Provisional translation

Press Conference by Toshimitsu Motegi, Minister for Financial Services

(Excerpt)

September 9, 2008

[Opening Remarks by Minister Motegi]

Good morning.

I do not have any particular statements to make.

[Questions and Answers]

Q.

The U.S. government has decided on bailout measures for major housing finance corporations Freddie Mac (Federal Home Mortgage Corporation) and Fannie Mae ( Federal National Mortgage Association). Although stock prices rose yesterday in a positive response to this, some people think that unless U.S. housing prices stop declining, no fundamental solution can be achieved. How do you assess the bailout measures?

A.

On September 7, the U.S. government announced new measures to achieve three goals, namely "stabilizing the financial markets," "facilitating mortgage financing," and "protecting taxpayers." The two GSEs (government-sponsored enterprises) will be placed under government control, or placed into conservatorship, which is equivalent to receivership for ordinary companies, as a step toward normalization. At the same time, the bailout plan calls for the Treasury Department to agree on the purchase of senior preferred shares, provide credit and purchase GSE mortgage securities. I expect that in line with this plan, actions will be taken quickly in order to subdue the market turmoil caused by concern over the financial conditions of the GSEs.

When I talked with officials of the U.S. authorities during my recent visit to the United States, I told them that Japan was greatly interested in this matter and expressed my hope that appropriate action would be taken. As Japan's financial authorities, we welcome the fact that action has been taken quickly, exactly as we hoped.

However, stress remains in the global financial markets, so we will stay highly vigilant over the stability of the financial system and keep a close watch on future developments from a broad perspective.

Q.

Regarding this matter, there are data indicating that Japanese financial institutions hold a total of 15 trillion yen's worth of GSE securities. I understand that the FSA (Financial Services Agency) has investigated the amount of domestic financial institutions' holdings of GSE securities. Are you planning to announce the amount of such holdings, and although it is said that the latest bailout plan has eliminated the risk of further price drops and defaults, how do you expect the management of financial institutions will be affected,?

A.

Regarding the amount of Japanese financial institutions' GSE-related securities, some financial institutions made disclosure on the occasion of their announcement of financial results, or in response to inquiries from mass media. Although I said "some" financial institutions, I suppose that those institutions account for a significant portion. Based on information obtained so far, I understand that major banks and Norinchukin Bank held a total of around 10 trillion yen's worth of securities issued by Fannie Mae and Freddie Mac as of the end of June. They hold securities, yet own few shares.

While the share prices of those two GSEs have dropped steeply, the spread between the yields on the securities issued by them and on the U.S. Treasury securities have been narrowing. In light of this, although this problem cannot be neutralized immediately, I do not believe that developments in the past few days have had an adverse impact on Japanese financial institutions.

Q.

I would like to ask you about the election of the president of the LDP (Liberal Democratic Party). As many as five candidates have run for the election ahead of the official notice of the election on September 10. Could you tell me who you plan to vote for and what you expect will be the biggest theme - I think that there will be debate over a variety of policy themes, such as fiscal reconstruction and social security, in the run-up to the election on September 22 - in the election campaign?

A.

At my press conference last week, I mentioned the names of four people, Taro Aso, Kaoru Yosano, Nobuteru Ishihara and Yuriko Koike, as possible candidates. Later, three other people, Shigeru Ishiba, Yasufumi Tanahashi and Ichita Yamamoto, also emerged as possible candidates. In the end, after a flurry of negotiations, Mr. Tanahashi and Mr. Yamamoto dropped out apparently because they did not have sufficient time to prepare for the election. As a result, the election will be contested by five candidates. From the viewpoint of the financial sector, I think highly of measures proposed by (LDP) Secretary-General Aso. I have mentioned this several times since I took office. However, it is necessary for active policy debate to be conducted during the campaign for the LDP presidential election, so I also wish the other candidates good luck, namely, Shigeru Ishiba, Kaoru Yosano, Nobuteru Ishihara and Yuriko Koike.

Under these circumstances, of course, there is a broad range of policy themes for this election campaign, including foreign policy and national security, as well as fiscal policy, and what to do with the social security system in relation to the declining birth rate and the aging of society. In my view - I say this perhaps because I am a minister in charge of economic affairs - the greatest focus of interest for the people is what economic measures should be taken amid the downside risks for the economy due to the surging prices of crude oil, raw materials and foods, and how Japan's economic situation should be changed. I will pay attention to this point when making a final decision.

