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Cablegate: Daily Summary of Japanese Press 02/22/08

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RUEHUL/AMEMBASSY SEOUL 7869
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UNCLAS SECTION 01 OF 13 TOKYO 000473

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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 02/22/08


INDEX:

(1) No end to antiterror war in sight (Asahi)

(2) Ishiba increasingly isolated (Sankei)

(3) Editorial: Aegis-equipped destroyer Atago's collision with
fishing boat: SDF should not try to evade responsibility (Asahi)

(4) LDP criticizes government's draft basic plan on ocean policy as
showing no posture of trying to protect national interests (Sankei)

(5) Marine admits to rape allegations (Okinawa Times)

(6) Debate on bills on FY2000 budget, revision special taxation law
to reach crucial stage at end of February; Ruling coalition planning
to pass them through Lower House on Feb. 29, opposition camp seeking
cautious debate (Nikkei)

(7) Government eyes introduction of emissions trading system, in
anticipation of creation of emissions-rights market by U.S (Asahi).

(8) Interview with Keio University Professor Heizo Takenaka: Local
areas have become impoverished because structural reforms have been
insufficient (Ekonomisuto)

(9) Interview with Eisuke Sakakibara: Carry out not reform but
revolution to avoid ruin of Japan (Ekonomisuto)

ARTICLES:

(1) No end to antiterror war in sight

ASAHI (Page 4) (Full)
February 22, 2008

Keiichi Kaneko, Northern Arabian Sea, Indian Ocean, and Akihiro
Yamada

The Maritime Self-Defense Force has now resumed its refueling
mission in the Indian Ocean. Meanwhile, an MSDF Aegis ship collided
with a fishing boat in waters off Chiba Prefecture, leaving its two
crewmen missing. This accident seriously damaged the Defense
Ministry's credibility as well as the Self-Defense Forces'. The
government gave first consideration to its "international
commitment," for which the ruling coalition went so far as to take a
second vote in the House of Representatives for the first time in 57
years and enacted a new special measures law with a majority of two
thirds. The MSDF is now back in the Indian Ocean to resume its
refueling mission after a hiatus of about four months. However,
there are many challenges in store for its resumed refueling
operation.

"A destroyer will now resume the operation (in the Indian Ocean)
with a supply ship. However, I wonder if they can really take
appropriate action if and when they come under attack from
terrorists."

The ruling Liberal Democratic Party yesterday held a meeting of its
defense-related divisions. In the meeting, Taku Yamasaki, a former
secretary general of the ruling Liberal Democratic Party, pointed to

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the MSDF's insufficient watch that was brought to light with the

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Aegis collision. Yamasaki thereby voiced concern about the MSDF's
refueling activities in the Indian Ocean for the war on terror.

The accident was reported to the defense minister one and a half
hours after its occurrence. This shows that the Defense Ministry was
slack in its crisis management. In addition, the Defense Ministry
changed its explanation again and again about the factual
circumstances before and after the collision. The Diet was confused
in its earlier proceedings over a number of issues, such as former
Administrative Vice Defense Minister Moriya's bribery case, a U.S.
warship's alleged diversion of MSDF fuel to military operations in
Iraq, and the MSDF's cover-up of an error in the actual amount of
fuel supplied to a U.S. warship. This time around, an MSDF ship hit
and sank a fishing boat, damaging public faith in the Defense
Ministry and the SDF.

Concerning fuel diversion, Japan has exchanged official notes with
countries whose vessels are to be provided with MSDF fuel,
stipulating that their vessels will use MSDF fuel for "maritime
interdiction operations" only. Japan has also sent a liaison officer
to Bahrain, where the liaison officer will hear from these
countries' officials about their vessels' operational plans before
refueling them.

However, Japan has no power to ask these countries about the
destination of MSDF fuel. "We have no choice but to leave it to
their goodwill," a senior official of the Defense Ministry said. It
is hard to say that the problem has been completely cleared.

