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Cablegate: Japanese Morning Press Highlights 01/04/08

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RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
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RUEHBJ/AMEMBASSY BEIJING 0916
RUEHUL/AMEMBASSY SEOUL 6984
RUCNDT/USMISSION USUN NEW YORK 7648

UNCLAS SECTION 01 OF 06 TOKYO 000021

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 01/04/08

Index:

Age of oil at $100 a barrel:
1) High price of crude oil weighs heavy on the Japanese economy, but
endurance much better than in past oil crises (Nikkei)
2) Survey of 120 major companies finds 58 PERCENT positive about
economy recovering in 2008, but concern about U.S. economy and high
price of oil (Mainichi)

Defense and security:
3) Intelligence analysts to be unified under the Prime Minister's
Official Residence (Kantei) (Tokyo Shimbun)
4) Hard drive stolen from NTT affiliate had defense information on
it (Mainichi)
5) Some Defense Ministry secret materials leaked out and found in
the home of Chinese person (Sankei)

Political agenda:
6) Democratic Party of Japan's presidential election: If held before
Diet dissolution, Ozawa is a shoo in (Yomiuri)
7) Reformist governors to form new political alliance (Tokyo
Shimbun)

Articles:

1) High price of crude oil a burden on Japan's economy, but
durability has risen with the lowering of dependency on oil

NIKKEI (Page 3) (Full)
January 4, 2008

The soaring price of crude oil will likely have an impact to a
certain extent on the Japanese economy. The rising cost of raw
materials will bear down of corporate profits, and the rise in
petroleum products, such as gasoline and kerosene will be a burden
on family budgets. Compared to the sub-prime loan problem that has
affected individual mortgage holders in the U.S. and lowered
confidence in the U.S., as well as impacted on housing starts, the
high price of crude oil has become the main risk factor for the
Japanese economy.

According to a computer simulation by NEEDS, the Nikkei Digital
Media's comprehensive economic data bank, if the price of oil
remains at $100 dollars a barrel after the January-March quarter of
2008, corporate returns for fiscal 2008 will be driven down 2.0
PERCENT , compared to the standard scenario of oil at $80 a barrel.


Sluggish corporate earnings could become a factor for suppressing
capital investments. With a rising sense of uncertainty about the
economy, small to medium sized businesses, which are especially
vulnerable to rising costs, will find it difficult to transfer costs
(to customers). The Small Business Agency, in a survey last
November, found that an 88.9 PERCENT share of small to medium-sized
companies said they found it difficult to pass along the rising
price of crude oil and petroleum products to their customers, a 2.3
point increase since a survey in July. And 92.5 PERCENT of small to
medium companies replied that there would be moderate to great
impact on their profits from the rising price of oil.

If the costs are passed along by the companies, family budgets would
be adversely affected. The per capita wages of salaried workers

TOKYO 00000021 002 OF 006


since the beginning of 2007 have been dropping, compared to the
previous year. On the other hand, set off by the high price of crude
oil, consumer prices have been rising. Real income, which excludes
the effect of price fluctuations, has been experiencing downward
pressure. The real purchasing power of consumers has been dropping.


However, even with crude oil prices at their highest level ever,
these are nominal prices which do not take into consideration the
effect on price fluctuations. The exchange rate, as well, has
greatly moved in the direction of yen appreciation since the first
oil crisis occurred in 1973, when the yen was at approximately 280
to the dollar. If the real base, which excludes the effect on prices
of the entry price of crude oil, is looked at, making August 1981,
when prices reached their highest point in the past, the base of
100, the price of oil in Nov. 2007 was no more than 85.

Moreover, since then, conservation of energy in Japan and the
diversification of energy resources have both advanced. The import
volume of crude oil since 1973 has dropped 15 PERCENT . The
proportion of crude oil as a primary energy (rate of reliance on
oil) has been reduced from 77 PERCENT in 1973 to approximately 50
PERCENT now. That is because "oil" as a portion of corporate and
family expenses has dropped. Even at the current price level, many
economists say that the shock experienced at the time of the earlier
oil crises can be avoided.

