Provisional translation

Press Conference by FSA Commissioner Takafumi Sato


May 8, 2008

[Opening Remarks by Commissioner Sato]

I am sorry to have kept you waiting. I have nothing specific to report to you.

[Questions and Answers]


Representing the press corps, I will ask you two questions. The first question concerns the subprime mortgage problem. In an interview with the Wall Street Journal, U.S. Treasury Secretary Paulson expressed the view that the worst of the financial market turmoil is likely to be over. What do you think about this view, or how do you assess the current situation and the future prospects?


I am aware of the interview on the Wall Street Journal, which appeared on May 6, in which Treasury Secretary Paulson expressed the view that the worst of the financial market turmoil triggered by the subprime mortgage problem is likely to be over. Although I will refrain from directly commenting on remarks by the U.S. Treasury Secretary, I understand that he also indicated in the interview that it would take some more months before the market turmoil settles down completely.

Regarding the global financial market turmoil triggered by the subprime mortgage problem, some people have argued that there are signs of a bottoming-out of the market for securitization products as well as the stock market. At the same time, my understanding is that the effects of the turmoil are still persisting. Among positive factors are financial institutions' willingness to make disclosure, as shown by the recent series of announcements of securitization products-related losses recognized by major U.S. and European financial institutions as part of their financial results, the progress made in efforts by financial institutions with insufficient capital to strengthen their capital base, the presence in the global market of entities willing to provide equity capital, such as sovereign wealth funds, and measures taken by central banks and other authorities to prevent the emergence of systemic risks. On the other hand, there are also adverse factors, such as the continued slump in the U.S. housing market as represented by the housing price drop and the high level of the mortgage loan delinquency rate. Moreover, we cannot yet say that liquidity has been restored to the market for securitization products. I mean that although there are signs of recovery in some segments of the market, the market is far from a situation in which trading is done with wide participation. Also, I think there are unresolved problems such as valuation of complicated securitization products and the credibility of fair valuation. The process of unwinding the "excessive leverage" that underlies the ongoing market turmoil appears to be continuing, and banks are cautious about providing loans in this situation. I think we should pay attention to these factors.

As the market is thus affected by various factors, I would like to refrain from directly commenting on the current situation or the future prospect of the financial market turmoil. I will withhold comments also because my comments could sow the seeds of second-guessing in the market. Anyway, the Financial Services Agency (FSA) will remain vigilant and keep a close watch over future developments in the stock, foreign exchange and other markets as well as the impact on the management of Japanese financial institutions while maintaining cooperation with other authorities in and outside Japan.


The next question concerns a slightly old issue, namely the taxation regarding securities trading. The revised tax act has been enacted at long last, and a press release concerning the points of revision was published on the FSA's website on May 1. As some investors have pointed out that the revisions are difficult to understand, aren't you worried that there will be confusion when the revised provisions are enforced?


First, I will give you a review. The revised tax act for fiscal 2008 was enacted and promulgated on April 30. As for the taxation regarding securities trading, a reduced tax rate of 10% is to be applied to profits of 5 million yen or less gained from the sale of listed stocks and dividends of one million yen or less on listed securities in fiscal 2009 and 2010, as you know. Furthermore, starting in fiscal 2009, losses resulting from the sale of listed stocks may be offset against dividend receipts under the revised act.

As a result, investors should keep track of their profits from stock sales and dividends receipts in relation to the ceilings for the reduced tax rate and make a tax declaration if they exceed the ceilings. However, I expect that the tax procedures for most ordinary investors will be limited to the withholding of the 10% tax from their salaries.

I believe that it is extremely important to explain the points of revision regarding the tax system, including the matters I mentioned, to the people so as to facilitate their understanding. In order to smooth the way for a shift to the new system, the FSA will strive to fully communicate the substance of the new system to all the people by promoting explanations to customers by securities companies through cooperation with relevant organizations such as the Japan Securities Dealers Association, in addition to public relations activities conducted via our website.


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