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Cablegate: Daily Summary of Japanese Press 05/22/07-1

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UNCLAS SECTION 01 OF 10 TOKYO 002289

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CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

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TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 05/22/07-1


INDEX:

(1) Ruling and opposition parties gearing up for Upper House
election, which is two months away

(2) 43 lawmakers form parliamentary league to support Prime Minister
Abe's foreign policy based on values

(3) Convention of special postmasters' association: Trying to repair
relations with LDP

(4) Government to create regional corporate revitalization body next
spring

(5) Panelists project 2% economic growth in FY2007, given brisk
internal, external demand

ARTICLES:

(1) Ruling and opposition parties gearing up for Upper House
election, which is two months away

YOMIURI (Page 3) (Abridged)
May 22, 2007

With this summer's House of Councillors election expected to take
place on July 22, just two months away, political parties are making
final efforts to determine their candidates. The results of the
upcoming election are directly linked to the fate of the Abe
administration. Given the situation, both the ruling and opposition
camps are gearing up efforts to win a majority in the Upper House.

Ruling camp to put Abe forward to win support

Liberal Democratic Party Election Strategy Headquarters General
Affairs Director Yoshio Yatsu ordered yesterday 15 Lower House
lawmakers and their secretaries to strengthen their support for the
LDP candidates running in eight single-seat districts that are also
their home turfs. Yatsu's instruction followed an independent LDP
opinion survey, which had shown close contests in eight prefectures:
Yamagata, Yamanashi, Shiga, Nara, Kagawa, Tokushima, Ehime, and
Kochi. Yatsu's list of "personal advice" also included Chief Cabinet
Secretary Yasuhisa Shiozaki from Ehime.

SIPDIS

The ruling bloc aims to win 64 seats, including those not up for
grabs, in order to maintain a majority in the Upper House. If the
New Komeito were to keep 13 seats, the LDP would have to win only 51
seats. Yatsu's target is to win 20 single-seat districts out of 29
districts, one seat each in multiple-seats districts out of 18, and
18 proportional representation seats.

The LDP has decided to field a total of 48 individuals for the
electoral districts. Before long, the party will endorse former
TV-Asahi announcer Tamayo Marukawa as its second candidate for the
Tokyo electoral district. The party is likely to replace only one
candidate, former Justice Minister Takao Jinnai, who has declined
LDP endorsement.

The LDP has also endorsed 33 individuals for the proportional
representation segment. The party's endorsement is expected to
finish with additional one or two persons, including Advisor to the
Prime Minister on the Abduction Issue Kyoko Nakayama, in compliance
with Abe's wishes.

TOKYO 00002289 002 OF 010

The New Komeito has picked five individuals for mostly large cities,
such as Tokyo and Osaka. The party aims at getting all eight
proportional-representation candidates elected.

The ruling bloc's basic strategy is to use a "barter cooperative
system" in which the New Komeito supports LDP candidates in
districts devoid of its own candidates and the LDP shifts its
representation ballots to the New Komeito in return. The LDP has
also decided to put former Lower House lawmaker Seiichi Eto on its
proportional representation list in accordance with Abe's wishes.
The New Komeito is considering fielding Kyoko Nakayama, the wife of
Lower House member Nariaki Yamanaka, a native of Miyazaki.

The ruling coalition plans to put forward Prime Minister Abe, whose
support ratings are bouncing back. Abe plans to pick up trashes with
children at the foot of Mr. Fuji during his stumping tour in
Yamanashi. He apparently intends to expand the LDP support base by
blurring his hawkish image and playing up his consciousness about
environmental issues.

Opposition camp aims to force ruling bloc into a minority

"Winning additional several seats would not be a true victory. We
must win a majority in order to put an end to LDP-New Komeito
politics," declared Minshuto (Democratic Party of Japan) President
Ichiro Ozawa in a pep rally held in Niigata City on May 20.

