Provisional translation

Press Conference by Toshimitsu Motegi, Minister for Financial Services

(Excerpt)

September 12, 2008

[Opening Remarks by Minister Motegi]

I do not have any particular statements to make.

After this press conference, I am scheduled to depart for Kyoto on an 11:30 a.m. Shinkansen bullet train to inspect the Vocational Museum, which is managed by the Employment and Human Resources Development Organization.

[Questions and Answers]

Q.

The campaign for the presidential election (of the Liberal Democratic Party) has started. How do you think deliberations on the supplementary budget and various bills should be conducted in the coming Diet session, in relation to a future election to the House of Councillors?

A.

The cabinet has worked out an emergency economic package, so the supplementary budget is very important. However, as the management of Diet affairs is subject to negotiations between the ruling and opposition parties, I would like to refrain from making comments as a cabinet minister.

Q.

According to a media report, the U.S. Treasury Department has explained the bailout plan for public housing corporations to major Japanese financial institutions. Could you tell me about the current situation regarding this and how you feel about the U.S. authorities' handling of this matter?

A.

On September 7, the U.S. government announced a plan to place Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Mortgage Corporation) under government control. It also announced bailout measures, including an agreement by the Treasury Department to purchase senior preferred shares of the two GSEs (government-sponsored enterprises), the provision of credit to the GSEs and the purchase of GSE mortgage securities, in order to achieve three objectives: "stabilizing the financial markets," "facilitating mortgage financing" and "protecting taxpayers." The Japanese financial authorities welcome this swift action aimed at subduing the market turmoil caused by concerns over the deterioration of the GSE's financial conditions. However, stress remains in the global financial markets, so we will keep a close watch on the stability of the financial system from a broad perspective and with a high level of vigilance.

I am aware of the media report that you mentioned. However, I would like to refrain from commenting on the FSA's (Financial Services Agency's) response to it.

Q.

In relation to the same question, am I correct in understanding that the FSA has no knowledge of explanations made by the U.S. Treasury Undersecretary to individual financial institutions?

A.

Of course, the FSA is maintaining various communications about specific issues. However, as you know, we make it a rule not to disclose information regarding our communications about specific incidents.

Q.

Earlier today, revised data for GDP (gross domestic product) were announced, showing a further downward revision. Could you tell me how you view the current economic situation?

A.

In the Monthly Economic Report for the previous month, we revised our economic assessment downward, describing the economic condition as weakening. The revised growth rate for the April-June GDP showed a steeper drop than before. In the financial sector in particular, I feel that it is urgently necessary to facilitate financing for small- and medium-size enterprises. We will keep a watch on whether regional financial institutions are properly exercising their financial intermediary function, as part of our efforts to more precisely grasp the actual state of affairs.

Q.

I would like to ask you about the financial results of Lehman Brothers. How do you think the Japanese economy will be affected?

A.

On Wednesday, September 10, Lehman Brothers announced the financial results for the third quarter of 2008 - its financial year starts in December. As the company booked huge valuation losses in its real estate-related positions, its losses expanded from the previous quarter to 3.9 billion dollars, equivalent to 430 billion yen, as I understand it. I am also aware that at the same time as the announcement of the financial results, Lehman Brothers also unveiled a business turnaround plan that featured a sharp reduction in its real estate-related positions and the sale of most of its asset management operations. After the announcement of the financial results, Lehman's share price is continuing to drop, standing at 4.22 dollars per share yesterday. Although I should refrain from commenting on matters concerning the management of an individual financial institution, I would like to point out that it is important for individual financial institutions to properly tackle their respective management problems.

Q.

If the Treasury Department's previously mentioned act of explaining the bailout measures for the GSEs is an implicit warning against sales of GSE securities, I think that it would be very problematic. What do you think?

A.

I think that it may be quite natural (for the Treasury Department) to fulfill the responsibility to provide explanations as a manager or a party involved deeply in the management of the GSEs to parties who hold GSE bonds. However, I would like to refrain from commenting on specific communications-what the Treasury Department has said to Mizuho or Norinchukin Bank. In any case, actions that would impede the various operations conducted by financial institutions and financial authorities in Japan must be prevented. I believe that such actions should be avoided as a matter of an unwritten agreement between the financial authorities of various countries. We should do what should be done and should avoid doing what should not be done.

Q.

In relation to the same question, I suppose that the U.S bailout plan for the GSEs is intended to protect GSE-related bonds. It has become known that Japanese financial institutions hold a large amount of GSE-related bonds, and you said that major Japanese financial institutions held GSE bonds totaling 10 trillion yen as of the end of June. Have you detected moves to sell such bonds or are you worried about the possibility of such sales?

A.

As a result of the announcement of this bailout plan, the yield spread for those bonds has narrowed. Although that is the current situation from the objective viewpoint, it is up to individual financial institutions to decide whether they should continue to hold or sell such securities.

(End)