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Cablegate: Japanese Morning Press Highlights 10/16/08

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UNCLAS SECTION 01 OF 10 TOKYO 002877

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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: JAPANESE MORNING PRESS HIGHLIGHTS 10/16/08

Index:

North Korea problem:
1) Rift between Japan and U.S. over North Korea policy following
delisting of DPRK as state sponsor of terrorism (Mainichi)
2) North Korea policy task force meets to affirm that top priority
will continue to be abduction issue and that no energy aid will be
provided to the DPRK (Mainichi)
3) Families of abductees call for even tougher sanctions against
North Korea (Mainichi)

4) Tensions increase between Japan, China over new case of poisoned
food imports (Tokyo Shimbun)

Election frenzy:
5) Challenged about his former commitment to an early Diet
dissolution, Prime Minister Aso responds that "the situation has
changed (Sankei)
6) LDP executives continue to talk about a November general election
(Sankei)
7) Democratic Party of Japan (DPJ) cooperating in the Diet expecting
the Lower House to be dissolved in late October for a snap election
(Yomiuri)
8) Ruling parties ready for a late November general election,
expecting the Prime Minister to make a timing decision by the end of
October (Nikkei)
9) LDP accused by the opposition lawmaker of being at the New
Komeito's "beck and call" (Nikkei)

DPJ in action:
10) DPJ head Ozawa announces that lawmaker Maeda, who took money
from crooked company, will leave the party and not run for
reelection (Asahi)
11) DPJ wanted to quickly put out the fire caused by the Maeda
scandal by dumping him from the party (Asahi)
12) DPJ approval was key to Yamaguchi having been selected as Bank
of Japan deputy governor (Asahi)

13) New stimulus package to center on tax cut that will be paid for
by tapping government's hidden reserve funds (Asahi)

Articles:

1) Rift remains between Japan, U.S. over Japan's intense opposition
to the removal of North Korea from the list of states sponsoring
terrorism

MAINICHI (Page 5) (Excerpts)
October 16, 2008

The government, in a meeting of its Abduction Issue Headquarters
yesterday, affirmed its policy course of not providing energy
assistance to North Korea. This decision reflected the government's
strong concern that with the U.S.' removal of the DPRK from the list
of state sponsors of terrorism, Japan's opportunity to resolve the
abduction issue will gradually slip away. However, with progress on
the nuclear front, pressure is mounting from Japan from the other
members of the six-party talks to provide aid to North Korea. Japan
has attached importance to cooperation with the United States at the
Six-Party Talks, but with strains arising over the delisting of
North Korea, the talks could turn severe for Japan, sandwiched in
between the abduction issue and pressure to provide energy aid.

TOKYO 00002877 002 OF 010

"Let's talk again about this," reminded Foreign Minister Nakasone to
Secretary of State Rice at the conclusion of their telephone
conversation on the night of Oct. 10. Foreign Minister Nakasone had
pointed out to Secretary Rice a number of problem areas in verifying
the nuclear-program report under the U.S.-North Korea agreement.
Reportedly, there had been no mention in the conversation about
agreement to remove North Korea from the terror blacklist.

However, Secretary Rice had already decided that conditions were
ready to remove the DRPK from the list. The name was removed without
Secretary Rice having made another phone call to Foreign Minister
Nakasone to persuade him on her decision.

Such treatment of Japan by Secretary Rice and others in the U.S.
government prompted a senior Foreign Ministry official to express
dissatisfaction: "It would have been better if there had been a more
respectful process." Prime Minister Aso, speaking in the Upper House
Budget Committee on Oct. 14, criticized the U.S.' handling of the
matter, saying, "We are displeased."

On the other hand, the Prime Minister told the press on the same
day, "It is important to hold Six-Party Talks to move talks on the
abductions forward." In order to press North Korea to improve its
relations with Japan, cooperation among the five countries in the
talks with North Korea is needed as leverage on the DPRK, and
cooperation of the U.S. is especially important. In the meeting of
the abduction headquarters, Foreign Minister Nakasone even pointed
out: "Although the U.S. has removed the name from the list, it has
various cards it can use against North Korea."

North Korea, too, is carefully watching Japan's moves. In the
Six-Party Talks agreement, it was decided that in return for
completion of the second phase of disabling its nuclear facility,
North Korea would receive assistance equivalent to 1 million tons of
heavy fuel. A North Korea spokesperson on the 12th sought to check
Japan by saying, "Five of the countries are about to provide
economic compensation."

