Press Conference by Ikko Nakatsuka, Minister for Financial Services


(Monday, October 1, 2012, from 10:29 p.m. to 11:21 p.m.)

[Opening Remarks by Minister Nakatsuka]

I am Ikko Nakatsuka. I have been appointed the minister in charge of financial affairs, new public commons, gender equality, and measures for the declining birthrate. I appreciate your cooperation.

Upon my appointment, I received several instructions from Prime Minister Noda.

First, I must ensure the stability of financial functions and also promote efforts to facilitate regional financing. In addition, I must promote enhancement of the financial and capital markets.

Second, I must keep a careful watch on the international financial condition and take actions quickly in cooperation with relevant ministers.

Third, I must cooperate with relevant ministers so as to smoothly implement relief measures related to the double loan problem, which is afflicting victims of the Great East Japan Earthquake and other people.

Fourth, regarding the introduction of the International Financial Reporting Standards (IFRS), we will consider Japan's policy from a comprehensive perspective while giving consideration to international developments and developments related to industries and small and medium-size enterprises (SMEs).

Fifth, in light of the case of a serious illegal act committed by AIJ Investment Advisors, we will strive to secure trust in financial products through such measures as implementing recurrence prevention measures.

In accordance with these instructions, I will do my utmost. First of all, I would like to outline what I hope to achieve with regard to financial administration.

Regarding financial administration, the Financial Services Agency (FSA) has three missions: stabilizing the financial system; protecting users and increasing convenience for them; and establishing a fair, transparent, and vibrant market. As the minister in charge of financial administration, I will make every possible effort to perform these missions.

Currently, Japan's financial system is sound and stable on the whole. However, I will keep a careful watch on and maintain strong interest in the impact that economic and market developments at home and abroad may have on it. Moreover, I intend to tackle the pile of challenges that we continue to face, including the facilitation of financing for SMEs and financial support for post-earthquake recovery in the disaster areas.

[Questions & Answers]


In relation to the matters that you mentioned just now, the SME Financing Facilitation Act is scheduled to expire in six months. Could you confirm that there has been no change in the policy of not extending this law again? Also, how do you evaluate the progress made in the implementation of various measures, including the policy package for the exit strategy related to the expiry of the SME Financing Facilitation Act? Do you intend to enhance this package?


First, this law will not be extended again. The law was enacted to support SMEs whose fund-raising condition deteriorated due to the steep recession triggered by the Lehman Shock. I hope that financial institutions will agree to modify the loan terms conscientiously from the standpoint of borrowers regardless of the presence or absence of this law, and I believe that they are indeed doing so.

I am delighted that the initiative to promote the modification of the loan terms has taken root because of the enforcement of this law. Therefore, after the law expires, we intend to make efforts to ensure that this initiative takes root more firmly through our inspection and supervisory activities.

Two weeks ago, I visited Sapporo to attend a briefing session held by the FSA. On that occasion, I exchanged opinions with officials of financial institutions and associations of SMEs and provided explanations regarding the exit strategy and related matters, including various support facilities, such as Enterprise Turnaround Initiative Corporation of Japan and liaison councils on support for the rehabilitation of SMEs.

I intend to promote increased awareness about the exit strategy by holding briefing sessions through local finance bureaus and the like.


There are a pile of challenges, as you mentioned earlier. However, as speculation over the next general election is swirling on the political front, I would say that you will need to tackle the challenges with a sense of urgency. Do you have any priority, or is there any task that you would like to achieve by all means?


I believe that the FSA faces four challenges. First, we must maintain the stability of the financial system. We must keep a careful watch so as to prevent the contagion of the European fiscal and financial problems.

Next, we must facilitate financing, including for SMEs.

Third, we must consider how to establish a fair and transparent capital market. Various problems have occurred, including the AIJ problem and insider trading cases related to public offerings.

Fourth, we must implement the Comprehensive Strategy for Rebirth of Japan. Becoming a growth industry is a challenge for the financial sector.

In addition, we must deal with the impact of the earthquake disaster and resolve the double loan problem, and all of these challenges are very important. It is difficult to prioritize them. We must tackle all of these challenges at the same time. I would like you to understand that this is the situation surrounding the FSA.


Regarding the exit strategy related to the SME Financing Facilitation Act, which you mentioned as the second challenge, some people expect that when this law expires at the end of March next year, a huge amount of non-performing loans may arise. Do you expect any particular impact on SMEs and regional financial institutions, and are you considering any specific countermeasures?


Earlier, I expressed my intention to encourage financial institutions to modify the loan terms through our supervisory and inspection activities after this law expires. That partly answers your question.

However, the most important thing is to prevent an increase in the failure of SMEs after the law's expiration. To that end, I would like to promote the rehabilitation of SMEs through the implementation of the exit strategy and cooperation between Enterprise Turnaround Initiative Corporation of Japan, liaison councils on support for the rehabilitation of SMEs, and financial institutions. In addition, we will invigorate regional economies by facilitating financing for SMEs. For the FSA, this is a very ambitious initiative.


