Prime Minister Yoshihiko Noda should do everything possible to raise the consumption tax rate, according to Atsushi Saito, president of the Tokyo Stock Exchange Group Inc.
In an interview with The Asahi Shimbun on Jan. 13, Saito said the TSE would seek to double the number of companies newly listed annually.
He also indicated that he was open to requests from regional stock exchanges to join the holding company that will be formed once the Fair Trade Commission approves the plan on a merger of the TSE with the Osaka Securities Exchange Co.
Excerpts of the interview follow:
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Question: Do you have any expectations of the reshuffled Noda Cabinet that was formed Jan. 13?
Saito: I hope they will deal seriously with the consumption tax issue. Japan's rebirth will not be possible without it.
Q: Would an increase in the consumption tax rate not hurt the economy and lead to a further decline in stock prices?
A: It should be implemented regardless of the reaction. The language may not be appropriate but stock prices will go down the toilet if it is not implemented. Between 60 and 70 percent of the trading on the TSE is by foreign investors. If foreign investors lose trust in Japan's fiscal condition and hold back on trading, transactions will not increase even if the TSE and OSE merge.
Q: Stock exchange activity continues to be sluggish and it is not unusual for the daily trading value on the First Section of the TSE to fall below 1 trillion yen. What do you plan to do to activate the market?
A: Trading volumes are declining in markets around the world. The main reason is that trading by institutional investors, such as investment banks and funds, is decreasing due to strengthened regulation. Trading volume increased over the past 10 to 20 years due to such investors, but that has essentially been wiped out. There will be few opportunities for (daily) trading volume to reach 2 trillion yen.
Although it will not be anything flashy, we want to increase the number of companies with a future that are listed to between 60 to 70 annually (about double the current rate). We have created a team to seek out such companies.
Q: What are your thoughts on having the three stock exchanges in Nagoya, Fukuoka and Sapporo join the holding company?
A: While they all use the same computer system as the TSE, this is not an issue on which we should be saying anything. None of the exchanges are very large. If one of those exchanges asked to join, we would not reject them. However, none of the exchanges has yet asked to join.
Q: What about the possibility of merging with the Tokyo Commodity Exchange Inc.?
A: I do not think there would be a framework for a merger unless the laws were unified by the Financial Services Agency, the Ministry of Economy, Trade and Industry and the Ministry of Agriculture, Forestry and Fisheries.
Q: Is the merger process with the OSE moving according to schedule?
A: I believe it will proceed according to the schedule we announced last year. We will act as soon as we receive the approval of the Fair Trade Commission.
Q: How do you expect the appraisal by the FTC to turn out?
A: All we can do is wait.
Q: Western media has reported that European anti-monopoly agencies will not approve the merger between NYSE Euronext, which operates the New York Stock Exchange, and Deutsche Boerse. What are your views of that development?
A: While I do not know what other exchanges are doing, one difference between us and the United States and Germany is that we have a number of stock exchanges in a small Japan. We have to merge in order to heighten competitiveness.
Our case does not mean taking over the markets of Britain or France as would be the case with the NYSE and Deutsche Boerse. Moreover, in terms of actual stock transactions, volume on private trading systems (in which securities companies serve as intermediaries without going through a stock exchange) are already increasing.
Q: If the merger does go through, there is the possibility the FTC could raise concerns that the monopolistic nature of markets for start-up companies would increase. Have you thought about how to respond?
A: It would depend on the judgment made by the FTC. Jasdaq joined hands with the OSE because its independent survival was considered difficult. Even with that move, its future is still uncertain, so the start-up markets in Tokyo and Osaka are now considering a merger. If that is separated, they will not survive. The start-up markets are important for the development of Japanese industry so it would not be good from a national strategic standpoint to squash such markets.
Q: How do you view the increased distrust toward the Japanese stock market due to the scandals involving Olympus Corp. and Daio Paper Corp.?
A: One of the attractions of the Tokyo market was the high degree of transparency. I do not think this will happen, but if it were to turn out that Tokyo has less transparency than South Korea, Hong Kong or Shanghai, investment money would increasingly avoid Japan.
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