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Cablegate: Daily Summary of Japanese Press 07/31/07

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RUEHUL/AMEMBASSY SEOUL 4181
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UNCLAS SECTION 01 OF 10 TOKYO 003490

SIPDIS

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: DAILY SUMMARY OF JAPANESE PRESS 07/31/07


Index:

(1) Prime Minister Abe expresses "regret" about passed House
resolution

(2) In response to US House approval for comfort-women resolution,
Prime Minister Abe: "I'll continue efforts to explain"

(3) DPJ President Ozawa comes out against the amendment to the
Anti-terror Law in appearance at meeting of party officials

(4) It will be extremely difficult for ruling, opposition parties to
reach agreement on pension system reform; Pension policy could bog
down; Three barriers to clear before setting up consultative
council

(5) Governing coalition's crushing defeat in Upper House election
(Part 1): Political mission is to implement reform for growth

(6) Editorial: People dumbfounded by prime minister's announcement
on remaining in power

(7) Interview with University of Tokyo Professor Ikuo Kabashima on
results of July 29 House of Councillors election - a vote of no
confidence in Abe

(8) Editorial: Prime Minister Abe has misunderstood public will

ARTICLES:

(1) Prime Minister Abe expresses "regret" about passed House
resolution

MAINICHI (Page 1) (Full)
Eve., July 31, 2007

Prime Minister Abe this morning made this statement to the press
corps at his official residence about the US House of
Representatives having passed a resolution on the so-called
"comfort-women" issue: "With regard to this issue, I explained my
thinking and the government's responses until now at the time of my
visit to the United States in April. I regret the passage of the
resolution. I think it is important for us to continue to explain
ourselves from now on. The twentieth century was an era when human
rights were violated. I would like to work so that the twenty-first
century will be a time when human rights will no longer be
violated."

(2) In response to US House approval for comfort-women resolution,
Prime Minister Abe: "I'll continue efforts to explain"

ASAHI ONLINE NEWS
July 31, 2007, at 13:56 p.m.

At noon today, when asked about the US House of Representatives
having approved a resolution on the wartime "comfort women," Prime
Minister Abe said: "When I visited the United States in April, I
gave an account of my views and the government's response (to the
"comfort women" issue). It's regrettable to see this sort of
resolution approved." He continued, "I think it is important to
explain fully to the US side about the issue from now on as well,"
indicating his intention to continue his efforts to do so. Abe was

TOKYO 00003490 002 OF 010


replying to reporters at his official residence (Kantei).

(3) DPJ President Ozawa comes out against the amendment to the
Anti-terror Law in appearance at meeting of party officials

ASAHI.COM (Full)
July 31, 2007

Democratic Party of Japan (DPJ or Minshuto) President Ozawa today
expressed his opposition to the government bill amending the
Anti-Terrorism Special Measures Law, which allows the Self-Defense
Forces (SDF) to provide logistical support for US warships deployed
to the Indian Ocean. The bill will be the focus of attention in the
extraordinary Diet session this fall. Ozawa said: "Our views are the
same as before. Since we have been opposed to it, there is no reason
for us to now approve it." Ozawa's strategy is to press the Abe
administration for an early dissolution of the Lower House and the
holding of a general election by shaking up the government and
parties by steering the Upper House of the Diet toward an early
dissolution.

He was speaking to reporters at the party headquarters.

Ozawa, who had been resting at home due to fatigue from his
campaigning for the election, today appeared at the party officials
meeting and at a standing secretaries' general meeting. This was the
first time he has been seen since the Upper House election on July
29. At the start of the standing secretaries' general meeting, he
expressed his view about carrying out a change in administration
through dissolution of the Lower House and a general election: "We
have achieved the first goal in our drive to bring about a trading
of places between the ruling and opposition camps. However, the real
contest begins now. We will make the Upper House into a real
battleground in the Diet starting this fall. I would all of you to
do your best to reach that final goal."

