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Cablegate: Daily Summary of Japanese Press 08/07/07

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UNCLAS SECTION 01 OF 07 TOKYO 003614

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 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform


(2) Efforts to move primary balance into black likely to suffer
setback: Cabinet Office revises mid-term outlook, by lowering
estimate for nominal growth rate

(3) Seiron (Opinion) column: Ruling and opposition parties should
not destroy Japan's international prestige by locking horns in vain

(4) Calls for Abe's resignation at LDP meeting

(5) CEFP starts discussing fiscal 2008 budget; Prime Minister
underscores his determination to continue with structural reforms; 3
percent cut in public projects confirmed 9

ARTICLES:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform

NIKKEI (Page 2) (Full)
August 7, 2007

In the aftermath of the ruling coalition's crushing defeat by the
Democratic Party of Japan's (DPJ or Minshuto) in the July House of
Councillors election, Prime Minister Shinzo Abe is making every
effort to adjust his administration's policies to suit that party.
In order for the government to swiftly enact bills, cooperation from
the opposition camp is absolutely essential now that the opposition
has control of the Upper House. The prime minister aims to produce
"results" by accepting the views of the DPJ on such key agenda items
as the extension of the Antiterrorism Special Measures Law and
reform of the Public Service Law. On specifics, though, there is a
great difference between both sides' views. It remains to be seen to
what extent the DPJ, which has underscored it is now taking a
confrontational stance and wants Abe to dissolve the House of
Representatives, will respond to the ruling camp's approach.

In an interview with the Nikkei yesterday, State Minister in Charge
of Administrative Reform Yoshimi Watanabe indicated he has no
intention of drastically changing the already revised Public Service
Law. But he implied his willingness to reflect the DPJ's assertions
in a bill on reforming the civil service system to be submitted to
the regular Diet session next year, saying: "Many DPJ members are
calling for introducing a political-appointee system. Such calls are
worth listening to." Watanabe said that there is room for the LDP to
discuss the DPJ's request for restricting officials at independent
administrative corporations from finding employment in the private
sector after retirement, if the regulations are transitory.

After the election, the prime minister has reiterated at press
conferences and on other occasions his eagerness to cooperate with
the DPJ, saying: "When we should be listening to the DPJ , we must
do so."

On the issue of extending the Antiterrorism Law, DPJ President Ozawa
has expressed his opposition to the government's bill, so the ruling
camp has made a policy switch to allow insertion of the condition of
"prior Diet approval," (which the DPJ wants). Although the DPJ now
controls the Upper House, views are split in the party on whether to
extend the law. By making a concession, the ruling camp aims to

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform

loosen opposition to the bill in that party.

Discussion will start in the fall on a sweeping reform of the tax
system, so the government and the ruling coalition cannot afford to
put off addressing this issue. With the aim of enacting related
bills in the regular Diet session next year, they intend to call on
the DPJ to set up a consultative council for both sides to discuss
tax reform and social insurance issues.

On all of these issues, however, both camps will inevitably find
difficulty in making compromises. Regarding the consumption tax - a
focus in the tax-revision process, the prime minister has indicated
the possibility of raising the tax rate, but the DPJ has upheld its
call for keeping the current rate unchanged. On social security
policy, as well, the prime minister is obsessed with a premium
formula, while the DPJ is calling for a formula to finance basic
pensions with tax money. As it stands, both sides stand squarely
against each other on two key issues.

By showing a certain level of concession, the ruling camp is
maneuvering to draw the DPJ into policy talks, but many in the Prime
Minister's Official Residence (Kantei) and the LDP take the view
that "Ozawa is unlikely to easily make any concession because his
ultimate goal is to grab political power." The main opposition
party, which has obtained the Upper House' presidency and Steering
Committee chairmanship for the first time since its establishment,
is viewed certain to take a high-handed approach in handling Diet
affairs. DPJ's future moves will determine whether things will move
as desired by the prime minister.

