Provisional translation

Press Conference by Yoshimi Watanabe,Minister for Financial Services

(Excerpt)

June 20, 2008

[Opening Remarks by Minister Watanabe]

Good morning. Please ask me questions.

[Questions and Answers]

Q.

According to a media report this morning, Sumitomo Mitsui Financial Group is considering a plan to invest in Barclays and form a business alliance with the British bank. Do you know any details about this plan, and how do you view investments by Japanese banks in foreign financial institutions? Also, do you expect that more deals like this will be done in the future?

A.

First, I would like to refrain from commenting on the specific deal that you mentioned, as no announcement has been made by the financial institutions concerned.

Generally speaking, Japanese financial institutions have received comparatively limited damage from the subprime mortgage problem and the collapse of the market for securitized products in general. Japan has made disclosure, based on a recommendation included in a report issued by the Financial Stability Forum, earlier than other countries. Thus, Japan and its financial institutions have been given a chance to go on the offensive (in the global markets), as stated in the second report of the Financial Markets Strategy Team. In this state of global instability and uncertainty, it is important for us to turn adversity into opportunity.

Q.

I get the impression that you have been mentioning financial institutions' lending stance more and more recently. In light of the data on the status of loans to small and medium-size enterprises (SMEs) announced the other day, do you see clear signs of a credit crunch for SMEs due to the reluctance of financial institutions to provide new loans, and their rush to withdraw outstanding loans?

A.

We can say that the lending stance in general is becoming very restrictive. In particular, the curbs put on loans to SMEs that face worsening business conditions have apparently led to complaints about financial institutions' reluctance to provide new loans, and their rush to withdraw outstanding loans.

From the viewpoint of capital adequacy, an overwhelming majority of financial institutions do not have any problems. Almost all have no problems. Why should financial institutions with sufficient capital shy away from taking risks? In short, the primary duty of these institutions is to act as financial intermediaries. The question I would like to ask them most is, ''Why aren't you performing your primary duty?''

Q.

I have a question about the reform of the national civil servant system. How close are you to reaching a consensus within the government about the public invitation of applicants for various posts in the headquarters for the promotion of the reform, including the post of secretary-general?

A.

That has not yet been finished. I do not understand why there is opposition to the public invitation system. Public invitation enables us to attract people with a variety of backgrounds, both from within and outside the public sector. Under this system, incumbent civil servants can apply for these posts. Applications will also be accepted from a very broad range of people, such as retired civil servants now working in the private sector, private sector people working in government posts on a temporary basis, and private sector people who are interested in government jobs and who have the necessary knowledge and skills. Since this system is consistent with the spirit of the basic act (for the reform of the national civil servant system), I do not understand why there is opposition to it. In light of the spirit of the basic act, candidates should be invited through public invitation first, and the Prime Minister should make the final decision on who should be appointed for the posts of secretary-general and deputy secretary-general. This is what I have been saying.

Meanwhile, people who oppose the public invitation system have argued that the public invitation procedures should be abandoned, and selection should be made simply from among the proposed candidates. That would be a very murky process, though. Now that we have decided to establish a new civil servant system under the basic act, we should proceed with public invitation in accordance with the spirit of the act.

Q.

The headquarters (for the reform of the national civil servant system) is set to be established in early July, and there is little time left now. Could you tell us about the prospects of the proceedings?

A.

I would like to reach a conclusion as soon as possible. However, it is true that there is strong opposition.

Q.

The act on relief measures for victims of ''furikome'' fraud (a swindling scheme using phone calls to impersonate the relatives of fraud targets and persuade them to pay money into fraudulent bank accounts) is set to enter into force tomorrow. Since notice of the act's entry into force will only be made via the FSA website, there are concerns that not all victims will receive relief assistance. What are your views on this situation, just before the act enters into force?

A.

I have not received a report on the details of this matter. Once the act is put into force, relief assistance should be extended to victims properly, in accordance with the spirit of the act.

Q.

In relation to financial institutions' reluctance to provide loans, you said that you do not understand why they refuse to provide loans even though they have sufficient capital. However, some people have pointed out that financial institutions have become cautious about lending because the FSA (Financial Services Agency) strictly evaluates loans to real estate and construction companies in its inspections, as the real estate market has weakened and construction has slowed down amid increasing uncertainty over the prospects of the economy. Are you considering the possibility of taking measures, such as easing the evaluation criteria regarding loans to SMEs in inspections by the FSA?

A.

Apparently, some financial institutions have offered outrageous excuses, such as ''We cannot provide loans because of inspections'' and ''The FSA has instructed us to restrict loans to specific industries.'' We will not forgive the use of such excuses. In our inspections, we will check whether financial institutions have used the strictness of the inspections as an excuse for refusing to provide loans.

