Provisional translation

Press Conference by Toshimitsu Motegi, Minister for Financial Services

(Excerpt)

September 24, 2008

[Opening Remarks by Minister Motegi]

At today’s cabinet meeting, all cabinet ministers tendered their letters of resignation. I would like to thank you for your support during my brief tenure as a cabinet minister.

Last week was a particularly frenetic period for me as the Minister for Financial Services, as Lehman Brothers went bankrupt, then an injection of public funds into AIG (American International Group) and the announcement by the U.S. authorities of a financial bailout package followed. Although it will naturally take some time before the market turmoil subsides, I think that a broad policy direction has become apparent. As for the FSA’s (Financial Services Agency’s) activities during the past two months, at the end of August, we worked out a list of requests regarding tax system reform aimed at ensuring a shift of funds “from savings to investment.” We were also involved at the end of August in the drafting of an emergency economic package intended to ensure safety and security, and we announced our policy on future measures to facilitate financing for small- and medium-size enterprises (SMEs) on September 2. Thus, I believe that we have made a variety of achievements.

In the field of administrative reform, the issue of whether or not to abolish the Employment and Human Resources Development Organization, which was a focus of the review of incorporated administrative agencies, was resolved with a broad agreement reached by a panel of experts to abolish this organization and reorganize its functions.

Regarding the reform of the civil servant system, a council of advisers has met twice following the enactment of the basic act on the reform. I am confident that we have laid the foundation for future work.

I am glad to say that I have managed to perform my duties successfully during the nearly two months of my tenure as a cabinet minister. Thank you very much.

[Questions and Answers]

Q.

I would like to ask you about the cabinet’s resignation en masse. Could you tell me how you assess the period of the Fukuda cabinet, including your view on the “division “ of the Diet (with the House of Representatives controlled by the ruling coalition and the House of Councillors dominated by the opposition), which has been cited as a major factor of the collapse of the Fukuda cabinet in just one year? Also, tell me again, although you mentioned this in your opening remarks, about what you achieved and what you left undone during the nearly two months of your tenure as the minister for financial services and administrative reform.

A.

In a statement by the Prime Minister issued at today’s cabinet meeting, he referred to problems caused by the “divided” government. The division, a situation in which the House of Representatives and the House of Councillors have different mandates from the people, must be resolved in some way or other. The forthcoming general election following the dissolution of the House of Representatives will probably clarify what the people really want, and there are a variety of challenges both at home and abroad, so what is now necessary more than anything else is to establish a framework that enables the government and the Diet to work as one to deal with them.

In the nearly two months during which I served as a cabinet minister, I am glad to say that I have made significant achievements. Regarding financial affairs, the turmoil in the global financial markets has not yet subsided completely, so it is necessary to keep watching developments in the global financial markets and the U.S. markets. At the same time, it is necessary to work harder to facilitate financing for SMEs amid the weakening of Japan’s real economy. In the field of administrative reform, we have set a broad policy on the reform of the Employment and Human Resources Development Organization. However, it is still necessary to work out the details of the institutional design of the reform based on this policy through consultations with the Ministry of Health Labour and Welfare, by the end of the year. As for the reform of the civil servant system, it is necessary to decide what the cabinet personnel management bureau should be like in preparation for next year’s ordinary Diet session. Furthermore, the national strategy staff must be selected over a three-year period, among a variety of other tasks that remains to be accomplished. We have come only halfway through the job of implementing measures prescribed by the basic act.

Q.

Could you tell me what you think of the election of Mr. Aso as new president of the LDP (Liberal Democratic Party)? Mr. Aso’s economic policy features aggressive fiscal stimulus and preferential tax measures for securities investment. How do you assess his economic policy? Also, do you know anything about a reported plan for Mr. Shoichi Nakagawa to concurrently serve as the Minister of Finance and the Minister for Financial Services?

A.

