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Cablegate: Japanese Morning Press Highlights 02/08/08

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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 02/08/08


Index:

1) Top headlines

2) Editorials

3) Prime Minister's daily schedule (Nikkei)

4) Yomiuri poll: 83% of Japanese complain about economic disparity
in the country (Yomiuri)

Defense issues:
5) Chief Cabinet Secretary Machimura hints at changing the
government's plan for relocating Futenma base (Yomiuri)

6) Government showing flexibility in stance toward the Futenma
alternate site issue (Nikkei)

7) Okinawa governor agrees to start environmental assessment of
Futenma relocation site (Mainichi)

8) Defense ministry puts off reform effort until at least June
(Yomiuri)

9) LDP panel working on draft permanent-SDF-dispatch law (Yomiuri)

10) Tokyo worried for Assistant Secretary Hill in congressional
testimony on North Korea did not link abduction issue to removing
DPRK from terror list (Tokyo Shimbun

Fukuda diplomacy:
11) Prime Minister Fukuda finding that there may be no resolution of
the northern islands in sight as he prepares for trip to Russia
(Sankei)

12) In addition to the northern territories issue, Fukuda seeking to
focus on North Korea, energy development of Siberia in talks with
Russian leader (Nikkei)

Diet scramble:
13) Democratic Party of Japan (DPJ) may have miscalculated its
approach to road revenues as long term battle with ruling camp
settles in (Mainichi)

14) DPJ to submit four bills as counterproposals to government's
budget bill (Mainichi)

15) DPJ readies counterproposal to road revenue tax (Sankei)

16) Joint Kyoto-Protocol report of environment and trade ministries
optimistic about Japan attaining CO2 reduction target
17) Deputy BOJ Governor Iwata sees U.S. economy recovering later in
the year (Nikkei)

18) Japan to sound out South Korea on early resumption of EPA talks
(Nikkei)

There will be no Morning Highlights on Monday, February 11 - a
Japanese holiday.

1) TOP HEADLINES


TOKYO 00000333 002 OF 013


Asahi, Yomiuri, Sankei & Tokyo Shimbun:
Former stable master Tokitsukaze arrested over fatal beating of sumo
wrestler

Mainichi:
Insecticide detected inside sealed package of China-made gyoza
dumplings, suggesting tampering during manufacturing process

Nikkei:
Major Japanese steelmakers to help China, India to save energy in
steel production

Akahata:
Health, Labor and Welfare Ministry orders people with hypertension
excluded from health checkup system

2) EDITORIALS

Asahi:
(1) Sumo stable master arrested: Sumo Association in desperate
straits
(2) Gasoline tax: Search for ways to break the impasse through
debate

Mainichi:
(1) Fatal assault of sumo wrestler: Aim to establish system to
investigate death
(2) Book report: Power of books to support academic ability

Yomiuri:
(1) Debate on budget: DPJ needs to present road tax alternatives
(2) Arrest of former stable master: Urgent need to restore public
confidence

Nikkei:
(1) Concern about mergers of major mining firms
(2) Arrest of stable master a stain on sumo history

Sankei:
(1) Gyoza poisoning: Speed up through investigation on the incident
(2) Budgetary deliberations: What happens with consultations on
revising the government-sponsored bill?

Tokyo Shimbun:
(1) Road debate: Government's explanations hardly convincing
(2) Arrest of Tokitsukaze: Punishment led to fatal assault of young
sumo wrestler

Akahata:
(1) Exchange of notes on new antiterrorism law cannot prevent
Japanese oil from being diverted

(08020802kn) Back to Top

3) Prime Minister's Official Residence (Kantei)

NIKKEI (Page 2) (Full)
February 8, 2008

0805
Met with Deputy Chief Cabinet Secretary Ono at the Kantei.


TOKYO 00000333 003 OF 013


09:00
Lower House Budget Committee meeting.

12:15
National convention to demand return of the Northern Territories at
the Kudan Kaikan Hall.

