Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, Sept. 6, 2011, from 10:58 a.m. to 11:23 a.m.)

[Opening Remarks by Minister Jimi]

Typhoon No. 12 inflicted great damage, mainly in the Kii Peninsula, and the Prime Minister today instructed us to do our utmost for restoration and reconstruction. The Minister for Disaster Management and the Minister of Land, Infrastructure, Transport and Tourism were absent from the cabinet meeting, as they were visiting the disaster areas. The Financial Services Agency (FSA), together with the Bank of Japan (BOJ), has issued instructions concerning the implementation of measures to deal with the damage inflicted by Typhoon No. 12. The instructions were issued to financial institutions in Tottori Prefecture by the Chugoku Finance Bureau and the BOJ, to those in Mie Prefecture by the Tokai Finance Bureau and the BOJ and to those in Nara and Wakayama Prefectures by the Kinki Finance Bureau and the BOJ, so as to ensure appropriate responses to the disaster.

[Questions & Answers]

Q.

First, ahead of the end of the April-September first half for many companies, financial markets are showing very unstable movements, such as the yen's appreciation and lower stock prices globally. How do you view the economic conditions in Japan and abroad, and on which points will the FSA focus and pay attention?

A.

As to the approaching end of the first half, I would like to refrain from making comments, as financial institutions have not yet announced their financial results for the first half of fiscal 2011. Regarding how I view the market conditions, the recent unstable market movements come against the background of growing risk-aversion moves around the world due to the fiscal and financial problems in Europe and the economic slowdown in the United States - there is a downside risk as indicated by the U.S. employment statistics announced the day before yesterday, which showed no increase in non-farm jobs contrary to expectations, among other data.

While I will refrain from commenting on specific market developments, as the Minister for Financial Services, I will closely monitor market developments with strong interest while cooperating with relevant cabinet ministers and the Ministry of Finance and other ministries as well as the BOJ.

Meanwhile, Japan's financial system as a whole is sound and stable, as you know. However, I will closely monitor domestic and overseas economic conditions, market developments and the impact on Japan's financial system.

Q.

Yesterday, the new Senior Vice Minister and Parliamentary Secretary were appointed. What instructions and requests have you conveyed to them at the start of the FSA's new political executive team?

A.

As I said in replying to the previous question, our urgent, critical challenges include unstable global market movements due to the fiscal and financial problems in Europe and the economic slowdown in the United States, as well as the restoration and reconstruction work after the Great East Japan Earthquake. This is a time when politics faces a test with regard to both domestic and international issues, so we have unanimously passed the Revised Act on Special Measures for Strengthening Financial Functions in the Diet, in order to reassure the people. I believe that it is more important than ever to exercise initiative in taking necessary actions. As the new Senior Vice Minister and Parliamentary Secretary have been appointed, we will work together with a renewed resolve as political executives elected by the people. From the beginning, I have been stressing the importance of keeping the optimum balance between the bureaucracy and the people. Civil servants from the FSA Commissioner on down are outstanding experts in their own fields. While we political executives bear ultimate responsibility as lawmakers elected by the people, it is very important that the bureaucracy functions actively and vigorously, so I will take care to ensure that.

As I have repeatedly mentioned, it is important to keep a narrow focus on the fund-raising situation of small and medium-size enterprises, while maintaining a broad perspective and keeping a watch on the great instability of global economic conditions since the Lehman shock. The FSA's political executive team under my leadership will work to address such matters.

