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Cablegate: Japanese Morning Press Highlights 07/02/08

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UNCLAS SECTION 01 OF 10 TOKYO 001808

SIPDIS

DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA;
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION;
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE;
SECDEF FOR JCS-J-5/JAPAN,
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR;
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA

SUBJECT: JAPANESE MORNING PRESS HIGHLIGHTS 07/02/08

Index:

1) Top headlines
2) Editorials
3) Prime Minister's daily schedule (Nikkei)

North Korea problem:
4) Presidential candidates Obama, McCain's policies toward North
Korea: Obama favors direct dialogue; McCain looks to cooperation
with Japan, South Korea (Sankei)
5) UN Secretary General Ban asks Japan to provide food aid to North
Korea (Mainichi)

G-8 Summit:
6) G-8 Summit leaders will line up on checking China's nuclear
expansion (Nikkei)
7) Chinese President Hu to join the G-8 Summit meeting (Mainichi)

8) Cover up of GSDF officer's loss of memory chip with U.S.-Japan
training charts? (Mainichi)

Economy:
9) Bank of Japan's Tankan survey of business opinion shows pessimism
about economy for three months in a row, sign of Japan possibly
entering recession (Mainichi)

10) Five economists read economic tea leaves to see slump coming,
trouble especially in jobs and capital investment (Asahi)
11) LDP tax council wants to speed up tax reform, raise consumption
tax, but encountering many hurdles (Nikkei)

12) Ruling camp drafts bill that would ban the dispatch of day
laborers in principle (Asahi)

Political merry go round:
13) Prime Minister Fukuda, former Prime Minister Mori meet to
exchange views on cabinet shuffle (Sankei)
14) Former Kochi-governor Hashimoto plans to form new party before
next Lower House election in order to serve as catalyst for
political realignment (Sankei)
15) DPJ President Ozawa concludes nationwide stumping tour in Akita
Prefecture (Sankei)

Articles:

1) TOP HEADLINES

Asahi:
Labor Ministry to submit to extra Diet session bill prohibiting
dispatch of day workers

Mainichi:
Hokkaido Regional Development Bureau to be dismantled

Yomiuri:
Supreme Court urges new psychiatric testing rules

Nikkei:
Showa Shell to build one of world's largest solar cell facilities in
2011

Sankei:

TOKYO 00001808 002 OF 010


Tokushima Police to investigate mislabeled eel scam tomorrow

Tokyo Shimbun:
World Ocean Farm executives to be arrested on charges of fraud

Akahata:
JCP requests government to support farmers, fishermen

2) EDITORIALS

Asahi:
(1) Economy: Preventing a severe recession
(2) Education basic plan: Bold investment needed to improve academic
standards

Mainichi:
(1) Japan Pension Corporation: Pension system reform at critical
stage
(2) Strengthening of authority of National Archives of Japan:
Thorough information disclosure urged

Yomiuri:
(1) SDF dispatch to Sudan: How to expand scope of SDF's peacekeeping
activities
(2) Tankan: Possibility of recession moving closer to reality

Nikkei:
(1) Strength of Japanese economy and corporations being tested
(2) Enthusiasm for Japan becoming education-oriented country cannot
be felt in education promotion plan

Sankei:
(1) SDF dispatch to Sudan: Government must review unreasonable
principles on SDF overseas dispatch
(2) Yamada Denki: Forcing subcontractors to provide free labor
outrageous

Tokyo Shimbun:
(1) Rising food prices a warning signal to family budgets
(2) Education plan one only in name

Akahata:
(1) Class-action suit seeking recognition as sufferers of A-bomb
diseases: Government must settle matter comprehensively

3) Prime Minister's Official Residence (Kantei)

Prime Minister's schedule, July 1

NIKKEI (Page 2) (Full)
July 2, 2008

09:18
Met with Secretary General Ibuki at the party headquarters. Then
attended executive meeting.

10:01
Cabinet meeting at the Kantei. Then met with Chief Cabinet Secretary
Machimura and Deputy Chief Cabinet Secretary Futahashi, followed by
Deputy Foreign Minister Kono.

