Search

 

Cablegate: Kansai Economic Outlook: Concerns of Flagging

VZCZCXRO6533
OO RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHOK #0110/01 1510429
ZNR UUUUU ZZH
O 300429Z MAY 08
FM AMCONSUL OSAKA KOBE
TO RUEHC/SECSTATE WASHDC PRIORITY 1110
INFO RUEHKO/AMEMBASSY TOKYO IMMEDIATE 8240
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0223
RUEHNAG/AMCONSUL NAGOYA PRIORITY 2340
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0213
RUEHNH/AMCONSUL NAHA PRIORITY 0236
RUEHBJ/AMEMBASSY BEIJING 0429
RUEHUL/AMEMBASSY SEOUL 1127
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 OSAKA KOBE 000110

TREASURY FOR CARNES, POGGI AND WINSHIP

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV JA
SUBJECT: KANSAI ECONOMIC OUTLOOK: CONCERNS OF FLAGGING
CONSUMER SENTIMENT DESPITE INVESTMENT BOOM

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET.

1. (SBU) Summary. The impact of rising commodity
prices on consumer sentiment is the biggest threat
facing the Kansai economy, according to a top official
at the Osaka branch of the Bank of Japan. Meeting with
EMIN May 23, BOJ Osaka Branch Deputy Director Kunio
Matsuda said his greatest anxiety is that consumers
will tighten their pursestrings in response to higher
prices of food, gasoline and other necessities,
knocking out one of the pillars of growth. Still,
Matsuda was generally optimistic about economic
prospects for the region that includes Osaka, Kobe, and
Kyoto, pointing to large-scale plant investments by
Sharp and other manufacturers and emphasizing the
sometimes overlooked competitiveness of the area's
large number and variety of small- and medium-sized
enterprises (SMEs). Other Kansai-based interlocutors
echoed Matsuda's views while adding corporate
relocations from the region to Tokyo as another source
of concern. End summary.

2. (SBU) Meeting with Embassy Tokyo EMIN and ConGen
poloff May 23, Bank of Japan Osaka Branch Deputy
Director Kunio Matsuda asserted the psychological
impact of rising commodity prices on Japanese consumers
is worse than current inflation data might suggest. He
said the year-on-year price hike rate is only around 1
percent, but consumers feel as if it were 5 percent
because they pay more at the supermarket and gas
station even through the prices of big-ticket items
such as PCs are unchanged. He said belt-tightening by
inflation-wary consumers is the biggest economic risk
for the Kansai region and Japan as a whole. Concern
about inflation means the BOJ finds itself in
unfamiliar territory after a decade of battling
deflation, Matsuda added. The central bank now must be
prepared to hike interest rates if oil prices trigger
an inflationary spiral and to cut them if flagging
consumer sentiment drags down the economy. Former BOJ
Governor Toshihiko Fukui had an easier time than his
successor, Masaaki Shirakawa, will, Matsuda suggested.

3. (SBU) Nevertheless, the BOJ official struck an
optimistic note about the Kansai's economic prospects.
He noted large-scale plant investment by manufacturers
Panasonic and Sharp, the latter spending USD 4 billion
to build the world's largest flat-panel display factory
south of Osaka. Such investment, together with exports
to emerging markets in Asia, explains why the Kansai
economy outperformed the national average in recent
years. He expects that trend to continue, albeit at a
slower pace, facilitated by the stability of banks in
the Kansai. Unlike a decade ago, when failures rippled
through the banking sector, lenders in the region are
now in a position to support investment, he said.

4. (SBU) Matsuda played down notions the region is
more vulnerable than others in Japan to competition
from China and other low-wage countries, given the
weight of manufacturing and prevalence of SMEs in the
Kansai's economy. The share of manufacturing in the
Kansai area is only 2-3 percent greater than in Kanto,
Matsuda noted. Moreover, many SMEs are competitive
technology-oriented firms, not the old-line suppliers
or distributors that many imagine.

5. (SBU) While constituting an important part of the
Kansai economy, SMEs get little more than lip service
from local politicians, Matsuda continued. He said tax
breaks and other measures to support SMEs are limited
and limited in their effectiveness, a situation he
described as unfortunate but difficult to change. He
also criticized the GOJ's slowness in confronting the
implications of Japan's aging population and expressed
concern that Koizumi-era efforts toward
decentralization and empowerment of the regions had
been suspended under Fukuda.

6. (SBU) Finally Matsuda, talking about the GOJ's

OSAKA KOBE 00000110 002 OF 002


recent decision to block The Children's Investment Fund
from increasing its stake in J-Power, acknowledged that
the move sent a negative signal to foreign investors,
but said he did not believe it was the start of a
trend. Matsuda added he was encouraged by the
resulting debate on Japan's openness to FDI.

7. (SBU) The central bank official's generally
optimistic outlook was echoed by two Kansai-based
interlocutors who met separately with EMIN on May 23:
Takumi Hirai, an economic commentator and associate
professor at Poole Gakuin University, and Mike Bobrove,
head of the Kansai Chapter of the American Chamber of
Commerce in Japan.

8. (SBU) Noting rising commodity prices and the
stronger yen posed a double threat to Japan's long
expansionary trend, Hirai forecasted a "soft landing"
for the Kansai. He expects investment to remain high
for the next quarter, and exports to the rest of Asia
to be strong for the next two quarters.

9. (SBU) Hirai cautioned, however, that Kansai-area
SMEs have not enjoyed significant economic spillover
from the high-profile investments by Sharp and others.
Furthermore, SMEs that supply the auto and electronics
industries will face pressure to cut their prices from
manufacturers trying to deal with higher raw materials
costs. Nippon Steel, he said, will raise the price of
the steel its supplies to Toyota by 30 percent, leading
the carmaker to scale back its earnings forecast from
2.2 to 1.6 trillion yen.

10. (SBU) Hirai and Bobrove both said the Kansai
economy continues to suffer from the relocation of the
head offices of big-name companies to Tokyo, from
Takeda Pharmaceutical and Nisshin Noodles to Eli Lilly
Japan. Hirai said corporate headquarters are centers
of innovation, which means decisions to move corporate
headquarters tends to shift those jobs from the region
as well. Hirai also thought Kansai has done a poor job
of promoting itself to foreign investors. While
praising the region's economic diversity, Bobrove
conceded that he would set up his own company (a
medical equipment supplier) in Tokyo if he could do it
all over again. The reasons: to be closer to his
biggest market and to regulators whose decisions have a
direct impact on his business.

11. (U) This cable was cleared with Embassy Tokyo.

RUSSEL

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO: