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Cablegate: Daily Summary of Japanese Press 01/27/10

DE RUEHKO #0174/01 0272345
P 272345Z JAN 10




E.O. 12958: N/A


(1) Ruling parties step up search for alternative Futenma relocation
sites after Henoko relocation opponent elected as Nago mayor (Asahi)

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(2) Mayors of Tokunoshima, rumored to be Futenma relocation site,
refuse to meet chief cabinet secretary, say relocation "impossible"

(3) Futenma in turmoil (Part 2): No way out for relocation issue

(4) What to do about Futenma Air Station?: Talks with U.S. on
relocation site urged; Establish close relationship to maintain
deterrence (Yomiuri)

(5) Editorial: Make pragmatic changes to Futenma relocation plan

(6) Interview with UN Political Affairs Officer Kiyotaka Kawabata:
Dispatch of SDF to Haiti on PKO mission might become turning point
for Japan's international cooperation (Asahi)

(7) Editorial: Ensure safety for int'l contributions (Tokyo Shimbun)

(8) BOJ governor pins high hopes on ripple effects of growth of
emerging countries (Nikkei)


(1) Ruling parties step up search for alternative Futenma relocation
sites after Henoko relocation opponent elected as Nago mayor

ASAHI (Page 3) (Full)
January 27, 2010

Keiichi Kaneko, Akira Uchida

With the victory of the candidate opposed to Henoko relocation in
the mayoral election of Nago City, Okinawa, the three ruling parties
are stepping up their efforts to find a relocation site for the
Futenma Air Station. The Hatoyama administration is also maneuvering
actively behind the scenes to find a solution to this issue.
However, a remark by Chief Cabinet Secretary Hirofumi Hirano that
"there is no reason why the popular will in the local community
should be taken into consideration" has become a new source of
conflict. The road ahead will remain bumpy.

The island of Tokunoshima in Kagoshima Prefecture has newly emerged
as a candidate relocation site. According to an informed source, a
Democratic Party of Japan (DPJ) Diet member close to Prime Minister
Yukio Hatoyama visited Tokunoshima recently on his behalf and
exchanged views with local officials.

Tokunoshima is located to the southwest of the Amami-Oshima islands
and is approximately 200 kilometers from Futenma. The Tokunoshima
airport has a 2,000-meter runway, and there is a plan to expand this
airport. Local officials reportedly said that "if the government
comes up with a policy, we will consider the matter."

At a meeting of the "National Vision Study Group," a private

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advisory body to the Prime Minister, in early January, the Maritime
Self-Defense Force's Omura base (in Omura City, Nagasaki Prefecture)
and the Ground Self-Defense Force's Ainoura base (in Sasebo City,
Nagasaki) were cited as possible relocation sites.

While these candidate sites being discussed privately may be
included in the government's proposals, the official venue for the
search for an alternative relocation site is the Okinawa base issues
examination committee of the government and the ruling parties.
Committee members from the ruling parties will be submitting their
concrete proposals shortly, and the Hatoyama cabinet will select a
relocation site acceptable to the U.S. side by May, which it has set
as the deadline.

The Social Democratic Party (SDP) and the People's New Party (PNP)
are looking at locations outside of Okinawa and are studying the
possibility of using the SDF bases in Kyushu. SDP House of
Representatives member Kantoku Teruya toured the Saga airport on
Jan. 19. On the other hand, this party has decided to eliminate Iwo
Jima (Tokyo) as a possible choice because of frequent volcanic
activities there.

PNP policy chief Mikio Shimoji met with Mayor Takashi Matsumoto of
Omura City in Nagasaki on Jan. 26 and told him, "We may draft a plan
requesting the parking of U.S. Marine helicopters in Omura."
Matsumoto replied that, "If this is an official plan of the
government, we will think about it."

Relocation within Okinawa may also become a possibility once again.

Although the candidate opposed to Futenma's relocation to the
coastal area of Henoko under the Japan-U.S. agreement won in the
Nago election, there is also a plan to build a heliport on land
inside Camp Schwab (in Nago City). Proposals to integrate Futenma
with the Kadena Air Base (in the town of Kadena) and to transfer
some exercises to the island of Iejima (in Ie Village) have also
come up.