I have heard nothing about the appointment of cabinet ministers. That is a matter to be decided by the new Prime Minister. As for preferential tax measures for securities investment intended to promote a shift of funds from “savings to investment,” I recognize the necessity. I feel that in this respect, I have set a favorable direction with the support of (LDP) Secretary-General Aso. Meanwhile, I believe that some kind of economic stimulus is necessary, as the condition of the real economy is very severe. However, it is important to draw up an economic stimulus plan with appropriate priorities that would achieve economic revival without resorting to pork-barreling.

Q.

Regarding financial affairs, Nomura Holdings announced the acquisition of the Asian and European operations of the bankrupt Lehman Brothers. Also, Mitsubishi UFJ (Financial Group) has announced a plan to acquire an equity stake of up to 20% in Morgan Stanley. Japanese financial institutions, which have remained relatively unscathed by the subprime mortgage problem, are thus going on the offensive against prestigious U.S. investment banks who once boasted of high profits. On the other hand, some people are concerned that Japanese financial institutions may be forced to shoulder the losses of U.S. financial institutions, while others doubt that Japanese companies have the ability to manage U.S. financial institutions. At a time when Japan is trying to strengthen the international competitiveness of the Tokyo market, how do you view Japanese financial institutions’ recent moves?

A.

Basically, this is an issue concerning the management decisions of individual financial institutions. However, at least in the case of Lehman Brothers, which has gone bankrupt, I think that the market will welcome a quick conclusion on issues such as which company will take over its operations. In this situation, I hope that Japanese financial institutions will contribute to efforts to quickly restore stability to the disrupted financial markets, by making capital investment or by acquiring business divisions based on appropriate management decisions, while maintaining appropriate governance and risk management.

Q.

What did the Prime Minister say at today’s cabinet meeting and how did the cabinet ministers respond?

A.

To mark the cabinet’s resignation en masse, the Prime Minister issued a statement that read like this: “It was against the backdrop of an unprecedented Diet situation in which the resolutions of the two Houses were opposed that I assumed the post of Prime Minister while concealing within myself an unshakeable sense of mission.

My sense of mission called for me to put in place clear guideposts for Japan and the people of Japan without consideration as to the life of the Cabinet, and then to have these guideposts securely in place for the next generation.

Under a situation in which the Diet proceedings were subjected to delays, the extraordinary Diet session required an additional extension in order to pass the Replenishment Support Special Measures Law; the enactment of the revenue bill was also delayed by over a month following the passage of the budget; and four candidates for the Governor and the Deputy Governor of the Bank of Japan were rejected.

What I consider to be most important is "the people's trust in politics." That is why I am keenly aware of my own responsibility for being unable to mount a sufficient response, whatever the reasons underlying these delays and the rejections may have been.

Today, things are changing drastically both in Japan and internationally. The time has come to realize that the ideas and methods of conventional politics and the administration, such as "expanding and strengthening productivity," are no longer leading to the increased happiness of the people.

We believed that traditional politics and the administration must be reviewed fundamentally.

As a result, we decided to formulate the Law to Establish an Agency for Consumer Affairs. We have done all we could to reallocate revenue sources earmarked for roads to the revenues used for general purposes; to reform the civil service system to realize an administration that shares the people's standpoint; to further reduce administrative expenditures; and to pursue other endeavors.

The public's viewpoint, as I understand it, entails coordinating these various measures and establishing them as a structure. Although this reform has just begun, I am convinced that we have put in place guideposts that indicate the direction in which we should be heading.

The Japanese economy has passed a turning point. We are now facing the need to deal with structural issues such as tightening supplies of resources and rising prices, the changeover to a low-carbon society, the problems generated by the excesses of the financial economy, and the declining population.

Nothing is more important than to maintain political stability at the present time, faced as we are with a host of domestic and international issues, beginning with the effort to tackle the environmental issues that I proposed at the G8 Hokkaido Toyako Summit and elsewhere. Accordingly, I have resigned from the post of Prime Minister based on my own sense of mission.

