Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, January 17, 2012, from 11:38: a.m. to 12:03 p.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to announce.

[Questions & Answers]

Q.

Late last week, Standard and Poor's (S&P) downgraded sovereign bonds of euro-zone countries, including France. Could you tell me what impact you expect that to have on Japanese financial institutions that hold such sovereign bonds and on the financial system?

A.

Certainly.

I am aware that in the financial and capital markets, including the foreign exchange market, there have been unstable movements, such as a drop of the euro due to concerns over the European fiscal and financial problems, after S&P lowered the credit ratings of nine euro-zone countries on Friday, as was mentioned now.

As I have repeatedly stated, Japan's financial system as a whole is sound and stable. I will closely monitor domestic and overseas economic and market developments, as well as their impact on Japan's financial system with a high level of alertness.

When I recently visited New York, I met with various financial industry officials, including those who are in charge of operations in the Americas at Japan's mega banks - the New York branch managers of some Japanese banks are in charge of operations in South and Central America as well. I also met with officials in the U.S. financial industry.

Some people said that financial institutions in Canada and Japan have been relatively stable despite the Lehman Shock and the ongoing European currency crisis. So, we must closely monitor the situation with a high level of alertness. As I have mentioned on several occasions, I was serving as the Minister of Posts and Telecommunications in the second Hashimoto cabinet in 1997 and 1998. At that time, we faced a financial crisis triggered by the failure of Hokkaido Takushoku Bank and Yamaichi Securities, which had a century-old history. As you may remember, we worked very hard - I was a Diet member belonging to the ruling party at that time - in order to prevent the financial crisis in Japan from developing into a global one. After overcoming severe difficulties, Japan has established a legal framework for resolution of the failure of financial institutions and secured the necessary financial resources, creating one of the best systems in the world to deal with such failures.

The lesson of the experience of such severe difficulties has enabled Japan's financial system as a whole to remain relatively sound and stable amid the ongoing currency crisis, and I mentioned that in my talks with various financial industry officials, including the number two at a U.S.-based global private financial institution.

In any case, as we now face a global crisis, I will closely monitor future developments with my eyes wide open, with a high level of alertness.

Q.

I would like to ask you about the plan to establish a comprehensive exchange. At a recent meeting of the Senior Vice Ministerial study team, it was agreed that the relevant supervisory and regulatory powers should be integrated under the Financial Services Agency (FSA). Could you tell me about the substance of that agreement and about when a relevant bill will likely be submitted and when the exchange will be established?

A.

Certainly.

Deliberation on the plan to establish a comprehensive exchange is being conducted by the study team on a comprehensive exchange, which is comprised of the senior vice ministers and parliamentary secretaries of the FSA, the Ministry of Agriculture, Forestry and Fisheries, and the Ministry of Economy, Trade and Industry.

Regarding this matter, about which I have been asked many times, we exercised our political initiative and decided at a cabinet meeting to establish a comprehensive exchange. I think that implementing our decisions is the first step toward regaining the credibility of politics.

We will make sure to realize this plan by exercising our political initiative. It is true that the FSA, the Ministry of Agriculture, Forestry and Fisheries, and the Ministry of Economy, Trade and Industry have their own histories and traditions. As you know, the FSA has jurisdiction over the financial and capital markets. The Ministry of Agriculture, Forestry and Fisheries has jurisdiction over staple crops such as rice, soybeans, adzuki beans and corn. Moreover, Japan opened a rice futures market as long ago as the Edo Period. Agriculture is the oldest industry, and we can live on so long as we have food to eat and water to drink. Since I joined the Liberal Democratic Party 28 years ago, I have studied agricultural and forestry issues as basic subjects. Agriculture already existed several centuries ago, when there was no electricity or automobiles. In all countries around the world, agriculture is the very foundation of the economy and is the vital industry.

Some of you who are here today may have been reporters of the press club of the Ministry of Agriculture, Forestry and Fisheries, which has had a very large number of various affiliated organizations since the Meiji Period. Those affiliated organizations have had a necessary role to play at certain points in history. While many of them have been consolidated, the Ministry of Agriculture, Forestry and Fisheries had a very solid presence when I was younger. Frankly speaking, the Ministry of Agriculture, Forestry and Fisheries and its foreign counterparts have a very strong influence in all countries around the world. Agriculture is very important everywhere, whether in the United States or in developing countries.

