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Cablegate: Japanese Morning Press Highlights 01/17/08

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UNCLAS SECTION 01 OF 13 TOKYO 000128

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 01/17/08

Index:

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

4) Cabinet adopts action plan for new antiterrorism law; Defense
chief Ishiba to issue order today dispatching MSDF to Indian Ocean
to continue OEF mission (Nikkei)

Ozawa at the DPJ helm:
5) Democratic Party of Japan (DPJ) President Ozawa calls the new
antiterrorism law "unimportant" in justifying his skipping vote on
bill in Diet (Tokyo Shimbun)
6) Ozawa says he will not apologize for his absence from the Diet
during key vote (Mainichi)
7) Ozawa at DPJ convention says he will risk his political life to
bring about a change to a DPJ-led government (Yomiuri)
8) Ozawa sets election goal of his party attaining a majority of
Lower House seats (Tokyo Shimbun)
9) Commentary: Is Ozawa really all right? (Mainichi)

Fukuda in charge:
10) Prime Minister Fukuda's draft "vision of Japan" sees cooperation
with the opposition as essential, while DPJ plan aims at creating an
Ozawa government (Sankei)
11) Fukuda meets with special envoy from ROK president elect,
predicts new era in bilateral relations (Sankei)

12) CIRO official passed information to Russian embassy for a
decade, for which he was remunerated and wined and dined (Yomiuri)


13) Koga, Tanigaki factions to merge in May (Tokyo Shimbun)

Economy shaking:
14) Tokyo stocks continue to plummet, now at 13,504; Yen continues
to rocket, now at 105 threshold (Asahi)
15) Fukuda blames U.S. sub-prime mess for sliding stock market
(Yomiuri)
16) 11 trillion yen losses by 21 banks, including Japanese
institutions (Yomiuri)
17) Coordination to select Muto as new head of the Bank of Japan
(Asahi)

18) Prime minister mulling whether to announce at Davos Conference
his plan for setting numerical targets for reducing greenhouse gases
(Asahi)

Mekong plan:
19) Japan to give five Mekong-area governments 4.4 billion yen in
aid (Yomiuri)
20) Japan setting up a new framework for talks among the five Mekong
countries (Nikkei)

Articles:

1) TOP HEADLINES

Asahi, Mainichi & Tokyo Shimbun:
Japan Post says all five paper-manufacturing companies reported
false blending rates of recycled paper used for New Year's

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postcards; Nippon Paper head to quit over scandal

Yomiuri & Sankei:
Ex-Mitsubishi president convicted over concealment of vehicle
defect

Nikkei:
KDDI to buy Chubu Electric Power's optical networking system to
counter NTT

Akahata:
MHLW comes up with guidelines for protection of day laborers

2) EDITORIALS

Asahi:
(1) Falling stock prices and rising yen give us an opportunity to
overcome "fragile" economy
(2) Court ruling over defect Mitsubishi vehicle: CEO responsible for
safety

Mainichi:
(1) Japan's lack of attractiveness for investment more serious than
plummeting stock prices
(2) Mitsubishi leaders lacked morality

Yomiuri:
(1) Every possible action against falling stock prices should be
taken to avoid "March crisis"
(2) How will DPJ demonstrate its capability to take the reins of
government?

Nikkei:
(1) Vast losses in U.S. financial sector fueling concern
(2) Mitsubishi urged to atone for wrongdoing

Sankei:
(1) Subprime meltdown: Pay close attention to government-affiliated
funds
(2) DPJ should win public's confidence instead of playing politics

Tokyo Shimbun:
(1) Ozawa-led DPJ should be more realistic
(2) Ruling over Mitsubishi vehicle accident: Top corporate leader
heavily responsible for defect

Akahata:
(1) Why do they obstruct moves to create treaty banning cluster
bombs?

