Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, January 14, 2010, from 10:23 a.m. to 11:01 a.m.)

[Opening Remarks by Minister Jimi]

At today's cabinet meeting, which started at 9 a.m., the Prime Minister ordered all cabinet ministers to tender a letter of resignation. Prime Minister Kan offered words of compliment to the members of his first cabinet, which lasted four months. He asked all of us to tender a letter of resignation because he wanted to reshuffle the cabinet. I tendered my letter of resignation as Minister for Financial Services and Postal Reform.

I visited France and Belgium for five days from January 9. In France, I met with Ms. Lagarde, Minister of Economic Affairs, Finance and Industry. She has very broad powers, equivalent to the combined powers of Japan's Minister of Finance and Minister of Economy, Trade and Industry. She is a lawyer who also served as Minister of Agriculture and Fisheries under the predecessor of President Sarkozy, if I remember correctly, and she is President Sarkozy's right-hand woman. France is the chair of the G8 and G20 this year, and Minister Lagarde has significant influence on the global economy.

I also met with Mr. Noyer, governor of the Banque de France. He has assumed the chairmanship of (the Board of Governors of) BIS (Bank for International Settlements). He returned to France from Basel on the day before our meeting. Mr. Noyer reminded me that he is the chairman (of BIS) and that Mr. Shirakawa (governor of the Bank of Japan) serves as the vice chairman. He came to Japan around two months ago, and I met with him in my office at the Financial Services Agency (FSA). As the French ambassador in Japan was a classmate of his at ENA (Ecole Nationale D'Administration), a welcome party for him was held. This was my third meeting with Mr. Noyer.

Then, I met with Mr. Besson, Minister of Industry, Energy and the Digital economy under the Minister of Economy, Finance and Industry. As Ms. Lagarde's field of jurisdiction is very wide, three or so non-cabinet ministers serve under her, and Mr. Besson is one of them. As the Minister of the Digital Economy is also in charge of postal affairs, I exchanged opinions with him about such affairs, too.

In Belgium, I met with Mr. Barnier, a European Commissioner. The EU (European Union) is comprised of 27 countries, each of which provides a European Commissioner with a specific portfolio. Mr. Barnier, who comes from France, formerly served as Minister of Foreign Affairs and Minister of Agriculture and Fisheries of that country, if I remember correctly. Each of the 27 European Commissioners represents something like a ministerial portfolio, and Mr. Barnier is the Commissioner for Internal Market and Services, a post similar to Japan's Minister for Financial Services. I also exchanged opinions with him about postal affairs, as he overseas such affairs, too, in his capacity as the Commissioner for Internal Market and Services.

In my meeting with him, I explained Japan's position on international financial regulatory reforms, and I also succeeded in fostering mutual confidence between the Japanese and European authorities so as to ensure closer cooperation in efforts to stabilize the global financial system. I believe that this meeting was very meaningful.

In particular, Ms. Lagarde is France's Minister of Finance, and France is the chair of the G8 and G20 this year. As the Financial Times, a European newspaper, reported, she expressed strong appreciation for the Japanese government's plan to purchase more than 20% of the euro bonds to be issued by European governments and a public EU fund under a bailout package for Ireland that was jointly announced by the IMF (International Monetary Fund) and the governments of EU countries. The Irish crisis occurred at a time when individual countries were struggling to manage currency policies and achieve financial stability. However, this crisis was brought under control as a result of a powerful bailout package implemented by the IMF and the EU. In addition, euro bonds were issued to raise funds and the Japanese government pledged to purchase more than 20% of the euro bonds. This was highlighted in a front-page article of the European and Asian editions of the Financial Times, and Minister Lagarde expressed strong appreciation for it. At an informal meeting of cabinet ministers today, I reported on my overseas trip. All ministers, including Prime Minister Kan and Minister of Finance Noda, attended the meeting, and I told them about that. Of course, some Japanese newspapers also reported about it. However, Japanese newspapers rarely report about Japan's contributions to the international community. Japan is the world's second or third largest country (in terms of the size of GDP). From an objective viewpoint, Japan is making great contributions to international finance, and during my visit to the EU, the Minister of Finance of the chair country of the G8 and G20 expressed appreciation for the important role of Japan, and Japan's great contributions to currency stability, and to the mitigation of the Greek and Irish crises.