11:06

TOKYO 00001808 003 OF 010


Met with Policy Research Council Chairman Tanigaki and Deputy
Chairman Sonoda, followed by Machimura and Futahashi. Then met with
former Prime Minister Mori and Tokyo Governor Ishihara.

12:53
Met with Mori at Nagata-cho Sogo Building.

13:29
Met with outgoing and incoming Cabinet Office Vice Ministers
Yamamoto and Uchida.

14:31
Met with State Minister for Control of Archive Kamikawa and Ozaki,
chairman of the expert council to discuss the way to control
archive.

15:13
Met with outgoing and incoming Jiji Press President Nakata and
Wakabayashi. Then met with Vice Finance Minister for International
Financial Affairs Shinohara.

16:11
Met with State Minister for Consumer Affairs Kishida.

17:06
Met with METI Commerce and Information Policy Bureau Okada.

17:47
Met with Machimura and Futahashi.

18:35
Deputy Foreign Minister Sasae.

19:50
Arrived at the official residence.

4) Next U.S. president's policy toward N. Korea: Obama wants direct
dialogue, McCain eyes cooperation with Japan, S. Korea

SANKEI (Page 5) (Abridged)
July 2, 2008

WASHINGTON-North Korea has now declared its nuclear programs.
However, it is almost impossible to settle the issue of North
Korea's nuclear development before U.S. President Bush leaves office
in January next year. All eyes are therefore on the North Korea
policies of the two presumptive nominees: Republican Sen. McCain and
Democratic Sen. Obama. Both stress the importance of verifying North
Korea's declaration. However, Obama is attaching importance to
direct dialogue with North Korea, while McCain is focusing on
cooperation with Japan and South Korea.

On June 26, North Korea submitted its nuclear declaration. "We will
have to be very careful about whether they are making efforts to
resolve Japanese and South Korean concerns," McCain told reporters
that day.

McCain released a statement that day in which he said he would
consider South Korean and Japanese concerns. In addition, McCain
made public his foreign policy in the December 2007 issue of Foreign
Affairs and suggested the need to consider the issue of Japanese
nationals abducted to North Korea, as well as the nuclear issue. As

TOKYO 00001808 004 OF 010


seen from this stance, McCain remains committed to keeping in touch
with Japan and South Korea.

Meanwhile, Obama, appearing on a Fox-TV program aired on June 26,
said North Korea's nuclear declaration was a "positive" move, adding
that it shows that things are attainable through direct talks even
with an enemy. Obama has also indicated that he would make positive
efforts for dialogue with the leaders of North Korea, Iran, and
other anti-U.S. countries as well. He seems to believe that North
Korea's nuclear declaration is a consequence of the Bush
administration's policy changeover to direct dialogue.

Obama also released a statement that day focusing on the nuclear
issue. In his statement, Obama took up an incident in which a South
Korean clergyman in Obama's home state of Illinois was abducted to
North Korea. Concerning this incident, Obama and his congressional
colleagues from Illinois sent a letter to the North Korean
ambassador to the United Nations, writing that they would oppose
delisting North Korea as a state sponsor of terrorism unless
Pyongyang provides information about the abducted clergyman's fate.
In his statement, however, Obama did not refer to this.

5) UN secretary general urges Japan to participate in multilateral
provision of food aid to North Korea

MAINICHI (Page 2) (Full)
July 2, 2008

Visiting United Nations Secretary General Ban Ki Moon, in a lecture
yesterday sponsored by the Japan Institute for International
Affairs, referred to the United States having resumed the provision
of rice to North Korea through the UN World Food Program (WFP). He
then said: "I hope Japan will consider providing (aid) in a positive
manner."

Even after Pyongyang presented a list of its nuclear programs on
June 26, Japan has taken a cautious stance toward resuming aid to
the DPRK since no progress has been made on the abduction issue. UN
Secretary General Ban stated that he would cooperate with Japan's
efforts to resolve the abduction issue, while showing his
understanding for Japan's position. Ban, however, requested Tokyo to
provide aid to Pyongyang on humanitarian grounds, pointing that
North Korea is facing a serious shortage of food due to a long
drought.

