Provisional translation

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

(Excerpt)

December 16, 2008

[Opening Remarks by Minister Nakagawa]

I do not have anything particular to report to you about today’s cabinet meeting.

At an informal meeting of cabinet ministers, the "emergency measures to defend people's daily lives," which were announced by the Prime Minister last Friday, were discussed. For example, one cabinet minister asked which measures can be implemented by the end of the year, while the Minister for Land, Infrastructure and Transport suggested that the provision of loans by the Japan Housing Finance Agency should be treated as an emergency measure. For my part, I reminded the Prime Minister of the fact that these measures have been drawn up in order to deal with a once-in-a-century crisis and that although the measures decided at the end of August by the government and the ruling parties for the first supplementary budget did not assume a once-in-a-century crisis, they still represented the first set of measures to deal with the rapidly worsening financial and economic conditions around the world and the measures to defend the people’s lives that were announced on October 30 represented the second set. In the meantime, as the fund-raising situation deteriorated, we have concluded that the provision of loans to the real estate industry should be treated in a similar way to the purchase of CP that we have consigned to the Development Bank of Japan. The Prime Minister said that as the measures covered by the ongoing first supplementary budget, particularly the safety net guarantee scheme - according to data submitted today by Minister of Economy, Trade and Industry Nikai, there have been only 8,500 cases of guarantee, worth around 2 trillion yen, leaving a guarantee quota of 4 trillion yen unused with two more weeks to go before the end of the year - should be actively used toward the end of the year as emergency measures.

As fiscal funds for dealing with the current global financial crisis, we have prepared 55 trillion yen, including the 23 trillion yen announced Friday, nearly 2 trillion yen in actual spending for the support of the people and 50 billion yen in real estate-related business loans that I mentioned earlier, which are covered by the first supplementary budget, as well as 30 trillion yen for special guarantee and other schemes, which are covered by the second supplementary budget, and the Prime Minister instructed us to seek the people’s understanding.

Meanwhile, the revised Act on Special Measures for Strengthening Financial Functions is promulgated today and will be put into force tomorrow. This act was enacted last Friday, and it was specified that the act had to be put into force within two months. However, as we implemented the necessary procedures without any delay and at an extraordinary speed, we have managed to put it into force so that the capital injection scheme can be utilized starting in mid-December. Yesterday, we took steps to ensure that the purpose of this act is fully communicated to all relevant parties across the country. According to media reports, I understand that there are some financial institutions that are eager to utilize this scheme. As the approval of capital injection into a financial institution made as a result of screening is a proof of the institution’s soundness, I hope that this will be actively used so that small and medium-size enterprises (SMEs) across the country can receive necessary funds.

I have one more thing to tell you. We have decided that the relaxation of the restrictions on the purchase of own stocks - limiting the purchase volume to 25% of the average daily trading volume during the previous four weeks at the maximum and prohibiting any purchase during the 30 minutes before the close of trading - that was introduced in October to remain in effect until the end of the year should be extended till the end of the current fiscal year (March 2009).

[Questions and Answers]

Q.

Regarding a Monetary Policy Meeting to be held this weekend by the BOJ (Bank of Japan), is there anything that you want the BOJ to do?

A.

The U.S. (Federal Reserve Board) is holding a two-day policy meeting that ends today. I expect that the decision made there will be a factor to be considered. In addition, I suppose that the BOJ is taking the sharpest deterioration of business sentiment since the oil shock that was shown by yesterday’s “tankan” survey report seriously. And we have seen economic conditions worsen considerably. Also, the end of the year is approaching. I believe that we are quickly doing all we can under these circumstances. While I understand that the BOJ’s independence should be respected, it is a legal obligation that the BOJ and the government should maintain close communications and cooperate - although these may not be the precise words of the law - with each other in conducting economic management. So, as the Prime Minister said in his announcement of the emergency measures on Friday and as I said on the same day, we have some expectations for the BOJ. If the government and the BOJ share a recognition of the current circumstances, I hope that the BOJ will reach an appropriate conclusion at their two-day meeting after carefully examining the economic situation and problems such as reduced liquidity.

Q.

I have another question regarding the BOJ. If the BOJ decides not to take any additional measures under these circumstances, will you respect the decision or take some action such as requesting the postponement of the decision?

A.

I cannot reply to a hypothetical question.

Q.

Could you give me your frank opinion of the outcome of the “tankan” survey, namely the second sharpest deterioration in business confidence in the postwar period? Also, regarding what you referred to as an “appropriate conclusion,” do you have in mind anything specific, such as credit easing and measures to facilitate corporate fund-raising activities?

A.

Would you like to know my thinking regarding the BOJ?

Q.

Yes. I would like to know specifically what you have in mind as an “appropriate conclusion.”

A.

As I said earlier, the outcome of the “tankan” survey represents the sharpest deterioration since the second oil shock, and the figure for manufacturing industries is worse than the one for non-manufacturing industries. In addition, inventories, sales, profits and other indexes all deteriorated. The figure for SMEs is worse (than the one for major companies). As the sentiment on the future outlook is worse, I believe that everybody thinks Japan’s economy is taking a downturn. I believe that this is the consensus. In light of this, I think that as the BOJ and the government have the responsibility to cooperate and maintain close communications - I have forgotten the precise words - in conducting economic management, it is a major obligation of the BOJ to get Japan out of the current situation. Having said this, I believe that it is up to the BOJ to decide which interest policy measures and which liquidity-facilitating measures it should take.

Q.

I would like to ask you about the Act on Special Measures for Strengthening Financial Functions. I hear that you plan to meet with financial industry representatives tomorrow and explain the purpose of this act directly to them. I suppose that among financial institutions, there is still a strong reluctance to receive public funds under the capital injection scheme. Could you tell me how you intend to encourage financial institutions to use this scheme so as to make effective use of the 12 trillion yen allocated for it?

A.

As I said earlier, financial institutions in some regions are hoping to use this in order to provide funds to their regions, according a media report I read yesterday. While there may be some such financial institutions in some regions, a media report today said that a financial institution in Hokkaido has denied a need for capital injection. Although there may be various speculations, this scheme is intended not to support financial institutions but to ensure that they properly exercise their functions for the benefit of SMEs and local economies. So, if financial institutions that are sound enough to qualify for capital injection refuse to receive public funds, I suppose they could even be criticized. Regardless of how strongly we may urge them to do so, financial institutions that avoid applying for capital injection from the government may invite doubt about their soundness - it may be too much to say this - as capital injection will not be approved for troubled financial institutions this time, although applying for capital injection only to be rejected would also be problematic. Borrowers are complaining about the severe situation across the country while financial institutions are speaking of their own pains. In such a situation, financial institutions have a social responsibility to strengthen their capital bases and meet the fund needs of SMEs in their regions in the year-end period.

On Sunday, I talked with various SME managers in my constituency and they still have complaints about the financing situation. At a committee meeting yesterday, such complaints were also discussed. As there are still complaints about credit insurance associations and financial institutions, I hope that by using the capital injection scheme, financial institutions will provide funds to companies that need them and that both borrower companies and financial institutions will contribute to successful business, which is a more fundamental task than performing social responsibility.

(End)