The old Antiterrorism Special Measures Law required the government
to ask for the Diet's approval of SDF activities planned for
overseas missions. The government was required to recall the MSDF to
Japan if the government's masterplan for SDF activities could not
obtain parliamentary approval from both houses of the Diet.

However, the Diet still remains divided, with the ruling coalition
holding a majority of the seats in the lower chamber and the
opposition parties controlling the upper chamber. The government did
not incorporate that stipulation in its bill for the newly enacted
special measures law. The Diet's role is now weaker than before, so
there were objections from within the ruling and opposition
parties.

The governing parties took a second vote in the House of
Representatives to enact the new special measures law with a
majority of two thirds. The opposition parties denounced the ruling
parties for such an unprecedented move, maintaining that sending SDF
troops overseas under a law rejected in the House of Councillors,
which reflects the nation's most recent judgment, is a problem from
the perspective of civilian control.

The government's worry is that the new special measures law is valid
for one year only.

In October last year, Prime Minister Fukuda stated before the House
of Representatives Special Committee on Counterterrorism: "If the
new law is set at one year, it's possible to fulfill Japan's
cooperation in the international community by continuing the MSDF's
refueling activities."

However, the war on terror in the Indian Ocean is not expected to
end in one year. A senior Defense Ministry official also said: "The

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maritime interdiction operation will inevitably be protracted. The
one-year special measures law is not enough at all. We should
consider a permanent legal framework for sealane defense."

The resumed mission could have no way out.

(2) Ishiba increasingly isolated

SANKEI (Page 2) (Abridged slightly)
February 22, 2008

In the wake of a Maritime Self-Defense Force Aegis destroyer's
collision with a fishing boat, opposition parties yesterday demanded
Defense Minister Shigeru Ishiba's resignation, dangling the option
of submitting a censure motion to the House of Councillors, where
they hold a majority. Although Prime Minister Yasuo Fukuda flatly
rejected the demand, some in the ruling camp have begun turning
their backs on Ishiba. The defense minister now finds himself in the
hot seat.

Opposition camp demands resignation, ruling bloc reacts coldly

Democratic Party of Japan Deputy President Naoto Kan, Secretary
General Yukio Hatoyama and Japanese Communist Party Chairman Kazuo
Shii all agreed yesterday to demand Ishiba's resignation.

The Ministry of Defense (MOD) announced that an Aegis crewmember on
lookout duty had spotted the ill-fated fishing boat 10 minutes
earlier than it initially explained. Reporting to the Prime
Minister's Office (Kantei) about the collision was also delayed. The
three lawmakers decided that all those problems demand Ishiba's
resignation.

Hatoyama in particular harshly criticized MOD, saying: "The
ministry's nature to cover up matters has not changed." He also
implied the possibility of submitting a censure motion against
Ishiba, noting: "It is quite possible for us to use our numerical
superiority in the Upper House."

The Diet affairs committee chairmen of four opposition parties also
agreed that Ishiba should resign for the same reason. Additionally,
they confirmed a policy course to continue pursuing Ishiba in Lower
House Budget Committee sessions depending on his explanation before
the Lower House Security Committee this morning. Deliberations at
the Security Committee will be crucial for Ishiba.

Meanwhile, Prime Minister Fukuda, who is suffering from low approval
ratings, wants to avoid Ishiba's resignation, which would damage the
foundation of his administration.

The prime minister had this to say last night about the opposition
bloc's demand for Ishiba's resignation: "The current situation does
not allow us to think about such a matter. Mr. Ishiba is playing a
central role in reform of the Defense Ministry, so he needs to deal
with the situation firmly."

A senior LDP lawmaker also said: "If a person doesn't make any
mistakes in exercising his authority, he does not have to resign."
Ishiba energetically took action yesterday, visiting the city of
Katsuura in Chiba Prefecture in the afternoon to offer apologies to
the family of the two missing fishermen.