3) Prime Minister's Official Residence (Kantei)

Prime Minister's schedule, January 16

NIKKEI (Page 2) (Full)
January 17, 2008

09:31
Attended the year's first tea ceremony at the Urasenke Tokyo studio
in Ichigaya, along with former Prime Ministers Mori and Abe.

10:59

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Met at the Kantei the special envoy of South Korean President-elect
Lee Myung Bak.

13:57
Attended an LDP national secretaries' general meeting at party
headquarters.

14:37
Met at the Kantei the foreign ministers of five Southeast Asian and
Mekong countries, followed by Economic and Fiscal Policy Minister
Ota and others. Ota stayed on.

15:38
Attended an LDP joint national convention of the youth and women's
divisions at party headquarters.

16:03
Met at the Kantei Fuji Xerox advisor and New Japan-China Friendship
Committee for the 21st Century Japanese Chair Yotaro Kobayashi and
others, followed by private secretary to the foreign minister
Kawano.

17:05
Met Internal Affairs and Communications Minister Masuda and
Administrative Management Bureau Director General Hashiguchi.
Afterward, attended a Security Council of Japan meeting, followed by
an ad hoc cabinet meeting.

17:48
Met Vice METI Minister Kitahata, followed by former LDP Secretary
General Nakagawa.

20:04
Returned to his official residence.

4) Cabinet OKs MSDF masterplan

NIKKEI (Page 2) (Full)
January 17, 2008

The government yesterday evening adopted a masterplan at a Security
Council meeting and an ad hoc cabinet meeting for the Maritime
Self-Defense Force's refueling mission to be resumed in the Indian
Ocean under a special measures law promulgated and enforced
yesterday. Prime Minister Yasuo Fukuda approved the masterplan for
MSDF activities. Defense Minister Shigeru Ishiba is expected to
issue orders on Jan. 17 to send an MSDF squadron.

The MSDF will ready the Oumi, a supply ship, and the Murasame, a
destroyer escort. The two MSDF vessels will head out next week and
arrive in the Indian Ocean in about three weeks. The MSDF will
resume refueling activities and water supply in mid-February for
foreign naval vessels engaging in maritime interdiction operations
to back up antiterror operations in Afghanistan. The MSDF, based on
the masterplan, will send a total crew of up to 500. The MSDF
squadron will be staged in the Indian Ocean up until the end of
June.

5) "New refueling law unimportant": Ozawa

TOKYO SHIMBUN (Page 2) (Full)
January 17, 2008

TOKYO 00000128 004 OF 013

The Diet enacted a new antiterrorism special measures law (new
refueling law) in a second vote of the House of Representatives on
Jan. 11. That day, Ichiro Ozawa, president of the leading opposition
Democratic Party of Japan (Minshuto), left his seat in the lower
chamber right before the vote. "I had promised to go to Osaka
Prefecture to back a candidate running in the gubernatorial
election," Ozawa said in a news conference yesterday after his
party's convention. "A campaign promise must not be broken. I don't
think the new refueling law is important for the people and the
DPJ." So saying, Ozawa indicated that there was no problem.

"If I think it's an important bill," Ozawa went on, "I will be there
before doing anything else." Even so, Ozawa stressed: "We're going
to take office. That's my role as the head of a political party. My
role has priorities." In addition, Ozawa told reporters: "The prime
minister and cabinet ministers do not attend every plenary session.
Nevertheless, they are not criticized at all. I cannot understand
this at all. I'm far busier. If you criticize me, you should
criticize both of them, as well."

6) DPJ President Ozawa: I offer no apology for abstaining from
voting on new antiterrorism bill because supporting campaign was
more important

MAINICHI (Page 2) (Full)
January 17, 2008

When asked by reporters about his having left the plenary session on
Jan. 11 of the House of Representatives where the ruling parties
passed the new antiterrorism special measures bill by a two-third
majority override vote, he responded yesterday: "As party head, not
as a politician, I have more important matters to deal with." He
indicated in his remark that he felt no need to offer an apology.
Since Secretary General Yukio Hatoyama has repeatedly apologized for
Ozawa's act, there are noticeable differences in attitudes toward
the matter between the two DPJ executives.

