Cablegate: The Japan Economic Scope--October 25, 2007

DE RUEHKO #5025/01 3020004
R 290004Z OCT 07





E.O. 12958: N/A
SUBJECT: The Japan Economic Scope--October 25, 2007

1. (U) This cable contains the Japan Economic Scope from
October 25, 2007.

2. (SBU) Table of Contents

Financial News
3. Recent Major Economic Indicators
4. Public Pension Fund Goes Small Cap for Big Returns
5. GOJ's Six Fiscal Projections Point to Consumption Tax Hike

6. Fuel Cell Cars Hit the Road, but Commercialization is Years
7. Kansai International Airport Worries about Losing Japanese

Postal Privatization
8. New Postal Union to be Japan's Largest
9. Bill to "Review" Postal Privatization Submitted to the
Upper House
10. Tokushima Governor appointed to PSPC

11. AUSTR Cutler Discusses Economic Agenda with Japanese
12. Japan's Trade Surplus Grows
13. Japan - Australia FTA Talks Resume in November

14. OECD Study: Japan's Pampered Farm Sector
15. Ag Ministry Considers Buying Extra Rice to Bolster Domestic
16. Japan's Beef Trade Restrictions: Politics over Science

IPR and Telecommunications
17. Japan-Germany to Expand IPR Cooperation
18. Government Seeks to Open Up Cell-Phone-Related Businesses

19. Taking the Pulse of Healthcare IT in Japan

Sporting News
20. Back from the Precipice
21. With Popularity of MLB, Japanese Baseball Suffers?

22. This Week's Cables


3. (SBU) Recent Major Economic Indicators
--------------------------------------------- ----

In its monthly economic report, the Cabinet Office left its
overall outlook unchanged, noting that the economy is
recovering, while some weakness has been recently noted.

Submitted to the Cabinet on October 22, the report confirmed
that Japan's economy has now expanded for 69 consecutive months,
a record postwar economic boom.

However, the report downgraded its assessment of housing
investment and private consumption. The Bank of Japan (BOJ)'s
report, released on October 11, also kept its core economic
assessment unchanged, indicating that the economy is "expanding

The BOJ said that personal consumption is firm and household
income has continued to rise moderately. The BOJ noted that
exports have continued to increase, and business investment has
also continued to trend upward against the background of high
corporate profits. The BOJ expects the economy to continue
expanding moderately in the coming months. (FINATT: Shuya

4. (SBU) Public Pension Fund Goes Small Cap for Big Returns
--------------------------------------------- ----

In an effort to raise returns through broader holdings, the
Government Pension Investment Fund (GPIF), which oversees
public pension assets, will allocate 100 billion yen ($850
million) toward small- and mid-cap stocks at the start of next

TOKYO 00005025 002 OF 007


While this sum represents slightly more than a tenth of the 90
trillion yen ($780 billion) in assets GPIF manages for MHLW,
the decision is in line with GPIF's asset reallocation plans to
take effect by FY 2009, and could reflect a somewhat more
aggressive posture toward risk and return. At present, most of
the fund's stock holdings are large-cap issues, with domestic
equities accounting for 20 trillion yen ($175 billion) of the
fund's portfolio. GPIF's returns in FY 2006 were down 9.62
percent from FY 2005, at 4.75 percent. (FINATT: Mateo Ayala)

5. (SBU) GOJ's Six Fiscal Projections Point to Consumption Tax
--------------------------------------------- ----

On October 17 the Cabinet Office submitted to the Council on
Economic and Fiscal Policy a new set of projections for fiscal
consolidation for the fiscal 2007-11 period and for the fiscal
costs of social security through fiscal year 2025.

The projections indicated the GOJ's present fiscal
consolidation target -- achieving a combined central/local
government primary surplus by FY11 -- is attainable only under
favorable macroeconomic conditions together with a large cut in
government spending.

