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Cablegate: Japanese Morning Press Highlights 10/27/08

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UNCLAS SECTION 01 OF 12 TOKYO 002983

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 10/27/08

Index:

1) Nikkei poll: 5-point drop in Aso Cabinet support rate to 48
PERCENT , 3-point rise in non-support to 43 PERCENT , with 63
PERCENT of public wanting priority to economy over election
(Nikkei)

Defense and security affairs:
2) Government backing way for constitutional reason from initial
plan to dispatch GSDF helicopters to Afghanistan for rescue of
wounded soldiers (Tokyo Shimbun)
3) Democratic Party of Japan Secretary General Hatoyama hints at
change in party's tactic to confrontation on bill to continue MSDF
mission in Indian Ocean (Asahi)
4) Ospreys will be deployed to U.S. Marine base Futenma starting in
2012 (Akahata)

ASEM diplomacy:
5) Prime Minister Aso, attending ASEM in Beijing, laid out Japan's
policy agenda, including abduction issue (Tokyo Shimbun)
6) Aso meets Chinese leaders at ASEM, with both sides pledging
cooperation on pumping up the dollar (Tokyo Shimbun)
7) Text of Aso meetings with French, Italian leaders (Asahi)

8) With other countries making up for Japan's share of energy aid to
North Korea, Tokyo fear that it has no more cards to play in
abduction negotiations (Tokyo Shimbun)

Election issue:
9) Aso campaigns on streets of Tokyo's Akihabara district, stressing
Japan's responsibility to respond to financial crisis (Nikkei)
10) Prime Minister Aso tells ruling camp leaders that Diet
dissolution will be postponed (Nikkei)
11) LDP is split over timing of the Lower House election (Tokyo
Shimbun)
12) Ruling and opposition camps clashing in Diet on bills and issue
of Diet dissolution (Nikkei)

Economic crisis:
13) Government considering injection of 10 trillion yen in public
funds to stop financial panic (Nikkei)
14) Top three banks seeking to recapitalize, with Mitsubishi UFJ
aiming at 1 trillion yen (Mainichi)

Articles:

1) Nikkei opinion poll: Cabinet support rate drops to 48 PERCENT ,
with 63 PERCENT preferring economic stimulus package over holding
election

NIKKEI (Page 1) (Excerpt)
October 27, 2008

In an opinion poll carried out Oct. 24-25 by the Nihon Keizai
Shimbunsha and TV-Tokyo, the support rate for the cabinet of Prime
Minister Taro Aso was at 48 PERCENT , a drop of five points since a
spot poll in September right after the cabinet was inaugurated. The
non-support rate rose three points to 43 PERCENT . When asked which
should be given priority, stimulating the economy or holding a Lower
House election, 63 PERCENT opted for the economy, greatly
surpassing the 29 PERCENT who preferred dissolving the Diet and
holding an election.

TOKYO 00002983 002 OF 012

2) Government once considered dispatch of GSDF to Afghanistan at
U.S. request, involving six large-scale helicopters to rescue
injured soldiers, but the plan was tabled due to fear of violating
the Constitution

TOKYO SHIMBUN (Top play) (Excerpts)
October 27, 2008

At the request of the United States, the government had decided to
fully consider dispatching to Afghanistan the Self-Defense Forces.
The plan involved dispatching six large-scale CH47 helicopters
belonging to the Ground Self-Defense Force (GSDF). The helicopters
would be used in the northern part of Afghanistan for air operations
in cooperation with German troops. However, in case the use of
weapons was required in airlifting troops from the front line, the
problem might arise of the use of force in providing rear-guard
security which would be a violation of Article 9 of the
Constitution. The study was shelved as a result.

The U.S requested that Japan dispatch large-scale transport
helicopters. In June, a survey team from the Cabinet Agency, Foreign
Ministry and Defense Ministry went to Afghanistan to coordinate with
the U.S. military and with ISAF's command. In the study being
carried out by the Defense Ministry, the use of Air Self-Defense
Force C-130 transport planes for operations in Iraq that would end
in December took two years of preparation. The dispatch was boiled
down to the use of the GSDF's CH47 choppers.

