Cablegate: Japanese Morning Press Highlights 09/23/08

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FM AMEMBASSY TOKYO
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INFO RUEKJCS/SECDEF WASHDC PRIORITY
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RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
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UNCLAS SECTION 01 OF 08 TOKYO 002614

SIPDIS

DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA;
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION;
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE;
SECDEF FOR JCS-J-5/JAPAN,
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR;
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA

SUBJECT: JAPANESE MORNING PRESS HIGHLIGHTS 09/23/08

Index:

Aso victory:
1) Taro Aso nets 70 PERCENT of the LDP votes in a landslide
victory, becoming party president and premier; Kawamura to be chief
cabinet secretary (Mainichi)
2) Aso's victory cannot mask anxiety in the LDP about his ability to
maintain a high support rate, keep party together in going into the
next election (Nikkei)
3) Aso will bring in a new cast in his cabinet, while keeping Ishiba
on with a different portfolio (Nikkei)
4) Hosoda, the new LDP secretary general, is an expert on election
strategy (Tokyo Shimbun)
5) Former Prime Minister Mori was sounded out to be secretary
general in order to bolster the party's weak structure (Mainichi)
6) New Komeito now preparing for a Nov. 2 general election (Tokyo
Shimbun)

Economic affairs:
7) Stimulating the economy will be Aso's next challenge as prime
minister, but still no concrete measures on the table (Tokyo
Shimbun)
8) Battle of the giants: DPJ's Ichiro Ozawa who advocates great
changes in fiscal policy, and Aso, who gives top priority to growing
the economy (Mainichi)
9) Nomura Holdings to buy out Lehman's Asia division (Asahi)
10) Mitsubishi-UFJ to invest up to 20 PERCENT in Morgan Stanley
(Asahi)

Articles:

1) Aso elected LDP president, collecting 70 PERCENT of votes;
Kawamura most likely to be named chief cabinet secretary

MAINICHI (Top play) (Excerpts)
September 23, 2008

The ruling Liberal Democratic Party chose Secretary General Taro
Aso, 68, as its 23rd president in a general meeting yesterday
afternoon of its lawmakers from both chambers of the Diet and
representatives of its prefectural chapters. The presidential race
was contested by a record high of five candidates. Aso won a
landslide in the first voting, collecting 351 votes or nearly 70
PERCENT of the entire votes. Aso was elected the new LDP president
to replace Prime Minister Yasuo Fukuda, 72. Aso is in the final
stage of coordinating the appointment of former education minister
Takeo Kawamura, 65, an Ibuki faction member, as chief cabinet
secretary, a key cabinet post. He will likely to pick former Defense
Minister Shigeru Ishiba, 51, another presidential candidate, as
minister of agriculture, forestry and fisheries. It is regarded as
more likely that former Policy Research Council Chairman Shoichi
Nakagawa will be given a cabinet post.

Aso to become prime minister tomorrow and launch his cabinet

Aso will be named tomorrow the 92nd prime minister or 59th lawmaker
to serve in the prime minister's post. He will then launch his
cabinet later in the day. His term in office will run through
September 2009, the remainder of Fukuda's term in office.

Kawamura has built close ties with Aso through education and sports
policy. Aso aims to put his cabinet on track as quickly as possible,

TOKYO 00002614 002 OF 008

by picking Kawamura, who served as cabinet minister, as chief
cabinet secretary.

A total of 527 votes -- 386 by LDP Diet members and three votes by
each of the prefectural chapters -- were cast in the presidential
election. Regarding the number of votes collected by other
candidates than Aso, Economic and Fiscal Policy Minister Kaoru
Yosano won 66 votes, followed by former Defense Minister Yuriko
Koike with 46, former LDP policy chief Nobuteru Ishihara with 37,
and former Defense Minister Shigeru Ishiba with 25. There were two
invalid ballots.

2) Woes behind Aso's victory

NIKKEI (Page 2) (Full)
September 23, 2008

Taro Aso, newly elected president of the ruling Liberal Democratic
Party, won an overwhelming victory in the LDP's presidential
election with two-thirds of all votes. His support base in the LDP
appears to be rock solid, but what is in store for his future is
still murky. In the LDP, Aso's role is expected to represent his
party as a 'campaign face' for a potential election. However, the
new LDP president could lose his momentum to run the party once his
leadership wanes. "I can say I have fulfilled my role only when we
have won in the election," Aso declared after he was elected LDP
president. The LDP has now set sail with a vulnerable engine to plow
the stormy waters of a general election to be followed by a
dissolution of the House of Representatives.

