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Cablegate: Japanese Morning Press Highlights 07/29/08

DE RUEHKO #2067/01 2110101
P 290101Z JUL 08




E.O. 12958: N/A


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1) Top headlines
2) Editorials
3) Prime Minister's daily schedule (Nikkei)

Defense and security affairs:
4) Government plans to withdraw ASDF from Iraq when UN resolution
expires late this year (Sankei)
5) PAC-3 drill staged on Defense Ministry property (Nikkei)

North Korea problem:
6) Abductee family association questionnaire to all Diet members
finds 80 PERCENT against removing sanctions on North Korea
7) LDP's Yamasaki on TV says Japan should take on burden of
contributing energy aid to North Korea in support of Six-Party Talks
(Tokyo Shimbun)

8) Prime Minister Fukuda will separately meet President Hu and
Premier Wen on sidelines of Olympics opening ceremony in Beijing

9) Japan, Kuwait agree on importance of stabilizing the oil markets

Doha Round:
10) Japan gives up on securing 8 PERCENT tariff target in WTO farm
trade negotiations (Asahi)
11) Having accepted the WTO compromise on farm trade, the Japanese
government will find domestic coordination of the decision difficult
12) Council on Economic and Fiscal Policy turning attention now to
agricultural reform (Yomiuri)

Political agenda:
13) Cabinet shuffle to be postponed until after the WTO negotiations
are settled, placing it in early August (Asahi)
14) LDP, Komeito heads discuss cabinet shuffle but bog down on list
of candidates (Mainichi)
15) Komeito's Yamaguchi hints at Diet dissolution at start of
regular Diet session early next year (Mainichi)
16) Ruling parties are split over timing of extra Diet session,
irritated because they cannot read the intentions of the Prime
Minister (Mainichi)
17) Democratic Party of Japan (DPJ) President Ozawa sees possibility
of an early Diet dissolution (Mainichi)
18) DPJ, expecting Diet dissolution, is hard at work preparing by
putting up posters, drafting final manifesto of campaign promises

19) Budget ceiling set at 47.8 trillion yen, but the prime
minister's hand is hardly visible in the process (Nikkei)



Asahi: Mainichi: Yomiuri:
Four die in river in Kobe


TOKYO 00002067 002 OF 012

Matsushita on way to releasing 40-inch OEL TVs in 2011: Production
at Himeji plant

Government plans to withdraw ASDF from Iraq before year's end due to
expiration of UN resolution

Tokyo Shimbun:
TEPCO to raise average monthly electric bill for households by 800
yen starting next year: TEPCO expected to suffer loss of 280 billion

Not delivered


(1) Decentralization should be taken from central government rather
than bestowed by bureaucrats
(2) Passing on know-how to rejuvenate companies

(1) Political gridlock: Politicians should consider the people over
their party
(2) Agriculture contest: Creating hope in agricultural field

(1) Fiscal 2009 budget: When will the government come with an answer
on basic pensions?
(2) Frequent uprisings in China: Can safety of Olympics be ensured?

(1) Crude oil market in adjustment phase due to temporary lull in
financial markets
(2) Meaning of the listing of U.S. fund on the New York Stock

(1) Amendment to Worker Dispatch Law: Correct distortions in
irregular employment system
(2) Heavy rains: Be prepared for violent weather

Tokyo Shimbun:
(1) Hike in utility rates: Will TEPCO fulfill its accountability?
(2) Employment of school teachers: Learn lessons from Oita
Prefecture's case

Not delivered

3) Prime Minister's Official Residence (Kantei)

Prime Minister's schedule, July 28

NIKKEI (Page 2) (Full)
July 29, 2008

Posed for a photo with Kuwait Prime Minister Nasser at the Kantei.
Attended a welcome party.

TOKYO 00002067 003 OF 012

Held a summit and then a signing ceremony.

Held a luncheon meeting.

Met Chief Cabinet Secretary Machimura.

