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Cablegate: Daily Summary of Japanese Press 01/09/08

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UNCLAS SECTION 01 OF 15 TOKYO 000065

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: DAILY SUMMARY OF JAPANESE PRESS 01/09/08


INDEX:

(1) Focus on U.N. authorization, weapons use for permanent SDF
dispatch legislation (Sankei)

(2) Defense Ministry marks first anniversary; Series of
improprieties raise questions about civilian control (Nikkei)

(3) Nagata-cho field note: Defense Ministry's fall from grace
(Yomiuri)

(4) Editorial -- Unsworn witness Akiyama's testimony deepened the
mystery of defense interest-related scandals (Asahi)

(5) Japan Bank for International Cooperation to create fund to help
Asian countries combat global warming by introducing energy-saving
technology (Nikkei)

(6) Okinawa and agriculture ministers concerned about idea of
establishing a consumer agency (Yomiuri)

(7) METI to ask FTC to proactive in applying AML to foreign
countries: Move in response to EU's rigorous punitive system
(Nikkei)

(8) Transport Ministry to restrict foreign investment in
airport-managing firms to ensure security, public nature of airports
(Sankei)

(9) High crude oil prices, strong yen, low stock prices to continue:
Japanese economy likely to become lost in fog in 2008 (Asahi)

(10) Interview with Takeo Hiranuma: The reason why I'm now going to
rally together genuine conservatives for a new party (Sapio)

(11) Choice of government in 2008: No big vision shown by either LDP
or DPJ for the future of Japan (Asahi)

ARTICLES:

(1) Focus on U.N. authorization, weapons use for permanent SDF
dispatch legislation

SANKEI (Page 2) (Abridged)
January 9, 2008

Chief Cabinet Secretary Nobutaka Machimura met with Defense Minister
Shigeru Ishiba and Foreign Minister Masahiko Koumura yesterday at
the prime minister's office. In the meeting, the three confirmed
that once the newly introduced antiterror bill now before the Diet
is enacted, the government would set about drafting a permanent
legislative measure allowing Japan to send the Self-Defense Forces
for overseas missions whenever necessary. The new antiterrorism bill
is for temporary legislation with a one-year time limit. The
government therefore fears that the issue of extending the Maritime
Self-Defense Force's refueling activities in the Indian Ocean would
become a political issue again in the Diet's extraordinary session
to be called in the fall of this year. Prime Minister Yasuo Fukuda
wants the permanent legislation discussed between the ruling and
opposition parties. However, the ruling Liberal Democratic Party's
coordination with its coalition partner, New Komeito, and with the
leading opposition Democratic Party of Japan (Minshuto) is expected

TOKYO 00000065 002 OF 015


to face rough going.

The LDP and New Komeito will launch a project team and will also
call on the DPJ to join discussions.

The SDF's overseas activities are conducted under a limited number
of laws, such as the Law for Cooperation on United Nations
Peacekeeping Operations or the so-called PKO Cooperation Law. The
government therefore created time-limited ad hoc laws, such as the
now-expired Antiterrorism Special Measures Law and the Iraq Special
Measures Law.

In August 2006, Ishiba worked out an international peace cooperation
bill as the then chair of the Defense Policy Review Subcommittee of
the LDP National Defense Division. Based on this draft bill, the
government and the ruling parties are going to create a permanent
law.

Meanwhile, the DPJ has presented its counterproposal to the new
antiterror bill. The DPJ-proposed legislation is intended to assist
Afghanistan with its reconstruction to prevent and eradicate
international terrorism. In this counterproposal, the DPJ also
refers to permanent legislation.

The LDP bill allows the SDF's overseas activities with no resolution
from the United Nations. However, the DPJ bill conditions the SDF's
overseas activities on the United Nations' authorization or its
resolution, as DPJ President Ichiro Ozawa asserts. The two parties
are like oil and water in their respective bills. The DPJ bill also
requires the government to ask the Diet for its prior approval. This
is also hardly acceptable to the LDP-led government.

In the meantime, the LDP and New Komeito are poles apart over the
pending issue of easing government-set standards for SDF personnel's
use of weapons on their overseas missions. The Iraq Special Measures
Law only allows SDF personnel to use weapons in order to defend
those under their control. However, the LDP's Ishiba plan complies
with U.N. standards and allows weapons use needed for the SDF to
carry out its missions.

(2) Defense Ministry marks first anniversary; Series of
improprieties raise questions about civilian control

NIKKEI (Page 2) (Abridged slightly)
January 9, 2008

Today marks the first anniversary of the establishment of the
Ministry of Defense (MOD). The first year of MOD, which was actually
upgraded from agency status at long last, has been marred by a
series of scandals, such as a leak of pivotal data on the Maritime
Self-Defense Force's Aegis vessels, the revelation of collusive ties
between former Vice-Defense Minister Takemasa Moriya and a defense
contractor and his arrest, and the problem of bill-padding by a
defense trading house. Furthermore, the ministry has had a total of
three defense chiefs in just one year, leaving uncertainty about
thorough civilian control. MOD reform under the initiative of the
Prime Minister's Official Residence (Kantei) is being challenged to
strengthen checking functions and increase transparency.

