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Cablegate: The Japan Economic Scope--October 18, 2007

DE RUEHKO #4885/01 2920530
R 190530Z OCT 07





E.O. 12958: N/A
SUBJECT: The Japan Economic Scope--October 18, 2007

1. (U) This cable contains the Japan Economic Scope from October 18,

2. (SBU) Table of Contents

Trade Forum
3. AUSTR Cutler Meets DG Otabe in Tokyo
4. US-Japan Launch New Reg Reform Cycle

Fiscal Structure
5. Council on Economic and Fiscal Policy Influence Declining, Says
6. Nomura Scorns Pension System
7. Foreign Firms Tumble from TSE
8. Regional Banks Anxiously Watching for Postal Privatization
9. GAO in Kobe

Antitrust and Bid-Rigging
10. Judgment for Antitrust Violations in Japan
11. JFTC Briefs LDP on Proposed Antimonopoly Act Amendments

Postal Reform
12. No Change on EMS Custom Procedure after Japan Post Privatization

13. EMS/International Air Bring 60% of Japan's Illegal Imports

Energy and Climate Change
14. U.S. Researcher Advocates Cap & Trade at Keidanren Conference
15. More Carbon Cars, Less Carbon Exhaust
16. Industry Plans 30% More Emission Cuts
17. MOF Asks for More Energy Security Funding

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18. Tokyo Station to Exchange Foreign Money
19. Train Ticket Trouble Trips Up Commuters

Security Matters
20. "Pacific Shield 07" WMD Drill in Japan
21. Stiff Gun Law Calls for $250,000 Fine

Regional Realm
22. Aomori to Expand Apple Exports to China

Technical Troubles
23. Next-Generation Wireless Broadband Service - Four Consortia Vie
for Two Licenses
24. Shifting Ground for Copyrights - Cultural Affairs Agency Seeks
Comments on Reports

Sporting Action
25. Red Sox, Matsuzaka Face Elimination, Patriots Surge

26. MOFA Actions

27. This Week's Cables


3. (SBU) AUSTR Cutler Meets DG Otabe in Tokyo
--------------------------------------------- -----

AUSTR Wendy Cutler co-chaired Trade Forum meetings with MOFA DG for
Economic Affairs, Yoichi Otabe, October 18 to cover a range of
issues on the bilateral agenda, including beef.

She stressed the need to resolve the beef issue as soon as possible
and urged the Japanese to respect international standards as set by
Animal Food Health Organization (OIE), and to work closely with
special envoy Richard Crowder when he arrives for talks on October

Other bilateral issues on the Trade Forum agenda included marine
craft and rice. The meeting closed with an afternoon discussion of
the two countries' respective FTA policies. (ECON: Nicholas Hill)

4. (SBU) US-Japan Launch New Reg Reform Cycle
--------------------------------------------- -----

TOKYO 00004885 002 OF 008

Immediately prior to the Trade Forum on October 18, TV cameras were
on hand as AUSTR Wendy Cutler and MOFA Director General Yoichi Otabe
exchanged recommendations for this year's cycle of the Regulatory
Reform Initiative.

The Embassy is working with USTR to provide information for the
press on the US recommendations, including links to the USTR press
statement and the recommendations themselves. (ECON: Nicholas


5. (SBU) Council on Economic and Fiscal Policy Influence Declining,
Says Lawmaker
--------------------------------------------- -----

With the opposition Democratic Party of Japan (DPJ) exercising more
influence in Diet discussions, PM Fukuda has been forced to shift
economic policymaking to party structures.

Consequently, the Council on Economic and Fiscal Policymaking's
(CEFP) influence is declining, a Liberal Democratic Party (LDP) Diet
member told us this week. The representative cited last week's
formation of a cabinet-level group to formulate regional
revitalization plans (and a parallel LDP committee) as an example of
the shift. (ECON: Marc Dillard)

6. (U) Nomura Scorns Pension System
--------------------------------------------- -----

With comments that underscored both anxiety about Japan's overall
pension situation as well as increasing calls for Japan to upgrade
its financial sector competitiveness, the head of Nomura Asset
Management (NAM) - Japan's largest asset manager - derided Japan's
defined contribution (401k equivalent) pension system as "useless."

