Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

September 26, 2006

1.  Minister's Statement

Let me first talk about the Prime Minister's orders I have been given. In regards to financial services, one of his orders was to reform the system of moneylending businesses to curb and provide a remedy for multiple debts. He also urged me to develop and implement a framework that enables people to use financial instruments with a sense of security, including properly implementing the Financial Instruments and Exchange Law. He also instructed me to make comprehensive efforts, including making enhancements to market surveillance functions aimed at strictly enforcing market discipline, while developing an environment adapted to globalization in order to turn Tokyo into a global financial center through such means as aggressive deregulation and construction of a world-class stock exchange system.

In regards to ''re-challenge'' or second-chance programs, he asked me to make policy efforts to create a society that does not lock in winners and losers but offers diverse options to people in each stage of their lives. Especially in regards to supportive measures, he ordered me to consider building a flexible and diverse social framework that enables people have another go, creating diverse work styles, schooling and life styles, and working out supportive measures according to individual circumstances.

I am committed to fulfilling both of these responsibilities as hoped by the Prime Minister by making thoroughgoing efforts.

2.  Q&A

Q.

Among the matters you have explained regarding the orders given by the Prime Minister, are there any specific issues that need to be tackled urgently, or any specific fields, responsive policies or other matters that should addressed first considering various schedules and the timetable of Diet sessions?

A.

Let me first talk about ''re-challenge''. Although there are some problems in determining the scope of ''re-challenge'', a ''re-challenge'' budget of about ¥145.6 billion has already been prepared for the FY2007 budget requests as of September 4. We need to work hard to secure the full amount requested in the budget compilation process. As the Prime Minister has had talks with business groups and exchanged opinions with various sectors during his years as Chief Cabinet Secretary, if there are any specific measures that should be incorporated, we will add them to our list and conduct further studies. If the need for legislation arises in the process, we will look into it. In regards to financial services, the radical revision of the Moneylending Control Law has basically been accepted by the ruling parties, so we hope to accelerate work on the bill with respect to their views. We also have to develop the framework and infrastructure to develop financial and capital markets, and we are thinking about enhancing the system of stock exchanges.

Q.

In regards to the bill for the amendment of the Moneylending Control Law, your predecessor Mr. Kaoru Yosano seemed to have taken an extremely tough stance, and members of the LDP are sharply divided over the issue. What is your stance, commitment or views you previously held with respect to the industry?

A.

Looking at the interest rates and the circumstances under the existing Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits, the amendment makes the Law much stricter compared to the current standards. While I acknowledge that there are proposals to make it even stricter, we need to look for the optimal point where our society will have no people with multiple debts and at the same time, meet the needs of people who require credit based on trends. It is not a matter of whether it is better to be strict or lax: we need to have a highly discerning eye to look at the times, so we hope to work on finding the optimal point while listening to various people's opinions, including reporters like you.

Q.

Financial administration is in a transition phase in that the worst part is over in regards to the disposal of non-performing loans (NPLs), and is shifting towards deregulation, supervision, ex-post-facto checking. Considering that the Livedoor issue and the Murakami Fund issue arose this year, where do you intend to direct your efforts in terms of building an administration focusing on ex-post-facto checks, or creating disciplinary rules?

A.

Especially with respect to professional investors, regulations need to be developed and enhanced further in many aspects. On the other hand, amateur investors… No, let me rephrase this. The times have changed, from making efforts to stabilize the financial system by overcoming the issue of NPLs, to generating financial sector vitality now. In that sense, we need to lure more people into the financial sector to bear the risks associated with shifting ''from savings to investment''. In the context of attracting funds internationally and domestically, this translates into deregulation. However, there were abnormal situations in which many stock splits were performed as exemplified by the Livedoor issue and Murakami Fund. If the market has no regulations or fails to exercise self-control to deal with such situations, many people would undoubtedly be alarmed. In that sense, it may be good enough to develop a sound market by enhancing monitoring so that people with wisdom and rich imagination can enjoy huge capital gains. However, a market in which people who exercise common sense with a healthy mindset suddenly incur massive losses would not be trusted. In that sense, regulation and deregulation will both be considered.

Q.

Bearing in mind that there have been many scandals marring financial institutions since last year, what is your view on the current situation? The FSA is claimed to take such a tough stance that it is dubbed ''Financial Sanction Agency''. From outside, what was your perception of the FSA?

A.

First, the non-payment of fringe insurance claims came to light. I suppose you take out insurance in your daily lives and receive claims for traffic accidents and other mishaps as an everyday experience. As this sort of thing does not occur on a monthly or daily basis, it takes the general public by surprise when it happens, and such non-payment needs to be fully condemned. There were also wrongdoings by financial institutions that abused their dominant positions. In the moneylending industry, unlawful debt collection was revealed, some of which deserved criminal prosecution. Judging from these incidents, administrative actions taken against financial institutions have been tough. We intend to continue making efforts in this area without loosening our hold.