The largest opposition party, which will put 32 seats up for
election, has decided to field 48 individuals in 41 prefectures
excluding Fukushima, Ishikawa, Shimane, Oita, Miyazaki, and Okinawa.
The party has also decided not to field anyone in Oita in deference
to the Social Democratic Party but plans to determine its candidates
for the remaining six prefectures before the end of the month.

Ozawa eyes winning 15 single-seat constituencies. To win
single-seats, the party has many rural area-oriented plans,
including one to distribute flyers showcasing an income compensation
plan to pay the differences between production costs and market
prices to farmers.

The party has picked 33 proportional representation candidates,
including eight individuals affiliated with Rengo (Japanese Trade
Union Confederation), a former professional baseball player, and a
former president of the Junior Chamber International.

The Japanese Communist Party has officially picked 46 candidates for
46 prefectures excluding Fukui. The party eyes five representation
seats. The SDP has determined candidates for 12 prefectures and six
representation candidates, including a former Tachikawa mayor. The
People's New Party will field its own candidates in four
prefectures, back Minshuto candidates in 18 prefectures, and field
12 proportional representation candidates.

Forcing the ruling bloc into a minority is the opposition parties'
common goal. The opposition parties are required to join forces in
the election while playing up their unique features at the same
time.

In the May 16 meeting of SDP bloc chiefs and election committee
executives, election chief Sadao Fuchigami underlined the importance
of the party's unique policies, citing the results of the recent
nationwide local elections. Secretary General Seiji Mataichi also

TOKYO 00002289 003 OF 010


said: "We will not automatically back Minshuto candidates just
because don't have our own candidates."

Opposition parties speculate that the People's New Party might cause
discord in the opposition camp after the election. The Minshuto and
SDP have determined their unified candidate for Toyama, PNP leader
Tamisuke Watanuki's home turf, but the PNP has yet to decide on its
response. "The PNP might be comparing the ruling camp with the
opposition bloc with an eye on the post-election period," a Minshuto
lawmaker said.

Public evaluation of Abe administration in focus

The upcoming Upper House election will provide the public with the
first opportunity to evaluate the Abe administration since its
inauguration last September.

The ruling bloc identifies the election as an occasion for the
public to judge the administration's achievements, such as
educational and civil service reforms. The ruling camp also intends
to play up Abe's agenda items, such as constitutional amendment.

Meanwhile, the opposition bloc plans to focus on the question of
socioeconomic disparities. Public evaluation of the Abe
administration will undoubtedly affect the results of the upcoming
election.

(2) 43 lawmakers form parliamentary league to support Prime Minister
Abe's foreign policy based on values

ASAHI (Page 4) (Full)
May 18, 2007

A total of 43 junior and mid-level lawmakers belonging to the ruling
Liberal Democratic Party (LDP) formed on May 17 a parliamentary
league to promote Prime Minister Shinzo Abe's foreign policy focused
on values. Most of the 43 Diet members include those who worked
together with him regarding the history school textbook issue. Keiji
Furuya heads the group and LDP Policy Research Council Chairman
Shoichi Nakagawa assumed an advisor post. Most members share Abe's
principles. The group members hail from various LDP factions. It
appears to be an Abe faction.

The first meeting of the group on May 17 started with Chairman
Furuya's speech seeking to constrain China:

"Prime Minister Abe held a Japan-China summit soon after assuming
office. But we cannot dispel doubts about China's act of hegemony,
including its huge military spending. So China does not share the
same common values with Japan."

Nakagawa also expressed a sense of alarm toward China. While calling
China Japan's important neighbor, he stated: "We must avoid Japan
from becoming one of China's provinces."

Abe visited China and South Korea immediately after he took office
in an attempt to repair relations between the two countries that
went sour under the government of Prime Minister Junichiro Koizumi.
However, in his policy speech delivered in January, Abe mentioned
Indonesia and Australia as countries with which Japan shared the
same values. The primary aim of the parliamentary group is
supporting Abe's diplomatic values.