He lamented that "the international headquarters of investment banks
are in London and the regional headquarters are in Hong Kong or

Tokyo is a "national headquarters, not even a regional
headquarters," he said. In comments to the Financial Times, NAM
President Takumi Shibata noted that, not only is pension reform
"crucial", but that "it's close to the last chance," for Japan to
become a globally competitive financial services center. (FINATT:
Mateo Ayala)

7. (U) Foreign Firms Tumble from TSE
--------------------------------------------- -----

Despite efforts to assume a global role, the Tokyo Stock Exchange
(TSE) is losing centripetal force for foreign firms.
The latest in a trend, German automaker Volkswagen recently
announced a decision to delist its shares from the TSE. From a peak
of 127 foreign companies in 1991, there are now only 24 foreign
companies listed on the TSE following delisting by major names such
as Nestle, Volvo, Phillip Morris, P&G, Apple, IBM, Motorola and
Deutsche Bank.
While the TSE has been enthusiastic about attracting companies from
emerging economies - in particular from China and India - after the
first Chinese company was listed in August, no subsequent listings
from either country have followed. (ECON: Satoshi Hattori)

8. (SBU) Regional Banks Anxiously Watching for Postal Privatization
--------------------------------------------- -----

Regional Financial Institutions in Kansai are carefully watching
"Yucho Bank," which was privatized as part of Japan Post
liberalization on October 1.

According to Nikkei's Kansai edition, the total reserves of Yucho
Bank in the Kansai (six prefectures) is approximately 34 trillion
yen ($293 billion), and it overwhelmingly exceeds the 5 trillion yen
($43.1 billion) reserves of Kyoto Bank, the largest Kansai regional

Although there are only 44 directly-managed Yucho Banks in the
Kansai, the number of post offices and outsourced businesses of

TOKYO 00004885 003 OF 008

Yucho Bank is approximately 3,100, almost three times the total
number of branches of regional banks.

Nobuyoshi Namba, Director of Osaka City Credit Cooperatives Research
Institute, said that the financial operations of Post Offices extend
to rural areas, so Yucho will have a larger impact on - and impinge
on the customer bases of - regional banks and credit cooperatives
rather than mega banks operating in urban areas.

To compete with Yucho, many regional banks are introducing new
products, but they don't feel that it is fair competition. Osaka
City Credit Cooperatives has started deposit accounts with double
the going interest rate this week. (OSAKA-KOBE: Phil Cummings/Naomi

9. (SBU) GAO in Kobe
--------------------------------------------- -----

U.S. Government Accountability Office (GAO) Assistant Director and
Senior Analyst visited Kobe and Tokyo to find best practices from
the 1995 Kobe Earthquake reconstruction, which could apply to the
long-term Hurricane Katrina reconstruction in New Orleans and the
Gulf Coast.

Kobe Chamber of Commerce and Industry Managing Director, Masaaki
Yabuno, recounted that the damage to the Kobe economy was 10
trillion yen ($86.2 billion). In the two years following the
earthquake, recovery was smooth, but the recession and yen
appreciation after 1997 hampered Kobe's economic recovery.

Kobe COCI criticized the GOJ for shooting down its plan to make Kobe
a "free port" which would compete with other Asian major ports.

Yabuno added that large companies in Kobe such as Kobe Steel and
Kawasaki Heavy Industry completely recovered from the damage and
experienced high demand, but a large number of SMEs in Kobe are
still struggling. (OSAKA-KOBE: Phil Cummings/Naomi Shibui)


10. (U) Judgment for Antitrust Violations in Japan
--------------------------------------------- -----

The Nagoya District Court on October 15 convicted five senior
officers of general contractors for being involved in dango
(bid-rigging) on Nagoya subway construction projects in 2006. This
was the first case in which general contractors were found guilty of
antitrust violations in Japan. Not coincidentally, general
contractors in Central Japan are known for their strong and close

The judge pointed out those companies had constantly engaged in
dango for over thirty years to keep up profit margins and parcel out
business. Each of the five individuals was given a suspended
sentence of 1.5 to 3 years, and their firms were each fined from 100
to 200 million yen ($860,000 to $1.7 million).
The defendants' attorneys had argued that the cooperation among the
general contractors had certain merits in that it helped avoid a
lack of bids due to excess competition and to maintain a high
quality of public works. (NAGOYA: Tamiki Mizuno)

11. (SBU) JFTC Briefs LDP on Proposed Antimonopoly Act Amendments
--------------------------------------------- -----

