Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, May 18, 2012, from 11:26 a.m. to 11:55 a.m.)

[Opening Remarks by Minister Jimi]

First of all, I would like to announce the appointment of Mr. Kono, Vice Commissioner for International Affairs at the Financial Services Agency (FSA), as the Chairman of the IOSCO (International Organization of Securities Commission) Board.

The appointment was approved at IOSCO's annual meeting, which was held in Beijing, China from May 13 to 17. IOSCO is implementing organizational reform from the perspective of rationalizing its organizational structure and streaming its decision-making process.

Recently, existing committees have been integrated into the IOSCO Board, which is responsible for decision-making concerning policies and overall operation. Vice Commissioner Kono was already serving as the chairman of the Technical Committee, which has been integrated with other committees to establish the IOSCO Board, and he was appointed as the first chairman of the board.

The FSA has been making efforts to improve the soundness and efficiency of the global financial and capital markets by actively contributing to international organizations. It is very significant that a senior FSA official will contribute to the resolution of international challenges as the first chairman of an important body like this. The public relations office will later distribute materials describing the overview of IOSCO and other relevant documents. For details, please consult the FSA's Office of International Affairs.

Since the Lehman Shock, how to handle securities-related problems has been a major issue at the G-8 and G-20 meetings, and the G-20 has assigned a number of tasks to IOSCO. I was aware that Chairman Kono was working to perform the tasks while gaining international confidence. He has been appointed as the first chairman of the IOSCO Board as he has won acclaim for his accomplishments. The FSA is very pleased that a senior FSA official has won international acclaim.

[Questions & Answers]

Q.

Let me first ask you about the IOSCO appointment. The appointment of Vice Commissioner Kono is very good news. What role does the FSA expect him to play?

A.

The appointment of Mr. Kono is indeed very good news. As I said earlier, since the Lehman Shock, a variety of tasks have been assigned in the field of finance and securities. Compared with the pre-Lehman Shock period, IOSCO's role has grown on a global scale.

In light of that, the IOSCO Board is implementing organizational reforms from the perspective of rationalizing the organizational structure and streamlining decision-making concerning policies and overall operation. The board was established through the integration of three committees, if I remember correctly. It was internationally agreed that processes should be streamlined through the integration, so the IOSCO Board was established. The IOSCO used to comprise three committees - the Executive Committee, the Technical Committee, the Emerging Markets Committee and the Consultative Committee. It was decided that in May 2012, the three committees would be integrated into the IOSCO Board to streamline processes. IOSCO's duties include protecting international investors, ensuring the fairness, efficiency and transparency of the global markets, and formulating and implementing international standards regarding the regulation and supervision of the securities markets in order to deal with systemic risks. In order to protect investors and enhance the credibility of the securities markets, the authorities are engaging in cooperative activities, such as sharing necessary information and jointly monitoring illegal transactions. As the economic globalization has progressed very far, IOSCO is facilitating the sharing of experiences among members in order to support the development of markets in individual countries, strengthen market infrastructures and implement appropriate regulations, in addition to international cooperation in the monitoring of illegal transactions. The G-20 and the Financial Stability Board have assigned a variety of tasks to IOSCO. The tasks include considering what the global securities industry should be like and how effective regulation can be introduced. IOSCO is studying important financial regulatory reforms in the securities sector regarding the soundness and efficiency of markets, over-the-counter derivatives and shadow banking (credit mediation conducted through means other than the banking systems) in light of the recent financial crisis.

Since the Lehman Shock, various problems have emerged, including the European sovereign debt problem and the Greek crisis. I hear that the newly elected French President talked with the German Chancellor. Basically, the European market is very unstable in some respects, so IOSCO and other organizations involved in international financial affairs are expected to grow in importance.

Q.

Next, I will ask you about preliminary GDP data, announced yesterday, which showed the economy grew for three quarters in a row, a very encouraging number. But a look at the details indicates that the growth was due in large part to the effects of policy measures, such as a subsidy program to promote sales of eco-friendly cars and post-earthquake reconstruction-related public investments. From the perspective of promoting an integrated reform centering on a consumption tax hike, how do you view the current economic condition?

A.

According to data announced yesterday, May 17, real GDP in the January-March quarter grew 1%, which translates into an annualized growth rate of 4.1%, and which represents the third straight quarterly growth. Although Japan's economic condition remains severe, I understand that the economy is recovering at a moderate pace due to post-earthquake reconstruction demand. Looking forward, I expect that the economic recovery will become solid due to post-earthquake reconstruction demand.

