Cablegate: The Japan Economic Scope--November 8, 2007

DE RUEHKO #5176/01 3130307
R 090307Z NOV 07





E.O. 12958: N/A
SUBJECT: The Japan Economic Scope--November 8, 2007

1. (U) This cable contains the Japan Economic Scope from
November 8, 2007.

2. (SBU) Table of Contents

3. EisMAP and Fostering Sustainable Development in the
Asia/Pacific Region

4. Deja vu...D(PJ)eja -Vu
5. Unlikely to Get into Business School
6. Secretary of Defense Robert Gates Visits Tokyo

Asian Issues
7. Chinese Outmaneuvering Japanese Industry with Aid to Africa
8. Japan, New Zealand Sign Strategic Oil Reserve Pact
9. Press reports on MOD's "Cozy" Relationship with Defense
10. MLIT Press Release Discloses Fraudulent Fire Retardant
Building Material Tests
11. A Private Postal Affair: Employee Fired
12. Nagoya Slush Fund "Scandal" Produces No Titillating

Trade and Business
13. Part of Nova Salvaged By M&A Operation
14. Call to Launch U.S. - Japan EPA Talks

Food and Farming
15. Japanese Rice Exports
16. Ag Reform: Prospects Dim Despite Good Intentions
17. CEFP Private Members Want More, Not Less, Agricultural

18. Japan Liberalizes Foreign Carriers' Access to Rural

19. Tokyo Stock Prices Lose 2.0 %, Lowest Close in Two Months

20. Japan is Part of Red Sox Nation Too

MOFA Actions
21. ASEAN-Japan Negotiations
22. Japan-Thailand Economic Partnership Agreement

23. This Week's Cables

3. (SBU) EisMAP and Fostering Sustainable Development in the
Asia/Pacific Region
--------------------------------------------- -----

Japan's Foreign Ministry and the University of Kyoto hosted a
seminar of Japanese officials, business people and academics
with counterparts from the region Oct. 25 -- 26 to discuss
factors influencing development in East Asia. Participants
generally saw the region benefiting from globalization, perhaps
at a higher level than other parts of the world. Global
imbalances, e.g., the U.S. current account deficit and the
surpluses in China and some other countries in the region, "the
spaghetti bowl effect" resulting from multiple free trade
arrangements, and energy/environment were frequently cited as
concerns and opportunities by the various speakers.

The Japanese sponsors, however, did not seem to win much strong
support for one of their key purposes of the meeting,
consideration of establishing a shared data base with economic,
social, environment, and other data pertinent to measuring a
country's development progress. Participants from the UN
Economic and Social Council for Asia and the Pacific, the IMF,
and the OECD all noted work their organizations already do to
collect, analyze, and make available reliable data. One idea
suggested by some of the academic participants, that the EiSMAP
be housed in APEC raised questions among other participants as
to whether it would fit into the agreed areas of work.


TOKYO 00005176 002 OF 007

4. (SBU) Deja vu...D(PJ)eja -Vu
--------------------------------------------- -----

In another turbulent week for Japanese politics, opposition
Democratic Party of Japan (DPJ) leader Ichiro Ozawa offered his
resignation, only to be asked by the party to stay. He
eventually withdrew the resignation.

The drama erupted after two one-on-one meetings between Ozawa
and Prime Minister Fukuda, in which the possibility of a grand
coalition between the DPJ and ruling Liberal Democratic Party
(LDP) was raised. Who originated the proposal has been hotly
contested, but Ozawa described the DPJ's swift rejection of the
proposal as like a "vote of no confidence." After tendering
his resignation, Ozawa lashed out during a press conference,
doubting the DPJ's ability to govern and its chances in a
general election.

Ozawa ends the kefuffle at the DPJ's helm, but the cost of the
episode remains unclear. The DPJ's support rate in polls
dropped slightly, and party internal squabbling spilled into
the press.

For more detail, see Tokyo 5059, 5114, and 5138. (ECON: Marc

5. (SBU) Unlikely to Get into Business School
--------------------------------------------- -----

The opposition Democratic Party of Japan (DPJ) will receive no
A's in the Japan Business Federation's (Keidanren) annual
report on party policies, according to a draft report obtained
by the press. Put in the language of a report card, the DPJ's
"policy GPA" would be a C-. Keidanren assesses party policies
across ten areas, awarding grades from A (completely in line
with Keidanren) to E (totally opposed).