Futures trading is conducted with regard to such commodities as grains, gold, rubber, platinum and gasoline. As you know, the Japanese economy was swayed by news about the shipment price of Dubai crude oil during the first and second oil crises in particular. As I was serving as the parliamentary secretary for international trade and industry, I occasionally had a cold sweat.

There is a reason for mentioning that. Most types of futures trading and most exchanges have a very long tradition dating back to or beyond the Industrial Revolution as economic activity and as a place for the activity, and they are indispensable. They involve various corporations and organizations and are built into our society. Therefore, when I became the Minister for Financial Services, I thought that establishing a comprehensive exchange would not be an easy task. However, at yesterday's meeting of the senior vice ministers, I hear that they moved closer to a consensus on the need to integrate the regulatory and supervisory powers concerning the planned comprehensive exchange.

I believe that establishing the planned comprehensive exchange is very important for the future of the Japanese market, so we will proceed with the drafting of a necessary bill for submission to the next ordinary session in cooperation with relevant ministries and agencies while listening to the opinions of exchanges and traders.

That concludes my answer.

Q.

Having been reappointed as the Minister for Financial Services, what do you expect will emerge as the greatest risk for the global economy and financial system this year?

A.

Today, a meeting for the monthly economic report was held at the Prime Minister's Office with the participation of the Prime Minister, the Bank of Japan's (BOJ's) Governor and most economic ministers. At the meeting, it was reported that the European debt problem poses the greatest downside risk for the economy, as was mentioned by an official statement made by the BOJ's Governor today.

For the immediate future, the problems of today and tomorrow are important. In that sense, the impact of the European financial crisis has spread to the economy. Of the 27 EU countries, 17 use the euro, a single currency launched in 1999. However, fiscal policy varies from country to country, so those countries have expressed their resolve to achieve a certain degree of coordination by taking the trouble of implementing constitutional amendments.

In that sense, I believe that it is very important to closely monitor the international situation and act quickly in cooperation with relevant ministers, as this involves many ministries, including the Ministry of Finance and the Ministry of Economy, Trade and Industry, as well as the BOJ.

As is mentioned in the Prime Minister's instructions issued on the occasion of the reshuffle of the cabinet, we must work to ensure the stability of the financial functions and promote the facilitation of regional financing. We must also promote measures to strengthen the functions of the financial and capital markets so that necessary funds are provided to new growth industries and markets. That is very important.

Regarding the Great East Japan Earthquake, which occurred last year, the FSA has provided a substantial number of staff members to the secretariat of preparation for establishment of the Rehabilitation Support Organization for Companies Damaged by the Great East Japan Earthquake in relation to the double loan problem that is afflicting individuals and companies damaged by the disaster based on the Act for the Establishment of Rehabilitation Support Organization for Companies Damaged by the Great East Japan Earthquake, so I will cooperate with relevant ministers so as to ensure that support measures related to the double loan problem are implemented smoothly.

Let me mention another matter referred to in the Prime Minister's instructions. Regarding the introduction of the International Financial Reporting Standards (IFRS), we will conduct comprehensive deliberation on our policy while taking account of international developments as well as the situations of Japanese industry and small and medium-size enterprises.

Last but most importantly, I will strive to steadily implement measures to reform the postal businesses, including an early enactment of postal reform bills that have already been submitted to the Diet, in close cooperation with the Minister of Internal Affairs and Communications.

As I have repeatedly mentioned, we have made step-by-step progress during the period of my office that has lasted one year and seven months, and I got an opportunity to explain the purpose of the bills at the Special Committee on Postal Reform in the last extraordinary session of the Diet at long last. Although you may think that the progress has been very slow, these are very important, epoch-making bills. On the watch of Mr. Koizumi (former Prime Minister) and Mr. Takenaka (former minister in charge of postal reform), postal privatization was positioned as the centerpiece of Japan's structural reform. The postal privatized businesses have been severely damaged by the Great East Japan Earthquake, so we decided at a cabinet meeting to sell shares in the postal businesses and use the proceeds for recovery from the earthquake impact. In that sense, this is a very important matter.

