Press Conference by Shizuka Kamei, Minister for Financial Services

(Excerpt)

(Tuesday, October 6, from 11:15 a.m. to 11:46 a.m.)

[Opening Remarks by Minister Kamei]

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

Please feel free to ask me questions.

[Questions and Answers]

Q.

Regarding the moratorium scheme, I understand that the working group submitted its first report to you. As this is an issue of strong interest for small and medium-size enterprises (SMEs), could you tell us, as much as you are able to, about the current state of the group's study, such as which issues have almost been settled and which issues have yet to be considered?

A.

Although you say the “current status,” nothing has changed since the beginning. It is your ideas that are changing all the time, and basically, my initial idea of what we would do has not changed at all. However, we are carefully listening to and considering the opinions of banks on the lending side and SMEs and small shops on the borrowing side as to what we should do so that my idea will be realized as a scheme that is really effective in helping SMEs and providing a hopeful prospect for them. Moreover, we have explained my idea to financial institutions, which may have been scared by your news coverage of the idea, in order to assure them that its implementation will not put their businesses on the line. According to an interim report I received yesterday, the study has so far proceeded almost smoothly, with no major problems pointed out in hearings with various sectors, so we do not face any new challenges that we must overcome. We have already entered the home stretch in the study, and at today's cabinet meeting, the cabinet members were instructed to select truly priority items (bills), as the period of the upcoming extraordinary Diet session is short, and we have already notified the Cabinet Secretariat of our bill with its tentative name. What we can do to support SMEs within the authority of the FSA is limited, and as I have been saying, it is necessary to envision the prospect of the overall economy and set the broad course of government policy for economic growth, and the moratorium scheme alone would not provide a hopeful prospect for SMEs; it is also necessary to take concrete measures to increase the jobs and revenues of SMEs and small shops. Therefore, it is very important to implement measures other than those that can be taken within the small areas of the FSA's administrative jurisdiction. As basic polices are to be decided by the Basic Policy Cabinet Committee, which is comprised of the Prime Minister, Minister Fukushima and I, I am in a position to be involved in implementing measures outside the FSA's narrow areas of administrative jurisdiction as cabinet policy. While I do my best in this respect, I will ensure the drafting of a bill that can stand against your criticism as a measure to support SMEs within my area of jurisdiction, as we still have more time till we submit the bill. Senior Vice Minister Otsuka's working group has entered the home stretch in its study on the bill, and it will fix the details based on opinions collected from various sectors.

Q.

Regarding housing loans, are you planning to apply the moratorium scheme to financial institutions other than deposit-taking financial institutions like banks? For example, housing loans provided by insurance companies and specialized housing loan companies have been increasingly recently.

A.

There is the issue of where to draw the line especially with regard to housing loans, and we are in the last stage of the study on the details, including the scope of the coverage of the scheme, under the leadership of Mr. Otsuka. Although I know the idea of applying the scheme to consumer loans has been floated, I am not considering that as an option. There are various kinds of lender-borrower relationships, and there is also the issue of the scope of the coverage. (Anyway,) as we cannot leave that unclear during the process of drafting bills, we are now working on that, too.

Q.

I think that the fairness or equality of the scheme will be important from users' standpoint. Do you attach importance to these?

A.

Of course, I am taking the standpoint of borrowers, rather than that of lenders, although my saying this may provoke angry reactions. That is my basic stance. As the economy is in such a terrible condition, we cannot impose responsibility entirely on individuals. Some people are having difficulty making repayments despite their efforts to do so. Salaried workers whose bonuses and salaries have been reduced have no personal responsibility for the cuts – although their own poor job performance may be the cause of pay cuts in some cases – and a struggle with housing loan repayments has become widespread, so we are studying various options.

Q.

You said the lender-borrower relationship has become complex. What is your view on the lender-borrower relationship in the case of the securitization of debts, namely, the issuance of securities backed by debts?

A.

For example, subprime mortgages were securitized in the United States. Thus, there are various cases, including those where a lender-borrower contract is securitized. Having said that, I have been stressing the issue of how borrowers should be treated. As losses incurred on securitization products or transactions cannot be covered by the proposed law, we are focusing on how to treat borrowers. So, we are now considering the scope of borrowers to be covered by this scheme, as I told you earlier.

Q.

