Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

August 15, 2007

[Minister's Statement]

Good morning. I would like to report on the Cabinet meeting. As acting Minister of Internal Affairs and Communications, I made remarks on the appointment of the President at the National Institute of Information and Communications Technology. The Minister of Education, Culture, Sports, Science and Technology made remarks on appointments at state universities. The Minister of Agriculture, Forestry and Fisheries made remarks on the Asian Regional Forum on Growth, Employment and Decent Work. The Minister of Defense made remarks on his U.S. trip.

The Task Force for Heavily Indebted People today decided to designate the period from December 10 to 16 (Monday-Sunday) of this year as Consultation Week for Heavily Indebted People Nationwide. The Program to Remedy the Multiple Debt Problem, as adopted in April this year, includes the development of consultation services on the part of the local governments closest to residents as one of its key pillars. The consultation week aims to promote local governments' development of consultation services and provide heavily indebted people with opportunities to visit consultation service counters. Specifically, prefectural governments, bar associations and solicitor associations will jointly conduct free-of-charge consultation services during the week. The Financial Services Agency will try to smoothly implement the consultation week and promote various policies for the solution of the heavy indebtedness problem through cooperation with relevant organizations, including other government agencies. That concludes my statement.

[Questions and Answers]

Q.

Regarding the subprime mortgage problem, major banks have announced their relevant losses. Minister, would give us your view on effects of this problem on Japanese financial institutions?

A.

As regards the subprime mortgage problem, some European and U.S. financial institutions have incurred heavy losses. The problem has had a widespread spillover effect, including spillover into the financial markets. Amid such situations, European and U.S. central banks have provided financial markets with huge liquidity. Mainly European and U.S. financial markets have made nervous developments as the problem has led to concerns over liquidity shortages. At present, I would like to refrain from making concrete statements on what direct or indirect effects the subprime mortgage problem could have on Japan's financial system. Most of subprime loan-linked products in which Japanese financial institutions have invested are relatively safe. They mature in relatively shorter terms. We are aware that their investment in such products is not very significant, given with the size of their businesses.

Given the above, we do not expect that the U.S. subprime mortgage problem would incur any serious direct impact on Japan's financial system. From the viewpoint of financial market liquidity, the Bank of Japan has provided financial markets with funds as necessary. In any case, the FSA believes that it is important for financial institutions to appropriately manage risks involving not only subprime loans but also other elements. Based on this belief, we would like to routinely hear from and exchange information with financial institutions. Through such efforts, the FSA is willing to cooperate with other relevant authorities in closely monitoring financial institutions' risk management and financial market developments from a wider perspective, in consideration of the liquidity problems pertaining to subprime loan-linked products and the subprime mortgage problem's spreading effects on financial markets.

Q.

Minister, would you once again give us your views on discussions on an interest rate hike at a monetary policy meeting of the Bank of Japan, in consideration of developments pertaining to the subprime mortgage problem and the gross domestic product data released recently?

A.

Monetary policy is under BOJ jurisdiction. I think that the BOJ will make a responsible decision in consideration of various conditions. The government believes that it is important for us to cooperate with the BOJ in pursuing sound development of the national economy. In general, interest rate changes have various effects on the soundness of business operations at financial institutions through changes in the prices of the assets they hold. From the perspective of financial industry regulations, we will closely watch interest rate movement.

Q.

I would like to hear your answers to two questions about political fund management organizations. This morning's newspapers say political fund management organizations for four cabinet ministers, including you yourself, have been dormant or have fallen short of any effective activity. The purpose of the political fund management organization system has, since its creation, been to unify the channels for the flow of political fund revenues and expenses for the sake of greater transparency. I would like to hear your views on this system, based on the circumstances surrounding your own political fund management organization. Another question is about Liberal Democratic Party Secretary General Nakagawa's proposal that receipts should be required for all expenses worth 1 yen or more for the political funds reports of all political organizations. I would like to hear from you as to whether or not you endorse this proposal and your reasons why.

A.

Regarding the first question, a relevant law was amended to unify channels for the flow of political funds for greater transparency when official subsidies for political activities were introduced. Upon considering the revenues and expenses for my political activities, I paid attention to the third constituency branch that was an LDP organization created for the purpose of raising funds for the party. It was my belief that the branch should handle revenues and expenses for my political activities to ensure party control and surveillance of political funds. Since revenues and expenses were to become more public, my local secretary and I consulted with each other and agreed that concentrating revenues and expenses for my political activities in this branch would make procedures simpler. We thought that if we got used to such practices, the branch would be left to handle all revenues and expenses for my activities, with much simpler procedures. In this sense, I gave priority to having the LDP branch handle such revenues and expenses to the greatest extent possible, rather than having my political fund management organization share revenues with the branch. Since not all expenses stemming from my political activities can necessarily be handled at the LDP branch, however, my political fund management organization, although dormant, remains for the purpose of recording certain expenses. This is my understanding.

Regarding the second question, the proposal for requiring receipts for all expenses worth 1 yen or more may be collected, with political funds management organizations considered as constituting commercial companies. The proposal may also be interpreted as emphasizing that no small expense worth 1 yen should be ignored. Therefore, I think that the party may consider whether the requirement for receipts for all expenses worth 1 yen or more is acceptable or not. I intend to comply with the decision reached after a special LDP team's consideration of the proposal.

Q.

