Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, July 27, 2010, from 12:22 p.m. to 12:52 p.m.)

[Minister's Comments]

I made a comment at the informal ministerial gathering today, which was obviously not a comment from the head of the administration, but I am Vice-Chief of the People's New Party (PNP), and the current government is, as you know, a coalition of the Democratic Party of Japan (DPJ) and the PNP. Accordingly, Prime Minister Kan, right after he assumed office, met with (PNP) Chief Shizuka Kamei to discuss how the two parties would cooperate in policymaking, at which meeting I was also present as the PNP Secretary-General at that time. Under the three-party coalition that preceded the current one, there was a committee called the Ministerial Committee on Basic Policies, which was set up as a forum for the parties to coordinate or match their policies, but then the Social Democratic Party left the coalition. That is why how the remaining parties should cooperate in policymaking afterwards was a subject of discussion at the party leader meeting right after Prime Minister Kan became the new Prime Minister, during which both leaders agreed to go about it properly. Then as it turned out, as you know, we had a House of Councilors election and the same subject also just came up again during the recent meeting of the two party leaders, who supposedly agreed to "do it (policy cooperation)." That is why I decided to make an elaborate comment on this subject to Prime Minister Kan at today's informal ministerial gathering, to which Prime Minister Kan responded by telling Mr. Gemba, who is a state minister and is also DPJ's Policy Research Committee Chair, to work on policy cooperation with the PNP in the proper way - therefore, Policy Research Committee Chair Gemba and I proceeded to discuss how it should be done, a task that I presume will basically be handled mainly by policy research committee chairs.

This is all I have to say.

[Questions & Answers]

Q.

My first question is about the budget ceiling debate that presumably took place at the informal ministerial gathering - can you please talk about it to the extent that you can?

A.

As I have just said, the current government is a coalition between the DPJ and PNP and, as a PNP member, I form part of its Cabinet, in which active debates do take place. Well, I remember that when I had a ministerial post in the Hashimoto administration 12 years ago, an informal ministerial gathering actually often just served as an occasion to read papers mostly written by officials, and that was it, but it is now a venue for ministers to make comments quite freely. However, as no conclusion has yet been reached, Chief Cabinet Secretary Sengoku has asked us "not to say" what individual ministers remarked. Therefore, let me just say that we are in the process of discussing the matter industriously.

One thing I would like to point out, though, is that, as I also mentioned last time, the budget of the Financial Services Agency (FSA) is 22 billion yen and that is 4 percent of the 560-billion-yen budget of the entire Cabinet Office, of which the FSA forms part. And as you know, as the FSA is not an agency engaged in business operation, close to 70 percent of its budget goes to payroll. On top of the payroll percentage reaching nearly 70 percent, I also hear on various occasions, including our Commissioner's trip to Basel at this very moment to attend a meeting to discuss the management of global finance, that we are indeed in dire shortage of people in the Office of International Affairs, which is just one example.

This means that we are struggling hard to make ends meet and, as everyone well realizes, international meetings have become extremely important in the world of finance since the Lehman crisis, because it is now indeed a very critical global issue to decide how to harmonize on an international scale a given country's domestic economic trends or the financial condition, or economic condition, that it has traditionally been situated in. Therefore, what has to be done on an international scale must be done properly in the form of policy coordination or as G20 initiatives, as otherwise no effect could be expected in an era of increasing globalization in finance or the economy that we live in now, and each country is equally struggling to achieve that end, which explains why there are so many international meetings. That is, as you see, the situation we have now, and I also happened to hear just yesterday in connection with this subject that our Office of International Affairs is in serious shortage of labor, a fact that stands in contrast to such critical importance of the FSA, to which a mere 22 billion yen is given as its budget, and the extremely significant role that financial policies play in an economy. As I have just said, though, now is a very important and delicate period of time both internationally and domestically and we are accordingly charged with a weighty responsibility. Seeing as the FSA is a public office with labor costs representing its main spending category, I did emphatically asked that attention should be paid to that point and, actually, similar comments were also made by the National Police Agency and the Ministry of Justice, both of them being ministries with a hefty payroll as well. In the case of the FSA, it is not really my particular intention to make a case to represent an interest of the FSA, but the fact still remains that it is in charge of a very important field.