With the exception that all other scenarios project the need
for major tax increases by FY11 to achieve the fiscal
consolidation target. If these revenue shortfalls are covered
solely by an increase in the consumption tax, a hike of
approximately 1- to 3-percentage-points would be required.
The projections demonstrate that a consumption tax increase
from the present relatively low rate of five percent is

However, it is still uncertain whether the Fukuda
administration will flesh out a tax hike as part of the current
tax reform proposals to be compiled by December.
Please refer to the attached document for further details on
the six scenarios. (FINATT: Shuya Sakurai)


6. (SBU) Fuel Cell Cars Hit the Road, but Commercialization is
Years Away
--------------------------------------------- ----

As part of the METI-sponsored Hydrogen & Fuel Cell
Demonstration Project (JHFC) in Yokohama, Japanese automakers
and energy companies, along with GM, Daimler, and others, are
testing hydrogen fuel cell vehicles (FCVs) under actual road

A Toyota FCV recently traveled 560 km from Osaka to Tokyo on a
single hydrogen tank. JHFC data shows that current FCVs are 50
percent more energy efficient and produce half the "well-to-
wheel" CO2 emissions as conventional gasoline vehicles.
FCVs are powered by electricity created when hydrogen gas and
air combine in the vehicle's fuel cell stack. While the
production and transport of hydrogen involve some greenhouse
gas emissions, tailpipe emissions consist of just odorless heat
and water.

In test drives of two FCVs at the JHFC facility, Embassy
officers noted smooth, quiet acceleration and performance
comparable to conventional cars. However, Toyota and Nissan
officials speaking at JHFC conceded mass production of FCVs
remains years away. Click here to access JHFC's website.
(ECON: Toby Wolf)

7. (SBU) Kansai International Airport Worries about Losing
Japanese Tourists
--------------------------------------------- ----

According to Daily Aviation news, Kansai International Airport
(KIX) Vice President Tadakuni Hirano is concerned about the
decrease in international passengers at KIX. While the total
number of passengers has remained relatively steady over the
past six years, the number of Japanese passengers traveling on

TOKYO 00005025 003 OF 007

international flights though KIX declined 17 percent during the
same time period.

Hirano attributes some of this loss to the suspension and
reduction of flights to North America. He would like to
establish additional North American routes at KIX even if they
are served by a third country, but the prospects are currently
Hirano also said KIX has been hurt by the Haneda-Shanghai
flights which started service on September 28. He was
disappointed that the Shanghai Airlines reduced KIX flights
from ten to seven.
He also said he anticipates negotiations regarding additional
routes to China during the next round of air talks between
Japan and China. (ECON: Junko Nagahama)


8. (SBU) New Postal Union to be Japan's Largest
--------------------------------------------- ----

Creating Japan's largest labor union, the Japan Postal Workers'
Union (JPU) and All Japan Postal Labor Union (JPLU or Zen
Yusei) officially merged October 22. Opposition to postal
privatization led the unions, which had a long history as
rivals, to join forces.

The new Japan Postal Group Union (JPGU or "JP Roso")
substantially exceeds Japan's next largest union, NTT's, which
has a membership of 185,000. JP Roso's new chairman, Yoshikazu
Yamaguchi said during the union's inaugural meeting that the
group will aim to increase its membership from 233,000 to
300,000 within two years by recruiting "non-regular" workers in
addition to core membership of career employees.
JP Roso is affiliated with the Japanese Trade Union
Confederation (JTUC-Rengo). (ECON: Ai Kaneko)

9. (SBU) Bill to "Review" Postal Privatization Submitted to
the Upper House
--------------------------------------------- ----

Three opposition parties -- the Democratic Party of Japan (DPJ),
the People's New Party (PNP) and the Social Democratic Party
(SDP) -- jointly submitted a bill to the Upper House on October
23 to "review" postal privatization. The bill calls for the
freeze of stock sales of the three companies formed on October
1 as part of the privatization: Japan Post Holdings, Yucho Bank,
and Kampo Insurance.

The bill is not expected to pass, as a similar anti-postal
privatization bill failed in the last Diet session. The DPJ
chose to endorse the bill, however, because it created a
parliamentary coalition with the PNP, bringing its Upper House
coalition Diet member count to 119 -- just three short of an
outright majority.

