Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, June 14, 2011, from 9:51 a.m. to 10:25 a.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to report to you. However, at the informal meeting of cabinet ministers, Prime Minister Kan mentioned what might be called a “1.5th” supplementary budget. For example, in relation to the double loan problem, concerning which I take questions in the Diet as the Minister for Financial Services, plans for dealing with this problem have been presented by the Democratic Party of Japan (DPJ), the Liberal Democratic Party (LDP) and New Komeito. On the part of the government, the FSA, the Ministry of Finance, the Ministry of Economy, Trade and Industry, the Ministry of Agriculture, Forestry and Fisheries, and the Ministry of Land, Infrastructure, Transport and Tourism are cooperating with each other to deal with the problem under the leadership of the Cabinet Secretariat, as you know - at the FSA, staff members have been working very hard - and we are working on our plan. The ruling DPJ and the opposition LDP and New Komeito are all interested in this matter, which was debated at the Budget Committee and the Special Committee on Reconstruction. More importantly, people in the disaster areas are suffering most, so we must adopt a final plan soon. If a final plan is adopted, it is highly likely that a budgetary measure will be required. With that in mind, Prime Minister Kan mentioned the “1.5th” supplementary budget today. I have repeatedly talked about the double loan problem as the Minister for Financial Services. For private financial institutions, the basic premise is that they use deposits as the financial source for their activities and repay deposits with interest. They cannot provide loans with a five-year grace period of principal and interest payment based on interest subsidies financed by budget funds as financial institutions engaging in policy-based and government-affiliated financial institutions do. However, private financial institutions as a whole provide a larger amount of loans than public institutions. As I said previously, private financial institutions are somewhat like steam locomotives. Ultimately, we cannot achieve strong economic growth unless the restoration and reconstruction work is driven by these financial locomotives. However, the financial locomotives have difficulty climbing a slope because of their large weight. Therefore, financial institutions engaging in policy-based finance and government-affiliated financial institutions need to provide support, and private financial institutions must also make self-help efforts. From the beginning, I have been saying that budget measures, financing by governmental financial institutions and financing by private financial institutions should be coordinated and used in combination with each other. The double loan problem cannot be resolved by private financial institutions alone. Now that the DPJ, the LDP and New Komeito have presented their plans, I would like to establish support schemes as soon as possible for people in the disaster areas from their standpoint. As a minister who has repeatedly taken questions concerning this matter, I will deal with it appropriately.

That is all I have to say.

[Questions & Answers]

Q.

New Komeito has also presented its plan for dealing with the double loan problem, which is apparently somewhat different (from the plans presented by the DPJ and the LDP) with regard to the purchase of loans, for example. Has the Prime Minister issued any instruction as to by when a final plan should be adopted and how to narrow differences?

A.

Although the Prime Minister has not issued any specific instruction, I hear that the three parties are discussing this matter, so I expect that differences will be thrashed out through such discussions. Each of the DPJ, the LDP and New Komeito has presented its own plan for dealing with the double loan problem. As the head of an administrative agency, I would like to refrain from commenting on judgment made by each party. In any case, relevant ministries and agencies are considering a wide range of policy options under the leadership of the Cabinet Secretariat. Today, when answering questions at a committee session, the Prime Minister said that the government as a whole will appropriately consider how to deal with the problem. Although he did not mention what I told you about now, he said that a final plan should be adopted as soon as possible.

Q.

I understand that at today's cabinet meeting, the submission of a bill on the scheme to compensate for the damage inflicted by Tokyo Electric Power's nuclear accident was decided. That was apparently welcomed by the market as the stock price rose in the morning. However, opposition parties have different opinions on this matter, so there is some concern over whether this bill be smoothly passed in the Diet. What is your view, if any, on the impact on the financial markets?

A.