TOKYO 00002289 004 OF 010


Furuya once bolted the LDP after voting against the government's
postal-privatization bill but he rejoined late last year. He opposes
a review of Article 772 of the Civil Law that states that a baby
born to a woman within 300 days of her divorce is presumed to be the
ex-husband's offspring. He has been actively working as a core
member of the conservative lawmakers.

Citing in his speech on the 17th a human rights protection bill, a
bill revising the Imperial House Law, the newly enacted National
Referendum Law, and Article 772 of the Civil Law, Furuya stressed:
"All directly link to the issues of thought and creed, political
philosophy and principles. I want to rally likeminded persons and
take action through this group."

All the more because many group members worked together with Abe
regarding such issues as the history textbook and abduction issues,
the new parliamentary group may play the main role of embodying the
conservative policy in the LDP.

Six former postal rebels

Furuya told members of the parliamentary group: "Basically I share
many principles with the prime minister."

Furuya, Nakagawa and Deputy Chief Cabinet Secretary Hakubun
Shimomura were also members of the "group of junior lawmakers to
think of Japan's future and historical education." Abe served as
chief of the secretariat for the group. Abe and Furuya have known
each other a long time since the two are graduates of the Seikei
University. They have similar principles. Some in the LDP say that
Abe decided to reinstate the postal rebels because he wanted to have
fellow group members like Furuya rejoin the party. Of the 43 members
of the pro-Abe group, six were reinstated members.

Eriko Yamatani, a special advisor to the prime minister, conducted
activities criticizing sex education. Tomomi Inada and Kyoko
Nishikawa raised an objection to a review of 772 Article. Members of
the new parliamentary group seem to be more conservative than the
"parliamentary league to support a second chance," which backed Abe
in the last fall's LDP presidential race.

Regardless of their "principles," members of the Machimura and Ibuki
factions are participating in the group. In contrast, lawmakers from
the Koga, Tanigaki and Nikai factions are main members of the
parliamentary league to place priority on Asia.

Members of the parliamentary league to support Abe's foreign policy
base on values

Machimura faction: Hakubun Shimomura; Shinsuke Okuno; Ichiro
MiyashitaYasuhide Nakayama; Koichi Hagiuda; Masaaki AkachiTomomi
Inada; Shuichi Takatori; Yuichi Ogawa;Tsukasa Kobiki; Naoki Okada;
Eriko Yamatani; Nobuo Kishi

Tsushima faction:

SIPDIS
Hiroshi Imazu; Toru Toida; Tatsuharu MawatariAtsushi Watabe

Koga faction:
Seiji Kihara; Jun Hayashi

Ibuki faction:
Shoichi Nakagawa; Toshio Ogawa; Kyoko NishikawaKenta Matsunami;
Chubei Kagita; Yohei MatsumotoYoshio Nakagawa; Tsukasa Akimoto

TOKYO 00002289 005 OF 010

Komura faction:
Tokuhiko Akagi; Katsuko Nishimoto

Tanigaki faction:
Yasuhiro Ozato

Aso faction:
Takeshi Iwaya; Keisuke Suzuki

Lawmakers with no factional allegiance:
Kenji Furuya; Masahiro Imamura; Kenichi Mizuno; Taku Eto; Ryota
Takeda; Hiroshi Moriya; Sadahisa Furukawa; Minoru Kihara; Yoji Muto

(3) Convention of special postmasters' association: Trying to repair
relations with LDP

SANKEI (Page 2) (Full)
May 21, 2007

The National Association of Special Postmasters (Zentoku) composed
of about 18,900 special postmasters across the nation held an annual
convention on May 20 in the city of Hiroshima. The association once
invited Liberal Democratic Party (LDP) lawmakers connected to postal
interests (yusei-zoku) as guests to their conventions. Last year's
convention, which took place after postal-privatization had been
decided, was a politically-charged event, With many anti-postal
privatization lawmakers participating. No political party leaders
were invited to this year's convention. The decision is viewed as a
signal to starting a move to repair ties with the LDP.

