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Cablegate: Japanese Morning Press Highlights 11/06/07

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UNCLAS SECTION 01 OF 13 TOKYO 005116

SIPDIS

SIPDIS

DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA;
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION;
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE;
SECDEF FOR JCS-J-5/JAPAN,
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR;
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA

SUBJECT: JAPANESE MORNING PRESS HIGHLIGHTS 11/06/07

Index:

1) Top headlines
2) Editorials
3) Prime Minister's daily schedule (Nikkei)

Ozawa's resignation:
4) Democratic Party of Japan (DPJ) head Ozawa reserves reply on
whether he will reconsider his resignation after being rebuffed by
party on alliance proposal (Mainichi)
5) Ozawa may withdraw his resignation as president, responding to
party persuasion (Sankei)

Fallout from failed Fukuda-Ozawa talks:
6) Deep rift between Prime Minister Fukuda, Ozawa in talks over
overseas use of armed force by SDF, with Ozawa saying yes if UN
resolution, Fukuda saying no (Nikkei)
7) One result of Fukuda-Ozawa talks is a broad acceptance of
permanent SDF dispatch law as feasible (Mainichi)

Defense issues:
8) New antiterrorism bill to be adopted by Lower House special
committee on Nov. 8 (Yomiuri)
9) Four experts testify in Lower House special committee in
connection with the antiterrorism bill (Yomiuri)
10) Fukuda contradicts Ozawa's public claim that he was not
insisting on passage of antiterrorism bill in return for a grand
coalition (Yomiuri)

11) Futenma relocation talks tomorrow between central and local
governments may be affected by Moriya scandal, subsidies issue
(Mainichi)
12) Host-nation support talks not going well with Finance Ministry
insisting on deep cuts and US strongly objecting (Nikkei)

13) Government plans to ask North Korea to allow experts into
country to look into abduction cases (Mainichi)

14) Foreign Minister Koumura expresses dissatisfaction in meeting
with Russian deputy premier over Russia letting third country firms
into the northern islands (Yomiuri)

Economic front:
15) Political turmoil have made Fukuda government's management of
economic policy muddled, with compilation of budget possibly
slipping to early next year (Sankei)
16) Government's tax research commission wants a hike in consumption
tax to save the social security fund (Tokyo Shimbun)

Defense scandals:
17) Defense contractor Miyazaki, now under investigation, unwilling
to answer summons to give Diet testimony as witness (Sankei)
18) Yamada Yoko Corp., defense contractor now under investigation,
provided former lawmaker Tamura with 200 million yen his election
campaign (Sankei)

Aticles:

1) TOP HEADLINES

Asahi, Mainichi, Yomiuri & Nikkei:
DPJ's Ozawa reserves reply in response to request for him to stay

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on, asking for time to think

Sankei:
DPJ leaders treating Ozawa with great caution, out of fear of party
breakup, hoping he changes his mind

Tokyo Shimbun:
Ozawa's remarks imply possibility of staying on

Akahata:
DPJ's Ozawa might have feared "anti-US label"

2) EDITORIALS

Asahi:
(1) Proposals to create society of hope (Part 2) - Create regional
federal state

Mainichi:
(1) Ozawa's remarks and deeds incomprehensible
(2) Vigorous action will only lead to deteriorating situation in
Pakistan

Yomiuri:
(1) Measures urged for smooth screening for building certification
(2) Learn lesson from relaxed education

Nikkei:
(1) DPJ urged to fulfill responsibility and settle internal
confusion
(2) Series of CEO resignations leaves lessons for Wall Street

Sankei:
(1) Party head talks contained danger of rejecting the axis of
Japan-US alliance
(2) Mass suicides in Okinawa must be described in school textbooks

Tokyo Shimbun:
(1) Uproar in DPJ must be quickly calmed down
(2) Pakistan should refrain from invoking martial law

Akahata:
(1) Politics must be carried out in accordance with popular will

3) Prime Minister's Official Residence (Kantei)

Prime Minister's schedule, Nov. 5

NIKKEI (Page 2) (Full)
November 6, 2007

09:28
Met with LDP Secretary General Ibuki at Kantei.