The BOJ (Bank of Japan) is considering discontinuing the purchase of CP (commercial paper) and corporate bonds from the market that was adopted as an emergency measure to deal with the financial crisis. While some people say there are signs of economic recovery in some sectors, do you think the situation for SMEs is a different matter?

A.

Who says the economy is recovering?

Q.

That is the view among some economists…

A.

Bring those economists here. There are many economists and analysts who say nonsense things. We should not assess the economic condition based on the views of such people alone, and unfortunately, I do not believe the economy has entered the recovery phase.

Q.

So you think that for the moment, the BOJ should continue its extraordinary measures, including the purchase of CP and corporate bonds, and that it is too early to explore the timing of the exit.

A.

That is too early. Sometimes, the BOJ says nonsense things. It did so when I was the chairman of the LDP Policy Research Council. As it is necessary to take the economic condition into consideration when implementing various measures, including currency control, I hope that the BOJ, with its excellent staff, will carefully examine the economic condition.

Q.

Within the BOJ, there is apparently an argument that the time is ripe for ending those measures because their use has decreased.

A.

Did the BOJ's Governor say that?

There are various people at the BOJ. You do not have to regard nonsense things said by some people within the BOJ who you have happened to interview as representing the view of the BOJ as a whole.

Q.

I have another question regarding the moratorium scheme. You have said that loans to which the moratorium scheme is applied will not be regarded as non-performing loans. That may be fine with financial institutions concentrating on domestic businesses. However, in the case of megabanks with international business operations, a lack of transparency will arise in the eyes of foreign investors if the classification of borrowers becomes vague. In that case, megabanks may face credit rating downgrades and have difficulty in raising funds. Is this matter being discussed as a possible problem, and what is your view?

A.

When foreign companies do business in Japan, they should take into consideration differences between the lender-borrower relationship in Japan and that in the United States or other countries. There is no doubt that essentially, the lender-borrower relationship in each country strongly reflects the various circumstances of the country, such as social customs and the state of human relationships. The lender-borrower relationship is not pure and mechanical. The FSA will conduct its inspections, etc. based on the judgment that loans to which the moratorium scheme is applied are not necessarily non-performing loans, so I do not think foreign companies should regard that as unnatural. As the saying goes, “Do in Rome as the Romans Do.”

Q.

If the borrower classification becomes vague – in short, borrowers who do not make interest payments naturally should be regarded as having the risk of failing…

A.

Even if foreign companies make such judgment, we cannot do in Japan as they think we should do. As Japanese financial institutions are doing business in the Japanese way, I think that foreign companies cannot run a successful business in Japan unless they are willing to align their way with the Japanese way. If those loans are generally not regarded as non-performing loans in Japan, it would be difficult in reality for foreign companies to continue doing business in the country based on the judgment that those loans are non-performing loans. It's like “Do in Rome as the Romans do.” They are doing business in Japan, where all things, from laws to customs and human relationships, are different from those in their own countries. The same is true when Japanese companies do business in the United States or Europe: we cannot do business there based on our values alone. The same principle applies.

Q.

I would like to make sure about the issue of housing loans. You said that you are studying this issue, including where to draw the line. Do you mean that you are considering the scope of borrowers to be covered by the scheme? I understand that you previously said the scheme will cover loans made by deposit-taking financial institutions. Am I correct in understanding that you are considering the possibility of expanding the coverage?

A.

As I said earlier, we are working on this issue in order to ease the burden on good-faith housing loan borrowers in the extreme situation caused by this “once-in-a-century” crisis – although good economic times and bad ones come in a cycle constantly – and a conclusion will be reached accordingly in due course. As I said, we are in the final stage of fixing the details. If I replied to all of your questions here, there would be nothing left for Mr. Otsuka's working group to do.

Q.

I would like to know about your broad policy.

A.

What I told you about now is my broad policy. In an economic condition like this, good-faith borrowers are not entirely to blame for their problems.

Q.

If so, am I correct in understanding that it is possible that the scheme will cover lenders other than deposit-taking financial institutions if necessary to protect borrowers?

A.

If I reply in the affirmative, you will write news stories focusing on that possibility alone. As there are a diverse range of lender-borrower relationship, we will decide on a reasonable scope of coverage – coverage for the purpose that I mentioned – and I expect that Mr. Otsuka will present to me an appropriate plan. I will make judgment after examining it.

(End)