Cablegate: Daily Summary of Japanese Press 06/11/08

DE RUEHKO #1595/01 1630810
P 110810Z JUN 08




E.O. 12958: N/A



(1) Foreign investors to be exempt from corporate taxes in Japan by
fulfilling four conditions; Use of independent domestic asset
management company required (Nikkei)

(2) New economic growth strategy lacks specific systemic-reform
measures (Nikkei)

(3) Interview with former Prime Minister Yoshiro Mori on divided
Diet -- Prime Minister Fukuda must shuffle his cabinet and implement
policies (Tokyo Shimbun)

(4) Defense Ministry to retain present setup, reject Ishiba plan

(5) Asia Security Conference (Asahi)

(6) Editorial: Fukuda vision needs to be modified (Tokyo Shimbun)

(7) (Corrected copy) Prime Minister's schedule, June 10 (Nikkei)


(1) Foreign investors to be exempt from corporate taxes in Japan by
fulfilling four conditions; Use of independent domestic asset
management company required

NIKKEI (Top play) (Full)
June 11, 2008

The government will revise taxation on overseas investors with the
aim of promoting investment in Japan by foreign investment funds and
companies. It will clarify corporate tax exemption rules to be
applied to overseas investors that use domestic asset management
firms to handle their portfolios, provided they meet four conditions
ensuring that their assets are managed at the discretion of the
domestic asset management companies. Its aim is to lure investment
funds to Japan for the revitalization of the Tokyo market by making
the current ill-defined taxation rules easy to understand,

Government to set up new rules

The Finance Ministry and the Financial Services Agency will work to
craft new rules to be implemented as early as this month.

There is a major principle concerning taxation for overseas
investors -- if they have a discretionary investment contract with a
registered domestic asset management company and if that asset
management company acts independently, the investor will be exempt
from taxation in Japan. However, there are currently no rules for
determining whether foreign investors are independent from domestic
asset management companies.

The government will clarify four conditions to define cases exempt
from taxation. If domestic asset management companies used for
investment meet the following four conditions, foreign clients would
be exempt from taxation: (1) investment decisions are made by the
domestic asset management company without specific directions from
the overseas investor; (2) more than half the companies' directors
and employees are not allowed to simultaneously hold positions at
foreign funds and the like; (3) the management company has an

TOKYO 00001595 002 OF 010

agreement for contingency fee payments; and (4) the company does not
rely on a specific overseas investor for its operations and is able
to engage in diversified operations.

Overseas investors are generally taxed in their home countries.
However, if they are taxed in Japan as well, up to 40 PERCENT of
investment profits can be taken away by taxes. The risk of this
double taxation is said to make some foreign investors reluctant to
invest in Japan.

The government set a policy of exempting from taxation investors
from countries with which it has yet to sign a tax treaty, such as
Middle East countries, by revising the Corporate Tax Law enforcement
order in April. Going a step further this time, the government has
clarified tax-exemption rules to be applied to all foreign
investors, regardless of whether their home country has a tax treaty
with Japan, by regulating specific asset management rules.

The government will help overseas investors understand more detailed
interpretations of the four conditions. For instance, if an overseas
investor only gives brief instructions to an asset management
company, such as to set up an investment fund framework, or tells
them only in general terms about the level of risk the investor is
willing to take on, then the domestic asset management company is
considered independent of its overseas client. However, if the
overseas client gives detailed instructions, such as which stocks
should be traded or the timing of stock trades, then it will be
subject to taxation, as it is deemed to be setting the asset
management policy.

A relationship limited solely to capital will not necessarily
determine whether the asset management company is considered
independent of the client. For instance, a foreign investor that
invests in Japan via a wholly owned local asset management unit will
not be subject to the corporate tax as long as all the conditions
are met.

Outstanding discretionary investments as of the end of March 2007
stand at approximately 120 trillion yen, 1.9 times the level three
years ago. The government has determined that in order to revitalize
the domestic market by further luring overseas investment, it will
be necessary to clarify taxation rules that are in compliance with
international standards.