2) Government's panel confirms priority to be given to resolution of
abduction issue over energy aid to North Korea

MAINICHI (Page 2) (Full)
October 16, 2008

The government's taskforce to address the issue of Japanese
nationals abducted by North Korea, headed by Prime Minister Taro
Aso, confirmed in its meeting at the Prime Minister's Official
Residence yesterday that Japan will not offer energy aid to North
Korea until progress is made on the abduction issue. The meeting was
intended to demonstrate the Aso administration's position of
continuing pressure on North Korea in the wake of the U.S. delisting
of that nation as a state sponsor of terrorism.

In the meeting, the panel adopted a policy plan on the abduction
issue that reaffirms the government's basic position of not
normalizing diplomatic relations with the North until the abduction
issue is resolved. The panel reconfirmed the need for strengthened
cooperation with the U.S., following its delisting decision. The
participants also agreed that the government should urge Pyongyang
to launch the reinvestigation of the abduction issue. Prime Minister
Aso said in a speech: "The (abduction) issue must be resolved

TOKYO 00002877 003 OF 010


promptly. We will demand that all abduction victims be brought back
to Japan as soon as possible."

The panel met yesterday for the first time since its first meeting
in October 2006 under the Abe administration. No meeting was called
under the former Fukuda administration. The meeting yesterday was
intended to confirm that the government is determined to continue
addressing the issue and maintains its basic policy.

3) Three groups affiliated with abduction issue call on government
to express determination, including tightened sanctions against
North Korea

MAINICHI (Page 2) (Full)
October 16, 2008

In reaction to the U.S. delisting of North Korea as a state sponsor
of terrorism, the Association of the Families of Victims Kidnapped
by North Korea, the National Association for the Rescuing of
Japanese Kidnapped by North Korea, and the group of Diet members
dealing with the abduction issue handed to Chief Cabinet Secretary
Takeo Kawamura a letter addressed to Prime Minister Aso. The letter
calls on the government to express its determination to resolve the
abduction issue by strengthening sanctions and other means.

Shigeo Iizuka, chairman of the families' association, visited the
Prime Minister's Official Residence with Takeo Hiranuma, chairman of
the parliamentary group, and others. He submitted the letter to
Kawamura, remarking: "The U.S. delisting decision greatly shocked
us. We are concerned that the abduction issue might enter a
difficult phase."

Kawamura told them: "I understand the family members' apprehension.
The government's policy of not taking part in energy aid (under the
six-party framework) without progress on the abduction issue remains
unchanged. We would like to make efforts to meet your desire."

4) Government to press China to clear up cause of tainted beans
incident

TOKYO SHIMBUN (Page 2) (Excerpts)
October 16, 2008

A housewife was sickened after eating green beans imported from
China. The beans were found to be tainted with extremely high
concentrations of pesticide. The Japanese government repeatedly
asked China yesterday to provide information and review its food
safety measures. If the government fails to get satisfactory results
from its efforts in investigation the incident and to prevent the
recurrence of a similar case, as was the poisoning cases triggered
by Chinese-made frozen dumplings, its crisis-management capability
might come under heavy fire. Fearing such a possibility, the
government is taking a tough stance toward the Chinese government
this time.

The Foreign Ministry asked the Chinese side through the Chinese
Embassy in Japan on the night of Oct. 14 to present information on
the management system and the production process in the manufacturer
of the products in question. It also made the same request to
Chinese authorities through the Japanese Embassy in Beijing
yesterday.


TOKYO 00002877 004 OF 010


Prime Minister Taro Aso told reporters at his official residence
last night: "Products made in China have caused damage in various
places. It is quite natural for China to (strengthen) its inspection
system." He indicated he would urge China to review its pre-shipment
inspection regime.

In the poisoning outbreak caused by tainted Chinese dumplings, the
Japanese government was criticized for its modest posture as
"weak-kneed" from both at home and abroad. Reflecting on this
experience, the government is taking a hard-line attitude.

In the dumpling scare, Japan concluded from the early stages that
the pesticide that contaminated frozen dumplings had gotten mixed
into the products in the manufacturing process in China. Despite
China's denial of Japan's assertion, though, the government avoided
clashing head-on with that nation.

This time, the government has taken a confrontational stance with
China from the beginning, based on the view that the products were
tainted with pesticide in China.