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Prior to this, Ishiba attended a Lower House Security Committee
meeting, in which he indicated his intention to make utmost efforts
to integrate the internal bureaus (non-uniformed group) and the SDF
staff offices (uniformed group) into an enhanced system, saying: "I
believe implementing a sweeping reform plan is the way to restore
public trust in the Defense Ministry."

An Ishiba aide commented: "The defense minister thinks that if he
resigns at this point, the MOD reform plan will become toothless due
to bureaucratic resistance."

Some in the ruling camp have begun pointing to MOD's blunders after
the accident, especially the change in the time the Aegis destroyer
first spotted the fishing boat. An LDP lawmaker connected with
national defense said: "The ministry changed its explanation to
serve its own interests." A former Defense Agency director general
warned: "MOD must not unveil information lightly that has yet to be
verified."

A New Komeito executive, too, gave Ishiba the cold shoulder, saying:
"Being in the ruling camp, it's not appropriate for us to urge Mr.
Ishiba to resign. At the same time, we don't want to be regarded as
defending him, either."

(3) Editorial: Aegis-equipped destroyer Atago's collision with
fishing boat: SDF should not try to evade responsibility

ASAHI (Page 3) (Full)
February 22, 2008

The standard procedure any organization that makes a blunder
undergoes to regain trust is to correctly determine what happened,
immediately have a report submitted, and release it. The
Self-Defense Forces (SDF) have not followed this most important
procedure in dealing with the Aegis-equipped destroyer's collision
with a fishing boat.

On the contrary, the SDF has changed its accounts later on, with
inconvenient facts coming out later. Under these circumstances, it
cannot be helped if people think that they are trying to shirk their
responsibilities by hiding inconvenient information.

It has been learned that the crew on watch aboard the Maritime
Self-Defense Force's Aegis-equipped destroyer Atago, which struck
and scuttled the small fishing boat Seitoku Maru, had spotted a
light of the fishing vessel 12 minutes before the collision.

This contradicts the explanation the SDF gave on the day of the
accident that the Atago spotted the fishing boat two minutes before
the collision and took evasive action one minute later.

When it spotted the fishing boat is extremely important in
investigating the cause of the accident. It is hard to understand
why such vital information was not revealed immediately.

The moves of the Aegis destroyer after spotting the fishing boat are
even more unbelievable. If it had spotted the fishing boat 12
minutes before the collision, it means that the Seitoku Maru was
several kilometers away. It should have been fully possible for the
Aegis destroyer to avoid the collision. However, it neither changed
course nor slowed down. The destroyer was left on autopilot until
immediately before the collision. This flies in the face common

TOKYO 00000473 005 OF 013


sense.

There were some more fishing boats ahead of the destroyer Atago. The
Seitoku Maru was in convoy along with its fellow fishing boats. The
Aegis-equipped destroyer plowed into the convoy.

What were crew members aboard the state-of-the-art SDF ship doing
then? Did the crew on watch who spotted the fishing boat convey that
to duty officers and radar monitors? Did they continue to monitor
the moves of the fishing boat?

It appears that the time of the collision coincided with the time
the crew on watch were relieved. They could have neglected the watch
due to the takeover procedure.

The SDF has yet to reply to such basic questions. It has also yet to
reveal the situation in the ship before and after the collision.

If it claims that it is not possible to report what happened in the
vessel, it means there were no discipline at all. Can we entrust
such an organization with Japan's security?

To begin with, if the MSDF is unable to avoid a fishing boat
operating in front of it, how can it defend Japan? We are concerned
that the morale and discipline of the SDF might have declined.

The SDF should reveal every detail of the accident without disguise.
It is unforgivable for it to defend itself on the strength of the
importance of national defense.

Defense Minister Ishiba's responsibility is weighty. If he cannot
comprehend the actual state of SDF units, civilian control will be
impossible. The accident this time has also put Japan's democracy to
the test.

