Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, August 26, 2011, from 9:11 a.m. to 9:42 a.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to report to you.

[Questions & Answers]

Q.

Following the resignation of Prime Minister Kan, I expect that the Democratic Party of Japan's (DPJ's) leadership election will be promulgated tomorrow. What is your idea of an ideal leader?

A.

As you know, since the Lehman shock, there have been financial and economic crises, and in the world of politics, too, a series of popular revolts have taken place in Arab countries since the spring, ousting Col. Qaddafi of Libya from power yesterday after 42 years of dictatorship. As you know, we have seen global stock plunges and European financial problems involving Greece, Ireland, Portugal, Spain and Italy, which have subsided somewhat for now. In the United States, there have been volatile stock price movements. These things have a significant impact on Japan. Frankly speaking, I think that Japan has the most stable financial institutions of all the developed countries. A little more than a decade ago, the Japanese financial industry experienced severe hardship due to a financial crisis, and we established a legal framework for the resolution of the failure of financial institutions to deal with the financial crisis and enacted the Act on Emergency Measures for Early Strengthening of Financial Functions. Therefore, in the Japanese financial sector, there is stability in terms of capital adequacy and solvency margin ratios. Even so, the credit ratings of Japanese banks have been downgraded. In any case, the Financial Services Agency (FSA) will closely monitor the market conditions and the impact on financial institutions. I am aware that Moody's announced downgrades of the credit ratings of Japanese banks, including the three megabanks, on Wednesday, August 24. While I would like to refrain from commenting on the specifics of the downgrades, we need to remain vigilant on the global financial and economic situations, including such downgrades. As I have repeatedly mentioned, the Lehman shock has touched off a Copernican change, an epochal change in the United States, which has been the sole global superpower.

This is an era when we must remain very vigilant on the global situation, and Japan needs a leader capable of dealing with such changes. Domestically, we experienced a once-in-a-millennium tsunami, as you know, with many people still missing and more than 5,000 people evacuated from their homes in the disaster areas. Therefore, achieving restoration and reconstruction in the Tohoku region as soon as possible is essential. We also need to pay attention to the condition of the entire Japanese economy. Whoever may become the next prime minister owes very grave responsibility to the people and the country. Although this is not an affair of our party, we will keep a close watch on it, too. The structural reform carried out by Mr. Koizumi (former Prime Minister) was a neo-conservative reform considerably influenced by (former U.S. President) Bush, and its centerpiece was the postal privatization. With that as the main issue, a general election was held five years ago.

Our party is a group of people who believe that market fundamentalism is excessive in light of Japan's history and cultural environment. Basically, the founding spirit of the People's New Party is to oppose excessive deregulation, and excessive market fundamentalism, as well as the reduction of tax grants to local governments, cuts in public works and the creation of a separate medical care system for elderly people that are intended to realize an excessively small government and budget. That is not only the founding spirit of the People's New Party but also the fundamental spirit of the three-party agreement reached at that time. We believe that the change of government was achieved because the people agreed with that spirit. Whoever may become the leader of the DPJ, a written agreement was signed between Mr. Watanuki (former leader of the New People's Party) and Mr. Ozawa (former leader of the DPJ), between Mr. Hatoyama (former leader of the DPJ) and Mr. Kamei (leader of the New People's Party), and between Mr. Kamei and Mr. Kan (leader of the DPJ), so the written agreement should be honored. Let me stress that this has historic significance.

The current economic turmoil has been caused by the Lehman shock, which was basically a consequence of the United States acting as the sole superpower. The characteristics of the U.S. economy as exemplified by its worship of finance or its inclination toward money games are to blame for that. That is, if I may say so, a self-inflicted wound caused by greed. The United States created the subprime loan business, and that led to its own collapse. In that sense, that was a historic, epochal turning point. In the heyday of the prosperity of the financial and capital markets, Japan was also affected considerably by the excess in the United States. However, even the United States has enacted laws to correct excessive capitalism of winners and losers, including the Dodd-Frank Act and the Volcker Rule. As a price of the excess, U.S. companies and financial institutions have faced severe business conditions, requiring the use of the American taxpayer's money, as you know. In the United States as well as in Europe, the burden of debt has become very heavy. In Japan, the postal privatization is the symbol of excess, so we need to correct it as a historical judgment.

I hope that a DPJ politician who understands that will become the next Prime minister. If I talk too much about this, which is an affair of another party, it would be external intervention. However, I would like to mention that point as a member of the party which has been a partner in the coalition government for nearly two years, as a cabinet minister, and as deputy leader of the People's New Party.

Q.

On August 23, Resolution and Collection Corporation (RCC) filed a lawsuit with Tokyo District Court against seven former managers of Incubator Bank of Japan (Nihon Shinko Ginko) seeking damages totaling 5 billion yen. Could you comment on that?

A.

I have read newspaper articles about RCC's announcement that it filed a lawsuit against former managers of Incubator Bank of Japan seeking civil responsibility. The facts of this case will come to light in court. Now that the case has been brought to court, I would like to refrain from making comments. In any case, regarding the responsibility of the former managers, I understand that the financial receiver will strictly pursue civil and criminal responsibility, including with regard to specific transactions, as I stated in the Diet over and over again. The FSA will carefully watch future developments.

Q.

In relation to the credit problems in Europe, there has been a media report that the monitoring of Japanese banks' procurement of foreign currency funds has been strengthened. Have you strengthened the monitoring, and has there been any impact?

