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Cablegate: Japanese Deputy Pm Kan Discusses Economic Strategy,

VZCZCXRO7817
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #2709/01 3290403
ZNR UUUUU ZZH
P 250403Z NOV 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 7770
INFO RUEHFK/AMCONSUL FUKUOKA PRIORITY 7584
RUEHNAG/AMCONSUL NAGOYA PRIORITY 4748
RUEHNH/AMCONSUL NAHA PRIORITY 9933
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 1395
RUEHKSO/AMCONSUL SAPPORO PRIORITY 8092
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 TOKYO 002709

SENSITIVE
SIPDIS

STATE FOR E, EEB, EAP/EP, AND EAP/J
NSC FOR MICHAEL FROMAN, DAVID LIPTON AND JAMES LOI
USTR FOR AUSTR WENDY CUTLER AND DAUSTR MICHAEL BEEMAN

E.O.12958: N/A
TAGS: ECON ETRD PREL EINV JA
SUBJECT: JAPANESE DEPUTY PM KAN DISCUSSES ECONOMIC STRATEGY,
BILATERAL ECONOMIC ENGAGEMENT WITH NEC DIRECTOR SUMMERS

REF: TOKYO 02456

SUMMARY
-------

1. (SBU) Deputy Prime Minister Naoto Kan and Vice Minister Motohisa
Furukawa discussed the Democratic Party of Japan (DPJ) government's
thinking on economic strategy and called for political-level
bilateral dialogue on economic issues during a meeting with National
Economic Council (NEC) Director Lawrence Summers on November 14.
Kan explained how Japan needs to look in a new direction to achieve
growth going forward, and he described measures the DPJ is
considering to boost domestic demand. Ultimately, however, the DPJ
regards the growth of Japan's economy as dependant on increased
global growth, which will require international collaboration,
beginning with bilateral U.S.-Japan engagement, Kan and Furukawa
said. Kan emphasized that the DPJ seeks a dialogue with the United
States led by politicians, not bureaucrats as in the past. Summers
indicated that the United States would welcome such a bilateral
political-level dialogue to deal with structural issues, as well as
close bilateral cooperation at the political level on issues of
global importance in multilateral fora.

MACROECONOMIC PICTURE AND PROSPECTS
-----------------------------------

2. (SBU) On the sidelines of President Obama's November 13-14 visit
to Tokyo, NEC Director Summers met Deputy Prime Minister Kan and
Vice Minister Furukawa on November 14 to discuss the DPJ-led
government's macroeconomic strategy. Commenting on the economic
challenges the Government of Japan faces, Kan emphasized that a
major reason for Japan's sluggish economic performance in recent
years is the past two decades of misguided fiscal policy under a
Liberal Democratic Party (LDP) beholden to vested interests.
Successive LDP governments poured public funds into wasteful pet
projects that provided no lasting economic benefit, he said. As a
result, Japan neglected to invest in projects having strategic or
other enduring economic value. As an example, Kan pointed to
spending on 90 airports in Japan without development of a hub
airport. Under Minister of Land, Infrastructure, Transport and
Tourism Seiji Maehara, the GOJ is reviewing projects underway to
slash wasteful public works spending.

3. (SBU) Kan underscored how Japan needs to look in a new direction
to achieve robust economic growth, and the DPJ hopes to present a
strategy pointing the way forward. In addition to reviewing
existing fiscal programs, the DPJ needs to tackle the problem of
burdensome rules by carrying out deregulation, he added, because the
way Japan does many things must be changed in order to open the path
to future growth.

4. (SBU) Looking ahead, Kan said that DPJ leaders wish to stimulate
the economy while at the same time contain any increase in the
interest rate on Japan's debt of over 800 trillion yen. In the
short term, the DPJ is considering measures to increase employment
in areas where demand outstrips supply, such as long-term nursing
care and forestry, to boost gross domestic product (GDP) and to
offset the effects of cutting public works spending. The DPJ is
also considering raising subsidies for eco-friendly cars and
appliances, new houses, and retrofitting of houses to conserve
energy to increase domestic demand. DPJ leaders would also like to
encourage Japanese over age 60 (who hold the largest share of
private savings) to spend more as a means of boosting internal
demand. Kan said that he expects Japan will make the transition
from negative to positive growth in the coming year, achieving 2 or
3 percent growth within five years' time.

INTERNATIONAL COLLABORATION NEEDED
----------------------------------

5. (SBU) Furukawa explained that Japan will not be able to achieve
the transition to robust growth alone; it will require the
collaboration of all countries to boost global growth. Many
countries are in recession and looking inward at present. Acting
independently, they can drag each other down further, he noted.
Additionally, future growth will depend upon expansion of industrial
frontiers. Japan is concentrating on new sectors, such as those
relating to green technology, and aims to expand its economic ties
with the rest of Asia, as suggested by the Hatoyama initiative,

TOKYO 00002709 002 OF 002


Furukawa explained (see reftel).

BILATERAL ENGAGEMENT
--------------------

6. (SBU) Furukawa emphasized that international political-level
dialogue, beginning with bilateral U.S.-Japan engagement, will be
necessary to make this transformation to positive growth a reality
and thereby get the world economy back on track. Furukawa
highlighted the need for political-level involvement to move policy
forward, contrasting what the DPJ had in mind with the
bureaucracy-led bilateral dialogue conducted during the time of the
Clinton administration. Kan explained that visits of Treasury
Secretary Geithner and other senior U.S. officials had provided a
valuable opportunity for DPJ leaders to build relationships with
their American counterparts, which would facilitate decision-making
on key issues going forward.

7. (SBU) Describing the DPJ's effort to bring politician-driven
administration to Japan, Kan added that the DPJ aims to make policy
decisions expeditiously. Such decision-making would represent a
significant change from the past twenty years of uneasy compromise,
procrastination, and delay on vital national issues under the LDP.
Summers said that the United States would welcome a political-level
dialogue. Such engagement would provide a useful opportunity to
continue past discussion of structural issues, and international
cooperation can help in overcoming domestic opposition, he added.
(Note: On November 15, Japan's major daily newspapers reported that
that Deputy PM Kan met with NEC Director Summers and that the two
shared the view that politicians, not bureaucrats, should take the
initiative in addressing bilateral economic and trade issues. End
note.) Summers also noted that the U.S. also welcomed bilateral
cooperation at the political level on issues of global importance at
the G-20 and elsewhere, and Furukawa confirmed that the GOJ looks
forward to working in lockstep with the United States when dealing
with global issues in multilateral fora so as to achieve meaningful
results.

8. (U) NEC Director Summers has cleared this message.

ZUMWALT

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