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Cablegate: The Japan Economic Scope--September 6, 2007

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ZNR UUUUU ZZH
R 070756Z SEP 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 7368
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5734
RUEHFK/AMCONSUL FUKUOKA 3046
RUEHNAG/AMCONSUL NAGOYA 2022
RUEHNH/AMCONSUL NAHA 5469
RUEHOK/AMCONSUL OSAKA KOBE 6682
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 004184

SIPDIS

PARIS PLEASE PASS TO USOECD
STATE PLEASE PASS TO USTR

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--September 6, 2007

1. (U) This cable contains the Japan Economic Scope from August 6,
2007.

2. (SBU) Table of Contents

Farming and Agriculture
3. Fukuoka Farmers Protest Free Trade
4. A New Agriculture Minister -- Financial Scandals Continue
5. Recent Agriculture Ministers

Climate Concerns
6. Clean Coal Conference Calls for Incentives, Investment to
Combat Carbon Emissions

Transportation
7. Honda Officials Worry about 100% NII Screening, Okay with
Megaports
8. UPS and FedEx Disadvantaged by Postal Privatization
9. Osaka Prefecture Angry Over Changes to GOJ Airport Management
Policy
10. KIX Welcomes MLIT's Estimated Budget Request for Cargo
Facility Construction; Faces Likely Opposition by MOF

Around the Regions
11. Citigroup to open "Okinawa Citigroup Center" in 2009
12. Revitalization of Local Economy: Miyazaki Gov.
Higashikokubaru Effect
13. Kansai Businesses Worried about Yen Appreciation's Impact on
Economy

Trade
14. Trade: Australia-Japan Foundation Chairman Visits Hokkaido
15. Japan and Chile Implement Economic Partnership Agreement

Money Matters
16. Unemployment Down, Starting Pay Up

Political Moves
17. Postal Rebels Again Roiling the LDP
18. GOJ Candidate for WTO Appellate Body

Sports
19. A First in Sumo History - Yokozuna Suspended for Behavior
Unbecoming

-----------------------
FARMING AND AGRICULTURE
-----------------------

3. (U) Fukuoka Farmers Protest Free Trade
--------------------------------------------- -------

In an effort to raise awareness of the adverse impact free trade
would have on Japanese farmers, the Fukuoka Prefecture JA Youth
Council staged a demonstration in central Fukuoka on August 23.
More than 200 "young farmers" and 22 tractors made their way
three kilometers through Fukuoka protesting the proposed EPA with
Australia. The group's representative, Nobutaka Kuratomi,
asserted that once tariff rates on foreign agricultural products
were reduced or eliminated, Japanese agriculture would disappear
and that it is important for consumers to recognize how dire the
situation is.

Unaccustomed to seeing such a sight, onlookers watched as the red
and blue tractors (possibly representing the Australian flag
according to post's JA contact) drove down city streets carrying
banners stating "Beautiful Japan, let's protect our food supply"
and "40 percent self-sufficiency rate, do you want to depend on
imported food?"

The Consulate's JA contact said that while this protest was
mainly targeted at Australia, the group is also concerned about
the competitiveness and safety of Chinese agricultural products.
He stressed that this demonstration was not about American
agricultural products. (Fukuoka: Mariko Mizumachi/Jim Crow)

4. (SBU) A New Agriculture Minister -- Financial Scandals
Continue
--------------------------------------------- -------

The epicenter of the political storm in Japan after recent Upper
House elections appears to be at the Agriculture Ministry.

TOKYO 00004184 002 OF 007


Takehiko Endo resigned on September 3 after less than a week as
PM Abe's Agriculture Minister, replaced by Masatoshi Wakabayashi.
A murky financial scandal undid Endo, whose reluctance to become
minister seems to have been justified by events.

For his part, Wakabayashi is a known quantity -- this will be his
third stint as either interim Agriculture Minister or Minister
since the end of May, when he replaced Toshikatsu Matsuoka, who
hanged himself over his own set of financial scandals.