DPJ Secretary General Ichiro Ozawa has mentioned Shimojishima (in
Miyakojima City, Okinawa), which is approximately 300 kilometers
from the main island of Okinawa. However, the U.S. forces are likely
to disapprove of this location in consideration of training needs
and joint operations with other bases.

Futenma relocation has remained a difficult problem for 13 years. In
the end, the Futenma base may remain in its current location with
measures being taken to lighten the burden on the local committees,
such as by transferring helicopter exercises based in Futenma.

Chief cabinet secretary under fire for his remark

At a news conference on Jan. 26, Chief Cabinet Secretary Hirofumi
Hirano made several remarks that could be interpreted by the local
authorities as the government's intention to invoke the power of the
state, such as: "Is it impossible to move things forward without the
consent (of the local government of the relocation site)?" and "Is
it enough to obtain the approval of 50 percent or does it require
the consent of every citizen?"

Hatoyama tried to play down the controversy when he talked to
reporters in the evening. He said: "I will be responsible for
obtaining the understanding of the Okinawan people when making the

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decision." Although Hirano also talked about "obtaining (the local
people's) understanding," he seemed to be implying that ultimately,
it does not matter even if the local government disagrees, eliciting
criticism from both the ruling and opposition parties.

Liberal Democratic Party Secretary General Tadamori Oshima voiced
the following criticism: "Politics should not be conducted without
the humble attitude of seeking the understanding and cooperation of
the local people. This is (a manifestation of) the government's
self-righteous notion of democracy."

The Uru-no-kai group of ruling party Diet members elected from
Okinawa agreed at a meeting on Jan. 26 that "the chief cabinet
secretary's statement is unacceptable" and decided to lodge a
protest with the government. SDP Lower House member Teruya told
reporters furiously: "This is more than outrageous. I feel like
punching his lights out. His senses as a politician are

However, it will indeed be extremely difficult to find a new
relocation site and obtain the "local people's consent" by May.
Hirano's remarks also clearly reflected his anguish and desire to
take precautionary measures to forestall future criticisms.

Futenma relocation is a main component of the U.S. Forces Japan
realignment plans and is an issue affecting national security. There
is an opinion that if the government's hands are tied too tightly by
the wishes of the local governments, it will be unable to take
responsibility for selecting a relocation site. It appears that
Hirano made his remark on Jan. 25 that "there is no reason why (the
result of the Nago election) should be taken into account," which
drew fire from Okinawa, out of his desire to avoid being influenced
too much by the situation in the local communities and to keep a
free hand for the Hatoyama cabinet. Minister for Okinawa and
Northern Territories Affairs Seiji Maehara indicated his sympathy
for Hirano on Jan. 26, saying: "I basically agree with the chief
cabinet secretary's statement."

At recent meetings and gatherings, Hatoyama has apparently been
frequently mentioning that "the chief cabinet secretary is working
very hard on the Futenma issue." It is possible that such remarks
have put pressure on Hirano.

(2) Mayors of Tokunoshima, rumored to be Futenma relocation site,
refuse to meet chief cabinet secretary, say relocation "impossible"

ASAHI (page 14) (Full)
Evening, January 27, 2010

With regard to reports that the island of Tokunoshima in Kagoshima
Prefecture has emerged as a possible relocation site for the U.S.
forces' Futenma Air Station (in Ginowan City, Okinawa), the town
mayors and other officials on the island admitted on Jan. 27 that
there had been an inquiry from a Democratic Party of Japan Diet
member close to Prime Minister Yukio Hatoyama, but revealed that
they rejected the proposal.

According to Mayor Akira Okubo of the town of Isen, the three town
mayors in Tokunoshima met with this Diet member on Jan. 25. They
were told that the government wishes to build a replacement facility
for the Futenma base on Tokunoshima and were requested to hold a
meeting with Chief Cabinet Secretary Hirofumi Hirano.

TOKYO 00000174 004 OF 012

After discussing this matter among themselves, the three mayors
decided not to meet Hirano and notified the Diet member of their
decision on Jan. 26. Okubo told the press: "We have rejected the
proposal formally and told them that Futenma's relocation to
Tokunoshima is impossible. This proposal will not go any further."

Mayor Hideki Takaoka of the town of Tokunoshima also said: "There
was an inquiry, but we rejected it formally. Bases impose a heavy
burden on the local communities."