At today's cabinet meeting, the bill of the Act to Establish Nuclear Damage Compensation Facilitation Corporation was adopted upon a cabinet decision. This bill, which provides for a support scheme decided at a meeting of relevant ministers on May 13, was written under the leadership of Minister Kaieda, who is in charge of dealing with economic damage inflicted by the nuclear accident. Various ministers worked together on the bill under the leadership of the Chief Cabinet Secretary. Mr. Yosano (Minister of Economic and Fiscal Policy) and I joined the work on the bill halfway through it as Mr. Yosano strongly insisted on our participation at an informal meeting of cabinet ministers, to which Mr. Kaieda agreed and the Prime Minister gave his approval. As the issue of financing is involved, the most important thing to do with regard to this bill is to provide appropriate damage compensation to local residents. Also important is the stable supply of electricity, which is essential to industrial activity. Unless the stable supply of electricity is ensured - Tokyo Electric Power is calling for a 15 % cut in electricity usage - GDP will decline considerably. In that sense, from my experience of serving as Parliamentary Vice Minister for International Trade and Industry about 21 years ago, I know that the stable supply of electricity is very important. In particular, the semiconductor industry, which consumes a huge amount of electricity, uses clean rooms that would malfunction if the supply of electricity is suspended even for eight hours. There are many industries like this. Once the supply of electricity is suspended, it may take a very long time to start up again in some cases. In the semiconductor industry, if clean rooms become dirty, tiny circuits on semiconductor chips would short-circuit. Then, they would become useless.

Regarding the auto industry, too, major semiconductor maker Renesas Electronics, which is located near Hitachi Metals and accounts for 40% of the global supply of microcomputers for automotive use, restored its operations quickly with the support of around 2,500 workers from other companies, according to a television program I watched. That shows the importance of this company. Without the supply of semiconductor chips from the company, the production of automakers around the world declined, not just those in Japan. Such are the circumstances of global production, so the stable supply of electricity is very important.

While this bill is intended to ensure the stable supply of electricity, political parties have various positions on this in the Diet. As I said at an informal meeting of cabinet ministers some time ago, it is not easy to enact this bill given the various opinions of political parties and parliamentary groups. From my experience of the Diet session that focused on the jusen issue, I know that political parties and parliamentary groups have very divergent opinions on matters like this. However, basically, everyone agrees on the need to make appropriate compensation to the people affected by the nuclear accident and to ensure the stable supply of electricity. Although I hear that there are various opinions on to how to do so, as the minister in charge of the financial sector and as a member of the inner circle that has worked on the bill, I hope that forward-looking, substantive Diet deliberations will be conducted from various perspectives so as to enact it, with each party expressing its own opinion.

In any case, the FSA believes that it is important to keep the stability of the financial and capital markets as a whole and prevent unexpected adverse effects, so I will continue to carefully monitor market developments.

As you know, Tokyo Electric Power issues a very large amount of corporate bonds. In the European market, the company has issued corporate bonds totaling around 180 billion yen and it also borrows a large amount of loans from private financial institutions. The written agreement adopted on May 13 refers to three important points. We must, first, take measures to ensure appropriate damage compensation, second, prevent adverse effects on business operators involved in the stabilization of the situation of Tokyo Electric Power's Fukushima Nuclear Power Station and the handling of the accident and, third, ensure the stable supply of electricity, which is essential to the people's lives. The agreement also refers to the need to check, after a certain period of time, whether adequate support is provided to disaster victims, whether the stable supply of electricity is maintained, and whether the stability of the financial market is maintained, as I strongly insisted on the inclusion of this in the agreement.

This is a large, important company, and the issue of financing is involved. Therefore, I had the reference to the stability of the financial markets included in the written agreement that was adopted upon a cabinet decision. I think that it is important to maintain the stability of the financial and capital markets as a whole and prevent unexpected adverse effects. The FSA will continue to carefully monitor market developments.

Q.

Regarding the three parties' plans for dealing with the double loan problem, while the LDP and New Komeito are considering using Enterprise Turnaround Initiative Corporation of Japan as the purchaser of loans from financial institutions or establishing a new organization, the DPJ basically intends to use an SME turnaround fund and regards the use of Enterprise Turnaround Initiative Corporation of Japan merely as an option that may be considered in the future. Given that indirect effects of the earthquake disaster are expected to spread beyond the disaster areas to the whole of the country, if support from Enterprise Turnaround Initiative Corporation of Japan is ended in October, it will be unclear how recovery efforts outside the disaster areas should be made thereafter. What do you think of that?

A.

As the Minister who oversees the FSA, I would like to refrain from making comments on the specifics of the three parties' plans. I am convinced that the parties, as players in the Diet, which is the highest organ of state power and the sole legislative organ, have formulated their plans for dealing with the double loan problem by fully exercising their capabilities and wisdom. As for Enterprise Turnaround Initiative Corporation of Japan, which you mentioned in your question, it is important that this corporation provide appropriate support in a timely manner based on common sense, so when the Diet deliberation has started, I will appropriately handle this matter with that in mind.

Q.