According to an informed source, the plan being floated involved
cooperation with the German troops which had dispatched large-scale
CH53 helicopters to northern Afghanistan, where public security was
relatively stable. Germany had dispatched six CH53 choppers for
general transport of troops and provisions, as well as for medical
evacuations of wounded troops from the front lines. It was decided
that the GSDF, as well, would alternate with German troops in
transport and medivac activities.

However, if the troops returned fire while evacuating wounded troops
from the front lines, the problem arose of rear-echelon security,
which is considered the use of armed force. The Prime Minister's
official residence on receiving the report felt it needed new
legislation to dispatch troops to Afghanistan. It also judged it
impossible to submit such legislation because of the fear that would
violate the Constitution. In July, then Prime Minister Yasuo Fukuda
informed President Bush that it was withdrawing its proposed
dispatch, but the U.S. urged Japan to reconsider the decision.

3) DPJ Secretary General Hatoyama hints at switching to a stance of
confronting ruling parties on refueling assistance in Diet
deliberations

ASAHI (Page 2) (Full)
October 27, 2008

The government and the ruling parties are aiming at securing Diet
approval before the end of the month of a bill amending the new
Antiterrorism Law to extend the Maritime Self-Defense Force's
refueling mission. Referring to Upper House deliberations on the
bill, DPJ Secretary General Yukio Hatoyama in a speech given in
Wakayama City on October 26 said, "We have been cooperating with the
ruling parties in the belief that it would be the quickest approach

TOKYO 00002983 003 OF 012


to materialize Lower House dissolution for snap election. However,
things will not be that easy this week." He hinted at the
possibility of the DPJ adopting a confrontational stance and
refusing to cooperate on the early adoption of the bill.

He stressed, "Mr. Aso is backing away from dissolving the Lower
House. If that is the case, the bill will not be adopted so easily,
even if the time to do so comes in Diet deliberations, which will
start next week." Chances are that if the DPJ switches its present
stance, passage of the bill could significantly slip to a later
date.

4) U.S. Marine Corps to deploy crash-prone Osprey to Futenma in
2012

AKAHATA (Page 1) (Full)
October 26, 2008

It has become clear that the U.S. Marine Corps is planning to
replace the CH-46E medium-lift tandem rotor assault helicopters now
deployed at its Futenma Air Station in Ginowan, Okinawa Prefecture,
with MV-22 Osprey tilt-rotor vertical/short takeoff and landing
(VSTOL) aircraft starting in the fall of 2012. The plan is
incorporated in the fiscal 2009 U.S. Marine Corps aviation plan.

Although the Osprey has assault capability far greater than that of
the CH-46E, there have frequently been accidents, such as crashes,
involving Ospreys. There has long been criticism in Okinawa about
the deployment of Ospreys, saying that the aircraft would strengthen
the base's functions and increase the chance of accidents.

The two marine helicopter wings in Marine Aircraft Group 36 (MAG-36)
of the Futenma Air Station each has 12 CH-46E helicopters. According
to the plan, the U.S. Marines Corps will begin replacing one of the
two wings' helicopters with Ospreys starting in October 2012 and the
other wing's in April 2013. Ahead of them, the U.S. Marine Corps
will begin building an Osprey flight training system at the base
starting in April 2011.

The governments of Japan and the United States are planning to build
a new base replacing Futenma Air Station on the coastal area of Camp
Schwab in Nago by 2014. The deployment of the Ospreys goes hand in
hand with the construction of the new base.

5) Aso agree with French and Italian counterparts to cooperate in
upcoming financial summit

TOKYO SHIMBUN (Page 2) (Full)
October 26, 2008

Tetsuya Furuta, Beijing

Prime Minister Taro Aso held separate meetings with French President
Nicholas Sarkozy and Italian Prime Minister Silvio Berlusconi in
Beijing on Oct. 25. In the meetings, the three leaders agreed to
work in close cooperation to make the global financial summit to be
held in Washington on Nov. 15 a success.

