Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, February 22, 2011, from 10:02 a.m. to 10:31 a.m.)

[Questions & Answers]

Q.

In relation to the debate on a comprehensive exchange, a meeting of Senior Vice Ministers and Parliamentary Secretaries was resumed last weekend. Although the Financial Services Agency (FSA) wanted to conclude the debate by the end of January, it is already February. Could you comment on how the debate should be conducted in the future?

A.

As you mentioned now, the study group on a comprehensive exchange decided to hold hearings with market participants at its seventh meeting, which was held last week, on February 18. While the selection of people to be summoned for a hearing is still ongoing, dates were fixed for March 3, a Thursday, and March 10, also a Thursday, and several more hearings are scheduled for later dates.

The FSA believes that it is necessary to quickly determine its policy concerning the issues that have been left pending in the interim report, so we will conduct our study while maintaining cooperation with relevant ministries.

Also, we must keep a watchful eye on the upsurge in prices of commodities, as was instructed today by Prime Minister Kan. As the establishment of a comprehensive exchange is included in the New Growth Strategy, it is important from the perspective of Japan's economic growth. Problems of commodities exchanges have become a globally important challenge as they were taken up at the G20 meeting. Therefore, I believe that the establishment of a comprehensive exchange has grown in priority in my eyes as a politician. In that sense, although I understand that each ministry has its own tradition and history, we must study this matter. That the Prime Minister issued an instruction regarding this and it was discussed at the G-20 meeting means that it has paramount political importance globally. Therefore, we must study this matter while maintaining appropriate cooperation with relevant ministries and agencies.

Q.

You said ''quickly.'' Do you have any timeframe in mind?

A.

''Quickly'' means ''quickly.'' I mean we must do it as soon as possible. That this was discussed at the G20 meeting is a new factor. As we have said that political leadership will eventually be exercised, we must do it.

Q.

On the comprehensive exchange that you mentioned earlier, in light of the fact that the upsurge in prices of commodities has become a major challenge, there may be calls for market intervention from the viewpoint of agricultural and industrial policies. What is your view on this?

A.

Commodities are not under my jurisdiction. However, generally speaking, around 2008, when Mr. Koji Omi, who became a Diet member in the same year as I, was Finance Minister, speculative trading was discussed at a summit as a factor behind the rising prices of commodities. The discussion focused mainly on speculative traders operating across borders-at that time, before the Lehman shock, such speculative traders were very active-, and France and Germany proposed the introduction of regulation for speculative trading. In response, the United States and the United Kingdom argued against regulation on the ground that speculative trading is part of commercial activity. This grew into a major issue at the summit, and Japan eventually sided with the United Kingdom and the United States, as I remember it.

However, in the case of commodities, particularly agricultural products, there are such issues as self-sufficiency and weather conditions. Unfavorable weather results in a poor harvest, and as developing countries are enjoying continuous economic growth, demand has grown very strong. As a result, the global supply-demand balance is being upset, leading to the price upsurge. That is one way of looking at this problem. There is also the view that speculative traders are the cause, as you know. However, the cause has not yet been fully analyzed. According to a newspaper article that I read today, a senior official of the Bank of Japan who chairs the Markets Committee of the Bank for International Settlements (BIS) has been appointed to this post upon France's request, and Finance Minister Noda also mentioned this at an informal meeting of cabinet ministers. It was agreed at the G20 meeting that international debates will be conducted in order to identify the cause of the price upsurge. A global consensus has not yet been formed. Therefore, we must clarify the cause.

Q.

I am Namikawa from Toyo Keizai.

I have been asking you the same question over and over again. You have apparently come to understand why I have been asking you about Development Bank of Japan (DBJ). According to a newspaper article today, you referred to the ''optimum balance between the public and private sectors'' in relation to DBJ. Am I correct in understanding that you used those words based on the idea that DBJ is a public sector institution?

A.

As for the optimum balance between the public and private sectors,'' as I have said, some things can be undertaken only by the public sector. For example, while some projects may be unprofitable, they may serve public interests and have a public nature. For example, let me cite the case of Kyushu, where I come from. To be sure, from the perspective of cost-benefit analysis, the feasibility of an expressway in Kyushu is low compared with that of expressways in Tokyo, Osaka and Nagoya. However, this does not mean that no policy measure should be taken for the sake of Kyushu. For example, the provision of a long-term loan with a fixed low interest rate to a major project will be very beneficial for Kyushu. Various large-scale projects have been carried out in Kyushu. For example, in the case of the Huis Ten Bosch project, DBJ conducted very rigorous screening and as a result, it gave the go-ahead and provided a syndicated loan together with private-sector banks. The same project would be less profitable when carried out in Kyushu than in Tokyo and surrounding areas, so if DBJ did not exist, the project would not be feasible in Kyushu. That would be like saying, ''You people of Kyushu don't need convenience. You are living in a backwater in any case.'' It is true that Kyushu is not economically affluent. The average income in Okinawa, for example, is half that in Tokyo. All the same, this region is part of Japan.