Invaluable experience

Defense Minister Shigeru Ishiba held a press conference yesterday,

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in which he summarized the ministry's one year in this way:

"I cannot say that the year since the ministry was upgraded from
agency status has been bright. But it was certainly an invariable
experience for us to build a new Defense Ministry."

Becoming independent of the Cabinet Office led by the prime
minister, MOD is now allowed to seek budgets and present bills
independently. At the same time, the ministry is now required to
fulfill its accountability. The House of Councillors election last
July has given the opposition bloc a majority in the upper chamber.
MOD is now under the Diet's watchful eye.

Under the opposition camp's undivided attention to the question of
extending the Antiterrorism Special Measures Law, allegations that
Japanese oil had been diverted for use in the U.S. military's Iraq
operation extremely fatigued MOD officials responsible for the U.S.
military, forcing them to take great pains to produce relevant data
and Diet replies. It also became clear that the ministry had
concealed the correct amount of oil (provided to a U.S. oiler) for
about four years, raising questions about civilian control.

Structure not improved

MOD was also rocked by the arrest of former Vice-Defense Minister
Moriya for allegedly giving favors to defense contactor Yamada Corp.
in defense equipment procurement, having cozy ties with it.
Takushoku University Professor Satoshi Morimoto took this view:

"Armed with the defense equipment procurement and policy planning
functions, the vice-defense minister was able to decide everything.
(The Moriya scandal) exposed the fact that the Defense Agency was
upgraded to a ministry before such structure was improved."

It is ironical that the Ministry of Defense Reform Council composed
of experts meets at the Kantei on Jan. 9, the first anniversary of
the ministry upgrade. Lawmakers and the Diet will be required to
play greater roles in overseeing the vice-defense minister who has
tremendous authority.

Interview with Defense Minister Shigeru Ishiba

-- Specially, how are you going to reform the Ministry of Defense?

"The Kantei-led MOD Reform Council is scheduled to come up with a
reform direction in February. Then we are going to launch a reform
promotion team composed of personnel from the internal bureaus and
the Ground, Maritime and Air Staff Offices, and the Joint Staff
Office to draw up plans. The function to assist the defense minister
is not working at present and a sense of unity is lacking between
MOD and those in the field and between officials not in uniform and
those in uniform. The foundations of the Defense Ministry
Establishment Law and the Self-Defense Forces Law must be
reviewed."

"The team will be tasked to produce basic plans in one year's time.
On the agenda would be the establishment of a coordination council
to promote cooperation between the Joint Staff Office, the Ground,
Maritime, and Air Staff Offices, and the internal bureaus, and the
appointment of uniformed officers as internal bureau division
directors. I would like to totally integrate the staff offices and
internal bureaus in the future to split the organization by

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function, such as building up defense capabilities, operation
instructions and employment, and Diet affairs and public
relations."

-- Is it necessary to move up the current Midterm Defense Buildup
Program (for fiscal 2005-2009) by one year based on the direction to
be produced by the reform council?

"Yes, it is necessary. Reforming MOD when the new Midterm Defense
Buildup Program (for fiscal 2009-2013) is in effect while ensuring
consistency with revisions to the National Defense Program Guideline
would be ideal."

(3) Nagata-cho field note: Defense Ministry's fall from grace

YOMIURI (Page 4) (Full)
January 9, 2008

The Defense Ministry marks today the first anniversary of its being
upgraded from the status of an agency. The mood in the ministry,
however, has been gloomy due to the series of scandals involving it,
including the bribery scandal involving former Administrative Vice
Minister Takemasa Moriya, now under arrest, who pushed for the
upgrade.

Defense Minister Shigeru Ishiba indicated his mixed feelings,
saying:

"Last year was not at all a smooth one. There were a number of
occurrences and criticisms, and we must consider how we can create a
new Defense Ministry using these as a springboard. The key words of
this year will be revival, rebirth, and restart."

On Jan. 9, 2007, the ministry held a lavish ceremony inviting then
Prime Minister Shinzo Abe. It decided, however, to forgo a ceremony
this year.

One ministry official lamented: "The Council on Reform of the
Defense Ministry, set up in the Prime Minister's Official Residence,
is expected to hold a meeting on the 9th. This is the only plan we
have now. We have gone from heaven to hell."