13:00
Lower House Budget Committee meeting.

17:21
Met with Luxembourg Prime Minister Juncker

18:07
Met with LDP Election Committee Chairman Makoto Koga and Vice
Chairman Suga. Chief Cabinet Secretary Machimura was present.
Then met with Secretary General Ibuki, followed by New Komeito
Deputy President Higashi.

19:21
Arrived at the official residence.

4) BBC-Yomiuri poll: 83% in Japan unhappy with economic disparity

YOMIURI (Page 2) (Full)
February 8, 2008

The Yomiuri Shimbun for the first time conducted a joint public
opinion survey with British Broadcasting Corporation (BBC). In
Japan, those dissatisfied with economic disparity accounted for 83%.
This figure was the second highest next to 84% in Italy among the
Group of Eight (G-8) summit members. The survey was conducted in 34
countries, among which the figure in Japan was the fourth highest.
The survey shows that the Japanese public is growing increasingly
frustrated.

About economic disparity, respondents were asked if they thought
people in their countries were fairly well off. In Japan, 33%
answered "not well off at all," and a total of 83%, including "not
very well off," were dissatisfied. "Fully well off" accounted for
only 1%. Affirmative answers, including "somewhat well off," added
up to 12%. The average of those dissatisfied among the 34 countries
was 64%. Japan's figure markedly outstripped the average.

The highest figure of dissatisfaction was 86% in South Korea,
followed by 84% each in Italy and Portugal and by Japan's figure.
Among the major nations, France was at 78%, Britain at 56%, and the
United States at 52%.

The BBC-Yomiuri poll was conducted from October last year through
January this year. Answers were obtained from a total of 34,528
persons in the 34 countries.

Economic disparity awareness
(G-8 summit member nations only. Figures shown in percentage.)
Italy 84
Japan 83
France 78
Russia 77
Germany 71
U.K. 56
U.S. 52

TOKYO 00000333 004 OF 013


Canada 39

DEFENSE ISSUES

5) Machimura hints at revising Futenma plan

YOMIURI (Page 4) (Full)
February 8, 2008

The government yesterday held a sixth consultative meeting at the
prime minister's office with officials from Okinawa Prefecture and
its four municipalities to discuss the issue of relocating the U.S.
Marine Corps' Futenma Air Station in the island prefecture's central
city of Ginowan. The government plans to lay down a V-shaped pair of
airstrips in a coastal area of Camp Schwab in the prefecture's
northern coastal city of Nago as an alternative for Futenma
airfield. "There is a proposal to move the construction site out
toward the sea," Machimura said in the meeting. "Bearing this in
mind," he added, "we will make our utmost efforts so we can reach a
settlement as early as possible." With this, the top government
spokesman referred for the first time to the possibility of revising
the government plan.

Meanwhile, Okinawa Gov. Hirokazu Nakaima appreciated the government
for its representation of a procedural plan to assess the newly
planned facility's potential impact on its environs. "We also think
the relocation is a matter of the highest importance," Nakaima said.
"We're now giving our first consideration to the environmental
impact assessment," he added. With this, the governor expressed his
de facto approval of the assessment. In response, the Defense
Ministry is expected to set about with the assessment within the
month.

6) Government shows flexibility on Futenma relocation; Coordination
underway for resuming realignment subsidies to municipalities

NIKKEI (Page 2) (Abridged slightly)
February 8, 2008

The government, Okinawa and affected municipalities held a
consultative meeting on the planned relocation of U.S. Futenma Air
Station at the Prime Minister's Office (Kantei) yesterday. The
affected municipalities have been critical of the planned
environmental impact assessment, saying that the explanation on it
was insufficient. Governor Hirokazu Nakaima, however, announced that
he would address what is necessary for the relocation as a top
priority, in reaction to the Ministry of Defense's (MOD)
presentation of additional documentation. The members reached a
broad agreement to start the assessment within this month.

