Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, August 10, 2010, from 11:19 a.m to 11:53 a.m.)

[Opening Remarks by Minister Jimi]

At today's cabinet meeting, I received approval for my trip to the U.S. scheduled for next week, namely from August 16 to 21.

The purpose of this trip is to visit Washington D.C. and New York to meet with a variety of people, including leading U.S. government figures and market players, to exchange views on issues like the financial regulatory reform, financial and economic trends and the U.S.'s postal reform. I have already had the Public Relations Office explain the purpose of the upcoming trip, which relates to the current situation where, in the U.S., its financial regulatory reform bill-the first such fundamental reform in 80 years - has just been passed and, on the international front, a general agreement has been reached on the proposed revisions to capital adequacy (ratio) or liquidity requirements.

Given those circumstances, I am eager to exchange frank views about, among other things, any impacts that the financial regulatory reform will have on the macroeconomy or financial brokerages and about financial and economic trends, and I would also like to have discussions with U.S. postal officials about the progress of the postal reform in the U.S.

I am scheduled to meet with U.S. leaders, including FRB (Federal Reserve Board) Chairman Ben Bernanke.

[Questions & Answers]

Q.

Your upcoming trip to the U.S. that you have just explained to us is, in my view, taking place at a very significant time in terms of international financial regulatory reform debates. Having heard that Mr. Bernanke is among the people that you are scheduled to meet there, I would like to hear once again what the meaning behind your trip is as well as what outcomes you would like to reap in particular.

A.

It goes without saying that the Lehman crisis two years ago originated in the U.S. and then spread to Europe, causing an enormous sea change in the financial world. As a matter of course, this spread to the economy as well, leaving both the U.S. and China with no choice but to take fiscal actions to overcome it, and Europe also followed suit. I am therefore quite certain that all of you are well aware that the economy, which also encompasses the global financial world, is presently at a very sensitive but very important stage.

In the U.S., the Great Depression in 1929 resulted in a financial policy stipulating that the securities business should be separated from the banking business, which led to the enactment of the Glass-Steagall Act. What followed after the abolishment of the Act in 1999 was an era of highly neoconservative financial regulatory reforms under which financial institutions did their business. However, investment banks became (due to the Lehman crisis) no longer able to contain risks within their own institutions on all occasions. The culprits are financial engineering or financial derivatives, or things like leveraged transactions and, above all else, a high level of globalization of the global economy.

In particular, the fact that economic and financial fields have become highly globalized is common knowledge to all of you, so globalized that even 100 million dollars can be moved in a flash by means of computers. In times like this, it is, put simply and as far as I see it, a challenge to humanity in the 21st century to deal with the question of how to democratically control the advancement of financial engineering, or the economic globalization and financial globalization, and we are indeed in the process of tackling it, but imposing excessively harsh regulations on markets might cause them to shrink. Government control may pose another issue in that process, but the lack of it, which means applying a laissez-faire or no-restriction approach, might impose one negative effect after another on manufacturing and other industries, as was the case in the economic recession two years ago. In that sense, unlike the 1929 Great Depression, what I think the recent crisis is making us face is a challenge to human wisdom.

While, in that sense, the G8 or the G20 is supposed to harmonize policies, the fact is that different countries are in various economic conditions, or political, social or other conditions, and are also characterized by their own tradition, history and other distinct features. For that reason, I believe that how to employ human wisdom to have all those factors harmonized is an important issue in the context of world history. As someone with a mandate to govern financial administration in Japan, I feel it necessary to meet with the governor of the U.S. central bank (FRB) to exchange clear views about the points that I have just made and about Basel II.

Q.

My name is Iwakami, a freelance journalist.

I am interested in hearing a little more detail about your upcoming visit to the U.S. You have just made a general statement on the U.S.'s financial reform, arguably the first such reform in 80 years, but I would like you to be a little more specific, delving deeper into what the reform is about. Is the U.S.'s financial regulatory reform highly effective or is it insufficient - what is your own view?

Also, how do you expect its effect to take shape in Japan? I would appreciate it if you could describe it in a little more specific way.

A.

Frankly speaking, one intention behind my trip to the U.S. is to find out issues like those by collecting various inputs firsthand from the people I am meeting with.

As I said at the beginning, there has naturally been a long-established notion that when it comes to markets, financial regulations should best be basically non-existent. Markets being markets, there have indeed been many examples since early times - since the days of Adam Smith - where the least intervention from public authorities results in the market growing larger and the list of marketed goods expanding, thus bringing wealth to people as a whole.

