Provisional translation

Press Conference by Toshimitsu Motegi, Minister for Financial Services

(Excerpt)

September 19, 2008

[Opening Remarks by Minister Motegi]

At an informal meeting of cabinet ministers that was held after today's cabinet meeting, although several cabinet ministers made remarks about the issue of inedible rice, no comments were offered in relation to financial affairs or administrative reform.

Although this has nothing to do with the cabinet meeting, I would like to talk about our continuing efforts regarding the facilitation of financing for small- and medium-size enterprises (SMEs). As you know, the FSA (Financial Services Agency) announced future measures to facilitate financing for SMEs on September 2. One measure will be to precisely understand the actual situation. Specifically, the FSA has decided to cooperate with the Ministry of Economy, Trade and Industry and the Small and Medium Enterprise Agency, in exchanging views with local SMEs about their business conditions and the status of financing at up to 150 locations across the nation. As the FSA recognizes that facilitating financing for SMEs is one of the most important roles of financial institutions, it will continue efforts to ensure that they exercise that function. For detailed scheduling, I would like you to consult the Supervisory Bureau's Supervisory Coordination Division.

I do not have any further statements to make.

[Questions and Answers]

Q.

The U.S. government revealed a plan to establish a public organization that purchases and disposes of distressed assets in order to cope with the financial crisis. How do you view this plan?

A.

Of course, I am aware of media reports about the plan. I would like to refrain from commenting on specific matters, such as what the planned organization, which would be similar to RTC (Resolution Trust Corporation), will be like or what the schedule for the implementation of the plan will be. The U.S. authorities have already taken a variety of measures in order to bail out GSEs (government-sponsored enterprises) and contain the crisis. We welcome the U.S. authorities' decision to take an additional step toward stabilizing the markets, and we intend to keep a close watch on future developments while maintaining close cooperation with the authorities of the United States and other countries.

Q.

Yesterday, the central banks of Japan, the United States and Europe announced a plan to take coordinated action regarding the provision of dollar funds. Are there signs that the situation of the U.S. market has caused any change in the environment for fund-raising in the Japanese financial markets?

A.

I believe that it is very important for Japan, the United States and Europe to cooperate in providing abundant funds to the markets. While I understand that the Bank of Japan has precisely grasped in detail the trend of short-term financing in the interbank market and the status of dollar fund transactions, the FSA, for its part, has not recognized problems related to Japanese financial institutions' procurement of dollar funds.

Q.

The standard land prices that were announced yesterday showed steeper drops than in the previous survey. Land price drops are spreading from non-metropolitan regions to some urban areas. How do you expect the land price drops to affect the management of financial institutions?

A.

From a broad perspective, the situation in Japan is somewhat different from the situations in the United States and Europe. In the United States, the subprime mortgage problem had a direct impact on the business conditions of the financial industry and related sectors, which in turn affected the real economy. In Japan, the direct impact of the subprime mortgage problem on financial institutions has been relatively small. In the meantime, Japan has been affected by the slowdown of the global economy and the surging prices of crude oil and raw materials, as well as by the deterioration of the domestic economy due to the severe conditions of the real estate and housing markets and the ensuing increase in credit-related costs.

For now, it would be premature to announce specific data regarding the impact of the land price trend published at this time on the management of financial institutions. In any case, through our regional hearings regarding the real estate industry, we have faced a growing voice that the business condition is very severe. Of course, the FSA never asks or instructs financial institutions to curb loans to the real estate industry or any other specific industry, and it has issued a reminder to this effect on its web site. I hope that financial institutions will operate with the stance of taking risks properly where necessary.

Q.

Besides the establishment of an organization that purchases distressed assets, the U.S. government is apparently considering additional measures, such as cooperating with Britain in banning short-selling. Has the FSA received any information regarding this?

A.

As I have been saying in recent days, the authorities of Japan and the United States have been keeping in very close touch with each other with regard to the financial market turmoil. This is an intergovernmental matter, and disclosure of some items could have an impact on the markets. In any case, I believe that the Japanese government is properly keeping track of information regarding the various measures under consideration.

Q.

A ban on short-selling has apparently been announced in Britain. Is there anything that Japan can do regarding the regulation of short-selling?

A.

Has the British government made an announcement?

Q.

An announcement was made by the British government, the British FSA (Financial Services Authority) in particular, according to media reports…

A.

I have not heard of it myself. Basically, Britain has lighter regulation that Japan and the United States. I would like to refrain from making a comment until I make sure of what regulation will be introduced and whether it has been formally decided by the British government.

Q.

I would like to ask you about the asset purchase organization that was mentioned earlier. Although I suppose it is still in the planning stage, do you think - you have said the root of the problems in the real estate and housing markets remain to be tackled - that the establishment of such an organization would move the United States any closer to tackling the root of the subprime mortgage problem? Tell me what you think.

A.

As the United States takes a variety of measures, the most important task is stabilizing the financial system and markets in the short term. However, the root of the problem is the deterioration of the real estate and housing market conditions. As long as the deterioration continues, stability will not be restored to the global financial markets as a whole. In a situation like this, it is necessary to consider what to do with securitization products and the highly leveraged situation of the financial industry in the future. As for the question of what measures to take in order to deal with the current mess in the real estate and housing markets, it is necessary to study what to do, although there may be limits to what can be done. Of course, if the United States decides to take some positive steps regarding the real estate and housing market conditions, we will welcome the decision.

Q.

A ripple effect of the problems of AIG and Lehman Brothers has spread to ordinary Japanese investors as the cancellation of contracts for some Japanese investment trusts has been suspended. What do you think of this situation?

A.

I know that some investment trust products comprise securities related to Lehman Brothers. However, according to the information so far obtained by us, such securities constitute only a tiny part of those products. I also know that regarding some of the investment trusts that comprise securities issued by companies affiliated with AIG, it has become impossible to calculate standard prices or market prices, or the conclusion of new contracts and the cancellation of existing contracts have been suspended. Since a public bailout plan for AIG was announced as you know, the market is expected to move toward normalization. As a result, some asset management companies have predicted that the calculation of market prices of AIG-related securities will be normalized, thereby making it possible to calculate the standard prices of investment trusts comprising such securities. In any case, the FSA will closely watch the situation so as to make sure that investors are protected.

Q.

In the run-up to the bankruptcy of Lehman Brothers and the announcement of the public bailout plan for AIG, the issue of where the CDS-related risks reside emerged as a focus of attention. Some people think that as it remains unclear where those risks reside, this issue could trigger a succession of bankruptcies. Could you tell me how the CDS issue will affect the global financial system?

A.

As for the status of Japanese financial institutions' CDS transactions, they make disclosure individually in disclosure documents. For its part, the FSA has been properly checking, through off-site monitoring and inspections, whether individual financial institutions are properly managing overall risks, including CDS-related ones. In a situation like this, we will increase our efforts to ensure thorough checks.

(End)