In France in particular, there was discussion about Basel III. Japan, France and Germany agreed to a considerable degree on banks' capital adequacy ratios, over which a conclusion was only partially reached at the recent G20 meeting. Regarding the financial crisis itself, the United States and the United Kingdom were…. As the United States is the epicenter of the financial crisis and it is a democratic country, the U.S. government has been harshly criticized by the people for bailing out (financial institutions) from the financial crisis by using the taxpayer's money. In Japan, too, 12 years ago, when I was a cabinet minister, Hokkaido Takushoku Bank collapsed in a financial crisis, as did Yamaichi Securities.

Two years before that, there was the jusen (housing loan companies) problem. At that time, the government was strongly reproached for resolving the jusen problem by using public funds, or the taxpayer's money. I know too well how difficult it is for the government of a democratic country to bail out failed financial institutions by using the taxpayer's money, as I was a cabinet member and a lawmaker of the ruling party at that time.

In my opinion, as the United States and the United Kingdom are at that stage, they must take a dispassionate and rational approach in seeking a solution to financial problems and acting internationally.

On the other hand, the financial sectors of Japan, France and Germany are similar to one another, and it was very significant that this was reconfirmed in my meetings with Ms. Lagarde and Mr. Noyer.

I may have talked a bit too long, but that is all.

[Questions & Answers]

Q.

When you look back on the four months of your tenure as a cabinet minister in the first reshuffled cabinet, do you have any comments?

A.

As for my comments on the four months since I took office as a cabinet minister on June 11, first, when the amended Money Lending Act was fully put into force in June, I established the Follow-Up Team on the Amended Money Lending Act. As I made efforts to ensure widespread awareness about the amended act and grasp the status of its enforcement, the month of June is vivid in my mind.

In September, when Incubator Bank of Japan (Nihon Shinko Ginko) failed, we invoked the payoff procedure (limited deposit protection) for the first time since the end of World War II. I remember this incident very clearly and also feel the gravity of responsibility on my shoulders.

When Takefuji filed for the reorganization procedures under the Corporate Reorganization Act, the staff of the Financial Services Agency (FSA) worked very hard from the perspective of maintaining the stability of the financial system and protecting users, while the Ministry of Finance, the Bank of Japan and other organizations also understood the situation well, so we could appropriately deal with this case.

On December 14, I listened to the opinions of various people in such places as Tokyo, Nagoya, Osaka, Kitakyushu, Fukuoka and Sendai regarding the SME Financing Facilitation Act (Act concerning Temporary Measures to Facilitate Financing for SMEs, etc.), which was put into force in December 2009, and I took various things into consideration from a comprehensive perspective. It is true that the enactment of this act led to a decline in the number of failures of small and medium-size enterprises (SMEs). On the other hand, Japan faces the strong yen and other economic difficulties, and there are also downside risks for the global economy. Taking that into consideration, we have decided on and announced the extension of the SME Financing Facilitation Act for one year, despite the importance of financial discipline, after appropriately considering various things from a comprehensive perspective.

Financial institutions have abundant knowhow and a considerable consulting function. During my 26 years as a lawmaker, I have received various petitions from local communities. Presidents of SMEs would come to me with petitions like, “Could you advise me on financing?” and, “Please talk to that bank on my behalf.” As I was a member of the Liberal Democratic Party for 22 years, I often received such petitions. Financial institutions know which products are available from which companies, as each of them-a regional bank, for example-is extending loans to 20,000 companies and knows their management conditions. In that sense, regional financial institutions have abundant information. Such are financial institutions.

In that sense, I hope that financial institutions will exercise their consulting function now that we have announced a plan to extend the SME Financing Facilitation Act by one year. As I pointed out in December, 99.7% of Japanese companies are SMEs, so we decided on the one-year extension.