(4) Editorial -- Unsworn witness Akiyama's testimony deepened the
mystery of defense interest-related scandals

ASAHI (Page 3) (Slightly abridged)
January 9, 2008

"That's not true." "I have no recollection." Naoki Akiyama,
executive director of the Japan-U.S. Center for Peace and Cultural
Exchange thus repeatedly made denials as an unsworn witness before
an Upper House committee session. He denied the allegations that he
received money from the defense contractor Yamada Corp, which is
accused of bribery in the defense scandal.

Akiyama is portrayed as a playing liaison role between Japanese and
American defense industries and politicians. The Center run by
Akiyama has had former Defense Minister Fumio Kyuma and former
Defense Agency Director-General Fukushiro Nukaga as directors of its
board. The ostensible purpose of the organization is to promote
Japan-U.S. exchanges, but the actual role it played is apparently as
an intermediary between politicians, bureaucrats, and the munitions

TOKYO 00000065 005 OF 015


industry.

It was anticipated that Akiyama's testimony might shed light on
those allegations, but the testimony ended in a half-baked manner
owing to lawmakers' inability to prepare definite evidence. We urge
the Diet to summon those involved as sworn witnesses at an
appropriate time and continue its investigation into the defense
scandal.

A task force of the Tokyo District Public Prosecutors Office, which
raided the Japan-U.S. Center and is investigating the trail of money
offered to Akiyama and his aides, must find out the truth.

The name of Akiyama cropped up in the testimony before a Diet panel
given by former Administrative Vice Defense Minister Takemasa
Moriya, who has been indicted for bribery. Moriya testified that he
had been invited by Akiyama to join a dinner along with former
Defense Minister Kyuma. Akiyama denied attending the party, but he
admitted he had joined another banquet with Kyuma and other
politicians.

The bribe-taking allegations involving Akiyama surfaced in the
testimony given by suspects and the records of money deposited in
banks.

One is related to the government-sponsored project intended for
disposing of poison-gas shells left by the former Imperial Japanese
Army. Yamada Corp., which served as a sub-contractor of the project,
was asked by Akiyama to pay him money for local measures with some
100 million yen changing hands.

At one point Yamada Corp. was on the verge of having its license as
an agent of U.S. defense equipment manufacturer being snatched by
another company. In order to defend the license, Yamada Corp. asked
a Diet member backing the defense industry in the ruling Liberal
Democratic Party (LDP) to work on a former high-level U.S.
government official to advise the U.S. manufacturers not to change
the agent. In this connection, Yamada Corp. is suspected of having
offered money to Akiyama.

Akiyama denied all those allegations. Meanwhile, when he was asked
if a U.S. corporation affiliated with him received a total of some
100 million yen as a consultancy fees from Japanese and American
munitions makers, Akiyama avoided offering a clear-cut answer, by
citing "confidentiality." As a result, the allegations have now
further deepened.

The money Yamada Corp. allegedly offered to Akiyama is reportedly to
have been disbursed from the company's slush funds. A portion of the
money seems to have been used to offer a bribe to Moriya. The money
might also have been offered as a bribe to politicians.

Additional bribery indictment was filed against Moriya and others on
charges of having received bribes in addition to their being
entertained by golf outings. The defense scandal is now assuming an
even more serious aspect.

(5) Japan Bank for International Cooperation to create fund to help
Asian countries combat global warming by introducing energy-saving
technology

NIKKEI (Page 5) (Full)

TOKYO 00000065 006 OF 015


January 9, 2007

The Japan Bank for International Cooperation (JBIC) has decided to
create an environment fund through joint capital investment with
leading banks. The fund will be used for projects designed to
construct power generations with high energy-conservation
performance in Asian countries. The investors, while earning a
certain level of profits, will urge Asian countries to take positive
measures to contain global warming. The pooled money will also be
poured into energy-conservation projects to be carried out in Asia
by trading companies. As it stands, the new fund will indirectly
support global environmental projects by Japanese companies or
financial institutions.

Planned indirect or direct investment through the new fund will be
made in multiple projects, starting in fiscal 2008. Several hundreds
billion yen is likely to be disbursed to finance these projects over
the next five years. Of the total amount, the JBIC plans to shoulder
about 10 PERCENT to 20 PERCENT . In response to requests from
private firms or financial institutions, the JBIC will select in
which funds or projects investment through the fund should be made.

Envisioned are projects designed to install flue gas desulfurization
at old-type thermal power plants and to introduce a waste heat
recovery system at iron mills, etc. As for UN-authorized projects,
the JBIC will also consider selling emission quotas generated
through the projects to companies or other countries as emission
credits.

Coordination is underway on a plan in which the JBIC would invest in
a fund to be set up to finance measures to combat global warming by
such financial institutes as Mizuho Corporate Bank and the
Export-Import Bank of China, a Chinese government-affiliated
financial institution. The JBIC will also study the possibility of
investing in other funds than this.

