Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

August 10, 2007

[Minister's Statement]

I would like to report on the Cabinet meeting. Minister (for Administrative Reform) Watanabe made remarks on development of an independent administrative agency consolidation and rationalization program. The Minister of Internal Affairs and Communications reported on a review upon the end of medium-term business plans for independent administrative agencies. The Minister of Internal Affairs and Communications reported on the National Public Authority's recommendations on wages for regular government employees. The same minister also reported on the results of recycling policy evaluation. The Minister of the Environment reported on the results of recycling policy evaluation. The Minister for Science and Technology Policy reported on the nuclear safety white paper for 2006. The Minister for Foreign Affairs reported on the signing of a Japan-Indonesia economic partnership agreement. The Minister of Finance made remarks on a basic policy on FY 2008 budget requests. Minister (for Economic and Fiscal Policy) Ota made remarks on FY 2008 budget requests. The Minister of Internal Affairs and Communications made remarks on organizational and personnel requests for FY 2008. The same minister reported on the reflection of policy evaluation results in FY 2008 budget requests. The minister also made remarks on the basic policy for FY 2008 budget requests from the viewpoint of local government finance. The Prime Minister made remarks on the basic policy on FY 2008 budget requests. The Chief Cabinet Secretary made remarks on cancellation of Cabinet meetings. He said that the Cabinet meetings on August 17, 21 and 24 would be cancelled and that a meeting scheduled for August 14, Tuesday, would be postponed until August 15, Wednesday. At a ministerial conference after the official Cabinet meeting, I made the following statement: ''The challenge-again assistance is a key initiative for the Cabinet. I would like to ask relevant Cabinet ministers to give positive considerations to expansion of challenge-again assistance measures in FY 2008 budget requests.'' I would like to report on my remarks at the ministerial conference after the official Cabinet meeting. As noted earlier, I asked relevant ministers to give positive considerations to expansion of challenge-again assistance measures in FY 2008 budget requests. Since the challenge-again assistance is a key initiative for the Cabinet, I hope that relevant government agencies would give positive considerations to the assistance. Particularly, I view expansion of local stations for supporting young people as important. I would like to present specific requests to relevant ministers in the near future. That concludes my statement.

[Questions and Answers]

Q.

I would like to ask questions about the U.S. subprime mortgage problem. The Bank of Japan implemented an extra liquidity provision this morning following a similar action by the European Central Bank yesterday. I would like to hear from you about your view on the action and how the Financial Services Agency would address the subprime mortgage problem which has been spreading globally.

A.

In the United States and Europe, there is a view that the subprime mortgage problem could have various effects on macroeconomies and financial markets. A wide range of media reports have emerged on policy authorities' responses to the problem. I would like to keep a close watch on these developments from the perspective of Japan's finance. At present, I would like to refrain from making any conclusion on any effects the subprime mortgage problem would have on Japanese financial institutions. But I would like to make some points. First, most subprime loan-linked financial products subject to investment by Japanese financial institutions have been given high ratings. They mature in relatively shorter periods of time. Their outstanding investment in such products is not so much, compared with their business sizes. Given these points, I believe that we do not need to have any concern about serious effects of the problem on Japanese financial institutions at present. However, I would like to closely watch financial institutions' risk management in the future. Following the problem's spillover effects on Europe, the BOJ implemented a series of liquidity provisions as an extension of usual money market operations. The U.S.-based subprime mortgage problem has led a European financial institution to post a loss and the ECB conducted an emergency liquidity provision. Although the effects of the subprime mortgage problem on financial institutions and the financial system in Japan may be limited as noted earlier, the BOJ action has led us to believe that we must remind financial institutions of the problem. Anyway, we believe that it is important for financial institutions to appropriately manage risks including those involving the problem. Through routine hearings from and exchange of information with financial institutions, we would like to keep a close watch on financial institutions' risk management and financial market developments. While there are various studies and media reports on the subprime mortgage problem, the biggest matter of concern to me is whether the problem is limited to unrated equity bonds for hedge funds' profitability as claimed by Bear Sterns hedge funds in their releases on their huge losses. We will have to check how the problem would affect financial systems beyond hedge funds. On July 19, Federal Reserve Chairman Ben Bernanke told Congress the problem was limited to less than 1% of 14 trillion dollars or 1,600 trillion yen in U.S. gross domestic product and would not lead to any financial insecurity. The question may be whether this remark is right or not. I think we will have to coolly watch the situation in accordance with the Fed's view.

Q.

August 15 (the war-end anniversary) is approaching. Are you visiting Yasukuni Shrine as Cabinet minister on August 15 or any other day?

A.

I have traditionally visited the shrine. Sine I am now a Cabinet minister, however, I have no intention of visiting this year.

Q.

I have another question. The Prime Minister has yet to officially specify whether he would visit Yasukuni Shrine. What do you think about the Prime Minister's Yasukuni Shrine visit?

