Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Friday, September 7, 2012, from 9:25 a.m. to 9:52 a.m.)

[Opening Remarks by Minister Matsushita]

As the minister for financial services, I will make a statement on the budget request for the next fiscal year 2013, and the request related to tax reform, so I will appreciate your attention.

As for the details, the Financial Services Agency (FSA) staff will hold a briefing later to provide appropriate explanations, and I would like you to ask questions then.

Today, the FSA worked out its budget request for fiscal year 2013 and request related to tax reform. I will submit the requests later.

Regarding the fiscal 2013 budget request and request related to the FSA's staffing, we place emphasis on, first, ensuring the fairness and transparency of the financial and capital markets, second, improving the management of small and medium-size enterprises (SMEs) and supporting their restructuring plan, and, third, promoting the Comprehensive Strategy for the Rebirth of Japan, from the perspective of appropriately dealing with various challenges posed to financial administration.

From that perspective, the FSA is requesting the addition of 61 staff members. As we plan to reduce 23 jobs, the net increase will be 38 employees.

As for the budget request, we are requesting expenditures totaling 22.5 billion yen for measures including an increase of the staff and an introduction of information technology related to administrative information, which will represent a decrease of 600 million yen from the previous year.

Other items include expenditures of around 70 million yen for the implementation of measures related to the Comprehensive Strategy for the Rebirth of Japan, such as support for SMEs. We are requesting it as a priority item. Those measures include research and surveys related to support for SMEs, Japanese companies' advance into Asian markets and investment of household financial assets.

We are also requesting some 700 million yen as an expenditure related to the recovery from the Great East Japan Earthquake. This expenditure will be used to subsidize the payment of fees to lawyers in relation to consultations among lenders and borrowers suffering from the double-loan problem and to cover the cost of various public relations activities.

Regarding the request related to tax reform for fiscal 2013, we adopted two major request items in light of the Comprehensive Strategy for the Rebirth of Japan.

First, we would like to reform the financial and securities tax system from the perspective of supporting the people's own asset formation efforts.

To be more specific we are requesting the unification of financial income taxes through the introduction of the Japanese version of the ISA (Individual Savings Account: tax exemption for dividend income and capital gains related to small-amount investments in listed stocks) as a permanent measure and an expansion of the scope of profits and losses that may be offset and changes to the method of taxation on income from public and corporate bonds.

Second, we adopted request items related to the tax system concerning support for SMEs in light of the final extension of the SME Financing Facilitation Act until next March. While the FSA has already been conducting activities to support the management of SMEs, we believe that we need to support borrowers in terms of taxation. To be more specific, we are requesting the expansion of the eligibility criteria for the so-called business restructuring tax system. We are also requesting tax exemption in cases where business owners provide private assets to the business based on reasonable restructuring plan.

The FSA will hold substantial discussions with relevant divisions and departments on the necessity and importance of these request items toward the end of the year and will strive to realize the revisions. I will appreciate your support.

As I mentioned at the beginning, the FSA staff will hold a briefing later, so I would like you to ask questions then.

[Questions & Answers]

Q.

Yesterday, the amended Financial Instruments and Exchange Act (FIEA) passed in the Diet. The amended law includes a plan for the establishment of a comprehensive exchange. Could you comment on the passage of the amended law and tell me about your view on the plan to establish a comprehensive exchange once more?

A.

I am very pleased with the passage of the amended law.

The fact that the amended FIEA has passed despite the state of turmoil in the Diet is very pleasing for the FSA. The House of Councillors first deliberated the bill and sent it to the House of Representatives, where it was discussed and passed despite the state of turmoil. That is very pleasing for us.

What is regrettable is that members of the Liberal Democratic Party did not participate in deliberation conducted by a relevant Diet committee in the House of Representatives. In the House of Councillors, the bill was deliberated and passed with the participation of members of all parties. The situation was different in the House of Representatives. It is very regrettable that some members of opposition parties abstained from the plenary session of the House of Representatives. However, I am very pleased with the passage, and I am hoping to go ahead with the plan in accordance with the intent of the amended law.

Since I was serving as state minister of economy, trade and industry, I have been working on the plan to establish a comprehensive exchange, and this is the first step toward that. Although we face a pile of various challenges, it is important to appropriately deal with them given the severe situation of exchanges in Japan compared with various exchanges around the world. This is very important for the future of the Japanese market, as we aim to strengthen the international competitiveness of the market and make it more convenient for users.