The Aso faction, led by Aso, has a total of 20 members, and its
intraparty base is vulnerable. Aso therefore needed to win an
overwhelming victory for his prospective government. However, he
could not pitch a 'perfect game' since the number of votes he
garnered fell short of his expectations.

In the end, Aso has no weapons but his popularity. The question is
how the rate of public support will turn out after his cabinet comes
into office. The Fukuda cabinet's inaugural support rate was nearly
60 PERCENT . Aso, should his cabinet's support rate proves to be
disappointing, will lose his momentum from the very start. If he
thinks of setting sail with a high rate of support, he will need to
clarify his own imprint and ready himself to dissolve the House of
Representatives at any time.

Aso may also have to be attentive to those called "ageshioha"
(rising-tide faction) (a group of LDP lawmakers insisting on
economy-first policy measures for economic growth instead of raising
taxes for fiscal reconstruction). One of them, former Defense
Minister Yuriko Koike, garnered 46 voters from among the LDP's
lawmakers, and she won many more votes than expected. "I think she
got many more votes than you had expected," said former LDP
Secretary General Hidenao Nakagawa, an influential leader of the
Machimura faction and one of the ageshioha group.

Some in the LDP took it that Koike's candidacy was a touchstone for
political realignment in the future. LDP lawmakers were split over
the number of votes she garnered. "She couldn't get enough votes for
the ageshioha group to get out of the party," one spat out.
Meanwhile, some others think Koike has now ensured her voice to a
certain extent. She must be disquieting to Aso.

TOKYO 00002614 003 OF 008

Under the Fukuda government, Aso has worked together with Kazuo
Kitagawa, secretary general of the New Komeito, the LDP's coalition
partner. However, some of Aso's campaign staff for the LDP race are
insisting that he should tackle one-on-one debates with the heads of
opposition parties and Diet deliberations on the supplementary
budget for the current fiscal year.

"How far is he going to hold deliberations on the supplementary
budget?" one of the New Komeito's leaders wondered. If Aso and his
government come under fire from the opposition parties in Diet
deliberations, his cabinet's support rate is likely to go down. The
New Komeito could also distance itself from the LDP.

3) Ishiba certain to get cabinet post

NIKKEI (Page 2) (Full)
September 23, 2008

Liberal Democratic Party President Taro Aso continued coordination
to form his cabinet before its inauguration tomorrow. Aso wants to
replace the current Fukuda cabinet's lineup on a large scale and is
screening a wide range of candidates for his cabinet. Former Defense
Minister Shigeru Ishiba, 51, and Economic and Fiscal Policy Minister
Kaoru Yosano, 70, who struggled in the LDP presidential election,
are certain to enter Aso's cabinet. Yosano may be retained in his
current cabinet post or will likely be appointed to the post of
finance minister.

Economy, Trade and Industry Minister Toshihiro Nikai, 69, will
likely be retained. Former Justice Minister Kunio Hatoyama, 60,
close to Aso, and former Economy, Trade and Industry Minister Akira
Amari, 59, are also regarded as likely candidates. Health, Labor and
Welfare Minister Yoichi Masuda, 59, who has advocated repealing the
healthcare insurance system for the elderly in coordination with
Aso, and Minister of State for Consumer Affairs Seiko Noda, 48, are
highly likely to be retained.

4) Hiroyuki Hosoda appointed as LDP secretary general: Election
expert with established reputation for business ability

TOKYO SHIMBUN (Page 2) (Full)
September 23, 2008

In 2004, he succeeded then Chief Cabinet Secretary Yasuo Fukuda, who
had suddenly stepped down over his failure to pay pension premiums.
He steadily fulfilled the weighty responsibility of the key post of
the cabinet. He is a former official of the previous Ministry of
International Trade and Industry. He built a reputation for his
excellent business ability.

He supported former Secretary Genera Taro Aso as acting secretary
general of the Liberal Democratic Party (LDP) during the Abe and
Fukuda cabinets. He has been promoted to secretary general, winning
the deep confidence of Aso.