Referring to Prime Minister Abe's announcement that he would stay on
in office, Ozawa stressed: "For the cabinet to stay on even after
losing the majority (in the Upper House) is absolutely absurd. He
will never be able to obtain the nation's support for such a willful
and preposterous act." "Since a trading of places of ruling and
opposition camps is now possible, that nuisance will only be with us
in the Nagata-cho capitol district a little while longer."

(4) It will be extremely difficult for ruling, opposition parties to
reach agreement on pension system reform; Pension policy could bog
down; Three barriers to clear before setting up consultative
council

MAINICHI (Page 2) (Full)
July 31, 2007

Voters' distrust in the government over the pension fiasco brought
about a crushing defeat for the ruling parties in the Upper House
election. Prime Minister Shinzo Abe after the election indicated his
readiness to take the Democratic Party of Japan's (DPJ or Minshuto)
view into consideration in setting policies. However, it will be
extremely difficult for the ruling parties and the DPJ to find
common ground, because they are at odds over fundamental aspects of
the issue. A senior ruling party member during the election campaign
proposed setting up a consultative council involving both the
opposition and ruling parties. However, given the present situation,

TOKYO 00003490 003 OF 010


it is doubtful they will be able to realize such an initiative. If
the proposal ends up as a mere gesture aimed at the electorate, the
pension policy could continue to meander, despite the will of the
people shown in the election. This newspaper has identified three
barriers to settling the pension issue.

Unification of public pension plans

Appearing on a TV program right after all votes were counted, Abe on
July 29 said, "I will lend an ear to the views of opposition parties
as well." During a press conference on July 30, he cited the name of
bills that he wanted to see enacted in the extraordinary Diet
session in the fall, but he did not include the legislation for
unifying the public pension programs that was carried over from the
regular Diet session to the next session.

The pension legislation is aimed at combining part of employees'
pension plan and part of the mutual aid pension. The idea is
incompatible with the DPJ's plan, which features the integration of
all pension programs, including the national pension plan. It will,
therefore, be difficult to enter deliberations based on their draft
plans.

The ruling parties have scathingly attacked the DPJ plan as pie in
the sky. That is because it is difficult to determine the income of
contributors to the national pension plan, a process necessary to
work out pension premiums, because contributors to this pension plan
are mainly self-employed individuals. In order to settle this issue,
it is necessary to make their income transparent as is the case of
salaried workers, adopting such systems as a taxpayer identification
number system. However, since self-employed workers are the ruling
parties' power base, they cannot easily agree to adopt such a
system.

The government plan includes a proposal for unifying the premium
rates of the employees' pension plan and the mutual aid pension
starting in 2010. Deliberations will fall behind the schedule, if
they are stalled.

Source of revenue to finance basic pension

A set of bills to reform the pension system, enacted in 2004,
stipulate that the ratio of state contribution to the basic pension
is to be raised from the current one-third to 50% in fiscal 2009.
There is tacit understanding between the government and the ruling
parties that the increased portion of contribution is to be covered
with a hike in the consumption tax, though the bills do not mention
funding resources amounting to 5 trillion yen. However, the DPJ's
policy is to freeze the tax rate. Conditions have yet to be met in
order for the government to come up with a tax hike plan.

The current system is based on the premise that state contribution
is to be increased in fiscal 2009. The further the time to raise the
contribution ratio to 50% is delayed, the nearer the pension
finances will approach collapse. As such, if it is not possible to
hike the consumption tax, ruling parties will have to find another
source of revenue.

Social Insurance Agency reform bill

The DPJ is determined to introduce a bill that bans the use of
collected funds for purposes other than pension benefit payouts. A

TOKYO 00003490 004 OF 010


serious discussion of this bill would lead to an amendment to bills
related to reform the Social Insurance Agency (SIA) reform, which
allow the allocation of 100 billion yen in insurance money to
administrative expenses, necessitating revising a proposal for
making the SIA staff non-government employees. This bill reflects
the will of the Finance Ministry, which hopes to constrain the tax
burden. As such, if the issue develops into a revision argument, the
ministry is bound to oppose such a proposal.

