Cablegate: Scenesetter for Senator Webb's February 14-17

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E.O. 12958: N/A
TAGS: PREL PGOV EFIN ECON MARR JA
SUBJECT: SCENESETTER FOR SENATOR WEBB'S FEBRUARY 14-17
VISIT TO JAPAN

1. (SBU) Begin Text of Scenesetter:

Dear Senator Webb:

Welcome to Japan, a nation in transition. The Democratic
Party of Japan's (DPJ) landslide victory in last year's
August 30 Lower House election has dramatically altered
Japan's political landscape, marking the end of the former
ruling Liberal Democratic Party's (LDP) virtually
uninterrupted 54-year rule. Prime Minister Yukio Hatoyama
and the DPJ have laid out an ambitious domestic agenda as
well as a foreign policy vision aimed at a "more equal"
relationship with the United States and, with the U.S.-Japan
relationship as Japan's foreign policy foundation, a greater
emphasis on Asia.

Disappointed with years of economic stagnation, growing
employment insecurity and increasingly visible holes in the
social safety net (including the loss of millions of pension
records), Japanese voters turned to the DPJ, which had
promised solutions to these problems and fundamental "change"
in the way Japan is governed, including giving more authority
to elected leaders as opposed to the bureaucracy.

Prime Minister Hatoyama has made clear that continuing a good
relationship with the United States is one of his highest
priorities. Japan has been a strong supporter of U.S.
diplomatic objectives in the region and the world. The U.S.
and Japan remain two of the most significant contributors of
global development assistance, and our priorities and policy
positions are frequently closely aligned. Japan has provided
invaluable support to our policies regarding North Korea,
Afghanistan/Pakistan, nuclear non-proliferation and
disarmament, Iraq, Iran, the Middle East peace process, and
recently Haiti. Although the Hatoyama government chose not
to extend Japan's Indian Ocean refueling mission that
supported Operation Enduring Freedom, it has sought to play a
visible role in other parts of the world, including through a
five-year, $5 billion pledge to Afghanistan and a decision to
dispatch Japan Self Defense Forces medical and engineering
teams to Haiti.

Japan supported key U.S. positions -- particularly for
mitigation efforts by major developing countries -- at the
COP-15 summit in December, and its recent inscription of a 25
percent cut in greenhouse gases over 1990 levels helped build
momentum for the Copenhagen Accord. Unlike earlier periods,
with the exception of restrictions on market access for U.S.
beef producers and level playing field concerns for the
insurance sector, as well as more recent concerns about the
ability of U.S. autos to qualify for Japan's eco-car subsidy
program, we have few major contentious trade issues with
Japan. Our cooperation on financial stabilization has been
good although there are still concerns about the long-term
prospects for the Japanese economy.
This year marks the 50th anniversary of the Treaty of Mutual
Cooperation and Security, and the U.S.-Japan Alliance remains
the cornerstone of peace and stability in East Asia. The
strength of the Alliance notwithstanding, the media has
portrayed differences on several issues as symptoms of a
strained partnership The focus of media attention has been
the new government's decision to review a 2006 agreement (the
Realignment Roadmap) on the transformation of U.S. forces and
facilities in Japan, specifically the relocation of U.S.
Marine Corps Air Station (MCAS) Futenma in heavily populated
southern Okinawa to the planned Futenma Replacement Facility
(FRF) at Camp Schwab in northern Okinawa. This development
has overshadowed notable progress in other areas of the
Roadmap as well as planning for new initiatives to deepen the
Alliance in this anniversary year. We see your visit as an
opportunity to highlight the vibrancy of the Alliance and the
overall relationship, while advancing cooperative efforts to
address points of difference.

John V. Roos
Ambassador

2. (SBU) Begin text of checklist:

-----------------

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Domestic Politics
-----------------

To date, Prime Minister Yukio Hatoyama and his DPJ-led
government have sought to project an image of competence,
stability, and experience while quelling concerns about their
ability to address pressing domestic issues, such as economic
recovery, health care and pensions. The DPJ has also moved
to strengthen the administration's role in budget and policy
formulation, putting "political leadership" ahead of the
bottom-up, bureaucracy-led policymaking style of previous LDP
governments. But while "not business as usual" has been the
unofficial slogan of this new government, political finance
scandals continue to dog party leadership, including PM
Hatoyama and DPJ Secretary General Ichiro Ozawa. While the
prosecutors' early February decision not to indict Ozawa
appears to have let him off the hook for the time being, it
remains to be seen whether the public will be so forgiving,
particularly with an important election in July.