10:01
Attended a session of the People's Life Council. Afterwards met with
Finance Minister Nukaga, Vice Finance Minister Tsuda, and others.

11:38
Met with LDP Public Relations Headquarters Chairman Kawamura and
Publicity Division Director Noda.


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12:03
Met with Deputy Chief Cabinet Secretaries Saka, Ando, and
Yanagisawa.

13:01
Attended a meeting of the government's Tax System Research Council.

14:20
Met with Russian Deputy Premier Naryshkin.

15:11
Met with Bulgarian Deputy Prime Minister Kalfin. Afterwards, met
with UN FAO Director-General Diouf and Lower House member Yoshio
Yatsu.

15:57
Met with Minister of Economy, Trade & Industry Amari and Vice METI
Minister Kitabatake.

17:00
Attended an LDP executives' meeting held in Diet.

17:30
Met with Chinese Ambassador to Japan Cui Tiankai at Kantei.

18:34
Dined with chiefs of the political desks of the press companies at a
Chinese restaurant in Hirakawa-cho.

20:44
Arrived at his private residence in Nozawa.

4) DPJ President Ozawa reserves reply in response to request for his
remaining in office, asking for time to think

MAINICHI (Top Play) (Full)
November 6, 2007

Democratic Party of Japan (DPJ) leaders agreed at an emergency
meeting yesterday afternoon that they would continue efforts to
dissuade President Ichiro Ozawa from resigning as party head, on the
premise that they would not approve the idea of forming a grand
coalition with the Liberal Democratic Party (LDP). It has been
reported that Ozawa had discussed the idea with Prime Minister Yasuo
Fukuda during their one-on-one meeting. Secretary General Yukio
Hatoyama and other executives met Ozawa and asked him to stay on,
but Ozawa deferred a reply, remarking: "Time is necessary to sort
out my thoughts." Since Ozawa did not decline the request, some
members anticipate that Ozawa might change his mind. In the party,
however, many lawmakers are reacting fiercely to Ozawa's provocative
remarks and deeds.

In the executive meeting yesterday, participants decided to approve
holding talks with the LDP on specific policies. After the meeting,
Hatoyama said before reporters: "Party leaders agreed to continue
efforts to persuade President Ozawa to remain in the post. We will
ask him to stay on." Asked about the idea of a grand coalition,
Hatoyama expressed his desire to obtain understanding from Ozawa for
their agreement to start policy consultations with the LDP on
security and other areas, saying: "It is acceptable to hold policy
consultations with the LDP, if necessary, but not based on the
premise of forming a coalition with the party."

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Afterward, Hatoyama, Deputy President Naoto Kan, and House of
Councillors Chairman Azuma Koshiishi met Ozawa at a Tokyo hotel and
asked him to remain in his post. Although Ozawa reserved a reply, he
said: "I just submitted my resignation on Nov. 4. Since it takes
time to sort out my feelings, please wait for a while."

Prior to the executive meeting, Kan met with Ozawa early in the day.
According to Hatoyama, Ozawa told Kan about the coalition proposal:
"I did not stick to forming a coalition. I am not sticking to it
even now," adding: "The coalition idea was rejected in the executive
meeting. It is the most important matter for the party to establish
a framework to win the next election."

Hatoyama and other party leaders plan to listen to views from party
lawmakers in both houses today and then urge Ozawa to change his
mind.

5) DPJ chief Ozawa may withdraw his intention to resign as party
president

SANKEI (Top play) (Slightly abridged)
November 6, 2007

The main opposition Democratic Party of Japan's (DPJ) Secretary
General Yukio Hatoyama and other party executives yesterday met with
their party president, Ichiro Ozawa, at a Tokyo hotel and urged him
to withdraw his intention to resign as party chief. Their move
followed a decision reached at both an executives' meeting and a
session of vice presidents held earlier in the day to dissuade Ozawa
to stay on as chief on the conditions that he would not advance an
idea of forming a grand coalition with the ruling Liberal Democratic
Party (LDP), which Ozawa had been promoting. Ozawa withheld his
opinion, noting, "I tendered my resignation just yesterday. I need
time to sort things out in my mind. I want you to give me time to do
so." These remarks give rise to the possibility of his accepting the
call for him to stay on as party head.

