Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, October 19, 2010, from 9:15 a.m. to 9:27 a.m.)

[Questions & Answers]

Q.

To begin with, the G20 Finance Ministers and Central Bank Governors' Meeting will be held this Friday. Topics related to financial regulations such as the Basel Accord will be on the agenda, in which the Financial Services Agency (FSA) will be deeply involved. We would appreciate you sharing with us your stance on the Meeting and other matters that you may have in mind.

A.

The global financial sector had been in turmoil since the Lehman Brothers collapse sent shockwaves around the world in September 2008. You may already be well aware that on the economic front at present, the question of how to rebuild the sector and how to harmonize markets on an international scale is a major economic and political issue not just in Japan but worldwide. As just mentioned in the question, at the G20 Finance Ministers and Central Bank Governors' Meeting to be held in Gyeongju, Republic of Korea on Friday, October 22 and Saturday, October 23, the main agendas are expected to be the global economy, the reform of international financial institutions such as the International Monetary Fund (IMF) and the reform of financial regulations, in the lead up to the Seoul Summit next month.

International financial regulatory reform will help improve the soundness of the financial system in the medium and long run. On the other hand, it will be extremely important to sufficiently reflect the differences in the actual state of the financial system from country to country and pay due consideration to the impact of reform on the real economy.

As I informed you when I met with US Federal Reserve Board (FRB) Chairman Ben Bernanke, the Governor of the People's Bank of China Zhou Xiaochuan and other governors of central banks in August 2010, financial institutions-especially banks engaged in international operations-will certainly become more stable if they have more capital.  In Japan, however, both public and private sectors had a very bitter experience during the financial crisis 12 years ago. Looking back, even sustainable companies that would otherwise have been sound were forced into bankruptcy due to the widespread credit crunch and credit withdrawal resulting from financial institutions seeking to secure capital temporarily, and the damage incurred was particularly extensive among small- and medium-sized enterprises (SMEs).  At the time, the Nikkei Average looked as though it was about to fall below 7,000 yen, so Japan's argument based on such experience has been reflected in the G20 Summit declarations to date and the agreement announced at the recent meeting of the Group of Governors and Heads of Supervision.

In order to prevent the recurrence of financial crises and enhance the financial system, we will continue to work toward international harmonization while firmly asserting Japan's position at the G20 meeting as well.

Basics are indeed extremely important. However, Europe and the United States in particular have gone through the 2008 Lehman Brothers shockwave, and in democratic nations, public opinion is fickle. It goes without saying that capital, stability and robustness of banks in each country are extremely important, but at the same time, excessive emphasis on them may lead to the contraction of the economy. Having already experienced this ourselves, we have strongly argued at preliminary meetings to date that a well-balanced approach needs to be taken in this regard. We intend to firmly argue this point at the upcoming meeting as well.

I suppose the next question will be about the measures to deal with significant financial institutions at the system level. Discussions are making progress on an international scale at G20's Financial Stability Board, or FSB, from a broad perspective including developing a system of bankruptcy proceedings, implementing inspection and supervision in a strict manner, and enhancing the financial infrastructure.

Taking diverse measures in an all-embracing manner to deal with significant financial institutions at the system level will help improve the soundness of the global financial system in the medium and long run. On the other hand, it will be important to take the impact on sustained economic recovery into consideration. Japan will continue to proactively argue this point from such perspective in international discussions. I hope this answers your question.

Q.

Today, there were reports in the press that the Tokyo Grain Exchange had proposed a merger to the Tokyo Commodity Exchange, which may relate to the integrated exchange scheme.  Please share your views and comments on the press reports with us.

A.

As for these exchanges, grains are under the jurisdiction of the Ministry of Agriculture, Forestry and Fisheries (MAFF), whereas industrial products are under the jurisdiction of the Ministry of Economy, Trade and Industry (METI); therefore, we are not in the position to comment on this.

Generally speaking, however, I talked with the Minister of Agriculture, Forestry and Fisheries and the Minister of Economy, Trade and Industry about institutions and measures to create an integrated exchange handling securities and other financial instruments as well as commodities that has been incorporated into the New Growth Strategy in collaboration with MAFF and METI, as I have repeatedly stated before; it is important that we examine such matters while working closely together.

Each of the Ministries has its own tradition and history, in that crude oil and minerals have long been under the jurisdiction of METI, whereas grains such as azuki beans and soybeans are in agriculture, the oldest industry. I recently learned that the world's first rice market was founded in Dojima, Osaka. While taking such long history and old tradition into account, we hope to compile an interim summary by the end of the year, to keep pace with the times. This is because the growth of financial institutions themselves is the seventh strategic area in the New Growth Strategy, notwithstanding the fact that the corporate finance intermediation function of the financial sector is important.

Q.

Operators who convert the credit card limit available for shopping into cash have frequently become a topic of discussion at meetings such as those of the Revised Money Lending Act Follow-up Team. It has been suggested that the actual state of such operators may essentially be the same as loan sharks, and some of them are allegedly tax evaders and former loan sharks. To what extent does the FSA have a grasp of their actual state?

A.

In the latest interview conducted with interested parties, the Japan Financial Services Association pointed out the problems in converting unused credit card limits into cash as just mentioned. The Revised Money Lending Act Follow-up Team, headed previously by Senior Vice Minister Kouhei Ohtsuka and now by Senior Vice Minister Shozo Azuma, is conducting follow-ups very aggressively in consideration of the conversion of unused credit card limits into cash. As I have already stated a number of times, this is a crucial matter. The money-lending market meets some people's demand, so it is important for the FSA to develop a sound money-lending market. Bearing this in mind, given that this is a major issue that has escalated into a social problem, interest rates in the gray zone were abolished and legislation was passed to prevent the problem of multiple debtors under the revised Money Lending Act unanimously by all political parties. As problems like this might arise, we will keep a close eye out and follow up on them.

Q.

In relation to this, the operators are claiming that what they are doing is not illegal, and there seems to be a disagreement over which government office should regulate them, depending on how they operate. Will the Revised Money Lending Act Follow-up Team also look into this from various angles?

A.

Senior Vice Minister Azuma is in fact working hard on this, so I intend to deal with the matter in an appropriate and timely manner while carefully listening to what he has to say.

(End)