Liberal Democratic Party (LDP) policies will fare somewhat
better, with a B+ average. According to the Nikkei newspaper,
Keidanren values the LDP's work on decentralization of power
and education policies and is especially critical of the DPJ's
stances on foreign affairs and employment policies.

This year's evaluation of party policies have been delayed by
more than a month, as Keidanren tries to assess the DPJ's more
prominent role in the Diet. Some member companies use the
evaluation in decisions about political contributions. (ECON:
Marc Dillard)

6. (SBU) Secretary of Defense Robert Gates Visits Tokyo
--------------------------------------------- -----

Secretary of Defense Robert Gates arrived in Tokyo on November

7. His two-day schedule includes meetings with Prime Minister
Fukuda, Chief Cabinet Secretary Machimura, Foreign Affairs
Minister Koumura and Defense Minister Ishiba.

In addition, the Defense Secretary will give a speech on the
East Asia Pacific security architecture to 120 students at
Sophia University with an opportunity for students to ask

Gates will join some enlisted service personnel for lunch at
the U.S. military-operated New Sanno Hotel, and will enjoy a
cultural presentation of traditional dance and martial arts
demonstrations at Meiji Shrine. (ECON: Charlotte Crouch)


7. (SBU) Chinese Outmaneuvering Japanese Industry with Aid to
--------------------------------------------- -----

Although ostensibly not trying to compete with Chinese-financed
development projects, the GOJ is considering extending yen
loans to Angola and may focus assistance efforts there to serve
as a model for development in Africa according to an executive
at the Japan Business Federation (Keidanren).

TOKYO 00005176 003 OF 007

The official noted Japanese business is frustrated with the
lack of progress in the Tokyo International Conference on
African Development (TICAD), in contrast to what is seen here
as China's highly effective aid-for-resources strategy.
Please see Tokyo 5132 for more on this topic. (ECON: Sally
Behrhorst/Eriko Marks)

8. (U) Japan, New Zealand Sign Strategic Oil Reserve Pact
--------------------------------------------- -----

Japan and New Zealand signed a pact on November 5 which allows
New Zealand access to Japan's strategic oil reserves for
emergency use, according to a METI press release.

New Zealand may purchase up to 90,000 metric tons, or 659,700
barrels of oil from Japan in 2008 and could apply this amount
toward the 90-day strategic reserves required under its
commitments to the International Energy Agency (IEA).

This is the first time Japan has entered into such an agreement.
METI sources said, should New Zealand opt to purchase Japanese
oil, the reserves would come from Japan's private sector
stockpile and not from national reserves. (ECON: Sally
Behrhorst/Eriko Marks)


9. (SBU) Press reports on MOD's "Cozy" Relationship with
Defense Subcontractors
--------------------------------------------- -----

Local newspapers and TV news covered the former Vice Defense
Minister Takemasa Moriya's testimony to the Diet which shed new
light on the "cozy" relationship between Defense Ministry
officials and the trading companies that assist in defense

Embassy enforcement officials closed in on a suspect believed
to have provided export controlled items to a subcontractor in
Tokyo. The American citizen suspect took the 5th Amendment and
hired a lawyer.

Japan is probably unique in the extent to which trading
companies play a central role in the procurement of defense-
related and other equipment from foreign manufacturers.
See Tokyo 4928 for details on a related defense procurement
problem involving falsified documentation for night vision
goggles, also covered in the Japanese press. (ECON: Charlotte

10. (U) MLIT Press Release Discloses Fraudulent Fire Retardant
Building Material Tests
--------------------------------------------- -----

Nichias Corp., which is a major building material maker in
Japan, submitted falsified building materials tests to the
Ministry of Land, Infrastructure and Transport (MLIT),
according to newspaper reports November 2 and 3.

The company fabricated the performance of its fire resistant
construction materials used in houses and other buildings
nationwide through Japan's major home builders. According to a
press release on MLIT's homepage, the ministry set up a team at
the Center for Housing Renovation and Dispute Settlement
Support to respond to consumers' inquiries on this issue.

MLIT has also already revoked 16 of the 20 approvals the
company obtained because of the products' failure to meet the
required standards. Minister Fuyushiba stated he was extremely
disappointed that the company has falsified statements about
its product. (ECON: Junko Nagahama)

11. (SBU) A Private Postal Affair: Employee Fired
--------------------------------------------- -----

Japan Post Group's mail delivery subsidiary fired its first
employee for disciplinary reasons since postal privatization
began, media reported November 8. The 32-year-old employee was
apparently reluctant to deliver mail; more than 1,000
undelivered letters and post cards were reportedly found

TOKYO 00005176 004 OF 007

stuffed in his desk, his locker, and in his home.