Explaining that the reason for his abstention from voting was to
support the DPJ-backed candidate's campaign in the Osaka
gubernatorial election, he stressed: "It was committed from before
to support the campaign. I could not break my election promise."
Asked about the new antiterrorism special measures law, he stated:

"It was not an important bill for the public and the DPJ. I had
already expressed my opposition to the bill. The aim of the plenary
session was to just to count numbers. We could predict the result. I
cannot understand why you criticize me."

Asked about the fact that the DPJ had required its legislators to
attend the plenary session, Ozawa said: "As party head, I make my
own priorities about my own duties." He argued:

"I cannot understand that the prime minister and cabinet ministers
are allowed to absent themselves from plenary sessions because of
official duties, but I am not allowed. I am busier than them and I
have a more significant role than them."

In a meeting yesterday in Kyoto, however, Liberal Democratic Party
(LDP) Secretary General Bunmei Ibuki criticized Ozawa's abstention
from voting, saying: "Those who serve for national politics should
put in every effort in order to give the public the assurance of

TOKYO 00000128 005 OF 013


relief and security."

7) Ozawa at party convention vows to stake his political life on
bringing about change in government, with eye on winning majority in
next Lower House election

YOMIURI (Page 2) (Excerpts)
January 17, 2008

The major opposition Democratic Party of Japan (DPJ or Minshuto)
held yesterday a regular party convention at the Pacifico Yokohama
in the city of Yokohama. In the session, President Ichiro Ozawa
expressed his determination to stake his political life on bringing
about a change of government through the next House of
Representatives election. But he is under criticism for skipping a
vote in a Lower House plenary session that readopted the
government-sponsored antiterrorism special measures bill. His
strategy to enlist greater public support remains unclear.

Touching on the next regular Diet session to be convened tomorrow,
Ozawa declared in his speech:

"Defining the upcoming session of the Diet as the session to lower
gasoline prices, we will demonstrate activities in the Diet to
abolish the provisional gasoline tax rates, while securing resources
for local road projects. I promise you that I will devote myself to
winning the next political battle. I also pledge that I will stake
my political life on achieving two political goals: Bringing about a
change in government through a general election this year in order
to implement our livelihood-oriented policy, and enrooting
parliamentary democracy in Japan. It is going to be my last battle
as a politician."

In a press conference after the convention, he also said about the
victory-or-defeat line: "If the opposition bloc fails to win a
majority, such would mean a defeat."

8) DPJ President Ozawa: Aim is to gain majority of Lower House seats
by opposition parties in next election

TOKYO SHIMBUN (Page 2) (Full)
January 17, 2008

Referring in a speech delivered at the annual convention held
yesterday afternoon in Yokohama to the next House of Representatives
election, Democratic Party of Japan (DPJ or Minshuto) President
Ichiro Ozawa expressed his determination:

"I promise to stake my political career on taking over the reins of
government. It will be the final battle for me as a politician. All
the DPJ members as one body will win the political battle in
cooperation with other opposition parties."

At a press conference after the convention, Ozawa gave a low
threshold for victory:

"The best result would be that the DPJ alone holds a majority of the
Lower House, but the aim is to have a majority by opposition
parties. If that cannot be achieved, it will mean a defeat."

Considering the next regular Diet session, which will open tomorrow
and will focus on gasoline prices, Ozawa underscored a policy of

TOKYO 00000128 006 OF 013


abolishing the provisional tax rates. He clearly stated: "I think
there is no possibility for holding consultations with the
government and ruling parties on this issue."

9) Is Ozawa all right?

MAIHICHI (Page 2) (Abridged slightly)
January 17, 2008

By Masao Yora, editorial writer

Immediately after the Democratic Party of Japan's (DPJ or Minshuto)
overwhelming victory in last summer's House of Councillors election,
I wrote in this column: "Above all, it is unclear if DPJ President
Ichiro Ozawa is aiming at becoming the prime minister."