In an October 16 briefing of the ruling Liberal Democratic Party's
(LDP) committee overseeing implementation of the Antimonopoly Act
(AMA) -- Japan's main antitrust law -- the Japan Fair Trade
Commission submitted a set of recommendations for amendments to the
AMA calling for possibly raising the upper limit on fines against
firms that play a leading role in plotting anti-competitive
behavior, while making more firms eligible for leniency by
voluntarily reporting their illegal conduct. The Commission also
seeks to expand the range of activities subject to punitive
surcharges under the AMA to include cases in which large firms
exploit their market power to force smaller businesses to cut their
prices or provide discounts in the form of additional services and
to cases of "unfair trade practices" such as fraudulent product
labeling or deep discounts. The USG has expressed its concern to
the JFTC that applying surcharges on these types of behavior, as
opposed to the current system where the Commission can order

TOKYO 00004885 004 OF 008

companies simply to halt the actions concerned, could have a
chilling effect on vigorous competition that benefits consumers.
The JFTC plans to present the proposed amendments to the Diet next
spring. (ECON: Chris Wurzel)


12. (SBU) No Change on EMS Custom Procedure after Japan Post
--------------------------------------------- -----

Customs officers told embassy officials their procedures have not
been affected by privatization, during a visit to their EMS handling
site October 17.

Currently, assessed declaration system allows EMS personnel to
deliver packages requiring duty to recipients and accept the tax
payment upon delivery. Subsequently, they can deliver more quickly
than commercial services. For non-EMS items, customs officials mail
a post card indicating the cost of the tax and the item is released
for delivery when the tax is paid.
Officials explained that in a year and half, this system will be
standardized. Duty for EMS packages will be have to be paid for the
package to be released.

Officials explained that 10 percent of packages received are
taxable. Tokyo Customs at Tokyo International Post Office handles
approximately 10,000 parcels a day during normal business hours.
(ECON: Junko Nagahama)

13. (U) EMS/International Air Bring 60% of Japan's Illegal Imports

--------------------------------------------- -----

Tokyo Customs officials said 60 percent of illegal imports are
handled at the Tokyo International Post Office where all EMS and
international air parcels are handled. Approximately 80 percent of
all the illegal imports are of IPR violations, mainly from South
Korea and China. (ECON: Junko Nagahama)


14. (SBU) U.S. Researcher Advocates Cap & Trade at Keidanren
--------------------------------------------- -----

An emissions cap-and-trade scheme is generally considered to be the
"ultimate goal" in the United States for action on climate change,
according to University of Georgia law professor and former advisor
to the State Department and United Nations, Daniel Bodansky.

Speaking at an October 15 Keidanren conference, Bodansky added that
an industry sector approach is "second-best" for broadening
participation and simplifying negotiations.

Bodansky's comments fueled intense discussion among some 300
participants from industry, government, and research institutes,
many of whom strongly oppose cap and trade and prefer a sectoral
approach with minimal government regulation.

Keidanren used the event to distribute its proposal for a post-Kyoto
climate framework based on a flexible co-existence of the
environment and economic growth and innovative technological
development. (ECON: Keiko Kandachi/Toby Wolf)

15. (U) More Carbon Cars, Less Carbon Exhaust
--------------------------------------------- -----

Committing about 20 billion yen ($175 million) to an aggressive
strategy to expand its share of the advanced materials auto parts
business, Toray Industries announced on October 9 plans to build an
automotive research and manufacturing center in Nagoya, to open in
June 2008 and be fully complete by 2010.

The global leader in its field, Toray currently controls about 30
percent of the world carbon composite market. The company's 16-year
Boeing 787 Dreamliner contract alone is reportedly worth more than
$6 billion. Targeting low weight, hybrid, and fuel-cell vehicles,

TOKYO 00004885 005 OF 008

Toray aims to increase its annual automotive sector sales from 124
billion yen ($1.1 billion) in 2006 to 350 billion yen ($3 billion)
by 2015.

Carbon fiber parts can be up to 75 percent lighter and ten times
stronger than similar steel parts, but currently cost up to ten
times more. (NAGOYA: Dan Rochman)

16. (U) Industry Plans 30% More Emission Cuts
--------------------------------------------- -----

Thirteen Japanese industrial sectors will be called on to reduce
greenhouse gas (GHG) emissions by nearly 30 percent from the levels
of Nippon Keidanren's voluntary action program according to a
front-page report by Nikkei.

Nikkei and GOJ sources said that METI and MOE announced the plan at
a joint committee meeting October 11. A METI official said the
ministry is asking for the additional emission cuts in order to help
Japan meet its Kyoto Protocol commitments.
Japan's 2005 GHG emissions were 7.8 percent higher than the 1990
baseline, making a 13.8 percent cut necessary to reach the target.
(ECON: Keiko Kandachi/Toby Wolf)

17. (U) MOF Asks for More Energy Security Funding
--------------------------------------------- -----

In the budget currently being considered by the Ministry of Finance,
the Agency for Natural Resources and Energy (ANRE), a division of
the Ministry of Economy, Trade and Industry (METI), has requested
overall funding of 828 billion yen ($7 billion), an increase of 81
billion yen ($692 million) over last year.
The budget seeks an increase of 3.9 billion yen ($33.3 million) for
geological surveys. It also requests 13.2 billion yen ($112
million) in new financing for "strategic resource diplomacy."