(2) New economic growth strategy lacks specific systemic-reform

NIKKEI (Page 3) (Full)
June 11, 2008

The government's Council on Economic and Fiscal Policy finalized an
economic growth strategy in its meeting yesterday. The report
stresses the need to create jobs mainly for young people, promote
the internationalization of Haneda Airport, and develop advanced
technologies. It also notes that Japan can achieve an annual 2
PERCENT economic growth in real terms over the next decade despite
its shrinking population. This is the first report on economic
strategic policies since the Fukuda administration was inaugurated,
but it is lacking specifics when it comes to systemic reform

In drafting the report, the council focused on the following three

TOKYO 00001595 003 OF 010

key policy goals: (1) creating a society in which everyone who wants
to work can reach their full capability; (2) coping with
globalization; and (3) developing advanced technologies. The report
presents a new employment strategy to ensure a stable workforce
despite the decreasing population. Specifically, the report proposes
creating 2.2 million jobs for youths, women, and elderly people by
FY2010 by taking such measures as improving the current vocational
training system and making one million job-hopping part-timers
regular members of the work force.

A major step will be taken toward aviation liberalization, according
to the new strategy. A new runway will be completed at Haneda
Airport in 2010. In conjunction with the completion, Haneda will
host new regular flights to Seoul, Shanghai, Beijing, Taipei, and
Hong Kong. On innovative technologies, the report suggests
establishing in FY2008 special districts that will receive
preferential deregulatory treatment in developing such advanced
medical techniques as induced pluripotent stem (iPS) cells.

The measures proposed in the economic growth strategy will be
included in the government's 2008 economic and fiscal policy
guidelines due out in late June. Deeming the strategy as a prelude
to the compilation of a budget for FY2009, each government agency
was eager to come up with policy measures. But the report does not
go deeply into reform measures that need no budgetary allocations.

Take the management of public pension funds, for instance. Panel
members from the private sector stressed that the government should
aim to increase profits by investing the reserves totaling about 150
trillion yen in diversified destinations. In reaction, the Ministry
of Health, Labor and Welfare demanded the measure be dropped, out of
fear of criticism about a short-term loss risk. Although Minister in
Charge of Economic and Fiscal Policy Hiroko Ota insisted that the
report should at least note that the measure is up for
consideration, the expression used in the report is that "a
broadly-based study should be conducted from the people's point of

In the wake of a foreign hedge fund's bid to increase its stake in
J-power, attention is being paid to what measures would be taken to
expand foreign direct investment in Japan. The report says that
Japan will comprehensively look into restrictions on foreign
investment in FY2008, but it includes no specific measures.
Private-sector members called for increasing foreign workers with
high-level skills to 300,000 by 2015, but the report does not
mention this numerical target, either.

Key points in the economic growth strategy

Principles = from viewpoint of ordinary citizens, consumers
Aim at achieving an over 2 PERCENT economic growth in real terms
annually over the next decade.
Set the period of three years starting in FY2008 as the period of
implementation of priority measures.

Three strategic policies

All citizens' participation in economic activities

New employment strategy = Create 2.2 million jobs among youths,
women, and the elderly.
Improve the productivity of the services industry and small to

TOKYO 00001595 004 OF 010

midsize companies.
IT-oriented state = Enable people to get a copy of their
certificates of residence through terminals at convenience stores.

Global strategy

Conclude in 2010 economic partnership agreements (EPA) with
countries with which the annual amount of Japan's trade accounts for
25 PERCENT of its total.
Have Haneda Airport host regular services to Seoul, Shanghai,
Beijing, Taipei, and Hong Kong.
Revise in the fall 2008 the program to accelerate foreign direct
Comprehensively study in FY2008 future options for restrictions on
foreign investment
Establish a system to accept 300,000 foreign students.

