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

(Excerpt)

September 19, 2006

1.  Minister's Statement

The Cabinet meeting proceeded smoothly as planned. Let me describe two agendas that related to the Financial Services Agency (FSA).

Firstly, the Cabinet approved measures to block the transfer of funds relating to North Korea's plans for missiles and weapons of mass destruction (WMD). There will be a detailed explanation provided by the Prime Minister's Cabinet. FSA-related measures include requesting financial institutions to report suspicious transactions under the so-called Customer Identification Law and Anti-Organized Crime Law, and the FSA is committed to properly implementing them.

Secondly, the Cabinet resolved to amend the government ordinance concerning the Customer Identification Law. The amendment obliges financial institutions to check the ID of remitters when making cash transfers exceeding ¥100,000, in response to requests from the international community to enhance customer identification upon remittance exceeding $1,000 or 1,000 Euros in all countries to fight money laundering and terrorist financing. The amendment is scheduled to come into force on January 4, 2007, after which ATMs will no longer accept cash transfers exceeding ¥100,000, causing inconvenience to users in some aspects.

However, the amendment is carried out to meet requests from the international community for the purpose of fighting money laundering and terrorist financing, so your understanding and cooperation will be highly appreciated.

Both ATMs and bank tellers will basically continue to accept transfers from savings accounts based on the existing method, but not cash transfers.

The FSA will continue to make steady efforts to facilitate the implementation of this new system, including requesting financial institutions to develop a proper framework.

2.  Q&A

Q.

At the end of last week, the Liberal Democratic Party (LDP) reached a consensus on revising the system of moneylending businesses. Some changes have been made to the draft compiled by the FSA, such as the number of years of the preferential measures and the interest rates. What is your evaluation of the bill compiled by the LDP?

A.

Firstly, there is no need to evaluate things by focusing solely on the preferential measures. If you ignore all the sections relating to the preferential measures and assess the system of moneylending businesses, the draft seems to be extremely strict. Extremely strict market entry requirements have been established with respect to the issue of net assets, qualifications and mandatory subscription to a single computer system.

In regards to excessive lending, the loan limit will be set at one third of the borrower's annual income as a general rule, on the grounds that the borrower's income needs to be properly investigated for loans exceeding ¥1 million. This limit refers to the cumulative balance of borrowings from all moneylenders, so in that sense, the draft takes an extremely tough stance to excessive lending as well.

While so-called gray zones will be abolished with respect to interest rates, migration to the new interest rate regime will take place in three years time, meaning that the FSA and authorized corporations will have to get their job done in a great hurry, considering that they have to build systems and develop government ordinances. As this will realize interest rates of 20%, 18% and 15%, a completely new world will come into being.

In the meantime, if a moneylender concludes a contract based on a gray-zone interest rate, judicial precedents of the Supreme Court will be extremely effective, so fewer major moneylenders are likely to take the risk of concluding a contract based on gray-zone interest rates. In that sense, the entire interest rate regime coming down to 20% plays a significant part.

In other areas, advertisements will be voluntarily determined, but the method of advertising will be subject to approval. TV commercials, newspaper advertisements and outdoor advertisements will all be subject to regulation.

The preferential measures were not determined particularly in favor of moneylenders. Both lenders and borrowers argued that some kind of provision to alleviate radical change would be needed, so in that sense, the LDP had extremely good sense in minimizing the preferential period to two years and setting the preferential interest rate at 25.5%.

Then, what about the FSA? As repeatedly stated before, the FSA prepared and presented a draft that faithfully reflects the document produced by the ruling coalition including the LDP, which was then properly sorted and brushed up by the ruling coalition including the LDP.

Q.

Investment in real estate and financing secured by real estate seem to be on the rise again among financial institutions nowadays. The Bank of Japan and other authorities have declared their stance to keep a close eye on risk management with respect to real estate investments. What are your thoughts on this?

A.

As the lessons learnt from the collapse of the bubble economy are still vivid, financial institutions will not collectively go in the wrong direction and people planning to invest in real estate will not make investments focusing solely on the appreciation of asset value as it happened in the bubble years; they have learnt to calculate profits and acquire assets at capitalized value even if their assumptions are wrong and regardless of their accuracy, and such learning effects are still in place, so it is unlikely for a bubble to arise.

Q.

What are your views on the FSA's role in imposing financial sanctions against North Korea?

A.

The FSA has two roles: the first is customer identification. This is partly to prevent other people's names or fake names from being used in transactions in order to fight terrorist financing, but first and foremost, banks are responsible to confirm the identity of the person for bank transactions, tax affairs and other such matters.

The latest measure requires that the ID of customers be properly checked in such cases involving remittance. If the ID of the holder of a bank account has been checked in advance, customer identification is not needed for the remittance of funds withdrawn from such a bank account because it has already been done. Nonetheless, the FSA is urging financial institutions to properly check the ID of customers. This is one of FSA's roles.

In addition, the Organized Crime Punishment Law stipulates that if a bank acknowledges suspicious transactions, the bank must confirm certain facts and file a report on such transactions. The FSA's other big job, which relates to proceeds of crime, is to request financial institutions to closely monitor such suspicious transactions.

The implementation of the Foreign Exchange and Foreign Trade Control Law itself is under the jurisdiction of the Ministry of Finance.

Q.

At this point, what are the prospects for the Moneylending Control Law in future Diet sessions, including the extraordinary Diet session?

A.

At the end, the LDP left it entirely up to the Chairman of the Research Commission on the Finance and Banking Systems and the Subcommittee Leader, but there is still some homework left. There are two issues left: the issue of handling notary documents and the issue of the interest rate levels at 20%, 18% and 15% must ultimately be resolved. I presume the LDP is properly consulting with the New Komeito to work out the solutions for these issues left as homework.

If that is the case, the ruling coalition's paper will be returned to the FSA, so we will properly do our own homework. As Mr. Kaneko--the Chairman of the Research Commission on the Finance and Banking Systems--is eager to have it done based on government proposal, I believe my successor will vigorously work on it.

(End)