Even so, if Japan takes an overly tough approach, relations with
China, which were considerably in good shape under the Fukuda
administration, could become strained again. Even if the first
summit between Prime Minister Aso and his Chinese counterpart is
held on the sidelines of the Asia-Europe Meeting (ASEM) in Beijing
late this month, the two leaders might spar over the issue of food
safety.

5) Prime Minister Aso: Timing of Lower House dissolution changes
depending on situation

SANKEI (Page 5) (Full)
October 16, 2008

Asked about when he would dissolve the House of Representatives,
Prime Minister Taro Aso said yesterday at a House of Councillors
Budget Committee session:

"Before assuming the prime minister's post, I thought that
(successive prime ministers) had previously decided on the timing of
Lower House dissolution. However, after taking office, I now think
it is only natural that the timing of the dissolution changes,
depending on the situation."

It was first time for Aso to openly admit that he was previously
determined to dissolve the Lower House at the outset of the current
extraordinary Diet session. He indicated in an article contributed
to a monthly magazine that he had wanted to dissolve the Lower House
at the opening of the current extra session.

Hajime Ishii, vice president of the main opposition Democratic Party
of Japan (DPJ), strongly pursuing Aso on this, indicated that his
party might submit a no-confidence motion against the prime
minister, saying: "Since you can't carry out (dissolution), you
should not have said anything." Aso then said: "It is only natural
for me to dissolve the Lower House when it is necessary. I will be
the one to decide it."

Asked about the completion of a second additional economic stimulus
package and fixed amount tax cut policy, Aso stated: "I cannot tell
before seeing how the Diet schedule will be pushed forward, as well

TOKYO 00002877 005 OF 010


as the development of discussions on the tax system (in the ruling
camp late this year)." Kaoru Yosano, state minister in charge of
economic and fiscal policy, gave this outlook: "There probably won't
be enough time by the end of the session to reach a conclusion and
ask the Diet (to hold deliberations)."

6) Senior LDP officials voice one after other possibility of general
election in November

SANKEI (Page 5) (Full)
October 16, 2008

Liberal Democratic Party (LDP) Secretary General Hiroyuki Hosoda
last night gave a speech at a party hosted by a LDP lawmaker in a
Tokyo hotel. In it, Hosoda hinted at the possibility of a general
election for the House of Representatives taking place in November.
He said: "I have said that a snap election is just around the
corner. I think it will be held soon."

Former Chief Cabinet Secretary Nobutaka Machimura said at the same
party: "There is a mood that an election without doubt will be
conducted in the middle or late November." LDP General Council
Chairman Takashi Sasagawa predicted that the election would be held
in mid-November or on Dec. 7. He added: "After asking for the
people's vote of confidence, I would like to celebrate the New Year
with a sense of renewal."

7) DPJ to cooperate with ruling camp with eye on Lower House
dissolution in end of October

YOMIURI (Page 4) (Full)
October 16, 2008

Prime Minister Taro Aso has strengthened moves with an eye on the
dissolution of the House of Representatives late this month. The
Democratic Party of Japan (DPJ), the largest opposition party, which
has urged the prime minister to dissolve the Lower House as early as
possible, appears to be cooperating with the ruling coalition on
such pending issues as the appointment of Bank of Japan deputy
governor. A senior ruling coalition member said: "It seems the Lower
House will be dissolved through talks." The DPJ, however, has
remained reluctant to hold party-heads debate (between Aso and DPJ
President Ichiro Ozawa), which is a precondition for Aso to dissolve
the Lower House.

The government presented yesterday to the Diet the nomination of
Bank of Japan Executive Director Hirohide Yamaguchi as BOJ deputy
governor, a post which has long been vacant. The expectation is that
the nomination of Yamaguchi will be approved in the plenary sessions
of the two chambers of the Diet on Oct. 24, since the DPJ will
likely approve. The LDP and DPJ also agreed yesterday to take a vote
on the fiscal 2008 supplementary budget bill on Oct. 16.

The largest opposition party seems to be supporting the prime
minister's pump-priming package to stabilize the financial market.
One senior ruling coalition official pointed out: "We are moving
forward with Lower House dissolution late this month through
discussions."

Aso will attend the summit of the Asia-Europe Meeting (ASEM), which
will take place on Oct. 24-25. He then plans to deliver an outdoor
speech on the 26th in Akihabara, Tokyo, for the first time since

TOKYO 00002877 006 OF 010


taking office. A bill amending the new Antiterrorism Special
Measurers Law will likely clear the Diet as early as the 29th.
Therefore, there is a view that the Lower Hose may be dissolved on
the 29th or 30th. If that is the case, the outlook is that the
official campaign for the election will start on Nov. 18 and the
election will be held on Nov. 30.