To begin with, the ruling parties and the DPJ are at loggerheads
over the basic principle of whether to use insurance funds to
finance the basic portion of the national pension plan or to cover
the full amount with tax money. Regarding the establishment of a
consultative council with the ruling parties, the DPJ makes it a
precondition that its proposals be accepted. However, the ruling
parties do not appear to be ready to accept the DPJ's proposal at
the moment.

(5) Governing coalition's crushing defeat in Upper House election
(Part 1): Political mission is to implement reform for growth

NIHON KEIZAI (Page 1) (Abridged)
July 3, 2007

Naoaki Okabe

Why did the administration led by Prime Minister Shinzo Abe stumble
so badly? The public's distrust of the administration grew stronger
over the question of missing records of pension premium payments and
a string of cabinet-minister scandals. There was more. The Abe
administration apparently gave an impression that it had flinched
and turned reluctant to carry out the reforms it was supposed to. I
think the Upper House election posed this question: What is Japan
expected to do in the drastically changing global society?

Not match for "Koizumi"

Abe was beaten by Ichiro Ozawa, head of the major opposition
Democratic Party of Japan (DPJ or Minshuto), and he also proved that
he certainly was no Junichiro Koizumi.

Abe emerged as the successor to lead Koizumi's structural reform
drive. In the post-Cold War era of global competition, Japan is
falling behind other countries. Still worse, Japan has the worst
budget deficit among the industrialized countries, as it suffers
from a rapidly aging society and a declining birthrate. Under these
circumstances, Abe had been charged with the historic mission of
accelerating reforms.

Despite that situation, the Abe administration has remained
ambivalent in its attitude when it came to reform, lacking a
strategic challenge like the privatization of postal services that
Koizumi promoted. It lacked a strong determination to implement
reform.

The Abe administration's ambiguous attitude has incurred the
mistrust of voters in both rural and urban areas. Abe is suspected
to be backpedaling on his reform drive. On the other hand, his
"reform policy" is cited as the cause of an expanding regional
income disparity. Abe's stinging defeat in Sunday's Upper House
election was essentially attributable to a lack of perseverance in
his economic policy.

TOKYO 00003490 005 OF 010

There is concern that economic policy management will not go
smoothly with the reverse of the standings in the Upper House
between the ruling and opposition parties. But no matter what party
is in control of the government, Japan has no choice but to live in
a world of interdependence as globalization is advancing. Policy
options for Japan are therefore limited.

What is Japan expected to do now is to implement the so-called
"trinity reform": the pension system, the tax and financial systems,
and the growth strategy. Cross-party debate on these reforms is
essential.

On the reform of the tax and financial systems, the Abe
administration has prioritized cutting annual expenditures. This
stance is correct, but in order to keep the pension and social
welfare system going, reform of the tax system is indispensable.

The reason why the so-called Koizumi reform did not make a dramatic
progress is because the reform of the tax system was put on the
back-burner. The past historic reform-oriented administrations in
the world like the one led by British Prime Minister Thatcher and
the one by US President Reagan put the reform of the tax system at
the center of their reform drives. Considering the current situation
in Japan, where the population is aging and the birthrate is
declining, hiking the consumption tax is an unavoidable choice and
lowering the corporate tax will also be necessary in terms of global
mega-competition.

Likewise, it is important how to link the growth strategy to global
mega competition. The key is how well to adapt the Japanese economy
to the rapidly growing global economy. The core of this strategy is
to integrate the East Asian economies and attract foreign firms to
Japan. Japan should continue efforts to turn the Tokyo market into
an international financial center. "No growth without opening the
doors" is common knowledge about global economy.

Regional economies at home have faced a number of difficult
problems. But Japan should not revert to pork-barrel spending for
public works projects. And protecting farmers in an easy-going
manner could only spoil agricultural reform. Japan should promote
the decentralization of power even further, for instance, by
transferring tax resources to local governments. Getting out of
dependence on the central government and bolstered by the
decentralization of power, local governments should work on
attracting firms and create jobs. This would be the shortest way for
revitalizing regional economies.