Ban left yesterday for Beijing where he will meet today with Chinese
President Hu Jintao.

6) G-8 leaders to take action to press China to refrain from
expanding nuclear arms, to strengthen nuclear nonproliferation
regime

NIKKEI (Page 2) (Full)
July 2, 2008

The Group of Eight (G-8) leaders will take action in the upcoming
Lake Toya Summit to strengthen the WMD nonproliferation regime with
the aim of reducing the dangers from terrorism, as well as of
ratcheting up international pressure on North Korea and Iran, both
of which have nuclear programs. The leaders will also specify (in a
joint statement) the need to promote nuclear disarmament in order to
press China to refrain from accelerating its efforts to modernize

TOKYO 00001808 005 OF 010


its nuclear arsenal.

The first aim of strengthening the nuclear nonproliferation regime
is to prevent terrorism using nuclear, biological, and chemical
weapons. The G-8 leaders have judged it necessary to present a new
proposal based on the judgment that the threat of terrorism is a
reality since the terrorist attacks on the U.S.

Japan, as the chair of the Lake Toya Summit, also expects that a
reinforced nuclear nonproliferation system will work to apply
pressure on North Korea to abandon its nuclear program, according to
a government source.

The leaders also intend to insert in their statement "transparent
nuclear disarmament" as one of the goals of the G-8 Summit. Among
the G-8 members, the U.S., Britain, France, and Russia - nuclear
weapons states - have addressed the task of reducing nuclear weapons
since the Cold War ended. The insertion of the wording despite their
ongoing efforts is "intended to send a strong message to China,
which has reinforced its nuclear capability in defiance of their
efforts," a diplomatic source involved in the Lake Toya summit
said.

7) Chinese President Hu to attend G-8 Summit

MAINICHI (Page 2) (Full)
July 2, 2008

Takeji Matsuura, Beijing

The Chinese Foreign Ministry announced yesterday that President Hu
Jintao will participate in the Group of Eight Hokkaido Toyako Summit
to be held on July 7-9. This will be President Hu's second visit to
Japan, following one in May. He is also expected to meet with Prime
Minister Yasuo Fukuda.

8) GSDF decided from the beginning to cover up data loss

MAINICHI (Page 31) (Abridged)
July 2, 2008

The Ground Self-Defense Force lost a USB memory device containing
data on its command post exercise (CPX) with the U.S. Army. In this
incident, GSDF brass officers at the GSDF's Middle Army
headquarters, located in Hyogo Prefecture's Itami City, and GSDF
Ground Staff Office leaders decided to cover up the loss of the
data, reasoning that it would be dangerous should the loss become
known to an adversarial force or a potential enemy. The GSDF also
decided that the lost data was in the category of "chui" or "handle
with care," which is less important than "boei himitsu" or "defense
secret." With these reasons that suited its convenience, the GSDF
decided to conceal the incident.

In February 2007, a GSDF lieutenant colonel who was posted to the
intelligence section of the GSDF Middle Army's headquarters borrowed
the USB memory device that contained such data as a plan for a CPX
drill codenamed "YAMA SAKURA 51." The lieutenant colonel let a
master sergeant use the USB device. This master sergeant was one of
the lieutenant colonel's subordinates in the intelligence section.
The USB device went missing then.

According to informed sources, the GSDF's Middle Army headquarters

TOKYO 00001808 006 OF 010


at that time mulled whether to make public its loss of the device.
Eventually, the Middle Army brass created a document listing
contradictory reasons. One of the reasons was: "The lost data is
only 'handle-with-care' information that is lower in importance than
defense secrets (which must be reported to the defense minister and
are classified into three categories as "tokubetsu boei himitsu" or
special defense secret, "boei himitsu" or defense secret, and
"shohi" or Defense Ministry secret)." Another reason cited in the
document was: "It would be dangerous should the loss of the data
become known to an adversarial force and should the lost data get
into their hands." This documentation was supported by the then
commanding general of the GSDF's Middle Army, Ryoichi Oriki, who is
currently in the post of GSDF Chief of Staff, and also by the GSDF
Ground Staff Officer leadership. As a result, the incident was not
reported to the then defense minister, Fumio Kyuma, or to the United
States.