The JBIC so far allocated approximately 6 billion yen in annual
reserves, but most of the amount was left unused. By increasing this
amount to 15 billion yen in next fiscal year's budget bill, the bank
is willing to make investment in a positive manner to offer
financial aid to have the government attain the goal set in its
program to help developing countries reduce greenhouse gas emissions
as part of efforts to contain global warming.

(6) Okinawa and agriculture ministers concerned about idea of
establishing a consumer agency

YOMIURI (Page 4) (Full)
January 9, 2008

In their press conferences yesterday after a cabinet meeting,
Minister for Okinawa Fumio Kishida and Agriculture, Forestry and
Fisheries Minister Masatoshi Wakabayashi took a cautious stance
toward the idea of establishing a "consumer agency," which has come
up in the ruling Liberal Democratic Party (LDP). The idea is
intended to merge consumer administrations, which Prime Minister
Yasuo Fukuda aims at. Kishida, who is also charged with the
livelihoods of people, stated: "Enhancing the functions is important
above anything else. Naming a new office alone will fail to achieve
results." Wakabayashi expressed his concern, saying: "The idea could
enlarge government offices and obscure where responsibility lies."


TOKYO 00000065 007 OF 015


(7) METI to ask FTC to proactive in applying AML to foreign
countries: Move in response to EU's rigorous punitive system

NIKKEI (Page 5) (Full)
January 9, 2008

The Ministry of Economy, Trade and Industry (METI) has decided to
ask the Fair Trade Commission (FTC) to proactively make
extraterritorial applications regulated under Japan's Anti-Monopoly
Law (AML) to unlawful business practices carried out by foreign
companies. The European Union (EU) has toughened its stance of
cracking down on price cartels. As a result, huge amounts of fines
have been imposed on many Japanese companies. METI's decision is in
response to industrial circles' call that the FTC should crack down
on foreign firms more strictly. It will also compile a set of
guidelines Japanese companies should take into consideration in
order to avoid being involved in business activities violating host
countries' anti-monopoly laws.

METI will set up a study group on the international implementation
of a competition law consisting of academic experts, business
leaders and attorneys before the end of January. The FTC will also
take part in the envisaged panel as an observer. It will determine
what approach it would make, based on proposals to be made by
April.

Proposals will likely include the positive application of the AML to
foreign companies. METI will ask the FTC to call on foreign
companies to revise their business plans or pay fines, by making
extraterritorial applications of the AML, in the event in which
sales prices go up or Japanese companies are placed in a
disadvantageous situation as a result of price cartels or M&As by
foreign companies.

The FTC in December last year decided to issue an order to five
manufacturers, including Bridgestone, a British, French and Italian
companies, to eliminate their international price cartel on marine
hose pipes used for marine oil transportation. This is the first
application of the AML to foreign companies. The FTC is also
conferring with EU officials for a joint investigation into leading
British and Australian resources companies' corporate purchase plan
with the application of the AML in mind. However, compared with
European and U.S. authorities, there have been overwhelmingly fewer
cases of the FTC applying the AML to foreign companies.

The panel would also map out guidelines aimed at enabling to help
Japanese companies avoid violating U.S. and European anti-monopoly
laws. Many Japanese companies operating abroad have insufficient
knowledge and understanding regarding business practices that
constitute violations of the anti-monopoly laws of their host
countries. As such, the envisaged panel would analyze Japanese, U.S.
and European legal systems and clarify main points of their
antimonopoly laws, which Japanese companies operating overseas must
bear in mind. It would also show examples of cases that could be
suspected of being activities violating their antimonopoly laws,
including a case example in the EU, in which one Japanese company
was determined as having taken part in a price cartel just because
one of their employee took part in a chat on prices at a meeting of
companies in the same line of business.

METI will ask the FTC to apply the AML to foreign companies in a
proactive manner. It will also map out guidelines concerning

TOKYO 00000065 008 OF 015


European and U.S. anti-monopoly laws. This is because the EU adopts
martinetism in dealing with business practices violating their
antimonopoly law. Dissatisfaction with the EU's stance or calls on
the FTC also to adopt a hard-line stance toward foreign companies
are growing among business circles.

In the process of having the panel analyze European and U.S.
antimonopoly laws, METI will take samplings of rules on procedures
stipulated their antimonopoly laws and the implementation of such
that could be problems from a perspective of the conventional wisdom
and notions of the international community. It will consider the
possibility of calling on the EU to correct such rules at
ministerial meetings or through the FTC. It also plans to propose
that Japan and the EU adopt common antimonopoly rules in the
future.

