Summary of Remarks by Shoichi Nakagawa, Minister of Finance and Minister of State for Financial Services, at the Committee on Financial Affairs of the House of Councillors
The 170th Extraordinary Diet Session
November 6, 2008
I am Shoichi Nakagawa. I have been appointed to serve concurrently as the Minister of Finance and Minister for Financial Services.
Upon the start of deliberations by this Committee, I would like to present my basic views on the conduct of fiscal policy and financial administration in the period ahead and to ask for your understanding and cooperation.
Policy management in response to the recent economic and financial developments
I would like to begin with discussing policy management in response to the recent economic and financial developments.
At the meeting of the G-7 Finance Ministers and Central Banks Governors held on October 10, we held extensive discussions on measures to cope with the current global financial situation. Drawing upon a common awareness regarding the critical situation today, we agreed to a Plan of Action consisting of five items aimed at stabilizing the financial markets and restoring the flow of credit, and conveyed a clear message on our intentions.
At the G-7 meeting, I emphasized the importance of injecting public funds into financial institutions, based on the Japanese experience. I have urged that the IMF should respond to the crisis in a flexible and proactive manner and announced that Japan stands ready to provide financial resources to the IMF if necessary.
Moreover, the G-7 issued a statement on October 27, in which we expressed our concern about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability, and announced that we would continue to monitor markets closely and cooperate as appropriate.
Although Japan's financial system is relatively stable in comparison with its Western counterparts, and sufficient safety nets are already in place, Japan must remain on high alert in order to respond to the impact of rapid changes in the financial and capital markets on its finance and real economy. For this purpose, we have implemented several measures necessary for the time being, including relaxation of restrictions on corporations' purchase of own stocks, strengthening of restrictions on short selling, and temporary suspension of the sale of public-sector-owned stocks. In addition, we plan to implement other measures for stabilizing the stock markets and further strengthening financial functions, such as relaxing part of the capital adequacy requirements for banks.
Japan's small- and medium-sized enterprises (SMEs) have been thrust into a serious business condition under the current state of the economy. For the part of private financial institutions, they are required to exercise their financial intermediary functions both properly and aggressively. The Financial Services Agency is making efforts to understand the current situation of SME finance in detail. As part of such efforts, I invited the executives of financial institutions to a meeting and requested once again their cooperation in enhancing smooth financing for SMEs.
Furthermore, in order to ensure that financial institutions exercise adequate financial intermediary functions in local economies, including the smooth provision of credit to SMEs, through strengthening the capital base of financial institutions by the government's capital participation, I submitted to the Diet a bill for amendment of the Act on Special Measures for Strengthening Financial Functions and the Act on Special Measures for Promotion of Organizational Restructuring of Financial Institutions. I also submitted a bill for amendment of the Insurance Business Act for the purpose of protecting insurance policyholders and maintaining credibility of the insurance industry. I sincerely look forward to your cooperation in reviewing and supporting these bills in a prompt manner.
I believe that providing smooth financing to SMEs is an important role that financial institutions must fulfill. I intend to respond to further developments in a timely and appropriate manner.
The government also submitted to the Diet a draft FY2008 supplementary budget on September 29 with the aim of realizing the "Comprehensive Immediate Policy Package to Ease Public Anxiety." Following deliberations, it was approved by the Diet on October 16.
Furthermore, following completion of the Policy Package, the government developed on October 30 a set of new economic measures for "protection of living conditions" of the people, in response to future changes in the financial and economic conditions in Japan and abroad.
Under the new policy package, in order to ensure the security of the Japanese people in their daily lives, we will firstly take measures such as implementing fixed-sum stipends to support people's daily lives with limits of two trillion yen in total.
With the aim of stabilizing and strengthening the financial system and the economy, we will also implement measures for financing SMEs and micro businesses through raising the limits for safety-net government-based lending and credit guarantee to 30 trillion yen, in addition to the stock market stabilization measures mentioned earlier.
Moreover, we will take measures for reinvigorating local regions, through steps such as substantially reducing highway toll.
The government will make efforts to make this policy package effective.
Basic views on fiscal policy and financial administration in the period ahead
Next, I would like to state on my basic views on fiscal policy and financial administration in the period ahead.
Considering Japan's current situation, I think it is important to erase the sense of anxiety among the people and to build an economy where people can hold hope for the future.
At the same time, Japan is in an extremely difficult fiscal position and must take action steadily toward restoring fiscal soundness in order to avert the negative impact of this problem on its economy and social security. For this reason, I intend to work toward the goal of achieving a surplus in the primary fiscal balance of the national and local governments by FY 2011, which is the basic fiscal management policy set by the government and the ruling coalition, under the principle of promoting a sustained and stable prosperity of Japan's economy.
Moreover, the government plans to develop swiftly a medium-term program aimed at creating a sustainable social security system and securing its stable financial resources, in order to ensure a sense of security of the Japanese people. This program is to include an outline for a fundamental reform of the tax system, which will lay the foundation for increasing the share of government contribution to the basic pension funds to 50 percent.
The FY2009 budget will be formulated in a more prioritized manner than before. A quota for drastic budget appropriations to key policy issues, such as strengthening the growth potential and building a higher quality of life for the people, will be established. For this quota, funds set free from selecting priority policy programs as well as from existing budget cuts will be allocated.
In the area of financial administration, while paying close attention to developments in global financial markets, I am determined to make my utmost efforts to address various issues with respect to stabilizing the financial system, protecting users of financial services and enhancing user convenience, and establishing fair, transparent and vibrant markets, including through developing and implementing the measures I mentioned above.
This concludes the presentation of some of my views on fiscal policy and financial administration. Gaining the support of both the ruling and opposition parties, I am determined to make utmost efforts in policy management.
I would appreciate the understanding and cooperation of Chairman Minezaki and all other members of this committee
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