He is a scholarly type good at analyzing things. His hobby is
playing contract bridge. Since he is versed in the election system
and election situations, he has earned himself the nickname of an
election expert.

Some say that he is weak in negotiations and bargaining due to his
mild character. When he was serving as Diet Affairs Committee

TOKYO 00002614 004 OF 008

chairman, he came under fire because he changed his Diet strategy
toward the establishment of conspiracy offenses many times.

Hiroyuki Hosoda: Graduated from Tokyo University. Served as chief
cabinet secretary, Diet Affairs Committee chairman and acting
secretary general. 64 years old. Elected from the Shimane
constituency no. 1. Six-term Lower House member. Machimura faction
member.

5) New LDP President Aso approaches former Prime Minister Mori about
serving as secretary general, reflecting weak political base in
party

MAINICHI (Page 5) (Full)
September 23, 2008

Taro Aso, the new president of the ruling Liberal Democratic Party
(LDP), appointed former Deputy Secretary General Hiroyuki Hosoda, a
member of the Machimura faction, as secretary general and retained
Kosuke Hori, who belongs no faction, in the Policy Research Council
chairman's post; Takashi Sasagawa, a Tsushima faction member, in the
General Council chairman's post; and Makoto Koga, who heads a
faction, in the Election Strategy Council chairman's post. Aso
placed importance on factional balance in selecting the four party
executives, aiming at building unanimity in the party with an eye on
the looming House of Representatives election. Aso's selection of
Hosoda as secretary general reflects the weakness of his footing in
the party. He has no choice but to give consideration to the
Machimura faction, the largest in the LDP, in managing his
administration.

On Sept. 18, Aso telephoned former Prime Minister Yoshiro Mori, a
supreme advisor to the Machimura faction, who just returned home
from an overseas trip.

Aso: "Thanks to you, I am doing well in the presidential race. Could
you do me one more favor? I would like you to control the party."

Mori: "What in the world do you mean?"

Aso: "I would like you to serve as secretary general."

Mori firmly declined to accept Aso's offer. Mori seems to have
refused the offer for the reason that there was no precedent for a
former prime minister to serve as secretary general.

Mori paved the way for Aso's victory in the presidential race, while
the Machimura faction was split in two groups -- one supporting Aso
and the other backing former Defense Minister Yuriko Koike. In
return, Mori had expressed hope that a Machimura faction member
would become secretary general.

In consideration of that, Aso took a stance of placing importance on
the largest faction, by sounding Mori out on the secretary general
post. He picked, however, Hosoda, who has the image of a person
working behind the scenes, as secretary general. It can be said that
Aso took a bullish stance of contesting the next Lower House
election under his name alone.

6) Komeito ready for election on Nov. 2

TOKYO SHIMBUN (Page 1) (Abridged)

TOKYO 00002614 005 OF 008

September 23, 2008

The New Komeito yesterday launched preparations for a snap election,
expecting the general election to be announced on Oct. 21 and held
on Nov. 2. The New Komeito made this judgment, given that the ruling
Liberal Democratic Party's new president, Taro Aso, has indicated
that he will fast-track the fiscal 2008 supplementary budget in Diet
deliberations before dissolving the House of Representatives.

The LDP and the New Komeito will hold a meeting of their heads
today, in which the two parties are expected to enter into final
coordination over the House of Representatives' dissolution and Diet
deliberations on the extra budget.

The House of Representatives Budget Committee is expected to enter
into deliberations on Oct. 6 at the earliest. In this case, the
general election can hardly be announced on Oct. 14 and held on Oct.
26.

At first, the New Komeito was cautious about deliberating on the
extra budget. In response to Aso's indication, however, a New
Komeito executive clarified that the New Komeito's election
committee is preparing for voting on Nov. 2.

7) LDP yet to come up with concrete measures to counter DPJ's
economy-oriented policy

TOKYO SHIMBUN (Page 2) (Abridged slightly)
September 23, 2008

New LDP President Taro Aso declared yesterday that his party would
fight the next Lower House election centering on economic stimulus
measures. The declaration was intended to counter the major
opposition Democratic Party of Japan, which has come up with a
series of policies pleasing the public. However, without any
specifics, the effectiveness of the LDP's economic stimulus measures
remains unclear

Aso had this to say in his inaugural press conference: "Through my
nationwide tour, I have realized that the economy is slipping into
recession. Easing economic uncertainty is my mission."

