provide capital to Lehman Brothers, a U.S. securities company. Could you tell me what you know about the plan and how you view Japanese financial institutions' growing moves to expand into foreign markets?

A.

I know of the media report that you mentioned. However, I understand that Mitsubishi UFJ Financial Group has issued a statement saying that there is not any factual basis for this news report. As you know, we make it a rule to refrain from commenting on matters that concern management decisions of individual financial institutions. In any case, I welcome Japanese financial institutions' moves to pursue globalization based on appropriate management decisions amid the global integration of financial markets.

Q.

Economic stimulus is likely to be a focus of the campaign for the LDP (Liberal Democratic Party) presidential election. What kind of discussion and debate would you like to be held about economic stimulus in the election campaign?

A.

I expect that substantial policy debates will be held in the LDP presidential election campaign this time. For now, four people are expected to run for the election, although others may stand later. The four will be Taro Aso, Kaoru Yosano, Nobuteru Ishihara and Yuriko Koike. All of them have a broad perspective on fiscal reconstruction and economic stimulus, so I expect that substantial debates will be held on these matters.

Q.

Regarding economic stimulus, the FSA has recently worked out a plan for preferential tax treatment of securities investment, and the plan comprises two pillars, namely preferential treatment for elderly people (tax exemption for investment by the elderly) and preferential treatment for small-lot investors (tax exemption for long-term investment by small-lot investors), which would lead to tax reduction of an estimated 136 billion yen, as I understand it. Amid the rumors about possible issuance of deficit-covering government bonds, how do you plan to cope with the fiscal problem of a revenue decline caused by the preferential tax treatment for securities investment, and how do you intend to resolve the issue of fiscal discipline?

A.

The government is implementing the latest emergency economic package, aimed at ensuring safety and security, under the basic policy of not relying on the issuance of deficit-covering government bonds. The tax system is an issue that we need to consult about with the ruling parties and negotiate with the Ministry of Finance. Of course, tax reduction will lead to a tax revenue drop, so we have to hold substantial discussion on both how much the tax revenue will drop and what impact it will have on the economy. However, the FSA believes that the planned tax measures are necessary in order to accelerate the flow of funds "from savings to investment."

Q.

I would like to ask you about international accounting standards. At your previous press conference, you said that Japan regards convergence (of accounting standards) as the most important matter. At the same time, regarding the issue of whether the adoption of international accounting standards should be generally allowed, you said that several points of debate must be studied further, and that there is a need for broad discussions among the parties concerned. Am I correct in understanding that you believe that it is necessary to discuss whether or not to introduce international accounting standards after 2011, when the convergence is to be completed.?

A.

I did not say that convergence is important. At my previous press conference, I said - if I remember correctly - that there was no change in Japan's policy of pursuing convergence as a top priority matter. In relation to this, I mentioned the Tokyo Agreement (on achieving convergence by 2011) and talked about four points of debate, including the market for professional investors and (training and education of) auditors. Our stance has not basically changed over the past week.

Q.

There was a media report that the FSA and other relevant parties are considering (a possible adoption of) international accounting standards. Is there any factual basis for this report?

A.

I know that there was a media report that Nippon Keidanren (Japan Business Federation), the Japanese Institute of Certified Public Accountants and the FSA are considering it. However, our basic policy has not changed. Still, of course, it is possible that matters like that will emerge as a point of discussion in the future.

Q.

You also cited the governance of the International Accounting Standards Committee Foundation as one of the four points of future debate. Handling of the issue of governance is said to have been led by Europe. Do you think that unless this situation is improved, Japan should remain cautious about the introduction (of international standards)?

A.

I did not necessarily mean to say such a thing. Previously, I mentioned four points, namely, the appropriateness of financial reporting based on international accounting standards, the progress in the reform of the governance of the International Accounting Standards Committee Foundation - which you mentioned now - education and training of investors and auditors, and the status of the use of international accounting standards in foreign markets and existing markets for professional investors. What I said was that we need to conduct a further study on these matters. We should not use these matters as an excuse for not taking action.

Q.

Today, stocks, mainly financial stocks, are continuing to drop and are hitting new lows for this year. With stocks in New York and Asia also falling, how do you assess the current condition of the financial markets?

A.

Regarding stock prices, I am afraid that I must repeat my usual answer. Stock prices are not determined by any single factor but determined by a variety of factors through market forces, which makes it difficult to identify in a moment why prices are going up or down, so I would like to refrain from making comments. Indeed, the New York Dow dropped sharply yesterday and the Tokyo market is also sliding this morning. In any case, we will keep a close watch on stock market developments.

Q.

Regarding the LDP presidential election, you mentioned the names of the four candidates. Have you decided who you will vote for?

A.

At the moment, I have all the four candidates in my mind. For example, I highly appreciate the fact that (LDP) Secretary-General Aso quickly unveiled his proposals regarding financial affairs, namely the shift of funds "from savings to investment," and we cooperated with each other on the tax system reform. However, I would also like to applaud the decision of Mr. Yosano, Mr. Ishihara and Miss Koike to stand for the election to challenge Aso. I share with them the hope to renew the LDP through substantial policy debates into a party that can undertake the mandate given by the people once again. As I am a minister in charge of administrative reform and the reform of the civil servant system, I intend to decide what to do from the viewpoint of who will be the candidate best suited to carry out reform.

(End)