Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Thursday, February 10, 2011, from 5:25 p.m. to 5:45 p.m.)

[Opening Remarks by Minister Jimi]

Although a cabinet meeting was held today, I do not have anything particular to report to you.

[Questions & Answers]

Q.

First, all major consumer loan companies had announced their financial results for the third quarter by yesterday. It has become clear that demands for reimbursement of overpayment have increased sharply in the October–December period. While the failure of Takefuji probably has had an impact, how do you evaluate the results?

A.

As for the trend in the amount of reimbursement of overpayment by the three major consumer loan companies, the amount stood at 360.6 billion yen in fiscal 2007, 370 billion yen in fiscal 2008, and 388.9 billion yen in fiscal 2009. According to the recent announcement of the financial results for the period from April to December of 2010, the amount stayed at a high level, at around 301 billion yen, representing an increase of 5.8% compared with the same period of the previous year.

Although I cannot say anything definite about the outlook on future reimbursement of overpayment, we will continue to carefully monitor the trend in order to keep track of the business environment for the money lending business.

Q.

How do you expect this increase to affect the management of the three companies?

A.

As for the impact on the management of the three companies, generally speaking, I recognize that the business environment will basically remain difficult, as the amount of reimbursement of overpayment stays at a high level.

In any case, I will adequately monitor the future trend in the money lending business

Q.

I am Sonoda from Hokenmainichi Shimbun.

I would like to ask you about the amendment of the Insurance Business Act regarding public-interest corporations' mutual insurance business. Officials of public-interest corporations appear to be strongly concerned about the details of the guidelines. Could you tell me about what the guideline will be like, if you know anything about it?

A.

In the latest extraordinary Diet session, which was marked by a sharp division, we enacted the bill to amend the Insurance Business Act, which was submitted by the FSA and which had been left over from the tenure of Mr. Kamei, my predecessor as the Minister for Financial Services. The amended act has a provision that allows, as an exceptional case, organizations that have engaged in the mutual insurance business since before the 2005 amendment of the Insurance Business Act and that meet certain requirements to continue business for the moment under the supervision of the relevant authorities while ensuring the protection of policyholders.

As I told you now, this bill was passed earlier than the supplementary budget in the latest extraordinary Diet session based on the agreements of various parties and parliamentary groups. It is prescribed that the date of the entry-into-force of the bill should be set by a cabinet order for no later than six months from the date of the promulgation. As the date of promulgation was, if I remember correctly, November 19, 2010, the deadline for the entry-into-force is May 18, 2011. As this is prescribed by the law, we are preparing to establish relevant cabinet orders and ministerial ordinances (joint orders) as well as a guideline by that time.

We are making the preparation while keeping in mind the need to formulate cabinet orders and ministerial ordinances in ways to reflect the intention of this act.

Q.

There have been media reports about merger negotiations between NYSE Euronext and Deutsche Boerse. Could you tell me how you feel about this, what impact you expect on domestic exchanges and what international strategies Japanese exchanges should pursue?

A.

Although I am aware of the media reports that you mentioned, this is a matter concerning the management decisions of individual exchanges, so I would like to refrain from making comments on behalf of the Financial Services Agency (FSA). Generally speaking, it is desirable that the financial and capital markets be invigorated and that convenience for domestic and foreign market participants be improved through various activities conducted by exchanges.

The FSA believes that it is important to strengthen the international competitiveness of Japan's capital market and develop it as an attractive market in which domestic and foreign investors can conduct investment activity with a sense of safety. I visited the securities markets of New York and Hong Kong in August last year while keeping in mind the global trend regarding exchanges. I also attended the New Year's ceremony at the Tokyo Stock Exchange on January 4 this year. In any case, we will make efforts to improve the financial and capital markets while keeping that in mind.

Q.

I am Inoshita from Toyo Keizai.

I presume that the FSA staff is investigating banks in relation to currency derivatives sold by banks to small and medium-size enterprises (SMEs). Have you heard about the status of the investigation?

