Press Conference by Taro Aso, Deputy Prime Minister, Minister of Finance, and Minister for Financial Services

(Excerpt)

(Friday, March 6, 2015, 8:33 am to 8:45 am)

[Questions and answers]

Q.

Earlier this week, the Liberal Democratic Party (LDP) started discussions on the proposed raise in the ceiling imposed by Japan Post Bank on each depositor and the ceiling set by Japan Post Insurance on life insurance contracts per policyholder. However, the move has drawn criticism from the banking industry for putting downward pressure on the earnings of private businesses. Minister Aso, what is your view on this issue?

A.

If my memory is correct, when the Postal Service Privatization bill was deliberated in the Diet, it was agreed that it was necessary to take into account the possible creation of a level playing field with existing private financial institutions when changing the ceiling imposed by Japan Post Bank on each depositor and the ceiling set by Japan Post Insurance on life insurance contracts per policyholder, and to consider their financial standings. Later, when the Postal Services Privatization Act was revised in 2012, under the government of the Democratic Party of Japan (DPJ), the committee required that the ceiling should not be raised in the immediate future. Taking such background into consideration, I think that whether to deregulate the ceilings cannot be decided suddenly.

Q.

One year has passed since Japan’s stewardship code was established in February last year. At present, 175 companies have published their basic positions on the code. Accepting the code, institutional investors, as shareholders with a “say” or voting rights in other companies, state that they will pursue medium- and long-term returns by promoting dialogue with them. This is how you have suggested that institutional investors should act. However, what is actually happening apparently is not what you want to see happening. Yesterday, a member of the Council of Experts tasked with compiling a set of codes on corporate governance expressed concern that many institutional investors which have accepted the stewardship code are seeking short-term profits in defiance of their basic policy of pursuing long-term returns. The stewardship code is a kind of “soft law,” so making judgments is up to the players in the market, not the authorities. This may put the regulatory authorities in a difficult position. What can you tell us about the comment issued yesterday by one of the members of the Council of Experts?

A.

It is clear that institutional investors, especially foreign investors, have such a tendency to seek short-term profits, as evidenced by the recent net selling of stocks by foreign investors, which is in contrast with net stock buying by Japanese investors. Consequently, Japanese stocks have risen. What is happening to Japanese stocks is different from what used to happen in the past. The difference reflects the change of attitude among Japanese investors, who have become bullish about buying stocks. In the past, foreign investors were the main players who determined the market trend, when the absolute trading volume in the market was small. Now the situation has changed. Even if foreign investors increasingly unload their stockholdings, Japanese investors will immediately underpin the market by buying them back. As a result, the Nikkei Stock Average has recovered to the 18,000 level. Some critics say that the return on equity (ROE) in Japan should be raised from the viewpoint of increasing dividend payouts to shareholders. I agree with this opinion. The wage share in Japan has clearly dropped from the time when I was a business manager. Accordingly, shareholders with voting rights should be more vocal. In other words, rather than a bad thing it would be advisable for corporate management to listen to people outside the company and respect their views expressed not only at shareholders meetings but also at executive meetings, which may be different from those of the company but could be more in line with common sense. It is the president who makes the final decision. It is true that it is difficult for the management to consider different views and opinions from two or three people completely outside the company, because their views are different from those of the company. If such views are expressed by foreign investors, the management will struggle more to deal with the situation. However, Japanese companies should become able to adapt to such a situation – not only big companies but also small- and medium-sized companies. Such opinions may be correct. If companies want to build up internal reserves as part of their long-term investment, they merely have to explain that. Then there will be dialogue backed by substance. I think this is a good tendency.