Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, January 31, 2012, from 9:30 a.m. to 9:51 a.m.)

[Opening Remarks by Minister Jimi]

Today, I have nothing particular to announce.

[Questions & Answers]

Q.

As the earnings report season has come, the serious deterioration of securities companies' financial results has become clear. Securities companies are taking a series of restructuring measures, and there is speculation about realignment moves involving banks. How do you view the deterioration of the securities industry's business performance?

A.

Securities companies are successively announcing their financial results for the third quarter. I understand that many of the major securities companies that already announced the results reported profit declines or continued losses. While I would like to refrain from commenting on the financial results of individual securities companies, the Financial Services Agency (FSA) will continue to carefully monitor securities companies' financial conditions and risk management status.

Q.

What problems do you think lie behind the deterioration of the business performance?

A.

Generally speaking, the European debt crisis is the problem. The Bank of Japan (BOJ) has recently announced that economic problems such as the European debt crisis are the greatest downside risk. I believe that, as a whole, the European debt crisis has had the largest impact on the global economy.

Q.

What improvement measures do you think should be taken by the securities industry as a whole?

A.

As I said, I would like to refrain from commenting on the financial results of individual securities companies. However, we will continue to carefully monitor securities companies' financial conditions and risk management status.

Q.

Isn't there any concrete improvement measure that should be taken?

A.

The securities market provides direct financing, and needless to say, it is the very basis of capitalist economies. As you know, since around 10 years ago, the Japanese government has been promoting a shift from indirect financing to direct financing. However, direct financing has not increased as expected. In this situation, we need to make untiring efforts.

Q.

I am Jinryo from Magazine X.

I understand that from 4:30 p.m. today, the Compulsory Automobile Liability Insurance Council will hold a meeting at the FSA. I expect that various matters will be discussed in preparation for the next fiscal year. Although the insurance premium will not be raised in the next fiscal year, it is scheduled to be hiked in fiscal 2013 for the second time after the hike implemented in the current fiscal year. Simply asking users to shoulder an increased burden may be an option, but as I have been pointing out all along, the expense charged by insurance companies and agents, namely, the service fee, has been kept very high at 27%.

Many supplementary businesses are operated using investment returns from the pool of premiums, and a debate will probably be held this year on whether funds should be allowed to be provided from the pool of premiums to those businesses.

In addition, as I have repeatedly mentioned, compulsory automobile liability insurance premiums totaling 600 billion yen have remained (in the general budget account) on loan. I doubt the wisdom of simply raising the insurance premium rate even while those funds have not been returned. What is your opinion on that?

A.

The agenda items at today's meeting of the Compulsory Automobile Liability Insurance Council, as I understand it, will include issues such as whether it is necessary to revise the premium rate in April, and there will be deliberation on whether the expense charged by non-life insurance companies has been properly reviewed. Basically, those issues will be deliberated by the council today, so I would like to refrain from making comments before the meeting. All the same, I hope that the Compulsory Automobile Liability Insurance Council will carefully listen to the opinions of drivers and accident victims and hold discussions in light of the actual circumstances.

As I mentioned earlier, the expense will naturally be on the agenda. Funds totaling 600 billion yen have been transferred from the special account for compulsory automobile liability insurance to the general account. The fiscal condition is severe. Previously, funds totaling around 420 billion yen were also temporarily transferred from the special account for road improvement to the general account and remained unreturned, for example. At that time, when I was still young, I served as the deputy secretary-general of a group called “Road Lovers.” We barged into the office of the Director-General of the Budget Bureau at the Ministry of Finance and demanded return of the 420 billion yen, insisting that funds in the special account for road improvement should essentially be used for road improvement. I remember that day well. The Director-General, who later became Vice Finance Minister, told me, “Mr. Jimi, poverty dulls the wit. Isn't it lawmakers' responsibility to consider ways to ensure a smooth stream of revenue?” With me were dauntless guys such as Mr. Shin Sakurai (a former member of the House of Councillors) and Mr. Akira Fukida (a former member of the House of Councillors), but we were beaten back.

I understand well that the Ministry of Finance must somehow make ends meet amid the severe fiscal condition. I do not have any definite knowledge, but while some money has been saved for specific purposes, the current severe fiscal condition makes it necessary to tap into it. I do not know for sure whether that is the case with the special account for compulsory automobile liability insurance. But as the fiscal condition is severe, it is not unusual for the Ministry of Finance to borrow funds out of the pool of savings, as I mentioned in relation to the funds for road improvement. I am sure that the Compulsory Automobile Liability Insurance Council will conduct appropriate and timely deliberations with matters like that in mind.