The LDP achieved an overwhelming victory in the 2005 Lower House
election by making postal privatization the major campaign issue
under the Koizumi administration. But in the 2007 Upper House
election, the party was badly defeated by the DPJ, which put top
priority on national livelihood. The LDP reportedly suffered the
crushing defeat due to expanded social and income disparities and
impoverishment in local areas as part of the Koizumi reform
initiative.

Aiming to repeat the 2007 election, the DPJ is promising for the
next Lower House election to eliminate expressway tolls, provide
child allowances, and give income support to farmers on the slogan
of making Japan into a fair society with no disparity.

From bitter lessons learned from the previous Upper House election,
Aso in the LDP presidential race played up the need to take economic
stimulus measures rather than pursuing the reform policy course that
would force a greater burden on the public.

That helped Aso to defeat by large margins former Defense Minister

TOKYO 00002614 006 OF 008

Yuriko Koike, who advocated the structural reform line, and Economic
and Fiscal Policy Minister Kaoru Yosano, who called for fiscal
reconstruction.

It is particularly noteworthy that Aso won 134 local votes out of
141. Backed by overwhelming support from within the LDP, Aso is set
to pursue an economy-centered policy course.

In the LDP presidential race, Aso pledged as a means to shore up the
economy such steps as the implementation of a fiscal 2008
supplementary budget, a comprehensive economic package, including a
flat-sum tax cut, tax cuts on capital investments in R&D, and the
exemption of the real estate acquisition tax.

To achieve economic recovery, he also ruled out a consumption tax
hike, at least for the time being. He also presented a plan to
review such polities as attaining a black-ink primary balance in
fiscal 2011 and reducing the growth of social security spending by
220 billion yen in the fiscal 2009 budget. His plan lacks punch,
however.

Aso, who has criticized the DPJ's policy as lacking concrete revenue
resources, cannot afford to project himself as a big spender. As
such, he is cautious about issuing deficit-covering government
bonds, although he has indicated that he would not hesitate to
resort to fiscal disbursements.

The LDP will accelerate its efforts to produce its campaign pledges
for the nest Lower House election. Whether or not the party can come
up with economic stimulus measures appealing to the public is likely
to determine the outcome of the election.

8) LDP President Aso to give top priority to economy; Ozawa to turn
around fiscal structure; Both yet to present clear fiscal resources

MAINICHI (Page 9) (Excerpts)
September 23, 2008

By Kenji Shimizu, Kiyohiro Akama

Secretary General Taro Aso's victory in yesterday's LDP presidential
election has generally paved the way for the Aso-led LDP to lock
horns with DPJ President Ichiro Ozawa in the next Lower House
election with the reins of government at stake. How should the two
parties' assertions regarding their economic and fiscal policies be
viewed? The newspaper examined them while asking for economists'
views.

In his inaugural press conference, LDP President Aso played up his
determination to ease economic uncertainty. He diagnosed the
Japanese economy as having slipped into a recession that will "take
three years to heal completely." He also made it clear that he would
focus on economic stimulus measures, such as cutting taxes on
individuals and corporations, for the next three years even by
shelving fiscal reconstruction targets, such as bring the primary
balance to the black in fiscal 2011.

Aso also pledged early implementation of an economic stimulus
package designed, for instance, to assist small businesses in
raising funds. BNP Paribas chief economist Ryutaro Kono warned that
the step that might result in the issuance of additional
deficit-covering government bonds and pork-barrel spending on the

TOKYO 00002614 007 OF 008

excuse of the U.S. financial crisis and Japan's recession. At the
same time, some analysts welcome such steps as tax breaks on capital
investment and R&D and preferential tax treatment intended to
encourage overseas corporate gains to flow back into Japan.

Aso also promised to review the healthcare system for people aged 75
and older. At the same time, Aso indicated that the idea of a
consumption tax hike would he shelved for three years. Credit Suisse
chief economist Hiromichi Shirakawa said: "Can one discuss a stable
social security system without talking about tax increases? Without
the alleviation of anxiety for the future, economic stimulus
measures would go to waste." A market source watching the situation
said, "If Yosano Kaoru, who advocates the restoration of soundness
in the nation's finances, joins a new cabinet, he would be able to
put a brake on (government spending)."

