Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, February 4, 2011, from 9:45 a.m. to 10:15 a.m.)

[Opening Remarks by Minister Jimi]

Good morning.

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

[Questions & Answers]

Q.

I will ask you questions as the representative of a media organization.

First, most major banking groups have announced their financial results for the third quarter. Although net profits are higher than the previous year, the profitability of the core business apparently remains poor. How do you assess the results?

A.

As you mentioned, since last week, three mega banks have announced their financial results for the period to December 2010.

According to the results announced by the three megabanks, gross financial margins declined while market-related revenue, such as profit from the sale of government bonds, increased sharply. In addition, because of a smaller number of corporate failures, credit-related expenses decreased steeply. As a result, net profit in the period to December 2010 rose significantly compared with the same period of the previous year.

We will keep a close watch on the business conditions of banks.

Q.

Do you have any opinion on the poor profitability of the core business in particular?

A.

As this is a liberal economy, primarily, individual banks themselves should consider how to earn profits in light of their own business models and business environment. As the head of an administrative agency and the minister in charge of financial services, I hope that individual banks will secure stable earnings and appropriately manage business risks.

Q.

I am Sonoda from Hokenmainichi Shimbun.

What is your view on the fact that the president of Nippon Life Insurance changed now.

A.

I am aware of Nippon Life Insurance's announcement of its decision to appoint a new president. I would like to refrain from commenting on the appointment of an executive at an insurance company as it is a matter that should be judged by the insurance company concerned.

Nevertheless, let me express my hope that Nippon Life Insurance's new management team will strive to maintain sound and appropriate business operations in light of the public nature of the insurance business and the fact that Nippon Life Insurance is the largest life insurance company in Japan.

This year, I again attended a New Year's party sponsored by the Life Insurance Association of Japan. As is shown by the existence of private pension plans, there are public and private social security safety nets. As I am also a doctor, I have worked hard to protect tax deduction for private insurance premium payment since around 25 years ago, when I was in my first or second year as a Diet member, as the tight fiscal condition required continuous cuts in public pension benefits. That is because social security is my area of strength as I am a doctor by profession. Social security is the basis of my activity. Until yesterday, the Budget Committee conducted vigorous debate on the integrated reform of social security and tax systems. At the same time, as this is a liberal society, people secure pensions for old age through self-help efforts and buy insurance to cover diseases if they can afford to do so. Therefore, the insurance business has a public nature, and in this sense, I expect insurance companies to strive to maintain sound and appropriate business operations.

By the way, Mr. Kunie Okamoto, who is now president and who will become chairman, used to be the head of the investigation division at Nippon Life Insurance in his youth. As I have been supporting private-sector self-help efforts regarding social security with conviction since I was young, I have known him very well since when he was the head of the investigation division. He is now president and will become chairman. I believe that he is a worthy business manager with a strong sense of public service. Since more than 10 years ago, when he was the head of the investigative division, I have been cooperating with him. Therefore, I hope that he will perform his duties properly. As I am the head of an administrative agency, I must separate my personal feelings from my public duties. However, I am a human and have known him very well since he was the head of the investigative division, so I hope that he will perform his duties properly.

Q.

I am Iwagami, a freelance journalist.

I would like to ask you about the TPP (Trans-Pacific Partnership) agreement. The TPP is being promoted as an agreement beneficial for trade liberalization and the development of the Japanese economy. However, worries are spreading at the same time. From 8 a.m. this morning, a study group of lawmakers called a “Group that Cautiously Considers the TPP” held a meeting, and 100 people participated. Ms. Noriko Hama, who spoke as a guest, made a thought-provoking argument that in fact, the TPP will move us toward the creation of economic blocs, rather than toward trade liberalization. It was mentioned that this study group will be upgraded to a formal parliamentary group. The TPP will affect not only the agricultural industry but also various fields, as many as 24 fields, including finance, insurance, medical care, judiciary, and telecommunications, so worries are spreading. Could you tell me what damage you expect the TPP to produce on the financial, insurance, and other industries, and how its negative aspects are being studied?