(2) Efforts to move primary balance into black likely to suffer
setback: Cabinet Office revises mid-term outlook, by lowering
estimate for nominal growth rate

NIKKEI (Page 3) (Full)
August 7, 2007

The Cabinet Office yesterday released a new mid-term economic
outlook report, which estimated the growth rate of the Japanese
economy and the trend of prices up to fiscal 2011. The report
revised down the outlook for improvement in the primary balance
combining the payment balances of the central and local governments.
It estimated that the ratio of the primary balance to the nominal
GDP would move into the black in fiscal 2011 and incorporated a
severe view toward the feasibility of financial recapitalization,
compared with the outlook issued January this year (which estimated
the 0.2 PERCENT surplus). The report warned of the feasibility of
the government goal of moving the primary balance into the black by
fiscal 2011.

The new outlook revealed this time is a revised version of the
"Course and Strategy," medium-term guidelines for the management of
the economy, which the government adopted in January. This is the
first time that the government has revised the mid-term outlook in
the summer. The Cabinet Office reported on the revised outlook at a
meeting of the Council on Economic and Fiscal Policy on Aug. 6 in
order to have it reflected in the compilation of the fiscal 2008
budget.

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform


Surpluses in the primary balance mean that expenses for
administrative services can be covered with tax revenues and
revenues from sources other than taxes for the year. In compiling
the outlook this time, the Cabinet Office revised the New Economic
Growth Scenario aimed at moving payments balance into the black by
fiscal 2011 without a tax hike. As a result, the ratio of the margin
of surpluses to the nominal GDP has been revised down by 0.2 points
close to 0 PERCENT indicating that equilibrium has been achieved in
balance of payments. The major reason for this estimate is that
estimated tax revenues have decreased as a result of a lowered
projection for a nominal growth rate.

The precondition for this scenario is cutting expenditures by a
total of 14.3 trillion yen over five years from fiscal 2007 through
2011. The scope of this reduction is the upper limit of the
five-year plan (between 11.4 trillion yen and 14.3 trillion yen),
which the government incorporated in the big-boned economic
guidelines with the aim of achieving a unified reform of revenues
and expenditures.

The estimate is based on the assumption that the government goal
could be narrowly achieved if a maximum spending cut were carried
out. The report also included a case in which the primary balance
moves into the red by 0.4 PERCENT because the margin of spending
cuts remains within the lower limit of 11.4 trillion yen. The new
mid-term economic outlook report is also aimed at checking pressure
seeking an increase in expenditures, because "If efforts to reduce
expenditures are relaxed, the consumption tax must be raised," as
one Cabinet Office official put it.

(3) Seiron (Opinion) column: Ruling and opposition parties should
not destroy Japan's international prestige by locking horns in vain

SANKEI (Page 13) (Abridged)
August 7, 2007

Hiroshi Nakanishi, professor at Kyoto University

In the recent Upper House election, the ruling parties suffered a
crushing defeat, while the major opposition Democratic Party of
Japan (DPJ or Minshuto) became the largest force in the chamber.
Japanese politics is now undergoing a major test. Will the ruling
and opposition parties take this opportunity to promote political
reform or will they become inward-looking and be preoccupied with
confronting each other, making Japan's presence in the international
community even more insignificant?

Why was the ruling bloc heavily defeated? Some point to the weakened
local organizations of the ruling Liberal Democratic Party (LDP) in
the wake of the so-called Koizumi structural reforms, for instance,
the privatization of the postal services and the curtailment of
public works projects. This may be in part true. But it seems
difficult for the LDP to go back to where it used to be, namely, to
a time when it was backed by strong local organizations. Six years
ago in the LDP presidential election, former Prime Minister Koizumi
won unexpectedly by a wide margin over former Prime Minister
Hashimoto. This victory was attributable to the LDP's local chapters

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform

that did not want to suffer a massive defeat as they had in 1998
under the Hashimoto administration. In the 2001 Upper House
election, as they expected, the LDP won, widening support among
unaffiliated voters thanks to Koizumi's popularity at the time.
However, in the 2004 Upper House election, when Koizumi was not as
popular as he had been before, the positions of the LDP and the DPJ
in terms of votes they respectively garnered from the proportional
representation segment were reversed. In other words, the LDP then
became a party that was unable to win in the Upper House election if
it relied solely on organized votes, as it had done before the
so-called Koizumi reforms began. This fact has been simply confirmed
by the LDP's defeat this time.