Inward-looking Japan

One aspect of the aftermath of the Upper House election would be
that Japan has become an inward-looking country without realizing
it.

In a multipolar world, Japan, the second largest economy in the
world, is expected to undertake a significant role. In the area of
preventing global warming, Japan, along with the European Union
(EU), should lead the rest of the world. Under the World Trade
Organization (WTO), Japan must contribute to the multilateral trade
talks (Doha Round). Japan needs to move in tandem with the US and
Europe in addressing nuclear nonproliferation involving North Korea
and Iran. As the only country that has suffered nuclear attacks in

TOKYO 00003490 006 OF 010


the world, Japan, regardless of its ruling and opposition parties,
is responsible to the international community for calling on the
rest of the world to abandon nuclear weapons.

It is unacceptable to let political disputes endanger the Japanese
economy, particularly at a time when slumping stock prices and the
weakening yen are continuing. There is even the possibility that
excessive fluidity caused by Japan's ultra-low interest rates will
trigger a crisis.

What is dangerous is the case where the ruling and opposition
parties begin a competition to capture votes with their respective
policies. The DPJ is now required to have the consciousness of being
a responsible opposition party. In order for Japan to survive in the
global economy, both sides need to compete for better reform
policies. Japan is in this sense being tested as to whether it is
worthy of international trust.

(6) Editorial: People dumbfounded by prime minister's announcement
on remaining in power

ASAHI (Page 3) (Full)
July 31, 2007

Shinzo Abe officially announced that he will stay on as prime
minister yesterday, the day after the House of Councillors election
on July 29. In a Liberal Democratic Party executive meeting and a
meeting with New Komeito President Ota, Abe obtained their
concurrences for his remaining in office. But what about the "no"
clearly expressed by the voters to him? In a press conference
yesterday, the prime minister said: "I take the people's severe
judgment with gravity and sincerity. While reflecting on what I
should reflect on, I will perform my responsibility in a modest
manner by pushing ahead with reform and state-building plans."

Has the prime minister interpreted the outcome of the election not
as a no-confidence motion against him but as a scolding by the
public? If so, the prime minister does not correctly understand the
weight of the LDP's historic major defeat in the election.

In the election, the LDP won only 37 seats, while the Democratic
Party of Japan (DPJ or Minshuto) garnered 60 seats. In addition, an
exit poll carried out by the Asahi Shimbun found 56% called for the
prime minister's resignation. Even among supporters of the LDP, one
out of four voted for the DPJ in the proportional representation
segment.

The prime minister himself had regarded the latest election as an
occasion to "ask the voters which are more qualified to be prime
minister - I or Ozawa."

When asked about this point in the press conference, the prime
minister dodged the question. Instead, he revealed plans to change
the lineup of party executives and cabinet members, saying: "I think
the election result represents a public call for us to change our
minds." That is a quite convenient way of thinking for him.

Politicians should take responsibility for negative results by
resigning from their posts. The people must be disappointed at the
leader's stance of avoiding responsibility for the crushing
electoral defeat. It is unlikely that people will easily dismiss
their doubt and distrust of the prime minister's stance of holding

TOKYO 00003490 007 OF 010


on to power.

Regarding the future course of the prime minister, LDP influential
members have made unexpected responses. In such a case in the past,
many LDP members called for the prime minister's resignation. In the
Upper House election in 1989, in which the LDP won only 36 seats,
the Prime Minister Uno stepped down. In the 1998 election, in which
only 44 seats went to the LDP, Prime Minister Hashimoto resigned.

Such responses are to reflect a tense atmosphere in the party, which
has assumed the reins of government over the past 50 years, and that
was indisputably the source of vitality for the party. This case,
though, the following passive views are heard among influential LDP
members: "There is no able personnel;" "The prime minister himself
should make a decision;" and "he should stay on for the time
being."