Mayor Kosuke Ohisa of the town of Amagi, where the Tokunoshima
airport with a 2,000-meter runway is located, said: "Personally, I
think a U.S. military base is not appropriate for an island of
longevity, children, and healing. This is nonsense."

(3) Futenma in turmoil (Part 2): No way out for relocation issue

YOMIURI (Page 4) (Abridged slightly)
January 27, 2010

"I want to ask high-ranking Japanese officials how the result of
this election could affect the Japanese government's policy," U.S.
Assistant Secretary of State Kurt Campbell, who handles the Obama
administration's Japan policy, said to Japanese reporters on Jan.
25. Campbell was speaking about the fact that Susumu Inamine, who
opposes the relocation of the U.S. Marine Corps' Futenma Air
Station, won the Nago mayoral election (on Jan. 24).

The U.S. government is becoming increasingly concerned that the
existing Henoko plan, which it regards as the only feasible plan,
might fall through.

The U.S. side reportedly obtained a promise from the Hatoyama
administration late last year that it will settle the matter in May
2010. Tokyo also reportedly informed Washington that the incumbent
mayor in favor of the existing plan was likely to win his second
term. "So we had expectations that Japan will decide to go along
with the existing plan by May," a U.S. government source said.

The result was contradictory to U.S. expectations. "A new factor has
been added," Campbell said, indicating that the implementation of
the existing plan has now become difficult.

It is inadvisable to throw the deterioration of the Japan-U.S.
relationship into relief by pressuring Tokyo, so Washington was
planning to remain calm until May, according to a high-level U.S.
official. But some in the U.S. government are likely to become more
frustrated with Tokyo. The Hatoyama administration wants to strike a
balance between the Okinawan people's sentiments and the Japan-U.S.
agreement. But in reality there seems to be no way out of this
situation. Japan-U.S. relations are strained. Chief Cabinet
Secretary Hirofumi Hirano also said the day after the Nago poll,
"There is no reason why we have to take the election result into
account," making Okinawa more distrustful of the government.

Hirano also expressed a negative stance yesterday on forming a
consensus with the government of the relocation site. Kantoku
Teruya, a Social Democratic Party Lower House member from Okinawa,
criticized Hirano harshly: "He is so outrageous that I want to punch
him. I question his sense as a politician."

TOKYO 00000174 005 OF 012

As a result of manipulating words to cling to power, the Hatoyama
administration has drawn strong reactions from all the parties

U.S. government officials and Japan experts in the United States,
such as former Deputy Secretary of State Richard Armitage, are
underlining the need to consider a Plan B, an alternative plan. From
the pessimistic view that determining a new relocation site is
difficult, the idea is to devise remedial measures premised on the
notion that the Futenma base will remain in the current location

It has been over four months since the Hatoyama administration was
launched. There is a growing possibility that the nightmare of the
planned return of Futenma Air Station -- Okinawa's long-cherished
wish -- will go back to the drawing board.

(4) What to do about Futenma Air Station?: Talks with U.S. on
relocation site urged; Establish close relationship to maintain

YOMIURI (Page 15) (Almost full)
January 27, 2010

By Hidemichi Katsumata, editorial board member

The Hatoyama administration's lack of definite views of the Futenma
airfield relocation issue is visible even after the Nago mayoral
election in Okinawa Prefecture. The nightmare that the Futenma
relocation site is Futenma is far more likely to be true now than
ever before.

Japan and the U.S. have discussed various proposals, whether in
formal or informal settings, for the relocation of the U.S. Marine
Corp's Futenma Air Station, starting with a plan to integrate it
with Kadena Air Base. The major focus of attention was on how to
solve thorny problems of reducing the base burden imposed on Okinawa
and maintaining deterrence.

Clearing two issues was the precondition for relocating the
facilities out of the prefecture.

One issue is that when relocating the Futenma functions out of the
prefecture, Marines, which depend upon helicopters for
transportation, have to be transferred as well.

If helicopters at Futenma alone are transferred out of the
prefecture, Marines in Okinawa will be bereft of a means of
transportation. Should that occur, their daily training would suffer
a setback. They would also have to wait for helicopters coming from
a long distance in the event of contingency, which means it would
take a long time before they could deploy.