The PNP was formed by Liberal Democratic Party members who were
thrown out of the LDP for opposing postal privatization in the
summer of 2005. (ECON: Ai Kaneko)

10. (SBU) Tokushima Governor appointed to PSPC
--------------------------------------------- ----

Tokushima Prefecture Governor Kamon Iizumi was named the newest
member of the Postal Services Privatization Committee (PSPC) on
October 5. Iizumi replaced former Iwate Governor Hiroya Masuda,
because Masuda became Minister for Internal Affairs and
Communications (MIC) in the second Abe Cabinet and was
reappointed to the current Fukuda cabinet.

Iizumi has a background in the Ministry of Home Affairs (later
merged into MIC), which he joined after graduating from the Law
Department of Tokyo University. He ran for Tokushima's
governorship in 2003, and is currently serving his second term.

The PSPC is a five-member committee consisting of private
sector experts, headed by Naoki Tanaka, President of Center for
International Public Policy Studies. It is charged with
guiding the privatization process, including reviewing
applications for new insurance and banking products.

TOKYO 00005025 004 OF 007

The other members of the Committee are, Prof. Eiko Tsujiyama,
Professor at Waseda University, Mr. Kazuhiko Toyama, CEO of
Industrial Growth Platform, Inc. (former COO of Industrial
Revitalization Corporation of Japan) and Prof. Shuya Nomura,
Professor at Chuo Law School. (ECON: Ai Kaneko)


11. (SBU) AUSTR Cutler Discusses Economic Agenda with Japanese
--------------------------------------------- ----

Assistant U.S. Trade Representative for Japan, Korea, and APEC
Affairs, Wendy Cutler, discussed with GOJ officials a range of
topics on the economic agenda with Japan during her October 17-
19 visit to Tokyo.

For more on her meetings, please see Tokyo 4943. Cutler also
led Trade Forum talks on October 18, which will be reported

For a copy of Cutler's October 19 speech at the Japan National
Press Club, entitled "U.S.-Japan Free Trade--Lessons from the
U.S.-Korea FTA," please click here. (ECON: Nicholas Hill)

12. (SBU) Japan's Trade Surplus Grows
--------------------------------------------- ----

Japan's trade figures are out and its surplus with the United
States has declined even as its overall surplus has surged.
According to Ministry of Finance data released this week,
Japan's trade surplus with the United States declined by 5.5
percent in the first half of 2007, while its surplus overall
was up 46 percent.

According to the data, exports from the United States grew for
the sixth consecutive half-year period, helped along by strong
growth in demand for U.S. feed grains, including corn.
Japan's trade surplus with the European Union was up 17 percent,
spurred by the decline in the value of the yen against the Euro
and British pound.

For more on the trade data from the Ministry of Finance's
website (in English), please click here. Click here to access
a Nikkei article that tells a similar story about Japan's
growing trade surplus. (ECON: Nicholas Hill/Ryoko Nakano)

13. (SBU) Japan - Australia FTA Talks Resume in November
--------------------------------------------- ----

The last round of talks in August did not see much progress,
but Australian and Japanese negotiators still plan to meet in
November to see what can be accomplished in advancing their FTA
agenda. A MOFA official told us, however, that no date has
been set yet for the next round, which will likely take place
in Canberra.

The official noted that Australia may think differently, but
Japan still has no deadline to arrive at a deal. Another MOFA
official we talked to was not optimistic about the prospects of
concluding a deal with Australia, given the tough opposition
put up by Japan's Agriculture Ministry and protectionist farm

Meanwhile, the Japan - Australia Cooperation Committee, a
business group in Japan of long standing, issued a joint
statement with their Australian counterparts urging early
progress on reaching a comprehensive agreement. According to
the Yomiuri, the Australian business group attached priority to
including the word "comprehensive" in the statement.
An Australian Embassy source told us that the Japan Australia
Business Cooperation Committee meets every year, alternating
venues between the two countries. Attached is its joint
statement issued in Tokyo. (ECON: Nicholas Hill)


14. (SBU) OECD Study: Japan's Pampered Farm Sector

TOKYO 00005025 005 OF 007

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

According to a recent OECD study (see link below), Japan ranks
fifth among OECD members in the level of government support for
farmers. The report credits the Japanese government for
"gradually reducing" its role in setting prices, noting that it
no longer sets prices for wheat, rice, and barley. Overall
government support accounts for 53 percent of farm sector
Separately, an OECD team arrived in Japan last week to continue
work on its regularly scheduled Japan country survey, which
should be completed by next spring.
An OECD official told us that so far they have had a good
reception by authorities. The report, as is OECD practice,
will be the subject of review by the GOJ, which makes it more
difficult to produce, but ultimately more influential. Click
here to view the report. (ECON: Nicholas Hill)