2) Survey of major 120 companies: Those who see economic recovery
continuing drops to 58 PERCENT , express concerns about U.S., rising
oil prices

MAINICHI (Page 1) (Full)
January 4, 2008

Shun Kimura

A survey conducted by the Mainichi Shimbun of major 120 firms found
that they are increasingly cautious about the outlook for the
Japanese economy. In response to the question of asking about the
current situation of the Japanese economy, those companies that see
the Japanese economy "recovering, albeit in a moderate way," reached
58 PERCENT , the largest figure, but as much as 39 PERCENT said
"the economy is leveling off." In the survey conducted one year ago,
83 PERCENT said the economy is "recovering in a moderate way." But
now optimistic outlooks recede and instead the analysis that
business conditions continue to be at a standstill is spreading.

The survey was conducted at the end of last year. Regarding an
outlook for businesses for 2008, the largest figure of 63 PERCENT
said "business conditions will stay the same."

The survey conducted one year ago also indicated the similar
percentage, but at that time, in the midst of the moderate recovery
of the economy, most firms said "business conditions will stay the
same." But in the survey this time, noteworthy is those firms that
said "the economy will continue to be at a standstill."

Yet, despite the deepened subprime mortgage loans issue in the
United States and soaring oil and raw material prices, only 11
PERCENT of the firms responded said the business conditions for
this year "will worsen than now (compared to 6 PERCENT in the last
survey). Firms that take a pessimistic view about the business

TOKYO 00000021 003 OF 006


conditions are still a minority.

In response to the question of citing three concerns for the
Japanese economy, 88 PERCENT cited "the future of the U.S.
economy," followed by "soaring prices of raw and processed materials
(77 PERCENT ) and then "sluggish personal consumption" (37 PERCENT
). Their concerns stemmed mainly from the U.S. economy, which is
rocked by the subprime mortgage loans issue, and rising oil prices.

3) Post of intelligence analyst to be established in fiscal 2008 to
centralize intelligence in the Kantei

TOKYO SHIMBUN (Page 2) (Full)
January 4, 2008

The government will establish the post of cabinet intelligence
analyst in fiscal 2008 with the aim of strengthening the cabinet's
function of collecting and analyzing intelligence. It will also
establish a counterintelligence center that will safeguard the
government's intelligence. Currently, intelligence is collected
separately by each government office, such as the National Police
Agency, the Defense Ministry, and the Foreign Ministry. The aim is
to centralize such intelligence under the Prime Minister's Office
(Kantei) to reflect it in government policies. As related expenses,
the government has earmarked in its fiscal 2008 budget 240 million
yen, which is 12 times greater than that in fiscal 2007.

The government is expected to have a total of five intelligence
analysts for specific regions, such as North Korea, and for specific
themes, such as nuclear weapons and terrorism.

4) MOD's information on communications network found to have been
stolen from commission NTT Communications

MAINICHI (Page 1) (Excerpts)
January 4, 2008

Akihiro Kawakami, Hiroshi Sasaki, Toshiki Koseki

An external hard disk drive (HDD) that recorded the network the
Ministry of Defense (MOD) used for communications of secrets was
stolen last June from an NTT Communications' office (in Tokyo's
Chiyoda Ward), sources revealed. The Tokyo Metropolitan Police
Department (MPD) arrested a male temporary worker (32) who had
worked at the NTT office, but the HDD contained information about
the locations of facilities that might be targeted by terrorists.
This incident exposed the MOD's poor management of information.

The theft occurred at the NTT's office at Uchisaiwai-cho in Chiyoda
Ward on the night of June 23 of last year. What was stolen was a HDD
that had recorded information on the NTT Communications' exclusive
networks, including information about MOD. A few days later, the man
was arrested by the MPD on charge of stealing one HDD (equivalent to
5,000 yen).