Chief Cabinet Secretary Nobutaka Machimura said in the session: "We
would like to exchange views closely and make efforts to reach a
good conclusion." Defense Minister Shigeru Ishiba also expressed
eagerness to do more regarding the assessment procedures, as
necessary. The government has started arrangements to unfreeze
subsidies to Nago and other municipalities.

The environment assessment aims at grasping the current state of
coral and the marine habitat around the relocation sight of Camp
Schwab in Nago as a condition for starting construction work. Behind
Okinawa's compromise also lies the Kantei's dialogue-oriented
stance.

TOKYO 00000333 005 OF 013

Following the arrest last November of former Vice-Defense Minister
Takemasa Moriya, the government has removed MOD officials close to
Moriya, who had pressed for an early relocation, from the Futenma
relocation issue. The government has also underlined a shift in
policy, unfreezing the 9.5 billion-yen economic package to the
northern area of the prefecture.

But in order to finish constructing the replacement facility by 2014
in accordance with the Japan-U.S. agreement, the government needs to
begin reclamation work at Camp Schwab as early as 2010. Some in the
government are concerned that if the assessment procedures are
delayed further, the overall realignment plan might be affected.

7)Okinawa governor agrees to starting environmental assessment for
Futenma relocation

MAINICHI (Page 2) (Abridged slightly)
February 8, 2008

The consultative council on the relocation of the U.S. Marine Corps'
Futenma Air Station that includes the government and affected
municipalities met at the Prime Minister's Office (Kantei)
yesterday. In the session, Okinawa Governor Hirokazu Nakaima praised
the Defense Ministry's presentation of additional documentation on
the method of the planned environmental impact assessment in
compliance with a request from the prefecture. He explicitly said,
"I will address the matter as a top priority." As a result, the
government is likely to start the assessment this month, as
planned.

Nakaima also renewed his call for moving the location of a Futenma
replacement facility specified in the government plan further
offshore. The focus will now shift to whether or not the governor
will approve the government's request for reclamation work around
Camp Schwab, expected to start in the summer of 2009.

In response to Nakaima's call for moving the new facility further
offshore, Chief Cabinet Secretary Nobutaka Machimura said: "While
keeping your request in mind in the process of advancing the
assessment procedures, we would like to make maximum efforts in
order to resolve the matter at the earliest possible time."

Ahead of the assessment, the Defense Ministry started last May a
preliminary survey to look into the current state of the waters
around Camp Schwab. The ministry presented an assessment plan to
Okinawa in August, but the prefectural government refused to accept
it. Okinawa eventually accepted the plan after the consultative
council resumed its meeting in November under the Fukuda
administration. Okinawa also asked the government to rewrite it,
saying that its contents were insufficient.

Okinawa is scheduled to make a final decision after screening by the
prefectural environmental impact assessment council. The council is
slated to meet today. Depending on how the deliberations turn out,
the start of the assessment might slip to March or beyond.

8) Defense Ministry reform put off to June

YOMIURI (Page 4) (Full)
February 8, 2008


TOKYO 00000333 006 OF 013


A government panel, which has been discussing a drastic reform of
the Defense Ministry, is falling behind in working out a report of
recommendations. The panel, chaired by Nobuya Minami, an advisor to
Tokyo Electric Power Co., had initially planned to come up with a
report in February. The panel report is now expected to be out
around June.

The panel was launched in November last year in the wake of former
Administrative Vice Defense Minister Takemasa Moriya's bribery case
and other scandals involving the Defense Ministry. The panel was
expected to show a course of action for the Defense Ministry's
reform in February.

The panel, however, has so far met only four times. The panel's
discussion has therefore yet to deepen. Moreover, Defense Minister
Ishiba, in a Feb. 1 meeting of the panel, advocated integrating the
Defense Ministry's bureaucracy and the Self-Defense Forces'
respective staff offices. "We need to clear up what we've
discussed," a government source said. "That's all we can do in
February," the source added.