That said, the absence of a certain level of control by public authorities would inevitably generate a gap between the rich and the poor, or ups and downs of the economy. As you see, it was from this sort of thought that Keynesian economics emerged. On that account, I believe that how to achieve harmonization between markets and democratic authorities elected by the people is indeed a very complex but extremely important modern-day challenge.

The other day, a U.S. businessman said to me, "Mr. Jimi, we now have a law established but federal and departmental regulations are still forthcoming." As the U.S. is also a country with a democratic society, quite intense dynamics will likely be at work there and what will be at issue in that process is how to harmonize various factors with the law, including user protection or, put another way, making sure that people should be able to use financial services with peace of mind so that financial activities should flourish, bringing about a vibrant economy as a result. After all, the basic goal required of an economy is to achieve a better life for people. However, as you know, the Lehman crisis two years ago prevented investment banks from assuming risks, which made the existing framework and system a near failure. As a consequence, the U.S. government was forced to go ahead and take on risks itself. For instance, it had no choice but to interfere to bail out AIG, the largest private life insurer in the U.S.

Another example is General Motors, now dubbed "Governmental Motors," which cannot survive without the government purchasing its shares for support. General Motors was the richest company in the 20th century, which we all thought was essentially a century of America. Anyone who was born in Asia after the Second World War would dream about its highways and Cadillacs. In that sense, the capitalism that has developed after the war in various respects is currently facing a very major turning point, as far as I see it. To overcome it, it is critical to use human wisdom and experience and also to maintain vitality all along in doing so. It is not just a simple matter, indeed.

As I have mentioned repeatedly in this conference, it is no longer possible, given the globalized nature of the economy, especially in the financial field, for a single country to handle the matter with its own laws and regulations alone, which is why the G8 or G20 is taking steps. With those circumstances in mind, I, as someone with 25 years of service (as a member of the Diet), am intent on proceeding with proper judgment, keeping a heedful watch on them in every direction.

Q.

I am Oshima from Kinyu Times.

It seems to me that the recent yen appreciation has now reached quite a level - how do you see its impact on financial and economic activities?

A.

Seeing as stock prices, interest rates and foreign exchange rates are formed in marketplaces in the context of various factors and it is difficult to determine the cause or other factors behind any fluctuation in them, the basic stance that I apply as the head of the financial administration agency is to refrain from making comments on market movements. In any case, I am hoping to continue to keep a watchful eye on market trends in the future.

Q.

I am Namikawa from Toyo Keizai.

Today, I read your (past) press conference transcript. There, you used the expression "never invite suspicions needlessly" when you were speaking about the Incubator Bank of Japan (Nihon Shinko Ginko). I would like to ask a question from this viewpoint about lawsuits between the Incubator Bank of Japan and several trust banks regarding the problem of them having acquired the same loan claims. Considering that both sides are licensed business operators, it strikes me as a disgraceful occurrence and, behind the scene of those goings-on between licensed operators, it is said that a person who used to be the chairman of one of the lawsuit parties may assume the office of advisor to the Incubator Bank of Japan. My question is whether or not such a turn of events falls under the implication of the saying, "never invite suspicions needlessly."

A.

I would like to refrain from making any specific comment on personnel matters at a specific financial institution. However, trust is, as a matter of course, a very important element in the financial business. Having requested the Bank to work on improving their operation in that sense, and also in view of the court trials that are already in progress for those cases, I will continue to pay close attention to the operation of the Bank in the future by following up carefully on its effort to improve its operation.

That said, I, as a politician, am naturally also well aware of the fact that those cases are now viewed as a very serious social issue and I am quite conscious of the need to ensure trust and fairness in the financial business, as the aforementioned expression "never invite suspicions needlessly" implies.

Q. With all due respect to your statement, I think, from the perspective of fairness in the financial business or how a man in the street sees the business of a given financial institution, it is normally just unthinkable in the light of common sense in society to have a person who was formerly an official of one party of a lawsuit assume the office of advisor to the very party that is its adversary in that lawsuit. What would you comment from such a perspective?

A. As the head of an administrative agency, I would like to refrain from making any comments with regard to the particular circumstances of any individual financial institution.

Naturally, I do expect the trials to proceed on the basis of oral evidence or, if any investigation is involved, proper investigation results.

(End)