Provisional translation

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

(Excerpt)

October 17, 2008

[Opening Remarks by Minister Nakagawa]

I do not have anything particular to report to you about today's cabinet meeting. As there is a committee meeting that began at 10.a.m, nothing particular was discussed.

As I said when I met with representatives of financial institutions the day before yesterday, I received a great number of various opinions after I suggested in a television program about two weeks ago - I made this suggestion because I heard that there were numerous complaints about curbs on loans - that opinions about curbs on loans be sent to me directly. I have to examine each and every one of them myself. However, as this is not a problem that does not concern only me, the FSA (Financial Services Agency) has set up a contact point through which opinions and complaints are accepted either via postal mail, e-mail or telephone. Details will be announced later by FSA staff. We already received three opinions and complaints yesterday, one of which was a complaint about a financial institution's refusal to provide a loan to a well-performing business planning a business expansion. Of course, I will not order the provision of support to any specific company, as it would be an inappropriate intervention. I am hoping to contribute to the elimination of cases of financial institutions curbing new loans or collecting outstanding loans in general. Through hearings with financial institutions, we can only collect the opinions from the lender side, so we have launched the new system of inviting opinions, hoping to narrow our perception gap with hard-working borrower companies. I have instructed FSA staff to immediately forward to me the opinions received through the new system. Yesterday, I received so many e-mails that I could not have read all of them even if I had stayed awake all night, so I just took a cursory look at them. However, I would like to establish my own arrangements for properly reading e-mails received through the new system. I want the e-mails to be forwarded to me without any alteration. If I detect any alteration, I am determined to take harsh disciplinary action. Although I do not expect to face such a situation, I am tackling this issue with that kind of firm stance.

[Questions and Answers]

Q.

I have a question about the financial crisis. At the G-7 meeting held the other day, an action plan was formulated. In response, European countries have proposed that an emergency G-8 summit meeting be held in November or by the end of the year. First, as the Finance Minister of the country holding the current chairmanship of the G-8, what do you think of the possibility of holding such a meeting? Secondly, what do you think of the idea of expanding the G-8 framework to include emerging countries?

A.

As for the G-8 summit meeting, the French president has been proposing it for some time. As the G-8 members, including Japan, recognized the urgency of the global situation, that action plan was adopted at meetings of the of the G-7, the IMFC and the Finance Ministers and central bank governors of the G-20. Later, the United States announced a plan to use public funds totaling 25 trillion yen for capital injection and other measures like the purchase of troubled assets, with an additional 10 trillion yen being readied, and immediately after this, the leaders of 15 European countries got together and adopted additional emergency measures. Yesterday, a large amount of capital was injected into the largest Swiss bank, whose business size is several times the size of Switzerland's GDP, and its distressed assets were bought with public funds. I think that these moves have been made promptly and under the framework of policy coordination in line with the basic philosophy of the G-7 action plan. Japan should also take action in coordination with other countries. In addition, the G-8 leaders, including Prime Minister Aso, issued a statement on the night of the day before yesterday, Japan time. When should we act, what should we do and how should we achieve results? From what happened when European countries acted, it is clear that doing something alone would not be enough. If we are to do something, we must achieve some results. Prime Minister Aso has said that if something is to be done, Japan, which is the current chair of the G-8, is willing to host (an emergency G-8 summit). However, the important thing is to act carefully in light of the circumstances of the time and various factors. In particular, this week and next and in early November, there will be various movements in the financial sector - I am not talking about unexpected market developments, but about scheduled releases of various data - so perhaps, instead of scheduling a summit for a particular date, we should convene a summit or hold a telephone conference as soon as something has happened, although that may be difficult. However, the facts that neither Japan nor the United States rules out the possibility of holding a G-8 summit, and that Europe is positive about it, are evidence that a sense of crisis is shared by all countries, so neither I nor the Prime Minister would not rule that out.

Q.

TSE stock prices posted the second largest daily losses yesterday, before rebounding today. How do you view the stock price movements?

A.