Met Cabinet Office Vice Minister Yamamoto. Followed by Deputy Chief
Cabinet Secretary Futahashi.

Attended a meeting of the Council on Economic and Fiscal Policy.

Met Machimura.

Attended a policy council meeting of the government and the ruling

Met New Komeito President Ota, with LDP Secretary General Ibuki and
New Komeito Secretary General Kitagawa present. Joined by

Attended a send-off party for the nation's Olympic team at the
Prince Park Tower Tokyo.

Met members of the team to help reconstruct Sichuan Province in
China at the Hotel New Otani.
Returned to his official residence.

4) Gov't mulls ASDF pullout from Iraq within year

SANKEI (Top play) (Abridged)
July 29, 2008

The government and the ruling parties decided yesterday to withdraw
an Air Self-Defense Force detachment from Iraq at the end of this
year. Japan currently deploys ASDF troops to Iraq for airlift
services under a law for special measures to assist with Iraq's
reconstruction or the Iraq Special Measures Law. Japan needs to
conclude a status of forces agreement with the Iraqi government
within this year in order for Japan to continue the ASDF's mission
in that country. However, the government deemed it difficult for
that agreement to be ratified in the Diet since its upper chamber is
dominated by the opposition parties. The government has deployed
Ground Self-Defense Force and ASDF troops to Iraq under the Iraq
Special Measures Law since 2004. In 2006, however, the GSDF pulled
out of Iraq. After the ASDF is recalled from Iraq, the Self-Defense
Forces' Iraq mission will be completed within the year.

The Iraq Special Measures Law, which came into effect in July 2003,
is intended to back up the international community's assistance to
Iraq for its nation-rebuilding efforts. The ASDF launched its Iraq
activities in March 2004. On its Iraq mission, the ASDF, basing

TOKYO 00002067 004 OF 012

three C-130 transport planes in Kuwait, has airlifted personnel and
supplies for the United Nations and multinational forces to Baghdad
Airport and other locations in Iraq. The GSDF also worked in the
southern Iraqi city of Samawah from February 2004 through July

The government, based on the decision, will issue a withdrawal order
to the ASDF detachment in December and envisions completing the
ASDF's pullout by January next year at the latest.

The Iraq Special Measures Law is valid until the end of July next
year. However, a U.N. resolution, under which the multinational
forces have been deploying troops in Iraq with the ASDF's
participation, is due to expire at the end of this year. Japan will
therefore need to enter into a status of forces agreement with the
Iraqi government in order for Japan to continue the ASDF's Iraq
mission after that.

However, the leading opposition Democratic Party of Japan
(Minshuto), which holds a majority of the seats in the House of
Councillors, passed a bill repealing the Iraq Special Measures Law
at an extraordinary Diet session late last year. The DPJ has been
strongly calling for the ASDF to be recalled from Iraq. As seen from
such facts, the DPJ is likely to oppose the ASDF's continued
activities in Iraq. New Komeito, the ruling Liberal Democratic
Party's coalition partner, remains cautious about engaging the
Self-Defense Forces in overseas activities, is now growing reluctant
to focus on the ASDF's Iraq deployment in Diet debate.

5) PAC-3 drill conducted at Defense Ministry

NIKKEI (Page 2) (Full)
July 29, 2008

The Defense Ministry conducted an antiballistic missile drill
yesterday evening on its premises at Ichigaya, Tokyo, deploying the
Patriot Advanced Capability 3, a ground-to-air guided missile
system. With missile launchers brought in, the Self-Defense Forces
checked the PAC-3's performance with its radar data transmissions
before launching the PAC-3. The PAC-3 is currently deployed at Iruma
base in Saitama Prefecture and other SDF bases. However, this is the
first time to conduct such full-fledged off-base training with PAC-3
batteries. In September, the SDF will carry out its first PAC-3
live-fire training in the United States.