(8) Transport Ministry to restrict foreign investment in
airport-managing firms to ensure security, public nature of
airports

SANKEI (Page 2) (Excerpts)
January 9, 2008

The Ministry of Land, Infrastructure and Transport decided yesterday
to limit the ratio of investment by foreign capital in a company
that maintains and runs an international hub airport, like Narita
International Airport, to less than one-third of the total share.
The decision stems from a desire to restrict foreign firms'
involvement in the management of airport companies in an effort to
ensure the security and public nature of such facilities. The new
regulation will also be applied to airport terminal firms under
direct government control, such as Haneda. The ministry intends to
submit a bill amending the Airport Maintenance Law, which includes
restrictions on foreign investment, to the ordinary Diet session
this year. Under the new legislation, the focus will be shifted from
the current maintenance of airports to management.

There are an increasing number of cases in which major airports
abroad have been taken over by investment funds of other countries.
This fact is behind the ministry's decision to restrict foreign
investment. Some observers fear that foreign Investment funds, if
they acquire Japanese airports, may raise landing charges there with
the aim of earning profits in a short period of time. Keeping such a
possibility in mind, the Transport Ministry judges that "it will be
undesirable to leave hub airports defenseless (from foreign
capital)," according to an official of the Civil Aviation Bureau.

Under the amendment, the ministry will restrict the ratio of foreign
investment in the following three companies that manage and run
airports to one-third of the total share: Narita International
Airport, which aims to list its stock on the stock exchange in 2009,
and Kansai International Airport and Chubu International Airport,
both of which are likely to be listed in the future. In part because
of the discovery that an Australian investment fund possesses about
20 PERCENT of the share issued by Japan Airport Terminal Co., which
operates the passenger terminal building at Haneda Airport, the
Transport Ministry has decided to place similar foreign-investment
restrictions on passenger or container terminal companies.

The Transport Ministry was looking into introducing a "golden share"
that gives the government the right of decisive vote to enable it to
prevent a certain shareholder from acquiring a large portion of the

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share or from selling important propriety. But the ministry decided
to give up the introduction, based on the judgment that the measure
would lead to decline people's motivation to invest and eventually
could undermine the liquidity of shares.

(9) High crude oil prices, strong yen, low stock prices to continue:
Japanese economy likely to become lost in fog in 2008

ASAHI (Page 2) (Slightly abridged)
January 8, 2008

The New Year got off to a rocky start for the Japanese economy. That
is because triple shocks of high crude oil prices, strong yen and
stock plunges stemming from the Subprime loan issue have hit the
economy right from the beginning of the year, casting a dark cloud
over the global economy. Many business leaders are concerned about
the future of the economy. However, some are holding out hope that
it will pick up in the latter half of the year. Their responses with
bullishness mixed with bearish sentiments were an omen that the
coming year would be unpredictable.

Business circles: Expectations on latter half of year

The Japan Business Federation (Nippon Keidanren), the Japan
Association of Corporate Executives (Keizai Doyukai) and the Japan
Chamber of Commerce and Industry (JCCI) hosted a New Year's Party at
a Tokyo hotel on the afternoon of Jan. 7. Economic outlook for 2008
provided by participants was a mix of pessimism and optimism.

Asahi Kasei Corporation President Shiro Hiruta categorically said,
"It would not be possible to maintain the vibrant trend of 2007."
Mizuho Financial Group President Terunobu Mizuho noted, "Crude oil
prices are too high. I am worried that the high crude oil prices
could lead to sluggish personal consumption."

Leaders in the retailing industry made harsh comments with Lawson
President Takeshi Niinami saying, "There are no rosy factors. The
industry has neglected efforts to expand domestic demand" or Seven &
i Holdings Chairman Toshifumi Suzuki noting, "The future of the
economy is cloudy. Domestic demand is saturated." Behind their harsh
remarks is the fact that there are no elements that could dispel
such worries as the Subprime loan issue, the high crude oil prices
and the low stock prices.

Though a number of business leaders expressed their perception that
the economy would be in a slump in the first half of the year, as
Nippon Steel Corporation Honorary Chairman Takashi Imai put it,
there were strong voices pinning high hopes on the latter half of
the year.

Toyota Motors Chairman Fujio Cho said, "The economy would stay flat
in the first half of the year, but it would pick up in the latter
half of the year. Many measures would be taken in the latter half of
the year." Seibu Holdings President Takashi Goto viewed that the
economy would be in a slump with housing investment dropping due to
the amendment to the Building Standard Law, but it could pick up in
the latter half of the year. NYK Line President Koji Miyahara
expressed expectation, "There will be the Beijing Olympic Games in
China and the presidential election in the U.S. In view of those
events, the economy will get better at the end of the year."

JCCI President Tadashi Okamura during a press conference of the top

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leaders of the Big Three expressed his hope, "Though there is
uncertainty about European and U.S. economies, there will be demand
from newly emerging countries, such as China, as they are expected
to grow. We want to secure 2 PERCENT growth. I think that the
economy will grow in the second and third quarters."