On the proposal to extend the reduced tax rate applicable to securities-related income as requested by the FSA under the tax reform plan for fiscal 2011 that was decided by the cabinet on December 16, the FSA staff engaged in a vigorous exchange of arguments (with the Ministry of Finance), and I discussed this matter with the Minister of Finance twice. Overcoming deflation and achieving economic recovery is the most important task. This is an issue concerning the securities tax system, which forms the basis of capitalism. Because most pension funds invest in stocks, their investment performance naturally improves if stock prices rise. Thus, everything is linked to stock prices. Various funds set up by the government invariably invest in stocks.

Individuals also own stocks. A third of all households, or 16.5 million households, own stocks. People with an annual income of less than 5 million yen account for 70% of individual shareholders. Formerly, the securities tax system used to be criticized for giving preferential treatment to the rich. However, stock ownership has become popular, with people who earn less than 5 million yen annually accounting for more than 70% of individual shareholders. Taking this into consideration, we obtained approval for the two-year extension.

By the way, I attended the New Year's ceremony of the Tokyo Stock Exchange on January 4 and rang the opening bell. On that day, the Nikkei stock average rose 169 yen, as the market welcomed the extension, I would presume.

Of course, I know well that monetary easing in the United States had a very significant impact. As this is the year of the rabbit, “jumping” or “leaping” has been the buzzword in TV programs, and that may have led to a cheerful sentiment regarding the New Year. As the FSA is wholeheartedly devoted to efforts toward economic recovery, the tax reduction under the securities tax system has been its top-priority policy matter regarding the tax system, and that may have been welcomed by the market, I suppose.

On December 24, we adopted and announced the Action Plan for the New Growth Strategy, which calls for the improvement of the framework for supporting SMEs' advance into Asia, among other measures. Many Japanese SMEs and middle-ranking companies are hoping to advance on their own into the rapidly growing Asian markets, particularly the Chinese market, while the yen is strong- we would like to ask for cooperation in this regard-although they accompany parent companies moving into the region in some cases. SMEs have intimate relationships with financial institutions such as regional banks, shinkin banks and credit associations in their own towns, which know the companies' management conditions, as well as their histories and backgrounds. However, if the companies break their relations with the regional financial institutions and try to advance into China, there will be much apprehension because there are no branches there.

For the first time since the end of World War II, JETRO (Japan External Trade Organization) and JBIC (Japan Bank for International Cooperation) have established an appropriate system to address this problem. I reached agreement with Mr. Ohata, the former Minister of Economy, Trade and Industry, and at the working level, the deputy director general in charge from the FSA and the Director-General for Small and Medium Enterprise Policy from the Ministry of Economy, Trade and Industry are handling this matter.

I talked about that approach recently at the New Year's party of the Japan Foreign Trade Council (JFTC), which is a gathering of major and middle-ranking trading companies. I have a lot of acquaintances among the people who attend it because I served as parliamentary secretary for international trade and industry 20 years ago. When I talked about the approach, former presidents and chairmen of major trading companies praised me. They told me that trading companies are making various efforts to help the Japanese SMEs with which they do business to advance into foreign markets and they expressed their gratitude for the government's support for their efforts. I will discuss this matter with the Minister of Economy, Trade and Industry again. There are various trading companies, including major trading companies and middle-ranking ones, so we will closely cooperate with JBIC, JETRO and JFTC to make it easier for SMEs and middle-ranking companies to advance into foreign markets. It is also very important for Japan to consider how to ensure that the Japanese economy benefits from the strength of Asia through the ongoing efforts to achieve economic revitalization. In this sense, the government has a role to play and we will do our utmost.