6) Abductee families poll lawmakers; 80 PERCENT of respondents
opposed to calling off N. Korea sanctions, but answers from only 34

SANKEI (Page 3) (Full)
July 29, 2008

The families of victims kidnapped by North Korea and their
supporters yesterday released the results of a questionnaire survey
sent to all 722 members of the House of Representatives and House of
Councillors on the Japanese government's announced plan to lift some
economic sanctions on North Korea. In the survey, 79.2 PERCENT
opposed the idea of lifting sanctions in the event North Korea fails
to produce results from its promised reinvestigation for all
abductees' repatriation, with 82 PERCENT supporting the idea of
taking additional sanctions against North Korea. However, the
response rate was low at 33.9 PERCENT . The families of abductees

TOKYO 00002067 005 OF 012

have a growing sense of crisis.

The survey asked two questions about: 1) when the government should
partially lift sanctions on North Korea; and 2) whether the
government should impose additional sanctions on North Korea if its
promised reinvestigation does not result in abductees'

In response to the first question, 194 persons (79.2 PERCENT )
answered "after seeing the outcome of North Korea's reinvestigation
for all abductees' repatriation." To the second, 201 persons (82
PERCENT ) supported the idea of taking additional sanctions against
North Korea.

Among other answers to each question, many called for the government
to take a strong stance toward North Korea, insisting that the
government should not call off any of its sanctions until all
abductees are repatriated to Japan.

There were Diet members who did not respond to the survey, reasoning
that they are cabinet ministers or in a position to preside over the
Diet's lower or upper chamber. There was no answer from Koichi Kato,
who was a secretary general of the ruling Liberal Democratic Party
and who recently remarked that the repatriated abductees "should
have been returned to North Korea, because it was a promise between
two countries." The Japanese Communist Party came up with its view
in the name of Chairman Kazuo Shii, and there was no answer from any
of its lawmakers.

"This will become a strong message to the Japanese government and
North Korea," said Shigeo Iizuka, 70, chairman of the Association of
the Families of Victims Kidnapped by North Korea. However, the
response rate to the survey was low. Iizuka said: "If they are
serious about the abductions, they can answer. I have a question
about their mindset."

Teruaki Masumoto, 52, chief of the association's secretariat,
stressed: "This response rate is very regrettable. We will wait for
their answers, so we want them to show their views to the electorate
as Diet members."

The Diet is now out of session, so many of its members cannot be
contacted. The association will ask them to answer by Aug. 11 and
will later make public the final results.

7) Former LDP Vice President Yamasaki: Japan also should share
burden of energy assistance for DPRK

TOKYO SHIMBUN (Page 2) (Full)
July 29, 2008

Former Liberal Democratic Party (LDP) Vice President Taku Yamasaki,
in a recorded program for Asahi News-Star Cable TV, repeatedly
stressed in connection with the Six-Party Talks on the North Korean
nuclear problem, "Japan, too, should bear its share (of energy
assistance costs)."

Regarding the government's policy course of not joining (energy
assistance) unless there is progress on the abduction issue,
Yamasaki pointed out: "There is a misunderstanding that this
assistance would be part of the economic cooperation that would be
carried out when Japan and North Korea normalize relations." He

TOKYO 00002067 006 OF 012

added, "The (energy) assistance is an international agreement
related to the nuclear isssue; it is not a bilateral agreement
between Japan and North Korea."

8) Fukuda to hold meetings with Hu and Wen on sidelines of Beijing
Olympics opening ceremony

SANKEI (Page 5) (Full)
July 29, 2008

It was decided by yesterday that Prime Minister Yasuo Fukuda would
hold separate meetings on August 8 with Chinese President Hu Jintao
and Premier Wen Jiabao on the sidelines of the Beijing Olympics
opening ceremony. Chances initially had seemed slim for Japan-China
talks on August 8 due to a tight timetable, but Japan arranged the
schedule in compliance with a request from China for top-level

The opening ceremony will be attended by the top leaders of dozens
of countries, including U.S. President George W. Bush and French
President Nicolas Sarkozy. A government source described the two
Chinese leaders' decision to meet with Prime Minister Fukuda despite
their busy schedules that day as exceptional treatment reflecting
Beijing's stance of placing high priority on relations with Japan.
At present, whether the two Chinese leaders will hold talks with
President Bush and President Sarkozy is uncertain.