Interviews with co-workers suggested that the employee's errant
behavior had persisted for years. Formerly, the employee had
status as a civil servant, but that changed when postal
privatization began October 1.

In addition to being fired, the employee was charged with
violating postal laws. (ECON: Marc Dillard)

12. (U) Nagoya Slush Fund "Scandal" Produces No Titillating
--------------------------------------------- -----

Nagoya Mayor Matsubara held a press conference October 7 to
respond to growing concerns over a slush fund scandal that hit
the press at the end of October.

Local media allege that ten wards and two sections in Nagoya
City have accumulated about 92 million yen (about $800,000) in
slush funds over the past 15 to 30 years. The funds were
originally uncovered through a whistleblower's e-mail to
Nagoya's public hearing section on September 10.

The city began its own investigation, and was able to keep it
out of the press for over a month. The ward offices in
question allegedly hoarded money from the margins of normal
expenditures and excessive claims for part-time staff to spend
off-budget on mundane office items such as computers, umbrellas,
and shelves.

To date, there have been no allegations that any city staff
profited personally or used the funds for personal
entertainment. (Nagoya: Tamiki Mizuno)


13. (U) Part of Nova Salvaged By M&A Operation
--------------------------------------------- -----

Nagoya-based G..communication, a firm currently operating 1924
restaurant and education outlets throughout Japan, announced
November 6 that it will acquire 30 English schools from the
failed Nova Corp. and plans to take over up to a total of 200
Nova schools in the near future.

G..communication has reportedly offered to retain Nova's
English teachers at the schools it is acquiring (but not
necessarily pay the back salary owed them by Nova) and employ
many other Nova teachers at existing G..communication English
centers and cram schools.

G..communication was founded in 1994 by then 25-year-old former
Gamagori City bureaucrat Masaki Inayoshi, but the company only
started to grow rapidly in 2006, when it began aggressive
mergers and acquisitions activity. (Nagoya: Dan Rochman)

14. (SBU) Call to Launch U.S. - Japan EPA Talks
--------------------------------------------- -----

Most Japanese media covered the story out of Washington that
the U.S. - Japan Business Council would like to see the two
countries launch free trade talks by 2009. The news has not
generated much excitement, with little if any editorial
commentary to speak of so far. A Trade Ministry official told
us on November 7 he welcomed the news.

The timing of the announcement comes precisely as Japanese
negotiators are in Canberra to resume talks with the
Australians on a free trade agreement.

Japan's Agriculture Ministry (MAFF) remains strongly opposed to
substantial liberalization of agricultural trade with Australia.
Observers note that MAFF's opposition is in part because the
ministry fears a deal with Australia would only increase the
likelihood of having to work out a deal with the United States
later. (ECON: Nicholas Hill)


TOKYO 00005176 005 OF 007


15. (U) Japanese Rice Exports
--------------------------------------------- -----

With an export beachhead established in China over the summer,
Japan aims to start exporting rice to Russia this month.
Despite rice prices sometimes in excess of 10 times the world
price, Japanese farmers are finding a market among Russia's
increasing numbers of high-end consumer outlets, including
Japanese restaurants. The initial cargo in November will be
0.6 tons.

According to the Ministry of Agriculture (MAFF), Japan's
agricultural exports were worth 400 billion yen in 2005. The
Ministry aims to raise agricultural exports to 1 trillion yen
by 2013, although some observers describe this as a quixotic
MAFF claims to be pleased with the reception Japanese rice has
had in China, where 24 tons have been shipped since the market
opened in June. (ECON: Nicholas Hill/Ryoko Nakano)

16. (SBU) Ag Reform: Prospects Dim Despite Good Intentions
--------------------------------------------- -----

The urgency to reform Japan's agriculture sector is felt by
many in the know, but prospects to bring it about remain slim.
During a November 1 meeting of the Council on Economic and
Fiscal Policy (CEFP), the Agriculture Ministry (MAFF) unveiled
a paper with farmland reform proposals that would focus on
consolidating land.

The report proposes a new system that would allow farmers to
extend leasing terms from six to 20 years, and to eliminate
derelict farmland within five years. The average size of
Japanese farms is about 1.6 hectares, only one percent of the
average U.S. farm.

Prime Minister Fukuda, present in his capacity as Chair of the
CEFP, underscored during the November 1 session the need for
Japan to press ahead on farm sector reform. Press reports
afterward, however, were skeptical that the reforms the
government was putting forward would be enough.