Investors: Increased uncertainties likely to give rise to selling
spree

Daiwa Securities Group Head Office President Shigeharu Suzuki during
a business leaders party made a bullish comment: "Stock prices
plunged early in the new year. However, after rain comes fine
weather. Corporate performances are not bad. The Nikkei Average
Price Index of Stocks could top 20,000 yen."

It is said at Kabuto-cho, Nihonbashi, Tokyo, home to many securities
houses, that the year of the Rat is the year of thriftiness and
prosperity. As a matter of fact, stock prices in the years of the
Rat rose more than 40 PERCENT on an average since 1949, when the
Nikkei Average Stock Prices were calculated for the first time,
ranking first, outdistancing the years of the Dragon, which marked
29 PERCENT growth.

However, the situation early in the new year appears different. The
closing price of the Nikkei index was 14,500.55 yen, down 190.86 yen
from the last weekend. This is the lowest price in about a year and
a half. The Nikkei Stock Average fell four consecutive operating
days since the end of last year. The loss during this period topped
1,100 yen.

The drop in stock prices is attributable to low U.S. stock prices,
the strong yen, the weaker dollar and the high crude oil prices
stemming from the Subprime loan issue. Foreign investors, such as
hedge funds, who account for 60 PERCENT of trading on the Tokyo
Stock Exchange, are selling stocks on the TSE as well, following
global stock plunges. Drops in the profits of export-oriented
companies due to the strong yen and increased costs of raw materials
stemming from the high oil prices are jeopardizing the only hope
that Japanese companies are performing well, prompting the selling
trend.

Domestic individual investors are becoming increasingly concerned
about the future of stock prices. One executive of an Internet-based
securities house lamented, "The situation is such that individual
investors find it difficult to purchase stocks actively." Some
individual investors who are borrowing money from securities houses
with guarantee deposits as collateral have to pay additional
deposits due to a shortage of such money because of latent losses
caused by drops in stock prices. One security house said that the
number of individual investors who paid additional guarantee
deposits grew 17-fold, compared with a month earlier.

According to a poll the Nomura Securities Financial and Economic
Affairs Research Center conducted on individual investors in
December last year, the largest number of respondents since the poll
was started in April 2006, replied that the impact of the domestic
economy and corporate earnings on the stock market over the last
three months was "slightly negative."

Nomura Securities Strategist Kengo Nishiyama said, "Changes may be
unfolding in the past view that the economy is recovering slowly and
that corporate performances are solid."

TOKYO 00000065 011 OF 015

(10) Interview with Takeo Hiranuma: The reason why I'm now going to
rally together genuine conservatives for a new party

SAPIO (Page 3) (Full)
January 23, 2008

Takeo Hiranuma, House of Representatives member

"Establish a new party for genuine conservatives." This kind of
request is now coming to me via e-mail from many voters across the
nation.

What lies behind that is the current lopsidedness of the Diet. The
ruling parties hold a majority of the seats in the House of
Representatives, while the opposition parties now dominate the House
of Councillors. The balance between the lower and upper chambers is
distorted in this way. There are issues that should be resolved for
the sake of Japan and its people. Yet, the Diet remains unable to
resolve these pending issues. Above all, many conservative voters
were disappointed by the selection of Prime Minister Yasuo Fukuda
from the Liberal Democratic Party (LDP). He then met with Democratic
Party of Japan (DPJ or Minshuto) President Ichiro Ozawa, and the two
talked about a "grand coalition" of the LDP and the DPJ. Ozawa was
quoted as saying Japan should send the Self-Defense Forces overseas
to participate in antiterrorist operations based on the United
Nations' authorization. Fukuda reportedly accepted Ozawa's
overtures. In the end, their talks broke down. The LDP has advocated
establishing Japan's own constitution. I have also strongly insisted
on the need for Japan to do so. However, the two politicians' deal
was a far cry from my idea of Japan writing a constitution on its
own. Those true conservative voters stand behind me. They are
pushing me to restore genuine conservatism. I feel encouraged as a
politician.

I preside over a cross-party group of conservative lawmakers. In
December last year, I became a supreme advisor to an LDP
interfactional conservative policy study group that was launched
under the initiative of former LDP Policy Research Council Chairman
Shoichi Nakagawa. This study group is a gathering of 59 like-minded
lawmakers. In the meantime, I often meet with the DPJ's promising
middle-standing and junior lawmakers. We are teaming up to rally
genuine conservatives.

However, we must not be in a hurry to establish a new party. The
Diet is now distorted. We will surely see a new turn of the
political situation after the next election for the House of
Representatives. We can launch a new party, but that is one of the
options in that event.

Actually, we may not necessarily have to create a new party. Even in
this case, it is well significant to launch a tertiary group of
conservatives from both the LDP and the DPJ. Japan has its own
traditions, culture, history, and other areas that should be
protected. We should maintain what we should maintain. That's my way
of thinking about conservatism. Politicians will reach out across
party lines if they have something that reverberates with their
ideals or spirits. Of course, we, as conservatives, will speak out
about establishing Japan's constitution on its own and revising the
Fundamentals of Education Law. The Diet is now in a mood to say
something like this: "If you do not talk about reforms, you are not
a politician." However, there are also some things that are good. We

TOKYO 00000065 012 OF 015


do not have to change those.