In the Japan-France summit, French President Sarkozy highlighted the
need to strengthen regulations and control over financial
institutions as a means to deal with the financial crisis. Prime
Minister Aso echoed Sarkozy's idea, saying, "I support the idea of

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introducing control and discipline while giving consideration to
transparency." Sarkozy also noted regarding UN Security Council
reform: "We strongly support Japan's bid for a permanent seat on the
UN Security Council; its reform is a mater of great urgency."

In the Japan-Italy summit, the two leaders agreed to strengthen
cultural and economic exchanges via the "year of Italy in Japan"
which falls on next year.

6-1) Aso displays leadership at ASEM by explaining Japan's
experience amid stock plunge; Decision on Lower House dissolution
becomes even more difficult

TOKYO SHIMBUN (Page 2) (Abridged slightly)
October 26, 2008

Tetsuya Furuta, Beijing

In the latest Asia-Europe Meeting (ASEM) summit that centered on
measures for the global financial crisis, Taro Aso displayed a
certain level of leadership as the prime minister of Japan, which
overcame its own financial crisis. Nevertheless, as seen in the
yen's further appreciation and stock markets' plunge during his
absence from the country, Japan seems to be slipping into recession.
Will the prime minister still decide to dissolve the Lower House for
a snap general election? He will face a moment of truth after
returning home.

In the first ASEM session on Oct. 24 that mainly discussed the
international financial and economic aspects, Prime Minister Aso
underscored the need for the government to deal with the markets in
financial crisis.

As the first Asian leader to take the floor, Aso informed the
meeting, which had brought together leaders of 43 countries and two
organizations, about Japan's experience of handling its own
financial crisis. His explanation that Japan had overcome the
financial crisis in the 1990s by injecting public funds, protecting
all savings, and purchasing non-performing loans drew much
attention.

After the summit, Aso separately met on Oct. 24 with leaders of
China, South Korea, and Germany, and on the 25th, with Pakistan,
Italy, and France. Aso remained highly popular at the international
venue.

After returning home, a high-spirited prime minister will have to
make a decision that would directly affect the fate of his
administration.

The prevailing view in political circles is that the prime minister
will decide to dissolve the Lower House by putting up the results of
ASEM and an additional package of economic stimulus measures to be
produced as early as Oct. 30.

At the same time, given the increasingly gloomy economic outlook,
there is speculation that the prime minister might postpone
dissolving the Lower House. On Oct. 24, the prime minister told the
press traveling with him: "I believe we have to come up with (an
additional) set of bold (pump-priming measures), but that might not
be enough." This comment seems to have intensified such an
observation.

TOKYO 00002983 005 OF 012

"I will do it when the conditions are best," Aso said. He is
expected to make a final decision after returning home while closely
monitoring the economic situation and the major opposition
Democratic Party of Japan's response.

6-2) In meeting with Chinese leaders, Aso emphasizes "common
benefits"

NIKKEI (Page 2) (Full)
October 25, 2008

(Manabu Shimada, Beijing)

Prime Minister Taro Aso met with Chinese President Hu Jintao and
Premier Wen Jiabao, as well as South Korean President Lee Myung-bak
in succession on Oct. 24. Aso confirmed in the meetings the
importance of promoting bilateral cooperation, giving the impression
that his Asia policy has made a smooth start, but no progress was
made on pending bilateral issues. Being pressed to make a decision
on the timing for a House of Representatives dissolution, Aso
appears to be trying to demonstrate diplomatic achievements in a bid
to give a boost to his administration.

Delivering a speech in a ceremony in commemoration of the 30th
anniversary of the conclusion of the Treaty of Peace and Friendship
between Japan and China, Aso emphasized that Japan and China should
maintain a relationship of "mutual benefits." He said: "It is
important for the two countries to cooperate with each other in
friendly rivalry, instead of taking a reserved attitude under the
context of friendship. Such a relationship can be called a mutually
beneficial bilateral relationship." Aso added: "We should be of more
confidence of the potential power of Japan-china relations."

Aso and President Hu shared the view that the two countries should
work together to contain the U.S.-triggered financial crisis,
believing the crisis will undermine their national interests. They
confirmed the need to cooperate in maintaining the stability of the
current system in which the dollar is the key currency. The two
leaders also agreed to continue communications by phone.