In regards to an outsider's perception of the financial sector, my honest impression was that the financial world is difficult, extremely complex and very detailed. While I visited my constituency, I heard about a person whose wife was admitted to hospital due to cancer but could not receive any insurance money despite having cancer insurance. He investigated why this was the case and found out that the terms of the insurance policy did not cover that particular type of cancer, so he gave up. As few people actually read the terms of the policy before taking out insurance, if the FSA carries out PR and advertising activities in regards to this, promotes discussions between industries and establishes rules to be followed when taking out insurance, financial administration should be facilitated substantially and contact with the people should increase, which should help people become more familiar with financial administration.

Q.

You just stated that regulations on professional investors need to be enhanced further. Can you please describe the specifics to the extent possible? Also, in regards to enhanced monitoring, a heated debate erupted at one point last year over the issue of whether Japan needs securities surveillance functions based on its own version of the US Securities and Exchange Commission (SEC), and many members of the LDP are still insisting that they are necessary. What are your thoughts on this issue?

A.

As the enhancement of regulations on professional investors is a sensitive matter in many aspects, I will talk about this at another opportunity. In regards to the debate over the Japanese version of SEC, anyone who cares about the stock market is likely to feel more strongly that it is necessary, but from our point of view, considering that great importance was attached to the Banking Bureau and the Securities Bureau of the Ministry of Finance as functions during the reorganization of central government offices, the overall picture consists not only securities markets but also financial instruments these days, both in terms of selling method and style. From such a perspective, enhancement of the functions of the existing Securities and Exchange Surveillance Commission in Japan might ultimately lead us to the same goal. As I presume that the United States is learning more from Japan, I asked the secretary and senior officers to conduct studies on the current functions and circumstances of the SEC of the United States.

Q.

You stated that you will look for the optimal point in regards to the Moneylending Control Law. Does it mean you will continue examining additional remedies for people with multiple debts, in addition to the bill to be submitted at the extraordinary Diet session including remedies for people with multiple debts and safety nets?

A.

The difficult circumstances faced by people with multiple debts vary from person to person, as do the causes and the factors that led to multiple debts. In that sense, there could be alternative remedies in various circumstances, such as bankruptcy and civil rehabilitation. As it is necessary to determine how much we could do by eliminating such gray zones while checking with social dynamics and trends, we do not think a single measure will be a complete solution for people with multiple debts. In particular, it is often said that organized crime financing might go underground, so we need to work integrally with the police and other authorities in their crackdown efforts; if we merely reduced interest rates and failed to convict those who went underground, the underground will increasingly infiltrate the industry, so in that sense, it is extremely important to work with other ministries and agencies.

Q.

Now that the task of spending a year or so to look for an acquirer of Ashikaga Bank has started, please describe the matters that will particularly draw your attention and the policies that do you have in mind at this point when looking for an acquirer.

A.

Bearing in mind that special crisis management commenced in 2003, we would like to hear the opinions of the working group consisting of experts and opinions of the locals and conduct further studies from three perspectives, namely, the sustainability as a financial institution, the demonstration of financial intermediation functions in the region, and the minimization of public burden.

Q.

Former Minister Mr. Yosano stated that he would respect the wishes of the locals. What is your stance to this?

A.

As I just assumed office, I do not have an understanding of the specific opinions of the locals yet. Once I understand the specifics, I will further examine the situation.

Q.

There have been some claims from a long time ago that Japan is overcrowded with banks. What is your view on this, especially with respect to regional banks?

A.

The specific circumstances of each region, the status of the borrower and the needs for financial services vary widely, so one cannot categorically claim that it is overcrowded with banks, or argue what would be the appropriate number or size of banks. The financial sector is merely a lubricant, corresponding to the bloodstream in the human body. Regardless of whether it is overcrowded with banks, companies can be invigorated and the economy can be boosted through the allocation of funds required to meet demand. Categorically arguing that it is overcrowded with banks might give rise to circumstances similar to the one faced by Hokkaido after the collapse of Hokkaido Takushoku Bank, so we would like to address this matter carefully.

Q.

Two banks in the region, namely, a regional bank and a second-tier regional bank, are facing pretty tough circumstances. How should local and regional problems be resolved?

A.

That is the biggest key. This probably relates to ''re-challenge'' as well. If financial resources are provided in the regions, friends can get together and create so-called venture company or something like that. Examples are JustSystems Corporation and blue LED manufacturer Nichia Corporation in Tokushima Prefecture. If there are two or three companies like them in each region in Japan, the regions will truly be affluent. In that sense, regional banks and second-tier regional banks are making efforts, but they might not have such a discerning eye or they might be reluctant to take risks. While government-affiliated financial institutions are being reorganized in various ways, I would truly be pleased if we could give an overall impression of being the supporter of the regions. I would be happy if there are some prospects for this during my time in office. That is what I thought when I assumed office. I am eager to learn and study. With interest, I intend to look into how each region is operating while conducting case studies especially in other countries.

(End)