However, as uncertainty over the European sovereign debt crisis is deepening, we need to pay attention to downside risk for the Japanese economy due to fluctuations of the financial and capital markets, and downturns of overseas economies. The FSA will continue to closely monitor the economic condition with a sense of vigilance.

Q.

The next question concerns an order issued by a New York district court for Bank of Tokyo-Mitsubishi UFJ to temporarily freeze assets related to the Iranian government. What do you think of this order and how do you expect it will affect Japan's import-export transactions with Iran?

A.

On May 16, New York time, Bank of Tokyo-Mitsubishi UFJ was ordered by a district court in the state of New York to freeze Iran-related assets, and I hear that the bank raised an objection. However, I would like to refrain from commenting on details, as this is a matter concerning an individual financial institution. In any case, regarding transactions with Iran, the whole government will act appropriately so as not to disrupt the stable supply of crude oil to Japan and legitimate trade.

I hear that this is a civil lawsuit, as was mentioned now. As you may know, 241 U.S. soldiers were killed in a suicide terrorist bombing in Beirut on October 23, 1983. This is a civil damages suit relating to the bombing. In relation to this, a U.S. court ordered Iran to pay 2.6 billion U.S. dollars to the families of the U.S. Marines killed in the terrorist attack. I hear that Iran has insisted that it was not involved in the attack. I understand that as Iran has not paid damages, Bank of Tokyo-Mitsubishi UFJ was ordered to disclose information and freeze assets. In any case, it is important that regarding transactions with Iran, the whole government will act appropriately so as not to disrupt the stable supply of crude oil to Japan and legitimate trade.

Q.

In relation to the previous question, the possibility of using an alternative account at another bank has been mentioned. Is there any prospect for a specific solution to this problem? Or is there nothing that can be done?

A.

As I mentioned now, I would like to refrain from making comments, as this is a matter concerning an individual financial institution.

Q.

This may be a matter concerning an individual financial institution, and yet crude oil supply is a national issue, isn't it? So, could you tell me what you think should be done?

A.

In any case, regarding transactions with Iran, the whole government will act appropriately so as not to disrupt the stable supply of crude oil to Japan and legitimate trade. This lawsuit has little to do with crude oil supply but is basically relating to a damages payment ordered by a U.S. court in connection with the Beirut incident. Although crude oil trade with Iran is a very important matter, I understand that this is not directly linked to it.

Q.

Most banks have announced their financial results. Could you sum up the results?

A.

If we look at the announcements made by the seven major banking groups, we can see that their results vary. However, on the whole, gross financial margins deteriorated and loan-interest income, which is the most basic income for banks, also deteriorated. Credit-related expenditures declined while stock-related income slumped. Fortunately, the number of corporate bankruptcies decreased, so credit-related expenditures declined. However, as income related to government and other bonds grew, net profits in the business year ended March 31, 2012, increased compared with the previous year.

In any case, the FSA will continue to carefully monitor the status of banks' business management.

Q.

Today, the long-term government bond yield fell to 0.815%, the lowest level in eight years and 10 months. Although you talked about the prospects of the economy earlier, could you tell me once again how you view the bond market condition?

A.

As for my view on the bond market condition, I understand that in Greece, coalition negotiations under the mediation of the president ended in failure on Tuesday, May 15, and it has been decided that a reelection will be held on June 17.

I hear that in the recent Greek election, pro-fiscal austerity parties failed to win a majority of seats, while anti-austerity parties gained seats, to put it simply. I understand it has been decided under the Greek constitution that a reelection will be held on June 17.

In the market, the prevailing view is that there are moves to avert risks in relation to the euro and other currencies due to deepening uncertainty over the European fiscal consolidation efforts so far made. While I would like to refrain from commenting on market developments, as the Minister for Financial Services, I will continue to closely monitor market developments with strong concern while maintaining cooperation with relevant cabinet ministers and the Bank of Japan.

Q.

In relation to Iran, could you tell me whether the U.S. government has made any request to the Japanese government?

A.

I am in charge of overseeing the Financial Services Agency and postal privatization, and generally speaking, the Japanese government and various ministries, including the Ministry of Economy, Trade and Industry, and the Foreign Ministry, are doing their part in that respect, I would presume.

