Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

May 22, 2007

Q.

I would like to ask a question on your speech yesterday. You discussed your desire to create a new financial street in Nihombashi. The idea is to invite foreign companies to the street. Deregulation and tax incentives may be considered for that purpose. Would you discuss any specific initiatives or measures you have in mind?

A.

Looking at examples in the world, financial cities or regions concentrate financial center functions at certain points. Intelligent buildings are required for such functions. This means information and communications equipment for supporting giant computer systems are the first condition for financial centers. As noted in my speech yesterday, buildings must be open 24 hours a day to link markets in different time zones around the world. While buildings remain open, security measures should be taken for the securing of massive fund transfers. Each major financial institution may have its own building. Such buildings should have not only good security conditions and intelligent functions but also comfortable features such as restaurants and sports clubs open even at 5 a.m., as seen at the New Marubiru building. Buildings enhancing such functions would concentrate in a certain location artificially and naturally. The more financial functions are enhanced, the more buildings will be concentrated. Specific examples include London's Canary Wharf and New York. If financial functions are enhanced in Japan, such a concentration of intelligent buildings could be seen in an area like Nihombashi. On the other hand, a survey of foreign companies' head offices in Japan shows that Minato Ward features the largest number of such offices among special wards in Tokyo. I would like to leave the Urban Renaissance Headquarters to consider relevant problems and select the location for the new financial street.

Q.

Group of Eight finance ministers have agreed to toughen regulations on hedge funds while giving up direct regulations. Would you discuss your interpretation of the agreement and any points that are in the agreement that would be useful for Japan's regulatory authorities?

A.

In considering hedge funds, the Financial Services Agency has given priority to protection of investors in such funds and the soundness of markets. When I had discussions with senior Federal Reserve officials to put problems in order, we agreed to leave private funds to move freely. But we agreed that hedge funds have some problems that should be subject to our close attention. Their short-term speculative moves can confuse markets and should be watched carefully. I have heard that U.S. regulators are still considering whether hedge funds should be registered for regulation or whether they should be regulated. From the perspective of investor protection, we would like to receive reports from hedge funds. Though refraining from supervising details of their actions, we would like to grasp their locations or contact points which we could access when investors suffer losses. This is our present approach. G-8 finance ministers at their meeting in Germany's Potsdam discussed self-regulation for hedge funds. I hope that the specifics may emerge from such self-regulation.

Q.

I would like to ask a question about insurance firms' failures to pay due insurance claims. Fictitious contracts are reportedly linked to such failures. How do you interpret the problem at present?

A.

First, I am aware of such media reports. All life insurance companies have made reports on their failures to pay due insurance claims. These companies are still continuing their own investigations. The FSA is now screening and analyzing reports from these firms. The authorities are planning to look into the factors behind such failures and expired premium refunds and into possible Insurance Business Law violations while screening and analyzing details of these reports.

Q.

Sumitomo Trust & Banking Co. is paying corporate tax for the first time in 13 years, symbolizing Japanese financial institutions' revival. Would you give your impression on this situation?

A.

Major banks are announcing their financial statements for the year to March 2007. I would like to refrain from making comments on the details before all major banks' statements are made available. In fiscal 2005, major banks earned record net profits on returns of earlier loan-loss provisions. This special factor was not seen for fiscal 2006. Their financial statements for fiscal 2006 may better reflect their real banking performances. Financial statements that have been announced indicate narrower profit margins and losses on consumer loan services. Some banks are paying corporate tax, as you noted. I think banks have overcome the prolonged problem of nonperforming loan disposal and are entering a new stage. Regarding banks' financial soundness, nonperforming loan ratios at major banks have continued falling. Their ratios are now as low as those at major European and U.S. banks. Their future challenges include enhancement of profitability and fulfillment of further financial mediation functions. I hope that banks would achieve these challenges through provision of attractive products meeting customer needs and improvement of financial services. In particular, I welcome Sumitomo Trust's corporate tax payment. I think the time has come for us to expect financial institutions to take risks in a full-fledged manner.

(End)