The media pointed out that the Prime Minister's policy speech
after taking office in September on agriculture called for more
resources to be devoted to small-scale and elderly farmers--a
policy approach at variance with the need to encourage more
consolidation in the sector. (ECON: Nicholas Hill/Ryoko

17. (SBU) CEFP Private Members Want More, Not Less,
Agricultural Reform
--------------------------------------------- -----

After MAFF presented its report to the Council on Economic and
Fiscal Policy, the private members of the body, including Japan
Business Federation (Keidanren) Chairman Mitarai, urged the
government to consider more measures to boost productivity of
rice farmers, who make up 70 percent of Japan's total farming

In a report they submitted at the CEFP session, the private
members -- who come from academia and business and tend to be
more reform-minded than the larger body -- also want to see
more measures to encourage corporate farming and a more
aggressive approach to consolidating farmland.

An agricultural economist we talked to on November 8, close to
the CEFP private members, expressed skepticism that MAFF's
current call for more farmland consolidation would go anywhere
given the political climate. He was resigned to the fact that
nothing on agricultural reform would pass the Diet in advance
of a general election. (ECON: Nicholas Hill/Ryoko Nakano)


18. (SBU) Japan Liberalizes Foreign Carriers' Access to Rural
--------------------------------------------- -----

TOKYO 00005176 006 OF 007

Japan has liberalized foreign air carriers' access to rural
airports in principle in a bid to help invigorate rural
economies, according to a November 2 announcement from the
Ministry of Land, Infrastructure and Transport (MLIT).

MLIT Deputy Director General of the Civil Aviation Bureau,
Ryuhei Maeda, told U.S. airline representatives that this
program is only for Asian airlines. The liberalization has
effectively been implemented since the idea is included in the
government's Asian Gateway initiative to promote international
exchange in May.

Narita, Kansai and Chubu international airports and Haneda and
Osaka airports are not on the list of airports participating in
this program. (ECON: Charlotte Crouch)


19. (U) Tokyo Stock Prices Lose 2.0 %, Lowest Close in Two
--------------------------------------------- -----

Following both a steep fall on Wall Street and the yen's
appreciation, Tokyo stock prices dropped sharply November 8.
The Nikkei Stock Average lost 325 points, or 2.0 percent to
close at 15,771.57, below the 16,000 line for the first time
since September 18 and the lowest close since September 10.
This represents a decline of 2,490 points, or 13.6 percent,
from the recent peak of 18,261.98 on July 9. The TOPOX index
fell 2.6 percent on Thursday to 1,516.94, the lowest level
since September 18. (FINATT: Shuya Sakurai)


20. (U) Japan is Part of Red Sox Nation Too
--------------------------------------------- -----

"This fall, Japan became a Red Sox nation." That is how Gaku
Tashiro of Sankei Sports described the phenomena in the Boston
Globe on November 6.

Tashiro notes how the Red Sox World Series victory splashed
over all of Japan's sports papers, and interest was not just
limited to the Red Sox's two Japanese imports -- Daisuke
Matsuzaka and Hideki Okajima. For

Meanwhile, the Red Sox may be looking to Japan for more talent
as the team's management attempts to restock what is already
baseball's most dominant powerhouse. (ECON: Nicholas Hill)


21. (U) ASEAN-Japan Negotiations
--------------------------------------------- -----

The 11th round of negotiations on the ASEAN-Japan Comprehensive
Economic Partnership Agreement will be held from November 4 to
6 in Philippines.

22. (U) Japan-Thailand Economic Partnership Agreement
--------------------------------------------- -----

To access the Joint Press Statement for the Inaugural Meeting
of the Japan-Thailand Joint Committee on Economic Partnership,
see MOFA's website. (ECON: Ritsu Yamashiro)

5138 Ozawa withdraws resignation to critical reaction
5137 North Korea: Diet members press for abductions progress
before delisting
5134 Governor feeling pressure on Futenma move
5132 Chinese outmaneuvering Japanese industry with aid to
5128 Under Secretary of Defense Clapper presses Defense
Minister Ishiba information security

TOKYO 00005176 007 OF 007

5127 Piracy: Japan not in a position to exercise jurisdiction
5114 Fukuda-Ozawa meetings incite latest political crisis
5113 Japan considering piracy response
5101 DAS Christensen's October 21 meeting with Asian Affairs
DDG Kohara

24. (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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