As I mentioned at my previous press conference, working-level officials of the FSA, the Ministry of Economy, Trade and Industry, and the Ministry of Agriculture, Forestry and Fisheries will hold consultations. I would like to request the cooperation of relevant people, including officials of exchanges, at an early date. I will also appreciate your support.

Q.

I have one more question. Regarding the request related to tax reform, which you mentioned at the beginning, I understand that the introduction of the Japanese version of the ISA as a permanent measure, which you referred to as a major request item, is included. Could you explain the objective of this measure?

A.

Let me explain the objectives of our request related to tax reform.

First, regarding the revision of the financial and securities tax system, we will work to adopt the Japanese version of the ISA as a permanent measure from the perspective of providing a wide range of households with the opportunity for asset formation through long-term, diversified investment in domestic and foreign assets.

Second, we are seeking the unification of financial income taxes so as to enable investors to make well-balanced investment in a diverse range of financial products.

In addition, as the SME Financing Facilitation Act is scheduled to expire in March following its final extension, we are requesting revisions related to SMEs as borrowers, although this is somewhat extraordinary.

Regarding this, there are two request items, which I earlier mentioned. The first is expanding the eligibility criteria for the business restructuring tax system, which is applicable to cases where companies in the restructuring process are granted a debt waiver, so as to suit the practical procedures related to restructuring. We are also requesting tax exemption in cases where business owners provide private assets to companies in the process of restructuring based on reasonable restructuring plan.

As our basic stance, all of us at the FSA will strive to perform our important role of ensuring sustainable growth for the Japanese economy by taking every possible budgetary and tax measure.

Q.

Yesterday, the European Central Bank announced a plan to purchase an unlimited amount of government bonds issued by Southern European countries. Could you comment on the plan and tell me what impact you expect on the financial market?

A.

As you mentioned, I am aware that an agreement was reached on a plan to purchase government bonds at a meeting of the ECB's Governing Council yesterday, September 6. Under the plan, the details of which I presume you know about, an unlimited amount of government bonds may be purchased. The target countries of the plan are requesting assistance from the European Financial Stability Facility. As a condition, the target countries must accept the terms of the assistance. It is important that troubled countries make own reform efforts first, as I have repeatedly stated. Unless that condition is met, the purchase of government bonds will be terminated. The plan will target mainly short-term government bonds with maturities of one to three years. I am aware that President Weidman of the Deutsche Bundesbank expressed opposition to the plan.

As this concerns other countries' monetary policies, I would like to refrain from commenting on the specifics as the minister for financial services. However, I am hoping that governments and central banks will act appropriately so as to ensure the stability of the economy and the financial system, and to secure confidence in the market.

As to the impact on the market, I would like to refrain from making comments, but the FSA will keep a close watch on market developments with strong interest while maintaining cooperation with the Bank of Japan.

Q.

Let me ask just one more question.

Do you think that the risks faced by Europe have subsided?

A.

As I already mentioned, the key is to what extent countries facing challenges can carry out reform to resolve them in the severe environment.

Meanwhile, I am strongly hoping that things will turn for the better now that a bold action in the euro zone has been announced, although I would like to refrain from making more detailed comments.

Q.

I would like to ask you about Nomura Securities, which held a briefing on a business plan yesterday. While the company has not abandoned its global ambition, it has announced a reduction of the investment banking division. Could you comment on that? Also, what are your thoughts on the necessity of independent securities companies and what are you expecting of them?

A.

Nomura Holdings announced a new business strategy yesterday, September 6, as you mentioned. I am aware of that.

Generally speaking, it is very important that securities companies develop future-oriented business strategies in accordance with changes in the business environment and reform their profit structure.

In any case, the FSA will keep a careful watch on Nomura Holdings' implementation of the new business strategy.

Scandals over insider trading and other activities have emerged not only at Nomura but also at other major Japanese securities companies, and the FSA has been dealing with this situation conscientiously. In particular, I have high regard for the resolve of Nomura Securities' new management team to carry out fundamental reform of the leading Japanese securities company, including the retirement of top officials. I strongly hope that the company will achieve substantial results and go forward based on an appropriate global strategy while regaining public confidence. I will keep a close watch on other securities companies, too, with similar hopes.

Thank you very much.

(End)