Provisional translation

Press Conference by FSA Commissioner Takafumi Sato


June 16, 2008

[Opening Remarks by FSA Commissioner Sato]

I have nothing particular to report to you. Please feel free to ask me questions.

[Questions and Answers]


I would like to ask you about the Iwate-Miyagi Inland Earthquake that took place on Saturday (June 14). How has the FSA (Financial Services Agency) responded to the earthquake in terms of instructions and requests issued to financial institutions? Also, has there been any damage to bank ATMs or any impact on the financial system?


First of all, I would like to offer my heartfelt sympathy to the victims of the earthquake.

As for the effects on financial institutions, I understand that financial institutions in Iwate and Miyagi Prefectures are operating as usual today. The FSA has been gathering information concerning the effects on financial institutions since immediately after the earthquake occurred on Saturday, in cooperation with the Tohoku Local Finance Bureau. Although some ATMs temporarily ceased operation immediately after the earthquake, all have been operating as usual since yesterday, according to a report I have received.

As for the response by the FSA and the Tohoku Local Finance Bureau, measures just after 4 p.m. on the Saturday, the bureau, together with the Bank of Japan (BOJ), issued written requests to the relevant financial institutions regarding emergency financial measures. These relevant financial institutions include banks, Shinkin Banks, credit cooperatives, securities companies and insurance companies. The requests were issued under the title "Regarding Anti-Disaster Financial Measures Concerning the 2008 the Iwate-Miyagi Inland Earthquake." They included requests that financial institutions allow depositors who have lost deposit certificates and passbooks to withdraw deposits after confirming their identity, and that they accept premature cancellations of time deposits and the like depending on the circumstances of depositors and provide loans with such deposits as collateral. There was also a request that, in consideration of the damage done by the earthquake and emergency fund needs, financial institutions promptly take appropriate measures to accommodate the earthquake victims, such as opening an office for consultations concerning loans, simplifying loan screening procedures, speeding up the provision of loans and accepting debt moratorium.

The FSA will continue efforts to deal appropriately with the situation, in close cooperation with the Local Finance Bureau and other relevant organizations.


I have a question about the recent developments in the financial and capital markets. At a meeting of the G-8 Finance Ministers held over the weekend, the ministers issued a statement expressing the view that "financial market conditions have improved somewhat in the past few months," while warning that "strains remain." Also, I hear that in a lecture given in Kuala Lumpur, the Minister for Financial Services (Yoshimi Watanabe) said in effect that a fundamental solution has not been achieved. Today, stock prices (as measured by the Nikkei stock average) gained 380 yen, indicating that market conditions have stabilized substantially compared with before. How do you view the market conditions?


Regarding the recent developments in the global financial markets, as I have said on several occasions, there are both positive developments indicating progress toward an end to the turmoil and negative developments signaling continuing uncertainty. In light of this, my understanding is that the turmoil in the global financial markets triggered by the subprime mortgage problem is continuing.

An example of positive development, as you know, is that a cycle has been established in which major U.S. and European financial institutions recognize losses related to securitized products in their quarterly or semi-annual financial statements, disclose the losses and take measures to strengthen their capital base if they face a capital shortage. There are also entities that are willing to provide capital, such as sovereign wealth funds. The fact that such moves have become commonplace represents a positive development. Strong-willed moves by central banks and other relevant organizations to prevent systemic risks from materializing are another positive factor. In light of these positive factors, I believe that the possibility of global systemic risks materializing has diminished.

On the other hand, there are still several negative factors. One is the slump in the U.S. housing market, as represented by the fact that housing prices are continuing to decline and the mortgage delinquency ratio remains high. In addition, tensions remain in the global credit market and the global market for securitized products - as was pointed out at the meeting of the G-8 Finance Ministers - since liquidity has yet to be restored to them. Underpinning this situation is the difficulty in valuing complex securitization products. The practice of mark-to-market pricing (pricing assets based on market prices) has not secured sufficient confidence - or, I should say, has lost confidence. There is no solution in sight in this regard.

Also, the increasingly cautious stance of U.S. banks on lending - which may be underpinned by the problem of capital shortage that I mentioned earlier - could affect the real economy. Moreover, there is concern about inflation due to the surging prices of crude oil, grains and other commodities.