9) LDP sets up panel on permanent legislation for SDF activities
overseas

YOMIURI (Page 4) (Full)
February 8, 2008

The ruling Liberal Democratic Party launched an intraparty panel
yesterday to discuss permanent legislation for Japan to send the
Self-Defense Forces on overseas peacekeeping missions. The panel
will hold its first meeting on Feb. 13, with former LDP Vice
President Taku Yamasaki presiding.

10) Government concerned about Hill's statement rejecting linking
abduction issue to delisting North Korea

TOKYO SHIMBUN (Page 2) (Abridged)
February 8, 2008

U.S. chief delegate to the six-party talks Assistant Secretary of
State Christopher Hill said that the issue of Japanese nationals
abducted by North Korea must not be linked to the question of
delisting North Korea as a state sponsor of terrorism. The
government is taking his statement calmly, at least outwardly, with
a senior Foreign Ministry official saying, "He did not say anything
new." But given the fact that Hill made that statement in his
testimony before Congress, the government is in fact is worried that
it might lose leverage for resolving the issue.

During the Japan-U.S. summit last November, President George W. Bush
stressed that the United States "will never forget the abduction
issue." Hill, too, indicated in his testimony that the United States
would give to Japan as much consideration as possible.

The six-party talks have stalled, with the North failing to present
a complete list of its nuclear programs. This year, U.S. State
Department Office of Korean Affairs Director Sung Kim has visited
North Korea, and Wang Jiarui, head of the Chinese Communist Party's
International Department, also held talks with North Korean leader
Kim Jong Il. But the Japanese government thinks that nothing
noteworthy has come from it.


TOKYO 00000333 007 OF 013


For this reason, the view is dominant that Hill's statement was
designed to send a message to North Korea with the aim of breaking
the impasse in the situation.

Should the United States delist the North, that would deal a serious
blow to Japan.

The Japan-DPRK working group on diplomatic normalization to discuss
the abduction issue has not met since last September.

The delisting of North Korea would leave Japan with "carrots" only,
such as lifting sanctions on North Korea and resuming energy and
food aid to that country. Unless Japan reviews its pressure policy,
it will have no cards to play. Tokyo therefore has no option but to
keep urging Pyongyang to take action sincerely.

FUKUDA DIPLOMACY

11) Prime Minister Fukuda declares his resolve to make breakthrough
on Northern Territories issue but his feelings were not in it

SANKEI (Page 2) (Full)
February 8, 2008

Keiichi Takagi

Prime Minister Yasuo Fukuda yesterday attended the National
Convention for Calling for Return of Northern Territories held at
the Kudan Kaikan Hall in Tokyo's Chiyoda Ward and declared his firm
resolve to address the territorial issue in talks with Russia.
Fukuda also emphasized the need for the government and the public to
work together to settle the issue. A major diplomatic agenda in
relations with Russia is how to restart the territorial
negotiations, which have been on hold for the past six years during
the Koizumi and Abe administrations, and to put them back on a
negotiation track. In this sense, Fukuda indicated his intention to
make a breakthrough on the Northern Territories issue, but his
two-minute speech, given in a way of his simply reading from a
script, was not sufficient for us to feel his "resolve."

Coordination is underway in the government for Fukuda to visit to
Russia during the Golden Week holidays in May and meet with
President Putin just before he steps down. One Foreign Ministry
official welcomed the invitation and noted, "It is an expression of
the president's enthusiasm to resolve the outstanding territorial
issue." But there is a pitfall in his soft approach.

The Putin administration's fundamental strategy toward Japan remains
unchanged: while posing as being willing to engage in the
territorial talks, Moscow's ultimate desire is to seal the
territorial issue permanently. One former cabinet minister of the
ruling Liberal Democratic Party (LDP) made this sharp comment: "The
Japanese Foreign Ministry overrates Russia's honey-coated words and
is trying to cover its failure to act on the diplomatic front."