Prime Minister Fukuda is scheduled to leave Japan on the morning of
August 8 on an Air Self-Defense Force U-4 multipurpose transport
aircraft and arrive in Beijing in the afternoon. He is expected to
hold a meeting with Premier Wen for about 50 minutes and with
President Hu for about 30 minutes on the evening of August 8. The
prime minister is also scheduled to attend a reception that will be
attended by the two Chinese leaders.

9) Japan-Kuwait summit: Agreement reached on importance to stabilize
oil market

NIKKEI (Page 2) (Full)
July 29, 2008

Prime Minister Yasuo Fukuda on July 28 met with Kuwaiti Prime
Minister Nasir at his office. Concerning the surging crude oil
prices, the two leaders shared the view that it is important to
stabilize the oil market and that the steep rise in crude oil prices
are against the interests of both oil producing countries and
consuming countries. Nasir stated that his country would make
efforts to ensure a stable supply of oil to Japan.

Fukuda pointed out, "I am concerned about the steep rise in oil
prices. It is necessary to take specific actions in order to improve
the supply-demand balance and transparency of the oil market."

10) Japan finding it difficult to get 8 PERCENT target for
sensitive items in WTO talks

ASAHI (Page 7) (Excerpts)
July 29, 2008

(Oyamada, Ogata, Murayama, Geneva)

Haggling heated up in a meeting on July 28 in the final phase of the

TOKYO 00002067 007 OF 012

new round of World Trade Organization (WTO) global trade talks (Doha
Round). Japan, the U.S., and Europe have indicated a willingness to
reach a broad agreement on a mediation plan presented by WTO
Director General Pascal Lamy on July 25, while emerging and
developing countries, such as India, are raising strong objections.

U.S. Trade Representative Susan Schwab said on the evening of the

"There are countries calling for changes (in the measures on which
industrialized countries have already agreed in general). They might
disrupt the balance. I am worried that the new round may be

According to a U.S. government source, Schwab has criticized India
and China. An Indian government source, though, said: "That is a
strategy of the U.S. in a quest for a concession."

The issue of the maximum ratio of mainstay farm products to all
items, in which Japan is greatly interested, has been treated as
already agreed on. Japan therefore is finding it difficult to secure
its 8 PERCENT target.

The mediation plan states that each developed country is allowed to
designate 4 PERCENT of all farm products as sensitive products to
be exempted from steep tariff cuts in principle but 6 PERCENT with
conditions for certain countries.

11) Japan set to accept mediation plan in WTO talks, but difficult
domestic coordination expected

SANKEI (Page 11) (Excerpts)
July 29, 2008

(Kyodo News, Geneva)

The Japanese government yesterday started coordinating views to
accept a mediation plan for the agriculture and industry sectors,
which was presented by World Trade Organization (WTO) Director
General Pascal Lamy. In its ministerial meeting on July 28, the new
round of WTO global trade talks (Doha Round) reached a decisive
phase for an accord on details in the plan, which includes rules on
tariff cuts in the two sectors. But since discussion over the
special safeguard system for developing countries heated up in a
meeting of major seven economies, delaying the start of a plenary
session by about 30 countries where final draft written agreements
in the two sectors are scheduled to be presented.

The mediation plan states that each advanced country is allowed to
designate up to 6 PERCENT of all farm products as sensitive
products, which are exempted from steep tariff cuts. Although Japan
has been calling for an 8 PERCENT exception, other industrialized
countries are likely to accept the mediation plan in general.

Agriculture, Forestry and Fisheries Minister Masatoshi Wakabayashi
said with a stern look last night: "I no longer have any prospect
(of securing the 8 PERCENT target)." His remark indicates that
Japan has been placed in a tight position in the ongoing

In the talks this time, Japan formed a group with 10 food importing
countries, such as South Korea and Switzerland, and continued to

TOKYO 00002067 008 OF 012

insist on over 10 PERCENT as the maximum ratio of sensitive
products to all products.