(4) LDP criticizes government's draft basic plan on ocean policy as
showing no posture of trying to protect national interests

SANKEI (Page 5) (Excerpts)
February 22, 2008

The Liberal Democratic Party's Special Committee on Ocean Policy,
chaired by Seiji Nakamura, held a meeting at party headquarters
yesterday to discuss a draft basic plan on marine policy compiled by
the government's marine policy task force, headed by Prime Minister
Yasuo Fukuda. The government plans to adopt it in a cabinet meeting
in mid-March, but criticism is mounting of the plan, with one
committee member claiming: "The government's eagerness to protect
marine resources and its interests cannot be detected in the plan."

The basic plan is to provide for the nation's basic marine policy
and measures to ensure the safety of the lives of its people.

On the dispute between Japan and China over gas exploration rights
in the East China Sea, however, the draft uses such an roundabout
expression as "problems have been caused over resource development
because the areas (whose development are being) asserted by the
other side straddles the Japan-claimed exclusive economic zone." In
the meeting, many participants criticized this part. One member
claimed: "The key point of how to protect Japan's rights and
interests in the East China Sea is not included. Such a vague
expression as 'the other side' should not be used." Another

TOKYO 00000473 006 OF 013


assailed: "The government's office gave excessive consideration to
China in drafting the plan."

(5) Marine admits to rape allegations

OKINAWA TIMES (Page 1) (Full)
February 22, 2008

In connection with a recent rape that took place in the middle part
of Okinawa's main island, Okinawa prefectural police have now
arrested Tyrone Hadnott, a 38-year-old U.S. Marine Corps staff
sergeant belonging to Camp Courtney in Okinawa, on suspicion of
raping a junior high school girl. Hadnott has fully admitted to his
allegations, investigative sources said yesterday. He had denied his
allegations, maintaining that he fondled her but did not rape her.
However, his statement differs in part from the girl's explanation.
The prefectural police are carefully investigating the incident.

According to investigations, Hadnott allegedly raped the girl in a
car parked on a road along a park in the middle part of Okinawa's
main island at around 10:33 p.m., Feb. 10. She was freed before
11:00 p.m., and police put her under protective custody when she was
lying low in the park. She asked her friends for help over her
cellphone.

Prefectural police authorities searched Hadnott's house, where they
confiscated a vehicle and a motorbike that are believed to have been
used for the crime. The police are now searching for further
evidence, including DNA analysis.

Meanwhile, another sexual assault took place on Feb. 18. In this
case, an Okinawa-based U.S. Army corporal in his 20s is alleged to
have raped a Philippine woman. The suspect, currently under U.S.
military custody, has denied his alleged rape, maintaining that it
was "consensual," the investigative sources said yesterday. The
prefectural police are now questioning the corporal and the victim
through her acquaintances. The police will seek an arrest warrant as
soon as his allegations are confirmed.

(6) Debate on bills on FY2000 budget, revision special taxation law
to reach crucial stage at end of February; Ruling coalition planning
to pass them through Lower House on Feb. 29, opposition camp seeking
cautious debate

NIKKEI (Page 2) (Full)
February 21, 2008

A tug-of-war is now intensifying between the ruling and opposition
camps over the fiscal 2008 budget bill and a bill amending the
Special Taxation Measures Law, which includes measures to retain the
current provisional tax rates for road construction. Although the
ruling parties aim to pass the bills through the House of
Representatives on Feb. 29, the opposition camp is reacting strongly
against the ruling coalition's plan, calling for cautious
deliberations. The ruling camp wants to avoid provoking the
opposition in order to get their approval of its appointments of a
new governor and vice governor of the Bank of Japan. The ruling bloc
is now being forced to steer a difficult course in overcoming the
politically divided Diet.

In a meeting yesterday of the Lower House Financial Affairs
Committee, Prime Minister Yasuo Fukuda stressed the need for

TOKYO 00000473 007 OF 013


enacting the bill revising the Special Taxation Measures Law before
the end of this fiscal year. He stated: "In order also for promoting
fiscal soundness, the provisional tax rates have to be retained."