A.

Your question is very timely. The Kan cabinet is holding consultations with relevant countries about the Trans-Pacific Partnership, or the TPP, and intends to decide by June this year whether or not to participate in negotiations about it. I hear that during the TPP negotiations, 24 committees (working groups) will be established, one of which is the general committee that supervises the overall negotiations, with the remaining 23 responsible for individual sectors. In particular, as I am in charge of postal reform, I am gathering relevant information with strong interest. I am aware that the United States and other countries are not interested in postal reform. I know that the United States is interested in this as a bilateral issue.

However, when I visited the United States in August, Undersecretary of the Treasury Brainard expressed worries directly to me. I responded by saying that Japan has secured the independence of management and fair competition and that it has established an elaborate law as it has benefited from the spirit of the WTO (World Trade Organization) and the GATS (General Agreement on Trade in Services). We intend to give (Japan Post) complete management independence and level the playing field to ensure fair competition by establishing a third-party committee with the power to make recommendations to the Prime Minister. If the three postal businesses alone received favorable treatment, it would be in violation of the GATS, so foreign companies should not be treated unfavorably. As Japan has naturally acceded to the GATS, it understands that well. Although I am strongly interested in this issue, I understand that no reference has so far been made to postal reform as a condition for Japan to participate in the TPP.

In any case, while there are apparently various arguments, this issue has been taken up in the Diet, too. Nine countries will formally participate in it. As I am the head of an administrative agency, my duty is to express opinions, based on reliable information, on the accurate content of negotiations. So far, in a Budget Committee session, the Foreign Minister received questions concerning the TPP. He said that what the 23 committees (working groups) of the TPP discussed about items would be made public. Therefore, I understand that so far, this has not been discussed. Of course, I am greatly interested in this issue both as the minister in charge of postal reform and as a lawmaker.

The government has not yet decided whether to participate in negotiations, so I would like you to understand that well. Although many people are talking as if participation is a prerequisite, I would like you to understand that the government will decide by June whether to participate in negotiations, as this is very important. I am fully aware of that.

Q.

Are you, at the least, cautious about participation? Am I correct I understanding that you are cautious?

A.

I will carefully watch future developments without any preconception.

Q.

I am Namikawa from Toyo Keizai.

(At your press conference on January 25, I asked you about your basic thinking on the privatization process of Japan Development Bank, and I said I would wait for your answer until later.) Could you give me your answer?

A.

I will answer the question that you asked regarding Japan Development Bank JDB. As a result of the reform of policy-based finance under the Koizumi cabinet, JDB was scheduled to be fully privatized through the sale of all shares held by the government over a period of five to seven years, after being turned into a joint stock company in October 2008.

At that time, I warned in the Diet that the shift from the public sector to the private sector is a trend with a very strong neoconservative leaning. Nevertheless, as preference for that shift was prevalent in Japan five years ago, that was decided, I think. However, in September 2008, the Lehman shock occurred, as Lehman Brothers, an investment bank on Wall Street, which was the economic engine at that time, failed. In order to deal with the difficult economic situation in the wake of the Lehman shock, in June 2009, the bill to partially amend the Act on Development Bank of Japan Inc. required that the organization of the JDB be reviewed and revised by the end of fiscal 2011 and that necessary measures be taken. Until then, shares cannot be sold.

Therefore, the deadline is at the end of fiscal 2011, namely in March 2012, around one year from now. I understand that the Ministry of Finance, which has jurisdiction on this matter, will study this matter with a view to revision. I believe that it is important to study this matter from the perspective of ensuring the optimum balance between the public and private sectors, as I have been saying. As I told you earlier, the question of what to do with the shares held by the government will naturally arise. I understand that the Ministry of Finance will conduct a review and study. As I already said, it is important to study this matter from the perspective of ensuring the optimum balance between the public and private sectors.

(End)