As a proverb goes, an economy is all about governing a society and saving its people - every single one of them. Seeing that finance is really the lifeblood or the artery of an economy, I made a comment along those lines last time and I firmly repeated the same comment once again to Chief Cabinet Secretary Sengoku today, as I have just explained.

Q.

My next question is about the results of a stress test covering European financial institutions that came out last weekend, which implied that seven banks out of the 91 subject banks would face a capital shortfall, a result that markets in countries around the world appear to be reacting positively to. How do you view the results?

A.

I welcome the fact that European countries have, as you have just pointed out, conducted a stress test under standardized criteria and proceeded to release the results of it.

I have hopes that their effort in conducting such a stress test, as well as any capital boosts required, will contribute to augmenting trust in financial institutions in Europe and stabilizing their financial system.

Q.

My last question is about a subject that you have just touched on - there has been a press release that at a meeting of the Group of Governors and Heads of Supervision, which the FSA Commissioner has been sent to attend, they have reached a broad agreement on new equity capital requirements and other matters proposed by the Basel Committee.

It appears that the agreement reflects care paid to the circumstances of a host of countries about allowing the inclusion of some assets in Tier 1 capital (core equity capital), such as common shareholdings in non-consolidated financial institutions and deferred tax assets. How do you rate this recent agreement?

A.

That is a very timely question.

As you have just pointed out, a meeting of the Group of Governors and Heads of Supervision was held in Basel, Switzerland, on July 26 to discuss the progress of the international banking regulatory reform proposal announced last December by the Basel Committee, and the FSA Commissioner was sent there as a delegate, as you know.

He has not come back to Japan yet, but I am aware that it was revealed in a press release issued after the meeting that a broad agreement has been reached on the design of the regulatory reform package, while the level and phased-in enforcement of the new regulations will be discussed at another occasion in September. Seeing that the equity capital definition and other matters thus agreed on include measures designed to pay attention to Japan's circumstances as well, I appreciate that what Japan has been arguing for in the past is now accepted.

More specifically, as you know and have also just mentioned in your question, it relates to, among other things, the inclusion of deferred tax assets, which is a matter of timing difference in relation to reserves, and, as you know, 10 percent or higher shareholdings in common stock of other financial institutions - I hear that it will be permissible to include the combination of those assets in Tier 1 capital (core equity capital) up to 15 percent of the bank's common equity in total.

In addition to those, assets capitalized as intangible fixed assets, including computer software and, as far as I hear, trademarks, etc. as well, will also be in the list of permissible capital, a decision that can rectify inequalities that arise from differences in accounting standards. I feel that, relatively speaking, Japan's positions are now accepted, where there were previously international standards and Japanese standards.

As I have just mentioned, however, there will be another meeting in September. I hear that following that and other meetings, the final form of regulations will be proposed for discussion at the Seoul Summit scheduled for November of this year, as you know.

Q.

I am Sonoda from Hoken Mainichi Shinbun.

In connection with the budget, I would like to talk about your organizational reform policy because it appears to me that there is a shortage of personnel, considering the scale of tasks involved, not only in the Office of International Affairs but also in the Insurance Planning Office and Insurance Business Division. Can you please tell us your view on any posts that you think should be created in those sections, for instance?

A.

You see, an administrative reform is a significant goal of a nation in a wider administrative and fiscal reform context - having assumed the office of the Minister for Financial Services, I feel that the role that finance plays is indeed very large, as I have just pointed out.

While, especially since the Lehman crisis, various arrangements have been made on behalf of the FSA, including hiring additional personnel, I am well aware that in addition to the Office of International Affairs that I mentioned, other sections are also quite short of human and organizational resources. That said, considering the whole picture, including the overall government policy, I am intending to form an informed final decision in view of the whole picture, while I have also made requests to the Chief Cabinet Secretary, recognizing that I am a publicly elected member of the Cabinet.

We are faced with the considerably increasing need and importance of the FSA, as you suggest, and an economic condition that, as everyone realizes, still remains unstable, all of which have resulted in our current employment condition that is represented by the unemployment rate of 5.2 percent, 3.5 million unemployed people and nearly 1 million recipients of unemployment adjustment subsidy payments.