It is hard to understand that the New Komeito easily approved Abe's
staying in power. The party, which experienced a major defeat as a
result of being affected by the headwind against the LDP, should
consider whether responsibility lies, including future options for
the current coalition arrangement with the LDP.

The prime minister spoke of tasks his cabinet will tackle now, such
as expansion-oriented economic policy, correction of social
disparities, and new measures to deal with politics-and-money
problems. But the prime minister has yet to ask for public
confidence, a factor indispensable for him to promote such policy
measures.

If he is willing to remain in office, he should dissolve the House
of Representatives for a snap election as soon as possible to seek
the voters' judgment.

(7) Interview with University of Tokyo Professor Ikuo Kabashima on
results of July 29 House of Councillors election - a vote of no
confidence in Abe

ASAHI (Page 4) (Abridged slightly)
July 31, 2007

-- What made the Liberal Democratic Party suffer such a huge
setback?

Kabashima: Single-seat constituencies held the key. Former Prime
Minister Koizumi had destroyed the LDP's traditional system of
distributing to rural areas the fruits of economic development in
the form of public works projects and the protection of farm
produce, and the voters handed down their negative evaluation of it
to Prime Minister Abe through this election. Changes to the LDP
system led to its defeats in single-seat constituencies, which have
been supportive of the party.

Abe had tilted toward the traditional LDP system rather than toward
market principles, but now that he has become Koizumi's successor,
he needed to advocate reform and seek support in urban areas. In the
eyes of urban voters, Abe's reform drive was insufficient as
compared to Koizumi's, and to the rural areas it seemed the same as
Koizumi's. Abe has thus lost the support of both sides. In addition
to these developments, the LDP was directly hit by the pension
fiasco, the question of money and politics, and other scandals.


TOKYO 00003490 008 OF 010


-- What is the cause of the overwhelming victory by the Democratic
Party of Japan?

Kabashima: The DPJ's victory owes much to party head Ichiro Ozawa's
strategy of putting high priority on single-seat constituencies and
of sending a direct message that the party will introduce an
income-subsidy system for farmers. He has wrestled the farm votes
from Abe. Ozawa used to be as reform-minded as Koizumi was, but he
has thrown that away in order to become a true DPJ president.
Furthermore, the DPJ now has many competent individuals, like Akira
Nagatsuma, who scrutinized the pension fiasco, enabling the party to
fulfill its role to closely check problems associated with the
ruling parties. That has resulted in a nationwide trend to break
away from the LDP.

-- Do you see any change in voter behavior?

Kabashima: Voter turnout did not drop, which was significant. Voter
turnout has in the past been low in the year of the boar (in the
Chinese zodiac), but that didn't happen in this election partly
because swing voters in cities came out in force.

As a result, the New Komeito and LDP's organizational votes were
diluted. What was interesting was the case of Masako Okawara, who
ran in the Tokyo constituency on the DPJ ticket. Various opinion
polls had indicated that she was on the borderline, but she
eventually claimed the top place in the race. This indicates voters'
strategic behavior to get the two DPJ candidates elected. The same
behavior was observed in other constituencies, as well. In addition
to unaffiliated voters, some JCP and SDP supporters also showed the
same pattern.

-- Does that mean many voters acted in a way distinct from the
past?

Kabashima: An increasing number of swing voters are paying attention
to situational surveys without being bound by traditional
organizations. During the LDP vs. Japan Socialist Party era, voters'
psychology not to allow the JSP to take power worked. Okawara's case
clearly depicted the voters' logic that in order for the DPJ to
switch place with the LDP, the opposition party needed to have more
than a small margin. The results mirror the voters' desire to see
the LDP's defeat.

-- How should the political parties take this public opinion?

Kabashima: An Upper House election tends to reflect voters'
assessment of the administration's achievements. The voter-candidate
relationship in the Upper House is weaker than that in the Lower
House, as well. That is why Upper House election results tend to
directly mirror voters' assessments of party heads and parties. That
being said, the outcome of this election is nothing but a
no-confidence vote against Abe.

-- But Prime Minister Abe has indicated that he will stay in
office.