One veteran lawmaker, who is close to Ozawa, late yesterday
commented: "I had a conversation with Mr. Ozawa today. He will be
all right now." The DPJ executives, including Hatoyama, plan to hold
a meeting this afternoon for party lawmakers to exchange opinions
and to "set the stage for Mr. Ozawa to stay on as party president,"
according to Hatoyama.

One reason the party executives are desperate to persuade Ozawa not
to resign as president is because they have highly valued Ozawa's
capabilities as a campaign strategist. In addition, there is the
judgment that "there is no person in the party to replace Mr. Ozawa
in terms of breakthrough capabilities," a senior party member said.
Even if Ozawa agreed to stay on as president, bad feelings, as seen
in a confrontation of policy lines over a formation of a grand
coalition, are likely to linger on in the party.

6) Deep gulf lies between Fukuda, Ozawa over use of force

NIKKEI (Page 2) (Abridged)
November 6, 2007

Recently, Prime Minister Yasuo Fukuda met with Ichiro Ozawa,
representative of the leading opposition Democratic Party of Japan
(Minshuto). "I did talk with him," Fukuda said yesterday regarding

TOKYO 00005116 005 OF 013


whether the two consulted on the idea of creating a permanent law
for the purpose of sending the Self-Defense Forces on overseas
missions in the future. "But," Fukuda stressed, "that's not enough."
Fukuda and Ozawa have both concurred on the need for Japan to have a
permanent law for that purpose. However, they are far apart from
each other on specifics.

Concerning the SDF's overseas role, Ozawa explained that he has
agreed with Fukuda that Japan would "participate only in activities
established or recognized by the United Nations Security Council or
General Assembly." Ozawa also stressed, "The prime minister decided
to make a policy switch that is extremely important for Japan's
security policy."

The government has so far taken the position that the SDF is
constitutionally not allowed to participate in UN activities tasked
with using armed force. Last year, a defense panel of the ruling
Liberal Democratic Party worked out an outline of a permanent law.
It incorporated a proposal to "ease standards for the use of
weapons" (or the rules of engagement). However, it does not allow
the use of armed force. This fundamentally differs from Ozawa's
standpoint, which is that acting in conformity with a UN resolution
is not invoking a sovereign right of the nation, so Japan may
participate in activities using armed force.

7) Permanent law for SDF dispatch a realistic challenge

MAINICHI (Page 2) (Abridged)
November 6, 2007

The 'grand coalition' initiative of Prime Minister Yasuo Fukuda and
Democratic Party of Japan (Minshuto) President Ichiro Ozawa ended in
failure for the present, so some deemed it infeasible to establish a
permanent law that is to stipulate requirements for Japan to send
the Self-Defense Forces on overseas missions. However, many of those
in the ruling Liberal Democratic Party and the DPJ have been
insisting on the necessity of creating a permanent law. In the
aftermath of the uproar, however, the LDP and the DPJ are both
increasingly aware of it as a realistic challenge. Whether the LDP
and the DPJ form a coalition or not, the ruling and opposition
parties will now likely step up their discussions on this matter as
an important issue for Japan's security policy.

"In the Diet as well, we will also have to hold sufficient
discussions on what situation will allows Japan to conduct overseas
activities. It will take time." With this, Fukuda indicated to
reporters yesterday that the Diet should take enough time to discuss
a permanent law and its specifics.

Ozawa is said to have proposed establishing a permanent law.
However, Fukuda has been positive about creating a permanent law. In
2002, Fukuda was in the post of chief cabinet secretary. In those
days, an advisory panel for Fukuda recommended establishing a
permanent law for Japan's SDF members for overseas activities. In
2003, Fukuda set up a working team in the Cabinet Secretariat to
draft a bill.

