Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, September 18, 2010, from 0:31 a.m. to 0:46 a.m.)

[Questions & Answers]

Q.

Having just held a press conference at the Prime Minister's office, please tell us once again your new resolutions as re-appointed Minister of State for Financial Services and Minister for Postal Reform, and provide us with a brief explanation of what kind of impact there will be especially on postal services in cooperating with the newly-appointed Minister for Internal Affairs and Communications.

A.

Okay.

I am Shozaburo Jimi, proportional representative of the People's New Party (Kokumin Shinto) reappointed to Minister of State for Financial Services and Minister for Postal Reform. Thank you for attending this press conference held so late tonight.

As for my resolutions upon my reappointment, I have been given two instructions by Prime Minister Naoto Kan today, as you know: first, to ensure the stability of financial functions and carry out initiatives to facilitate regional financing and, second, to work closely with the Minister for Internal Affairs and Communications to steadily promote postal reform. I intend to make every possible effort based on these instructions.

In plain words, one issue is the Incubator Bank of Japan, as I have mentioned a number of times at previous press conferences. As the Minister in charge, I am extremely thankful to depositors for responding very calmly in these circumstances in which we had to resort to limited deposit protection under the so-called “pay-off” scheme. As you are aware, steady progress is currently being made in an orderly manner.

The other issue relates to Basel III, which has often been brought up in press conferences here. Two years ago, the Lehman Brothers shockwave triggered the Global Financial Crisis. It even affected the real economy, and countries across the world increased public spending-this is the situation we are in today. We are currently in a state of global financial turbulence. After the Great Depression in 1929, nations transformed their economies into economic blocks, which have often been claimed in later years to be one of the remote causes of the Second World War. People have learned a lesson from this: as you are aware, G8 and G20 meetings were frequently held, and an agreement was reached to resolve economic and financial problems with everyone around the world by mustering the wisdom of mankind, in pursuit of the highest quality of capital possible under Basel III. As there are issues in the stability of banks worldwide, namely, the quality and quantity of their capital, various figures were presented. As you know, banks appear to be more stable when these figures are higher-banks are indeed stable when the figures are high. But on the other hand, when Japan faced a financial crisis ten years ago, I experienced the bankruptcies of Hokkaido Takushoku Bank and Yamaichi Securities while I served as the Minister for Posts and Telecommunications in the Second Hashimoto Cabinet from 1997 to 1998. At the time, we experienced credit contraction, rapid credit crunch and credit withdrawal. My constituency of Kitakyushu City is where Asia's first modern steel plant was built 100 years ago, and is home to many small and medium-sized enterprises (SMEs). Many SMEs that would not have gone bankrupt under normal circumstances went bust, and the rapid credit contraction, credit crunch and credit withdrawal really damaged the economy. If you take this into account, a higher capital adequacy ratio is not necessarily desirable. At the end of the day, the economy consists of macro economies of regional communities. Furthermore, given that economies vary in substance from country to country, it is extremely important that an agreement was reached on the outline of Basel III-awaiting finalization at the Seoul Summit in November-as it is my understanding that Japan, Germany and France were able to significantly take the initiative in shaping the agreement.

The other issue is to facilitate SMEs and regional companies. This has been addressed in the SME Financing Facilitation Act based on an unconventional financing approach. As I have been reappointed to Minister, I intend to work on the facilitation task in consideration of the social and public nature of the financial sector and the public interest it should fulfill. I am sure you are well aware that the Japanese economy is in an extremely tough situation at the moment. The first, second and third shots were taken by the Kan Cabinet in such circumstances, and especially given that SMEs in regional communities account for 99.7 percent of corporations in Japan, I intend to fulfill my duties properly by taking those factors into account.

Q.

The SME Financing Facilitation Act just mentioned is due to expire in half a year. What will your decision on the postponement of its expiration be based upon?

A.

The economy is in a severe recession at the moment. The recession and the strong yen, as you know, are major problems at present. The hollowing-out of the economy and industry is currently taking place due to the strong yen, as you are well aware.

When I visited Beijing, China in August, I had a meeting with bank executives dispatched to Beijing from Japan, most of whom were branch managers in China. I was told by them that since around February, there had been a sudden and rapid increase in Japanese companies including SMEs seeking to transfer some of their plants and business departments to China. I thought this was not good, as I suspected the increased deindustrialization of Japan. I pondered this as I returned to Japan. That is what the strong yen does, and that is the kind of recession we are in. As I just mentioned, 99.7 percent of companies in Japan are SMEs, and more than 40 million people in fact work at SMEs. In that sense, I believe the SME Financing Facilitation Act is timely legislation. It is temporary legislation that is due to expire at the end of March, after covering the calendar year end and the fiscal year end-the end of the accounting term-twice. I have been told that it was made temporary legislation with a two-year timeframe based on the expectation that the economy would recover by then. Regrettably, however, the economy is currently in such a state. The deadline is fast approaching for us to take these circumstances into consideration, take a positive approach, and make the decision to postpone its expiration.

We will properly look into the possibility of the postponement of its expiration considering the role fulfilled by the SME Financing Facilitation Act in the recession, especially the recession amid the strong yen, as financing is indispensable for sound and sustainable companies. As I have stated some time ago, I have been told by proprietors of SMEs in my hometown of Kitakyushu that they were glad that the Act was established. I have heard on various occasions that proprietors of SMEs, who used to be in a weak position as borrowers relative to banks, can now say things to banks on an equal footing as a result of the establishment of the Act. We will give positive consideration to the possibility of postponement of its expiration in an appropriate manner by taking such matters into account, while at the same time, heeding financial discipline, which is extremely important in a liberal society and free economy as a matter of course.

Are there any more questions?

(End)