Kabashima: Based on his views on the Constitution and the abduction
issue, many people had regarded Abe as a "politician with
conviction." But his announcement has generated an image of clinging
to power. The images of party heads have greatly affected the
results of national elections in recent years. Abe had been picked

TOKYO 00003490 009 OF 010


as the LDP's "election face" at relatively young age, but he failed
to fulfill that role. The LDP that has endorsed Abe's decision
clearly lacks vigor.

The results exposed the New Komeito's weakness of sinking into
insignificance with high voter turnout. The outcome also raised the
question of how long the New Komeito is going to remain as the LDP's
coalition partner with no ability to have a deciding vote.

-- How should the DPJ act?

Kabashima: Turning public opinion expressed in this election into
support for the DPJ depends on whether or not it can wisely run the
Upper House. In other words, it depends on whether or not the DPJ
can translate its campaign pledges, including fiscal promises, into
concrete bills in the Upper House to present them to the Lower
House. A culmination of such efforts would prompt voters to decide
to allow the DPJ to take power through the next Lower House
election.

(8) Editorial: Prime Minister Abe has misunderstood public will

MAINICHI (Page 5) (Full)
July 31, 2007

In the July 29 House of Councillors election, the Liberal Democratic
Party (LDP) suffered a crushing defeat. In a press conference held
the day after the election, Prime Minister Shinzo Abe revealed his
intention to stay on as prime minister.

The prime minister repeatedly said, "The responsibility rests with
me," but he emphasized: "Many people appreciate the government's
basic policy line, which is on the right track." If he really has
such a perception, he apparently misunderstands the will of the
people.

As the points he should reflect on, he listed the government's
responses to the pension problem and the politics-and-money issue.
On the pension mess, he said: "Our efforts to eliminate public
distrust of the pension system were insufficient." The prime
minister had been ignorant of the seriousness of the problem until
he saw his cabinet support rate sharply plummet, despite repeated
indications by the Democratic Party of Japan (DPJ or Minshuto). The
prime minister must modestly reflect on this fact; otherwise, he
will never be able to regain public confidence.

In connection with a series of politics-and-money scandals, as well,
although the prime minister said he instructed the LDP to revise the
Political Funds Control Law, a number of people had criticized the
revised version enacted in the latest Diet session as a law full of
loopholes. People must be feeling that the prime minister's
reference now is late.

The prime minister also said that the people are supportive of his
basic policy, that is, his economic expansion policy. Asked why he
believes the policy has been supported, Abe replied: "I felt
audiences' positive reactions (when delivering street-corner
speeches)." We wonder if he really understands what an election is.

Further, the prime minister did not refer to whether the public
supported his "beautiful country" concept, including his important
task of revising the Constitution, as well as the slogan of

TOKYO 00003490 010 OF 010


"emerging from the postwar regime," only saying: "There was no time
to speak of constitutional issues in detail in the election
campaign." This is a very convenient way to interpret it, we must
say.

The prime minister labels constitutional revision as the challenge
his cabinet should address on a top priority basis. He must find it
more difficult to amend the Constitution after experiencing the
devastating defeat in the latest election. If he continues to refuse
to recognize the current severe situation, he will not be able to
push ahead with Diet business even if he proposes cooperation with
the DPJ.

Prime Minister Abe has also revealed plans to significantly
reshuffle his cabinet, saying: "The election outcome represents a
public call for us to change our minds." But as long as the prime
minister maintains his current perception and stance, the public
will never stop calling on the prime minister and others to change
their mentality.

Despite such circumstances, the LDP in its board meeting yesterday
decided to have the prime minister stay in power. In the meeting,
many members of various factions remained quiet, with few calling on
the prime minister to take responsibility. Even if the prime
minister is replaced, the state of the reversal of strengths between
the ruling and opposition parties will not change. It is also
difficult to find a successor who can be expected to turn the
tables.

The LDP has done little about developing potential candidates for
the party presidency. The LDP is now forced with the bill for that.
The current situation is quite serious.

SCHIEFFER

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