Ozawa sees Fukuda as an advocate of establishing a permanent law.
Ozawa is therefore believed to have proposed holding consultations
on a permanent law as a step to enter into talks for a grand
coalition.


TOKYO 00005116 006 OF 013


Ozawa has been asserting that Japan's SDF dispatches should be based
on United Nations resolutions. Ozawa told reporters that Fukuda has
given way to his standpoint. However, Ozawa also said he agreed with
Fukuda that Japan would "participate in UN activities established or
recognized with a UN resolution." This definition is equivocal. The
question is about "activities recognized by a UN resolution." Ozawa
has maintained that the Maritime Self-Defense Force's refueling
mission in the Indian Ocean was not based on any UN resolution.
However, the government and ruling coalition have taken the position
that the MSDF's refueling activities are recognized by the United
Nations.

8) Ruling parties may decide to take vote on new antiterrorism bill
on Nov. 8

YOMIURI (Page 2) (Full)
November 6, 2007

The ruling parties initially planned to take a vote on a new
antiterrorism bill on Nov. 7. But in yesterday's meeting of the
House of Representatives Special Committee on Prevention of
Terrorism, they decided to deal flexibly with the bill, including
postponing the vote to Nov. 8.

The ruling parties proposed in a special directors meeting on Nov. 2
holding a wrap-up interpellation session and taking a vote on Nov.
7. In yesterday's meeting, they did not seek a vote on Nov. 7.
However, a senior Democratic Party of Japan (DPJ or Minshuto) member
said to reporters, "We cannot accede to the plan to take a vote on
Nov. 8." A tug-of-war over the voting date is expected to continue.

Meanwhile, Prime Minister Yasuo Fukuda yesterday called Liberal
Democratic Party Secretary General Bunmei Ibuki to his official
residence and officially ordered him to begin concrete coordination
for extending the current Diet session. The government and ruling
parties generally decided to extend it by about one month.

At the same time, Chief Cabinet Secretary Nobutaka Machimura in a
press conference yesterday indicated that consideration would be
given to the DPJ's circumstances in determining the length of the
Diet extension, saying: "It took us a long time to carry out the
(LDP presidential election following former Prime Minister Abe's
announcement to step down). So it's not fair to say that we cannot
wait for even one day."

9) Lower House committee hears views from experts about new
antiterrorism legislation

YOMIURI (Page 4) (Full)
November 6, 2007

The House of Representatives Special Committee on Prevention of
Terrorism conducted yesterday a question-and-answer session by
inviting from four experts regarding the new antiterrorism special
measures legislation for resuming the Maritime Self-Defense Force's
refueling operation in the Indian Ocean.

Takushoku University Professor Satoshi Morimoto (recommended by the
ruling camp) indicated that the new legislation is directly linked
to the country's national interests, such as the defense of sea
lanes, in addition to antiterrorism measures and cooperation on the
Japan-US alliance. Military analyst Kazuhisa Ogawa (also recommended

TOKYO 00005116 007 OF 013


by the ruling camp) called for an early enactment of the new law,
saying: "The war on terror is not assistance to the United States.
In order to stop the chain of violence, an insertion of a military
organization is necessary."

Meanwhile, Reshad Khaled, Afghan director of an NGO providing
medical and educational assistance, raised a question about the
effectiveness of the maritime interdiction operation, saying,
"Weapons, drugs and terrorists are going out via neighboring
countries. Use of the sea represents only a small part." In
addition, Tokyo University of Foreign Studies Professor and former
special representative of the Japanese government for disarmament in
Afghanistan Kenji Isezaki (also recommended by the ruling bloc)
voiced opposition to the new legislation, saying: "Continuing the
SDF operations and sending (SDF troops) to the Provincial
Reconstruction Team (PRT) would destroy the 'beautiful
misconception" about Japan that it would not force anything on
others with force in the backdrop. Such would not serve Japan's
national interests."

