Press Conference by Kaoru Yosano, Minister of State for Economic and Fiscal Policy and Financial Services

January 31, 2006

Minister's Statement

The Cabinet meeting proceeded smoothly as planned. The handout you have been given is a table which compares the Securities and Exchange Surveillance Commission (SESC) of Japan to the Securities and Exchange Commission (SEC) of the United States. The administration staff will provide a detailed explanation if necessary so please let us know if you need it.

At today's Cabinet meeting, improvements in employment conditions were reported. It is wonderful that there are improvements in both the unemployment figures and the effective job offer ratio.

Q&A

Q.

In regards to the handout we just received which compares the market administration systems in Japan and the United States, do you think the authority given to Japan's SESC is extremely wide ranging? Supposing that its authority will be reviewed in the future, which specific aspects of it could be considered for review?

A.

An organization is no good if it is just written on a piece of paper. It needs to have some history and build up expertise and human resources. I think it is impossible to create a perfect organization overnight in practice. Take a close look at the handout, as it shows that the authority to establish regulations and to take administrative action rests with the Financial Services Agency (FSA). It is formally an extension of the discussions dating back to around 1991 and 1992, that there should be some kind of firewall between the body in charge of surveillance and the body in charge of taking action. I think the current organization is good, and the SESC has effectively functioned in practice with respect to the latest incident.

On January 26, SESC Chairman Mr. Takeo Takahashi himself came to see me at my office. This hardly ever happens-I have only had the opportunity to see Mr. Takahashi when I assumed office and on New Year's Day. In that sense, the SESC fulfills its duties independently, and there is no need for the two bodies to contact each other unnecessarily. Mr. Takahashi's visit was about the SESC being criticized for not functioning in various ways in the latest incident. As he truly felt that the criticism was unwarranted and it is affecting the staff members' morale, he asked for my understanding that the SESC had done its job properly.

I told him that while I firmly believed that the SESC is properly functioning, if he could provide me with some information separately from the incident, I would give an explanation to the general public based on that information. Then I asked him three questions.

Firstly, many places were raided with a search warrant and evidence was seized on January 16. I asked him how many people were involved in this joint operation with the Tokyo District Public Prosecutors Office. He said that there are only 100 staff members at the Special Investigation Section, so it was impossible to deploy all 100 of them, but cooperation was provided to the extent of deploying most of the staff. I then asked him when the SESC started gathering material on this kind of problem. He told me that for this type of problem, the SESC constantly follows up and gathers material not only with respect to the present case but also with respect to activities that attract the general public's attention, high-profile criminal cases and other major cases. In regards to the present case, while he could not give an accurate account of the specifics, he said the SESC had been gathering material properly for almost three years. I then asked him when the joint operation with the Tokyo District Public Prosecutors Office started on a full scale, treating it as a case of violation of laws. He could not specify the exact dates, but stated that clues to the case were found around autumn. As I cannot go into the case, I told him that whenever an opportunity arises, I would explain to the general public that the SESC had been doing its job properly, considering that it is difficult for the SESC Chairman to make such an announcement. He humbly requested that I do so, as the staff members' morale was at stake. The comments made on TV the other day were based on such talks between us.

Q.

Yesterday, the Budget Committee of the House of Representatives plunged into turmoil following a statement made by the Minister of Agriculture, Forestry and Fisheries. Was this discussed at today's Cabinet and ministerial meetings? Do you think the collective view of the Government will gain people's understanding?

A.

It was not discussed at all at the ministerial meeting. I sat still and listened to the statement but had a great deal of trouble determining the problem. The responsibility of providing an easy-to-understand explanation to people about food safety of this kind lies with the interested parties.

Q.

Mr. Hidenao Nakagawa, Chairman of the Policy Research Council of the Liberal Democratic Party (LDP) declared his intension to compile a growth strategy with a nominal growth rate target of 4% or 5% at a meeting of LDP's study group on financial reform. What will the FSA do to build a consensus with the LDP to carry out the comprehensive reform of government revenue and expenditure?

A.

The target of 4% or 5% is fine, but what actually matters is how to achieve 4% or 5%. It is also necessary to think about the side effects of achieving 4% or 5%.

Q.

In regards to the SESC just mentioned, LDP Secretary General Mr. Tsutomu Takebe and Mr. Nakagawa have stated that the separation of the SESC from the FSA should be considered. What is your opinion on this?

A.

As I have said at the beginning, it is necessary for an organization to have history and build up expertise, and it is important to build up superior human resources, in order for the organization depicted on a piece of paper to gain substance. It is probably premature at this stage to interpret it as an organizational problem. We have the responsibility to provide Mr. Takebe and Mr. Nakagawa with an explanation of the respective authorities and roles of the FSA and the SESC more carefully and intelligibly. I believe such a debate will fade away once they gain an understanding.

Q.

Data that contradicts an “unequal society” released in the Monthly Economic Report has sparked a debate at the Diet. While statistical technicalities may be important, Mr. Takenori Kanzaki of the New Komeito and others have pointed out that there is an unequal society in reality. Do you think Japan has an unequal society in reality at the current stage?

A.

I think Japan has actually had quite an advanced framework even when compared to other developed countries in terms of redistributing income through the postwar income tax system and social welfare system. The income tax system has become much flatter, and does not have an extremely steep inclination. However, the social security system does have quite a steep inclination in terms of distribution. There might inevitably be discrepancies between the figures and what really appears to be the case; for example, stories about somebody making a huge profit by seizing a chance and the tendency to make a great fuss over them do give rise to a sense of inequality among people, but people must share the view that those who earn an income by working everyday in their respective professions are the backbone of Japanese society.

Stories about people who have become extremely rich by seizing a chance are interesting as a topic of conversation, but I always think they neither represent Japan nor constitute the foundations of Japanese society.

Q.

Some people have pointed out that it will be the point at issue in the LDP presidential election. We understand what you have just said, but some people claim that the future Koizumi Cabinet and subsequent cabinets should rectify the unequal society or make it a point of issue. What is your view on this?

A.

My hunch-this is totally unfounded so take it with a pinch of salt-is that it is partly attributable to the maximum tax rate for income tax being temporarily reduced to 37%. This is one problem, although it will be raised to 40% next time due to local government financing. In addition, informal employment and other similar arrangements have increased during the recession that continued for as long as 15 years, so this issue should be socially rectified in the future.

While I have no idea what will be the issue in the presidential election, I think the national burden rate will be around 50% at most. In my mind, my portrayal of Japanese society is a modest one, in which there aren't that many rich people, but there aren't any destitute people either. Including tax reform, the social security system should not be tampered with in a way that pointlessly results in the institutional creation of inequality

Q.

Let me confirm: in yesterday's lecture, Mr. Takebe criticized the SESC in regards to what is going on in there. Is it fair to assume that he would gain an understanding if he is given a careful explanation of the organization, authority and roles as you just mentioned?

A.

Education is necessary in that regard.

(End)