NTT Communications leases lines to government offices and firms for
their exclusive use and provides them with networks linking several
locations specified by customers via relay stations. Reportedly, MOD
uses its exclusive lines for its Defense Information Infrastructure
(DII) to link its head office to the Ground, Maritime, and Air
Self-Defense Forces' bases. Also, those lines are reportedly used at
the time of commanding troops to communicate coded classified

TOKYO 00000021 004 OF 006


information.

5) Police found "secret" GSDF information when investigating the
home of a Chinese person on drug charges

SANKEI (Top play) (Excerpts)
January 4, 2008

It was learned yesterday that an organizational chart of the Ground
Self-Defense Force, which was classified "secret" under the
Self-Defense Forces (SDF) Law, had been discovered in the room of a
male Chinese national living in Tokyo's Shinjuku Ward. The document
was found when police raided the room as part of an investigation
into a drug case. The organizational chart is one used as a basis
for strategic planning in the event of a contingency. The Chinese
man submitted the chart on a voluntarily basis. Police authorities
are investigating how and why the chart leaked out. Last year, the
leakage of classified information on the Aegis system was uncovered,
and a Maritime Self-Defense Force's (MSDF) lieutenant commander was
charged with leaking the classified information. The SDF has once
again displayed evidence of sloppy management of intelligence about
national security with another leakage case revealed.

According to police authorities, as part of an investigation into a
drug case, last August the police raided a suspicious man's house
located in Shinjuku Ward and discovered documents, including the
GSDF organizational chart placed in a cardboard box in the room.

The documents, in view of their contents, seemed to be created
before 2003. They consist of 50 sheets of papers. The word "secret"
was printed on every sheet. The front cover of the documents was cut
away, but as a result of examining them, it was learned that they
contained the opening portion of chart that revealed all GSDF units,
the names of the GSDF bases, a portion of each unit's equipment and
capabilities, and where the units belonged to.

The man living in the room raided by the police responded to
questioning by the police: "These belonged to another Chinese who
had rented the room before me. I didn't know what was in the box."

Police authorities are continuing investigations to identify the
Chinese who had rented the room in the past and the people who had
visited the room in the past. Obtaining cooperation from the GSDF,
the police are investigating how the documents came to be passed to
the person in that room in Shinjuku.

According to an informed SDF source, the chart is important
information to be used as a basis for reorganizing troops to be
dispatched in a tactical way that meets the nature of situation. The
chart is classified as "secret." Usually, each unit securely stores
the chart in a safe.

6) Next Lower House election likely to affect DPJ presidential race;
If presidential election is held before Lower House dissolution,
Ozawa expected to stay on in office beyond September; Party members
to cast votes for first time in six years

YOMIURI (Page 4) (Excerpts)
January 4, 2008

The major opposition Democratic Party of Japan (DPJ or Minshuto)
will hold a presidential election in September this year as

TOKYO 00000021 005 OF 006


incumbent president Ichiro Ozawa's term of office expires. Views
supporting Ozawa's continuation in office are dominant at this point
in time. This comes from the fact that the party unanimously
dissuaded Ozawa from resigning from office in early November 2007,
pleading him to spearhead the election campaign for the next House
of Representatives election. At the same time, some in the party
think that in order to increase the party's strength, full-fledged
policy debates should be conducted among several candidates. The
DPJ's presidential race is likely to be swayed substantially by the
timing for the next Lower House election and its results.

If regime change is realized

On Jan. 1, Ozawa held his usual New Year party at his Tokyo
residence. Ozawa there expressed his New Year resolve to aim at a
change of government through the next Lower House election, saying:
"We will achieve a majority in the next Lower House election. I will
make utmost efforts for achieving that major goal as long as my
physical ability allows." Over 50 DPJ lawmakers attended the party.
A person close to Ozawa said with confidence, "The party exposed Mr.
Ozawa's strong support base."

