Japan's Watanabe says subprime needs group effort

By David Dolan and Reji Murai

TOKYO (Reuters) - Japanese market turmoil sparked by U.S. subprime woes should be calmed through a joint effort of government financial institutions, Tokyo's new financial services minister said on Friday.

Yoshimi Watanabe, appointed this week, said he was not currently worried that U.S. subprime problems would directly shake up the financial system in the world's second-largest economy.

The 55-year-old Watanabe, who is serving his fourth term in parliament, also underscored the government's plans to boost Japan's competitiveness as a global financial centre.

"This is not just a problem of a liquidity crisis, there is also the problem of credit risk... we need to deal with this globally," Watanabe told reporters in a group interview.

"In Japan, I think it is necessary for the central bank, Ministry of Finance and the Financial Services Agency to work together to deal with this."

Financial firms around the world have suffered losses due to their exposure to the troubled U.S. subprime mortgage sector.

Japan's financial system would likely be spared any direct impact, Watanabe said, due in part to the relatively conservative investment stance by the country's financial institutions.

"At the moment it is difficult to see that it will have a direct impact on Japan's financial system," he said.

FINANCIAL BACKWATER

Watanabe takes his post as Japan looks to beef up its presence as a world financial centre. Despite its economic strength, Japan accounts for only 5 percent of financial industry profits worldwide.

High taxes and finicky regulators have been blamed for driving foreign investors to smaller but more cosmopolitan centres such as Singapore and Hong Kong.

But any change in tax law would require broad support, Watanabe said.

"For tax reform, the understanding of the people is necessary so it is extremely important that we make appeals to them on this issue," he said.

"I think the shifting trend from saving to investing (among Japanese) is automatically related to boosting foreign competitiveness."

Watanabe, who also holds the post of minister for administrative reform, was given charge of financial services when beleaguered Prime Minister Shinzo Abe reshuffled his cabinet this week.

The eldest son of a former finance and foreign minister, he is known for his criticism of the Liberal Democratic Party's system of faction politics.