Financial institutions must take risks. They qualify as financial institutions only if they take risks, and must avoid adopting an overly defensive stance. Naturally, they should manage risks properly, but my impression is that an overly defensive stance has become endemic.

Q.

I am asking this to double check. Will the FSA continue to conduct inspections in accordance with existing standards, rules and guidelines?

A.

We have already released an inspection manual regarding SMEs and conducted a campaign to enhance awareness, for example by distributing pamphlets. As for improving the quality of inspections, I have repeatedly made my point on this matter. As I have said, a shift of policy is necessary in order to attach importance to quality, rather than to quantity.

Q.

Regarding the reform of the national civil servant system, how, specifically, do you intend to seek an understanding on it, given that opposition remains strong and time is running out?

A.

It is up to the Prime Minister to make a final decision, so I would like to meet with him and make my case to him, if scheduling allows.

Q.

Do you have any date in mind for the meeting?

A.

As the Prime Minister's schedule is much tighter than mine, I would like to set the date after checking his schedule.

Q.

I understand that the FSA is re-investigating the issue of gifts provided by taxi drivers. Could you tell me about the progress of the investigation? Are you planning any disciplinary action?

A.

I have not received any new information.

Q.

What about disciplinary action?

A.

We have already made an announcement concerning that.

Q.

Regarding the reform of the national civil servant system, you said at a press conference on Tuesday that the headquarters (for the promotion of the reform) can start operating without a secretary-general.

A.

The headquarters can commence operations.

Q.

Do you still think so?

A.

Under law, the headquarters must commence operations within one month, so we will ensure this.

Q.

Do you intend to stick with the public invitation system even if the secretary-general has not been appointed by then?

A.

As I have been saying, public invitation will be the best option if we are to respect the spirit of the basic act.

Q.

In relation to the headquarters for the promotion of the reform of the national civil servant system, I understand that you are considering establishing a council of advisers. Could you tell me about the details of the council, such as how it will be structured and what role it will play?

A.

This would be a panel of experts. As we are now starting to draw up the specifics of the reform, we will need the support of people who are knowledgeable about the relevant matters. If we decide to establish the planned council, we will ask such people to become members.

Q.

Would it have around 10 to 20 members?

A.

We have not decided details like that.

Q.

Yesterday, the imposition of an administrative civil monetary penalty against IHI was recommended. As we are continuing to see incidents that undermine the transparency of the market, how do you feel about this situation?

A.

The monetary penalty amounts to 1.6 billion yen, does it not? The Securities and Exchange Surveillance Commission (SESC) found that IHI's financial reports for the fiscal first half ended in September 2006 and for the fiscal year ended in March 2007 contained false statements concerning important matters. It also found that the company had sold securities by soliciting customers based on disclosure materials that contained false statements concerning important matters. As a result, the SESC recommended that the FSA impose an administrative civil monetary penalty. In response to this recommendation, the FSA will immediately decide on the initiation of procedures to examine this case, in accordance with the Financial Instruments and Exchange Act.

Needless to say, in order to secure investor confidence in the securities market, it is extremely important to ensure that financial information is disclosed properly. This case is particularly regrettable in that it violates the legal provisions concerning a disclosure requirement like this. The FSA will continue to implement appropriate measures in accordance with laws and regulations, in order to ensure that information is disclosed properly. Appropriate measures must be taken to prevent the recurrence of incidents like this.

Q.

On Sunday, June 22, the FSA will celebrate the 10th anniversary of its establishment. There have been various events and incidents during the past 10 years, including a period when the agency was called the Financial Supervisory Agency. Could you comment on this period in relation to your involvement in the financial sector as a politician?

A.

I am filled with deep emotion when I reflect upon the 10 years that have passed since the FSA's establishment. When the agency was still part of the Ministry of Finance, various scandals occurred. Moreover, Japan's financial system was plunged into a state of emergency, and we had the dreadful experience of facing a systemic risk. The FSA was launched as financial regulation underwent a major change of course in this kind of situation. Naturally, we abandoned the ''convoy system'' of regulation, which is regulation oriented toward business operators. In its regulation, the FSA has committed itself to protecting investors and users and ensuring the fairness and transparency of the market.

As I have repeatedly said, Japan used to embrace a standard type of capitalism in the pre-war period. In those days, it was quite normal to raise funds for industrial use in the capital market, and there was a privileged class of wealthy families that supported a capitalist system like this. In the post-war period, however, there is no longer such a privileged class of wealthy families. Nevertheless, a vast amount of wealth has been accumulated by Japanese households over the past 60 years. Unfortunately, this ''treasure trove'' has expanded little over the past 10 years or so, which reflects the fact that trade conditions have deteriorated, causing an outflow of wealth to resource-rich countries. We must make more active use of this treasure trove through asset management in order to achieve economic revitalization. I believe that the FSA has a major role to play in these efforts.

(End)