Wakabayashi is very familiar with agricultural issues and enjoys
credibility with the ruling coalition's Ag caucus in the Diet. A
GOJ source told us that PM Abe is keen to keep the Agriculture
Ministry in the hands of somebody who knows the issues,
particularly at what is an important juncture in the Doha talks.

The source predicted that the new Agriculture Minister will play
a "very active role" if the Doha talks pick up steam. He added,
however, that Wakabayashi's finances will be scrutinized. The
press seems to have a "double standard" and is looking for
scandals, he said.

He noted he had just heard reports in the media that Wakabayashi
had made mistakes in filing some financial documents.
Wakabayashi's biography is attached. (ECON: Nicholas Hill)

5. (U) Recent Agriculture Ministers
--------------------------------------------- -------

Yoshinobu SHIMAMURA 07/19/2004
*Juinichiro KOIZUMI 08/08/2005 *Concurrently Prime Minister
Mineichi IWANAGA 08/11/2005
Shoichi NAKAGAWA 10/31/2005
Toshikatsu MATSUOKA 09/26/2006
*Masatoshi WAKABAYASHI 05/28/2007 *Acting MAFF Minister following
Matsuoka suicide
Norihiko AKAGI 06/01/2007
*Masatoshi WAKABAYASHI 08/01/2007 *Concurrently Environment
Minister
Takehiko ENDO 08/27/2007
Masatoshi WAKABAYASHI 09/03/2007 - Present
(List provided by FAS)

----------------
CLIMATE CONCERNS
----------------

6. (U) Clean Coal Conference Calls for Incentives, Investment to
Combat Carbon Emissions
--------------------------------------------- -------

The Japan Coal Energy Center (JCOAL) and the Japanese Committee
for Pacific Coal Flow (JAPAC) co-hosted "Clean Coal Day in Japan"
on September 5-6. This year was the forum's seventeenth
anniversary and the event included attendees from ten countries.
The group focused on United Nations' International Panel on
Climate Change (IPCC) findings of "a global mean loss of one to
five percent of GDP by a warming of four degrees Celsius."

Energy security was also a prominent discussion topic, with many
developing country representatives expressing concern about being
able to maintain a sufficient supply of energy.

The Japan Bank for International Cooperation (JBIC), an arm of
Japan's official development assistance and promoter of
sustainable development, presented the financial perspective on
energy security and investment. Viable projects are steadily
underway in anticipation of the upcoming G-8 conference in
Hokkaido next year. (ECON: Antonio Gonzalez/David DiGiovanna)

--------------
TRANSPORTATION
--------------

7. (SBU) Honda Officials Worry about 100% NII Screening, Okay
with Megaports
--------------------------------------------- -------

Honda executives told us that 100 percent x-ray scanning (Non-
Intrusive Imaging) would cause significant economic damage to the
company's bottom line. Honda ships 10,000 containers a year and
they noted even a relatively short delay of minutes would slow

TOKYO 00004184 003 OF 007


down their supply chain and boost costs.

At an informal meeting September 5, Honda officials expressed
their concerns to us but also indicated that they were cautiously
optimistic about the potential for 100 percent radiological
screening.

As long as it does not slow down the movement of goods,
radiological screening sounds like a good idea, one executive
said. Illustrating the need for more outreach on the issue, one
official asked about what sort of damage radiological screening
could have on the company's shipments, making a parallel to x-ray
damage to camera film.

The executives pitched the value of risk-based analysis as a more
resource-effective security plan, pointing to successes in
programs such as the Container Security Initiative and Customs-
Trade Partnership Against Terrorism. (ECON: Charlie Crouch)

8. (SBU) UPS and FedEx Disadvantaged by Postal Privatization
--------------------------------------------- -------

UPS and FedEx regional directors told the EMIN that they recently
met with counterparts from other express mail carriers to
coordinate on postal privatization issues.

The meetings in Tokyo with representatives from TNT (Express Mail
Service from Netherlands) and DHL (Express Mail Service from
Germany) focused on developing a lobbying strategy to counteract
Japan Post's insistence that its Express Mail Service does not
need to comply with the same regulatory requirements as other
similar private services.