On food safety, Aso ask the Chinese side to take proper measures,
saying: "Our people are distrustful of the safety of Chinese food
products. I hope you will take measures in an appropriate way."
Premier Wen promised to work to strengthen domestic inspection
mechanisms for exported food in cooperation with Japan.

Aso, who proudly told accompanying reporters about the success of
the bilateral summit meetings with the remark that "the meetings
were conducted extremely smoothly," also tried to play up his
presence in multinational talks.

In a meeting with the leaders of the China, South Korea, and members
of the Association of Southeast Asian Nations (ASEAN), Aso
reiterated the significance of Japan's proposal for the
International Monetary Fund's (IMF) emergency financing of
financially troubled emerging countries. He impressed the
participants with Japan's leadership in dealing with the ongoing
financial crisis.

Aso thus underscored his success in building confidence with China
and South Korea, but he failed to bring about specific results on

TOKYO 00002983 006 OF 012


pending bilateral issues. On the issue of joint development of gas
fields in the East China Sea, he ended up just agreeing with the
Chinese side to continue working-level talks.

7) Gist of Aso's policy speech on relations with China

ASAHI (Page 4) (Full)
October 25, 2008

The following is a gist of Prime Minister Aso's policy speech on
Japan-China relations delivered yesterday.

China is an important country to Japan, and there are not so many
such countries. The cardinal point in Japan-China relations is a
mutually indispensable partner to each other. President Hu Jintao
told me: "Japan and China can bring about benefits to each other as
long as they enjoy peaceful relations, but if the two countries are
at loggerheads, each other's benefits will be undermined." This view
also bases my view of emphasizing the importance of "mutual
benefits" between Japan and China.

Cooperating with each other in friendly rivalry, instead of taking a
reserved attitude under the context of friendship, can be called a
real strategic mutually-beneficial relationship, I think. Standing
on the international stage, the two countries must try to spread the
sprit of common benefits across the world.

Looking at the results of opinion polls on relations between Japan
and China, I feel somewhat apprehensive. It is important for the two
countries to promote dialogues and exchanges at all levels of
society to deepen mutual understanding.

The two countries should work together to create the future while
modestly reflecting on our past deeds. It is our mission that should
be handed over to the next generation.

There are many pending challenges that the two countries should
jointly tackle, and the importance of such efforts should be
actively dispatched from Asia. Of importance is for the two
countries to establish a relationship in which the two leaders can
exchange views over the phone immediately after something happens.
We should be more confident about the potential power of Japan-China
relations and the possibility of cooperation between Japan and
China.

Gist of Japan-South Korea summit

The following is a gist of conversations between Prime Minister Aso
and South Korean President Lee Myung-bak in their meeting.

Japan-South Korea relations:

Lee: I hope the two countries will establish a future-oriented solid
relationship in cooperation.

Aso: South Korea is also the most important neighbor for Japan,
which shares such values as freedom, democracy, and basic human
rights.

Summit diplomacy

Aso: I propose continuing shuttle summit diplomacy and exchanging

TOKYO 00002983 007 OF 012


views on the phone if necessary.

Lee: Since going to each other's nation is easy, I would like to
deepen dialogue. I ask you to visit South Korea.

Aso: I appreciate your invitation. I would like to hold a
Japan-China-South Korea summit in Japan later this year.

Lee: I support that idea.

North Korea

Aso: There is the abduction issue, in addition to the nuclear issue.
I would like to ask South Korea's continued cooperation.

Lee: North Korea should respond to your call for resolving such
inhumanw problems as abductions. I support Japan's position.

8) If other countries take over Japan's share of aid to North Korea,
Japan may lose bargaining chip on abduction issue

TOKYO SHIMBUN (Page 2) (Excerpts)
October 27, 2008

The government has started coordination with the U.S. and other
concerned countries to let other countries, including Australia, pay
its share of economic and energy aid to North Korea. Japan has not
participated in aid, citing the position that it cannot join aid
before progress is made on the issue of its past abductions of
Japanese nationals. But Japan now judges that a delay in its aid in
return for its efforts to disable its nuclear facilities might have
a negative impact on the North's denuclearization process. But some
observers are wary that Japan might lose its effective leverage to
advance the abduction issue.