In other words, if a municipality outside Okinawa Prefecture agrees
to host the Futenma facilities, it must accept not only the airfield
but also the infantry regiment (1,000 Marines) of Camp Schwab (in
Nago City), combat troops, and a training site for landing practice
and urban warfare -- training they carry out daily.

The other issue involves air traffic control of the airfield. U.S.
Forces Japan (USFJ) owns air traffic control rights of its air bases
at six locations throughout Japan, including Yokota (Tokyo), Misawa

TOKYO 00000174 006 OF 012

(Aomori) and Kadena (Okinawa), as well as Futenma. A senior Defense
Ministry official said: "USFJ owns air traffic control rights to
secure free operations of aircraft in the event of contingency. They
would never relinquish those rights."

At present, air-traffic controllers of the Transport Ministry are
controlling civilian aircraft at many local airports and their
surrounding airspace. However, it would not be easy for them to
control the operations of U.S. military aircraft, which conduct
frequent landing and takeoff practice. Even if the job is relegated
to the Marine Corps, it would affect the operations of civilian
aircraft, depending on the frequency of drills.

It was, in the end, decided to relocate the Futenma facilities
within the prefecture. The coastal area of Henoko was picked from
among several candidate areas for its high feasibility. This is the
background of the U.S. insisting that the existing plan is the best
relocation site.

However, the Hatoyama administration had been insisting on
relocation outside the prefecture or Japan, as pledged during the
election campaign. But as soon as it was found difficult to do so,
it came up with a plan to relocate the facility to Iejima island in
Okinawa Prefecture, a candidate site Japan and the U.S. had already
discussed. Furthermore, the Hatoyama administration is making moves
to search for a new relocation site in the coastal area of the
eastern part of the mainland of Okinawa, which surprised Okinawa
Governor Hirokazu Nakaima, who said: "I thought the government was
searching for a location outside the prefecture or Japan. But it is
inspecting various areas within the prefecture." The government is
putting out feelers to airports in Saga and Shizuoka Prefectures and
the Maritime Self-Defense Force Omura Base in Nagasaki Prefecture as
possible relocation sites.

The Hatoyama administration should address these two issues, which
it was unable to resolve previously, by examining the process of
past Japan-U.S. talks, before throwing out various relocation sites
like spur-of-the-moment ideas. At the same time, in order to mend
Japan-U.S. relations, which are beset by constant friction, the
Hatoyama administration should ask the U.S. to come to the
negotiating table to maintain deterrence, which is linked as a set
to the relocation of the Futenma Air Station (reduction of the base
burden). In my view, if the administration decides on a relocation
site on its own and proposes it to the U.S., it would never produce
a favorable result.

The greatest deterrence for Japan is its strong bond with the U.S.
Without such a relationship, it would be impossible to constrain a
threat from North Korea or China. There are not so many steps in
removing the potential danger of Futenma Air Station promptly and
closing the gap between Japan and the U.S.

(5) Editorial: Make pragmatic changes to Futenma relocation plan

SANKEI (Page 2) (Full)
January 27, 2010

A candidate opposed to the relocation of the U.S. Marine Corps'
Futenma Air Station (Ginowan City, Okinawa) to the Henoko district
won the Nago mayoral election. In this regard, Chief Cabinet
Secretary Hirofumi Hirano said, "If we take local consent into
account, we won't be able to do anything."

TOKYO 00000174 007 OF 012

Hirano was apparently implying the possibility that the government
will make a decision on its own even if it cannot secure approval of
the local municipality to which the Futenma air base would be

Although his remarks drew a strong reaction from the ruling and
opposition parties, as well as from Nago City, he made this comment:
"Can't we move things forward without local consent? This is a
matter of Japan's security."

His series of remarks can be taken to mean that the government has
left the existing Japan-U.S. agreement to relocate the Futenma base
to the coastal area of Camp Schwab (Nago City) open as an option.

Moreover, Japan's security is directly linked to the deterrence
provided by U.S. forces in Japan. It can be said that the government
has expressed its clear intention to take responsibility for
maintaining that deterrence capability. This is an extremely
appropriate judgment.

The U.S. government has insisted that the Japan-U.S. agreement "is
the best and only viable option."

