Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, July 6, 2010, from 11:54 a.m. to 12:16 p.m.)

[Questions & Answers]

Q.

Please give us your view on the idea of a "special money lending zone" (Kashikin Tokku) that has emerged from the Osaka Prefectural Government in connection with the amended Money Lending Act.

A.

I have seen newspaper articles headlined "Osaka Prefectural Government's special zone idea," but the Financial Services Agency (FSA) has not yet found out specifically what the idea is all about; therefore, I would like to refrain from giving any specific comment.

Generally speaking, however, I believe that if only one particular geographical area were to be excluded from criminal prosecution for lending at high interest rates exceeding the upper interest rate limit prescribed by the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates (Shussi Hou), it would jeopardize the purpose of the upper interest rate limit that was lowered by amending the Act. Seeing that Japan is a country ruled by law, and is one single nation, applying different criminal penalties in different regions would in all likelihood go against legal justice.

Another point is that the amended Money Lending Act is designed, with the aim of solving the multiple debtor problem, to deal with over-lending and other issues and to form a consumer finance market that the public can access with peace of mind. As far as I have read in newspaper articles, the Osaka Prefectural Government's idea for a special zone appears to involve relaxing the cap of the amount of total borrowing, which I think is also not appropriate as that would lead to evasion of law, considering that law should apply equally throughout Japan as a general rule.

As I have just said, however, we have yet to understand the specific details of the proposed idea. With July 6 being the deadline for a request to create a special zone (Tokku) to be submitted to the national government, we are still not sure about the particulars and I would therefore like to refrain from making any further comment.

Q.

I am Nakazawa from the Real Estate Economic Research Institute (Real Estate Fund Review).

The other day, a business improvement order was issued against Shinsei Bank, in which the issue of risk management regarding real estate-related investment and loans was pointed out. This being the case, I believe that, given the falling land prices, real estate-related investment and loans has both good and bad aspects. What I mean is that land price declines can be curbed only with the real estate-related investment and loans. Please share any views you may have on real estate-related investment and loans.

A.

Considering that views on real estate-related investment and loans, which you are asking me about, are something that should be up to individual businesses to determine on their own, I will refrain from making official comments in my capacity of the Minister for Financial Services. When the Basic Act for Land (Tochi Kihon Hou) was legislated 20 years ago, Mr. Hajime Ishii (a member of the House of Councilors) was the Minister for the National Land Agency and I was the Parliamentary Vice-Minister for the Agency. While I had the opportunity to learn about various issues as a politician at that time and I do have some points to reflect on, I am not, in my view, in a position to comment on individual cases of real estate-related investment.

Q.

How about generally speaking, then? In general terms, real estate has a very important aspect in finances in Japan as it serves the purpose of collateralized lending but, given the state of deflation that we currently see, lending of this type will inevitably shrink by degrees...

A.

Pulling out of deflation is indeed a significant objective of the current Cabinet. Still, if I may share a thought as one politician, I recall that about 20 years ago, when the Kaifu administration was in office, land prices were rising higher and higher. That was an era in which a hard-working man in the street could not afford to buy a house in his lifetime. Considering such a situation and other matters, one can see that land, to a certain degree, has a public nature. From an economic policy viewpoint as well, some were even saying about 20 years ago, referring to how things were back then, that "The way it is now, the Japanese economy is nothing but a land-based economy" - it was just so extreme. That said, this is also basically a matter that gets determined by the balance of demand and supply from the perspective of economic rationality. For that reason, one might say that it is necessary to give it a great deal of consideration, bearing in mind also the issue of pulling out of deflation.

Q.

There are insurance plans called income guarantee insurance that allow beneficiaries to receive the death payout in installments in the form of an annuity. Today, the Supreme Court rendered a judgment that "it would constitute double taxation to levy income tax on income therefrom", which made it final that the government lost the case. As it appears that there are major life insurance companies that have more than two million policyholders, some are concerned about possible repercussions for their future business, including changing their computer systems and providing explanations to customers. How do you see matters around this issue?

A.

I am not quite aware of this issue in detail. I do think that the Supreme Court's decision naturally carries a heavy weight. Life insurance is something very familiar to the general public and its basic purpose rests with "buying peace of mind." The issue of taxation involving life insurance has traditionally included a range of difficulties. Having served as Vice-Chairman of the Liberal Democratic Party's Tax System Research Commission for nearly ten years when I was a member of the Party, I do have a basic awareness that there are a variety of complex issues, but I have not yet learned about the Supreme Court's ruling on this particular issue.

Q.

I am Namikawa from Toyo Keizai.

The "New Growth Strategy," which was announced on June 18, contains in its section on the financial strategy the description of a number of actions, and I believe that it has been declared that necessary reforms will be carried out during 2010. That is this year, right?

A.

Isn't their implementation scheduled later? In two years' time, is it not?

Q.

In any case, given that it is now summer, which means that this year is already half over, is there any specific plan in place regarding future actions; for instance, which section of the FSA will be responsible for the work of deliberation, or whether a public hearing will be held?

A.

There is a description in the "New Growth Strategy" about a plan to create what can be called a comprehensive exchange, one that covers securities, financial and commodity instruments. Is the purpose of your question to ask specifically how this will be carried out?

Q.

No, it's not. I believe that there is already a publicized schedule out for that. What I'm asking about is not that issue, but the mention of the strategy that "necessary reforms will be implemented during 2010, including reviewing the accounting standards and internal control reporting systems for small and medium-sized enterprises, and substantially simplifying quarterly reporting requirements."

A.

Well, there is still a lot of time left in 2010. One thing, though, is that in general, many small and medium-sized enterprises (SMEs) neither need to seek financing from overseas nor go public. I am from the city of Kitakyushu, where there are a large number of SMEs, many of which are unlisted companies but hold exceptionally good technology and are quite outstanding in terms of their strengths in technology, agility and other attributes. Some aspects of SMEs that are not first section-listed, or not listed at all, are not necessarily the same as those of typical major companies that are publicly traded. By the same token, the government has an arm called the Small and Medium Enterprise Agency and there is also a legislative example of the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc., which was established under (former) Minister Kamei. With those considerations in mind, a specific action plan is now in the process of being developed, to be launched in 2010. Please wait for a little while.

Q.

Which authorities are developing that? Can you please specify?

A.

It's the FSA. We are working out the action plan.

Q.

I see, thank you very much.

(End)

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