The ruling coalition plans to hold ad hoc subcommittee meetings,
which are preconditions for taking a vote on the budget bill at the
Lower House Budget Committee, on Feb. 27 and 28. They are also
determined to push the budget bill and the bill amending the tax law
through the Lower House on Feb. 29.

LDP Upper House Caucus Chairman Hidehisa Otsuji told reporters
yesterday in Fukuoka City: "The Upper House will become the main
battle field. Revising the bills will become a topic of discussion
after they are sent to the Upper House."

The ruling camp's source of retribution is the agreement between the
ruling and opposition blocs on Jan. 30 through the good offices of
Lower House speaker and Upper House president. The agreement
stipulates that a certain conclusion should be reached by the end of
the current fiscal year (March) on the budget and revenue-related
bills. The ruling camp interprets the phrase that the bills should
be sent to the Upper House before the end of February to secure time
for deliberations.

The main opposition Democratic Party of Japan (DPJ or Minshuto),
however, opposes the ruling coalition's plan. DPJ President Ichiro
Ozawa discussed the matter yesterday with Upper House Caucus
Chairman Azuma Koshiishi, Diet Affairs Committee Chairman Kenji
Yamaoka, and Policy Research Committee Chairman Masayuki Naoshima.
They reached an agreement that their party itself would not call for
a revision of the bill to amend the Special Taxation Measures Law,
but that it would step up its pursuit of the government.

The DPJ will likely forgo its plan to submit its counterproposals.
Secretary General Yukio Hatoyama told reporters yesterday in

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Shizuoka City confidently: "It is not necessary at all to present
compromise proposals. As time goes by, the ruling parties will
become frustrated with themselves."

The DPJ's basic strategy is to abolish the provisional tax rates at
the end of March by thwarting the enactment of the revision bill
before that time. The party is determined not to respond to a vote
on the bill at the Lower House in early March, seeking cautious
deliberations. Yesterday it had the Lower House Financial Affairs
Committee discontinue its deliberations for the reason that the
Finance Ministry did present sufficient documentation.

(7) Government eyes introduction of emissions trading system, in
anticipation of creation of emissions-rights market by U.S.

ASAHI (Page 8) (Full)
February 21, 2008

The government has decided to fully study the possibility of
introducing a domestic emissions trading system in order to
significantly reduce the nation's greenhouse gas emissions. This
issue will be high on the agenda in meetings of an experts' panel
that will be set up under the prime minister by the end of this
month. The European Union (EU) is aiming to create an international
emissions-rights market. Based on the judgment that the next U.S.
administration, not only the EU, will surely make a policy switch to
introduce the system, the Japanese government has finally begun to

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take action. Although economic circles, mainly the electricity and
steel industries, are still putting up strong resistance, there are
signs that they are becoming flexible about the introduction of the
system.

In a press conference yesterday, Chief Cabinet Secretary Machimura
said: "It is likely that an administration that takes a different
approach to the environment from the Bush administration will be
established." He thus indicated that the next U.S. government will
accelerate the implementation of measures to contain global warming,
including an introduction of an emissions-trading system. The three
major candidates for the upcoming U.S. presidential election,
Republican front-runner John McCain, Democrat Hillary Clinton, and
Democrat Barack Obama, have expressed their support for introducing
an emissions-trading system. The two Democratic candidates have set
forth the numerical target of reducing their country's gas emissions
by 80 PERCENT from 1990 levels by 2050.

The EU, which has come up with the goal of reducing emissions 20
PERCENT from 1990 levels by 2020, announced in late January that it
would review its current regional trading system. The EU proposed
revising the way the cap is set and adopting an auction formula,
applying pressure on the Japanese and U.S. governments, both of
which are negative about setting up an emissions-rights market.

A senior government official said: "The government has become
positive about emissions trading in response to moves by the U.S.
and Europe. Japan might open an emissions-rights market four or five
years from now."