Under these circumstances, the FSA will keep a close watch on developments in the stock, foreign exchange and other financial markets and on the effects of market developments on the financial system.


I would like to ask you about the second report by an advisory group of Minister Watanabe, which was issued last week. This report strongly calls for the promotion of foreign investment in Japan, including investment by government-affiliated investment funds. What are your views on the promotion of foreign investment in Japan? In relation to this issue, a dispute has arisen in the financial industry just before the season of general shareholders' meetings. Nipponkoa Insurance has clashed with a U.S. fund that, in its capacity as a major shareholder of the company, demanded a reshuffle of the management team and the implementation of drastic reform measures. How do you view disputes like this?


Regarding your first question, as pointed out by the second report issued last week by the Financial Markets Strategy Team, foreign investment in Japan may contribute to Japan's sustainable economic growth as the society ages by injecting vitality into the economy and expanding employment opportunities. From the viewpoint of the FSA as a market watchdog, it is a welcome development in that the participation of a diverse range of investors adds depth to the market and reinvigorates trading, although the underlying premise is that the transparency and fairness of the market should be maintained so as to protect investors and that market rules should be properly followed. As for necessary market regulations, the FSA has been acting under the basic principle of treating domestic and foreign interests equally, and we believe that it is also important to ensure the transparency and predictability of regulations. In addition, it is important that we fulfill our accountability obligations when we need to introduce a regulatory measure, by fully explaining its purpose and substance. As for investment by sovereign wealth funds, we may need to take account of their special nature. However, it is important that we avoid creating the impression that the Japanese market is closed, by enhancing the transparency and predictability of our regulation and by fulfilling our accountability obligations.

Meanwhile, I would like to refrain from commenting directly on the dispute involving Nipponkoa Insurance, as it is a matter concerning an individual company. Concerning the treatment of investors, our basic principle is to treat foreign investors and domestic investors equally. I believe that investors, including investment funds - whether they be domestic investors or foreign ones - should naturally follow market rules. Based on this premise, it is quite natural for an investment fund to make demands in its capacity as a shareholder. On their part, the managers of listed companies that accept investment have discretion over how to manage their companies. Nonetheless, it is important for these managers to manage their companies in ways that meet the expectations of investors and customers. Also, it is particularly important for them to fulfill their accountability obligations by making their management policies and philosophies clear to shareholders and other stakeholders in a timely manner. In this respect, I expect that promoting meaningful dialogue between companies and investment funds that are shareholders will contribute to the provision of information to shareholders in general.


I have questions about the remarks made by Minister for Financial Services Watanabe during his trip to Kuala Lumpur and reported by newspapers. I understand that the minister indicated his intention to call for the U.S. and European authorities to take prompt actions regarding major financial institutions that face capital shortages, including the injection of public funds, from the viewpoint of ensuring their soundness. What is your thinking in this regard? Also, I hear that Minister Watanabe indicated a plan under which the Japanese authorities will provide financial support for such actions. Could you tell me about your views on this plan, including whether there is a scheme for the provision of such support?


I am not familiar with the details of Minister Watanabe's remarks that you spoke of, so I would like to talk in general terms. As I said earlier, U.S. and European financial institutions - major financial institutions in particular - have recognized and disclosed huge losses in their financial statements with high frequency, and strengthened their capital base if a capital shortage is recognized. My understanding is that the problem of capital shortage has not been completely resolved, due to factors such as the difficulty in valuing securitized products, as I said earlier. However, since the cycle - or should I say mechanism - that I mentioned has been established to a certain degree, the possibility of the sudden collapse of an LCFI (large and complex financial institution) leading to the materialization of global system risk has been substantially diminished. One important factor behind this is the cycle in which financial institutions recognize and disclose their own losses and make self-efforts to raise necessary capital. A private sector initiative like this - an initiative by the parties concerned themselves - has been moving this problem toward a solution.

Meanwhile, as I have repeatedly said, the exposure of Japanese financial institutions to the securitized products at issue and high-risk products is relatively small compared with that of major U.S. and European financial institutions. My feeling is that the market is beginning to understand this now that Japanese financial institutions have announced their financial results for the fiscal year ended in March 2008. In light of this, we may say that Japanese financial institutions have been put in a position of relative advantage and given an opportunity to enhance their presence in the global market, by providing high-quality services and by properly performing their financial intermediary function.


Site Map

top of page