During the meeting FedEx and UPS representatives agreed to
provide data on other comparable countries' reforms and
interpretations of Japan's legal obligations. The regional CEOs
from the four companies plan to come to Japan again in late
October to lobby the relevant organizations on the issue.

One of the issues express mail services face is unequal customs
procedures. If Japan EMS customers do not declare an item high
value, they pay no taxes on it. Nor, reportedly, does anyone
check the value of shipped items, which effectively creates a "no
tax" avenue for shippers who do not scrupulously self-declare.
It also creates a potential conduit for those seeking to ship
illicit items, an issue of continued interest to the USG. (ECON:
Charlie Crouch)

9. (SBU) Osaka Prefecture Angry Over Changes to GOJ Airport
Management Policy
--------------------------------------------- -------

The Osaka edition of Asahi Shimbun reported last week that MLIT
is considering changes to the Japanese government's system of
airport management, including a shift of the financial burden
from the central to local governments.

The changes would be introduced in legislation next year.
Needless to say, Osaka Prefecture is up in arms about the
proposed revisions affecting its bottom line. Debt-ridden Osaka
and local municipalities would become responsible for half of
Itami Airport's operating expenses if the law is changed.

Osaka complained to polecon officer that it was not consulted by
MLIT prior to publishing the proposal. Osaka-Kobe: Philip
Cummings/Naomi Shibui)

10. (SBU) KIX Welcomes MLIT's Estimated Budget Request for Cargo
Facility Construction; Faces Likely Opposition by MOF
--------------------------------------------- -------

MLIT released its estimated budget request for fiscal 2008 this
week and included 4.5 billion yen for the construction of cargo
facilities to service KIX's new runway.

According to a KIAC official, several airlines are going to
increase cargo flights at KIX, which will fill up the airport's
current cargo facilities soon. The GOJ has imposed conditions on
the airport for receiving public funds, but this year is the
first time that demand for cargo service is clearly increasing,
making it easier to request funds.


TOKYO 00004184 004 OF 007


However, MOF will be sure to oppose the request, a 75 percent
increase from the 2007 budget. KIX will likely face a large
bureaucratic hurdle in receiving the cargo construction funds it
needs to improve the airport's profitability. Osaka-Kobe:
Philip Cummings/Naomi Shibui)

------------------
AROUND THE REGIONS
------------------

11. (U) Citigroup to open "Okinawa Citigroup Center" in 2009
--------------------------------------------- -------

Citigroup has purchased land close to Naha International Airport
and plans to invest $43 million to build a new management center
in Okinawa. Construction is expected to take approximately 18
months and operations are set up begin between April and June,
2009.

This center will have same functions as, and serve as back up to,
the Citigroup Tokyo Center, controlling financial affairs,
accounting and compliance issues.

It will also function as a call center. The Okinawa Citigroup
Center plans to hire 700 new employees, 490 of whom will full-
time workers. (Naha: Akinori Hayashi)

12. (SBU) Revitalization of Local Economy: Miyazaki Gov.
Higashikokubaru Effect
--------------------------------------------- -------

Miyazaki Prefecture, with its palm tree-lined roads, manicured
beaches, sunny weather, and once called the "Honeymoon Mecca" and
"Vacation Paradise" of Japan appears to be reviving again as one
of the hottest tourist destinations in Japan, thanks to Gov.
Hideo Higashikokubaru. The governor, who took office in January
2007, has seen his approval rating rise to over 90 percent,
making him the most popular governor in Japan, according to a
national newspaper poll in July.

By the end of August, over 100,000 tourists had visited the
prefectural office and sales in the prefecture's specialty shop
shot up 1,000 percent over the previous year. In addition, major
hotels have seen a steady increase in the number of guests since
April.

While Higashikokubaru may not be a panacea for putting the
prefecture's economic house in order, post's recent trip to
Miyazaki confirmed the positive effects of the Governor's
leadership on the morale of prefectural officials and local
business people, wiping out his initial "another-comedian-turned
politician" image.