Another task will be postal reform, as you know. As I double as the Minister for Postal Reform, I received a courtesy call by the State Secretary and Vice Minister (for Internal Affairs and Communications) today. This is a long-pending issue on which the Democratic Party of Japan (DPJ) and the People's New Party have been in agreement for four years, from when the two parties were in the opposition camp. As I have repeatedly mentioned, agreements on this matter were signed between Mr. Ichiro Ozawa as the leader of the DPJ and Mr. Watanuki (former member of the People's New Party), between Mr. Hatoyama (former DPJ leader) and Mr. Kamei (leader of the People's New Party), between Mr. Kan (former DPJ leader) and Mr. Kamei, and between Prime Minister Noda and Mr. Kamei. In the previous Diet session, the Special Committee on Postal Reform was established. Although I am aware that political parties and parliamentary groups have various positions on this issue, I hope for more constructive debate at this committee. Major newspapers have also argued to the effect that the shelving of this matter will undermine the national interests. This matter is addressed in the basic plan for recovery from the Great East Japan Earthquake, as a result of efforts by (former) Minister (for Internal Affairs and Communications) Katayama and me. For the restoration and reconstruction of the Tohoku region, a bond of unity between people provided by post offices is essential. As the flaws of the division of Japan Post into five companies have emerged in the disaster areas, we must carry out true reform that is implemented from the standpoint of the people. Today, we three political executives renewed our resolve to achieve the reform.

Q.

I understand that the government is considering measures to deal with the yen's appreciation and the hollowing-out of industry. What matters do you think should be taken into account when considering such measures, and from which perspective such measures should be considered?

A.

As we are required to take measures to deal with the yen's appreciation, I believe that the FSA should pay attention to SMEs' fund-raising activities in particular. On August 29, at the end of the Kan Cabinet, the Review Meeting on the State of the Economy was held at the Prime Minister's Office to discuss the Policy Stance and Agenda for Comprehensive Countermeasures Against the Yen Appreciation, and I participated in it. Other participants included the Minister of Finance and the Minister of Economy, Trade and Industry, and as usual, the BOJ's Governor attended the meeting as an observer, as you know. In the context of the European sovereign risks and the downside risks of the European and the U.S. economies, the yen has rapidly appreciated, heightening concerns of the people and firms about the economic outlook, in addition to the damages caused by the Great East Japan Earthquake and the nuclear disaster, as is stated in a paper issued after the meeting. The FSA will keep a closer watch over the market developments, and closely exchange information with relevant ministries and agencies. In addition, the current cabinet (Kan cabinet) has decided to lay out the policy stance and agenda for comprehensive measures against the yen appreciation as follows, in order to allow the next cabinet - this refers to the Noda cabinet - to do the work immediately, while taking into consideration developments in the foreign exchange market.

The basic policy stance is this. Broadly speaking, the government will do its utmost to carry out reconstruction based on the “Basic Guidelines for Reconstruction in Response to the Great East Japan Earthquake.” As this will lead to an expansion of domestic demand, I believe that it is very important to work on the post-earthquake reconstruction as a measure to deal with the yen's appreciation.

It is essential for the government to do its best to protect the Japanese people and firms facing the whirlwind of the international financial market. By doing so, the government must definitely prevent the people's confidence from deteriorating and the economy from falling into a vicious cycle. To that end, the government will immediately work on comprehensive countermeasures against the yen's appreciation, while taking into consideration developments in the foreign exchange market.

First, the concerns of those directly hit by the yen appreciation, including exporting companies, small and medium sized enterprises, and workers, should be relieved by measures for SMEs, early achievement of reconstruction demand, early increase in domestic demand, strengthening the competitiveness of business locations, and so on. Second, the government should clearly show the people that the yen's appreciation also has advantages. The advantages of the yen's appreciation should be “visualized” and thoroughly utilized. To maximize the advantages of the yen's appreciation, it is necessary to promote foreign direct investment, including M&A, and the acquisition of rights to natural resources, invite researchers from abroad mainly in frontier fields, encourage study abroad, and promote the passing-on of the yen appreciation's advantages to the people and consumers.

Recently, the Ministry of Finance announced a plan to use 100 billion dollars out of the special foreign exchange account - this is approximately a tenth of the total amount of funds in the special foreign exchange account - and we will work hard on matters like that, too.

Q.

Yesterday, in South Korea, there was apparently an announcement that the financial authorities of Japan, China and South Korea would exchange opinions with each other this morning. Is that true?

A.

I am aware of the press release issued by the Financial Services Commission of South Korea and related media reports. The FSA has been closely exchanging information with the financial authorities of other countries as necessary. I understand that the latest telephone meeting was held to exchange general information with the financial authorities of China and South Korea.