Q.

I started attending your press conferences one year ago because of the issues related to compulsory automobile liability insurance. As I remember it, the transferred funds are not taxpayers' money but insurance premiums that might be used for payment in the event of an emergency.

A.

That is correct. Those funds are insurance premiums.

Q.

Rather than the taxpayers' money, Insurance premiums totaling 600 billion yen, including interest, have been transferred and remained unreturned. From that time, I think that you understand the difference between the taxpayers' money and insurance premiums, so I ask you to handle this matter appropriately.

A.

Certainly.

In the case of the Deposit Insurance Corporation, funds equivalent to 0.084% of deposits are levied as deposit insurance premiums. I expect that the Compulsory Automobile Liability Insurance Council will conduct appropriate deliberations while carefully taking into consideration matters like that. The level of the insurance premium should be determined based on deliberations by the Compulsory Automobile Liability Insurance Council, and the FSA will handle this matter appropriately in light of the results of the deliberations.

Q.

I am Inoshita from Toyo Keizai.

Could you tell me about your perspective on problems related to the matters that you asked the Financial System Council last Friday to deliberate, such as the revision of the legal framework for investment trusts?

A.

The Parliamentary Secretary read my statement of request for deliberation on my behalf, as I was absent due to Diet business. As for the revision of the legal framework for investment trusts and investment corporations that was mentioned in your question, institutional improvements should be made by fiscal 2013 under the Action Plan for New Growth Strategy, which was announced in 2010. In order to conduct a full-fledged study on that, I asked the Financial System Council to conduct deliberation, although the Parliamentary Secretary read the statement of request for deliberation on my behalf.

First, I asked the council to conduct deliberation on the flexibilization of the regulation of investment trusts to suit the trend of international rules and changes in social and economic circumstances and on the assurance of the supply of appropriate products that takes account of ordinary investors.

Second, I asked the council to conduct deliberation on the improvement of the stability of investment corporations, including the diversification of fund-raising means, and on the assurance of management that can be better trusted by investors and of the transparency of transactions.

I hear that the Financial System Council is considering establishing a working group to conduct expert deliberation on those matters. We will intensively consider the specific direction that the deliberation should take and the points of debate while listening to the opinions of experts appointed as members of the working group and relevant industries. More than 10 years have passed since the major legal amendment, so regarding recent investment trusts, I think that it is necessary to revise regulation in ways that suit the present practices, in light of the spread of investment trusts and advance of financial techniques that have occurred over the period, and to consider how to regulate investment trusts, which have diversified in recent years, as entry-level investment products for ordinary investors.

Regarding investment corporations, it is necessary to consider which regulations should be revised in order to strengthen their financial foundation through measures such as the diversification of fund-raising means in light of the fact that the management of some J-REITs (Japanese Real Estate Investment Trusts) became unstable in the wake of the Lehman Shock. I think that another point of debate will be whether the governance structure of J-REITS, which the BOJ started buying last year, should remain unchanged and whether they should be allowed to remain exempted from the application of insider trading regulation even though J-REITS' sponsors have significant influence over their management.

In any case, the FSA will also hold active discussions with the working group's members who will be selected from now on.

Q.

Let me ask just one more question. Do you think that the investment trust market has achieved sound development while gaining investors' understanding amid the diversification of products?

A.

Generally speaking, the market has not expanded so much as was expected, I would say.

Q.

What do you think is the reason for that?

A.

As I said earlier, the financial industry has experienced the Lehman Shock and the European debt crisis, which have triggered extreme volatility in the government bond prices of various countries. Therefore, we would like to conduct intensive deliberations on a broad range of points of debate, including the flexibilization of regulation to suit the trend of international rules and changes in social and economic circumstances and on the assurance of the supply of appropriate products that takes account of ordinary investors.

In short, investment trusts have developed and the protection of users has become important. Where the return is high, there is risk. It is necessary to explain that to non-professional, ordinary investors. They must be told what will happen when stocks decline. For you news reporters, that may be common knowledge. However, it is necessary to explain that to ordinary people. Basically, high-risk products could bring high return, and high return involves high risk. That is a principle. However, regarding high-risk products, a common problem is that high return is advertised while the presence of high risk is hidden. I believe that it is necessary to ensure that ordinary people understand that high-return products involve high risk.

Thank you very much.

(End)

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