The prime minister wants to give a boost to his administration by
stepping up efforts against global warming. Meanwhile, the
Democratic Party of Japan (DPJ) is already working on a bill to
introduce an emissions trading system. The prime minister is set to
counter the DPJ by setting up by the end of this month an experts'
panel tasked with crafting a strategy to establish a low-carbon
society in accordance with the commitment he made in his policy
speech in January.

Toyota Motor Corp. Advisor Hiroshi Okuda will head the new panel. He
was appointed as special advisor on global warming in line with the
prime minister's strong desire. The government aims to gradually
solicit approval from economic circles by drawing Tokyo Electric
Power President Tsunehisa Katsumata and Nippon Steel Corporation
President Akio Mimura into the panel from the electricity and steel
industries, which are said to be "the toughest forces of
resistance," as said by a senior government official.

(8) Interview with Keio University Professor Heizo Takenaka: Local
areas have become impoverished because structural reforms have been
insufficient

EKONOMISUTO (Page 26) (Full)
February 26, 2008

-- The observation has been growing that Japan's economic foundation
is sinking.

"The phenomenon is symbolically reflected in the falling stock
prices. Even in the U.S., where the subprime loan crisis occurred,
stock prices have gone up 6 PERCENT over the past year.
Expectations of Japan have apparently withered. What happened in

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2005 is in sharp contrast with the current situation. Postal
services were privatized, following the dissolution of the Lower
House and the snap election. Stock prices shot up 40 PERCENT that
year, boosting the expectation that Japan would change. Japan has
both bright and dark aspects. By that, I mean Japan can be very
strong when something has to be done.

-- State Minister for Economic and Fiscal Policy Hiroko Ota gave a
speech in the Diet that the Japanese economy can no longer be called
one of the best due to the decline in per-capita GDP in the world.

"It is unacceptable for the government to make such a statement
without fully implementing the reform drive. The government's role
is to show its resolution that even though some may say that the
Japanese economy is no longer one of the best, it will bounce it
back to the first-class level. Since the government has not said so,
expectations of the Japanese economy are further declining."

Summing up of Upper House election in July last year by LDP is
mistaken

-- Do you think that Japan is heading for a decline?

"I think that Japan is in a situation where it can go either way,
get better or get worse. It is regrettable that some think that
Japan has declined. However, given the fact that it was only three
years ago that stock prices rose 40 PERCENT , it is possible to turn
the present tide.

Japan has many strong points, such as technology. Measures to combat
climate change are on the global agenda. Japan's energy efficiency
is the highest in the world. It is twice that of the U.S. and nine
times that of China or India in terms of CO2 emitted for every
dollar generated in GDP. Japan has such a high technology.

In the meantime, the world is concerned that Japan could fall into a
situation similar to the 'lost decade' it experienced in the 1990s
when its reform momentum lost steam. I do not think that the
Japanese economy will go back to those days. The economy was indeed
helped thanks to the disposal of non-performing loans held by banks.
The Japanese economy will not suffer such a major setback again.
However, the government finds itself unable to fully display its
leadership at a time when Japan has to gather steam to boost its
economy."

-- The Diet is divided between the Lower House and the Upper House
as a result of the Upper House election last year, causing a
political deadlock.

The biggest political mistake last year was the Liberal Democratic
Party's conclusion reached after the Upper House election. Summing
up the election result, the LDP believed that the ruling camp had
lost the election due to disgruntlement harbored by rural areas hit
by the structural reforms. However, that conclusion was
fundamentally incorrect. To begin with, reforms were carried out in
urban areas. Sufficient reform has yet to be carried out in rural
areas. The ruling parties lost seats in rural areas where reform has
yet to be carried out. However, they were not defeated in urban
areas, where reform was already carried out. It is true that rural
areas have become impoverished. That is because reforms have not
been fully implemented there. Structural reforms in the agricultural
sector have yet to be carried out. Decentralization has not taken

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place yet. The wrong choice - namely, to end structural reforms --
is gaining ground.