Regarding financing for Nuclear Damage Compensation Facilitation Corporation, loans from private financial institutions may be an option. Will government guarantee be provided for loans from private financial institutions to the corporation?

A.

As that is basically a matter concerning the financial market of a liberal society, I think that it should be negotiated between private institutions. Under this scheme, the results of negotiations in the private sector should be reported to the government.

Q.

Do you mean that the provision of government guarantee is not under consideration?

A.

I understand that government guarantee is provided for loans from Nuclear Damage Compensation Facilitation Corporation to Tokyo Electric Power. According to the decision made at a meeting on May 13 of relevant ministers on how to deal with the economic damage inflicted by the nuclear power station accident, the government is required to deliver delivery bonds to this corporation and provide necessary support, such as government guarantee. Of course, it is possible that the corporation will provide financing to Tokyo Electric Power. However, the provision of loans from private financial institutions to Tokyo Electric Power is a matter to be negotiated between private institutions from a common sense standpoint. I would like them to appropriately report the results to me.

Q.

My question is whether or not government guarantee will be provided for financing that may be provided by private financial institutions to the corporation.

A.

The government will issue and deliver delivery bonds to the corporation and provide necessary support, such as government guarantee. As the government will deliver delivery bonds and provide necessary support, such as government guarantee, I understand that basically, delivery bonds will be the mainstay of financing.

Q.

Does that mean that private financial institutions will not provide financing in the form of loans?

A.

Loans may be provided to Tokyo Electric Power. When Nuclear Damage Compensation Facilitation Corporation is involved as a mediator, government guarantee will naturally be provided. However, if Tokyo Electric Power, which is a purely private company, is to borrow loans from various private financial institutions - there are already outstanding loans - there will be negotiations between private institutions, with the results to be reported to the government. That is the essential point of this scheme.

Q.

May I assume that when private financial institutions provide financing to Nuclear Damage Compensation Facilitation Corporation, guarantee will naturally be provided?

A.

Regarding financing provided through the corporation, the government will issue delivery bonds or provide necessary support, such as government guarantee. As this is a detail of the scheme, I would like you to consult the Ministry of Economy, Trade and Industry about it.

As the Minister for Financial Services, I think that when Tokyo Electric Power borrows loans from financial institutions on its own initiative, that will be an arrangement between private institutions. That the government should not comment on arrangements between private institutions is a very basic premise in a liberal society. As Tokyo Electric Power is a private company, the arrangement of such loans should in principle be left to negotiations between the company and private financial institutions.

As to cases where Nuclear Damage Compensation Facilitation Corporation will receive financing from banks, I would like you to consult the Ministry of Economy, Trade and Industry.

Q.

I have one more question regarding the compensation scheme for Tokyo Electric Power's nuclear accident. If the bill on this compensation scheme is not passed or takes a long time to be passed, do you expect that it will create major turmoil in the corporate bond market?

A.

While political parties and parliamentary groups may have various opinions, the preamble of the Constitution of Japan states that the Japanese people act through duly elected representatives in the Diet. As this is a time of disaster crisis, as I have been saying, I expect that this bill will be passed if we make patient efforts.

Q.

I am asking you whether you expect that there will be turmoil in the corporate bond market if this bill is not passed.

A.

I do not see that possibility.

Q.

Do you mean that you do not see the possibility of the bill not being passed?

A.

That is correct. I do not see the possibility of the bill not being passed. It will be duly passed.

Q.

Are you suggesting that if the bill is not passed, there will be a very unfavorable impact?

A.

That is not something that I should talk about for now. I do not see that possibility. I cannot answer a hypothetical question.

Q.

Wouldn't you use the prospect of that risk to win over the opponents?

A.

That is something that should be done not by me but by people managing Diet affairs. I cannot answer a hypothetical question like that.

I should make myself clear about this. As my comments could have a major impact on the corporate bond market as well as on corporate bonds held in other countries, I would like to refrain from answering your hypothetical question, although we are keeping a careful watch. I am sure that this bill will be passed.

Q.

I understand that at the cabinet meeting, the Prime Minister mentioned a “1.5th” supplementary budget. When he mentioned that, did he say by when ministries should present ideas? And did he refer to any specifics as to the size and content of the budget?

A.

He did not refer to specifics, as I remember it.

Q.

How about the timing?

A.

While I would like you to ask other cabinet ministers about that, he clearly mentioned the double loan problem. I do not remember anything about the timing or size of the “1.5th” supplementary budget.

(End)