Aso wants to hold party-heads debate with Ozawa before he dissolves
the Lower House. In an Upper House Budget Committee session on Oct.
15, he stressed: "I would like to hold party-heads debate on
economic stimulus measures."

A senior LDP official said:

"In various polls, many people said that Aso would be more suitable
to be prime minister than Ozawa. Whether the prime minister can
bring about the paradigm of confrontation (with Ozawa) holds the key
to victory in the election."

Aso's aide remarked:

"Since an additional economic package will be compiled on the 27th,
the prime minister will ask Ozawa whether he can approve or not in a
party-heads debate on the 29th. If he rejects it, the prime minister
will be able to dissolve the Lower House after criticizing
(Ozawa)."

The DPJ has not yet responded to the holding of party-heads debate.
Some in the ruling camp, however, view that the party-heads debate
will trigger Lower House dissolution.

8) Ruling bloc gearing up for Lower House election in late November;
Prime minister to make decision by end of Oct. while monitoring
economy and other factors

NIKKEI (Page 2) (Abridged slightly)
October 16, 2008

The ruling bloc has been gearing up for the next Lower House
lection, envisaging it will take place in late November. If
prospects are obtained for the enactment of important bills in late
October and the Lower House is dissolved as a result, the prevailing
view is that the official campaign for the election will kick off on
Nov. 18 and the voting will take place on Nov. 30. But cautious
views are strong in the Liberal Democratic Party which is expected
to face an uphill battle. Prime Minister Taro Aso will make a final
decision in view of the economic situation and other factors.

LDP Secretary General Hiroyuki Hosoda in a fundraising party, held
by an LDP lawmaker in Tokyo last night, said: "I have repeatedly
indicated that the next election is near at hand. I think there will
be the general election quite soon." Former Chief Cabinet Secretary
Nobutaka Machimura, who was also present, commented: "In light of
the current trend, there is no doubt that (the Lower House election)
will take place sometime between mid- to late November." An LDP
executive has taken Hosoda's comment as a message to the party to
expedite preparations for the election. The executive said, "The DPJ
has done a lot of preparations."

Election on Nov. 30 is predominant view

The ruling an opposition camps have decided to enact a fiscal 2008

TOKYO 00002877 007 OF 010


supplementary budget bill today. Following this, a bill extending
the Indian Ocean refueling legislation and a bill amending the
Financial Function Early Strengthening Law are also expected to
clear the Diet later this month. Prime Minister Aso is scheduled to
attend the Asia-Europe Meeting (ASEM) to be held in Beijing on Oct.
24-25. The stage will be set for Aso to dissolve the Lower House
after drawing up an additional economic stimulus package.

An LDP executive yesterday ordered his prefectural assembly to step
up efforts for the election, saying: "The Lower House will be
dissolved on Oct. 30. Chances are high that the election will take
place on Nov. 30." Another LDP lawmaker also told a prefectural
assemblyman that the prime minister would dissolve the Diet after
returning from Beijing.

The New Komeito and its powerful support organization Soka Gakkai,
which have been pressing the prime minister for early Lower House
dissolution, also think an election on Nov. 30 is quite possible. A
mid-level LDP lawmaker took this view: "The New Komeito has staged a
fierce fight-back by joining hands with LDP members comfortable with
the next election."

Starting on Oct. 17, the day after the supplementary budget clears
the Diet, the LDP plans to run a TV commercial playing up the prime
minister's strong resolve to come up with additional pump-priming
measures. The party has also begun making preparations for policy
pamphlets in six areas: the economy, antiterrorism measures,
consumers, agriculture, criticism of the DPJ, and urban policy.

If the Diet is dissolved immediately after ASEM, voting on Nov. 16
is possible, but the timetable is too tight for it. The APEC, which
the prime minister is eager to attend, is scheduled for Nov. 23 in
Peru. In view of year-end budget compilation, Nov. 30 seems the last
day available.

A prime ministerial aide said: "The prime minister still has the
desire to dissolve the Lower House at an early date." The DPJ's
basic policy is to return to its confrontational stance if the prime
minister continues to postpone Lower House dissolution. There is a
view in the LDP that the ruling bloc will not be able to overcome
difficulties under the divided Diet unless the two ruling parties
achieve a victory in the next election to reflect popular will.