Japan Oil, Gas and Metals National Corporation (JOGMEC), which
provides loans and debt guarantees to companies to invest in energy
projects, will raise its equity participation cap from 50 percent to
75 percent.

Itochu Co., Ltd has already secured loans from JOGMEC to invest 4.6
billion yen ($39.3 million) for a 75 percent share in a natural gas
exploration project in Namibia. Mitsui Co., Ltd. likewise will
invest 8.6 billion yen ($73.5 million) in a project in the Gulf of

The country's new national energy plan calls for Japan to develop 40
percent of its energy independently by 2030. (ECON: Sally
Behrhorst/Eriko Marks)


18. (U) Tokyo Station to Exchange Foreign Money
--------------------------------------------- -----

East Japan Railway Co. plans to offer foreign exchange services at
Tokyo Station to overseas visitors by the end of October, the Nikkei
reported. The major terminal is used by many foreigners because of
lines connecting it to Narita and Haneda airports.

A counter on the station's first underground floor will offer 31
currencies, including the dollar, the euro and the yuan.
There are also plans to create a concierge desk adjacent to the
counter. This desk will provide tourist information and give station
directions to foreign visitors. (ECON: Charlotte Crouch)

19. (U) Train Ticket Trouble Trips Up Commuters
--------------------------------------------- -----

A software bug caused 4,378 automated ticket gates made by Nippon
Signal Co. to shut down in the Tokyo area during the October 12
morning commute, according to a Nikkei report.
The trouble stemmed from systems that support a variety of smart
card rail pass formats.

Prior to the technical troubles, Metro officials impressed on
Econoff the unique efficiency of their system specifically tailored
to move more than 1 million passengers during one hour of morning
rush hour commute.

TOKYO 00004885 006 OF 008

The system was back up and running by noon, but the shutdown
affected some 2.6 million commuters at stations operated by 16
different rail companies. (ECON: Charlotte Crouch)


20. (U) "Pacific Shield 07" WMD Drill in Japan
--------------------------------------------- -----

Japan hosted a three-day, seven-country Proliferation Security
Initiative (PSI) drill, Nikkei and Yomiuri reported October 13.
Australia, Britain, France, Japan, New Zealand, and the U.S.
participated in the exercise. Another 34 European and Middle
Eastern countries observed from a Maritime Self Defense Forces
(MSDF) vessel. China and Korea did not participate.

On the first day, the participants chased a ship scripted as a
"suspicious vessel" which could have been carrying WMD. Japanese
MSDF inspectors boarded the ship as part of the drill.

On the second day, six countries demonstrated a search for mock
suspicious materials hidden on a vessel berthed at a Yokosuka Warf.
On the final day of the exercise, Japanese Ground Self-Defense
Forces conducted an emergency response to a mock chemical container
leak at a Yokohama port. (ECON: Eriko Marks)

21. (U) Stiff Gun Law Calls for $250,000 Fine
--------------------------------------------- -----

The government approved a bill on October 16 to revise the Firearms
and Swords Control Law and stiffen penalties that will now include a
maximum 30 million yen ($250,000) fine for anyone who fires a weapon
on behalf of organized crime, according to a Yomiuri Shimbun

The bill, which was approved at a Cabinet meeting, is to be
submitted to the current extraordinary session of the Diet, and the
government hopes to have it come into force by the end of the year.

MOF Customs officials recently explained to us that they have been
under increased public anti-gun pressure since Nagasaki Mayor Iccho
Ito was shot dead by a gang member in April. (ECON: Charlotte


22. (U) Aomori to Expand Apple Exports to China (U)
Representatives from Aomori Prefecture's apple industry traveled to
northeast China's apple growing region in early October to study the
possibility of increasing apple exports there.

A trade delegation led by the mayor of Hirosaki, Aomori met with
government officials from the city of Dalian as well as several
Chinese agriculture and trade related entities. They also visited
major apple farms, fruit canneries and local markets in the Dalian

Aomori Prefecture is the largest producer of Japan-grown apples,
with local farmers producing 424,900 tons annually. Farms around the
city of Hirosaki grow 70 percent of the prefecture's apples.
Currently, 96 percent of Aomori's apple exports go to Taiwan.