The DPJ confirmed in its party convention yesterday that it will aim
at an Ozawa administration. But doubts again crept into my mind as I
watched Ozawa leave the Jan. 11 House of Representatives plenary
session before it took a vote to readopt the government-sponsored
new antiterrorism special measures legislation in order for him to
stump for the DPJ candidate running in the Osaka gubernatorial
race.

An election comes ahead of an historical vote. Reportedly, some DPJ
members had feared from days before that Ozawa might skip the vote.
He could have delayed the time to leave for Osaka. Ozawa seemingly
wants to say that he has no reason to be criticized by the media.
But Ozawa is a person who might become the prime minister. In my
view, it was his responsibility to send a clear message to the
people that day. An increasing number of people are having doubts
about Japan's decision to resume the refueling operation in the
Indian Ocean. Ozawa is to blame for making such people wonder, "What
was this Diet all about?"

Some observers think that Ozawa deliberately avoided the vote in
order to secure a free hand with an eye to forming a grand coalition
in the future. If that is true, the rebellious act by the party head
is even more serious.

Ozawa will reportedly not take the floor to question the government
in the next regular Diet session. Although his obsession to bring
about a change in government is clear, Ozawa seems to be thinking
that he is cut out for doing the spadework behind the scenes rather
than for becoming the prime minister.

At one point in the past, the Liberal Democratic Party discussed
selecting different persons as the prime minister and the LDP
president. By the same token, I believe the DPJ could have a
separate prime ministerial candidate and party president.

10) Draft revealed of Fukuda's policy vision: Stresses cooperation
with the opposition camp

SANKEI (Page 1) (Excerpts)
January 17, 2008

This newspaper learned yesterday of the contents of a draft policy
statement, the Fukuda Vision, which Prime Minister Yasuo Fukuda is
not preparing as a set of domestic and foreign policy guidelines to
use from now on. The catchphrase in the statement is "building a
nation that is independent and can coexist." The draft has such

TOKYO 00000128 007 OF 013


statements as "building a nation that is secure and safe," and
contains such policy stances as giving diplomatic emphasis to Asia,
as well as having a "policy line of cooperation with the opposition
parties" in managing the Diet.

The prime minister, after vetting the draft, apparently is
considering presenting the vision himself at the Liberal Democratic
Party (LDP) convention on Jan. 17 and then in his Diet policy speech
on the 18th.

The draft was compiled in mid-December last year mainly by former
Justice Minister Masatate Sugiura at the National Strategic
Headquarters, a body directly under the LDP president. It is
organized into five chapters: 1) Diet and administration; 2)
Economic society strategy aimed at independence and coexistence; 3)
Creating a country in which the culture, traditions, nature, and
history are treasured; 4) Building a country that is secure and
safe; and 5) foreign relations.

In the chapter on Diet and administration, the draft categorizes the
current lopsided upper and lower houses as being "a danger to
parliamentary democracy." It stresses a policy line of cooperation
with the opposition parties, stating, "There is no other way to
break the deadlock other than by straightforward and sincere talks
with the opposition camp on important political items." It
categorizes as essential to change the tendency of favoring
government-submitted bills, and cited the need to increase bills
submitted under political leadership that went along with the will
of the people.

11) Meeting with ROK president-elect's special envoy, Prime Minister
Fukuda says, "I feel a new age is coming"

SANKEI (Page 3) (Full)
January 17, 2008

Prime Minister Yasuo Fukuda yesterday met at the Prime Minister's
Official Residence with South Korean Special Envoy Lee Sang Deuk,
deputy speaker of the National Assembly and South Korean
president-elect's elder brother, and conveyed his willingness to
attend the inauguration ceremony for the president on Feb. 25. Tokyo
is highly hopeful that the new South Korean administration will
depart from the Roh Moo Hyun administration's policy line, which has
been described as "being anti-Japanese, anti-America, and pro-DPRK,"
as one former foreign minister put it.