Once negotiations started, however, other countries began to grope
for compromise proposals so as not to be treated as the culprit for
breaking down the trade talks. In reaction, Wakabayashi switched the
target from over 10 PERCENT to 8 PERCENT , but at that time, other
countries began to support the mediation plan.

12) Council on Economic and Fiscal Policy places agricultural reform
high on agenda

YOMIURI (Page 9) (Full)
July 29, 2008

Members from the private sector of the government's Council on
Economic and Fiscal Policy, chaired by Prime Minister Fukuda, have
decided to present a 15-item proposal, including agricultural
reform, as priority tasks for the latter half of FY2008, according
to informed sources yesterday. The members will submit the package
in a meeting today.

The ongoing informal ministerial meeting in Geneva over the new
round of World Trade Organization (WTO) global trade talks is likely
to reach an agreement that presses Japan to open its agricultural
market further.

Four private-sector members, including Nippon Keidanren (the Japan
Business Federation) Chairman Fujio Mitarai, intend to stress the
need to improve the nation's agricultural productivity by
introducing a concentrated farming system, revitalizing fallow land,
and liberalizing the use of farmland. They apparently keep in mind
the possibility that maintaining the current high tariff rates to
protect domestic farmers will become difficult.

The council took up agricultural reform in the fall of 2007, but the
Ministry of Agriculture, Forestry, and Fisheries had to give up
submitting related bills as wrangling intensified between the ruling
and opposition camps.

The proposal also includes measures to counteract the falling
birthrate, to deal with job-hopping part-timers, to advance fiscal
reconstruction, and cope with skyrocketing oil prices.

13) Prime minister, ruling party executives agree to make decision
on cabinet shuffle after WTO meeting

ASAHI (Page 4) (Excerpts)
July 29, 2008

Prime Minister Yasuo Fukuda, New Komeito Representative Akihiro Ota
and others, meeting yesterday at the Prime Minister's Office,
exchanged views on important matters that lie ahead, such as a
policy for budget compilation. They confirmed a policy course to
make decisions on such critical issues as a cabinet shuffle and the
timing of convening the next extraordinary Diet session after the
ongoing World Trade Organization (WTO) talks are settled.

The meeting, which lasted about 30 minutes, was also attended by LDP
Secretary General Bunmei Ibuki, his New Komeito counterpart Kazuo
Kitagawa and Chief Cabinet Secretary Nobutaka Machimura.

TOKYO 00002067 009 OF 012

After the meeting, Ibuki explained to the press corps: "We don't
know when the WTO talks will end, so it's hard to begin discussing
the duration (of the extraordinary Diet session) and a cabinet
shuffle." Economy, Trade and Industry Minister Akira Amari and
Agriculture, Forestry and Fisheries Minister Masatoshi Wakabayashi
were originally scheduled to return home from the WTO meeting on
around July 27. They might not be able to return home until July 31
or later due to the hard-going trade talks. Ibuki indicated that the
prime minister would not shuffle his cabinet until after the two
ministers return home.

There is a view in the government and ruling bloc that the prime
minister will shuffle his cabinet soon, possibly in early August.

14) LDP, Komeito heads discuss cabinet shuffle, but bog down on list
of candidates

MAINICHI (Page 2) (Excerpts)
July 29, 2008

Prime Minister Yasuo Fukuda met for approximately 30 minutes last
evening at the Prime Minister's Official Residence with New Komeito
Representative Akihiro Ota to discuss the cabinet shuffle and timing
of the extraordinary Diet session. After the meeting, an aide to the
Prime Minister said, "The Prime Minister will most likely decide to
shuffle his cabinet." And a senior Liberal Democratic Party official
who is close to the Prime Minister suggested, "The Prime Minister is
considering (a shuffle) on Aug. 4."