His initiative in public procurement reform has already born
fruit. The ratio of "winning bid-to-estimated contract price" (a
typical indicator of bid-rigging) declined from almost 97 percent
to just over 80 percent between 2005 and 2007. (Fukuoka: Yuko
Nagatomo/Jim Crow)

13. (SBU) Kansai Businesses Worried about Yen Appreciation's
Impact on Economy
--------------------------------------------- -------

With the yen appreciating since mid-August, many Kansai exporters
are getting more concerned about the negative impact on their
businesses. According to a Sankei Shimbun report this week,
exporters of manufactured goods earned record profits from the
yen's depreciation in the first half of 2007.

Osaka Chamber of Commerce and Industry (OCCI) officials told us
that Kansai manufacturers may have built up a comfortable level
of savings over the first six months, but that if the exchange
rate stays at 115 yen to the dollar for more than several months,
exporters are going to start hurting, especially Small and Medium
Enterprises (SMEs). SMEs are already reeling from the rising
prices of raw materials, especially metal and oil.

A sales manager of Matsushita Electric Industrial Co. also
commented that profit margins from sales of flat TVs, the
company's most competitive product, is already starting to shrink.

He is concerned that continued exchange rate pressure will lead

TOKYO 00004184 005 OF 007


the company to miss its sales targets in the next quarter.
(Osaka-Kobe: Philip Cummings/Naomi Shibui)

-----
TRADE
-----

14. (U) Trade: Australia-Japan Foundation Chairman Visits
Hokkaido
--------------------------------------------- -------

Peter Corish, chairman of the Australia-Japan Foundation, made a
late August trip to Sapporo, Hokkaido, on a self-described
mission to "activate bilateral trade." Corish, former president
of Australia's National Farmers Federation and also current chair
of the Cairns Group Farm Leaders, met with Hokkaido's Vice
Governor Mitsuo Kondo on August 29. According to media reports,
the atmosphere of the meeting was tense as Hokkaido officials
interpreted Corish's visit as an attempt to push for support on
the proposed Economic Partnership Agreement (EPA) between
Australia and Japan.

Hokkaido government officials, local farmers, and agricultural-
related entities continue to express strong opposition to an EPA
with Australia. Local analysts predict economic losses as large
as $11.6 billion if existing tariffs are lifted through an EPA on
Hokkaido-produced wheat, dairy products, sugar beets and beef.
(Sapporo: Ian Hillman/Yumi Baba)

15. (SBU) Japan and Chile Implement Economic Partnership
Agreement
--------------------------------------------- -------

PM Abe and Chilean President Michelle Bachelet signed a free
trade agreement September 3, the first such trade deal Japan has
signed with a South American country. According to press reports,
the agreement is expected to make Chile Japan's largest South
American trading partner. According to 2006 figures provided by
MOFA, Chile runs a trade surplus with Japan -- with exports of
$6.59 billion and imports of $1.15 billion.

Prior to her arrival in Tokyo, Chilean President Bachelet told
Japanese reporters that the deal represented a "great
opportunity" for Japanese business to gain ground in the Latin
American market. Also, according to an August 29 Kyodo wire
service story, the deal would "greatly benefit Chile in the
agricultural area."

The Foreign Ministry has a number of items concerning the
agreement on its website. To read the joint statement, click
here, and click here for more information.

In a joint press statement on September 3, the two leaders also
signed an agreement to boost cooperation on climate change, clean
energy, and anti-pollution measures. (ECON: Nicholas Hill)

-------------
MONEY MATTERS
-------------

16. (SBU) Unemployment Down, Starting Pay Up
--------------------------------------------- -------

Seasonally adjusted unemployment dropped 0.1 percent in July to
3.6 percent, the lowest rate since February 1998, according to
government statistics. The job openings-to-applicants ratio
remained steady at 1.07.