Support ratings also in focus

The prime minister has to clear high hurdles before dissolving the
Lower House at an early date. If stock prices continue to plunge and
the economy deteriorates due to the worldwide financial crisis,
pessimism might grip the LDP, with many saying that the situation
does not allow Diet dissolution. Many uncertainties, including the
future of cabinet support ratings, might force the prime minister to
give up dissolving the Diet before year's end.

It would be difficult to opt for sometime between January and March
when a fiscal 2009 budget bill will be discussed at the Diet. Once
November is passed up, the election might not occur until next
spring or later.

In yesterday's Upper House Budget Committee session, DPJ lawmaker
Hajime Ishii, while citing the prime minister's contribution to a
monthly magazine, asked Aso: "Your article says that the Lower House
will be dissolved at the beginning of the extraordinary Diet

TOKYO 00002877 008 OF 010


session. You should either retract what is stated there or dissolve
the Diet." In response, the prime minister said firmly: "I have no
intention of retracting it. I will decide on when to dissolve the
Lower House."

9) DPJ's Ishii in Upper House Budget Committee session charges LDP
with being at New Komeito's beck and call

NIKKEI (Page 2) (Full)
October 16, 2008

In yesterday's Upper House Budget Committee session, Democratic
Party of Japan Vice President Hajime Ishii, with the New Komeito's
powerful support organization Soka Gakkai in mind, said in a
critical tone: "There is no distinction between religion, politics,
and election campaigns." Ishii's questions on Prime Minister Taro
Aso's stance over the separation of religion and state and other
matters often disrupted the session.

Ishii said: "The LDP cannot maintain the administration without New
Komeito votes. The party has been at the New Komeito's beck and
call." Ishii also called for the summoning of former Komeito heads
Junya Yano and Yoshikatsu Takeiri and Soka Gakkai Honorary Chairman
Daisaku Ikeda as unsworn witnesses. The prime minister rejected the
call, saying: "The Diet should not summon private citizens who are
not lawmakers in an easygoing manner."

New Komeito Policy Research Council Chairman Natsuo Yamaguchi, who
took the floor following Ishii, also rebutted: "This Budget
Committee session is tasked to discuss the supplementary budget.
Questions irrelevant to the budget should not be raised."

10) Ozawa announces that DPJ's Maeda will not run in next Lower
House election

ASAHI (Page 1) (Excerpts)
October 16, 2008

Democratic Party of Japan President Ichiro Ozawa held a hastily
arranged press conference at party headquarters shortly after noon
yesterday regarding DPJ Lower House member Yukichi Maeda. Maeda,
representing the Tokai bloc under the proportional representation
system, has received large sums of money from pyramid scheme
operators and asked questions at the Diet supportive of such
operators. In the press conference, Ozawa announced that Maeda had
informed the party that he would decline the party's endorsement for
the next general election, that he would not run in the next race,
and that he would like to leave the party.

Ozawa said that he had learned of such an intention of Maeda when he
met him in Tokyo on the night of Oct. 15. Ozawa also interviewed
Maeda for about two hours on Oct. 14. Ozawa explained at the news
conference: "We have accepted his proposal in view of the latest
scandal and the situation today."

Maeda, who is from Aichi Prefecture, is now in his third term. He
served as secretary general of Isshin-kai, a policy group in the DPJ
supporting Ozawa. He is on the list of candidates for the next Lower
House election, announced on Sept. 12 by the DPJ as the first group.
In place of Maeda, the DPJ plans to field Inuyama Mayor Yoshihiro
Ishida, 63, for Aichi Constituency No. 6.


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11) DPJ hastily settles scandal caused by Yukichi Maeda to stave off
possible impact on upcoming general election

ASAHI (Page 4) (Excerpts)
October 16, 2008

DPJ President Ozawa himself moved to settle the issue of a political
fund donation by a multilevel marketing company involving Lower
House member Yukichi Maeda, a DPJ member. He has determined that
dismissing the scandal caused by one of his aides, who once served
as the executive director of the group of mid-ranking and junior
lawmakers, would inevitably deal a blow to the party in the upcoming
general election. He tried to put an end to the matter, holding an
emergency press conference in the predawn hours.

Maeda on the afternoon of October 15, immediately before he conveyed
his decision to leave the DPJ and relinquish the party endorsement
for the next Lower House election, announced his intention to
continue his political activities, declaring, "I have nothing to
hide." However, after directly hearing the circumstances from Maeda
on the 14th and the 15th, Ozawa reportedly told Maeda that he should
seek an early settlement of the matter, saying, "You lack a sense of
crisis."