A.

You heard about the investigation of banks in relation to their sale of a financial product called currency derivatives to SMEs and you would like to know about the results, I presume.

Against the backdrop of rapid changes that have recently occurred in the market environment, the FSA has received requests for consultation and complaints from customers who concluded currency derivatives contracts. Therefore, in order to grasp the actual situation of derivatives contracts concluded in the past between SMEs and banks, the FSA is investigating the circumstances of the contracts and their effects on customers. The FSA has already revised the guideline for supervision regarding the sale of derivatives in April 2010 based on the analysis of requests for consultation and complaints from companies that incurred losses from derivatives contracts. Since the Lehman shock, currency movements have been particularly volatile, so we will continue to take appropriate actions when necessary to protect customers.

Q.

After all, will you announce statistics compiled from collected data? What are you going to do after grasping the figures?

A.

It is not appropriate for the FSA to intervene in specific civil disputes. I believe that it will be appropriate that specific civil disputes be resolved through an ADR (alternative dispute resolution) agency.

All the same, borrowers are generally in a weak position, and since before becoming the Minister for Financial Services, I have heard about cases in which borrowers were forced to purchase currency derivatives in combination with loans. If such a business practice is evident, it would be the abuse of a superior position and would be unforgivable from the perspective of business ethics. However, it is human nature to keep silent when earning profits but blame other people when losses arise. So, we must look at this matter in a fair and impartial manner.

The FSA has already revised the guideline for supervision regarding the sale of derivatives in fiscal 2010 based on the analysis of requests for consultation and complaints from companies that incurred losses from derivatives contracts. We will continue to take appropriate actions when necessary to protect customers. I have grave concern about this matter and I intend to deal with it appropriately based on the results of the investigation.

Q.

I am Minoru Sasaki, a freelance journalist.

I have a question related to Japanese government bonds. A Moody's official in charge of the rating of Japanese government bonds has expressed concern that the rating may be downgraded in the future. Fortunately, more than 90% of Japanese government bonds are currently held by Japanese institutions, the biggest of which are Yucho (Japan Post Bank) and Kanpo (Japan Post Insurance). As a matter of fact, most of the government bonds are held by Yucho and Kanpo. Given that the issuance of a large amount of government bonds is unlikely to be halted in the near future, it is possible that what should be done with government bonds held by Japan Post, which has more management flexibility than before, will emerge as a very serious problem. What is your view on the relationship between the postal businesses and the government bond market?

A.

As for your first question, I am aware of media reports that an official in charge of Japanese government bonds at U.S. rating agency Moody's commented on the outlook of the rating of Japanese government bonds on Wednesday, February 9. However, I am not aware of details. In any case, credit ratings are opinions expressed based on the expert knowledge of credit rating agencies, so I would like to refrain from commenting on the specifics of ratings and rating outlooks.

The FSA will closely monitor the possible impact on the market trend and financial institutions.

Regarding your second question - what should be done with the large amount of government bonds held by the Japan Post Group - basically, I am not in a position to make comments although I am in charge of the postal reform bill, since Japan Post is basically a joint stock company and it is under the jurisdiction of the Minister of Internal Affairs and Communications. I think that the government should not intervene in the affairs of Japan Post, which has now become a joint stock company. Rather, in principle, this is a matter that should be considered by the company's management team.

Q.

I would like to check something about what you said. You said that you had heard about cases in which the sale of derivative products was combined with loans. Were you talking about cases related to the recent problem?

A.

I heard about such cases a long time ago.

Q.

Do you mean that those are not necessarily related to the recent problem?

A.

I was not talking about the recent problem. I have heard that some banks were punished in such cases.

Q.

Do you mean that cases of combined sale or forced purchase are not included among the cases regarding which the FSA has recently received requests for consultation and complaints?

A.

Such cases are not included, to my understanding.

Thank you for your kind attention.

(End)