From the standpoint of placing importance on the Japan-U.S.
alliance, Hirano's remarks are apparently aimed at coming up with a
pragmatic plan, eliminating such low feasibility options as moving
the Futenma base out of Okinawa or out of Japan, for which many in
the ruling camp have strongly called.

Prime Minister Yukio Hatoyama remarked as follows apropos the Nago
mayoral election result: "There is no change in the government
stance of "zero-base" (looking for a relocation site from scratch)."
His comment indicated that the government would search for a new
relocation site, while keeping the existing plan as an option.

However, the government should not use vague expressions such as
'zero-base,' but should instead resolve the Futenma issue as early
as possible without waiting for the deadline of May.

Because it seems likely that the Social Democratic Party (SDP) and
the People's New Party (PNP) will oppose the existing plan and
because it will much time for coordination with the local
municipalities concerned, the environmental impact assessment
premised on the existing relocation plan should be moved forward.

The Futenma issue is leading to the hollowing out of the Japan-U.S.
alliance. On the important occasion of the 50th anniversary of the
revision of the Japan-U.S. Security Treaty, the government must not
create a crisis in the bilateral relationship between Japan and the
United States. The prime minister told President Barack Obama in
their meeting held last November, "I want you to trust me."
Hatoyama, however, betrayed Obama by putting off a decision on the
Futenma issue.

As Hatoyama is the one who caused the confusion, he bears
responsibility for averting any crisis in order to preserve the
peace and safety of the nation.

(6) Interview with UN Political Affairs Officer Kiyotaka Kawabata:
Dispatch of SDF to Haiti on PKO mission might become turning point
for Japan's international cooperation

TOKYO 00000174 008 OF 012

ASAHI (Page 4) (Full)
January 27, 2010

The Hatoyama cabinet has decided to dispatch Self-Defense Force
(SDF) personnel to Haiti to join the UN peacekeeping operations
(PKO) mission. The Asahi Shimbun interviewed UN Political Affairs
Officer Kiyotaka Kawabata, distinguished professor at the Graduate
School of Osaka University, to ask for his views about whether the
planned SDF operations in Haiti will become a new type of
international cooperation activity by Japan.

-- What is your evaluation of Japan's response to the devastation
caused by the earthquake in Haiti?

Kawabata: Japan was slow to act and its medical team didn't arrive
in Haiti until five days after the quake. But now the government has
decided to dispatch the SDF to the quake-stricken area. Haiti's
government has ceased to function, so the presence of well-equipped
military units is indispensable for reconstruction activities. The
participation of SDF personnel should be welcomed.

The government's decision this time is also very important in view
of the nation's PKO policy. The PKO mission in Haiti can be
categorized as "new-generation PKO" for which the force specified in
Chapter 7 of the UN Charter is granted, although such force is
limited, for instance, to supporting police and protecting citizens.
New-generation PKO have sharply increased in the post-Cold War era.
In this era, civil wars, in which it is difficult to identify the
parties in a conflict, have become a major threat for peacekeeping.

Japan has refrained from sending the SDF overseas on a PKO mission,
bound by its five principles on PKO participation, including such
requirements for PKO participation as the existence of a cease-fire
agreement between the parties to a conflict and agreement by the
concerned parties. The SDF's planned dispatch to Haiti might become
a turning point for Japan's stalled PKO cooperation activities.

-- Japan withdrew the Maritime Self-Defense Force's vessels that
were engaged in the refueling mission in the Indian Ocean as part of
cooperation in the war on terror in Afghanistan.

Kawabata: Japan was losing sight of whether the mission was an
extension of the Japan-U.S. alliance or a part of UN activities.
Because differences in both activities have become conspicuous since
the end of the Cold War, these activities can no longer be
categorized as "international contributions." Saying that it will
not take part in U.S.-led wars, such as the Iraq war, the Democratic
Party of Japan has distanced itself from anti-terrorism operations
outside the framework of the UN. This is probably a wise decision.

But the Hatoyama cabinet has not come up with any specific
international peace cooperation measures yet. The cabinet has
decided to disburse 5 billion dollars in assistance for Afghanistan
but remains tight-lipped about manpower contributions. Urgent tasks
for peacekeeping include public security measures such as the
fostering of national forces, and measures to reform the election
system to eliminate corruption. If Japan alone continues to refrain
from making manpower contributions, will its peacekeeping
cooperation be regarded as sufficient?