Poor handling of government eroded public confidence

No doubt, Prime Minister Abe is enthusiastic about reforming the
basic structure of the state, including the Constitution, the
education system, and foreign and security affairs. When his
administration came into being, this attitude of Abe was given
support by one group but it alarmed another group. In between these
two groups were the unaffiliated voters, most of whom assumed a
wait-and-see attitude toward Abe. However, the way Abe proceeded to
handle the government caused public confidence in him to drop. He
emphasized the need to reform the existing systems, but all he did
in actuality was in a way to treat the symptoms instead of resolving
the basic problems. His selection of cabinet members also can be
seen in this light. What is worse, he was poor at managing state
affairs in a logical manner. Take a look at educational reform. Abe
was able to amend the Basic Education Law, an item he had inherited
from his predecessor. This was a good thing, but he at the same time
established an education revitalization council with the cabinet's
initiative. In my view, one logical way of doing things would be to
launch an education revitalization council after revising the Basic
Education Law or to revise the law in line with recommendations from
the council.

Another problem was that the prime minister's words were too light.
Abe described the election campaign this time as "a crucial battle"
and asked voters, "Who do you choose, Mr. Ozawa or me?" These words
lacked the weightiness one would expect from a prime minister. In
addition, Abe tended to turn around his policy stance in response to
public reactions as evidenced by the white-collar exemption problem
and pension fiasco. This tendency had a negative effect on public
opinion.

DPJ put to the test over the extension of the antiterrorism law

Now then, let us take a look at the DPJ. Japan is moving toward a
two-party system. The more Japan moves in that direction, the more
likely it will be that the ruling bloc will continue to hold a
majority in the Lower House and the opposition bloc will dominate
the Upper House. The occurrence of this sort of situation, however,
is not anticipated by the Constitution. If in such a situation, both
sides confront each other head-on, Japan's politics will stall. What
the LDP and the DPJ should do under such a situation is to create a
mechanism for them to strike a compromise in accepting the other
side's assertions if necessary.


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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform

Doing so is desirable particularly for the DPJ. The sentient public
will be paying attention as to whether the DPJ is capable of
properly judging when to assert itself and when to yield.

The question of extending the Antiterrorism Special Measures law,
which expires in November, in this sense will be the acid test for
the DPJ. Given that the DPJ has been opposed to extending the law
until recently, it is understandable that the DPJ cannot accept the
extension unconditionally. But it is true that the DPJ at one time
favored establishing such a law. The DPJ has been opposed to the
extension to date, but I think its opposition is not something
absolute since it has raised opposition with conditions attached. I
therefore think it is possible for the DPJ to agree on the extension
of the law if revisions are made to the bill.

Under the law, the Maritime Self-Defense Force (MSDF) has refueled
vessels from the United States and 10 other countries in the Indian
Ocean. The MSDF's refueling operations have been widely praised. If
these operations are suspended because of a domestic political
showdown, one can imagine how seriously Japan's prestige will be
damaged in the international community? If the DPJ wants to put an
end to the law, it is responsible for presenting a basic security
bill as it has asserted before ending the law and reveal how Japan
will take part in peace-building in Afghanistan.

(4) Calls for Abe's resignation at LDP meeting

YOMIURI ONLINE
August 7, 2007 13:48 pm

During an LDP meeting this afternoon at which Prime Minister Abe was
present, others in attendance urged him to resign from office.

Former Defense Minister Gen Nakatani (Tanigaki faction) said that
"the prime minister should step down." Chief Deputy Chairman of the
LDP Policy Research Council Kenji Kosaka (Tsushima faction) also
offered criticism, saying: "Rather than proclaiming that he will
remain in office, (Abe) should seek opinions at a Joint Plenary
Meeting of Party Members of both Houses of the Diet."

Prior to this meeting, at a Joint Plenary Meeting of Party Members
of both Houses of the Diet, the prime minister said: "I know that
many people are saying that I (should) take responsibility and
resign. Although there may be a long difficult road ahead, I must
push ahead with reforms in order to fulfill my responsibilities."