What the Koizumi-Takenaka reforms brought to Japanese society is an
economic system that falls under the category of "globalism" and
that is convenient to America. As a result, the Koizumi
administration carried out postal privatization. Moreover, in the
business scene, they pushed ahead with mergers and acquisitions,
introducing triangular mergers to comply with demands from America.
The nation's rural districts are falling apart, and the social
divide has spread. Former Prime Minister Shinzo Abe had a
conservative spirit, but he followed the Koizumi policy line. As a
result, the LDP suffered a crushing defeat in July's election for
the House of Councillors.

The LDP as a political party has become too weak. It has long
depended on its coalition with the New Komeito. Furthermore, the LDP
has fallen into a bad pattern of using populism to boost its public
ratings as an immediate goal. The LDP has lost sight of those
principles and ideals that are of paramount importance for political
parties. The DPJ also lacks unity as a mixture of former LDP
conservatives and former Japan Socialist Party liberals. Voters
instead are hoping for genuine conservatism. They may wonder which
political party is the right party to put their faith and trust in.
In the last election for the House of Councillors, there were
probably some people who voted for the DPJ to teach a lesson to the
LDP. However, voters will choose a political party that can grab the
reins of government. They will be even more careful in the next
election for the House of Representatives. If the voting behavior
varies with the lower and upper chambers, the Diet's distortion will
continue for more than nine years, not six years.

That's why they need a third force that is imbued with a healthy
conservatism. If we form a group that embodies national interests
and national wealth, we will be free from the Diet's distortion, and
we can communicate our conservative standpoint. I am an independent
member of the House of Representatives, so it's my job to bridge the
LDP and the DPJ. The question is if that will become a third
political party or if that will dissolve the dilemma over passing
critical laws. We will need to thoroughly watch the political
situation from now on.

(11) Choice of government in 2008: No big vision shown by either LDP
or DPJ for the future of Japan

ASAHI (Page 3) (Slightly abridged)
January 8, 2008

Tetsuya Itagaki

Debates on political reform aimed at realizing policy-oriented
election stimulated political parties, particularly the leading
ruling Liberal Democratic Party (LDP) and the major opposition
Democratic Party of Japan (DPJ), to compete by issuing manifestos
(sets of campaign pledges) in national elections. A Lower House
election is anticipated to take place in 2008, but neither of the
two major parties has come out with policies that show different
answers to the question of what kind of society Japan should aim at
being." This question involves how social welfare will look in the
future and how it will be financed. Can a two major-party system
that can give the public an opportunity to choose the government
they want actually take root in Japan?


TOKYO 00000065 013 OF 015


On Dec. 5, 2007, the DPJ's think tank hosted a symposium in Tokyo.
At the conference, Kazuhiko Nishizawa, senior economist at the Japan
Research Institute, asked this about the DPJ's pension reform plan,
as revealed in the Upper House election last summer: "What specific
cases are there in which a minimum pension would not be
guaranteed?"

Nishizawa posed the question because details of the DPJ's pension
reform plan had not become clear even after party leader Ozawa said
in the party-heads debate in the Diet immediately before the Upper
House election: "We need to ask those who have an annual salary of 6
million yen or more to put up with (not receiving a minimum of
guaranteed pension)."

The DPJ came out the winner in the 2004 Upper House election by
vowing to impose a 3 PERCENT consumption tax for pension purposes,
but when Ozawa assumed the top party post in April 2006, he turned
around the party's election pledge and said, "We will not hike the
consumption tax for the time being." Nishizawa expressed concern:
"Discussion of how to design a new pension system has stopped
because debate on how to finance the pension system has now been
spiked." In fact, in the symposium, House of Councilors member
Kouhei Otsuka of the DPJ's Pension Research Council reiterated in
response to questions: "We are discussing it in the party."

The pension system has been an issue in other elections. But
attention has been always paid on the problems of unpaid pension
premiums and slack records of pension premium payments. The DPJ's
former Policy Research Council Chairman Yoshito Sengoku, who served
as deputy chair of the joint conference on pension reform of lawyers
from both chambers of the Diet in 2005, expressed concern: "The
party is in the mood of pursuing scandals and hitting the other
party's weak points. How can the DPJ change the (pension) system if
it comes to power? We should discuss that point fully."

The ruling bloc likewise tends to avoid debate about the question of
raising the public's burden.