-- What measures should the Hatoyama cabinet pursue?

TOKYO 00000174 009 OF 012

Kawabata: Financial aid is important in the cases of conflict and
disaster, but money will be meaningless if victims cannot survive.
Prime Minister Yukio Hatoyama has said: "I would like to deepen the
Japan-U.S. alliance to adapt to the evolving environment of the 21st
century." If the word "deepen" represents his determination to stop
depending on the U.S. and to take on global roles, Japan must
provide cooperation in peacekeeping operations under the lead of the
UN. If Japan hopes to pursue the aims of maintaining favorable
relations with the U.S. and continuing its positive approach to the
UN, Japan should have the SDF actively participate in PKO
activities, which will be appreciated by both the U.S. and the UN.

(7) Editorial: Ensure safety for int'l contributions

TOKYO SHIMBUN (Page 5) (Full)
January 27, 2010

The government has decided to send a Ground Self-Defense Force
contingent to Haiti for reconstruction in the aftermath of a recent
major earthquake that hit the nation. The GSDF will participate in
United Nations peacekeeping operations there. We hope that Japan
will make international contributions in a visible way by utilizing
its experiences in reconstruction following its own major

The earthquake that took place in Haiti - an island nation in the
Caribbean Sea - reportedly killed 100,000 or 200,000 people. Two
weeks have now passed since its occurrence. Attention will now be
focused on the nation's reconstruction.

In Haiti, antigovernment insurgents have become militant. In 2004,
the United Nations began to station PKO troops there. In the
earthquake, more than 80 PKO personnel lost their lives. As such,
the PKO unit sustained catastrophic damage. The United Nations
decided to send 3,500 reinforcements, and the Japanese government
also responded.

The Japanese government plans to dispatch a total of about 300 GSDF
personnel -mostly from the GSDF's engineer brigades - to Haiti's
disaster-stricken areas, aiming to start reconstruction activities
there in early February. They will be engaged in such tasks as
clearing rubble and repairing roads. We hope that the GSDF will
conduct activities that will give hope to people who lost their
families or houses. The government will also disburse a total of 70
million dollars in reconstruction aid.

The ruling Democratic Party of Japan says its government wants to
deepen Japan's international contributions while working together
with the United Nations. Japan has now withdrawn the Maritime
Self-Defense Force from its refueling activities in the Indian
Ocean. However, Japan can play up its personnel assistance to Haiti

However, there is cause for concern. Japan's five principles of PKO
participation require a "ceasefire agreement between disputed
parties." In Haiti, however, there is no such ceasefire agreement.
But the Defense Ministry thinks that there is no problem, explaining
that the armed insurgents are not organized, and the local incidents
are crimes such as violence involving criminal groups and are not
armed conflicts.

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According to the Foreign Ministry's information, however, major
cities in Haiti were dangerous even before the earthquake. The
Foreign Ministry had therefore advised Japanese nationals to
postpone traveling to Haiti. After the earthquake, the number of
lootings and rapes escalated. In the capital city of Port-au-Prince,
U.N. troops fired warning shots at mobs that had gone out of control
over food allocation, resulting in injuries.

We can understand the urgency of disaster reconstruction. One of our
concerns, however, is that the Self-Defense Forces' personnel may be
involved in an armed conflict. SDF personnel on overseas missions
are only allowed to use weapons for the purpose of protecting
themselves, so we wonder if this principle of minimizing the SDF's
use of weapons can be maintained.

The first and foremost purpose of sending SDF personnel on overseas
missions is for Japan to conduct humanitarian assistance for the
victims of disasters. The SDF's overseas dispatch must not be
intended to display Japan's national prestige. We hope that thorough
debates will be conducted, including Diet deliberations.

Originally, the primary mission of PKOs is to monitor ceasefire or
troop withdrawal. In recent years, however, various activities have
been required. In Cambodia, the SDF was tasked with election
monitoring in Cambodia. In East Timor, the SDF repaired roads and
trained local engineers. The SDF has thus made contributions in
nonmilitary areas.