10) I am determined to enact the new antiterrorism law, says prime
minister

YOMIURI (Page 2) (Full)
November 6, 2007

Regarding his earlier meeting with Prime Minister Yasuo Fukuda,
Democratic Party of Japan (DPJ or Minshuto) President Ichiro Ozawa
had explained: "The prime minister assured that if a coalition was
to be formed (between the Liberal Democratic Party and the DPJ), he
would not insist on enacting the new antiterrorism legislation."
Prime Minister Fukuda last night dismissed Ozawa's claim, saying:
"Our view is to enact the new legislation as early as possible to
resume the refueling operation, and that has not changed. I am
determined (to enact the legislation)." He was responding to a
question from the press at his official residence.

Ozawa also had explained: "The prime minister assured that the
overseas dispatch of the Self-Defense Forces would be limit to
activities authorized by UN resolutions." Regarding this point,
Fukuda said, "We certainly discussed matters like that, but that is
not all pertinent to the matter." He was cautious about Ozawa's
argument that even the use of force was possible as long as there
was a UN resolution. Ozawa also had said, "The prime minister made
an extremely important decision on policy change regarding security
policy." About this comment, Fukuda said: "I don't know (what he
meant). We each have our own views."

Meanwhile, Chief Cabinet Secretary Nobutaka Machimura in a press
conference last evening indicated that a full-fledged discussion on
a general law (permanent law) governing the overseas dispatch of the
SDF would not occur for the time being. He said: "Right now,
discussions are underway on what to do with the refueling operation.
(The overseas dispatch of the SDF) is a theme that can wait until
after they are all settled."

11) Futenma panel to resume tomorrow for 1st time in 10 months

MAINICHI (Page 5) (Full)
November 6, 2007

The government will resume its consultations with Okinawa Prefecture

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tomorrow for the first time in about 10 months over the pending
issue of relocating the US Marine Corps' Futenma Air Station in the
central city of Ginowan, Okinawa Prefecture, to a coastal area of
Camp Schwab, a US military base in the island prefecture's northern
coastal city of Nago. Prime Minister Yasuo Fukuda is scheduled to
visit the United States in mid-November. However, Japan has now
called off the Maritime Self-Defense Force's refueling activities in
the Indian Ocean. In addition, the government is going to cut down
on its "omoiyari yosan" (literally "sympathy budget" or Japan's host
nation support) for US Forces Japan. "There's nothing good to talk
about," one government official said. The government therefore wants
to play up something good at least about Okinawa, aiming to give the
impression that local people now have better understanding on the
issue of Futenma relocation. Yet, its visibility is unclear.

Tokyo and Okinawa have been at a deadlock in their talks over the
Futenma issue. The government proposed a plan to build an
alternative facility with a V-shaped pair of airstrips. Meanwhile,
Okinawa Prefecture called for the government to move the site of a
newly planned facility to an offshore area and get rid of Futenma
airfield's danger within three years. However, the Defense Ministry
did not concur in the days of Administrative Vice Minister Takemasa
Moriya and went through procedures for an assessment of the possible
impact of Futenma relocation on its site and environs.

In the meantime, former Vice Defense Minister Moriya, who wielded
his power over the Futenma issue, faced a scandal over his collusive
ties with a defense contractor. In October 2005, the Defense
Ministry ignored Okinawa's request and decided on the V-shaped
airstrips plan with the US side. Moriya was a key person in that
decision. Defense Minister Shigeru Ishiba has declared that the
Defense Ministry would look into the circumstances in those days.

There is another problem. The government has announced its incentive
plan to subsidize municipalities in return for their acceptance of
its plans for the realignment of US forces in Japan. However, the
government did not list a base-hosting locality where Futenma
airfield will be relocated. Nago Mayor Yoshikazu Shimabukuro
commented: "It's extremely regrettable. It's unconvincing." The
mayors of other municipalities in the northern part of Okinawa's
main island have cooperated with the government to push for its
plan. However, they are also keeping step with the Nago mayor. "We
must show that money can't move us," one of them said. It would not
be easy for the government to see progress even after resuming
consultations with Okinawa.