A.

I think he has strong respect for and strong sentiment for the war dead. I believe he will make an appropriate decision in consideration of his position as Prime Minister and his foreign policy stance.

Q.

You now gave us your stance as Cabinet minister. Does your remark mean that you may visit the shrine as a private citizen?

A.

I have a chance to do so on any day. Every morning, I worship at Oiwa Inari Shrine, not Yasukuni Shrine. In this sense, I respect gods and Buddha in my daily life.

Q.

Do you mean that you may visit the shrine on a day other than August 15?

A.

Yes.

Q.

I have a relevant question. Does your remark mean that you will not visit the shrine on August 15?

A.

Yes.

Q.

Let me turn to markets. The BOJ had been growingly expected to raise interest rates as early as in August. In response to the recent global stock market decline, however, central banks in the world have been providing markets with liquidity in a bid to stabilize markets through monetary easing. Whether the BOJ would raise interest rates is now uncertain. Minister, what do you think about any interest rate hike in this kind of situation?

A.

The BOJ's provision of 1 trillion yen in liquidity today indicates the central bank's policy of responding promptly to any situational change. In this sense, the BOJ may not necessarily implement a plan to raise interest rates in August. I expect the BOJ to make an accurate decision in view of price stability and other factors soon.

Q.

I would like to confirm some points regarding your Yasukuni Shrine visit. Although you had been visiting the shrine, you are now planning to refrain from doing so as Cabinet minister. Would you give your reasons or views in this respect?

A.

Many people are pessimistic that Cabinet ministers' official visits to the shrine may jeopardize Asian political stability for historical reasons. I am one of the people who believe such pessimism may disappear. If my visit to the shrine affects my actions as Minister for Financial Services, however, it will be regrettable. Today, Japanese markets must coexist with Asian markets. Based on this stance, I think one duty of the Minister for Financial Services is to refrain from visiting the shrine.

Q.

Regarding the subprime mortgage problem, I believe U.S. and European authorities expect the problem to have no serious effects on financial systems. Minister, do you believe that U.S. and European situations are not so simple while no serious effects are expected in Japan? You earlier gave us your view about an interest rate hike. Does your remark mean that you have been considering the possibility of a rate hike in August in connection with the subprime mortgage problem?

A.

A rate hike may have no direct link to the subprime mortgage problem. In principle, the BOJ may consider a rate hike in connection with domestic price stability. Therefore, the link of a rate hike to the subprime mortgage problem is extremely limited. I cited the subprime mortgage problem as a situational change to which the BOJ responded with a 1 trillion yen liquidity provision. I question if there would be appraisal losses or failures of funds regarding U.S. subprime loans in Japan. Hedge funds of Bear Stearns have reportedly taken all original transactions into account in developing mortgage-backed securities. How have Japanese financial institutions been involved in such MBS development? Since I have no data regarding these questions, it is difficult for me to make comments. For now, we believe Fed Chairman Bernanke's view is correct. So, we think the subprime mortgage problem is unlikely to lead to global financial insecurity. But we should not neglect the problem. We should carefully watch developments and take a cool response to any unexpected development. I believe this stance is essential in the financial world.

Q.

Did the Prime Minister give any instruction at the ministerial conference today about challenge-again assistance?

A.

The Prime Minister said that we should make a stronger appeal to the people about the challenge-again initiative. The Cabinet has established the minister for the challenge-again initiative to address the problem of gaps including those between regions. I believe what the Prime Minister may mean is that the people have yet to appreciate the significance of the initiative. I told the Prime Minister I would make utmost efforts to disseminate the change-again initiative.

Q.

An interim report came out this week about the planned Regional Revitalization Corporation. Minister, what do you think about the need for disposal of nonperforming loans for local medium-sized enterprises and public-private joint ventures while such loans have been decreasing at regional banks and other local financial institutions?

A.

Even as nonperforming loans decline on progress in their disposal at regional banks, rural regions have felt no improvement in their power or economic sentiment. In the sense that some policy is required to eliminate such mismatch, I believe that the launch of the Regional Revitalization Corporation is the most important urgent measure in Japan. The authorities believe that regional financial institutions' efforts to turn around ailing local companies are very important. We think stakeholders should constructively discuss schemes that are appropriate for the Regional Revitalization Corporation to make contributions to regional corporate turnarounds. In recommendations on corporations, Mr. Masuda has called for creating success stories, for using not stereotyped methods but those meeting specific conditions of ailing companies, for going beyond borders between regions, for emphasizing private sector resources, and for promoting cooperation among the national government, industry and local governments. I feel that Japan's fate depends on our follow-up on regional revitalization. While the interim report on corporations has been given by a research panel for Minister (for Economic and Fiscal Policy) Ota, I am willing to cooperate with her and with other stakeholders in developing the Regional Revitalization Corporation scheme.

(End)