The SDF's PKO participation in Haiti will be an opportunity for
Japan to create a new role for itself in international
contributions. The question, however, is whether the safety of SDF
personnel will be fully ensured. We will need to consider this
repeatedly in a careful manner even after the SDF is dispatched.

(8) BOJ governor pins high hopes on ripple effects of growth of
emerging countries

NIKKEI (Page 5) (Abridged slightly)
January 27, 2010

Bank of Japan (BOJ) Governor Masaaki Shirakawa at a press conference
held after a financial policy-setting meeting on Jan. 26 noted,
"There will be no disruption in the upward trend of the economy." He
thus indicated his perception that the situation of the Japanese
economy sinking into a double-dip recession can be avoided. He has
determined that since emerging economies are experiencing ongoing
greater-than-expected growth, the recovery of production and exports
will continue for some time to come. He also stressed his policy of
maintaining an extremely easy monetary environment, as he was
keeping in mind the potential risk of the U.S. economic recovery
slowing down.

Participants in the meeting reviewed the Outlook for Economic
Activity and Prices (Outlook Report) issued in October 2009. They
made an upward revision of the projection for real growth in fiscal
2010 from 1.2 percent to 1.3 percent, maintaining the scenario of
the economy staying on a mild recovery trajectory. They kept the
projection for fiscal 2011 at 2.1 percent. They also decided to
leave the policy interest rate at the present level of 0.1 percent a
year unchanged.

Concerning the future of the domestic economy, Shirakawa stressed:

TOKYO 00000174 011 OF 012

"We fully anticipate that the economic expansion might lose steam
temporarily to a certain extent. However, there will be no
disruption in the recovery trend." As factors that will affect the
future of the economy, he pointed out the strength of the economies
of resource-rich and fast emerging countries as a positive factor
and the adjustment of balance sheets by European countries and the
U.S. as a negative factor. He then indicated his perception that the
situation that has caused concern over downside risks has improved.

With regard to consumer prices, excluding perishable goods, the
participants maintained the view that although the rate of decline
will slow down, a negative trend in comparison with the previous
year's level will continue for three years from fiscal 2009 through
2011. Shirakawa pointed out that there has been no change in the
basic stance of the BOJ's monetary policy at the meeting this time
from the one adopted in December last year, when the central bank
announced that it would not tolerate a drop (in consumer prices).

Benefits of greater-than-expected strength

"The trend of the growth of emerging economies affecting exports and
capital investment by industrialized countries is working

The BOJ is continuing its ultra-easy monetary policy. However,
capital spending is showing no signs of recovery. Personal
consumption also remains sluggish, except for autos, which are
benefiting from a tax-break policy. Even so, the Japanese economy is
likely to avoid sinking into a double-dip recession. This is because
emerging countries, such as China, are serving as a driving force
for the global economy. Monetary-easing policies adopted by the
central banks of industrialized countries cannot easily have an
impact on their domestic economies. However, risk money that has
flowed into emerging countries, particularly China, is stimulating
their economies. There is thus a pattern of industrialized countries
indirectly benefiting from their policies. Growth driven by emerging
countries is linked to a rise in commodity prices, which is the
reason the BOJ has revised its projection for prices upward.

"The aftermath of the Dubai Shock is beginning to die down.
Discussions on various countries' fiscal trends and their impact on
the financial market and the impact of discussions on a review of
monetary supervision are drawing attention recently."

Shirakawa tacitly pointed out U.S. President Obama's new financial
regulation plan and financial problems in Greece and other countries
as new risk factors. Shirakawa stopped short of referring to the new
U.S. financial regulations, saying, "I would like to refrain from
making a specific comment." In the meantime, he underscored the
principle that it is important to take care that a review of
supervision over financial regulations will not hamper the recovery
of the macro-economic monetary activities.

"Sustained growth of emerging countries is expected. In the
meantime, if expectations for our country's growth do not pick up,
there is a possibility that domestic investment will continue to be

The BOJ is alert to a possible scenario of an increasing number of
companies shifting their production bases abroad, causing the
domestic economy to continue to stagnate. Shirakawa believes that
such a possibility is slim, but if corporate expectations are

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dampened, such a scenario could become a reality. Pointing out the
necessity of stimulating potential domestic needs, Shirakawa made a
request to the government, saying, "It is important for the
government to develop an environment for competition so that
corporate efforts can bear fruit."


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