15. (SBU) Ag Ministry Considers Buying Extra Rice to Bolster
Domestic Prices
--------------------------------------------- ----

According to a Nikkei article on October 24, Japan's
Agriculture Ministry is considering buying up extra rice to
prop up domestic prices, which have fallen about 10 in the past
year. According to the article the Ministry has traditionally
avoided using government purchases as a way of supporting
Japan's current stockpile stands at about 770,000 tons.
According to Nikkei, authorities are considering boosting the
stockpiles to about one million tons. Sources we have talked
to, including rice farmers, have lamented the drop in Japan's
rice prices. It is more a structural than cyclical problem, as
diets have changed and Japanese consume less rice.
In an article in the October 23 Daily Yomiuri, Junichi Maruyama
points to two main reason for the recent falling rice prices:
first, some farmers are exceeding government and farming
organization production targets; and second, speculation that
rice prices would fall has spurred buyers to delay purchases.
This has suppressed demand even further. (ECON: Nicholas

16. (SBU) Japan's Beef Trade Restrictions: Politics over
--------------------------------------------- ----

USTR Special Envoy Richard Crowder led a delegation in Tokyo
October 22 to underscore that Japan should adopt international,
science-based standards in setting restrictions on U.S. beef
imports. He told senior GOJ officials that he was on a five
stop tour of the region and was conveying the same message.
The United States expects its trading partners to abide by the
decision of the World Animal Health Organization (OIE) which
classified the United States as in a safe, or "controlled
risk," category. Although this category means that U.S. beef
from cows of any age can be traded, GOJ officials told Crowder
that they cannot recommend this level of trade liberalization.
The government is prepared to recommend to the Food Safety
Commission (FSC) a liberalization to allow imports of beef from
cows of 30 months or younger. For further information on the
Crowder meetings, please contact us. (ECON: Nicholas Hill)


17. (SBU) Japan-Germany to Expand IPR Cooperation
--------------------------------------------- ----

Japan recently announced the launch of a pilot program with
Germany to expand Patent processing cooperation from March 2008.
This brings to four the number of countries with which Japan
has agreements under the Patent Prosecution Highway (PPH),
following the US, Korea, and the UK.

Under the PPH, an applicant may request that a patentable claim
filed in one office also undergo accelerated examination in
other participating offices. This is expected to reduce
average examination periods from 26 months for first filings
down to 2-3 months for second filings, and to reduce required
supplemental documentation to as little as a single document.

TOKYO 00005025 006 OF 007

The Patent Prosecution Highway is expected not only to reduce
the cost of filings but also reduce the burden and enhance the
quality of examinations. Click here for information on the
Japan-Germany pilot launch and click here for information on
patent examination activities. (ECON: Scott Smith/Kaoru

18. (SBU) Government Seeks to Open Up Cell-Phone-Related
--------------------------------------------- ----

Japan wants to revitalize its telecommunications industry and
break the grip of incumbent cell phone carriers. This is the
aim of a Ministry of Communications (MIC) report released on
October 23 on competition promotion programs for 2010, which
outlines measures to open and promote competition in a number
of related business fields. One priority is to make it easier
for MVNOs (mobile virtual network operators) to lease cell
phone networks from service providers. The Government also
hopes to open competition in businesses such as: handsets,
billing and personal authentication, and Web sites for Net-
enabled phones.

MIC will draw up guidelines for cell phone service providers to
ensure they will not stifle deregulation efforts. The
guidelines are expected improve accountability and transparency,
requiring service providers to disclose usage rules and charges
for companies leasing networks.

The Ministry plans to revise accounting rules to stop cell
phone service providers from tacking sales incentives onto
connection fees. This will mean an end to 1 Yen phone sales
but should rationalize service charges for retail as well as
wholesale users.