Development of innovative technologies

Establish in FY2008 special districts that will receive bold
preferential deregulatory treatment in developing advanced medical
Create in FY2009 a national project emergency budget.
Study a mechanism to drastically increase the use of natural

(3) Interview with former Prime Minister Yoshiro Mori on divided
Diet -- Prime Minister Fukuda must shuffle his cabinet and implement

TOKYO SHIMBUN (Page 2) (Abridged slightly)
June 11, 2008

-- Former LDP Secretary General Taro Aso is highly popular as a
possible candidate to replace Prime Minister Fukuda.

"Popular or not, Mr. Aso and Policy Research Council Chairman
Sadakazu Tanigaki have run for the LDP proficiency in the past, and
I think that deserves some credit. Anyone is eligible to run for the
LDP presidency. The question is whether or not one can meet the
requirement of recommendations from 20 lawmakers."

-- You are serving as the supreme adviser to the Machimura faction,
which includes former Defense Minister Yuriko Koike, another
possible successor to Fukuda.

"That's what the media says. If the political community comes apart
and everyone is thrown out into the sea, they would desperately
reach out for anything to remain above the water. When such a time
comes, people might turn to Ms. Koike. I'm talking about really
chaotic times here."

-- In the previous LDP presidential race, some in your faction were
eager to back Chief Cabinet Secretary Nobutaka Machimura. Former
Secretary General Hidenao Nakagawa is also energetically taking

"This is not the time to say such thing because Mr. (Yasuo) Fukuda
is working very hard."

-- What is your assessment of the two?

TOKYO 00001595 005 OF 010

"Mr. Machimura must wholeheartedly support Mr. Fukuda as his chief
cabinet secretary. He should go to any length for Mr. Fukuda."

"Mr. Nakagawa is in a free position. There must be a clear
distinction between personal opinions and factions' views. This
group has been well managed under my supervision. Why? The most
important thing is not to create factions in factions. I have always
rejected them."

-- A study group has been established centering on Mr. Nakagawa, and
it has created a stir in the faction.

"If we are to say this or that about Machimura or Nakagawa now, it
would be better to dissolve (the faction). It is a miracle that our
faction has produced four prime ministers in a row. We owe much to
other factions, and we are grateful for their cooperation. We must
absolutely not produce another LDP president after Mr. Fukuda,
though that would not occur anytime soon."

-- What is your view of the divided Diet?

"The Diet is still immature. In order to force the prime minister
into dissolving the Lower House so that they can win the next
general election, (the Democratic Party of Japan) opposes
everything. Such is out of line with popular will. The LDP has
control over the Lower House and the DPJ is the largest party in the
Upper House. The divided Diet is a god-send for it is a chance to
build consensus through talks."

-- Is a cabinet shuffle necessary in order for Prime Minister Fukuda
to generate his policy imprint?

"The present cabinet is still the Abe cabinet. Sooner or later, I
would like to see Mr. Fukuda establish his own cabinet and implement
his own policies. He should shuffle his cabinet anytime now when the
timing is right."

-- What about the timing for the next Lower House election?

"The election should be held at the best time. DPJ President Ichiro
Ozawa has explicitly said that the election would take place in the
fall. That is their wishful thinking. There is no need to carry out
the election at such time."

-- What is your view of the possibility of political realignment?

"It would be quite natural for like-minded people to gather together
and agree to endeavor to turn their visions into action. There is no
doubt that the next Lower House election will be a turning point.
There is a possibility that politics will demonstrate new
developments depending on how the election turns out."