12) Coordination of "sympathy budget" hard-going: Finance Ministry
calls for substantive budget cut: US opposing it fiercely

NIKKEI (Page 2) (Full)
November 5, 2007

Coordination of views among government officials on the handling of
host nation support outlays for the US forces stationed in Japan to
be earmarked in the state budget for the next fiscal year is not
going well. The Finance Ministry is calling for a substantial cut,
but the Foreign Ministry is opposing the idea out of concern about a
possible negative impact on Japan-US relations. The US is also
frowning on the proposal. Prime Minister Yasuo Fukuda will likely be
entrusted to make a political decision for a final settlement.

The "sympathy budget" for the fiscal 2007 is 217.3 billion yen, down

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6.6 PERCENT from the previous year's level. Of that amount, Japan's
share (approximately 140 billion yen) based on the special agreement
expires next March. It is, therefore, necessary to set an amount to
be set aside in the next fiscal year's budget before the end of the
month with the budget compilation just ahead.

The Finance Ministry in October confirmed along with the Defense
Ministry a policy of substantively slash the "sympathy budget,"
based on the basic policy guidelines on economic and fiscal
management and structural reforms compiled last year, which call for
its revision. The ministry drew up a plan to cut more than 30
billion yen in total, including a 20 billion yen cut in utility
expenses (approximately 25 billion yen) and an approximately 10
billion yen cut in various allowances for Japanese workers at US
bases, and formally presented it to the US.

The US government is fiercely against the proposal.

According to a negotiation source, US Ambassador to Japan Schieffer
warned Foreign Minister Masahiko Komura: "Such a cut will have a
negative impact on the Japan-US alliance that could not be ignored."
A senior official of the Defense Department also sought special
consideration from Vice Foreign Minister Shotaro Yachi, who visited
the US in late October.

13) Tokyo in bilateral talks on Nov. 10-11 to ask Pyongyang to allow
Japanese experts to make fact-finding visit

MAINICHI (Page 1) (Excerpts)
November 6, 2007

The government decided yesterday to call on North Korea to allow a
Japanese fact-finding team made up of investigative officers and
experts to visit Pyongyang in connection with the abductions of
Japanese nationals by North Korea. It will formally request such in
informal talks between Japan and the North to be held on Nov. 10-11
in Shenyang, China. According to a source familiar with Japan-North
Korea talks, the outlook is that consultations will be held for
working-level talks slated for later this month as there are signs
that Pyongyang is flexible to accept Japan's request. If a visit to
Pyongyang by the fact-finding team is realized, it will be the first
time for Japanese experts to visit there since November 2004. The
government intends to find the missing abductees and to take them
home, as well as to gain a foothold in starting a joint
investigation.

Attending the informal talks will be Foreign Ministry Asian and
Oceanian Affairs Bureau Director General Kenichiro Sasae and
Northeast Asian Division Director Shigeo Yamada from the Japanese
side and Ambassador of North Korea to Normalization Talks with Japan
Song Il Ho.

Tokyo has called on the North to repatriate Japanese abductees to
Japan, but Pyongyang has been adamant in its position that eight
died and two are missing and that there are no more Japanese who
were abducted, as its leader Kim Jong Il had said.

14) Foreign Minister Koumura in meeting with Russian deputy premier
expresses displeasure with Russia's acceptance of economic
activities by companies from third countries on four northern
islands


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YOMIURI (Page 2) (Full)
November 6, 2007

Foreign Minister Masahiko Koumura yesterday held talks with Russian
Deputy Prime Minister Sergei Naryshkin in his ministry. Koumura
expressed unhappiness with Russia having accepted economic
activities by companies from third countries on the disputed four
northern islands off Hokkaido. He told the deputy premier:

"I want you to avoid an adverse impact on Japanese sentiment toward
Russia, as well as on bilateral territorial talks. Japanese
companies are not allowed to carry out activities on the four
islands in line with abiding by Russian jurisdiction."

Naryshkin did not make any comment. In an interview on Oct. 30 with
the Yomiuri Shimbun, he clarified that Russia would allow companies
from third countries to conduct economic activities.