In August, I visited the United States and China, and met with FRB (U.S. Federal Reserve Board) Chairman Bernanke as well as Chinese Premier Wen Jiabao and Vice-Premier Wang Qishan. Earlier, I told you about my meeting with Ms. Lagarde. She said that Mr. Wang is a close acquaintance of hers. Although she is French, she practiced law in Chicago for eight years and she has had a close relationship with Mr. Wang since that period. An international network like this.... Europe, too, is very interested in the Chinese economy, and the relationship with foreign leaders that we cultivate through meetings will provide us with common topics to talk about. As it is my duty to ensure that the Japanese financial sector, government and economy will eventually benefit from this relationship network, I will do my part appropriately. In January, I met with Ms. Lagarde, France's Minister of Economic Affairs, Finance and Industry.

On November 12, the bill to partially amend the act on the partial amendment of the Insurance Business Act, which concerns mutual insurance, became the first bill to be enacted in the last extraordinary session of the Diet, and I feel very grateful for that.

I am fully dedicating myself to the implementation of various measures, as I explained now, and I would be delighted if my efforts lead to the development of the Japanese economy, and of the financial and capital markets.

Q.

I am Takahashi, a freelance journalist.

Could you tell me about the status of the establishment of a third-party review committee related to Incubator Bank of Japan?

A.

Since we announced a plan to establish a review committee, we have been working behind the scenes. We have made progress step by step behind the scenes, although I have had no time to make a further announcement as I was away on a trip to Europe and tendered my letter of resignation immediately after returning to Japan. The people's trust is particularly important with regard to the financial sector and I have received various questions from you. I intend to deal with this matter appropriately.

Q.

 Earlier, you told us about your trip abroad. It was regrettable for you, I would presume, that you had to cut the trip short and return to Japan apparently because of the cabinet reshuffle. It has been pointed out that in light of diplomatic protocols, cutting the trip short was rather inappropriate. When you were leaving Japan, you said you believed that you would not have to change your schedule. How do you feel about the fact that you were called back to Japan contrary to your belief?

A.

Although I expressed hope to visit the United Kingdom in particular, Chief Cabinet Secretary Sengoku asked me before the trip to keep in mind that I might have to cancel the visit on January 14. I am very grateful to the FSA staff for appropriately scheduling the trip with that in mind. Nonetheless, I feel very sorry regarding the United Kingdom.

Still, it was fortunate that, as I earlier said, I had time to go to France, which chairs the G8 and G20, and to meet with Mr. Barnier, a European Commissioner who has finance and postal portfolios in the EU, which is comprised of 27 countries, 17 of which use the common currency, the euro. I feel very sorry regarding the United Kingdom.

To tell the truth, the Chief Cabinet Secretary told me in advance about the possibility of a cabinet reshuffle, so I left for the trip on the condition of returning to Japan in the event of a cabinet reshuffle.

Q.

You earlier mentioned something like a future task in the field of postal affairs. What task are you going to pass on to your successor in the financial sector? I am framing my question in this way because a formal decision has not been made on the cabinet reshuffle, although it has been reported that you will likely be re-appointed as a cabinet minister.

A.

As I talked a little too much, my point may have been blurred. In the financial sector, since the Lehman shock, which occurred three years ago, all of the five major investment banks in the United States modified their structures and in Europe, the Greek and Irish crises have occurred, while in Japan, the real economy has entered serious recession. In light of that, I believe that the economy centered on the global financial system is the most important issue. How should we deal with this situation? The Lehman shock was truly an epoch-making event of the 21st century.

If the financial and economic situations are destabilized in the first half of the 21st century, the political situation will also change. Ms. Lagarde, who is the Minister of Economic Affairs, Finance and Industry of France, the chair country of G20, expressed great appreciation for Japan's plan to purchase bonds to be issued by the EU to bail out Ireland, and that was reported in a front-page article of the Financial Times. The Financial Times also recognizes that. In this sense, I believe that the coming one or two years are very important for the financial sector.

If we make a mistake at this time, the global economy will be greatly destabilized. In order to avoid that, we wracked our brains and reached an agreement at the G20 summit in Seoul. At least, I have a strong resolve and sense of mission to prevent mankind from repeating the mistake of 1929.

Thank you for your kind attention.

(End)