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

(Excerpt)

February 10, 2006

Q.

Yesterday, Mr. Toshihiko Fukui, Governor of the Bank of Japan (BOJ), stated that judgments for March and the subsequent months would be crucial. What is your interpretation of this statement?

A.

Mr. Fukui would strongly be aware that the Japanese economy is on a gradual trend upwards. Yesterday's statement does not go into taking certain action based on some kind of prediction. I have not heard from him directly, but that is my impression based on reports by the press.

The BOJ will continue to make judgments as the central bank in the future. The assumptions of its judgments have already been clarified upon the introduction of quantitative relaxation, so the BOJ will make its judgments after examining various indexes and in consideration of the Japanese economy as a whole.

In any case, the Government and the BOJ must work as one to make progress to steadily break away from deflation.

Q.

The other day, the first payment order has been issued since the launch of the civil penalty system. There are various debates on the civil penalty system, including expanding its scope and increasing the amount of the penalty itself. It has taken some time for a civil penalty system that was designed to take flexible action, launched last April. What is your evaluation of the first payment order, and your view on what the civil penalty system should be like in the future?

A.

There are two ways of taking action, criminal and administrative. The civil penalty system is a speedy and effective means of taking action more flexibly.

For example, market manipulation is subject to criminal punishment, but there could be cases in which it is not subject to the civil penalty system apart from some exceptions. In the draft revision of the Securities and Exchange Law to be submitted to the Diet, the civil penalty system is expected to be effective in preventing, for example, small-scale market manipulation by amateur investors.

Also, as I just said, the civil penalty system is based on administrative action, so it is distinguished by a certain degree of speediness and flexibility.

Q.

In relation to monetary policy, some people including Mr. Toshiro Muto-Deputy Governor of the BOJ-have used the phrase ''road signs that would substitute the existing three conditions'' after the termination of quantitative relaxation. Do you have anything in mind for the new road signs that would substitute the existing three conditions after the termination of quantitative relaxation?

A.

Compared to the economies of developed countries around the world, the Japanese economy needs to be restored back to normal, considering the state it has been in for a long time since the collapse of the Bubble. The extremely orthodox monetary policy adopted by developed countries, which involves raising and lowering the official discount rate, is not available now as a means of making the BOJ's monetary policy function effectively. This must be a pretty tough situation for the BOJ as a central bank. It is not certain how long it will take, but there must eventually come a time when the BOJ's monetary policy could fully resort to the two major means, namely, raising/lowering interest rates and executing buying and selling operations. It might take years or even longer, but central banks of other developed countries all raise/lower the official discount rate and execute market operations involving selling and buying operations. A central bank that is restored to its normal state should eventually have functions to resort to these two major means, that is, raising/lowering the official discount rate and executing market operations.

Q.

If the financial functions are restored, developed countries introduce inflation targets and reference rates of inflation, and in the case of the United States, the Federal Reserve Board (FRB) engages in a dialogue with the market through announcements, etc.

A.

Terms like inflation targets and inflation objectives are extremely difficult. Countries in which inflation is likely to accelerate adopt policies that include inflation targets, with the policy objective of keeping commodity prices within a certain range. The fundamental problem is whether or not there could be inflation targets in a deflationary country. Also, it might be due to my lack of research but it is beyond is my comprehension that targets would be discussed pointlessly without discussing what the means are to set and achieve the targets.

Q.

The other day, a Mizuho Bank employee was arrested for stealing massive volumes of personal information. What is your view on this incident? How will the Financial Services Agency (FSA) respond as a supervisory authority in the days ahead?

A.

Action will be taken internally within Mizuho Bank, and criminal action will be taken as well. The FSA must deal with Mizuho Bank appropriately, according to the gravity of the incident.

In any case, important information on customers was leaked outside. Even worse, the leak involved a company acting as a front for a crime syndicate according to reports by the press. It was an extremely shocking incident indeed. How it happened remains unknown as the case is still under investigation, but in any case, not only Mizuho Bank but also other banks must make a commitment to manage information so as to ensure the reliability and trustworthiness of financial institutions.

In any case, there is a lesson to be learnt from this problem by the FSA.

Q.

Going back to the subject of inflation targets, what about setting a price-level target like the one set loosely by the European Central Bank (ECB)? Would you reject it? Is it not conceivable?

A.

I cannot comment on it without being given a further explanation by inflation target advocates on the purpose of setting inflation targets, and if they are set, how they are going to be achieved.

(End)