In contrast, a Komeito senior official said, "The Prime Minister
will likely do it, but in the end, the key question will be whether
there are appropriate persons in it?" He indicated that choosing
candidates has bogged down. Komeito Deputy Policy Council Chairman
Yamaguchi stressed that the decisions should be cautiously made in
order to result in boosting the administration: "The point is
whether the appointments will raise the support rates."

15) New Komeito's Yamaguchi indicates that Lower House will be
dissolved at beginning of regular Diet session in January

MAINICHI (Page 5) (Full)
July 29, 2008

Appearing on a TV program yesterday, New Komeito Policy Research
Council Deputy Chairman Natsuo Yamaguchi stated: "The ruling
coalition can show its power to the public at the time of compiling
a state budget. This is the proper course." He indicated that he was
focusing on the beginning of the next regular Diet session in
January as the date for the dissolution of the Lower House.

16) Two views in ruling camp over Lower House dissolution, Diet

MAINICHI (Page 5) (Excerpts)
July 29, 2008

There are two groups in the Liberal Democratic Party-New Komeito
ruling coalition who are divided over future political options,
including the timing of dissolution of the House of Representatives
and the opening of the next extraordinary Diet session. The New
Komeito and senior LDP Election Strategy Council officials are
setting their sights on convening the extra session in late

TOKYO 00002067 010 OF 012

September and dissolving the Lower House at the end of the year or
early next year, while the other group, including LDP Secretary
General Bunmei Ibuki, is asserting that the extra session be
convened in late August to extend the New Antiterrorism Special
Measures Law and the Lower House be dissolved next spring. The
reason for the divided ruling camp is because under Prime Minister
Yasuo Fukuda, they have been unable to fathom future political
prospects. Therefore, a cabinet shuffle, on which all eyes are now
being focused, will become an initial test of the Prime Minister.

"I have yet to say anything about a cabinet shakeup. If I say
something, it will be troublesome. I will not say anything today, as
well," Fukuda told reporters after his meeting with New Komeito
leader Akihiro Ota and the secretaries general of the LDP and New

The reason why a cabinet shuffle is drawing attention is that it is
seen an index of Fukuda's determination to manage his
administration, for which public support has been poor. If he
forgoes shuffling his cabinet, he will lose political impetus

The New Komeito has called on Fukuda to delay the convocation of the
next extra Diet session to late September with the aim of putting
off an extension of the New Antiterrorism Special Measures Law. The
party intends to seek compilation of a supplementary budget to be
used for measures to deal with soaring oil prices. Because the party
is eying Lower House dissolution before the end of the year. It also
wonders if it is good to conduct such under Fukuda's leadership.
Secretary General Kazuo Kitagawa made a cool comment: "There is no
guarantee that a cabinet shakeup will boost the Fukuda
administration's popularity." Some LDP Election Strategy Council
officials fall in line with the New Komeito, since the LDP cannot
conduct election campaigning without the New Komeito's cooperation.

17) DPJ President Ozawa: Lower House dissolution will occur earlier
than expected

MAINICHI (Page 5) (Full)
July 29, 2008

Democratic Party of Japan (DPJ) President Ichiro Ozawa, asked about
his prospects for the timing of dissolution of the House of
Representatives at a press conference in Yokohama yesterday, stated:
"My perception has become stronger that it has come closer."

Ozawa had reiterated: "The Lower House will be dissolved early next
year, at the latest. I thought that dissolving the Lower House after
compiling a lavish budget would be one of the strategies."

He then pointed out: "Since (Prime Minister Fukuda) is at the beck
and call of the bureaucracy, he may be unable to adopt the Liberal
Democratic Party's (LDP) method (of compiling a lavish budget), as
the economy used to expand year after year. If he delays (Lower
House dissolution), he won't be able to get any benefits."