A.

I am aware of the media report that you mentioned. The FSA is routinely monitoring banks' financial conditions, including their procurement of dollar funds, based on monitoring data collected from and hearings held with financial institutions. As facts related to the media report you mentioned concern the specifics of practical processes of supervision, I would like to refrain from making comments. The FSA is closely monitoring the impact of market developments on financial institutions with high alertness.

Q.

I am Abe from Facta Publishing. I would like to ask you about the International Financial Reporting Standards (IFRS). At the Business Accounting Council, it has been agreed that the (mandatory application of) IFRS will be postponed. Do you think that the decision to introduce IFRS should be reversed? In relation to that, Shin Nihon Public Affairs, which is under the control of Ernst & Young ShinNihon LLC, is playing the central role in lobbying to have the decision reversed. Has Shin Nihon Public Affairs directly or indirectly petitioned you or the People's New Party?

A.

Yesterday, the Business Accounting Council held a meeting, which I attended from the beginning to the end. I listened to various useful opinions from council members. At the beginning of the meeting, I made the following statement to make clear our approach to the debate on international accounting standards.

“In debating international accounting standards, it is important to think strategically in light of Japan's national interests and draw up a grand design. To do so, it is appropriate to accurately grasp the international situation, seek opinions from relevant people in a broad range of fields, and spend an adequate amount of time on conscientious debate, including academic debate, that takes account of the actual circumstances. There are plans to dispatch survey teams to study the situation in other countries if necessary. Accounting standards constitute a basic element of the economy, so this debate should not be limited to technical matters. I believe that an international accounting standard is not a mere technical economic or accounting issue but constitutes a very important basic element of the economy. In that sense, this concerns economic activities of diverse companies, including unlisted companies and small and medium-size enterprises (SMEs). Also, it concerns the tax system and the Companies Act. As for Japan's tax and accounting systems, a man named Shoup came to Japan after World War II (to make recommendations concerning the Japanese tax system) on behalf of the GHQ (General Headquarters) of the occupying forces, as you may know. In Japan, accounting and tax systems are closely related to each other, while in the United States, they are very separate. In Japan, accounting and tax laws are very closely related to each other. In Europe, too, tax and accounting systems are closely related to each other. But they are very separate in the United States. Therefore, corporate accounting standards and tax accounting standards are separated in the United States, so I hear that in many cases, a U.S. company uses two sets of accounting standards. We must take account of economic activities of diverse companies, including unlisted companies and SMEs as well as the tax system, the Companies Act and regulations specific to various individual industries. For example, electric power companies, which use the fully distributed cost method, are required to use a specific set of accounting standards with regard to electric power. There are a large number of regulations specific to individual industries. Therefore, we need to debate this matter after carefully examining institutional systems related to those regulations and the potential impact on the financial and capital markets. I would like to ask the Business Accounting Council to conduct free, lively and mature debate without any preconceptions and from various viewpoints, with a view to invigorating the Japanese economy.”

As for the second question, I have not heard about it before. I have neither met with nor been petitioned by people from that company.

Q.

How do you assess the performance of the Kan cabinet? In particular, what is the best thing the Kan cabinet has done since the earthquake, and what should be improved?

A.

Prime Minister Kan has been dealing with a once-in-a-millennium tsunami. The triple disasters, namely the earthquake and tsunami, and the nuclear accident, which is still continuing, would have been a difficult challenge for anyone to deal with. There have been various criticisms, and political leaders in democratic countries must face up to criticisms squarely. However, regarding other matters, at least matters in the field of finance, for which I am responsible, I, together with the Bank of Japan's Governor, requested 2,700 financial institutions and life and non-life insurance companies to facilitate financing on March 11, the day when the disasters occurred. I also obtained the Diet's understanding and enacted the amended Act on Special Measures for Strengthening Financial Functions. Although I presume that there are various criticisms and assessments, I worked hard in the field of finance as the Minister for Financial Services. I am not being complacent. It is natural for me to perform my duties. In times of a once-in-a-millennium crisis, in the event of natural disasters like this, it is very important for politicians to change their mindset from the peacetime mode to the crisis mode.

When the chairman of Resona Bank recently came to me after being re-elected at the general shareholders' meeting, he told me about an increase in deposits at Resona's Sendai branch. Conventional wisdom would suggest that deposits will decrease after a disaster. When I asked for the cause of the increase, he mentioned the payment of earthquake insurance claims totaling 1 trillion yen in the six prefectures of the Tohoku region. Non-life insurance companies have taken action very quickly, simplifying the necessary procedures. The chairman of Resona Bank said that the increase in deposits was probably due to the payment of earthquake insurance claims totaling 500 billion yen in Miyagi Prefecture.

I am not saying this as self-praise, but the FSA has worked hard on various tasks, including the enactment of the amended Act on Special Measures for Strengthening Financial Functions, and even during the Golden Week holiday season, the FSA negotiated with the Cabinet Legislation Bureau. The enactment of the Act on Special Measures for Strengthening Financial Functions with unanimous support in the Diet may be a result of such hard work. Still, there are tasks that remain to be done. From now on, we will work hard on such tasks as strengthening financial institutions' intermediary functions in a comprehensive manner and protecting deposits. As for the assessment of Prime Minister Kan's performance, that is up to you. I believe that I properly performed my duties in the field of finance.

(End)