Koumura proposed setting up a governmental consultative organ to
discuss climate change. He told Naryshkin: "I would like to look
into international cooperation in the post-Kyoto Protocol era." The
deputy premier promised to consider the proposal in a
forward-looking manner, saying, "I expect cooperation between Japan
and Russia will expand in this area."

Prior to his meeting with Koumura, Naryshkin met with Prime Minister
Yasuo Fukuda for about 40 minutes in the Prime Minister's Office.
The two confirmed that their countries would continue efforts to
resolve the Northern Territories issue and conclude a peace treaty.

15) Future of economic policy unclear: Budget compilation being
carried over until next year becoming real possibility

SANKEI (Page 3) (Excerpts)
November 6, 2007

With the political situation becoming unstable following Democratic
Party of Japan (DPJ or Minshuto) President Ichiro Ozawa's
announcement of his decision to step down, voices of concern about a
possible impact of the situation on future economic and fiscal
policies are growing stronger in Kasumigaseki (Japan's bureaucratic
center). Discussions on the compilation of the fiscal 2008 budget
and annual tax code revisions are moving into full swing. However,
the compilation of the budget being carried over until next year and
the expiration of special tax measures will likely become a real
possibility, depending on how the political situation develops.
Since the situation could spill over into the Japanese economy as a
whole, bureaucrats are closely watching the situation.

Administrative Vice Finance Minister Hiroki Tsuda at a press
conference yesterday underscored, "We will steadily press ahead with
the compilation of the budget and tax code revisions, based on the
premise that the budget can be compiled before the end of the year."
He thus indicated a stance of staying on the schedule as his
ministry did in the previous year, without being fettered by the
unstable political situation.

Though he ostensibly pretended to be calm, commotion is spreading in
the Financial Ministry, following a series of developments in the
political situation. That is because they had expected that if a
grand coalition between the Liberal Democratic Party (LDP) and the
DPJ had realized, various policy issues over which the two parties

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are at odds could have been settled in one sweep.

The LDP and the DPJ are at odds over many issues. Regarding economic
policy, for instance, the LDP aims at raising the consumption tax,
while the DPJ wants to keep the rate in place. Concerning the
provisional rate for special road purpose revenues, fiscal resources
for road construction and maintenance, the LDP wants to maintain the
present rate, but the DPJ is seeking cuts in some of those
resources.

The DPJ's dominance in the Upper House will remain unchanged under
the present situation. However, if the political turmoil continues,
it will become impossible to extend special tax measures that will
expire at the end of the present fiscal year, including the
provisional tax rate on special road purpose revenues. Should that
occur, it will cause a major setback to people's lives and corporate
activities.

16) Government's Tax Research Commission outlines policy report with
focus on consumption tax hike with eye on securing fiscal resources
for social security

TOKYO SHIMBUN (Page 1) (Excerpts)
November 6, 2007

The government's Tax Research Commission (TRC) at a plenary meeting
held at the Prime Minister's Official Residence (Kantei) yesterday
launched full-fledged discussions in the run-up to drafting a policy
report on a tax code revision for fiscal 2008 to be compiled later
in the month. The TRC has outlined a policy report with a focus on a
hike in the consumption tax aimed at maintaining the social security
system amid a decline in the working population, which shoulders the
income and corporate taxes, due to an increase in the number of
elderly people.

The report will also include the abolition of the cut in the capital
gains tax and the maintaining of the provisional tax rate for
special road construction revenues, such as the gasoline tax. Prime
Minister Yasuo Fukuda, who took part in the meeting, said, "It is
our political responsibility to look to the future of social
security and secure necessary and stable fiscal resources without
putting shouldering the burden on the back burner." However, he
steered clear of making any reference to the consumption tax.

A report on points at issue compiled based on discussions to date
was submitted at the meeting. Regarding the consumption tax, the
report included such views as that it should play a key role as
fiscal resources for social security spending and that it is also
necessary for the people to broadly shoulder the burden. Such views
as opposition to a hike in the consumption tax amid repeated
increases in public burdens and the need to restore progressive
rates to the income tax, increase property taxes, and give
consideration to people in low-income brackets, were also
incorporated.