A Japan Business Federation survey also found that average
starting pay for graduates joining companies in April rose 0.66
percent, the largest year-on-year increase in a decade.
As one analyst put it, current trends are likely to increase
expectations a more general wage recovery. (ECON: Marc Dillard)

---------------
POLITICAL MOVES
---------------

17. (SBU) Postal Rebels Again Roiling the LDP
--------------------------------------------- -------

In what is being read as a setback for pro-reformers in the

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Liberal Democratic Party (LDP), Chief Cabinet Secretary Yosano
and Secretary General Taro Aso are laying the groundwork for
former trade minister and "postal rebel" Takeo Hiranuma to rejoin
the party, according to media reports. Unlike the other
reinstated "postal rebels," Hiranuma would not be required to
sign a pledge supporting postal privatization.

While no one is arguing that Hiranuma's reinstatement will change
the path of postal reform itself, LDP members have groused to us
that the party leadership is out of touch with the electorate,
which sees reinstatement as a return to old ways of the LDP and a
rejection of the voters' wishes as expressed in the 2005 Lower
House election. (ECON: Marc Dillard)

18. (SBU) GOJ Candidate for WTO Appellate Body
--------------------------------------------- -------

Japan announced on August 30 that Shotaro Oshima will be its
candidate to the WTO Appellate Body in Geneva. A MOFA official
told us that, by their count, some eight people are vying for
four open positions on the dispute body.

Oshima is currently Japan's ambassador to South Korea. The same
MOFA official told us that Oshima will likely be interviewed by
WTO Director General Pascal Lamy sometime in the end of September
or early October. A decision on the candidacy should come within
three months of the August 30 announcement.

For Oshima's biography, please see attachment. (ECON: Nicholas
Hill)

------
SPORTS
------

19. (U) A First in Sumo History - Yokozuna Suspended for
Behavior Unbecoming
--------------------------------------------- -------

For the first time in the sport's ancient history, a yokozuna
has been suspended from two upcoming sumo tournaments for
behavior unbecoming a grand champion. The Japan Sumo Association
(JSA) suspended champion Asashoryu on August 1 after he declined
to compete in the summer bashyo citing injury but was later
caught participating in a charity soccer tournament in his home-
country of Mongolia. The JSA also cut the salaries of Asashoryu
and Takasago, his stable master, by 30 percent for the next four
months.

Subsequent to his suspension, Asashoryu (given name Dolgorsuren
Dagvadorj) reportedly suffers from insomnia and a poor appetite.
The JSA-ordered psychiatric evaluation confirmed this diagnosis
and recommended the wrestler be allowed to return home to his
native Mongolia to recuperate. The JSA convened a special
hearing during which they acquiesced to this request stipulating,
however, that Asashoryu would be confined to his home except to
go out for to meet with his psychiatrist or to attend practice.

The suspension has now become an international incident with
Mongolian President Nambaryn Enkhbayar himself criticizing the
wrestler, stating Asashoryu should study Japanese tradition and
culture more diligently as befitting a Yokozuna's stature. The
President further opined that the truly great sumo wrestlers
combine physical power with mental power and stated he hoped
Asashoryu would strive to become that type of athlete.

To add salt to the wound, the Tokyo Regional Taxation Bureau
announced August 28 that the beleaguered Yokozuna failed to
report approximately 100 million yen in income over three years
and would be slapped with 30 million yen in penalties and back
taxes. Conspiracy or merely bad luck?

Rumors now abound that Asashoryu will retire from the sport
rather than return to face his critics in Japan. Stay tuned for
further reporting on the saga. (ECON: Sally Behrhorst)

20. (U) This SENSITIVE BUT UNCLASSIFIED e-newsletter from U.S.
Embassy Tokyo's Economic Section, with contributions from the
consulates, is for internal USG use only. Please do not forward
in whole or in part outside of the government. The Scope is
edited this week by Charlie Crouch (CrouchCA@state.gov) and Joy
Progar (ProgarJ@state.gov)

TOKYO 00004184 007 OF 007

21. (U) Please visit the Tokyo Econ Intranet webpage for back
issues of the Scope. Apologies, this option is only available to
State users. Please contact Joy Progar if you are from a
different agency and are interested in a back issue.
DONOVAN

© Scoop Media

 
 
 
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