I would like to take this opportunity to offer my sincere gratitude to the people of Japan for their warm support.” He also thanked cabinet ministers for their service. In response, Minister of (Finance) Ibuki and Minister (of the Environment) Saito, who is a member of the New Komeito party, offered words of appreciation to the Prime Minister for his leadership.

Q.

Although this may not yet have been decided, if a media report that Mr. Nakagawa will concurrently serve as the Minister of Finance and Minister for Financial Services is true, the separation of the administrative authorities over fiscal and financial affairs gained through the establishment of the Financial Services Agency 10 years ago could become a mere matter of formality. What do you think?

A.

I think that the issue of the political leadership under the parliamentary cabinet system and the issue of the organizational management of bureaucracy should not necessarily be considered in the same light. In any case, this is an issue that should be decided by the Prime Minister, who has the authority to appoint cabinet ministers. Judgment should be made in light of how the management is conducted.

Q.

As a result of its acquisition of Lehman Brothers’ operations, Nomura will take over 5,000 employees, while Mitsubishi UFJ Financial Group will invest nearly one trillion yen in Morgan Stanley. How do you view these figures?

A.

As these are matters that concern the management decisions of individual companies- I spoke in general terms earlier - I am afraid I cannot make comments on the size of investment or the scale of the acquisition.

Q.

You were asked a very difficult question just now, so difficult that it would have taken an hour to make a proper reply. I also have some difficult questions: as the financial turmoil still continues, and in light of what has happened over the past two months, could you tell me in which direction you expect the capitalist economy that has been led by investment banks to go? Do you think it will undergo correction? And do you think that the business model of investment banks, which are subject to regulation by the FRB (Federal Reserve Board), will collapse? Also, do you think that this crisis will somewhat set back efforts to strengthen the competitiveness of Japanese financial institutions, although they are now going on the offensive?

A.

If we compare the sequence of events after the bursting of Japan’s economic bubble with the evolution of the financial turmoil that has begun in the United States, it is obvious that the current crisis is spreading further and quicker. It took about seven years from the bursting of Japan’s economic bubble to the bankruptcies of Yamaichi (Yamaichi Securities Co.) and “Takugin” (Hokkaido Takushoku Bank) and the injection of public funds into banks. In the United States, things have been happening very rapidly: the subprime mortgage problem came to the surface in the summer of 2007, then major investment banks collapsed and the use of public funds was decided in less than one year. Frankly speaking, things have been happening over the past month or so more quickly than I expected. Also, I think that the pace and extent of the current and past crises are different. Japan’s crisis concerned conventional loans while in the current crisis, a variety of problems have spread throughout the world at once through securitization products. Prices of securitization products are immediately affected by drops in land and real estate prices. Regarding the realignment of the financial sector also, consolidation in Japan, at least among banks, proceeded over a period of about 10 years. Meanwhile, we are now witnessing a more dynamic movement in the form of a cross-border realignment of the financial sector. Probably, there are also matters we should examine and review from a critical viewpoint. For example, we must consider how to deal with excessive leveraging and how to precisely identify where risks reside and minimize them.

Q.

As for matters that should be reviewed, I think there are several things on which the FSA itself must carry out reform or make improvements, such as reform of the financial inspection in relation to the facilitation of financing for SMEs, and monitoring of international risks. Could you express your frank opinions in this regard now that you have overseen the FSA’s activities for the past two months?

A.

Indeed, the environment is changing dramatically, so it is necessary to constantly review the organizational management in light of the circumstances at the time. However, frankly speaking, FSA staff worked hard under me during the nearly two months of my tenure as the Minister for Financial Services. For example, as you know, after concern grew about the bankruptcy of Lehman Brothers, all senior FSA staff devoted themselves to dealing with the situation although September 15 was a holiday. All the time, they maintained communications with me and took appropriate actions quickly. I hope that they will continue performing their duties properly under my successor as a variety of problems are expected to arise.

(End)