The term "adversarial force," normally from a military aspect, means
an opponent or enemy that needs to be organizationally encountered.
Today, North Korea and terrorists are in this category. In some
cases, however, this category includes left-wing organizations,
civic groups, and mass media as entities that may affect the
Self-Defense Forces' morale and discipline and may consequently
benefit the enemy.

9) Recession becoming reality: Business confidence worsens,
according to BOJ "tankan" survey; Cost-cutting efforts reaching
limit

MAINICHI (Page 9) (Excerpts)
July 2, 2008

The Bank of Japan (BOJ) on July 1 released the June Short-Term
Economic Survey of Enterprises ("tankan" survey), reporting that the
diffusion index (DI) of major manufacturers worsened for the third
consecutive quarter, indicating an end to the expansion that has
been underway since February 2002. The sharp rise in the prices of
natural resources throughout the world has dampened business
sentiment, putting a dent on earnings of manufacturers, which have
served as an economic engine. The soaring prices of daily goods are
working as a drag on consumption. The longest economic expansion in
the postwar period is now at a major turning point.

The DI of automakers, who have been playing a key role in expanding
the economy, in the June survey plummeted 18 points from the
previous survey in March to plus-15. Sluggish sales in the U.S.
market and the sharp rise in the prices of raw materials are dealing
a blow. Stagnant sales of large cars in the U.S. are a major blow to
the industry. Toyota Motor in May decided to reduce production at
its Indian plant. Nissan Motors and Mitsubishi Motors are also
pressing ahead with a plan to reduce production in the U.S.

10) Interview with five economists: Sagging employment, capital
investment

ASAHI (Page 10) (Abridged slightly)
July 2, 2008

The Short-Term Economic Survey of Enterprises or Tankan survey has
found that the diffusion index (ID) of major manufacturers industry
has deteriorated for the third consecutive quarter, plunging to the
lowest level since 2001 after the collapse of the IT bubble economy.

TOKYO 00001808 007 OF 010


With soaring crude-oil prices casting a pall over corporate
earnings, the outlook for their current earnings for fiscal 2008 is
a decrease of 9.9 PERCENT , down for the first time in seven
quarters. The domestic economy, as an engine of growth, is on the
verge of losing steam.

The survey estimates an increased profit for small, medium and large
companies in all industries for the second half of fiscal 2008.
However, Hideo Kumano at the Dai-ichi Life Insurance Economic
Research Institute is skeptical about an optimistic outlook, saying,
"A scenario of predicting a recovery in the second half of the year
may be just for the sake of balancing forecasts. Grounds for the
calculations are unclear."

Signs of deterioration have appeared on the employment front. The DI
on employment conditions, which indicates corporate views regarding
whether they have surplus employees or they are understaffed, marked
a negative 5 among major manufacturers, the same level as recorded
in Dec. 2006.

The new graduate recruitment plans of all industries for fiscal 2009
dropped 1.3 PERCENT , compared with the previous year. This is the
first drop since 2005, when the recruitment of new graduates for the
next fiscal year first became subject to the tally. Some industries
are increasingly feeling that they have surplus employees, as can be
seen in the fact that a number of second-tier companies among
general construction contactors, who have been hit by sluggish sales
of condominiums, are now recruiting those who wish to retire early.

The total amount of salaries paid in cash in May increased only 0.2
PERCENT , compared with the same month year earlier. A significant
increase in summer bonuses cannot be expected. Yasuya Ueno, a chief
market economist at Mizuho Securities, projected: "The downward
pressure on corporate earnings will be reflected in individual
consumption in the form of reduced bonuses. The employment situation
will first deteriorate among small and mediums-size businesses."