In the Russian presidential election in March, first Deputy Prime
Minister Medvedev, named by Putin as his preferred successor, will
be certain to win the election. But many observers forecast that
Putin will pull the strings behind the scenes, even after stepping
down as president.

At the national convention, Fukuda indicated he will hold talks with

TOKYO 00000333 008 OF 013


Russia's next president on the sidelines of the Group of Eight
Summit in Lake Toya, Hokkaido in July and discuss the territorial
issue. Although the Russian president will set foot for the first
time on Hokkaido, to which the disputed four Northern Islands
belong, Fukuda was silent on whether he as the host nation of the G8
Toyako Summit would take up the territorial issue during the plenary
session.

According to a source familiar with Japan-Russia relations, there is
a strong observation that Putin's outward soft attitude toward Japan
is no more than a trick to prevent Japan from bringing up the
territorial issue at the G8 Toyako Summit. But Fukuda appears to
throwing away a good opportunity to work with other countries to put
pressure on Russia on the territorial issue.

In fact, Fukuda said in his book "Ikkoku wa Hitori o Motte Okori
Hitori o Motte Horobu" (One country can rise with one person's
efforts but one country can fall with one person's failure), which
he coauthored and published in May 2005, that: "The only way to
resolve the territorial issue (with Russia) is for both countries to
discuss it. Other countries will never be involved in the issue nor
can cooperation from other countries be expected."

Apparently Russia has taken advantage of the Fukuda administration's
"inability" to manage the divided Diet, where the ruling bloc
controls the Lower House but the Upper House is under the opposition
bloc's control.

An aide to Fukuda spoke about Fukuda's dilemma, noting, "The current
unstable political situation in Japan may give Russia a way out."
But Fukuda's impassive attitude toward the territorial issue may
give Russia the wrong message that Japan has no leeway to deal with
the territorial issue. Fukuda can never be allowed to retreat to the
situation that existed in the Koizumi and Abe administrations when
it comes to diplomacy toward Russia.

12) With technical cooperation in mind, Putin trying to woo Japan by
inviting Prime Minister Fukuda to discuss territorial issue

NIKKEI (Page 2) (Full)
February 8, 2008

Russian President Putin has begun to woo Japan by inviting Prime
Minister Yasuo Fukuda to visit Russia before his tenure of office as
president expires on May 7. Putin's ulterior motive is apparently to
get technical cooperation from Japan in such areas as resource
exploitation in East Siberia, a priority issue for Russia. But it is
unclear whether tangible progress can be expected when it comes to
the Northern Territories.

Russia's unusually active approach to Japan

"The President says he would like to meet directly with Prime
Minister Fukuda to discuss such issues as the Northern Territories,
Russian Vice Foreign Minister Losyukov told Deputy Foreign Minister
Kenichiro Sasae during his visit to Japan early this month. A
similar desire was revealed in Putin's written reply to Fukuda's
personal letter handed by former Prime Minister Yoshiro Mori when he
visited Russia late last year.

According to a diplomatic source familiar with Japan-Russia
relations, it is unusual for the Russian president to make a

TOKYO 00000333 009 OF 013


positive approach like this to the Japanese prime minister for a
top-level dialogue. This is in stark contrast to the Koizumi and Abe
administrations, when Russia was notably least interested in holding
territorial negotiations with Japan. One Foreign Ministry official
gave this analysis: "Mr. Putin has begun to seriously consider
somehow moving forward the now sluggish relationship with Japan
before he steps down as president."

Russia's changing attitude entails a number of ulterior motives. One
aim would be to obtain cooperation from Japan in the development of
East Siberia. Russia is flourishing thanks to the high price of oil,
but observers analyze that because of the delay in developing new
oil and gas fields, the country would probably not be able to meet
demand in the near future for oil or gas exports let alone their
domestic consumption. Reportedly, Putin's real intention is to
elicit financial and technical assistance from Japan in order to
accelerate the speed of the development of East Siberia, which has
been left almost untouched.

