Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

June 13, 2008

[Opening Remarks by Minister Watanabe]

Good morning. Please feel free to ask me questions.

[Questions and Answers]

Q.

I would like to ask you about the second report by the (Financial Markets) Strategy Team, which was issued yesterday. This report places emphasis on the promotion of foreign investment in Japan, as represented by its stance of welcoming investment by foreign SWFs (sovereign wealth funds). This report apparently makes suggestions concerning matters related to recent issues of interest, such as moves to restrict foreign ownership of airports and the controversy over foreign investment in J-Power (Electric Power Development Co.). How will the FSA (Financial Services Agency) reflect such suggestions in its financial regulation and how will it coordinate the diverse views within the government?

A.

I agree with the underlying goal of this report as indicated by its subtitle, “Aiming to Create An Open Country with Financial Expertise.” Japan is in no way a closed country. However, there is certainly an impression that it is a closed country. I believe that the report's subtitle aims to make clear to the outside world that Japan seeks to further open itself up. Treating domestic and foreign interests equally is a basic policy of the FSA, and as such we must avoid introducing restrictions targeted specifically at foreign investment. When dealing with national security issues, there are many alternatives to imposing restrictions on foreign investment. This report was apparently written with matters like this in mind.

Mr. (Yoshikazu) Takao (managing director of Asahi Life Asset Management Co.), who heads the Strategy Team, asked me to start by following the recommendationsthat can be immediately implemented in financial regulations. Upon close examination of this report, we will reflect that which we are capable of doing in our regulations.

Q.

I have a question about another example of prominent foreign investment in a Japanese company, Nipponkoa Insurance Co. A U.S. investment fund, in its capacity as a Nipponkoa shareholder, demanded that the company reshuffle its management team and seek a merger or an alliance with other companies on the grounds that the company's business performance had been sluggish. How do you view this demand in relation to the goal of creating an “open country with financial expertise”?

A.

I am sorry to say that I am not familiar with details of the specific issue of which you speak.

If I am to talk about foreign investment in general, Japan is not a closed country. We will welcome investment, be it domestic or foreign, as our policy is to treat domestic and foreign interests equally. We welcome any investment so long as it complies with the market rules and principles of Japan.

Q.

In relation to our stance of welcoming investment from SWFs, the United States signed agreements with Abu Dhabi and Singapore concerning investment by SWFs. Do you think that it is necessary for Japan to sign similar agreements with foreign SWFs?

A.

I have not yet examined details thereof. Generally speaking, sentiment towards SWFs has apparently changed significantly. Until last year, the United States appeared unfriendly towards SWFs at times. Recently, however, its sentiments have changed. This is probably due in part to the contribution of SWFs to the capital base-strengthening efforts of LCFIs (large and complex financial institutions). Also, the U.S. government's policy of keeping the dollar strong has recently become apparent. This is indicated by the fact that officials of the monetary authorities, such as Mr. Bernanke (chairman of the Federal Reserve Board), have begun commenting on the exchange rate of the dollar, an issue that is usually mentioned only by the President or the Treasury Secretary. The SWFs of countries to which wealth has been transferred have gained significant influence, and the investment agreements you mentioned were probably signed with their increased influence in mind. We have not yet considered whether or not Japan needs to sign similar agreements.

Q.

The report does not take up the issue of whether Japan should establish its own SWF. Do you have any idea why?

A.

In all probability, this report is looking beyond that issue. The amount of financial assets in Japan, be they assets held by individuals or pension assets, is very large. Regarding pension assets, for example, I hear that the Liberal Democratic Party is considering a plan to establish an SWF worth around 10 trillion yen. This report goes beyond that sort of idea. Specifically, it suggests leaving the investment of assets managed collectively by an independent administrative agency to the discretion of individuals rather than establishing a 10-trillion yen SWF for the management of pension assets. For example, individuals would be allowed to choose the investment vehicles they like under this framework while the fixed-benefits system would be maintained. Since a fixed-contribution system would not be adopted, the idea does not specify what to do with assets that have achieved strong investment performance. In any case, the idea of leaving the investment of pension assets to the discretion of individuals while maintaining the fixed-benefits system is very unique. I hope that the (Financial Markets) Strategy Team will look beyond the issue of SWFs in its discussion of how pension assets should be managed.

Q.

Do you think that the GPIF (Government Pension Investment Fund) should be abolished?

A.

Before taking such a step, we must consider the establishment of an SWF or seek improvements in investment efficiency. The recommendation of this report goes beyond such approaches.

Q.

At the meeting of the G-8 Finance Ministers starting in Osaka today, issues such as the stabilization of the financial market and the surging price of crude oil are likely to be discussed. What sort of discussions do you expect?

A.

As approaches to maintaining the strength of the dollar have become a major issue, I would like to keep a close watch on discussions of this issue. Extraordinary situations have arisen not only in the financial markets but also in the commodities markets as represented by the price surge in the oil futures market. This is related to the issue of the dollar's exchange rate, and so I will watch how discussions of this regard develop at the G-8 meeting.

Q.

I would like to ask you about the reform of the civil servant system. You have indicated a plan to appoint the chief of the headquarters for the promotion of the reform from among candidates both inside and outside the public sector. Does the plan remain unchanged?

A.

Through ongoing debate regarding this issue, a number of lawmakers, both in the ruling and opposition parties, have expressed their support for the idea of appointing persons knowledgeable about both public-and private-sector affairs to the positions headquarters chief and other posts by inviting candidates from both inside and outside the public sector. The basic act for this reform, submitted by the government, has been amended in response to a proposal from Diet members, and we must respect the intent of the Diet. Although I would very much like to select the chief of the headquarters through public invitation, coordination work within the government continues.

Q.

Regarding Diet affairs, a censure motion against Prime Minister Fukuda has been adopted (in the House of Councillors) under the leadership of the Democratic Party of Japan (DPJ), causing a halt in Diet business, although the term of the current session has not yet expired. How do you view the DPJ's handling of Diet affairs?

A.

It is inappropriate that Diet business has been halted while the Diet is in session. The current Diet session was initially scheduled to expire this week but was extended by one week to have an economic partnership agreement (EPA) with the Association of Southeast Asian Nations (ASEAN) enacted automatically. We could have held full discussions on the EPA without extending the Diet session. Through the one-week extension, the government has ensured the EPA's enactment so that it can save face diplomatically. However, the way in which this matter has been settled is not appropriate. The opposition parties have reached a very constructive conclusion on such issues as the reform of the civil servant system, and as such I hope that they will show a still more constructive stance on matters of national interest.

(End)