Q.

Could you tell me about specifics as far as you are allowed?

A.

That is a diplomatic issue, so I cannot talk about it. I have heard that various communications are ongoing through various channels. As this involves a partner country, I cannot comment on specifics. This is a matter concerning a U.S. lawsuit, or judicial proceedings, so as the head of a Japanese administrative agency, I would like to refrain from making comments, as the separation of the three powers applies in the United States.

Q.

I am Oshima from Kinyu Times.

Last week, an interim report on dormant deposits was issued, and in the private sector, there are negative feelings. What is your view on this matter?

A.

Regarding the use of dormant accounts, deliberation on a specific scheme and an institutional framework will be conducted. The FSA will continue to participate in debate at the Growth Finance Promotion Council from the practical perspective.

As I said previously, regarding the use of dormant deposits, I believe it is necessary to hold debate from the perspective of a wide range of points of debate, such as how to secure the confidence of and convenience for depositors, the legal treatment of property rights relating to dormant deposits, who should manage dormant deposit accounts, how accounts should be managed, and how to finance and share the costs of paying back and managing dormant deposits, in light of the unique circumstances in Japan and on the premise of depositors' and other relevant parties' understanding. And then we should consider how to create an effective and sustainable system. As I said previously, in Japan, there are 1.2 billion accounts for the population of 120 million people, and in the United Kingdom, there are 150 million accounts for the population of around 60 million people. In South Korea, there are 170 million accounts for the population of 50 million people. As I mentioned in the Diet, most Japanese financial institutions do not levy account management fees in principle, and that may have something to do with the relatively large number of accounts. As for the payback ratio of dormant deposits, the ratio is 40% in Japan. However, the ratio is 10-20% in the United Kingdom and South Korea, and around 13 million accounts become dormant each year. I understand that the Growth Finance Promotion Council, which is chaired by Minister Furukawa, is considering specifics relating to dormant deposits, with Parliamentary Secretary Ogushi joining the council as a member from the FSA.

Q.

Let me ask one more question about Iran. Earlier, you said you will act appropriately with the stable supply of crude oil in mind. One option would be to use an alternative account at another bank for settlements in case the freeze of the account at Bank of Tokyo-Mitsubishi UFJ is prolonged. Is such an option under consideration?

A.

It is true that various options are under consideration. However, I would like to refrain from commenting on specifics for the moment, as this involves a partner country. Regarding Iran, the whole government will act appropriately so as not to disrupt the stable supply of crude oil to Japan and legitimate trade.

Q.

I have two questions.

First, while I understand that the Iranian issue is a judicial matter, the current situation is such that a U.S. district court is freezing deposit assets held in Japan by a Japanese financial institution. Probably, various problems will emerge in relation to extraterritorial application of judicial power. As the Minister for Financial Services, what do you think of that?

A.

Regarding extraterritorial application of U.S. law, I hear that Bank of Tokyo-Mitsubishi UFJ raised an objection. As you know, the United States frequently resorts to extraterritorial application of U.S. law. It is true that the United States has been the sole superpower, and the Japan-U.S. relationship has to be taken into consideration. While Bank of Tokyo-Mitsubishi UFJ raised an objection as a private company, the FSA believes that the whole government should act appropriately while keeping this matter in mind.

Q.

My second question concerns the leakage of corporate information at SMBC Nikko Securities. Earlier, the company submitted a plan in response to the order for business improvement. What is your assessment of the plan?

A.

I have not yet received a report on that. In any case, it is important to ensure the integrity, fairness and transparency of the market and the protection of users, and developing systems to do so is very important for the FSA and Japanese financial institutions. I will appropriately deal with this matter from that perspective after receiving a report.

Q.

How do you feel about the fact that the three megabanks have become able to pay corporate income taxes? While Bank of Tokyo-Mitsubishi UFJ has been paying tax since last year, Sumitomo Mitsui Banking Corporation will make payment for the first time in 15 years and Mizuho Bank will make its first payment since its creation through a merger. Some people did not know that these banks had not paid taxes and were surprised to learn that. How do you feel about that?

A.

I am aware of a media report about what you mentioned. However, the three megabanks are individual financial institutions, so I would like to refrain from making comments concerning their tax payment status. Generally speaking, the FSA believes that it is desirable that banks appropriately secure income from which to pay taxes and fulfill their social responsibilities including tax payment.

Thank you very much.

(End)

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