The day after the symposium, the LDP's Group to Think about Social
Welfare met at the Lower House Building. In the meeting, Keio
University Prof. Yoshikazu Kenjoh stressed: "Nothing will start
unless someone brings up the question of an increase in the public's
burden in order to protect the social welfare system." Participants
argued that it was too risky politically to touch on a burden
increase before the Lower House election as Kenjoh expected.

When the Fukuda administration came into being, the LDP's Council to
Study Financial and Political Reform led by former Chief Cabinet
Secretary Kaoru Yosano suggested converting the consumption tax into

SIPDIS
a social welfare tax and hiking the tax rate. But after the idea of
forming a grand coalition between the two major parties faltered and
now that confrontation between the LDP and the DPJ is intensifying,
a cautious view about raising the tax rate has rapidly spread in the
ruling bloc.

Kenjoh said: "No one is willing to discuss how to finance the social
welfare system and no one realizes that a strong constituency lies
there. Under such a situation, two major parties with policies that
differ substantively will never emerge."

Key lies in new redistribution method


TOKYO 00000065 014 OF 015


The idea of forming a grand coalition between the LDP and the DPJ
cropped up last year just at the time when politicians were
reluctant to discuss the question of increasing the public's burden.
Many in the ruling bloc are of the opinion that the ruling and
opposition parties need to work together on such important themes as
a tax increase.

But this way of thinking has been met by objections. Chiba
University Prof. Yoshinori Hiroi said, "Political parties should
present their respective social models over the two issues:
"distribution of wealth" related to the question of which to choose,
a big or small government, and "size of wealth" related to the
question of which to prioritize, economic growth or the
environment.

At a meeting of the DPJ's Saitama chapter's "political school" held
in last November in Saitama City, Prof. Hiroi emphasized the
importance of divergence in policies. He advocated: "Social welfare
involves a fundamental philosophy concerning distribution. If two
major parties move closer to each other without any clear difference
in policies, they will become submissively supportive of each other
and result in narrowing a range of options for the public to
choose."

When Japan had an ample amount of finances thanks to high economic
growth, no in-depth debate on redistribution took place. The
conflicting views among political parties under the so-called
1955-year system (http://en.wikipedia.org/wiki/55-year system) was
related to protection of the Constitution and national security. But
the confrontation over them disappeared with the end of the Cold War
and the socialist-party led Murayama government's approval of the
existence of the Self-Defense Forces (SDF).

Jiro Yamaguchi, professor at Hokkaido University's Graduate School
and author of the book Posuto-Sengo Seiji Eno Taikoujiku
(Conflicting Views in Postwar Politics), said the reason why policy
differences are not clear among the political parties is in part
attributable to the decline of left-wing forces and the political
parties' failure to properly debate poverty and social welfare,
having become satisfied with the redistribution that had come as a
consequence.

Instead, politicians focused their energies on competing to promote
reforms. As prescriptions to destroy the bureaucracy's rule and
special interest-driven politics, they advocated the principles of
market competition. Politicians (not only in the LDP) but also in
the DPJ competed to best realize small government. This also has
made it difficult to tell what the policy differences were between
the LDP and the DPJ.

Yamaguchi told Ozawa: "Instead of rehashing the so-called Koizumi
reforms, you should declare that the DPJ will create a society where
people who work honestly for a living will be happy."

In the Upper House election last year, the DPJ advocated removal of
social disparities and emphasized the importance of prioritizing
working people and made a big leap to become the first party in the
Upper House. Meanwhile, the LDP is returning to where it was before
the Koizumi reforms.

In order for political parties to have differing views, "they need
to come up with their own policy visions that illustrate the future

TOKYO 00000065 015 OF 015


of Japan, including fiscal resources," Yamaguchi said.

"The point is whether they can establish a system that is highly
transparent and fairly redistributes resources by making a clear
distinction from the pork-barrel politics of the past. Can Japan
establish a two major party system that meets the world standard?
The next national election will be a crucial test for Japan in this
regard," Yamaguchi concluded.

Comments by Keio University Prof. Heizo Takenaka, who served as
minister in charge of economic policy and minister of internal
affairs in the Koizumi administration:

What lay behind the idea of forming a grand coalition (between the
LDP and the DPJ) that cropped up last year was the question of
whether to hike the consumption tax. My advice is not to form a
grand coalition just to deal with tax problems. The reason is
because taxes are in themselves the foundation of politics. The
first matter that parliamentary democracy handles is what to do
about taxes. If the idea of establishing a grand coalition had been
floated to dodge criticism for tax increases, but such would have
been the same as discarding politics. I think it is bad for
political parties to think that if every party agrees to hike the
consumption tax, there's nothing to be afraid of.

The respective banners that the LDP and the DPJ have raised are not
the same. One major point in the next Lower House election would be
whether these two major parties will be able to come up with unique
banners. The public that chooses politicians will also be tested.
The issue would be which to choose: small government or big
government. This question will logically be linked to the tax
issue.

DONOVAN

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