In his speech delivered as a guest, Internal Affairs and
Communications Minister Yoshihide Suga expressed consideration to
Zentoku, saying:

"Without your cooperation, postal privatization will not be
successful. I would like to lay the groundwork for privatizing Japan
Post so that you will be able to provide postal services with
confidence."

Suga and House of Councillors member Kensei Hasegawa of the People's
New Party were the only two politicians who were invited to this
year's convention.

Following Suga and Japan Post President Yoshifumi Nishikawa,
Hasegawa delivered a speech as an advisor to Zentoku, in which he
stopped short of saying: "It was good that we were able to hear
positive views from government and business leaders (Suga and
Nishikawa). Legal change will be needed."

Anti-postal-privatization lawmakers -- including People's New Party
President Tamisuke Watanuki, who bolted the LDP after voting against
the postal-privatization legislation, and Hosei Norota, an
independent and former agriculture minister -- assembled in last
year's convention in Aomori, raising voices, "Let's make the
government review the Postal Privatization Law!"

One of the reasons for a change in the mood is probably that former
postal rebels reinstated in the LDP "had Japan Post accept requests
from special postmasters," said a source familiar with Zentoku.

Nishikawa, who became Japan Post president in April, announced a
review of the existing policy, as well as a policy of utilizing

TOKYO 00002289 006 OF 010


Zentoku's liaison conference to promote operations, which controls
special post offices.

Therefore, there reportedly is growing concern in Zentoku, mainly
among mid-level members, that rather than relying only on the
People's New Party, the association needs to work on the ruling LDP
as a pragmatic response. The rumor is that the People's New Party
and the LDP may join hands depending on the result of the July Upper
House election. So, Zentoku appears to have determined that it
should weaken ties with only that political party.

Referring to the fact that he was not invited to the convention in a
press conference on May 16, Watanuki stated: "With the Upper House
election drawing closer, the spirit of the convention is not that
political events dominate the convention."

Taiju-kai, a political organization composed of retired special
postmasters, has decided that its regional organizations will
support People's New Party's candidates on their own decision. Taiju
took a position that there would be no change in cooperation with
the People's New Party.

There is a view that since Taiju has not fielded any its candidates,
it has probably not tried to secure votes.

One of the senor Taiju members in the eastern Japan said:

"Since we owe something to the People's New Party, which opposed
postal-privatization, we will support the party in the upcoming
election. We don't know what will happen after the July election."

(4) Government to create regional corporate revitalization body next
spring

NIHON KEIZAI (Top Play) (Full)
May 19, 2007

The government decided yesterday to establish next spring a regional
industrial revitalization corporation (tentative name) tasked with
assisting the business rehabilitation of local smaller companies.
This will be a regional version of the Industrial Revitalization
Corporation of Japan (IRCJ), which was disbanded this March. Under
the government's plan, the Deposit Insurance Corp. of Japan will
provide all the capital and extend government guarantees on procured
funds. The new body will also help troubled firms revitalize their
business by taking stakes in them, buying loans, and dispatching
personnel. Additionally, they will handle the liquidation of failed
joint ventures of local government and business (third sector). The
government is hoping to spotlight the regional IRCJ as a centerpiece
in a package of its regional revitalization measures, but there are
still many tasks to clear, such as how to select companies eligible
for revitalization assistance and how to maintain management
discipline.

The Cabinet Office crafted this plan based on Prime Minister Shinzo
Abe's call for boosting the growth potential of regional economies.
Private-sector members of the Council on Economic and Fiscal Policy,
chaired by Prime Minister Abe, including Nippon Keidanren (Japan
Business Federation) Chairman Fujio Mitarai, will announce the plan
in a meeting on May 25. The framework will be incorporated in the
government's economic and fiscal policy guidelines for 2007 due out
in June, with the aim of submitting related legislation to an
extraordinary Diet session in the fall.