In the talks, Fukuda said, "I have feeling that a new age is
coming," and he expressed his hopes for the president-elect. On the
North Korean issues, the two confirmed the importance of
strengthening the unity of Japan, the United States, and South
Korea. Special Envoy Lee noted: "We must not put aside the abduction
issue."

Japan is in a mood of welcoming the next South Korean
administration. At the beginning of the year, former Prime Minister
Yoshiro Mori, Administrative Vice Foreign Minister Shotaro Yachi,
and other government officials visited South Korea in succession to
coordinate a visit to Japan by the ROK president-elect this spring.

Behind this welcoming mood is Tokyo's sense of relief in part
because the president-elect indicates he will attach importance to
relations with Japan and also because the period of the Roh

TOKYO 00000128 008 OF 013


administration, during which bilateral ties were strained, has come
to an end. Unlike President Roh, who fanned the flames of
anti-Japanese sentiments over historical issues and the Takeshima
(Tokdo in Korean) islands dispute, "the new administration will not
clamor at us as the Roh administration had done," a Japanese Foreign
Ministry official noted.

However, a senior official explained, "The South Korean public has
become pro-North Korea during the tenures of the Kim Dae Jung and
Roh administrations." The past presidents of South Korea declared
building a "future-oriented relationship" with Japan immediately
after they came to power, but later they intensified an
anti-Japanese mood. At a press briefing yesterday, Chief Cabinet
Secretary Nobutaka Machimura said, "My impression is that there may

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be a slight difference from the Roh administration," but he added:
"We must carefully assess the situation."

12) CIRO employee possibly got several million yen from Russian
counterparts in return for info

YOMIURI (Page 39) (Full)
January 17, 2008

A 52-year-old male employee of the Cabinet Intelligence and Research
Office (CIRO or Naicho for short), is alleged to have provided the
government's in-house information to a 38-year-old second secretary
of the Russian Embassy in Japan. In this case, the CIRO employee is
suspected of having given information to the second secretary and
several intelligence agents from the Russian government, sources
revealed. The official is believed to have received money and have
been treated to the extent of several million yen in total. The
in-house information was excerpted from CIRO reports and other files
prepared for the organization to plan key policies. The Tokyo
Metropolitan Police Department's Public Security Bureau is
investigating what was contained in the information that went to
Russia.

The CIRO employee in question is currently assigned to the
administrative section as a researcher and analyst of the domestic
political situation, according to MPD Public Security Bureau
sources. About 10 years ago, this employee was assigned to an
organization affiliated with the Cabinet Office. In those days, he
was a researcher and analyst of overseas developments.

The CIRO employee got to know the Russian Embassy second secretary
and those Russian intelligence agents at that time through persons
he knew, the MPD sources said. The employee used to provide
information to them, and in return, received several tens of
thousands of yen each time or was wined and dined. Such payoffs are
seen to have added up to several million yen.

The employee took out his handwritten transcriptions of CIRO files,
including reports on the domestic political situation, according to
the sources. He met with his Russian counterparts at restaurants in
Tokyo or elsewhere and handed those transcripts to them.

13) LDP's Koga and Tanigaki factions agree on merger in May

TOKYO SHIMBUN (Page 2) (Excerpts)
January 17, 2008

Liberal Democratic Party (LDP) Election Committee Chairman Makoto

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Koga, who heads an LDP faction, and Policy Research Council Chairman
Sadakazu Tanigaki, who also heads another faction, held a meeting
yesterday in a Tokyo hotel, in which the two faction heads reached
an agreement on a plan to merge their factions by the end of May.
They will hold a political fund-raising party on May 15 in Tokyo and
announce the inauguration of a new faction.