However, we must strike a balance. It would be wrong to depend excessively on taxpayer money. In the case of a profitable project, if the private sector can undertake it on its own, it will generate decent profits and create new jobs, even without the involvement of DBJ. However, in Kyushu, projects of a public nature are carried out entirely at the national government's expense. In such a case, the public nature is very strong. However, compared with in Tokyo, Osaka and Nagoya, it is very difficult, or even impossible, for the private sector to generate profits in Kyushu. Still, from the viewpoint of convenience for local communities and residents, policy-based finance is necessary. I believe that if a fixed low interest rate is available, a project can be carried out without losses even though profitability may be lower than in Tokyo and Osaka. I know of many such cases and what I have said is based on this knowledge.

Q.

I know what you mean. However, at the extreme opposite, DBJ is underwriting convertible bonds issued by a company that is operating department stores and other retail facilities in Tokyo. In addition, last year, DBJ was often involved in syndicated loans to projects that could have been undertaken by the private sector on its own. I have no intention of blaming DBJ. DBJ cannot be blamed as it is not sure about its own identity. It does not know whether it is a private-sector or public-sector institution. As the government has left DBJ's status unclear for as long as one year, the bank has fallen into this situation. That is what I have been pointing out all along.

A.

I see. That is important. However, frankly speaking, in some cases, once a public-sector organization was established, it encroached on the field of the private sector. Therefore, there was an argument that public-sector institutions should be entirely privatized, which led to the Koizumi era. As I say, the public and private sectors should properly understand their respective roles and the public sector should not be involved in projects which can be undertaken by the private sector on its own. That is where politicians need to make judgment.

As you know well, frankly speaking, privatization went too far during the Koizumi era, based on the idea that public-sector institutions should be entirely abolished and everything should be taken over by the private sector. Now, we are making revisions on a policy-by-policy basis. For example, the deregulation of the taxi industry is a case in point. In the Koizumi era, this industry was deregulated. As a result, a taxi driver's income fell by a third over a 10-year period, as you may know. In addition, due to increased competition, taxi drivers must work harder. However, their income fell by a third while their working hours increased 20%. Very regrettably, the accident rate for taxi drivers, who are professional drivers, has doubled. As deregulation went too far, a law intended to correct excessive deregulation was enacted while the LDP was in power as the governing party, as I remember it.

A process of trial and error like this is observed in any country. That should be done with due consideration given to the balance between the public and private sectors in light of the circumstances of the time. The Lehman shock was a very grave incident. In the United States, there was the neo-conservative thinking that if everything was left to the private sector without any involvement of the public sector, wealth would be maximized. When that approach was pursued, the Lehman shock occurred, with Lehman Brothers bankrupted under the weight of debts totaling 64 trillion yen. As the U.S. government alone could not absorb the toxic effects of this bankruptcy, the Lehman shock spread worldwide. That has led to financial regulatory reform and the creation of G20.

Therefore, we should take account of those things. However, at the same time, it is true that liberal trade has increased wealth, so we must recognize the advantage of the liberal economic system and consider how to strike a balance between that and public welfare and national interests as a 21st-century challenge.

Q.

I am Nomura from Sekai Nippo.

The upsurge in prices of foods, crude oil, and other commodities is a serious problem. In my opinion, it is due in large part to extraordinary monetary easing intended to promote domestic demand in the United States. At the APEC meeting in Yokohama last year, it was agreed that international cooperation was necessary to ensure that countries with a current account deficit curb domestic demand by increasing savings and that countries with a current account surplus expand domestic demand. The G20 countries should rebuild the framework of policy coordination in accordance with the spirit of this agreement. What is your view on this?

A.

According to Finance Minister Noda, the G20 agreed that the economic imbalance was the major cause of the Lehman shock and various benchmarks should be used to appropriately monitor the situation. Although I am not aware of details, there is also the view that as a result of the U.S. monetary easing, funds will continue to flow into developing countries, leading to inflation.

These things were apparently discussed, and as reported by the media, it was agreed what benchmarks should be used. So, what you mentioned was naturally discussed, I would presume.

(End)