Countries in the six-party talks have already provided the North
with 500,000 tons of heavy oil, based on their agreement to offer
one million tons of oil if that nation addresses specific steps for
disabling its Yongbyon nuclear complex. Of the amount, Japan has
been required to offer 200,000 tons of oil (worth 12 billion yen)
but has yet to offer anything, citing the unresolved abduction issue
as the reason.

A senior Foreign Ministry official explained of the idea of letting
other countries pay Japan's share: "Our aim is to create an
environment under which we can say in negotiations, 'since we will
provide you with all the promised volume of heavy oil, you should
promptly take steps to disable the nuclear facility'." Even so, it
is highly likely that once Pyongyang receives aid from countries
other than Japan, it might become more negative than before toward
Japan's requests in an effort to resolve the abduction issue,
including a call for setting up a reinvestigation committee.

In a House of Councillors plenary session on Oct. 22, Democratic
Party of Japan member Yukihisa Fujita criticized the plan to let
other countries assume Japan's payment as a major setback in Japan's
diplomacy, pressing the government to withdraw it.

In response, Prime Minister Aso stressed that the plan will not
negatively affect Japan's efforts to settle the abduction issue,
telling reporters: "The countries involved in the six-party talks,
particularly the U.S., understand the importance of the abduction

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issue."

9) Prime Minister Aso delivers speech in Akihabara; Japan expected
by the world to deal with financial crisis

NIKKEI (Page 2) (Full)
October 27, 2008

Prime Minister Taro Aso gave an outdoor speech yesterday in the
Akihabara district of Tokyo for the first time since taking office.
He stressed: "Japan will have to deal with the financial crisis in
cooperation with the international community. It is an important
time for Japan, since the world expects our response." He indicated
in his remarks that Japan's role would be important in the emergency
summit of the Group of Eight, which will take place on Nov. 15 in
Washington.

Referring to an impact of the financial crisis (on Japanese
institutions), Aso stated: "Japanese financial institutions have
suffered less than European and U.S. financial organizations." He
also spoke of a second economic stimulus package: "We have to come
up with measures to help small and mid-size companies. Business
managers will face capital shortfalls in December and January."

Aso did not refer to future political plans.

10) Prime Minister Aso tells ruling parties leaders of his intention
to delay Diet dissolution

NIKKEI (Page 1) (Full)
October 27, 2008

It has been learned that senior members of the ruling parties on
Oct. 26 were informed by Prime Minister Taro Aso of his intention
for the time being not to dissolve the Lower House and call a snap
election. The Prime Minister yesterday telephoned Liberal Democratic
Party (LDP) leaders to express his thinking about not dissolving the
Diet at the present time.

Until now, the Prime Minister has been depicting a scenario
involving dissolution as of mid-November with an election set for
the 30th of the month. However, he has had to remake the plan all
over due to spreading concerns about an economic recession in Japan
following the financial crisis set of by America.

Although the Prime Minister had aimed at Diet dissolution after
compiling an additional economic stimulus package and passing the
bill to extend the refueling mission in the Indian Ocean, the
opposition parties have been reacting sharply, threatening to even
renege on the promise of passage of the refueling bill if there was
a reneging on the dissolution of the Diet. Within the ruling camp, a
view of putting off dissolution is spreading, and an aide to the
Prime Minister yesterday confided, "There is no one calling for
dissolution at such a time."

11) LDP split over Lower House dissolution

TOKYO SHIMBUN (Page 2) (Full)
October 27, 2008

Liberal Democratic Party (LDP) members are split over the timing of
a dissolution of the House of Representatives. Most LDP members are

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now preparing for an election, envisioning one on Nov. 30 and an
official campaign being kicked off on Nov. 18. However, a view
cautious about the dissolution of the Lower House has now appeared
in the LDP due to the plummeting stock prices and yen's sharp rise.

Appearing on an NHK program yesterday, LDP Deputy Secretary General
Nobuteru Ishihara revealed the view that it would be difficult for
the prime minister to dissolve the Lower House if the sluggish
economic situation continues. He stated: "If (stock prices) hit the
bottom, we have no time to think about the election. I feel that
Prime Minister Aso thinks that a political vacuum should not be
created."