Koga will head the new faction and Tanigaki will become No. 2 man in
it. The new faction will not file a presidential candidate for the
time being. The total membership of the new faction will be 61 -- 45
Koga faction members, 14 Tanigaki faction members and Koga and
Tanigaki, who a now belong to no factions as they serve in LDP
leadership posts. The membership of 61 will make the new faction the
third-largest faction in the LDP, following the Tsushima faction,
which has 68 members.

After the meeting, Koga told reporters: "I want to place importance
on our agreement for the LDP and our country's politics." Tanigaki
stated: "The two factions share a policy of giving priority to the
daily lives of people and to foreign policy toward Asia."

The Koga and Tanigaki factions were derived from the former Miyazawa
faction, which also included the Kono group, which left the Miyazawa
faction in 1998. The Kono group is now headed by Taro Aso and is
called the Aso faction. Moreover, due to the so-called Kato
rebellion in 2000, in which Koichi Kato called on then Prime
Minister Yoshiro Mori to step down, the Kato faction, which was also
derived from the former Miyazawa faction, split into the Ozato
faction, currently the Tanigaki faction, and the Horiuchi faction,
currently the Koga faction.

14) TSE continues free fall, with Nikkei closing at 13,504 yen: Yen
rises sharply, testing 105 yen against dollar

ASAHI (Page 1) (Full)
January 17, 2007

The benchmark Nikkei Stock Average on the Tokyo Stock Exchange
yesterday fell nearly 500 yen but narrowly avoided crashing through
the 13,500 point barrier. In the meantime, the yen rose to 105
against the dollar, the highest level in two years and eight months.
Uncertainties about the future of the U.S. economy triggered by the
subprime loan issue have spread commotion to markets in many
countries. In particular, stock prices are plunging, and the yen is
making big gains on the Tokyo Stock Exchange (TSE).

The Nikkei Stock Average ended at 13,504.51 yen, down 468.12 points
from the previous day, marking the fourth consecutive decrease. The
margin of decline reached 1,094 yen. TOPIX (Tokyo Stock Exchange
Stock Price Index), indicating the movement of prices of stocks
listed on the First Section of the TSE, was at 1,203.37 yen, down
47.83 points from the previous day. Stock prices fell across the
board, with prices of 90 PERCENT of stocks listed on the First
Section of the TSE taking a beating. Trading volume stood at 3.02
billion shares.

Meanwhile, the yen exchange on the Tokyo Foreign Exchange Market hit
between 106.28 yen and 106.31 yen against the dollar, up 1.3 points
from the same time the previous day.

Many market insiders are calling for structural reforms, such as
deregulation, and fiscal reconstruction. However, they are

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disappointed at the Fukuda administration, noting that the reform
drive has stalled. This is accelerating the sell-off of Japanese
stocks.

Moves to withdraw invested money are gathering momentum in stock
markets throughout the world. In Asia, indexes in Singapore and
Shanghai dipped about 3 PERCENT from the previous day's level.
India also saw a 2 PERCENT drop, compared with the previous day.
Stock prices in Britain also slid 1.9 PERCENT . Stock prices in
Germany temporarily dropped 1.5 PERCENT .

In the past, there have been cases in which Japan-selling brought
about lower stock prices and a weaker yen, and an economic recovery
caused a higher yen and higher stock prices. This time, however, yen
carry trade, in which foreign investors borrow low-interest yen to
change it into dollars and invest it in high-interest overseas
assets, increased before the yen began to rise. However, judging
that the investment risk has increased, those investors are now
buying yen in order to pay back the yen loans, thus driving the yen
higher.

15) "Impact of subprime loan crisis yet to be determined": Fukuda

YOMIURI (Page 9) (Full)
January 17, 2008

Following the plunge on the Tokyo Stock Exchange yesterday, a number
of government officials made statements that the plunge is
attributable not to weakness in the Japanese economy but mainly to
the subprime loan issue.

