Press Conference by the Commissioner

(Excerpt)

3 June, 2002

Q.

On May 31, Moody's Investors Service, an American rating company, cut the rating of Japanese government bonds (JGBs) by two notches. What is your perception of the downgrade, and what is your understanding of the nature of its impact, including the impact on financial institutions, as long-term interest rates are expected to rise and private companies are expected to be downgraded in the future, even though the market is calm for the time being.

A.

With respect to the change in the JGB rating to ''A2'' by Moody's, the Ministry of Finance (MOF), which is the issuer of JGBs, has been sending various written inquiries to them, and has inquired them further in writing after receiving their response prior to the review. The issue here is that ratings should be based on the assessment of the default risks, and it would be natural to quantitatively show what kind of risks are associated with the possibility of JGB redemption. However, they went ahead with this review without ever responding properly to the inquiry. MOF is rightfully expressing regrets against the arbitrary rating by the private company, and there are no additional comments in particular that need to be made by the Financial Services Agency (FSA) in that respect.

In regard to our understanding of its impact on private companies, especially financial institutions, Moody's itself has stated that the downgrade will have no direct or indirect impact on the ratings of private companies. In fact, there was no particular impact on banks with substantial holdings of JGBs downgraded by Moody's on May 31. If anything, their stock prices have risen, and are rising today as well. Furthermore, the banks themselves are firmly pursuing asset and liability management(ALM), and we acknowledge that they are engaged in risk management in a strict manner, including the shortening of the maturity period of JGB holdings.

The JGB price itself has not particularly been affected either, and we consider that the market is calmly observing the situation.

Q.

With respect to the designated rating agency system, the designation of rating companies is one of the agendas in the formulation of the new BIS criteria. What is your view of Moody's, which is one of the designated rating agencies, considering that they have downgraded the rating of JGBs without ever properly responding to MOF's inquiry?

A.

As designated rating agencies, 5 rating agencies are currently designated under the ordinance of the Cabinet Office.

FSA regards there is no need for the financial authorities to immediately review the designated rating agencies simply because there are objections to the ratings by one of these 5 designated rating agencies. The market, the media and the general public are widely aware that the ratings of particular bonds have been reviewed by a particular rating agency in a certain manner. As for the issue of whether the rating would be upheld or not, we consider, in a sense, it is the rating agency that is being assessed by everyone. If there is a rating agency that continues to give unwarranted ratings, it should lose support of the market players before we do anything about it. For a while, we would like to see how the market and the media perceive the rating by the rating agency.