CEFP taken over by bureaucrats

-- The Council of Economic and Fiscal Policy (CEFP) played the role
of the control tower during Prime Minister Junichiro Koizumi's
reform drive.

In my view, the CEFP is heavily responsible for the situation that
occurred after the Koizumi administration. Looking back on the past
year and six months, the panel has only come up with slogans. It has
no action programs on the agenda. They say that it is necessary to
boost the economy and revitalize education. However, they are just
issuing slogans. Nobody opposes such slogans. But when it comes to
what should be done, it has no easy-to-understand agenda.

When foreigners ask, "What has Japan done since it carried out such
reforms as the disposal of bad loans and postal privatization?" no
one can answer. Although the role of the CEFP is to set strategic
agenda, the council has not done so yet.

Regarding the management of the CEFP, private-sector members (four,
including International Christian University Professor Naohiro
Yashiro, Japan Business Federation Chairman Fujio Mitarai) are
responsible for presenting papers at meetings. But bureaucrats
dictate their tasks. Symbolically, a report noting that the
consumption tax rate must be raised read as if it was written by the
Finance Ministry, but it was presented in the name of the
private-sector members. Surprisingly, the CEFP has been totally
taken over by bureaucrats.

It is of no use pinning hopes on civil servants or Diet policy
experts, because their behavior is motivated by the desire to secure
vested rights and interests. That is why private citizens should be
involved in the policy-making process. Various experts councils have
private citizens on them but unfortunately, those representing the
private sector have not produced many results. At present, there is
no virtuous cycle of politics displaying leadership and private
citizens bravely challenging the systems. Unless there is such a
cycle, policies will not turn around.

-- Isn't it difficult to carry out reform under the present
political climate?

"Even so, Japan has sophisticated technology and strong elements in
various fields. There is a strong possibility of the status of the
Japanese economy being elevated, if it reshapes the reform
initiative and correctly sets the agenda. If the situation is left
unattended, I am pessimistic about the future of the Japanese
economy. However, there are other paths to follow.

Our society as a whole lacks a sense of crisis. Though Japan's
per-capita GDP has slipped to fourth place, daily life is not so bad
from a global standard. Alhough we may not be bad off now, our
children or grandchildren might be in a lot of trouble. We need to
have such a sense of alarm.

(Interviewer: Naoki Ogawa of the editorial office)

(9) Interview with Eisuke Sakakibara: Carry out not reform but
revolution to avoid ruin of Japan

TOKYO 00000473 011 OF 013

EKONOMISUTO (Page 27) (Full)
February 26, 2008, issue

-- In your recent book, Fall of Japan (Nihon no botsuraku), you
reiterate that the future of Japan is at risk. Where have you seen
such signs?

Companies have begun to turn inward looking; organizations have
become bureaucratized; and dynamism is being lost. For instance,
many countries now have growing interest in India and are eagerly
making inroads into its market. Japan, however, seems to be
following after them. Companies must expect some risk involved In
investing in India, but Japanese firms seem unable to assume any
risk.

Given that there are no strict regulations on compliance and
governance, corporate executives have been pouring excessive energy
into their own companies. As a result, their mind-set is
considerably introspective. Another factor is that once a company
causes an accident or has a scandal, television tends to severely
criticize it.

Japanese companies are still capable of earning profits and have
abundant capital, so they should be able to proactively move toward
M&As (merger and acquisition) with foreign companies. But they are
trying to protect themselves from being bought (by foreign
companies).

-- There are many companies dominating the global market with their
high environment-protection technology.

There are many superior companies, such as Toyota Motors., Nippon
Steel, and Matsushita Electric. Although I wrote about a possible
fall of the state, I did not mean such would occur this year or next
year. Japan might go under 10 years or 20 years from now. General
Motors of the U.S. (which was overtaken by Toyota in terms of
output) was performing strongly a decade ago.

