Provisional translation

Press Conference by Yoshimi Watanabe, Minister for Financial Services

(Excerpt)

April 30, 2008

[Opening Remarks by Minister Watanabe]

Good morning. Please ask me questions.

[Questions and Answers]

Q.

Today, the ruling parties plan to enact a bill to revise the act on special tax measures (which maintains a provisional gasoline tax rate) by having the House of Representatives take a second vote on the bill to pass it. Against the background of the rising crude oil price, the gasoline price is expected to rewrite a record high in the near future, provoking public opposition to this bill. Please tell me whether or not you, as a cabinet minister, think it necessary to restore the provisional gasoline tax rate in this situation?

A.

The Administrative Reform Promotion Act stipulates that, as a precondition for maintaining the provisional rate, the revenue from the gasoline tax must be used for general purposes and consideration must be given to environmental protection. In this respect, it is very appropriate that the cabinet of Prime Minister Yasuo Fukuda has decided to use the tax revenue for general purposes. Nonetheless, it is very regrettable that this issue has kept society in a state of confusion for one month. Anyway, it is quite important to explain to the public the process of deciding to use the tax revenue for general purposes.

Q.

Most major securities companies have released their earnings reports for the fiscal year ended in March. The results were severe, with the companies reporting either profit declines or losses. This is probably due in large part to the deterioration in the market condition caused by the effects of the subprime mortgage problem. Could you tell me how you evaluate the impact of the subprime mortgage problem on Japan's financial markets and on the management of Japanese financial institutions, including indirect effects such as decline of prices in the market? Also, does the Financial Services Agency (FSA) have in mind any measures to revitalize the market?

A.

Although not all details are clear as to the earnings of securities companies, I am aware that some of them reported losses due to the impact of the subprime mortgage problem. I do not believe, however, that it means the soundness of their financial conditions has been greatly damaged. Despite the losses in the year ended in March, they have not incurred so much damage as to see their capital base eroded, unlike LCFIs (large and complex financial institutions).

Realizing and booking losses early would be the best way to dispel suspicion. Financial institutions other than securities companies will start releasing their earnings reports one after another. It is important for them to properly conduct corporate governance and risk management and properly disclose any losses they have incurred. My impression about Japan's financial sector as a whole is that there are signs that losses on subprime mortgage-related products and other securitization products are expanding indeed. However, losses suffered by Japanese financial institutions are substantially smaller than those incurred by LCFIs. And so, I do not believe that Japan's financial system as a whole faces a similar problem to the ones seen in the United States and Europe.

Q.

Does the FSA plan to take any countermeasure?

A.

As I have repeatedly told you, we will enhance the level of our vigilance given that this problem has not come to an end. As for how to revitalize the market, it is important to enact as soon as possible the bill for the amendment of the Financial Instruments and Exchange Act, which are under deliberation in the Diet, and put them into effect, as well as to implement the Plan for Strengthening the Competitiveness of Japan's Financial and Capital Markets. The most important thing is to revitalize the economy by keeping Japan's markets open and making effective use of both domestic and foreign funds.

Q.

It seems that the Securities and Exchange Surveillance Commission is considering recommending administrative action against Deutsche Securities for allegedly assessing the value of securitization products in an inappropriate manner. What do you know about this case and what do you think of it?

A.

I would like to refrain from commenting on a specific issue like this. I will not comment as this concerns commercial activity. Generally speaking, valuation of securitization products-in the United States, there are three levels of valuation-is very complicated. However, it is important to value what should be valued in accordance with rules, and slipshod valuation should not be tolerated.

Q.

I will ask you about the FSA's decision to inspect Shinginko Tokyo. Why will the FSA inspect the bank now and what specific points will it focus on in the inspection with regard to the financial condition and business operations?

A.

As I have told you time and time again, the first thing to do for financial institutions is to make voluntary efforts to improve their management. Therefore, we have paid sufficient attention to such efforts. We issued a notice of the inspection after the Tokyo Metropolitan Assembly decided to increase the bank's capital in the process of deciding its budget and the payment of funds for the capital increase became all but certain. On average, the FSA inspects a new bank three years and one month after its establishment. It is exactly three years and one month since Shinginko Tokyo was established, and so we are not treating this bank differently from other banks. Anyway, in our inspection, we will properly examine its systems for corporate governance and compliance with laws, as well as risk management systems, including a system for capital assessment management, from various viewpoints.

Q.

I will ask you about the reform of the civil servant system. Although it is nearly one month after the bill for the basic act on the reform was submitted to the Diet, the bill is still hanging in the air, without being referred to the relevant committee. What do you think of this situation? Also, tell me about your resolve with regard to enacting this bill during the current Diet session. There are calls for extending the Diet session for a short period.

A.

I strongly hope that this bill will be enacted during the current Diet session. Shelving or scrapping the bill would only delight people eager to maintain the status quo, and so I would like to have the bill enacted by all means during the current Diet session.

As the chairman of the Diet Affairs Committee has told me to leave diet affairs to him, I wish I could leave this matter to him without worrying. In reality, however, I feel that things are not going well. Considering that the chairman of the Committee on Rules and Administration expressed an intention to explain why the bill was introduced at a plenary session on April 24 but failed to do so, I am worried about the fate of the bill. The chairman of the Committee on Rules and Administration is the public face of the Diet. However, things are going quite differently from what he has said. I strongly hope that this bill will be enacted during the current Diet session.

(End)