Tokyo is well aware of Moscow's intention. Still, the Japanese
government is mulling a plan for Fukuda to visit Russia at an early
date. The reason is because Tokyo anticipates that Putin, even after
stepping down as president, will retain latent powers. In the
Russian presidential election slated for March, First Deputy Prime
Minister Medvedev, named by Putin as his preferred successor, is
certain to be elected. Given this, it is indispensable for Japan to
maintain communications with Putin for the sake of territorial
talks.

What will happen to territorial talks remains uncertain

The reality is, however, that although Putin "is concerned about the
territorial issue, he is showing no signs of coming to terms with
Japan in actuality," a senior Foreign Ministry official said. Vice
Foreign Minister Losyukov told the ITAR-TASS news agency yesterday:
"Both sides want to resolve the issue, but both lack understanding
about the situation."

Russia has been opposed to the United States' planned deployment of
missile defense facilities in East Europe and its diplomatic
offensive toward former Soviet Union member states. Moreover, there
seems to be another ulterior motive of giving a warning to the U.S.
by strengthening relations with Japan - an apparent attempt to drive
a wedge in the Japan-U.S. alliance.

"We must hold talks sooner or later," Fukuda said late yesterday and
revealed his resolve to break the impasse in the territorial talks,
but it is never easy to engage in horse-trading with Putin.

DIET SCRAMBLE

13) DPJ to submit budget bills to Diet, as road strategy did not
turn out as DPJ planned

MAINICHI (Page 5) (Full)
February 8, 2008

The Democratic Party of Japan (DPJ or Minshuto) decided yesterday to
submit to the current Diet session four budget-related bills. The
bills are based on the DPJ's manifesto for the next House of
Representatives election, with the party attempting to demonstrate
what kind of budget it will compile if it assumes the reigns of

TOKYO 00000333 010 OF 013


government. However, as a result of the fierce battle over a stopgap
bill on revenues for road construction, the largest opposition
party's strategy of pressing Prime Minister Yasuo Fukuda to dissolve
the Lower House as soon as late March ended in failure. The DPJ was,
therefore, forced to shift its strategy to a long-term frontal
attack by steadily advocating its manifesto in Diet debate.

Deputy President Naoto Kan explained the four counterproposals in a
press conference yesterday: "The bills are to substantiate the whole
picture of the (budget) that the DPJ has called for."

The DPJ has focused on the gasoline tax in the current Diet session
and had looked to abolish the provisional tax rate, which expires at
the end of March, in order to force the government and ruling
parties to cut gasoline prices.

After reaching an agreement with the ruling coalition on the stopgap
bill, DPJ President Ichiro Ozawa suggested that the Lower House
would be dissolved in the fall or later. The DPJ was forced to
substantially review its strategy. The DPJ included pledges similar
to the four bills in its manifesto for last summer's House of
Councillors election. It believes that unless it runs the
government, the plans will not be brought to fruition. Submitting
the bills to the Diet is preparatory work for the DPJ to draft a
manifesto for the next Lower House election.

A drastic change in the budgetary system is necessary for reform of
the pension systems and agricultural policy. A bill to reform the
tax structure for road projects, including ending the burden on
local governments, would never be accepted by the government and
ruling camp.

Therefore, chances are slim that the four bills will be taken up in
consultations on revising the government-sponsored bill, which the
government and ruling bloc have called for. The DPJ plans to submit
the four bills to the Diet in order to control the pace of
consultations. Haruo Nakagawa, finance minister in the DPJ's shadow
cabinet, commented: "We need to submit them to the Diet at the right
time while watching the situation."

14) DPJ to submit four budget-related bills to Diet to play up
ability to hold political reins

MAINICHI (Page 2) (Full)
February 8, 2008

The Democratic Party of Japan (DPJ) decided yesterday to submit four
budget-related bills as its counterproposals to the government's
FY2008 budget bill to the current Diet session. It will be the first
time for the DPJ to present bills reflecting its views about the
budget. The main opposition party is apparently aiming to play up
its capability to assume the reins of government, with an eye on the
next House of Representatives election.