Those circumstances have prompted Prime Minister Kan to launch a quest for a strong economy, of which an extremely important core is, as you see, to be provided by finance, as finance will play a very great, or important, role in achieving it. In this sense, I believe that the FSA's role will become, or is becoming, even greater, especially because of the circumstances that we currently find ourselves in and, from such a perspective, I do personally feel that we have a general shortage of human and organizational resources.

That said, there is also a very high level of need that the Japanese people feel for administrative reform or for a reduction in the number of public employees in the overall government context, a public sentiment that is quite clear from the election results. I am therefore committed to making a proper final decision in view of all those circumstances.

Q.

Back to the subject of capital control, on which you have observed that Japan's arguments were accepted. In terms of any impacts on Japanese financial institutions, how do you see the current proposal in comparison to the one made last December, considering that megabanks have increased their capital to a very large extent since then - do you expect a more or less reduced degree of negative impacts to come out of the current one?

A.

Well, while a broad agreement has been reached on the design of the recent regulatory reform package, it is still up in the air as to the details of equity capital level requirements and the transition period. That is how I understand the matter and, as you know, we are yet to see any details finalized completely.

I find it difficult to make a specific comment on any foreseeable impacts on Japanese banks at this time but, in my view, the recent agreement does reflect to a considerable degree the arguments that Japan brought in the run-up to it and is something that can also be appreciated by Japanese banks.

Q.

My name is Nakazawa and I am with the Real Estate Economic Institute (Real Estate Fund Review).

I know that it is not a matter that the FSA is charged with, but the results of the study group on the operation of the Japan Housing Finance Agency (JHF) were released the other day, which include a suggestion that a certain degree of governmental support should be maintained for it. The suggestion goes that it should be better to ensure a certain degree of involvement by the government in the JHF, which issues mortgage-backed bonds, for the purpose of developing the securitized instrument market. Considering that the FSA also participated in the capacity of an observer, I would like to hear your view, if any, on whether or not the JHF should better have governmental support or some equivalent for the purpose of expanding the securitized instrument market a little more.

A.

To be honest, I am afraid that I did not know about this reexamination of the JHF or about the committee on that subject created under - the Ministry of Land, Infrastructure, Transportation and Tourism, is it? It was news to me but, basically, the JHF was formally the Government Housing Loan Corporation. This relates to a major trend five years ago that was represented by the shift from public to private and reflected an initiative to move policy-based finance to private hands. I have just talked about Lehman Brothers and a very major trend that existed before, which favored "private" and dismissed everything "public," but that trend has been fixed a little bit on a worldwide scale since the Lehman Brothers crisis as if to seek the best balance between public and private, as I mentioned repeatedly.

As this should, at the same time, lead to a correct kind of vitalization of securities markets and financial activities, as opposed to chilling or shrinking them, I believe that while it is probably a matter of degree, striking a right balance in this light in a broad sense is a very important task of a publicly elected minister in a period like the current times.

Q.

My name is Ikeda and I am with Kyodo News. You said in your opening remarks that you had made a comment during today's informal ministerial gathering about policy cooperation between the ruling parties. Did this subject come up in connection with any issue, etc. that appeared in the process of budget ceiling debates?

A.

As you know, DPJ President and Prime Minister Kan and (PNP) Chief Kamei had a leader meeting the day following the day Prime Minister Kan assumed office, I believe, during which a decision to form a coalition was made. As I happened to be the Secretary General back then, I was also present at this meeting to witness, as I have explained, President Kan and Chief Kamei reach an agreement on creating an alternative to the Ministerial Committee on Basic Policies, which had been set up for the previous three-party coalition to coordinate their policies. This has not been done because everyone got a little busy in preparation for the election, as I have just talked about. Another point is that members of the PNP, being one of the parties in the coalition, have naturally raised voices requesting strongly that views of the party be reflected in the coalition. It is therefore not so much about the ceiling debate, although there are, of course, voices raised on the subject of ceilings, as it is simply natural that a coalition government should need to coordinate policies. That is what I reminded Prime Minister Kan of today, and he responded by saying that it is a matter of fact and telling Policy Research Committee Chair and Minister of State Gemba to create a proper system for it. While I did have a talk with Mr. Gemba later on, this is an issue between parties and I am sure that it will accordingly be handled properly, as it should be, by the Chief, or Secretary General or Policy Research Committee Chair of our party.

(End)