The Diet members caucus of the party, backed by industry circles,
was once headed by Diet Affairs Committee Chairman Kenji Yamaoka,
who is seeking a key party post. There has been a growing concern
that the matter would hurt the image of the party with scenes of
Yamaoka giving a speech on the multilevel marketing system posted on
the Internet and aired on TV.

12) Government taps Yamaguchi for BOJ deputy governor post,
attaching importance to securing DPJ's approval

ASAHI (Page 4) (Abridged slightly)
October 16, 2008

Bank of Japan (BOJ) Executive Director Hirohide Yamaguchi will
likely take up one of the central bank's two deputy governorships, a
post that has remained vacant since April. The selection of BOJ
executives was jerked about by the DPJ during the previous Fukuda
administration. However, under the Aso administration, the selection
of a deputy governor has been smoothly settled. It appears that the
ruling and opposition camps fell in step in order to deal with the
global financial crisis. Behind-the-scenes coordination of views
also proved to be effective.

In presenting the name of a candidate for BOJ deputy governor, Aso
on the evening of October 15 told reporters at the Kantei, "I made
the decision before the G7." One of the aides to the prime minister
revealed, "The prime minister made the decision, based not on the
person but on principles." In order to fill the deputy governor's
post, and send out a message of the government's determination to
stabilize the financial market amid the crisis, top priority had to
be given to selecting a person who could secure the DPJ's approval.

The prime minister made efforts to secretly feel out the wishes of
DPJ President Ozawa so that he would not repeat the Fukuda
administration's mistake. Ordered by the prime minister, State
Minister for Economic and Fiscal Policy Yosano made contact with
former Finance Minister Hirohisa Fujii of the DPJ, with whom he is
on friendly terms. He asked him about the conditions for Ozawa's

TOKYO 00002877 010 OF 010


agreement. They agreed that neither a former finance ministry
official nor a scholar should be nominated.

All the prime minister cared about was to meet conditions with which
the DPJ's approval could be obtained. He did not mind leaving the
actual selection of a person to the BOJ. He told reporters on the
evening of the 14th, the day before the presentation of the name of
a nominee to the Diet, "I am not getting involved in the selection
of a candidate for deputy governor this time."

The government on the 15th presented 27 personnel appointment
proposals for a total of eight government agencies, including the
name of a nominee for the BOJ deputy governorship. The ruling
parties plan to hear Yamaguchi's policy both in the Lower and Upper
Houses on the 21st and obtain approval at plenary sessions of both
Houses before the end of next week. Weakening its confrontational
stance, the DPJ is now indicating a cooperative stance to passage of
bills with an eye on the upcoming dissolution of the Lower House and
a snap election. The ruling parties want to take advantage of this
situation. The fiscal 2008 supplementary budget bill, the greatest
challenge in the current Diet session, is expected to be enacted on
the 16th. The bill extending the law governing the MSDF refueling
operation in the Indian Ocean will also likely be enacted later in
the month.

13) LDP, New Komeito mulling use of hidden reserves worth 3 trillion
yen in special budget account for fixed-sum tax cut

ASAHI (Top Play)
October 16, 2008

The ruling parties have started looking into using portions of
reserves set aside for interest-rate fluctuations in the special
fiscal investment and loan account to fund a fixed-sum tax cut,
which they characterize as the showcase of a new comprehensive
economic stimulus package. Surplus reserves from this fiscal year
stand at approximately 3 trillion yen. The ruling parties intend to
reallocate portions of that amount as so-called hidden funds
(maizoukin) to avoid an increase in the issuance of deficit-covering
government bonds.

However, this three trillion yen in funds is a resource basically
used to pay debts. Using this money to the fund a tax cut has a
strong flavor of making ends meet with an eye on the upcoming
general election. The use of this money will likely be targeted for
criticism as hidden borrowing (kakure-shakkin).

The fixed-sum tax cut deducts the same amount from the income tax
and the local tax regardless of tax payers' annual income. The
ruling parties have confirmed their policy of incorporating the tax
cut in the new economic stimulus package. Regarding the size of the
cut, the New Komeito, which is positive toward the idea, is
insisting on more than 65,000 yen for four-member families. This
will likely require funding resources worth over 2 trillion yen.

SCHIEFFER

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