As I have already said in response to a similar question on several occasions since yesterday, I believe that prices should be determined by market forces. Nonetheless, although perhaps I should not say this, I am hoping for a rise. However, as a result of the behavior of market players with their interests at stake, stock prices dropped sharply in Japan and Asia yesterday, following a plunge in the United States. The market was stable in Europe yesterday and has been stable so far this morning in Tokyo. Although I should leave the analysis of the cause of the stock price movements to experts, I suppose that the prices have been affected by concerns about the stability of the financial system and various economic statistics that were announced in the United States the day before yesterday, including data that showed an almost negative growth for personal consumption. As you know, personal consumption accounts for 70% of the U.S. GDP, with 30% attributable to housing investment, and housing investment remains weak. The people's growing concerns about the state of the real economy in the United States have probably had a large impact. Although the circumstances in Japan and other Asian countries may differ somewhat, that impact probably caused Japanese stock prices to post the second largest loss in the postwar period. Although I cannot offer a more detailed assessment, my impression is that the stock market made a quiet start this morning.

Q.

Regarding (revision of) the Act on Special Measures for Strengthening Financial Functions, what is your thinking as to what kind of situation should lead to capital injection into regional banks following the planned revision?

A.

In a sense, that is a very delicate issue. If we take the approach of injecting capital when a regional financial institution has fallen into a severe situation, a capital injection would be taken as a danger signal. This is what we fear most, frankly speaking. Meanwhile, injecting capital into financial institutions in order to force them to move into high-risk fields would lead to excessive risk-taking. Although they should make financial judgments on a case-by-case basis, regional financial institutions in particular should maintain close relationships with their regions and avoid focusing only on numerical factors. They should have knowledge about the quality of managers, engineers and sales people at their client companies and use such knowledge to, for example, foresee a recovery one or two years from now for companies that are struggling this year. If regional financial institutions that have such know-how receive capital injection, their capital base will grow strong enough to enable active lending to borrowers for which they would otherwise have refused to continue financing. In short, I hope that the revised recapitalization scheme will be used to strengthen the capital base. If financial institutions that have received capital injection refused to provide loans, the purpose of the revision of the law would not be achieved. I hope to use the recapitalization scheme to help to strengthen the capital base of financial institutions and facilitate loans, rather than rescuing troubled institutions, although I do not know how much loans will increase. Under this scheme, I expect that financial institutions will naturally need to make delicate decisions when applying for capital injection or when providing loans, as is the case under usual circumstances. Yesterday, Mr. Otsuka, a lawmaker of the Democratic Party of Japan (DPJ), suggested that the planned recapitalization scheme alone would not be sufficient and a loan facilitation plan would be necessary. His suggestion may be worth considering, although we have not thought of such a plan at all. Regarding this matter, about which several DPJ lawmakers questioned me and explained their ideas, we would like to work out an appropriate proposal by incorporating ideas from both the ruling parties and opposition parties.

Q.

Do you mean that banks that already have a fairly high level of capital adequacy ratio can apply for capital injection?

A.

Technically, that would be possible. As we are planning to revise the law, we are open to any idea. We will consider your excellent proposal. Perhaps, the patent on that idea should belong to you.

Q.

The Accounting Standards Board of Japan is considering the possibility of revising or relaxing the standard for market valuation accounting. What do you think of that?

A.

FSA staff who briefed me said that today's front page article of Nikkei - I am sorry for mentioning a specific name - is based on some misunderstanding. Although the Nikkei article mentioned something like allowing the use of book value when the holding category is changed, I was told that the fact is that the revision is intended to enable a change in the category of securities to which market value is applied to "long-term holding" if the securities are to be held for the long term. Amid the financial crisis, a revision of accounting standards has already been debated for some time, with the G-7 discussing this matter in February and April, for example. It was discussed this time, too. We discussed this as an important matter. Meanwhile both the United States and Britain have revised the standards in ways to allow book value accounting and avoid damage to the capital of financial institutions. I think that there are two kinds of revision, namely, a revision of the accounting standards in Japan and around the world that should be made from a long-term perspective, and an emergency revision. By an emergency revision, I mean a revision regarding items that could lead to system risk in an extreme case. Although an unreasonable revision should of course be ruled out, a reasonable revision should be made if possible. So I made a request to the Accounting Standards Board of Japan in this respect yesterday. Even if we act urgently, a revision cannot be made in time for the announcement of the financial results for the first half ended in September. The fiscal year ends mostly in December according to foreign accounting standards, while most Japanese companies close annual account books in March, although they announce results for the quarter ending in December. In any case, it is problematic that there is a gap between the standards in Japan and abroad, so I hope that a conclusion on this matter will be reached quickly from the viewpoint of ensuring consistency, and I am strongly interested in this matter.

(End)