Capital investment is estimated to fall 1.4 PERCENT from the
previous year's level among small, medium and large companies in all
industries. Though the figure has been revised upward from the
result of a survey conducted in March, some take the view that there
is the possibility of capital spending remaining in the negative
territory even after the current fiscal year is over, as Ueno said.
Hidehiko Fujii, a chief economist at the Japan Research Institute,
views that the economy has already entered a recessionary phase.

On the other hand, Tomihide Kiuchi, chief of the Economic Research
Department at the Nomura Securities Financial and Economic Research
Center, takes an optimistic stance: "The number of companies that
feel they are understaffed has decreased. However, the pace of the
decrease is moderate, compared with the pace seen in the past
recessionary phases. If exports pick up toward the second half of
the year, a significant correction phase would not occur."

11) LDP tax panel starts discussion on tax reform, with many hurdles
standing in way of consumption tax hike

NIKKEI (Page 2) (Excerpts)
July 2, 2008

The Liberal Democratic Party's Tax System Research Commission,
chaired by Yuji Tsushima, held a general meeting at party

TOKYO 00001808 008 OF 010


headquarters yesterday and started discussions on bold tax reform in
FY2009 earlier than usual. The panel will discuss measures to move
the special tax revenues for highway construction and maintenance to
the general budget, to create an environment tax, as well as to hike
the cigarette tax and the consumption tax. Senior members of the
panel are positive about tax hikes, but many in the ruling camp are
calling for caution.

In a press conference after the general meeting, Kaoru Yosano,
chairman of a subcommittee, indicated that the panel will discuss
hiking the consumption tax, remarking: "The drastic tax reform will
involve all major taxes, including the corporate, income,
consumption and all other taxes." Tsushima also stressed: "The
dominant view is that it is necessary (for the government) to
respond to the people's call for increased social security
payments."

In reference to a plan to raise the national government's share of
basic pension benefits, which would require approximately 2.3
trillion yen annually, Tsushima indicated a willingness to finance
the plan with increased tax revenues by raising taxes.

The environment surrounding the LDP tax panel, however, remains
severe. Prime Minister Yasuo Fukuda said in June: "Now it is an
important time to make a decision," but he had to say less than one
week later: "We would like to consider the issue in two to three
years." Fukuda told reporters yesterday: "I will make a judgment
while taking various elements into consideration. I offered a rough
timeframe." Hearing this remark, many LDP members have concluded
that the tax will not be raised next fiscal year.

In the LDP, former Secretary General Hidenao Nakagawa and others who
give priority to buoying up the economy are negative about a
consumption tax hike. They insist that the government should take
such measures as reducing expenditures, increasing tax revenues
through economic growth, and use the so-called "buried money" like
surplus funds in special accounts to cover the increased social
security payments. New Komeito President Akihiro Ota also said in a
press conference yesterday: "Our basic stance is that we are very
cautious (about an increase in the consumption tax)."

12) Ruling camp agrees to ban dispatch of day workers in principle,
to submit bill amending Worker Dispatch Law to extraordinary Diet
session

ASAHI (Top Play) (Excerpts)
July 2, 2008

"The Project Team on New Employment Measures" composed of members of
the Liberal Democratic Party and the New Komeito and chaired by
former Health, Labor and Welfare Minister Jiro Kawasaki yesterday
finalized a package of proposals that includes a ban on dispatching
day workers in principle. The Ministry of Health, Labor and Welfare
(MHLW) will draw up a bill amending the Worker Dispatch Law based on
the proposals and will submit it to the extraordinary Diet session
in the fall. The trend of easing regulations on the temp staffing
system had continued since the said law was enacted in 1986, but
that trend is about to turn around.

In a meeting of senior panel members yesterday, agreement was
reached to (1) ban in principle the dispatch of day workers,
excluding services that require high expertise, such as

TOKYO 00001808 009 OF 010


interpretation; (2) obligate staffing agencies to disclose how much
they take as margins; and (3) strengthen regulations on dispatching
workers to specified companies. Based on these measures, the panel
will formally adopt a ruling party plan.

Regarding unstable daily employment, which is criticized as a
breeding ground for creating working poor, if all types of job are
banned, employment opportunities may decrease. Given this, the panel
will ask MHLW to decide which services should be excluded from the
ban, reflecting views at its study groups and in the business
world.