(4) Defense Ministry to retain present setup, reject Ishiba plan

MAINICHI (Page 5) (Full)
June 11, 2008

A government panel on a reform of the Defense Ministry will work out
a report this month and is expected to coordinate the ministry's
organizational reform based on a draft plan to basically retain its
current organizational setup. Defense Minister Shigeru Ishiba has
advocated a drastic overhaul of his ministry. His initiative,

TOKYO 00001595 006 OF 010

however, encountered a strong negative reaction from within and
outside the ministry. Prime Minister Yasuo Fukuda has asked the
panel to make a soft landing. The panel is therefore trying to iron
out the differences of opinions among its members, centering on the
ideas of National Defense Academy President Makoto Iokibe, one of
the panel's influential members. Ishiba has proposed mixing the
Defense Ministry's bureaucrats and the Self-Defense Forces'
uniformed staffs. The panel, out of consideration for Ishiba, is
expected to incorporate his blueprint partially into its report.

The draft plan was informally presented by Iokibe, who is one of
Fukuda's confidants, when the panel met on May 21. It describes that
the Defense Ministry should "basically retain" its current setup of
internal bureaus and the Joint Staff Office (JSO) of the Ground,
Maritime, and Air Self-Defense Forces as well as their respective
staff offices. The Iokibe plan recommends the Defense Ministry to
combine SDF staff officers into its defense policy bureau and other
internal bureaus in order to revamp its organizational setup. The
JSO, currently in charge of operational planning for the three SDF
services, is recommended to have personnel from internal bureaus for
posts below its deputy chiefs of staff.

The Ishiba plan presented to the panel features reorganizing and
combining the Defense Ministry's internal bureaus and the GSDF,
MSDF, and ASDF staff offices into three functional bodies for
defense buildup, operational planning, and policy planning and
public relations. It is aimed at enhancing cooperation between the
ministry's bureaucracy and the SDF brass. According to the Ishiba
plan, they are to assist the defense minister, who is a politician
in the center of civilian control. However, the SDF's uniformed
staff officers are strongly opposed to this Ishiba initiative.
Eventually, the Defense Ministry came up with a total of six
patterns for an image of its organization, failing to work it out.

The Iokibe plan does not go so far as to reorganize the Defense
Ministry's internal bureaus and the SDF staff offices into three
bodies. Instead of restructuring the Defense Ministry in such a
radical way, it incorporates Ishiba's overtures in the form of
mixing and combining some of the ministry's bureaucrats and the
SDF's uniformed staff officers. "It imports Mr. Ishiba's idea," a
high-ranking official of the government says. As well as the Defense
Ministry's reform plan, Iokibe proposes abolishing the defense
counselor system, which has now become a dead letter, and
introducing political appointees as advisors to the defense
minister. In addition, the Iokibe plan, like the Defense Ministry's
reform plan, proposes beefing up the Defense Council's functions
with senior officials from the Defense Ministry.

In April, a subcommittee of the ruling Liberal Democratic Party on a
reform of the Defense Ministry also suggested the need for the prime
minister's office to strengthen SDF personnel's authority. The panel
will also consider this suggestion. However, Ishiba remains
particular about his idea of integrating the Defense Ministry's
bureaucracy and the SDF's brass due to their bureaucratic
sectionalism. Ishiba, appearing on a TV program aired on June 5,
remarked: "A compromise is needed, but there's also some things on
which we must not compromise."

(5) Asia Security Conference

ASAHI (Page 10) (Abridged)
June 10, 2008

TOKYO 00001595 007 OF 010

The Asia Security Conference, also known as the Shangri-La Dialogue
is an annual gathering of defense or security ministers and pundits
in the Asia-Pacific region. It was held in Singapore from May 30
through June 1. The seventh meeting had the participation of
representatives from a total of 28 countries and areas including
U.S. Defense Secretary Gates and Defense Minister Ishiba. In the
wake of a recent huge cyclone that hit Myanmar (Burma) and an
earthquake that devastated China's Sichuan Province, participants
focused their discussions on international cooperation in disaster

Japan's defense policy

In the conference, China voiced its sense of alarm about Japan's
defense policy, specifying Japan's ongoing deployment of missile
defense (MD) systems with the United States and Japan's
strengthening of its alliance with the United States.

