(Friday, August 12, 2011, from 9:40 a.m. to 9:57 a.m.)
Regarding FX trading, the margin regulation was strengthened, with the maximum allowable leverage reduced from 50 times to 25 times. Around 10 days have passed since the strengthened regulation was introduced at the beginning of this month. Over this period, there have been significant movements in exchange rates. How do you evaluate the impact of the strengthening of the regulation?
Regarding FX trading using high margin leveraging, there is the risk of customers' incurring unexpected losses as a result of even minor movements in exchange rates, so we regard that as a problem.
Therefore, there is a ban on conducting FX trading involving customers as counterparties without receiving a certain amount of margin deposits. The margin regulation in the form of limits on leveraging was strengthened on August 1 as you mentioned, to ban FX trading using a leverage of more than 25 times.
In the United States, the Dodd-Frank Act was passed after the Lehman shock. This is a law on financial regulatory reform that includes the Volcker Rule. Excessive leveraging may result in a rapid market contraction if some problem occurs, as when the Lehman shock occurred. As such a phenomenon has actually happened, there are international debates at G-7 and G-20 on issues related to G-SIFIs (global systemically important financial institutions) with that in mind from the perspectives of the protection of consumers and users and, more broadly, the protection of the economy, and I think that the strengthening of the margin regulation is part of this broad trend.
In that sense, the Financial Services Agency (FSA) hopes that the strengthening of the margin regulation will help to protect investors and enhance the soundness of FX trading in Japan. As I already mentioned, FX trading using high leverages may cause customers to incur unexpected losses as a result of even minor movements in exchange rates. Regarding the margin regulation, the protection of investors has emerged as a greater challenge globally because of the Lehman shock of three years ago. As I stated in the Diet, this regulation is a democratic control of speculative money in a democratic country. While the economy contributes to the well-being of human beings, it tends to go out of their control, so it is necessary to protect investors and, depending on circumstances, even protect a country's economy. I think that this regulation is necessary as part of the broad economic and fiscal policy that is emerging after the Lehman shock.
For the sound development of FX trading in Japan, I believe that it is important to protect investors and enhance the soundness of FX trading based on the new margin regulation.
Although I may have been a bit too talkative, I would like you to understand that we have done this in line with the global trend.
A temporary ban on short sales will apparently be introduced in four European countries. What is Japan's stance on that?
I am aware of media reports since yesterday about moves by the authorities of European countries to strengthen the regulation of short sales. In Japan, there have been obligations of specification and confirmation of short sales and regulation on prices regarding short sales of all listed stocks. In addition, after the Lehman shock, Japan introduced a ban on so-called naked short sales - short sales in which stocks are not borrowed at the time of selling. Moreover, Japan has adopted temporary measures such as requiring reporting and disclosure of short sales positions of a size larger than the prescribed level.
In any case, regarding the regulation on short sales, the FSA will closely watch developments in other countries and the market conditions.
As you say that the FSA will watch the market conditions and developments in other countries, is it possible that Japan will also introduce a ban on short sales, depending on circumstances?
We have already introduced a partial ban, and I would like to refrain from saying whether we will introduce additional regulations. It would not be appropriate for me to comment on such specifics.
With the dollar in the 76-yen range, the yen continues to be extremely strong. How do you expect this to affect Japan's financial market?
On Thursday, August 4, after exchange market intervention, the dollar temporarily rose to the lower 80-yen range. Since then, the yen has gradually appreciated, with the dollar currently trading mostly in the higher 76-yen range, as I understand it.
As a factor behind the yen's strength, investors' growing risk aversion due to the global stock price drops has been cited. However, foreign exchange is under the jurisdiction of the Minister of Finance. The Minister of Finance is addressing this issue with a strong determination and he has said he will continue to watch future market developments calmly, with strong concern. I understand that the Minister of Finance is always on high alert. I sometimes participate in the same committee sessions as he does, and in my eyes, he appears to be full of vigor, as various means are naturally available for the Minister of Finance.
How do you expect this to affect Japan?
As you know well, Japan depends on exports, and a strong yen hurts exports very much. On the other hand, fuels and other imported goods can be imported at lower prices. I have been a Diet member since 1983, and around that time, Japan faced a recession induced by a strong yen. In light of my experience, I think that given Japan's industrial structure, a strong yen puts the Japanese economy in a very severe situation. I presume that the Minister of Finance implemented market intervention on August 4 with that in mind.