Press Conference by Shizuka Kamei, Minister for Financial Services

(Excerpt)

(Friday, April 23, 2010, from 8:42 to 9:18)

[Questions & Answers]

Q.

At the international level, discussions on financial regulation are expected to be held from various angles at the meeting of G-20 Finance Ministers and Central Bank Governors scheduled this weekend. One of the issues to be brought into focus is how to share the burden of the costs incurred in dealing with the financial crisis; the United States and Europe have suggested that banks be asked to bear the burden. What is Japan's position on this? What stand should Japan take?

A.

It is true that a strong case has been made along those lines with respect to financial institutions, especially by the United States. On the other hand, as far as Japanese financial institutions are concerned, quite a few of them are not paying tax (corporate tax). Those that are paying might even be fewer in number. Given such circumstances… Regrettably, they are not all to bear such burden yet, even in the normal form of taxes.

Meanwhile, although Japanese financial institutions often seem to act quite selfishly, in any case, I hope they exert efforts as robust financial institutions while properly fulfilling their social function. After all, matters requiring government intervention and regulation should not be confused with matters that ought to be dealt with by private enterprises based on self-discipline. In cases where minimal regulation is required from a national perspective, it would be natural for the government to apply regulations based on its observation of the circumstances, economic climate and other various factors at that time, while giving consideration so that the autonomy and independence of the private sector would not be undermined. Regulations should not be applied from the viewpoint of putting the financial sector under state control. The national perspective is highlighted intensely in the approach currently taken by U.S. President Barack Obama, but I believe there are compelling circumstances. The circumstances (involving financial crisis in the U.S.) were extraordinary, after all.

I have been keeping a close eye for some time on the current situation in Japan, but my judgment is that it does not yet warrant the imposition of such strong regulations by the government in the same manner as in the United States.

Q.

The U.S. Securities and Exchange Commission (SEC) has charged the Goldman Sachs Group with fraud. What are your views on this case? What is the potential impact on Japan?

A.

Given that the SEC probably took action from the nation's standpoint, on behalf of the United States of America and in the interests of the American people, I am in no position to comment on this as a foreign national, whether it is good or bad. Excuse me for my predictable response.

Q.

You just mentioned that there are circumstances unique to the United States, which President Barack Obama is currently tackling. You also said that you have been keeping a close eye on the situation in Japan and determined that at present, it does not warrant the imposition of strong regulations in the same manner as in the United States. Could you please describe how the situation differs between the United States and Japan?

A.

The FSA is getting its job done even at this moment. As you know, we have submitted a bill to amend the Financial Instruments and Exchange Act and other laws to enhance regulation, supervision and so forth. In this manner, the FSA will engage in rulemaking or otherwise take measures wherever it finds any inadequacies. That is being done in the current Diet session as well, not to mention the “moratorium bill”...the press has criticized this, but we have been taking measures including those to make financial institutions fulfill social function. We won't nevertheless take the drastic approach that the current U.S. government is taking, that is, in a way, to intervene in the management itself of private financial institutions. This may surprise you. You are probably waiting to pounce on me, given your belief that I am so crude that I could go to such extremes. It is written all over your face (laughter). I am not so crude, though.

Having said that, the key question is whether Japanese financial institutions are properly fulfilling their social function at important times like this. It should not become weak-kneed when there is an economic meltdown or financial havoc. They must properly do it [fulfill their social function] on an ongoing basis in times of peace.

Q.

This week, Masayuki Oku-the new chairman of the Japanese Bankers Association and President of the Sumitomo Mitsui Banking Corporation-held a press conference and heavily criticized the reform of the Japan Post Bank from two angles. Firstly, he raised concerns that the reform might have a severe negative impact on regional financial institutions, to the extent that they might end up with giving up providing further loans within the region. Secondly, he stated that there is a huge risk involved in such a massive financial institution as the Japan Post Bank operating outside the market. What are your views on this?

A.

Before making such noise, the Japanese Bankers Association should fulfill their responsibility to regional economies and the Japanese economy in terms of its banks' lending behavior. I do not think it healthy for them to make criticisms like that all the time, without doing what they are supposed to do.

What was your other question?

Q.

In reference to the Japan Post Bank, he stated that there is a huge risk involved in a massive financial institution purchasing government bonds and other financial instruments outside the market. He raised concerns as to what would happen if (problems such as those related to its) governance arose in the Japan Post Bank, and then what would happen to the Japanese government bonds market. What is your understanding of such risks?

A.

That argument does not make sense, given that neither the Bank of Tokyo-Mitsubishi UFJ nor Sumitomo Mitsui Banking Corporation is prohibited from purchasing government bonds. We are not saying that we won't sell government bonds to them or anything like that. Besides, the Japan Post Bank is purchasing government bonds of its own accord, without being forced to do so. The result, however, is the fact that the amount of the purchased government bonds account for about 80% of Japan Post Bank's assets. It is merely a matter of whether Japan Post Bank's capacity to purchase government bonds would increase or not. It is absurd to criticize Japan Post Bank for having increased capacity. It is extremely important that the domestic capacity to purchase government bonds is continuously maintained, regardless of whether they are purchase by the Japan Post Bank or ordinary banks. [Otherwise,] we will, like Greece, have to sell the government bonds to foreign entities. It is good for the nation to have greater capacity or reserve capacity to absorb government bonds domestically.

However, it does not mean that more government bonds should be issued just because there is reserve capacity to purchase them. Debates and discussions among economists and other experts in Japan have always gone in other directions. Has the Japan Post Bank ever asked for more government bonds to be issued just because it has money to buy them? No. The Japan Post Bank is merely the investor in the issued government bonds. I do not think it is good to finance budget by issuing government bonds. My views are the same as others in this regard. That is the healthiest state for a nation. But the government bonds are being issued out of necessity, and the Japan Post Bank is purchasing them [simply because they have already been issued]. So the criticism ought to be directed at the seller (government) before the buyer. The government must execute economic and fiscal management without having to issue government bonds. The current debates involving the Japan Post Bank and the government bonds have gone in other directions. The same applies to the Fiscal Investment and Loan Program (FILP) although its financing no longer exists in the form of FILP bonds.

(End)