In his speech on May 31, Deputy Chief of the General Staff of the
Chinese People's Liberation Army Ma cited an "expanded military
alliance" as one of the "three threats" in the Asia-Pacific region
and noted that the deployment of MD systems is "not purely for

Tang Jiaxuan, a former member of China's State Council, was in
charge of foreign affairs as a vice premier-level leader until this
spring. In those days, Tang expressed his hope for the Japan-U.S.
alliance to contribute to peace and stability in the Asia-Pacific
region. As seen from his remark, there is a somewhat affirmative
view of the Japan-U.S. alliance in China, as well.

As is evident from Ma's remark, PLA brass still have negative
perceptions about Japan.

Another Chinese expert, Zhuang Jianzhong, vice director of the
Center for National Strategic Studies at Shanghai Jiao Tong
University (SJTU), tuned in to Ma in a session on June 1, asserting
that a bilateral military alliance is a historical product of the
Cold War. "We should attach importance to a multilateral alliance,"
he added. Singapore's Defense Minister Teo raised a question about
this remark. "I wonder if Japan's defense seeking an alliance with
countries other than the United States is good for stability in
Northeast Asia," Teo said. He admonished the Chinese participants,
saying, "If Japan is unstable, that is not good for China."

The conference started on May 30, when Japan announced that it would
forgo dispatching Self-Defense Forces aircraft on a mission to
airlift relief supplies for those affected in the Sichuan
earthquake. Ma revealed that it was based on a decision China made
in consideration of historical issues lying between Japan and China
and the Chinese public's sentiment.

In his speech, Singapore's Prime Minister Lee noted: "Japan and
China are at odds over historical perceptions and other issues.
However, both countries are trying to build constructive relations.
This is a sign of stability in East Asia." U.S. Defense Secretary
Gates also stated that better relations between Japan and China will
benefit the United States.

Alliance, Asia diplomacy can go together: Defense Minister Ishiba

TOKYO 00001595 008 OF 010

We always need to verify the balance of power in East Asia. China is
gaining in importance, and this is a significant change. I don't
stand for playing up China as a threat. However, I strongly hope
China will make its military power and intention more transparent.

The bilateral alliance between Japan and the United States is one of
the strongest alliances in the world. It should be used as a public
asset for the region. The United States is obligated to defend
Japan, but Japan is constitutionally not allowed to defend the
United States. This is an asymmetrical bilateral relationship. Some
people say Japan should use its right of collective self-defense.
However, we have no plans for constitutional change or
reinterpretation. It's possible to beef up the Japan-U.S. alliance's
credibility, and it is also possible to beef up Japan's Asia policy
at the same time. Japan is not thinking of going nuclear.

Japan's Self-Defense Forces have been working together with other
international community members for peace while being proud of Japan
as a peace nation. The SDF is currently on a refueling mission in
the Indian Ocean and is also on an airlift mission in Iraq. These
SDF activities are under time-limited laws (respectively set to run
out in January and July next year. We should create a general law
that shows a 'menu' to meet the international community's needs for

Terrorism, in many cases, is ascribable to a relative poverty, as
compared with other countries. We need to make steady efforts to
eliminate it and change the political system. On the other hand, if
retributive deterrence does not work, then we will have to improve
the overall capability of rejective deterrence. Our missile defense
system is also one of them. I think it is about time for Asia with
its diversity to use its wisdom for living in harmony with nature.

(6) Editorial: Fukuda vision needs to be modified

TOKYO SHIMBUN (Page 5) (Full)
June 11, 2008

Prime Minister Fukuda unveiled a new initiative called the "Fukuda
vision," a set of proposals on measures to fight global warming, in
preparation for the Group of Eight Hokkaido Toyako Summit (G-8
Summit). The proposals include emissions trading, but forgo setting
a mid-term emission reduction target. The Fukuda vision is still
insufficient to make a significant impact on the Japanese public and
the world audience.