In 2005, Aomori sold 16,378 tons of apples in Taiwan valued at $43
million. By comparison, Aomori sold only 132 tons of apples in
mainland China valued at $508,620.

With no growth in Japan's domestic apple market, Aomori apple
producers hope that mainland China's growing middle class will
develop a taste for their apples. It remains to be seen, however, if
Chinese consumers will be willing to pay Japanese prices for the
higher cost apples. (SAPPORO: Ian Hillman/Yumi Baba)


TOKYO 00004885 007 OF 008

23. (SBU) Next-Generation Wireless Broadband Service - Four
Consortia Vie for Two Licenses
--------------------------------------------- -----

Three corporate groups applied for licenses to offer next-generation
high-speed wireless broadband services using 2.5 GHz bandwidth,
submitting applications on October 11 to Ministry of Internal
Affairs and Communications (MIC).

These groups will vie with Willcom Inc., a PHS (personal handy-phone
system) operator that had already filed. MIC plans to grant two
licenses by the end of this year. The three consortia all plan to
use WiMAX technology, rather than DSL or cable. The groups include,
among others: Acca Wireless, teaming up with Acca Networks Co. and
NTT DoCoMo Inc.; Open Wireless Network, led by Softbank Corp. and
eAccess Ltd; and Wireless Broadband Kikaku, invested in by KDDI,
Corp., Kyocera Corp, Intel Capital, and East Japan Railway Co.

These consortia also represent the latest chapter in the sparring
between corporate Japan and the GOJ. The GOJ, in an effort to
further open markets and encourage new entrants, had excluded the
established carriers from the bidding. The big players are now
trying to work around this inconvenience by partnering with smaller
firms. (ECON: Scott Smith/Kaoru Nakata)

24. (SBU) Shifting Ground for Copyrights - Cultural Affairs Agency
Seeks Comments on Reports
--------------------------------------------- -----

Promotion of digital content, copyright terms, fighting piracy,
technological protection measures, and remuneration for rights
holders (collecting levies) are among the topics discussed in two
committee reports prepared for the Cultural Affairs Agency

These committees are among numerous technical groups discussing
aspects of Japan's competitiveness and its place in the digital
world. The reports of these particular groups will also inform GOJ
efforts as it prepares for the first major revision to Japanese
copyright law in many years.

The Cultural Affairs Agency (Bunkacho) is soliciting public comments
on reports issued by two of its advisory committees: the Private
Sound/Visual Recording Subcommittee and the Legal Affairs
Subcommittee, reporting to the Copyright Affairs Committee, under
the Cultural Affairs Council.

These are interim reports and Bunkacho is soliciting comments for
the period 10/16-11/15/07. For more information on points and
issues concerning private sounds and visual recording click here.
To view a report by the Legal Affairs Subcommittee (in Japanese)
click here. (ECON: Scott Smith/Kaoru Nakata)


25. (SBU) Red Sox, Matsuzaka Face Elimination, Patriots Surge
--------------------------------------------- -----

A dejected Daisuke Matsuzaka sat catatonic in front of his locker as
gloom filled the baseball world. The Boston Red Sox and their star
- but all too wild - right hander from Yokohama, Japan stood on the
precipice of disaster.

The Red Sox are one game away from elimination in the American
League championship series after losses by Matsuzaka and Tim
Wakefield put them down three games to one to an unknown team from

The consolation for Red Sox fans is that the New England Patriots,
who do not have any Japanese imports on their roster, continued to
roll - crushing and humiliating the Dallas Cowboys October 14 in the
stadium that Tom Landry built, 48-27. (ECON: Nicholas Hill)

The 3rd Round of Negotiations on the Japan-Switzerland EPA will be
held from October 15 to 19 in Yokohama. Click here for more
information from MOFA's website.
Back to Top


TOKYO 00004885 008 OF 008

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Reference Milestones on Information Security
4797 Japan: Possible Next Steps on Burma

28. (U) This SENSITIVE BUT UNCLASSIFIED e-newsletter from U.S.
Embassy Tokyo's Economic Section, with contributions from the
consulates, is for internal USG use only. Please do not forward in
whole or in part outside of the government. The Scope is edited
this week by Charlotte Crouch ( and Joy Progar
( Please visit the Tokyo Econ Intranet webpage
for back issues of the Scope. Apologies, this option is only
available to State users. Please contact Joy Progar if you are from
a different agency and are interested in a back issue.

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