18) DPJ to accelerate efforts to produce manifesto and policy flyers
to be prepared for Lower House dissolution near at hand

ASAHI (Page 4) (Excerpts)
July 29, 2008

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Democratic Party of Japan President Ichiro Ozawa, Secretary General
Yukio Hatoyama, Diet Affairs Committee Chairman Kenji Yamaoka, and
other executives, holding a meeting at party headquarters yesterday,
agreed on the view that a move to unseat Prime Minister Fukuda is
intensifying in the ruling bloc. Envisaging an early Lower House
dissolution, the party plans to expedite preparations for the next
general election and to determine its response to the extraordinary
Diet session after closely monitoring the government and ruling
coalition's moves.

Ozawa made the following comment in a press conference in Yokohama
after the meeting: "The timing of the election will not be
determined by the interest of the Liberal Democratic Party and
government alone. They have to listen to the people's voice at the
earliest possible time. I have a strong feeling that the next
general election is near. We want to make as much preparations as
possible in August (before the September party leadership race)."

In yesterday's meeting, the DPJ executives, based on their analysis
of the situation in the ruling bloc, confirmed a policy course to
expedite preparations for Lower House dissolution and a general
election that could occur next January at the latest. The party also
plans to accelerate efforts to draft a manifesto (campaign pledges)
and to reproduce the party's policy flyers that were used in the
last summer's Upper House election in order to distribute them to
all constituencies.

One attendant reportedly pointed out the possibility that the Lower
House would be dissolved at the outset of the extraordinary Diet
session. Another attendant expressed a desire for Prime Minister
Fukuda to hold on, describing him as an easy rival for the DPJ.

In the previous regular Diet session, a censure motion against Prime
Minister Fukuda was adopted. Given the situation, in order for the
DPJ to attend deliberations in the upcoming session, some kind of
trigger is necessary, such as a major cabinet shuffle or the
resignation of the prime minister.

19) Government, ruling parties approve 47.8 trillion yen in general
expenditures: Issues regarding fiscal resources put off; Prime
minister fails to show presence; Mounting pressure for more

NIKKEI (Page 2) (Excerpts)
July 29, 2008

The government and ruling parties at a policy roundtable adopted
budget request guidelines for fiscal 2009. The upper limit of
general-account expenditures is approximately 47.8 trillion yen, up
about 600 billion yen from the level of fiscal 2008, posting a
year-on-year increase for the second consecutive year. They also
confirmed the policy of appropriating approximately 300 billion yen
to a priority budget quota (framework to promote key issues) for
funds to be distributed for measures to strengthen growth and
address a shortage of doctors on a priority basis.

Budget request guidelines for fiscal 2009 have been adopted, but the
settlement of pending issues has been put off until year's end, when
the budget is scheduled to be compiled. It can hardly be said that
the Prime Minister's Office, starting with Prime Minister Yasuo
Fukuda, fully played its role as the command center. While the
ruling parties are increasing pressure for more spending with the

TOKYO 00002067 012 OF 012

next Lower House election in mind, how to achieve a good balance
between fiscal reconstruction and making a selective approach on the
policy front will likely become a challenge.

Budget aims to have it both ways

Fukuda during the policy roundtable expressed his desire to put
public finances on a recovery track and take necessary measures to
achieve that end, noting, "I would like to make fiscal
reconstruction and measures to address key issues compatible."

As a symbol of a good balance, Fukuda came up with a framework to
promote key issues worth about 300 billion yen. The additional
prioritization promotion framework (50 billion yen) set last year
has been substantially boosted under the new framework. Objectives
have been set in a manner of covering a wider range of spending
areas so that the new framework can reflect the ruling parties'
expectations. However, it is not easy to reinforce a cut in policy
expenses by another 2 PERCENT in order to obtain funds to finance
measures incorporated in the framework.

Hidehisa Otsuji, head of the LDP caucus in the Upper House, at the
roundtable called for constraining growth in social security
expenses to 220 billion yen. The finance minister replied, "I will
consider that and all other issues when compiling the budget."
Fukuda avoided active involvement in the guideline compilation
process by effectively dumping coordination of views on the finance
minister to work out.


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