Press Conference by Taro Aso, Deputy Prime Minister, Minister of Finance, and Minister of State for Financial Services

(Excerpt)

(Friday, June 13, 2014, 10:01 am to 10:34 am)

[Questions and answers]

Q.

Yesterday new recommendations for vitalizing the financial and capital markets were compiled. The recommendations included measures such as strengthening corporate governance, establishing a corporate governance code, and raising the awareness of the duties that institutional investors and fund managers owe to investors. We perceive that the recommendations are reaching far into matters that companies and executives themselves should really be making decisions on. Minister, please tell us the rationale for the government to be involved in these matters and why you regard the problem as so serious that the government needs to get involved in?

A.

Until now, mutual funds have accepted money from investors indicating that they will guarantee the principal and give customers high returns. The mechanism is that every time the trust companies sold a product, they earn a commission. To increase sales and their commission, they were better off having customers to keep switching products. Funds and stockholders have made a lot of money doing that. The problem is that there have been numerous cases in which customers have not only seen their principal fail to grow, but have actually experienced losses of principal, haven’t there? People have started saying that this situation is bizarre, and before you know it, a lot of people stopped investing, and of the 1,600 trillion yen of personal financial assets, over 850 trillion yen is in the form of cash or deposits. There is no other advanced country in the world in which 880 trillion yen, or over fifty percent of personal financial assets, is kept as cash or deposits. Japan is the only one. How did this situation come about? It happened because funds and stockbrokers weren’t trusted. They’ve probably behaved in an untrustworthy manner until now. I think the recommendations were made because of these of backdrop. Unless we start changing the attitudes of stockbrokers and mutual fund staff, nothing will improve. We’re doing lots of things, such as introducing NISAs, to allocate the funds to growing businesses through financial institutions, namely mutual funds. I think it’s important to allocate these money to growing businesses, to areas that can contribute to economic growth. Having said that, this isn’t something that can be achieved by the government alone, so in that sense, the government needs to communicate closely with various stakeholders. I don’t really know whether there are people who are embarrassed that the government has gone this far.

Q.

The realignment of regional banks and the establishment of “super regional banks,” a proposal that was included in the Liberal Democratic Party’s Japan Revitalization Vision, did not feature in the growth strategy outline announced by the Industrial Competitiveness Committee on June 10, and I’ve heard that it probably won’t be in the final growth strategy draft, either. Minister, please give us your assessment and thoughts on this.

A.

Basically, population decline, and I’m not referring to the recent Masuda Report, occurs unevenly, with provincial regions bearing the brunt of it. So there is no doubt that their populations will fall. Unless borrowers remain after this population decline, regional banks will be unable to survive. This is obvious. So, for that reason, takeovers and mergers of regional banks have occurred in the past based on management decisions by bank executives, haven’t they? Would the Financial Agency be going to get on its high horse and start ordering them to merge with each other? In that sense, I think it’s absolutely necessary for banks to actively fulfill their roles as financial intermediaries. They need to exercise judgment. However, the problem nowadays is that mergers and everything else done by big companies seems to be based on trading-firm information and trading-firm finance. What are banks doing internationally? I’d really like to ask them. A banker I spoke to recently complained that they lacked information-gathering capabilities. But there’s no doubt at all that it’s the fault of Japanese banks that their information-gathering capabilities are so skewed to the domestic side. In that sense, I think that if they want to improve their information-gathering capabilities, they are going to require a certain degree of scale. I think that whether they move in that direction or not is the responsibility of their executives.

(End)