Commenting on the growing subprime loan fiasco, Prime Minister
Fukuda told reporters at the Prime Minister's Office (Kantei): "We
have yet to determine how much impact the issue will have on the
future of the Japanese economy. I believe that this situation will
continue for some time to come. I want the U.S. to deal with the
matter properly." Regarding the falling stock prices, however, he
took the view that the falling stock prices do not reflect the
Japanese economy.

Some market insiders have pointed out that one reason for the
falling stock prices is the Fukuda administration stepping back from
the reform drive. However, Chief Cabinet Secretary Machimura
underscored, "If you tell me which policy of the Fukuda
administration has affected stock prices, it would be very
helpful."

16) Losses incurred by 21 Japanese, U.S., and European banks from
subprime loan fiasco reach 11 trillion yen: 470 billion yen by six
Japanese banks

YOMIURI (Page 1) (Full)
January 17, 2008

According to the tally worked out by Yomiuri Shimbun, based on the
amounts released by leading 21 Japanese, U.S. and European banks,
losses incurred by those banks since last year from nonperforming
subprime loans, U.S. housing loan targeting low-income earners,
totaled 107.8 billion dollars or approximately 11.4 trillion yen.
Since leading U.S. banks and securities houses will release further
calculation results through late January, losses are expected to
expand. There is now a strong possibility of losses incurred

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throughout the world amounting to close to 300 billion dollars as
projected by the Organization for Economic Cooperation and
Development (OECD).

Citigroup, the largest bank in the U.S., sustained the largest loss
of 2.86 billion. Its loss had increased from 6.4 billion dollars in
the July-September quarter last year to 22.2 billion dollars in the
October-December quarter the same year.

Morgan Stanley reported a loss of 1.5 billion dollars in the
June-August quarter last year, but the amount increased in the
September-November quarter. Its losses are expanding as time goes
by. Though the prices of stocks it holds are continuing to fall, the
company has been unable to sell them, resulting in a sharp increase
in appraisal losses. Among Japanese banks, losses sustained by six
companies, including Mizuho Financial Group and Nomura Holdings,
totaled approximately 4.5 billion dollars, or 477 billion yen.

17) Government starts coordination to select new BOJ governor,
looking at Vice Governor Muto

ASAHI (Page 4) (Full)
January 17, 2008

The government and the ruling camp yesterday started the process of
picking a successor to Bank of Japan (BOJ) Governor Toshihiko Fukui,
whose term is to expire on March 19. Diet approval is needed for the
appointment of a new BOJ governor, so the government hopes to obtain
approval from the Democratic Party of Japan (DPJ) and other
opposition parties beforehand. The government has in mind a plan to
promote Vice Governor Toshiro Muto, but the opposition bloc opposed
his promotion in the spring of 2003. The appointment of a new
governor is likely to face roadblocks.

Liberal Democratic Party Diet Affairs Committee Chairman Tadamori
Oshima met DPJ Diet Affairs Committee Chairman Kenji Yamaoka at a
Tokyo hotel yesterday and exchanged views on who should be picked as
the new governor, though he did not cite the name of Muto. The
government and the ruling camp plan to present their personnel
proposal in a meeting of representatives from both chambers'
steering committees as early as early next month.

However, if the House of Councillors, which the opposition camp
controls, turns down the government's plan, the post of governor
will be left vacant. Last November, appointment plans for three
posts, including Transport Council membership, were rejected for the
first time in 56 years. Given this, the government may come up with
a plan to select someone whose appointment the DPJ is expected to
approve, someone other than Muto.

Muto retired from the post of administrative vice finance minister
in 2003 and assumed the BOJ vice governorship. Since then, he has
been viewed as a likely candidate to succeed Fukui. He supported the
governor in an important phase over such policy switches as the
removal of money-easing and zero-interest policies. He served as
vice finance minister when Prime Minister Fukuda was chief cabinet
secretary.