(5) CEFP starts discussing fiscal 2008 budget; Prime Minister
underscores his determination to continue with structural reforms; 3
percent cut in public projects confirmed

NIKKEI (Page 3) (Full)
August 7, 2008

The government yesterday held the first meeting of the Council on
Economic and Fiscal Policy since the Upper House election.
Participants have started discussing the fiscal 2008 budget. They
confirmed a general budgetary outline, including a 3 PERCENT cut in
public projects. Prime Minister Abe is determined to compile budget

TOKYO 00003614 006 OF 007

SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform

request guidelines before the end of the week. However, following
its defeat in the Upper House election, the ruling camp intends to
increase pressure, as can be seen in their call for a special
framework aimed at expanding outlays. Problems have begun to appear
in the feasibility of the government scenario of balancing economic
growth and restoring soundness to the country's fiscal situation.
The prime minister-led management of economic and fiscal policy is
becoming uncertain.

Ruling camp demanding separate framework aimed at increased
expenditures

The prime minister during the meeting stressed his determination to
continue with the structural reform policy, noting, "The election
results are harsh for us. I would like to fulfill my responsibility
by properly implementing reform. Regarding the fiscal 2008 budget as
well, he hinted at his persistence to achieve fiscal soundness,
noting, "I would like to see both the central and local governments
come up with austere budget estimates, by cutting spending to a
maximum."

Private-sector members of the CEFP, including Fujio Mitarai,
chairman of Canon, indirectly supported the prime minister at the
meeting yesterday. Participants almost unanimously approved the
overall picture of the government-envisaged budget for next fiscal
year.

Abe was quick to act. He called in LDP Policy Research Council
Chairman Shoichi Nakagawa to the Kantei and ordered him to compile
the fiscal 2008 budget in line with the outcome of the discussion
pursued by the panel. He apparently followed the method taken by
former Prime Minister Junichiro Koizumi, who characterized the CEFP
as a reform engine. Abe presumably intends to contain criticism by
those close to him, which erupted following the result of the Upper
House election.

However, the panel's penetrative powers have weakened, compared with
the era of the Koizumi administration during which it fought and
brought the forces of resistance into submission. Following the
defeat of the ruling camp, intensive deliberations on such issues as
reform of the tax system, which had been slated for late this month,
have been put off. Such being the situation, once budget estimate
caps are approved on the 9th, it will be impossible for the panel to
hold a meeting until after the cabinet is reshuffled, which is
expected to take place on Aug. 27. Since it functions on the
strength of the prime minister's leadership, there is an undeniable
concern that the panel has been reduced to a mere skeleton.

Judging that it would easier to deal with the government, the ruling
camp is also looking for an opportunity to resist. The LDP will
enter full-fledged budget deliberations on the 7th. However, a mood
of seeking additional budgetary allocations to local governments is
permeating through the party, because of the major shock it
experienced in the defeat in single-seat constituencies, where it
gained only six seats and lost 23. At the CEFP meeting on the 6th,
too, Finance Minister Omi, who is supposed to keep a watchful eye
over a possible budget increase, said, "Since some local governments
are experiencing harsh financial situations, I would like to give

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 08/07/07
Part-2
Index:
(1) Prime Minister's office making every effort to adjust policy to
suit DPJ on Antiterrorism Law, tax reform

consideration to them."

The government indicated its consideration to the ruling parties by
incorporating a framework for key request items, including a budget
for regional revitalization. This is a mechanism allowing all
ministries to earmark additional budgetary amounts at the stage of
submitting estimated requests, though their budget requests have a
ceiling. The total amounts requested will be finalized under the
caps, based on year-end screening to be carried out by the Finance
Ministry.

However, this does not mean an increase in the final appropriation
of budgetary funds. As a matter of fact, the Finance Ministry is
making a final adjustment with the lower half of the 17 trillion yen
level in mind. The ministry has no intention of changing the caps on
general-account expenditures. Ruling party members are criticizing
the amounts set by the Finance Ministry as insufficient. Some ruling
party members have called for setting a special framework aside from
the ceilings in order to make sure an increase in a budget for local
governments. An explosive mood is building.

SCHIEFFER

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