13) Fukuda holds meeting with Mori to discuss cabinet shuffle

SANKEI (Page 4) (Abridged slightly)
July 2, 2008

Prime Minister Yasuo Fukuda called on former Prime Minister Yoshiro
Mori at his Nagatacho, Tokyo, office yesterday afternoon, and the
two exchanged views on the G-8 Lake Toya summit that will open on
July 7. They also seem to have exchanged views on future management
of the Fukuda administration, including a possible cabinet shuffle
after the summit.

After his meeting with Fukuda, Mori delivered a speech in Sendai
City yesterday evening in which he said this about the next Lower
House election: "We have a two-thirds majority (in the Lower House
that can override the Upper House's decision). There is no need to
dissolve the lower chamber when we are certain to lose the next
election. Lower House dissolution can wait until September next
year. If the LDP loses a Lower House election, it will become an
opposition party and its administration will collapse. I served as
secretary general of an opposition party for 11 months, and it was a
miserable experience."

Fukuda has held meetings with former prime ministers. He had a
telephone conversation with Junichiro Koizumi on June 30. Fukuda is
also scheduled to exchange views with Shinzo Abe on July 2.

14) Daijiro Hashimoto to launch new party before next Lower House
election in attempt to trigger political realignment

SANKEI (Page 5) (Excerpts)
July 2, 2008

Former Kochi Governor Daijiro Hashimoto, 61, who is preparing to run
in the next Lower House election in the Kochi Constituency No. 1 as
an independent, held a press conference in Tokyo yesterday. He
announced that he will launch a new party before the next Lower
House election. In the event power is evenly divided between the
ruling and opposition camps as a result of the next Lower House
election, a Hashimoto party could have the deciding vote. Hashimoto
apparently aims to have his party trigger political realignment. He
stopped short of discussing any specific plans for his new party or
candidates.

Yesterday marked the third anniversary of the death of his brother,
former Prime Minister Ryutaro Hashimoto. The former governor
indicated that putting an end to bureaucracy-led politics would be
his party's slogan, saying: "Two years ago, a funeral service was
held for my brother at the Nippon Budokan Hall. There I heard my
brother's photograph saying to me, 'You have to pick up what I

TOKYO 00001808 010 OF 010


dropped.' I think he meant destroying the system of letting the
bureaucracy decide policy."

15) Ozawa winds up his nationwide tour for now

SANKEI (Page 4) (Excerpts)
July 2, 2008

With a visit to Akita Prefecture, Democratic Party of Japan
President Ichiro Ozawa wound up yesterday his nationwide political
tour that started before last year's Upper House election. The
purpose was to receive heavy local media attention and to strengthen
ties with local Rengo (Japanese Trade Union Confederation) chapters,
the party's base of election support. Ozawa, who is counting on
there being a Lower House dissolution for a snap general election
before the end of this year, also planned to make surprise visits to
constituencies where close contests are expected, with the aim of
encouraging prospective DPJ candidates.

Ozawa visited 14 prefectures from Hokkaido to Okinawa in about a
month from June 3.

Ozawa in a press conference in Akita City yesterday said: "My
nationwide tour has come to an end for now. Through this tour, I was
able to feel keenly (the people's) strong distrust, discontent, and
anger toward politics by the LDP and the New Komeito. I am now
certain that we will be able to win public support." Standing
besides Ozawa was Masashi Kudo, chairman of Rengo Akita.

Two events always took place throughout Ozawa's nationwide tour.

In the daytime, Ozawa always held a meeting with local Rengo
executives to exchange views. There he would give this pep talk: "It
is impossible for the LDP-New Komeito administration to postpone the
next Lower House election until September 2009 when the Lower House
lawmakers' term will expire. There is no doubt that the next general
election will take place between this fall and early next year."

The meeting was always followed by a party in the evening in which
Ozawa, while making a toast, politely thanked Rengo executives for
their support of the DPJ in election campaigns.

SCHIEFFER

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