Referring on a commercial television program to the emergency summit
of the Group of Eight (G-8), which will be held in Washington on
Nov. 15, State Minister for Economic and Fiscal Policy Kaoru Yosano
pointed out: "(In the summit) Japan will be given an assignment. If
we carry out the election during this time, Japan will not be able
to respond to international expectations." During a separate TV
program, State Minister for Administrative Reform Akira Amari
elaborated on his view that a dissolution should be pushed back:
"The present financial situation is riddled with angst. If the
election is carried out before the recession bottoms out, people
will question whether it is a good time for an election."

In a meeting yesterday in Shimane Prefecture, his hometown,
Secretary General Hiroyuki Sonoda, who has called for a November
general election, asserted that the Lower House should be dissolved
quickly to ask for a vote of confidence. He said: "I think it would
be good to ask for the people's vote of confidence."

In a meeting on Oct. 25 of the LDP Hokkaido chapter, Finance
Minister Shoichi Nakagawa, who has placed priority on the economy,
and former Chief Cabinet Secretary Nobutaka Machimura, who favors an
early dissolution, skirmished over the dissolution of the Lower
House.

12) Tug-of-war between ruling and opposition camps over Lower House
dissolution, maneuvering on passage of refueling bill to reach
crucial stage

NIKKEI (Page 2) (Full)
October 27, 2008

A tug-of-war is expected this week between the ruling and opposition
camps in the ongoing extraordinary Diet session over the dissolution
of the House of Representatives and the handling of important bills.
The ruling coalition intends to enact on Oct. 30 a bill to extend by
one year the Maritime Self-Defense Forces' refueling mission in the
Indian Ocean by holding a second vote in the Lower House. Seeing
that, the ruling camp is may try to delay the bill's passage. Many
in the Democratic Party of Japan (DPJ), the largest opposition
party, have now called on the party to review its strategy, although
it has cooperated on deliberations in the Diet with an eye on an
early dissolution of the Lower House.

The LDP and DPJ will discuss today a timetable for deliberations on
the refueling bill in a meeting of their Diet affairs committee
members from the House of Councillors. The LDP is expected to
propose taking a vote on the legislation tomorrow in the Upper House
Foreign and Defense Committee and on the 29th in an Upper House
plenary session. The DPJ, however, intends to insist that (Prime

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Minister Taro Aso) should make good his promise to dissolve the
Lower House soon.

In a meeting yesterday in Wakayama City, DPJ Secretary General Yukio
Hatoyama commented on Prime Minister Aso's cautious stance toward an
early dissolution:

"Diet deliberations starting tomorrow would not move smoothly
forward. It would also be difficult to take a vote on the bill
amending the new Antiterrorism Special Measures Law.

DPJ Deputy President Naoto Kan on an NHK talk show yesterday
stated:

"I think dissolution has been pushed back because of the economic
crisis. (The prime minister) is worried about the election. I don't
think he has the nerve. The prime minister is only citing reasons
why he can't dissolve the Lower House."

A senior official of the New Komeito, which has called for an early
dissolution, said on Oct. 26: "The situation is extremely difficult.
The prime minister is inclined to delay dissolution at the urging of
his friends." Akihiro Ota, top leader of the New Komeito, plans to
meet soon with Aso to ask him to quickly dissolve the Lower House.
In the ruling camp, many members are concerned that if dissolution
is delayed, Diet management would become difficult. Appearing on an
NHK talk show yesterday, Yoshihisa Inoue, deputy head of the New
Komeito, stressed: "The prime minister will be able to fulfill his
leadership by dissolving the Lower House.

Economic and Fiscal Policy Minister Kaoru Yosano, on a TV Asahi talk
show, stated: "I told the prime minister that there is no time for
dissolving the Lower House if the financial and securities markets
become unstable."