While the end goal of the Fukuda vision is clear, the immediate goal
is blurry. As a long-term reduction goal, Fukuda proposed to attain
a 60-80 PERCENT domestic greenhouse gas emissions reduction target
by 2050 from current levels, following the target announced by the
European Union (EU) and indicating a specific target.

But when it came to setting a medium-term reduction target by 2020,
an essential part of the vision, the Prime Minister deferred setting
such it. The vision only indicated the possibility that greenhouse
gas emissions would be reduced 14 PERCENT from the 2005 level.

This figure stems from a sector-by-sector approach proposed by Japan
to set each country's target by adding up possible amounts of
industry-by-industry emission reductions. However, the problem is
that even if forest absorption of carbon dioxide is approved as is,
the reduction amount will be merely 8 PERCENT from the 1990 levels,

TOKYO 00001595 009 OF 010

far from the 25-40 PERCENT called for by the Intergovernmental
Panel on Climate Change (IPCC). Other countries of the world will
not be able to accept Japan's "trickery" of shifting the base year
in its favor.

The Fukuda vision states that the impact of global warming has
already become obvious. Given this, we think it is urgently
necessary to reconsider a medium-term reduction target.

Fukuda also vowed to introduce domestic emissions trading. This is
clearly progress. The emissions trading system within the EU has led
to a six-trillion-yen market. Emissions trading have become
indispensable to international efforts to reduce greenhouse gas

However, even though a domestic integrated market will be
established, if new caps are not placed on participating companies,
the emissions market will not function appropriately. If an 80
PERCENT emissions reduction were possible by voluntary efforts, the
Kyoto Protocol would be unnecessary from the beginning. Placing caps
on emissions inspire each country to move to reduce their greenhouse
gas emissions and to develop innovative technologies, which could
lead to business opportunities.

The Fukuda vision concludes by saying that the leading player in
bringing about a low-carbon society is the public. If so, political
will and mechanisms to show clear targets and urge the public to
car-share and make efforts to save electricity are more important
than simply paying attention to international bargaining and giving
consideration to industries.

We hope to see the Fukuda vision modified in a way to make the
public, as a leading player, aware of the seriousness of the
situation and playing a role. If the prime minister demonstrates his
leadership at home, he then can make an impact on the international
community, as well.

(7) (Corrected copy) Prime Minister's schedule, June 10

NIKKEI (Page 2) (Full)
June 11, 2008

Attended a cabinet meeting.

Met MAFF Minister Wakabayashi and Chief Cabinet Secretary Machimura,
followed by Justice Minister Hatoyama, MHLW Minister Masuzoe, and
Machimura. Masuzoe and Machimura stayed on. Afterward met National
Public Safety Commission Chairman Izumi.

Met Former U.S. Ambassador to Japan Baker and his wife at the

Met Science Council of Japan Chairman Kanazawa and Vice Chairman Doi
in the presence of Science and Technology Minister Kishida, Cabinet
special adviser Kurokawa, and others. Afterward met Economic and
Fiscal Policy Minister Ota in the presence of Assistant Chief
Cabinet Secretary Saka. Ota stayed on.

TOKYO 00001595 010 OF 010

Had lunch with LDP third-term members in the presence of Deputy
Chief Cabinet Secretary Ono, joined by Machimura.

Met Cabinet Intelligence Director General Mitani, followed by Lower
House National Basic Policy Committee Chairman Eto and principal
director Hagiyama, followed by Vice Foreign Minister Yabunaka Asian
and Oceanian Affairs Bureau Director General Saiki. Yabunaka stayed

Met New Komeito head Ota, LDP Secretary General Ibuki, New Komeito
Secretary General Kitagawa in the presence of Machimura.

Met assistant Ito. Later attended a CEFP meeting.

Met Prime Minister Vanhanen of Finland, followed by a joint press

Hosted a dinner party.

Returned to his official residence.


© 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>>


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>>


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>>


  • Pacific.Scoop
  • Cafe Pacific
  • PMC