Could you explain your thinking regarding the mandatory application of the IFRS? Do you intend to make your decision after waiting to watch what the U.S. approach will be? Or are you going to make the decision in light of Japan's own circumstances regardless of the U.S. approach?


Regarding the application of the IFRS, the Business Accounting Council issued an interim report summarizing points of debate in July this year. What we should do is to continue deliberation based on that.

By taking account of the situation in other countries, including the United States, Japan should take care not to become internationally isolated. In addition, we need to take comprehensive account of such matters as Japanese institutional systems and the economic situation.

In that sense, I understand that deliberation will be continued based on the summary of the points of debate, so it is not true that a decision has been taken to adopt a mandatory application of the IFRS.


What are your thoughts on the timing of the decision?


As I mentioned earlier, we must take account of the international situation and other factors. We must keep a careful watch on debates in other countries and foreign institutional systems. Therefore, it is difficult for the moment to say with prejudgment when our decision will be taken.


In relation to the previous question, initially, the government indicated that a certain direction would be set in or around 2012. May I take it that you will examine the international situation and other factors more closely, regardless of that deadline?


There has been no change in setting a direction in or around 2012. However, we must take account of the international situation, as I mentioned just now. While giving consideration to the deadline, we must make our decision in light of the international situation and other factors.


I am Inoshita from Toyo Keizai.

I have two questions. First, regarding countermeasures taken against the double loan problem in relation to the post-earthquake recovery, the Corporation for Revitalizing Earthquake-Affected Business has been established to purchase loans. Do you think that this corporation is being fully used? Should some measure or other be taken to facilitate its use?

Second, you said earlier that the financial sector should become a growth industry. However, as interest rates have stayed low, all banks face declines in profit margins. As a result, banks are earning most of their profits from bond trading. Is there any deregulation measure that may be taken to develop the financial sector into a growth industry?


Regarding the double loan problem, before I assumed this post, I had jurisdiction over the Corporation for Revitalizing Earthquake-Affected Business as senior vice minister for reconstruction. I visited the disaster areas several times, mainly in Miyagi and Iwate Prefectures, which have suffered serious damage from the tsunami.

I talked with officials of associations of SMEs and financial institutions in various regions, and I asked them to make use of the Corporation for Revitalizing Earthquake-Affected Business. There seems to be the perception that a corporation engaging in the purchasing of loans is something frightening. I explained that the Corporation for Revitalizing Earthquake-Affected Business is not something to be feared as it provides conscientious support to the people.

According to an official of an association of SMEs in one of the areas devastated by the tsunami, 70 or 80% of the companies registered with the local chamber of commerce and industry have resumed business operation. Around 10 to 20% are still considering what to do or are thinking of closing their companies.

I hear that around the 80% or so that resumed operation are using temporary office spaces provided by SME Support Japan. That is very good.

SME Support Japan may also provide support when SMEs plan to expand their business operations or start new businesses. Corporation for Revitalizing Earthquake-Affected Business can be most useful when disaster-stricken companies need fresh funds. I often heard of the need for funds when I talked with officials of associations of SMEs.

However, according to local chambers of commerce and industry, it is difficult to expand business operations and start new businesses while operating in temporary offices. To be more specific, the ground sank one meter in some places and two meters in others. Companies can return to their original offices and expand business operations or start new businesses only after the ground level has been raised.

When I explained the activities of the Corporation for Revitalizing Earthquake-Affected Business, they expressed hope to make use of it. Many people told me that they would like to prepare to use it while watching the actual status of the post-earthquake recovery.

Seven months have passed since the Corporation for Revitalizing Earthquake-Affected Business was established, on March 5, if I remember correctly. Since the start of its operation, this corporation has handled only a small number of cases. The number will rise gradually. In line with the progress in the recovery, the number of cases handled by the corporation is expected to increase.

Also, financial institutions in the disaster areas are making active efforts regarding the modification of loan terms. Therefore, from what I have heard, there is not yet a need for fresh funds, or, I should say, companies in the areas are not yet ready to use the corporation.

In any case, if progress is made in the rebuilding of physical infrastructures, this corporation will be used more frequently. If there is a lack of public awareness about the activities of the corporation, we will conduct public relations activity and provide appropriate explanations to financial institutions and associations of SMEs.

As President Ikeda is working very hard, we will try to ensure more effective use of the corporation while exchanging opinions with him.

I am sorry, but what was the other question?


About the financial sector...


Regarding the idea of developing the financial sector into a growth industry, Japan holds vast amounts of not only household financial assets but also net external assets. Making effective use of those assets will be the basis of Japan's prosperity in the 21st century. If the financial sector is to become a growth industry, one important point will be how to approach risk taking.

In this respect, we launched a business roundtable discussion forum last week. Business people are invited to participate in the forum and discuss what should be done in the future. This is a ground-breaking initiative.

We hope to hold discussions on matters related to a new business model, including risk taking and risk diversification. I am pinning strong hopes on the business roundtable.


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