I have an additional question. In the first half of your answer, you said you have designated the LDP branch for your constituency the primary organization for management of your political funds, while retaining your own political fund management organization that you said is effectively dormant. A relevant law amendment at the Diet's ordinary session in June this year was designed to toughen regulations on political fund management organizations. If every politician is left to decide whether to use a party branch or his or her own organization for management of political funds, politicians' choices may become mixed. In such case, transparency may not be ensured. What do you think of this scenario?

A.

Given the characteristics of political parties and personal supports or political groups under a two-channel system for flow of political funds such as this, I think I may be closer to a personal support or political group rather than the party. When considering this point, I think that both are required. In order to improve the transparency of political revenues and expenses, political party branches should play a central role. A political party branch imposes tougher conditions on revenues and expenses and has many accounting experts available for consultations with politicians. In this sense, I think that party branches are reliable. Regarding whether the two-channel system is good or not, I think that the two-channel system is necessary.

Q.

I would like to ask about your Yasukuni Shrine visit. Have you visited or do you have any plans to visit the shrine?

A.

I have no plan to visit the shrine today. I have not visited the shrine. I would like to decide tomorrow whether or not I will visit the shrine tomorrow.

Q.

Another question about Yasukuni Shrine. The Prime Minister said he would not specify whether or not he would visit the shrine. His approach on this issue is somewhat different from other cabinet ministers'. Do you have any opinion about this difference?

A.

The Prime Minister said he would leave it up to each cabinet minister to make an independent decision on the matter. I think this approach is good. It is the most important for each cabinet minister to base his or her actions on his or her stance or political belief. Politicians should be entitled to freedom of religious belief and their own views in regards to visiting the shrine, and their own official positions. I think this approach is the most persuasive.

Q.

I have some questions to ask now that this cabinet meeting could be your last. Would you give us your views about this cabinet's achievements and your recollection of its impressive developments since your assumption of this ministerial portfolio?

A.

Achievements include bright signs in economic and employment indicators. The unemployment rate has fallen below 4% to 3.7%. This is a very pleasant development. It may be true that such macroeconomic improvements have not been felt in rural regions. However, among economic indicators, the improvement of the unemployment rate ranks as the most important achievement of the Abe Cabinet.

In this regard, I have been named to take charge of the challenge-again assistance initiative. A year ago, there was an urgent need for the challenge-again policy initiative to help correct gaps as the negative legacy of structural reforms. There were calls for improving conditions for freeters and NEETs. We may not have to emphasize the challenge-again initiative. Questionnaire surveys have found that the initiative was not a No. 1 priority, as cabinet ministers' town meetings with citizens have indicated. Even if we had not emphasized the challenge-again initiative, economic growth has paved the way for improvement of the employment situation. The unemployment rate improvement has been a by-product of economic growth. However, I would like to emphasize again that I think this drop in the unemployment rate and economic growth have been the most important achievements of this cabinet.

In addition, we have made steady progress in the reversal of the postwar regime, as advocated by the Prime Minister. The Defense Agency has been upgraded to the Ministry of Defense. An epoch-making law has been enacted for establishing procedures for constitutional amendments. In this sense, I think the historic significance of the Abe Cabinet is profound.

Personally, I might have had shortfalls and annoyed others in many areas. I would like to humbly reflect on my own actions and make the utmost effort to make amends. Let me turn to finance. Even though global liquidity has grown five-fold, growth of Japan's liquidity or stock market capitalization has been limited to 1.5-fold in the absence of improvements in financial functions. From 1990 to 2006, global liquidity increased five-fold. However, Japan's liquidity expanded only 1.5-fold. I think that this fact is significant enough for it to be considered a problem. If BRICs and other emerging markets further increase their liquidity, experts say that global liquidity may score another five-fold expansion in less than ten years. If Japan's financial markets remain in a slump over the next decade, our economy's share of the world economy or Japan's economic position in the world will be decreased considerably. The Minister for Financial Services will grow more important and formidable as financial services are substantially reflected in growth and employment, as I stated earlier.

A review of the past year leads me to feel that I have failed to do many things. I would like to receive your instructions again for the future. That concludes my answer.

Q.

I have another question about the Yasukuni Shrine issue. Should the Prime Minister visit the shrine or refrain from doing so? I would like to hear your answer to this question and the reasons for your position.

A.

Given Prime Minister Abe's thoughts, I think he should visit the shrine. The reason why the Prime Minister refrains from specifying whether he will visit the shrine may be that he would like to avoid creating misunderstandings that would likely emerge from his actually visiting the shrine as a result of his position. In this sense, we would like to create an environment where no misunderstandings will emerge.

Q.

I have some questions about the personnel affairs at the Ministry of Defense. There seems to be some dispute over whether the Vice Defense Minister should be replaced. The conclusion has been put off until after the coming cabinet reshuffle. Would you give us your views about Minister of Defense Koike's approach or method and about cabinet ministerial involvement in bureaucratic replacements?

A.

I have a difficult time understanding why the problem has grown so serious. Personnel affairs are difficult and should left to decisions by relevant cabinet ministers. As a matter of course, a cabinet minister should get approval from or consult with the Prime Minister's official residence in regards to replacing top bureaucrats. I cannot understand why this kind of dispute has emerged despite such procedure having been taken by Minister Koike. I would like to refrain from commenting until after gaining further information on the factors behind the dispute.

(End)