Prime Minister Yasuo Fukuda replied in a meeting of the Lower House
Budget Committee yesterday: "The opposition camp should submit its
counterproposals if it wants to revise (the government's budget
bill). Since the opposition camp has yet to present its
counterproposal, it is improper for it to demand a revision of the
government's bill." The DPJ, though, is concerned that if talks on
revising the bill start at an early date, the party could be caught
in a trap set by the government and the ruling camp. The party

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leadership intends to decide on the timing for submission while
carefully watching development in deliberations at the Budget
Committee.

The main bill among the envisioned four is a budget function
conversion bill. The bill would define as priority policies the
challenges the party set forth in its policy platform for the House
of Councillors election last year, such as pension system reform,
and pledge to secure funds to implement such policy tasks.

A bill amending the Special Taxation Measures law would call for
abolishing the current provisional gasoline and other road-related
tax rates and lowering the preferential tax rates for small
businesses, with the aim of reflecting its tax system reform outline
released last year.

A road tax system reform bill would call for scrapping the provision
tax rates and placing the tax revenues into the general account
budget and then would pledge to secure fiscal resources to cover the
revenue shortfalls for local governments. A bill designed to make
taxation transparent would be designed to review all the special
taxation measures that the DPJ claim are preferential tax reduction
measures for specified industries.

Only the cabinet has the right to submit a budget bill under the
Constitution. Under this situation, the DPJ so far has just
publicized its views on the government's budget bills.

However, the government and the ruling parties have criticized the
DPJ's policy, focusing on fiscal resources and other issues, in the
ongoing debate on the road tax system. In reaction, the main
opposition party decided to present its counterproposals to the
government's budget bill in the form of bills, based on the
assumption that it will be able to assume political power.

15) DPJ decides to submit bills on road tax system to Diet

SANKEI (Page 5) (Full)
February 8, 2008

The Democratic Party of Japan (DPJ) decided yesterday to draft a
plan that would include measures to scrap the current provisional
gasoline tax rate and to place the tax revenues into the general
account budget. The party plans to submit it to the current Diet
session.

In a joint meeting of the Road Tax System Reform Project Team and
the Budget Research Committee, the DPJ confirmed that the envisioned
draft would include: (1) a road tax system reform bill that would
abolish the provisional gasoline tax rate and put the tax revenues
into the general account, as well as to discontinue local
governments' contributions to projects commissioned by the central
government, like road and river projects, as a measure to secure
local governments' fiscal resources; (2) a bill designed to make
taxation transparent by verifying the actual state and effect of the
current special taxation measures; and (3) a bill amending the
Special Taxation Measures Law that would include the items the DPJ
agrees on in the government's bill. The third bill would refuse
extending the government's four proposals, including the provisional
gasoline tax rate and the preferential capital gains tax.

In the joint meeting, the DPJ also decided to submit a budget

TOKYO 00000333 012 OF 013


function conversion bill aimed to show its policy of budgetary
compilation if the party takes over the reins of government.

The DPJ will adopt these bills in a meeting of its "Next Cabinet" on
Feb. 13. Regarding the timing for submission, the leadership will
make a decision in a cautious manner.

16) CO2 emissions cuts set under Kyoto Protocol: "Possible to
achieve goal," notes joint report issued by Environment Ministry,
METI; Additional measures to be looked into

NIKKEI (Page 5) (Full)
February 8, 2008

The joint advisory council of the Environment Ministry and the
Ministry of Economy, Trade and Industry (METI) has mapped out a
final report aimed at achieving the goal of cutting greenhouse gas
emissions as stipulated under the Kyoto Protocol. The report notes
that the goal set under the pact could be achieved if the central
government, local governments, and companies steadily implement
measures to reduce CO2 emissions. The report will be released by the
two ministries on Feb. 8.