17) Upper House president orders consultations between ruling and
opposition camps on Moriya's Diet testimony; Former Yamada Corp.
executive Miyazaki refuses to give unsworn testimony

SANKEI (Page 5) (Full)
November 6, 2007


TOKYO 00005116 012 OF 013


In connection with the fact that at the House of Councillors Foreign
Affairs and Defense Committee the opposition camp decided yesterday
to summon former Administrative Vice Defense Minister Takemasa
Moriya to testify in the Diet in the absence of the ruling parties,
Upper House President Satsuki Eda telephoned Democratic Party of
Japan (DPJ) Diet Affairs Committee Chairman Susumu Yanase and said:
"I am concerned that the testimony would be held without the
presence of the ruling bloc." Eda ordered Yanase to consult with the
ruling parties well.

In this connection, it has been learned that Motonobu Miyazaki,
former executive director of defense equipment trader Yamada Corp.,
who was requested by the Upper House Foreign Affairs and Defense
Committee to testify as an unsworn witness on the morning of Nov. 8
concerning his cozy ties with Moriya, conveyed to the Upper House
Secretariat his refusal yesterday.

SIPDIS

Yamada Corp. President Yoshihiko Yonezu, who was also requested to
give testimony, reportedly has yet to respond whether to attend as
of Nov. 5.

Seiji Suzuki of the ruling Liberal Democratic Party (LDP) and
Hisashi Kazama of the New Komeito lodged a protest with Eda that the
resolution on Moriya's testimony was null.

The opposition bloc decided on the night of Nov. 2 at an Upper House
committee session without the presence of the ruling camp on the
holding of Moriya's testimony on the afternoon of the 8th. The
ruling camp has reacted strongly, claiming that the question of
whether to summon him should be unanimously approved.

18) Yamada Corp. found to have raised 200 million yen to offer to
former House of Councilors member Tamura as campaign funds for Upper
House election

SANKEI (Page 1) (Full)
November 6, 2007

The major defense trading company Yamada Corp. had raised 200
million yen to offer to former House of Councilors member Hideaki
Tamura (75), a former officer of the Air Self-Defense Force (ASDF),
as campaign funds before the Upper House election in 1989, persons
concerned revealed. Former Yamada Corp. executive Motonobu Miyazaki
(69) prepared the money by borrowing tens of millions of yen from
the company, but it is unclear whether the money was actually
provided to Tamura. Tamura ran for the election for the first time
and was elected. Tamura did not respond to an interview with the
Sankei Shimbun.

According to persons concerned, Miyazaki and other company officials
raised money several months before the Upper House election in July
1989, when Tamura's camp was busy recruiting party members.

Miyazaki personally borrowed tens of millions of yen from Yamada
Corp., and an employee of Yamada Corp.'s group company borrowed
money from a bank. They managed to raise 200 million yen.

Reportedly, Miyazaki and his group explained at the time that the
money they borrowed would be provided to Tamura as campaign funds.

Miyazaki paid back all the money he borrowed over several years.


TOKYO 00005116 013 OF 013


In the 1989 Upper House election, every candidate running in the
proportional representation constituency on the LDP ticket exerted
himself or herself to recruit party members through his or her
affiliated industries in order to push up his or her name in the
list of the party's candidates in the proportional representation
constituency. Once a person becomes a party member, he or she needs
to pay 4,000 yen as the annual party membership fee to the party.
But at the time, there were reportedly many who became party members
with their membership fees paid by someone else.

Tamura retired as an ASDF officer in January 1989 and began
preparations to run for the Upper House election. He was far behind
other candidates in recruiting party members, but his name was 13th
of the list of party candidates released on July 4. In the election,
the first 15 candidates on the list won seats.

It has already been learned that when Tamura served as president
(Lieutenant General) of the Air Staff College from 1986 through
1987, Yamada Corp. a dozen times paid his expenses for overnight
tennis tours, including hotel lodging expenses.

Miyazaki reportedly raised the money to get Tamura elected, as he
had associated with Tamura since the latter served as lieutenant
general.

SCHIEFFER

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