TOKYO 00002289 007 OF 010

The new entity, a joint-stock company fully financed by the Deposit
Insurance Corp. of Japan, will be capitalized at 50 billion yen,
with 50 billion yen set as an aid threshold. The period of
establishment will be five years, the same time limit imposed on the
IRCJ.

The staff of about 100 will be recruited from former IRCJ members
and other experts on corporate rehabilitation.

Adopting almost the same rehabilitation process as that of the IRCJ,
the regional body will assess the assets held by troubled companies
in response to their applications for assistance. An expert panel
will judge whether to provide aid.

The rehabilitation entity will dispatch private-sector
rehabilitation specialists to the selected companies. It will also
purchase stakes in the companies and loans. The regional IRCJ will
offer assistance in cooperation with regional rehabilitation funds
backed by local finance institutions, and if it deems it necessary,
the new body will seek debt waivers.

The regional IRCJ will also be tasked with handling the disposal of
failed joint ventures of local government and business. With huge
amounts of equity investment and loans poured into the so-called
third sector by local governments, regional financial institutions,
and government-affiliated financial institutions, coordinating
conflicting interests is difficult. As a result, the liquidation
process has been delayed in many cases. The new body will be
responsible for coordinating such efforts, charging commissions to
the relevant local governments.

The former IRCJ helped reconstructing Kanebo and Daiei by utilizing
the know-how of private-sector specialists. The regional version
aims to make use of such success cases for regional revitalization,
but there are many tasks that must be cleared away. It is important
to establish a fair mechanism in selecting companies eligible for
assistance and free from any improper political intervention. An
increasing number of private-sector rehabilitation funds have
already been established. In order to prevent the regional IRCJ from
pressuring private-sector businesses and taking measures to survive
unnecessary firms, management discipline is required.

(5) Panelists project 2% economic growth in FY2007, given brisk
internal, external demand

NIHON KEIZAI (Page 3) (Slightly abridged)
May 19, 2007

Participants:Akira Kojima, chairman of the Japan Center for Economic
ResearchKiichi Murashima, economist at Nikko Citigroup Securities
Co.Kazuo Furukawa, president at Hitachi Ltd.Mitsuru Taniuchi,
professor at Waseda University

The Nihon Keizai Shimbun and the Japan Center for Economic Research
held a debate on the state of the economy at the Nikkei Hall in
Otemachi yesterday. The panelists shared the view that both domestic
and external demand remains brisk although there are such risky
elements as the slowdown of the United States economy. One
participant said that the Japanese economy's growth potential is
increasing owing to restructuring efforts by companies. All
discussants estimated the nation's economic growth rate in FY2007 at
a level in the lower 2% range.

TOKYO 00002289 008 OF 010

Attention focused on slowing US economy

-- How do you analyze the current state of the Japanese economy?

Taniuchi: The US experienced a decade-long economic expansion in the
1990s. In Britain, the period of expansion has stretched to 15
years. In the case of Japan, as well, conditions for a long-term
economic expansion are being prepared. The supply side has become
more competitive over the past ten years because Japan revised
corporate legislation, including the Corporate Law, revised the
Antimonopoly Act, scrapped the cross-shareholding system, and took
deregulatory measures.

Furukawa: Looking at the slowdown of the US economy, the temporary
lull of capital investment, and the inventory adjustment of
electronic components, we tend to see the Japanese economy as about
to enter a prolonged "pause" in growth. But since such emerging
countries as China and Russia are performing well, exports will
remain steady. Capital investment is also showing a very steady
tone. Once the long period of deflation is set to end, spending
habits will improve. The economy is expected to pick up again in the
latter half of 2007.

Murashima: Personal spending and exports supported the economic
growth in the January - March period. The focus is on whether these
two main factors continue to be strong. Exports to developing
countries have been on the rise. On consumption, however, I am
carefully watching the trend. The hike in the tax on individual
income in June, following the transfer of tax revenues to local
governments, will cancel out increases in bonuses, so consumption
may slacken in the summertime.

