Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, July 1, 2011, from 11:32 a.m. to 11:52 a.m.)

Questions and Answers

Q.

On June 29, Mizuho Financial Group and Mizuho Bank submitted business improvement plans, which include a merger of subsidiary banks and computer system integration. Could you comment on the plans?

A.

In response to the administrative action taken on May 31, the Mizuho Group submitted business improvement plans to the Financial Services Agency (FSA) on Wednesday, June 29. I understand that the group announced the outline of the plans.

As the administrative action has been taken as a result of a system problem, we hope that the Mizuho Group will implement measures included in the business improvement plans with a sense of urgency. The FSA will examine the content of the business improvement plans and appropriately follow up on their implementation.

Q.

Regarding the Mizuho Group, there have been problems related to the personnel management system that seeks to maintain a balance between the three banks that integrated business operations to create the Mizuho Group. What is your view on that?

A.

A major system problem occurred immediately after the Great East Japan Earthquake as you know. It occurred around 10 years after the system problem that occurred immediately after the business integration. This second major system problem has caused inconveniences to depositors and users. I understand that in light of that, the Mizuho Group has taken various measures voluntarily. As this group was created through the merger between three banks as you know, progress has been slow in the integration of personnel appointment systems, and there are two subsidiary banks under this group. Despite promising to integrate personnel management and computer systems in a business improvement plan submitted in the past, the Mizuho Group has failed to do that. As it is very influential as one of the three largest banks in Japan, it bears grave social responsibilities. With that in mind, the Mizuho Group voluntarily offered to make such and such changes, as I remember it.

If my memory regarding the sequence of events is inaccurate, I will later make corrections. In any case, it is already 10 years since the three banks integrated their business operations. Mizuho Group is a bank with a history and tradition and serves the people and client companies, including Nippon Steel, which is operating in my electoral district, and NTT. In light of the increased responsibilities and the change in the management team - I hear that a general shareholders' meeting was held - I hope that the Mizuho Group will perform its duties appropriately in order to meet the expectations of the people, users and client companies.

Q.

At a joint meeting yesterday of the plenary and the Planning and Coordination Committee of the Business Accounting Council, discussion was held on the postponement of the mandatory application of IFRS (International Financial Reporting Standards). Could you comment on that? Also, what do you think of the concerns that the postponement may lead to a weakening of Japan's case or a decline in Japan's say?

A.

Yesterday, I attended the meeting of the Business Accounting Council, as had been made public. The other day, I first made an announcement to you. Basically, the council's discussion was held along the line of that announcement. I explained my view and policy and listened to the various opinions of council members.

Debate on IFRS will continue. Accounting standards are not merely a technical issue but are closely related to the status of Japanese companies based on the country's history, business culture and national heritage as well as legal systems, including the Companies Act and the tax system, and companies' international competitiveness. Therefore, I believe that it is necessary to conduct a wide-ranging study on the advantages and impact of the introduction of IFRS from a broad perspective and fulfill our accountability to the people.

I hope that the council will hold free, vigorous and mature discussions from various standpoints without being constrained by its past activities so that the economy can be fully reinvigorated.

I have made a change of course regarding IFRS itself, and the reason for that is the Lehman shock as I explained previously. As I stated in the Diet, the Lehman shock, which occurred three years ago, was a Copernican change. Since the end of the U.S.-Soviet Cold War regime, the United States, the sole global superpower, has grown very strong, economically, politically and militarily. Economic globalization played the central role in that and the core of the economic globalization is financial globalization. In financial globalization, Wall Street has wielded considerable power. Over the past 30 years, particularly since the end of the U.S.-Soviet Cold War regime, the United States has become a country strongly oriented toward financial businesses during the Bush years, or during the period in which Greenspan served as chairman of the Federal Reserve Board, due to such factors as the remarkable development of financial engineering, the status of the United States as the sole superpower and the surplus of funds, as you know well. However, that has changed significantly as a result of the Lehman shock. That is a Copernican change. It is still causing very significant economic, social and political changes around the world, including Japan. Yesterday, I saw on TV a scene of tens of thousands of people gathering before the Greek parliament. That is an impact of the Lehman shock in the broad sense.

The global economy, including the European economy, has been undergoing significant change, or has been growing unstable, since the Lehman shock. That is the greatest change. To be more specific, U.S. SEC (Securities and Exchange Commission) Chairwoman Schapiro said that calls for the application of IFRS from U.S. companies and investors are not very strong. According to a report recently issued by Keidanren, during the two years since the introduction of a voluntary application of IFRS, only three of the 3,600 eligible Japanese companies have applied it. That roughly means only one in 1,000 companies.

With this reality in mind, what I would like you to understand is that I do not doubt the need for internationalization of accounting standards. This matter may easily invite misunderstanding. When I speak of this, I may easily be accused of denying the need for internationalization. It would take a few hours if I tried to make detailed explanations. As I said at my previous press conference, I do not doubt the need for internationalization of accounting standards, and convergence between the Japanese standards, the U.S. standards and IFRS has been proceeding. As a result of changes in the situation since the Lehman shock, the stance of the United States has been changing, too. To be more specific, the United States will allocate a transition period of five to seven years for introducing IFRS while retaining the U.S. standards. At the council's meeting yesterday, I sat through the discussion, which lasted for about two and a half hours. Although there are various standpoints, most people apparently supported the idea of allocating a transitional period of five to seven years.

Therefore, I do not think at all that the decision I have made at this time will make it difficult for Japanese companies to raise funds in international capital markets. Now that a Copernican change has occurred, the FSA needs to change its existing policies accordingly. As I happened to be the minister in charge, I have exercised my political initiative to make a change of course.

Q.

Your reply to the previous question concerning IFRS was apparently somewhat beside the point. What the questioner mentioned was the possibility that due to a weakening of Japan's say in the international community, Japan's circumstances may not be taken into consideration when IFRS is worked out. What is your view on that?

A.

As I said earlier, basically, internationalization of accounting standards is natural given the economic globalization. As substantial convergence has been achieved between the Japanese standards, the U.S. standards and IFRS, I do not doubt the need for internationalization of accounting standards in the broad sense. I believe that convergence should be made in an appropriate and flexible manner in light of the domestic and overseas circumstances. Compared with three years ago, the stance of the United States has also changed, as shown by a staff paper (released by SEC), so I do not think that it will become difficult for Japanese companies to raise funds in international markets or that Japan's say in the international community will weaken. Rather, I expect that our policy flexibility to adapt to the circumstances of the time will be appreciated. Like the United States, Japan should adapt to changing circumstances, rather than sticking with obsolete principles, as the economy is a living organism. That is how economic policy should be managed.

Q.

I am Sonoda from Honkenmainichi Shimbun.

At a meeting of the insurance working group of the Financial System Council on June 29, a discussion was held on various issues, including comprehensive transfer of insurance contracts. As to the sub-agency system, under which an agency entrusts operations to another agency, opinions were somewhat divided. What is your view on that if any?

A.

At a meeting of the working group on the regulation on the group management of insurance companies, the FSA staff explained background factors related to the issues that had been referred to the group and working group members expressed their opinions. I hear that the working group will meet once or twice each month. The working group will discuss all points of debate from now on and it is still unclear what kind of conclusion will be reached, as I understand it.

(End)