Press Conference by FSA Commissioner Takafumi Sato
June 11, 2009
[Opening Remarks by FSA Commissioner Sato]
I would like to thank you for allowing me to postpone this press conference because of my trip to Kyoto on Monday.
I do not have any particular statements to make.
[Questions and Answers]
The Nikkei stock average has recovered, rising above 10,000 today for the first time in the eight months since October last year. What do you think are the factors behind this? Does this indicate that the significant turmoil in the financial markets that we have seen since the Lehman shock is starting to subside? What is your view?
As I always say, the stock market moves as a result of investment activities made by various market participants based on their respective judgments. Therefore, I should refrain from making any definitive comments from the standpoint of the regulatory authority on the factors behind and the backgrounds to market movements.
I would like to use your question as an opportunity to tell you about some anecdotal evidence cited by market participants. For one thing, there are growing expectations of an economic turnaround in Japan and abroad because some economic indicators are improving or have stopped deteriorating in response to economic stimulus measures taken by various countries. In addition, part of the liquidity provided through credit easing worldwide is starting to flow into commodities and stocks. As for the Japanese market, it has been pointed out that foreign investors, who account for some 50% of sales and purchase transactions, have been generally posting net purchases since April because of a recovery of their risk tolerance level.
As you also asked me about the overall financial markets, I would like to talk about one more thing. In the corporate bond market, for example, I understand that companies whose credit ratings are at medium or low levels are resuming bond issuance.
As an assessment of this situation, the Bank of Japan stated, ''Financial conditions in Japan have remained tight, although there has been some easing of tension compared to some time ago.''
In any case, I believe it is important that the government as a whole continues efforts to steadily implement the Policy Package to Address Economic Crisis, and the FSA (Financial Services Agency) will keep a close watch on developments in the financial markets.
Although this is a matter concerning the Ministry of Finance, a meeting of G-8 (Group of Eight) Finance Ministers will be held in Italy on June 12–13. What topics do you think will be taken up in relation to financial regulation and how do you hope that debate at the meeting will develop?
As Italy, which will chair this meeting, has not announced the agenda, it is difficult to make specific comments. In light of the past course of events, we may generally say that a consensus toward the reconstruction of financial regulation and supervision has been confirmed, as specific concepts were indicated at meetings held since last year, including the G-20 summit.
In any case, it is important that individual countries cooperate with each other toward achieving the global objective of preventing a recurrence of the current financial crisis and subduing the ongoing financial turmoil and steadily implement the agreements that have been reached so far in an internationally coordinated and effective manner. At the same time, it is important that they carry out the medium-term task of rebuilding the regulatory framework in ways to keep a balance with the implementation of short-term emergency measures while taking into consideration a possible impact on the economy. I hope that these points will be confirmed at the forthcoming G-8 meeting.
In any case, the FSA will continue to cooperate with relevant authorities in Japan and abroad and actively participate in international debates on how to prevent a recurrence of the current financial crisis and strengthen the financial system.
Although the stock market has been recovering, market mitigation measures remain in place. I understand that you will explore the timing of the abolition of these measures while examining market developments. Could you tell us about your view on what should be done with the market mitigation measures and emergency measures?
Broadly speaking, the financial measures taken by Japan and other countries include measures intended to subdue the ongoing turmoil in the financial markets and stabilize the financial system and medium- and long-term measures intended to rebuild the regulatory framework as a precaution to prevent a recurrence of the global financial crisis. The former measures, or short-term measures, include exceptional ones that would not have been taken in normal times, including the use of taxpayers' funds and public funds and market stabilization measures. We should keep in mind that if these measures are continued aimlessly, it would have negative effects, such as fostering moral hazard or distorting the functions of the market as a whole in the medium term. I am speaking now in a strictly generally sense.
Therefore, while keeping that in mind, we should carefully watch the current situation, and consider what should be done in the future, as the crisis is not yet over.
In relation to that, there are hopes for a recovery in financial institutions' financial conditions following the stock price rebound. However, Minister Yosano said the other day that as a recovery in financial institutions' financial condition will not necessarily lead them to show a positive stance on lending, it is necessary to continue inspection and supervision concerning their lending stance. Could you tell us about the relationship between the stock price recovery and financial institutions' financial conditions and lending stance?
While I do not think that there is a direct causal relationship, Japanese banks own a relatively large amount of shares, so it is conceivable that the stock price recovery will have a positive impact on their financial soundness and encourage them to take risks.
In any case, the FSA has been implementing a variety of measures to ensure the exercise of the financial intermediary function by financial institutions since last autumn. As the state of the real economy is far from reassuring, we should pay attention to the financial sector's role in supporting the real economy and should continue to consider taking financial administrative actions in order to ensure the sector exercises its financial intermediary function.
I understand that at a council meeting yesterday, experts expressed opinions focusing on the risks involved in banks' shareholdings because banks still own a large amount of shares as you mentioned now. For example, I understand that there were calls for tighter regulation. As stock prices (as measured by the Nikkei average) have risen close to 10,000, eliminating unrealized losses, it has become easier for banks to reduce their shareholdings. How does the FSA intend to encourage banks to do so, for example? While it will be difficult to make it easier to use Banks Shareholdings Purchase Corporation or introduce a restriction quickly, what is your view on the major problem that the risks involved in banks' shareholdings pose a risk to their financial soundness?
I understand that at yesterday's meeting of the Study Group (on the Internationalization of Japanese Financial and Capital Markets), group members called for prohibiting or restricting cross-shareholdings and shareholdings by banks.
In addition, a draft report written by the study group stated, ''From the perspective of reducing cross-shareholdings and strengthening the governance function performed by shareholders, it is hoped that Banks Shareholdings Purchase Corporation will be used actively.'' I completely agree on this point and hope that banks will actively use this corporation' stock purchase operation, which has been resumed as a provisional measure.
Meanwhile, I believe that from their experience of the current turmoil in the global financial markets, banks and bank managers have well learned of the risk that shareholdings may have a significant impact on their own financial soundness. Individual banks will first of all need to voluntarily implement specific measures to conduct more appropriate risk management concerning their shareholdings in particular, based on this experience and lesson.
The FSA will watch their voluntary efforts in this respect with strong interest.
Since your last press conference, a series of insider trading cases have occurred at financial institutions. It may be difficult for you to comment on the case of Aozara Bank. However, in light of the cases involving kabu.com Securities and Nomura Securities, could you tell us about your view on the fact that a succession of insider trading cases involving financial institutions have occurred, which I think is unusual?
Banks and securities companies play a highly public role. At the same time, they are in a position to have access to a large amount of information as they exercise the financial intermediary function as market intermediaries. In light of this, it is very regrettable that insider trading cases involving employees of financial institutions with such a highly public nature have occurred frequently. I hope that officers and employees of financial institutions conduct business with a strong sense of legal compliance and professional ethics and with strong self discipline.
The FSA will continue to keep a close watch on how individual financial institutions develop their internal control systems.
In addition, I would like to stress that the market is being monitored more thoroughly than people engaging in unfair market transactions may think.
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