Provisional translation

Press Conference by Shoichi Nakagawa, Minister of Finance and Minister for Financial Services

(Excerpt)

September 30, 2008

[Opening Remarks by Minister Nakagawa]

At the crisis management office before today’s cabinet meeting, we learned about an initial response to an emergency. At the cabinet meeting, there was nothing directly related to my ministry. The Minister of Internal Affairs and Communications reported on the Labour Force Survey and the Family Income and Expenditure Survey, and the Minister of Health, Labour and Welfare reported on the effective ratio of job offers to applicants. All of the data showed deteriorating figures, reminding me of an urgent need to implement the measures that the Prime Minister and I mentioned yesterday. I do not have any further statements to make.

[Questions and Answers]

Q.

First, I would like to ask you about the U.S. House of Representatives’ rejection of a bill for measures to deal with the financial crisis. In response, stock prices fell sharply in both the United States and Japan, while the yen appreciated against the dollar in foreign exchange trading. Could you tell me how you view this situation, how you want the U.S. government to act, and how the Japanese government will respond?

A.

As you pointed out, the U.S. House of Representatives rejected that bill. I understand that the Senate will vote on it later. As this process is still ongoing, I hope to see a favorable outcome. I will keep watching future developments. As you pointed out, stock prices have dropped in the United States, Europe and Japan, and the yen appreciated. Such is the situation of the Tokyo market. While maintaining communications with the United States and Europe, Japan is calmly watching the situation in the U.S. Congress, hoping for some kind of favorable outcome, as I said earlier. This problem centers on non-performing assets related to the financial sector, and I understand that Japan has received a very small impact compared with the United States and Europe. Therefore, I hope that market players in Japan will conduct risk analysis properly and act in a calm manner.

Q.

Was this matter discussed at today’s cabinet meeting or informal meeting of cabinet ministers?

A.

Yes, it was. At the informal meeting of cabinet ministers, I said almost the same thing that I told you just now. In connection with this matter - although not directly related to the crisis that began in the United States - some cabinet ministers pointed out that regional economies are in a very severe condition and expressed hopes that financial institutions catering to regional small- and medium-size enterprises (SMEs) will act flexibly, by managing risks and taking risks in a balanced way so as to ensure “relationship banking.” They warned that such companies are facing a very severe situation due to financial institutions’ curbs on loans. In response, I reported that I had issued necessary instructions following warnings about moves to curb loans as soon as I took office. Also, although I had already received a report that the FSA was working to address such concern, I gave instructions earlier today for further efforts to properly communicate what we are trying to do. In connection with this, FSA staff and senior officials have visited various regions across the country to hold hearings and examine the actual state of financing for SMEs - I should have mentioned this at the beginning of this press conference - and FSA staff will report on the details of our findings later.

Q.

I have another question related to this matter. Yesterday, before the rejection of the bill by the Congress was reported, the central banks of 10 countries announced an expansion of the supply of dollar funds to the market. How much do you think that this measure will contribute to improving the current situation?

A.

First, I highly appreciate the fact that the 10 countries, including Japan, have increased the supply of liquidity in a speedy, coordinated move as you mentioned. I also appreciate the Bank of Japan’s move as a timely and appropriate action to facilitate fund-raising in order to satisfy the immediate fund needs and fund needs toward the end of the year.

Q.

On October 1, government-affiliated financial institutions will make a fresh start after their consolidations. However, there is criticism that many of the executives at these institutions have been appointed through the “amakudari” arrangement (allocation of posts at government-affiliated institutions to retired civil servants). Could you tell me how you feel about the fresh start of these financial institutions and what you think of the fact that a large number of executives are “amakudari” officials.

A.

There are people appointed from both the private sector and the government. As the Prime Minister said in his policy speech yesterday, we should make the most of the precious human resources, including personnel in both the private sector and the government, and the appointment of executives at these financial institutions reflected this concept. So, it is not appropriate to say that the appointments for these financial institutions were predicated on the “amakudari” arrangement, or to describe the appointed executives as “amakudari” officials. If we are to entirely exclude former civil servants from these executive posts, we may not be able to make the best selection from the viewpoint of making the most of the precious human resources that the Prime Minister mentioned yesterday. I understand that these appointments have been made from the viewpoint of selecting competent people and assigning the right person to the right post.

Q.

Some people think that the rejection of the financial stabilization bill by the U.S. Congress has dimmed the prospect of overcoming the global financial crisis. What is your view?

A.

First, I would like to stress that it was the U.S. House of Representatives, not the Congress as a whole, that rejected the bill. Depending on how the Senate will vote, if the Senate’s vote results in a different outcome, the next move may be considered. As the process is still ongoing, and I am not in a position to predict the outcome, it is difficult for me to answer your question.

Q.

Was the rejection by the House of Representatives a surprise?

A.

Yes, it was. I thought that an agreement had been reached through negotiations conducted Saturday and Sunday. It is true that I was surprised when I watched a television news program and received a report from my staff. However, as the process is still ongoing, I will watch future developments, hoping for a favorable outcome.

Q.

Another related question. What do you think of French President Sarkozy’s proposal for an emergency meeting of the G-8 leaders to deal with the current financial crisis? Also, what kind of framework for cooperation do you think should be announced at a G-7 meeting in October?

A.

Although we are aware of President Sarkozy’s proposal, Japan has not yet decided whether or not to support it. As for the G-7 meeting, I have not yet formally received a briefing from my staff. In any case, as various events are occurring day to day and individual countries are cooperating in responding to them, Japan should keep a close watch on unfolding developments day to day and take appropriate actions. This is my thinking for the moment.

Q.

Did the Prime Minister give you any instruction or make any comment at the cabinet meeting or before or after it?

A.

The Prime Minister did not give me any particular instruction. At the informal meeting of cabinet ministers, as I said earlier, I reported on the current situation and said that Japan should act in a calm manner as its situation is not so severe.

Q.

Regarding the impact (of the financial crisis) on the real economy, the write-down of companies’ stockholdings could pressure their management conditions - today is the last day of September (the end of the fiscal first half for most Japanese companies) - or the yen’s appreciation could hit export-dependent industries. How do you view the impact of the current market turmoil on the real economy?

A.

We cannot make judgments on the state of the real economy until we examine corporate earnings for the fiscal first half, so we will need to wait a little longer. However, I can say for now that the Japanese market is weakening very much and is taking a downturn. Nevertheless, as I said earlier, I understand that Japan faces low risk compared with the United States and Europe, so I hope that a calm response will be made.

(End)