Press Conference by Shizuka Kamei, Minister for Financial Services

(Excerpt)

(Friday, January 8, 2010, from 10:56 a.m. to 11:21 a.m.)

[Opening Remarks by Minister Kamei]

Good morning.

I am meeting many of you for the first time this year. As I was in the United States for a while, I feel as if a very long time has passed. In the meantime, the Finance Minister has changed. Needless to say, the Hatoyama government will enter a critical period this year, so the People's New Party, as a coalition partner, is resolved to provide thorough support for the government.

In the narrow area of my responsibility, we have to deal with the issue of the reform of the postal businesses. Last year, we established a broad scheme, or I should say a broad framework, by suspending (the sale) of their stocks and assets. This year, we will consider what services the postal businesses should provide and how to reorganize those businesses. And we will submit a relevant bill to the ordinary session of the Diet. To that end, since last December, we have been discussing with the president and other senior officials of Japan Post the new services and the reorganization. We are working on these issues with a view toward setting forth its policy direction by the end of this month.

This is a rather difficult task, and as I have said over and over again, although it might be easy to restore the postal businesses, whose foundations were shaken by Mr. Koizumi (former Prime Minister), to their former status, that is not what we are going to do. As we are undertaking a grand project of considering how to make use of Japan Post, which we may say is the biggest in the world, for the benefit of the whole of Japan and the entire world, this is a rather challenging task. We are now seeking public opinions and advice from far and wide. We are undertaking this project in the hope of achieving it together with the people, as I have been saying. If you ask me whether our study is proceeding smoothly, I can only say that a plan like this does not take a clear shape until the very last moment. In any case, everyone is doing his part in his own position, so we will be able to set forth a direction by around the end of this month.

For another thing, derivatives products, which are new products based on financial engineering, have been sold around the world and the implosion of derivatives deals has had a significant impact on the real economy. Recently, such a situation occurred in the United States. By all means, the government must avoid a situation in which greed leads even innocent ordinary investors, who lack adequate knowledge, to suffer financial damage. The FSA (Financial Services Agency) has already been acting from that perspective. As you know, there are various ways of trading between many counterparties in the market. The FSA is considering if it is possible to set a central body that clears off all gains and losses made in the market through these trading. If a good proposal comes up in this respect, we may enact it into law. This is another matter we are now working on.

This is a complicated field. It concerns not only Japan but the entire world, so it is difficult to grasp entire transactions. One moment we are about to get a hold on them in Japan, and the next moment, they flee to the United States or Europe. However, we are now considering how to prevent the entire economy from suffering significant damage when huge losses arise and spread. These are the two tasks we face now.

Please ask me questions if you have any.

[Questions and Answers]

Q.

Earlier, you talked about the central clearing of derivatives transactions. I understand that since late last year, various measures to improve the financial and capital markets have been under consideration in the FSA. Am I correct in understanding that your reference to legislation related to the central clearing of derivatives transactions means that your legislative efforts in the coming ordinary session of the Diet will be limited to will focus on the centralization of the clearing operations?

A.

Various measures are still under consideration, and as I said earlier, it is a very complicated field. One important thing is to prevent innocent ordinary investors from suffering damage and another is to prevent an implosion of such deals from inflicting significant damage to the economy. As this matter is still under consideration, it will take a while longer for us to reach a conclusion as to how to deal with it.

Q.

I would like to make sure about just one more thing. Am I correct in understanding that you were referring to the prevention of uninvited solicitation when you mentioned the need to prevent ordinary investors from suffering damage?

A.

This concerns the issue of whether you can expect ordinary investors to have accurate knowledge regarding such products. It also concerns how sales activity is conducted, so we are considering all these issues. This is a complicated field. Some derivatives are like creating something from nothing. To put it simply, it is like, if I may say so, gambling. This has nothing to do with trading actual goods. In a betting game that used to be popular, we placed a bet as to whether the serial number of the next train would be an odd or even number. This is somewhat like that game, and transactions could be made without any relation to the real economy. If the parties involved in such transactions alone are to be affected, it may not be so problematic. However, as the scale of transactions has grown, the entire economy could be affected if the deals implode. So, we cannot just say, “We don't care if you suffer losses, as you have done the OTC(over-the-counter) deal with each side understanding the risk.” Therefore, we are considering all these issues.

As I have never made such transactions, I do not understand them. Have you ever bought (a derivatives product)? New products are launched one after another, not only in the United States but also in other countries, including Japan. The problem is that there is not a ban on creating such products. Even a bet on something like which of two television stations will get a higher audience rating could be turned into a product. This is really a mind-boggling world.

(End)