I wonder if Japanese firms will be able to maintain a significant
lead in terms of technical prowess over China and India, which are
emerging remarkably. It is necessary for Japan to cultivate
excellent engineers, but the government and companies are not eager
about it. Japanese industries are actually living on what they had
accumulated in the past

-- Under the current political situation, in which the opposition
camp controls the House of Councillors and the ruling bloc holds a
majority in the House of Representatives, both camps seem overly
preoccupied with political maneuvering.

What must be done now is to change the nature of this nation with a
change of government. There might be no other means but to let the
Democratic Party of Japan (DPJ) assume political power for the time
being in order to carry out the change.

Over the past decade, the LDP, starting with the government of
Ryutaro Hashimoto through the Junichiro Koizumi government, worked
out many reform plans but then failed to implement them. Most of the
plans proposed by the Koizumi administration ended up as mostly
empty slogans. In the case of privatizing the Japan Highway Public
Corporation, the company was changed for the worse. The so-called

TOKYO 00000473 012 OF 013


triple reform plan - reducing national subsidies, transferring tax
revenues to local governments, and reforming the grant-in-aid system
- also resulted in widening regional income disparities. We don't
know what will become of postal services now. The education system
is getting worse, and problems related to the pension system are
erupting. The medical system is collapsing.

It is necessary to change the current relationships between the
central and local governments and to promote decentralization. The
Health, Labor and Welfare Ministry and the Education, Culture,
Sports and Science and Technology Ministry are basically unnecessary
for the central government. The government should devote itself to
diplomatic, defense and financial affairs. Authority for handling
projects should be handed over to local governments. I have also
suggested establishing about 300 corporate towns, with a population
of 300,000 in each, through mergers. This system should be different
from the regional system but like the one in which there were
300,000 clans in the Edo period. The central government should stop
controlling local governments in various forms and fully perform its
own duties. The current public servant system, too, should be
changed.

The government should also ease restrictions on the educational
system. The regulations imposed by the Education Ministry are overly
strict. It is necessary to prepare the minimum standards for
compulsory education, but more flexibility is necessary for
university education. What is needed now is to cultivate elites.
Japan has not produced a class of elites, in the good meaning of the
word. The government should establish boarding junior high schools,
high schools, and colleges that would accommodate even poor students
if they make efforts. By taking such measures, Japan should nurture
those who could display leadership.

-- Is the DPJ capable enough to assume the reins of government?

I don't know. But a change of government would slash away at vested
interests and the new administration could be expected to change
(conventional systems) significantly. Since the government's various
systems have become complementary, it is difficult to partially
change them. The network of vested interests has put up resistance
and has watered down things in the end, as seen in the reform of the
Japan Highway Public Corporation.

-- In the Meiji Restoration, the arrival of the black ships enhanced
a sense of crisis among low-level samurai. Is there a sense of
crisis among Japanese people at the present time?

The black ships are actually coming in. Signs of Japan about to
collapse are appearing all over the place, so we must have a sense
of alarm. A bloodless revolution should be carried out by changing
government. What is needed is not partial reform but revolution or
renovation.

Unless revolution or renovation is carried out, society could fall
into a state of turmoil in various ways. Crime might increase,
safety would be threatened, social disparities could widen, and
those suffering by hunger and poverty would increase. Such a state
could bring about political disarray. Japanese companies would be
defeated in global competition, and the Japanese economy would
weaken. Wages would drop, and job opportunities would be reduced. If
the state falls into ruin, such phenomena will appear.


TOKYO 00000473 013 OF 013


During the high economic growth period, everything seemed to improve
speedily, but the situation could turn around. It will be very hard
to achieve results even if reform is carried out, once the state is
in ruins. Japan must be significantly changed on a trial basis over
the next five years or so. If we are resolved to bring about a major
change, we will not need to be pessimistic. Since Japan has yet to
go under, there is still enough room for rebuilding the nation.

SCHIEFFER

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