Policy Statement by Shizuka Kamei, Minister of State for Financial Services, at the Committee on Financial Affairs of the House of Representatives

February 17, 2010

(Introduction)

I, as the Minister of State for Financial Services, would appreciate your continued cooperation. Today, I would like to make a statement on the current status of financial administration.

(Current situation of Japan's financial system)

I would like to begin by explaining the current situation of Japan's financial system.

Although the Japanese economy has been picking up, it is short of autonomous factors and remains in a difficult situation such as a high unemployment rate. We need to keep a close watch on the current situation, including how the financial system will be affected by the difficult economic condition.

(Facilitation of financing)

Under the difficult economic circumstances that I mentioned just now, we hear that small and medium-size enterprises (SMEs) remain in the severe financing situations, facing a more serious situation than ever. The Act concerning Temporary Measures to Facilitate Financing for SMEs, etc., which was enacted in the last extraordinary session of the Diet, was put into force on December 4 last year together with the revision of the Supervisory Guidelines and the Financial Inspection Manuals in order to put finance-facilitating measures in place in time for the period of strong fund demand near the end of the year. This law requires financial institutions to strive to revise the loan terms when they receive requests from SMEs and housing loan borrowers.

Following the enforcement of this law, while individual financial institutions have developed internal systems, such as establishing a specialized section to promote the facilitation of financing, it has been concerned that the financing situation for SMEs may continue to be difficult toward the end of the fiscal year. Therefore, we will urge financial institutions to recognize their social responsibility and smoothly perform their financial intermediary function such as providing appropriate consulting function to borrowers.

(Participation in international discussion)

Another important task is to promote international cooperation to prevent future financial crisis and to establish a robust financial system, based on lessons learned from the crisis erupted in the US and Europe in 2008.

In this context, last December, the Basel Committee on Banking Supervision published the consultative documents to strengthen capital and liquidity regulations for banks. While many called for introduction of stringent regulation, Japan has advocated that regulatory reforms should be carefully implemented to avoid adversely affecting the real economy and the financial intermediary function, sharing a recognition that it is necessary in the medium and long term to strengthen banks' capital requirement, etc. Reflecting such an argument, the Basel Committee's consultative documents state that the committee will fully take into account the comments received on the consultative documents and the result of the quantitative impact study to determine specific regulatory reform measures and will put in place appropriate transition arrangements for a sufficiently long period.

Regarding financial regulatory reforms, the U.S. and Europe have recently made a variety of new proposals. While I believe that it is desirable for countries to cooperate with each other as much as possible, it is also important to take actions in accordance with their own circumstances. We will continue to actively argue for our position in international discussion.

(Development of institutional frameworks pertaining to financial and capital markets)

At the G-20 Summit held in Pittsburgh last September, an agreement was reached on the use of central counterparties to clear over-the-counter (OTC) derivatives transactions and the need to report such transactions to trade repositories. Given these international discussions and problems that have been identified in the Japanese financial and capital markets since the fall of 2008, our urgent task is to quickly develop institutional frameworks in order to establish stronger financial system of Japan paying due attention to the actual condition of our country.

Therefore, we examined issues that should be urgently addressed regarding the Japanese financial and capital markets and published the “Development of Institutional Frameworks Pertaining to Financial and Capital Markets” on January 21 this year. We will conduct a further examination, and regarding matters that require legislation, we plan to submit a bill for partial amendment of the Financial Instruments and Exchange Act, etc. to the current session of the Diet. This bill will carry out measures such as making it mandatory to use central counterparties to clear certain OTC derivatives transactions and strengthening regulation on financial instruments business operators on a consolidated basis.

(Conclusion)

In these remarks, I have stated some of my ideas as the Minister of State for Financial Services. I am resolved to continue to do my best in policy management with your support. I would appreciate the understanding and cooperation of chairman Gemba and all the other members of this committee.