The post of the Minister for Postal Reform was created based on an agreement by the three ruling parties at that time. I hear that behind-the scenes negotiations are ongoing between the three parties. As the management structure of the postal businesses has become very fragile, I am resolved to steadily implement the reform of the postal businesses by all means.

In any case, we face a pile of difficult challenges, as you know, so we will prioritize them. The most important of them is restoration and reconstruction after the Great East Japan Earthquake, so we have injected public funds into financial institutions under the (amended) Act on Special Measures for Strengthening Financial Functions, which was enacted based on a cross-party agreement. From now on, all of us at the FSA will work together to tackle those challenges with a sense of urgency in line with the Prime Minister's instructions.

Q.

Olympus has announced its intention to file a lawsuit against five former and current corporate auditors, alleging their responsibility in the window-dressing case. How do you feel about that? The committee found that the auditing firm bears no responsibility. Don't you feel that something is wrong with that finding?

A.

I am aware that yesterday, January 16 (Monday), Olympus's investigative committee on the responsibility of auditors and others submitted a report to the company. However, as this is a matter that concerns an individual company, I would like to refrain from making comments.

In any case, as I have been saying, if a problem related to the Certified Public Accountants Act arises, we will conduct a necessary investigation and take strict action based on laws and regulations, and we will continue to appropriately deal with such problems in the future.

Q.

Sumitomo Mitsui Financial Group has decided to acquire an aircraft leasing business from RBS (Royal Bank of Scotland) of the United Kingdom for 7.3 billion dollars, or 560 billion yen. In relation to that, what is your assessment of the position of Japanese banks?

A.

I am aware that Sumitomo Mitsui Financial Group and others announced an agreement to acquire an aircraft leasing business controlled by the RBS group of the United Kingdom, subject to approval from relevant authorities. However, I would like to refrain from commenting on a matter that concerns a business decision made by an individual financial institution.

However, generally speaking, it is important that financial institutions make appropriate business decisions suited to the circumstances of the time as part of their respective business strategies while maintaining appropriate governance and risk management. I hope that such decisions will result in improvement in their international competitiveness and profitability, and will help to better ensure the stability of their financial foundation.

Q.

Do you think that a business deal like this is good for Japanese banks? Or do you think that it is not so good? I would appreciate your frank opinion.

A.

Naturally, this deal is based on a decision made by the management team of Sumitomo Mitsui Financial Group. While the strong yen makes the business environment very difficult for Japanese export-oriented companies, it also brings some benefits. I presume that the benefits of the strong yen are prerequisite for this acquisition. While business decisions are up to managers at individual companies to make, basically, the Japanese government welcomes acquisitions made by financial institutions based on the judgment that the deals are necessary to expand international operations, and we are ready to support M&As related to resources, as I mentioned previously. In that sense, I am hoping that financial institutions will consider their position in the global market and work to better ensure the stability of their financial foundation by improving their international competitiveness and profitability based on business decisions made by their management teams.

Q.

In relation to the plan to establish a comprehensive exchange, you said that a consensus has been formed on the integration of the supervisory and regulatory powers. What will be your approach to the realignment and consolidation of exchanges?

A.

Let me explain some details. I have been told that at the Senior Vice Ministers' meeting, it was confirmed that this project will be implemented with the following principles in mind.

First, the regulatory and supervisory powers concerning a comprehensive exchange that handles both securities and other financial transactions and commodity futures transactions should be integrated. Second, regarding the exercise of the powers by the Minister for Financial Services, systems should be established for requesting the provision of information from, preliminary consultations with, prior consent from, and action by the minister who has jurisdiction over relevant commodities. I also hear that the treatment of exchanges that handle only commodity futures transactions will remain unchanged. While the project will be implemented in line with those principles, it is up to exchanges to make business decisions. As for the planned merger of the Osaka Securities Exchange and the Tokyo Stock Exchange, it is also up to the decisions of the two exchanges' management teams. I hope that each exchange will make appropriate decisions from the perspective of increasing their own competitiveness.

Q.

As to the date of the establishment of a comprehensive exchange, am I correct in understating that there has been no change in the schedule decided by the cabinet, according to which the exchange will be established next year?

A.

The announcement was made only yesterday following vigorous efforts made by the Senior Vice Ministers and Parliamentary Secretaries, so I have not yet heard about the timetable. However, I expect that there will not be a major deviation from that schedule.

(End)