More reasonable interconnection rates would reduce a
significant barrier to prospective virtual network operators.
(ECON: Scott Smith/Kaoru Nakata)


19. (SBU) Taking the Pulse of Healthcare IT in Japan
--------------------------------------------- ----

Japan is currently looking to upgrade and integrate its
Healthcare IT network to support electronic medical records and
interface with Japan's national medical insurance system. A
Senior Researcher from the Japan Medical Association (JMA)
briefed ACCJ on the challenges and prospects for better
utilizing IT in Japan's healthcare reform.

Early priority objectives in establishing the system will
include increasing users while ensuring system security. The
JMA researcher reassured the U.S. business audience that
competition should be "promoted" as the system architecture is

This is consistent with the ACCJ's position that the
implementation of strategic healthcare IT throughout Japan
should be an open and transparent process and allow for the
full participation of non-Japanese firms. (FCS: John Fleming)


20. (U) Back from the Precipice
--------------------------------------------- ----

The baseball world -- and Japan's national TV broadcaster NHK -
- can breathe more easily. The Boston Red Sox, behind the good,
if not spectacular, pitching of Daisuke Matsuzaka and Hideki
Okajima, beat the Cleveland Indians October 21 to advance to
the World Series.

The Red Sox outscored the Indians 30-5 in winning three games
in a row to win the series in seven. Matsuzaka and Okajima
combined to give up only two runs in seven innings in the
clincher, making NHK, the national network that carries MLB
nationally in Japan, very happy.

TOKYO 00005025 007 OF 007

Photos of the pair splashed all over Japan's media. NHK
rebroadcast the game in prime time on Monday night, with a
different focus from that in the U.S. There were lots of shots
of Matsuzaka rubbing his eyebrow and Okajima staring out
pensively from the bullpen -- but the network ran out of time
to show the six run Red Sox explosion in the eighth inning.
With the Indians out of the picture, the World Series promises
to be a better media attraction in Japan. All eyes will be on
the Red Sox pitching pair and the Colorado Rockies second
baseman, Kaz Matsui, the former Yomiuri Giant.
The scores will scarcely matter. (Econ: Nicholas Hill)

21. (U) With Popularity of MLB, Japanese Baseball Suffers?
--------------------------------------------- ----

A singles hitter in his thirties--in particular Ichiro Suzuki
of the Seattle Mariners--is not worth a five-year $100 million
contract. A Japan Press Club official didn't seem comfortable
with the statement and changed the subject.

The conversation moved on to the economics of Japanese
professional baseball, and the impact of the recent exodus of
Japanese stars to Major League Baseball (MLB) is having on the
domestic game.

To judge from an article by Robert Whiting, who spoke at the
Press Club, the news is not good. The Japanese professional
league needs an overhaul if it is to survive financially.
(Econ: Nicholas Hill)


4992 CAPEC expresses Japan Post Express Mail Service fair
competition concerns
4971 Japan will demarche Bolivia at high level over Iran
4970 Japan's strategy for the Third Committee
4963 Japan still undecided about APDP, depends on PM Fukuda
4968 Japan will decide UNIAAC vote at the last minute
4953 Advocating for TIP victim identification procedures in
4951 Burma: Japanese assistance for police training
4946 Tokyo Governor Ishihara urges Ambassador for progress on
Yokota dual-use
4943 AUSTR Cutler in Tokyo covers key issues on bilateral
4930 Japan plans outreach to MTCR non-partners, asks to
4928 Japan's defense ministry may have purchased illegal night
vision goggles
4926 Ambassador and Defense Minister on def, alliance
4912 Foreign affairs experts on regional political and security
4905 Opposition DPJ struggles for consensus on OEF
4904 Japan demarche delivered MTCR non-papers, GOJ delegation
4903 Government submits new OEF bill; MSDF to withdraw from
Indian Ocean on November 2
4901 Panel analyzes Fukuda, Japanese politics, regional
4890 Ambassador discusses Fukuda visit, North Korea, OEF, host
nation support with MOFA Minister Komura
4887 DPJ's Hatoyama explains DPJ views on elections, Diet, ISAF
4884 Finance Minister Nukaga agrees to discuss host nation
support with Ambassador
4883 WIREC: Japan undecided, suggests Minister-level

23. (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.

© Scoop Media

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