Kojima: I think the current long-term economic expansion led by the
private sector will last another year or more. The economy is in the
final phase of emerging from deflation. The process of returning
dividends and interest earnings from companies to household accounts
is slowly setting in. Japanese companies are forming new business
models as the economy globalizes.

-- What do you think about risks looming over foreign countries'
economies, such as the US economy?

Murashima: In the US, only the housing market and some manufacturing
industries are losing momentum, so there will be no adverse impact
on the global economy and Japan's exports. The US consumption growth
rate is expected to drop from the current annual 4% to 3%, but since
increases in financial assets are likely to set off the drops in
housing prices, I think the US economy will remain strong.

Kojima: Under its renewed structure, the global economy is now able
to grow even without depending on the economies of major member
countries of the Organization for Economic Cooperation and
Development (OECD). Demand from emerging countries is growing enough
to cover the reduced portion of the US economy. In the US economy,
unless the path of personal consumption slows down, demand will not
significantly drop.

Furukawa: I do not think the US economy will take a rapid downward
turn. If consumer-price growth rates slow, the Federal Reserve Board
(FRB) may lower interest rates. Even if the growth rate remains low,
the US economy is expected to remain steady in tone. The Chinese
economy's potential growth rate is likely to make a soft landing,

TOKYO 00002289 009 OF 010


possibly reaching 9%.

Taniuchi: Even if the world economy is not in good shape, the
Japanese economy may not be seriously affected, because its current
economic growth is 70% dependent on domestic demand.

-- How about future prospects for the Japanese economy?

Kojima: The economic growth rate in real terms is expected to be
2.5% in fiscal 2007 and fiscal 2008. The 225-issue Nikkei Stock
Average at the end of the year may likely be on the level of 18,000.
The current moderate high-yen trend is expected to continue into the
future.

Murashima: I think the economy will grow about 2.2% in real terms
both in FY 2007 and 2008. The Nikkei Stock Average may likely be the
18,000 mark at the end of the year.

Furukawa: In FY2007, I estimate that the growth rate will be around
2% and that the value of the yen will start rising in the latter
half of the year, reaching 115 yen to the dollar at the end of the
year.

Taniuchi: I presume that the economy will grow about 2.0-2.5% in
real terms in FY2007. Even 2.5% is conceivable. Stock prices will
also boost, I think.

Requests to Abe administration coming in succession

In the debate, panelists presented requests about Abe
administration's economic policies. The administration released a
program to accelerate the nation's growth dynamics in April, setting
the goal of increasing the growth rate of productivity 1.5-fold
during five years of period, Taniuchi criticized the program as
lacking any basic strategy." He stressed that the administration
should take measures to promote market principles, such as those to
further promote deregulation and to make the labor market more
flexible, listing specific cases in the US and Britain.

Furukawa said: "It is necessary for industrial circles to more fully
utilize IT (information technology) and promote innovation."

On tax system reform, Furukawa referred to the about 40% effective
corporate tax rate and said: "The rate should be lowered to enable
Japanese firms to join international competition on an equal
footing." Taniuchi insisted that the government should reduce the
effective corporate tax rate to 35% but raise the consumption tax
rate in order to reduce the government's huge debts.

Kojima introduced a case in which more positive effects have been
produced owing to a reduction in IT-related taxes than those
generated by tax cuts. He said: "When the government decides to
increase or reduce taxes, it should take a strategic point of view.
If valuable financial resources are used, the government should keep
in mind the need to boost potential growth and productivity.

Over the Bank of Japan's financial policy, the participants shared
the view that if the central bank raises the key interest rate once
every six months, there will be only minor effect on the economy.
Murashima made this prediction: "The BOJ would raise the interest
rate in November. With the rate raised by 0.25% twice next year, the
policy interest rate would be 1.25% at the end of next year."


TOKYO 00002289 010 OF 010


SCHIEFFER

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