Meanwhile, Ichiro Ozawa, who won his third term as president of the
major opposition Democratic Party of Japan on Sept. 21, has declared
an overhaul of the makeup of the national budget, saying: "Giving
top priority to the public livelihood, we are going to turn around
the economic and fiscal structures." His party has pledged to
eliminate expressway tolls and provide each child with an allowance
of 26,000 yen a month starting in fiscal 2009. The DPJ's pledges
also include the abolition of the provisional rate of the gasoline
tax to lower gasoline prices, which is easy to understand for
general public, according to Hideo Kumano, chief economist at
Daiichi Life Research Institute.

There is strong criticism that how Ozawa will secure the 22 trillion
yen for those plans is unclear. But Ozawa dismissed that as
"poisoned thinking bred under the bureaucracy-led system under the
long LDP administration." He stressed that 22 trillion yen could be
spent for policies from the general and special accounts. He also
presented a plan to implement policies in three stages: in fiscal
2009, in two years, and in four years.

9) Nomura to purchase Lehman Brothers' Asia business

ASAHI (Page 1) (Full)
September 23, 2008

Nomura Holdings has reached a basic agreement with Lehman Brothers
that it would succeed the failed company's Asia business, which is
in effect a takeover. Nomura reportedly won the bid for hundreds of
billions of yen.

Lehman Brothers' business in the Asia-Pacific Region, including
Japan and Australia, will come under Nomura's wing. The concerned
business area includes the investment section responsible for
mergers and acquisitions. Nomura said that since the purchased
business does not include the principal transaction section's assets
and debts, such as stocks and bonds, it has avoided risks of
incurring losses in the future. The contract also includes that
Nomura will also take over its employees, which number more than
3,000. As such, it will likely be able to secure very important
human resources for securities business.

Nomura is deemed as the most promising bidder for Leyman's Europe
business as well. Britain's Financial Times online reported that
Lehman's negotiation partners have been narrowed down to Nomura.

Lehman Brothers, established in 1850, was one of leading U.S.

TOKYO 00002614 008 OF 008

securities firms. It, however, filed for bankruptcy with its bid to
sell itself falling through. The firm will thus be disbanded with
its businesses throughout the world split and sold off.

10) MUFG to take up to 30 PERCENT stake in Morgan Stanley to become
top shareholder

ASAHI (Top Play) (Abridged slightly)
September 23, 2008

The Mitsubishi UFJ Financial Group (MUFG), which has Tokyo
Mitsubishi-UFJ Bank under its wing, on September 22 said that it
plans to make a massive investment in Morgan Stanley, a leading U.S.
securities firm. Nomura Holdings, the largest domestic securities
company has also released a plan to effectively take over the
Asia-Pacific division of Lehman Brothers. The global financial
crisis has led to the border-crossing reorganization of the
securities industry. Japanese banks, which once suffered from bad
loans, are now bailing out U.S. financial institutions.

MUFG will aim to obtain up to a 20 PERCENT stake in the ordinary
shares of Morgan Stanley. Its aim is to become an equity-method
affiliate of that firm. As the top shareholder, it will strengthen
its business areas, such as stock trading and consultancy for M&As,
by using Morgan Stanley's global operation network.

MUFG is said to have been approached by Morgan Stanley and agreed to
invest in it. It will swiftly determine the assets of Morgan Stanley
and obtain that firm's shares, using the system of third-party
allocation in increasing capital. The two companies will confer on
the investment ratio with a focus on between 10 PERCENT and 20
PERCENT . If MUFG has a 15 PERCENT stake in that company, it would
become its top shareholder. Securing a 20 PERCENT stake means it
will invest more than 900 billion yen on the basis of the company's
net assets as of the end of August.

MUFG has been strengthening its overseas presence. It has decided to
make UnionBancal Corporation under its wing a wholly owned company,
investing about 380 billion yen. MUFG will increase its presence in
the U.S. market.

Since the subprime mortgage crisis became serious last year, Japan's
megabanks, whose financial standing is relatively stable, have been
approached by many European and U.S. banks for financial assistance.
In response, Mizuho Corporate Bank invested approximately 130
billion yen in Merrill Lynch, a leading U.S. securities firm.
Sumitomo Mitsui Banking Corporation also decided in June to invest
approximately 100 billion yen in Barclays Bank, a leading British
Bank.

SCHIEFFER

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