This news spread worldwide as it was reported by Reuters, as I understand it. Naturally, while an exchange of information among Japan, China and South Korea is important, the FSA properly maintains communications through telephone meetings with various countries, including European countries and the United States, at the vice-ministerial level and working level, several times a week. This time, South Korea announced the meeting in a press release.

Q.

Who participated in the latest meeting and what was discussed? The South Korean press release indicated that they want hold the meetings regularly. Is there a particular plan to hold the meetings regularly?

A.

Japan, China and South Korea have already been holding meetings frequently, although we have not until now disclosed this through a press release. Such meetings are very important with regard to international finance. Of course, China and South Korea are major countries with a significant presence in East Asia, so we have been maintaining close cooperation with them, and did so this time also. In the future, cooperation will continue to be very important from the perspective of international finance, so close exchange of information is essential.

The latest meeting was held at the vice-ministerial level.

Q.

Could you also tell us what was discussed?

A.

As you know, the impacts of the fiscal and financial problems in Europe and the economic downturn in the United States have naturally reached Asia, and the dollar is the key reserve currency. We held the meeting not because there is are particular problems pending between Japan and China or South Korea, but we exchanged general information with each other. We are holding meetings like this regularly and frequently. I understand that the latest meeting was held for an exchange of general information, as part of such regular communications.

Q.

A media report has said that the Basel III restriction on the holding of liquid assets may be relaxed. What is the current status of debate on that?

A.

The Basel III regime is moving closer to an international consensus on matters related to G-SIFIs (global systemically important financial institutions). However, I have not received information related to liquidity. I will properly comment next time.

Q.

I am Inoshita from Toyo Keizai. Regarding the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc., the number of cases in which the loan terms were modified is continuing to rise according to preliminary data announced last week. Do you think that the number of new applicants is increasing, or that the same applicants are filing applications repeatedly? Have you received any report or analysis on the trend of applications?

A.

The FSA compiled data on the modification of the loan terms between the enforcement date of the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc. and June 30, and announced the data on September 1, as you mentioned now. According to the announced data, modification of the loan terms has been implemented with regard to 90% of all applications related to loans to SMEs and housing loans, excluding applications still being screened. As I have been saying, the implementation rate is more than 90%.

In light of the announced data, I believe that financial institutions as a whole are making steady efforts to modify the loan terms. There is not any particular change in the overall number of applications, the total value of loans and the implementation rate, compared with the previous periods. Meanwhile, the number of applications received by many financial institutions in the disaster areas and the number of cases in which the modification was implemented have increased compared with the pre-disaster level. I presume that the need for the modification of loan terms has grown as a result of the impact of the earthquake.

I understand that financial institutions, including those in the disaster areas, are making vigorous efforts to modify loan terms in accordance with the purpose of the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc. The FSA will continue to closely monitor future developments, including the impact of the disaster. In addition, while the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc. is targeted at the disaster areas, we have also enacted the Revised Act on Special Measures for Strengthening Financial Functions, so I will keep monitoring the enforcement of these two laws.

Q.

I will ask you about the telephone meeting among Japan, China and South Korea that was mentioned earlier. I take it that such meetings have already been held and it will be important to hold such meetings in the future. Why was the latest meeting announced in a press release, unlike the previous meetings?

A.

While we have been holding such meetings for some time, we have not made an announcement until now. However, this time, I hear that one of the countries unilaterally made an announcement without prior consultation. There was not anything special about this meeting, and it is the FSA's understanding that we exchanged general information.

Q.

The fact that such a unilateral announcement was made without prior consultation could send the negative message that there is a lack of collaboration among the authorities of the countries. What would you say to that?

A.

I do not agree with such reasoning. Japan, China and South Korea have been holding summit meetings, and last year, seven ministers, including me, participated in a Japan-China high-level meeting. Japan, China and South Korea have been holding summit meetings and each of them has a very significant economic presence in East Asia in particular, so I believe that for the economic and political stability of East Asia, it is very important that we maintain sufficient communications.

(End)