13) Emergency economic market stabilization measures: Government
eyeing boosting capital injections into banks to 10 trillion yen

NIKKEI (Top Play) (Excerpts)
October 27, 2008

The government on October 26 underwent final coordination on
emergency market stabilization measures. Capital injection using
public money, based on a bill amending the Financial Functions Early
Strengthening Law, will likely be boosted from the current 2
trillion yen to 10 trillion yen. The government will also
incorporate into the package the easing of the restriction on stock
acquisition by banks. In order to prevent the financial system from
wobbling in the wake of stock plunges, it will underscore a stance
of using every possible policy measure. In this connection, State
Minister for Fiscal and Financial Policy Shoichi Nakagawa yesterday
started undergoing coordination with the possibility of checking a
sharp increase in the value of the yen.

Gist of emergency market stabilization measures

? Boost capital injection based on the Financial Function Early
Strengthening Law from the current 2 trillion yen to 10 trillion
yen
? Stock purchases by the Banks' Shareholdings Purchase Corporation
? Ask the Bank of Japan to purchase bank-held stocks
? Ease the restriction on stock acquisition by banks

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? Partial revisions to the mark-to-market accounting system and the
categorization of the purposes of securities-holding
? Take a second look at the regulation on the ratio of banks' net
worth (with the aim of making banks less vulnerable to stock
plunges)
? Further strengthen regulations on short selling stocks
? Improve disclosure on short selling

14) Three leading banks mulling capital increases of up to 1
trillion yen: Stock plunges beginning to affect Japanese banks

MAINICHI (Top Play) (Full)
October 27, 2008

Mainichi Shimbun has learned that three major banking groups,
including the Mitsubishi-UFJ Financial Group (MUFG), are considering
a major capital increase. Coordination is now underway with the
possibility of Mitsubishi-UFJ Financial Group (MUFG) procuring up to
1 trillion yen, the Mizuho Financial Group and the Sumitomo-Mitsui
Financial Group several hundred-billion yen. As the financial crisis
became more serious, stock prices have plunged in Japan as well,
causing the value of banks' holdings to decrease as well. If the
decline in stock prices becomes drawn out, they would have to
dispose of losses in the closing of accounts. Should that occur,
their capital assets could drop significantly. The banks, therefore,
intend to stabilize their management by largely reinforcing their
capital base.

Compared with financial institutions in the U.S. and Europe, where
the financial crisis started, Japanese banks have thus far suffered
a relatively minor blow. They have come up with plans to bail out
U.S. and European financial institutions, as can be seen in MUFG's
plan to invest 9 billion dollars (approximately 850 billion yen)
into Morgan Stanley, a major U.S. securities house. However, with
the benchmark Nikkei Stock Average slipping to the lowest level
since the collapse of the asset-inflated bubble economy, Japanese
banks now find it imperative to reinforce their net worth.

MUFG is planning to raise fresh funds by issuing common shares worth
over 600 billion yen for public subscription and preferred stocks --
capital stock without the voting right which provides a specified
dividend that is paid before any dividends are paid to common stock
holders -- targeting institutional investors. Mizuho Financial Group
Inc. and Sumitomo Mitsui Financial Group Inc. are considering
large-scale capital increases, by issuing preferred shares.

The ratios of the net worth of the three banking groups, which
indicates the soundness of their management, as of the end of June
were 10.73 PERCENT for MUFJ, 11.59 PERCENT for Mizuho and 10.35
PERCENT for Mitsui Sumitomo. Those numbers are all above the sound
level (8 PERCENT ) needed for engaging in international business.
However, they appear to have incurred losses in their shareholdings
(tens of billions of yen per bank) due to the sharp plunge in the
Nikkei Stock Average following the financial crisis since September.
If stock prices continue to remain in a slump, they would have to
report losses when accounts are closed. The likelihood in that case
is that the ratio of their net worth would fall below 10 PERCENT in
late December, the accounting term for the October-December
quarter.

They do not need capital injections using public money, because
there is only a small chance of their net worth falling below 8

TOKYO 00002983 012 OF 012


PERCENT , as they do not have to register a loss like U.S. and
European financial institutions. However, determining that it would
be necessary to secure 10 PERCENT in order to maintain market
confidence, the three groups will aim at reinforcing their capital
bases by the end of the year by their own ability.

Amid companies successively going under, the government is calling
on major banks to extend loans to small- and medium-size businesses.
As such, boosting lending capacity has also made it indispensable
for them to reinforce their capital base.

SCHIEFFER

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