SIPDIS

Financial authorities now find it difficult to steer financial
policy in the face of the financial market turmoil, set off by the
U.S. subprime loan problem, and growing fears of the slowing down of
the global economy. Market players have express hope that the

TOKYO 00000128 012 OF 013


experienced Muto will succeed Fukui. If Muto assumes the post of BOJ
governor, he will be the first governor with experience in the
Finance Ministry since Yasuo Matsushita in 1994.

18) Whether to refer to numerical targets for emissions cuts in
Davos speech left to prime minister's judgment

ASAHI (Page 4) (Full)
January 17, 2008

Prime Minister Fukuda is scheduled to deliver a speech on Japan's
policy on reducing greenhouse gas emissions at the Annual Assembly
of the World Economy Forum (Davos Conference) in Switzerland later
this month. On the question of whether to include numerical targets
in the speech, since views were split at a ministerial meeting to
discuss measures to fight global warming held at the Prime
Minister's Official Residence yesterday, it was decided to leave the
issue to the prime minister's judgment.

In the meeting, Environment Minister Kamoshita said: "I do not mean
that we should follow the policy of the European Union, but Japan
should clarify at least its country-specific targets." He indicated
that Japan should demonstrate its stance of accepting a tougher
target than that set in the Kyoto Protocol and aim to introduce a
domestic emission-trading system. But Economy, Trade and Industry
Minister Amari fiercely reacted to it, contending that Japan's
announcement on introducing numerical targets may result in "giving
a good excuse for major emitters opposed to reduction obligations,
such as the United States and China, and collapsing a new
framework." He persisted with the stance of giving top priority to
having all major emitters join a post-Kyoto framework.

Chief Cabinet Secretary Machimura said in a press conference after
the ministerial meeting: "It is necessary for the government to deal
with the issue in unity. We will fully discuss what expression
should be used."

19) Government to extend 4.4 billion yen in financial aid to five
Mekong countries

YOMIURI (Page 2) (Full)
January 17, 2008

The first Japan-Mekong foreign ministerial was held yesterday at the
Foreign Ministry's Iikura Guesthouse in Tokyo's Azabudai between the
foreign ministers of Japan, Thailand, Burma, Cambodia, Laos, and
Cambodia. In the session, the Japanese government announced that it
would extend about 40 million dollars (approximately 4.4 billion
yen) in financial cooperation for the East-West Corridor expressway
project and the 2nd East-West Corridor distribution system
improvement project. Japan will contribute the 40 million dollars in
a grant aid through the Japan-ASEAN fund.

20) Japan convenes Mekong foreign ministerial with five Southeast
Asian countries to counter China

NIKKEI (Page 2) (Full)
January 17, 2008

Foreign Minister Masahiko Koumura held a first Japan-Mekong foreign
ministerial meeting with five Southeast Asian countries, including
Vietnam and Laos, in Tokyo yesterday. This represents a new

TOKYO 00000128 013 OF 013


framework for cooperation between Japan and Southeast Asia. Japan
promised to provide the region with non-reimbursable aid totaling 40
million dollars, or approximately 4.4 billion yen, to help it to
fight poverty and promote infrastructure construction for
distribution of goods. By setting up the new framework, Japan aims
to counter China, which is stepping up its diplomatic offensive in
Southeast Asia.

Japan proposed the forum in order to support the development of the
Mekong region. Thailand, Burma, and Cambodia also took part. Prior
to the meeting, Foreign Minister Koumura met Laotian Deputy Prime
Minister and Foreign Minister Thongloun and signed a bilateral
investment accord.

According to the chairman's statement issued by Foreign Minister
Koumura after the conference, Japan will accept about 10,000
students and trainees over the five years starting in 2008. Japan
also promised to increase the amount of its official development aid
(ODA) disbursements to the five countries over the next three
years.

In the conference, the participants agreed to cooperate in
containing infectious diseases like new strains of influenza,
terrorism, and drug trafficking. They also confirmed a stance of
urging North Korea to resolve the nuclear and abduction issues.

DONOVAN

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