The specifics of the final report will be reflected in the
government's program to achieve Kyoto Protocol targets, which is to
be revised shortly, and adopted at a cabinet meeting in late March.
The report notes that as a result of new statistics provided in the
draft report released late last year, it would be possible to cut
more than 37 million tons of carbon dioxide emissions if additional
measures are taken, though implementing the existing measures alone
would fall short of the target by 22-36 million tons.

Of the 37 million tons, 21.3 million can be reduced through
voluntary cuts by industry and national campaigns, such as the "cool
biz" campaign. The government will consider additional measures by
March, when it will revise the program.

A Kyoto Protocol CO2 emissions cut campaign will start in April in
Japan.

17) U.S. economy could recover later this year: BOJ Deputy Governor
Iwata hails interest rate cut; Replacements of governor, deputy
governor could bring about policy change

NIKKEI (Page 5) (Full)
February 8, 2008

Referring to the U.S. economy, Bank of Japan (BOJ) Deputy Governor
Kazumasa Iwata during a press conference held in Kochi City
yesterday said, "There is the possibility of the U.S. economy
regaining a firm footing later in the year due to the effects of
monetary and fiscal policies." He gave high scores to the quick
response by the U.S. Regarding the expiration of the tenures of the
BOJ governor and deputy governor on March 19, he noted, "I think the
replacement of board members would bring about changes in
decision-making on monetary policy."

He also indicated his perception of the present state of the U.S.
economy, noting that it is markedly slowing, He said, "Economic
indicators are not so good."

However, Iwata commented, "The U.S. government's fiscal policy will

TOKYO 00000333 013 OF 013


begin to shore up the economy in May through June. The U.S. has also
lowered interest rates, which will begin to produce positive effects
in the middle of the year."

Regarding the BOJ's monetary policy, he said, "The BOJ adopts a
method of gradually forming a consensus, respecting the views of
nine Policy Board members, including the governor and the deputy
governors." Then, referring to the selection of a new governor and a
new deputy governor, Iwata said, "There could be changes if
one-third of the Policy Board members are replaced." He then said,
"It depends on who will be assigned."

Stabilization of financial markets will take center-stage at the
meeting of finance ministers and central bank governors from the
Group of Seven (G-7) in Tokyo on Feb. 9. Commenting on this, Iwata
said, "It may be a correct prescription that each country adopts the
most appropriate measure, depending on the situation."

18) Japan to sound out South Korea on early resumption of EPA talks,
eyeing expanded coverage, including technical cooperation

NIKKEI (Page 5) (Full)
February 8, 2008

Nikkei has learned that Tokyo has secretly sounded out Seoul on an
early resumption of now-suspended talks on an economic partnership
agreement (EPA). The government is considering expanding the
coverage of cooperation and talks to include not only the scrapping
of tariffs on agricultural and manufactured products but also the
international standardization of manufactured goods and environment
issues. It wants to resume talks South Korea, using president-elect
Lee Myung Bak's assumption of office on Feb. 25 as the occasion.

The government wants to resume talks after South Korea's general
election in April. It hopes to obtain the ROK's agreement to restart
at an early date. It also plans to expand the coverage of the accord
to go beyond such conventional items as the scrapping of tariffs and
the acceptance of workers. It is now considering which areas would
be subject to such expanded cooperation. Industrial technology,
energy-conserving technology, assistance to franchise chains in the
services sector, a qualification system and the nurturing of small
and medium-sized businesses are all up for consideration.

Japan and South Korea started working-level talks in Dec. 2003. The
two governments have so far held six rounds of talks. However, talks
bogged down in Nov. 2004 over a disagreement on the scrapping of
tariffs on agricultural, forestry and fishery products.
President-elect Lee during a press conference in January said that
South Korea should look into the possibility of signing an EPA with
Japan and China in stages. He thus indicated enthusiasm for resuming
the EPA talks.

DONOVAN

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