The dominant view in the party is that the next Lower House election
will take place before the DPJ presidential election in September
and that if a change in government is realized, Ozawa will naturally
become the prime minister and his reelection would follow.

If DPJ fails to take reins of government

In the event the party fails to take the reins of government even
thought it was able to add a large number of seats to its current
strength of 113 seats (including Vice Speaker Takahiro Yokomichi), a
"dump Ozawa" move might arise. There is this opinion among mid-level
and junior DPJ lawmakers: "Mr. Ozawa has said that he would risk his
political life. If he fails to bring about a change in government,
the party should have a new president."

As candidates to replace Ozawa, such persons as former Deputy
Presidents Katsuya Okada and Seiji Maehara and former Diet Affairs
Committee Chairman Yoshihiko Noda are being mentioned.

In the party leadership, however, the view is prevalent that even if
the opposition bloc fails to win a majority in the Lower House
election, the DPJ would still have large gain in seats, so Ozawa
should stay on in office.

If DPJ presidential election is carried out before the next Lower
House election

If the next Lower House election was put off until September or
later and the DPJ presidential election was carried out ahead of the
national election, calls for Ozawa's continuation in office are
expected to grow louder. "The party's overwhelming victory in the
Upper House election last summer owes much to Mr. Ozawa's
leadership. In order for us to win again the next Lower House
election, we need strength," one member explained.

Late last November, former Lower House Vice-Speaker Kozo Watanabe, a
veteran lawmaker, invited such DPJ leaders as Okada, Maehara, and
Noda to a Japanese restaurant. Watanabe told them: "The Liberal
Democratic Party is in a terminal state. The party must be united
under Mr. Ozawa at least until after we win the next Lower House

TOKYO 00000021 006 OF 006


election." Watanabe reportedly said to persons close to him, "If a
strong candidate vies with Mr. Ozawa in the presidential race, that
could result in a schism in the party."

7) Reformist governors to launch decentralization promotion
federation, while seeking consent of nonpartisan lawmakers

TOKYO SHIMBUN (Top play) (Excerpts)
January 4, 2008

It became clear yesterday that former and incumbent reformist
governors, such as Masayasu Kitagawa of Mie, Shigefumi Matsuzawa of
Kanagawa, and Keiji Yamada of Kyoto, will shortly launch what is
tentatively called the Bunken kaikaku rengou (Decentralization
reform federation) to aim at structural reform from the viewpoint of
average citizens. Knowledgeable persons from the private sector also
will join the new group. The new organization will be supported by
the National Council for Building a New Japan (National Congress on
21st Century Japan), which is jointly represented by Kitagawa,
former University of Tokyo President Takeshi Sasaki and others. They
will aim at establishing an organizers' group later this month. With
the next Lower House election that could occur later this year in
mind, the group will aim at reforms in cooperation with lawmakers of
all parties, including the Liberal Democratic Party and the
Democratic Party of Japan.

The reformist federation will aim at achieving reforms independently
while applying pressure on the political parties and the
Kasumigaseki bureaucratic district, making a clear distinction with
conventional groups tasked chiefly with lobbying the political
community and central government agencies.

The reformist federation's position is that efforts by the central
political community, Kasumigaseki, and six local groups, including
the Association of Prefectural Governors, are insufficient. There is
a possibility that it will become a group of actions replacing the
six groups.

The group will also be joined by municipal chiefs, such as Mayor
Tamio Mori of Nagaoka, Niigata Prefecture. The group is also calling
for participation by reform-oriented assemblymen of local
assemblies, such as the Mie Prefectural Assembly.

As specific policies, the group will propose not to shy away from
discussing a consumption tax hike. It will also urge the central
government to promote decentralization by fundamentally reviewing
the subsidy system regarding the relationship between the central
and local governments. It will also propose specific efforts for
creating a society that can achieve economic growth while addressing
environmental issues.

DONOVAN

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