I would like to mention one more matter. Last Tuesday, September 2, I was scheduled to inspect the Vocational Museum, which has been established by the Employment and Human Resources Development Organization, but cancelled the plan because the Prime Minister announced his resignation the day before. I am thinking of visiting the museum on Friday, September 12. The details of my inspection will probably remain almost unchanged from the previous inspection plan. The schedule will be notified as early as today.

Q.

Did you talk about the Employment and Human Resources Development Organization with the Prime Minister or Minister (of Health, Labor and Welfare) Masuzoe before or after today's cabinet meeting?

A.

I talked about it with Minister Masuzoe before the cabinet meeting. I have discussed it with him several times and I believe that we have a common basic stance on this matter - both of us think that this organization must be radically reformed.

Although we may appear to have somewhat different stances according to media reports, I believe that I have the same basic stance as Minister Masuzoe.

Q.

You have said that the organization should be abolished. Do you expect that you can reach an agreement with Minister Masuzoe on the abolition?

A.

We have to work out specifics from now on, and the members of the experts' panel on this issue, as well as I, have not considered this matter with the abolition or breakup of the organization as a prerequisite. I believe that the direction of the reform, namely, abolishing the organization, breaking up its operations and consolidating its functions, has been set after very careful debate. Now, we must start working on a specific institutional design. Regarding the Polytechnic University, for example, Minister Masuzoe will have no objection to its abolition, although I have not yet discussed this with him. If we examine the specific functions of this university, it is obvious that the function of fostering vocational training instructions is unnecessary, as only 10 to 20% of graduates become instructors, and this mean that the university should be abolished. However, I think that there is sufficient ground for arguing that the function of re-educating and re-training existing instructors is necessary. If so, we must consider which organization would be best suited to take over the re-training function - although the function of fostering new instructors should be abolished - after Polytechnic University is abolished. So we will probably need to debate which organization should take over that function.

In addition, I expect that we will probably be able to obtain an agreement on the idea of relocating the Advanced Polytechnic Center to a non-metropolitan region or transferring it to the private sector. However, it would be practically impossible to fully transfer the center next year, so we will need to decide what we should do in what time frame. To this end, we must reach a conclusion on the broad outline quickly. We must reach a conclusion by the end of September and decide a detailed institutional design - or I should say a concrete measure - within one year. I mean that we must reach a conclusion by around the end of the year. Once the broad outline emerges, we will need to do the finishing touches through very in-depth discussions with the Ministry of Health, Labor and Welfare. Minister Masuzoe is right when he says it will take several more months, in response to questions such as "When will the deliberations on all details including the timing be completed?" and "When will the timing be decided?" On the other hand, unless a conclusion is reached on the broad outline, deliberations on details cannot be started, so he says the outline will be worked out by September. In this respect, Minister Masuzoe understands my thinking. Depending on how you frame your questions, some differences may arise between our answers. However, I do not think that there is any inconsistency between my view and Minister Masuzoe's with regard to the basic direction of the reform and the timetable, and I confirmed this point with him today.

Q.

I would like to ask you about the U.S. financial crisis. In Japan, after the liquidation of the "jusen" companies (specialized housing loan companies), a wave of failures occurred among private financial institutions. In light of this, I think that the United States needs to take additional measures. Do you think it is necessary for the United States to take preventive measures in anticipation of failures of private financial institutions?

A.

In this respect, I hope that the U.S. authorities will make appropriate decisions including those regarding that matter. The bailout plan announced this time, which features the injection of a fairly large amount of public funds, represents the first step by the U.S. authorities to tackle the crisis. The actions so far taken by the U.S. authorities at least convince me that they can implement necessary measures quickly.

Q.

During your recent trip to the United States, although you did not meet Mr. Paulson (Treasury Secretary), you held talks with Mr. Bernanke (Chairman of the Federal Reserve Board) and Mr. Strauss-Kahn (Managing Director of the International Monetary Fund). In those talks, was any reference made to further measures beyond the bailout plan for the GSEs, such as the injection of public funds into private financial institutions?

A.

As for the injection of public funds into private financial institutions, the financial authorities of the two countries hold discussions with each other on the understanding that they should not disclose information, so I cannot mention details of our talks. In any case, U.S. financial institutions face a very severe situation due to the conditions of the real estate and housing market that you know well, so we had frank exchanges of opinions.

(End)