-----------------------------
Bilateral and Security Issues
-----------------------------

-- Support for the Alliance: While the plan to relocate
Marine Corps Air Station (MCAS) Futenma to the planned
Futenma Replacement Facility (FRF) at Camp Schwab in northern
Okinawa has been a dominant feature of bilateral discussions,
we are also engaging the DPJ government on a wide range of
bilateral and security issues. On one hand, Prime Minister
Hatoyama has publicly acknowledged that the Alliance remains
the cornerstone of Japan's foreign policy. On the other, the
DPJ government is reexamining components of bilateral defense
cooperation, including the following:

-- Realignment/Futenma: Since taking office in September, the
DPJ Government has withheld endorsement of the FRF portion of
the Realignment Roadmap, pending a review of this 2006
agreement to reconfigure U.S. forces and facilities in Japan.
At the November Summit, Prime Minister Hatoyama and
President Obama noted their intent to resolve the FRF issue
expeditiously, but the GOJ announced in December that it
would delay a decision, due to the need for further
consultations within the governing coalition. In recent
weeks, a working group comprised of GOJ officials and
representatives of the three coalition parties has been
examining possible alternative relocation sites for MCAS
Futenma. The working group will soon submit proposals on
these sites, with a view to meeting Prime Minister Hatoyama's
May target date for a resolution.

Expectations are rising within Okinawa that Japan's new
government will relocate MCAS Futenma outside of the
prefecture. In response, however, some government leaders
have publicly noted that their review does not exclude the
current plan. Government leaders in Tokyo were also quick to
preempt efforts to use the election of an "anti-base" mayoral
candidate, in the Okinawan town that is slated to host the
planned FRF, as grounds for ruling out the current plan. The
Okinawa Governor remains committed to the current plan,
although he concedes that the loss of local municipal support
will make implementation more difficult

The consistent U.S. position has been that the planned FRF at
Camp Schwab remains the best option to maintain our
military's deterrent capabilities and to reduce its impact on
local communities, the twin goals of the Realignment Roadmap.
We have also emphasized the need to maintain momentum on
other Roadmap initiatives and to deepen new forms of
cooperation within the Alliance, such as in ballistic missile
defense, humanitarian assistance/disaster response, and
trilateral engagement with regional partners.

-- "Secret" Agreements: Reports of the existence of "secret"
agreements between the United States and Japan dating from
the 1960s have caused mild media interest focused on Japan's
"three non-nuclear principles" of not producing, possessing
or allowing introduction of nuclear weapons into Japan.
Former Vice Foreign Minister Ryohei Murata, who served as
Vice Foreign Minister from 1987-89, disclosed to local press

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the existence of an agreement between the United States and
Japan (declassified in the United States in 1999 and
available publicly), that has allowed nuclear-armed U.S.
vessels and aircraft to make port calls and transits in
Japan. Although members of previous Japanese administrations
and bureaucrats consistently denied the existence of any
agreement, Prime Minister Yukio Hatoyama has vowed to clarify
the issue. Foreign Minister Okada on September 16 ordered
MOFA officials to begin an investigation into this and three
other purported "secret" U.S.-Japan agreements covering
combat operations from Japan, reintroduction of nuclear
weapons into Okinawa and monetary arrangements associated
with Okinawa's reversion to Japan. MOFA engaged in a
document review at MOFA headquarters and the Japanese embassy
in Washington to find Japanese documentary evidence of these
agreements. The review is now complete and FM Okada has
asked an expert panel of academics to review the report of
the findings.

-- Nuclear Disarmament and Non-Proliferation: The Japanese
government has welcomed the President's initiatives on
disarmament, beginning with his speech last year in Prague.
Former Foreign Minister Nakasone gave his own speech in April
in response, outlining 11 benchmarks for nuclear disarmament.
The Japanese disarmament community, centered on several NGOs
and the mayors of Hiroshima and Nagasaki, has
enthusiastically welcomed the President's disarmament
initiatives. The two mayors have asked for the President to
visit their cities.

-- SOFA: DPJ politicians, prefectural governors in
particular, have talked about pursuing changes to the Status
of Forces Agreement (SOFA) to address perceived public
concerns about criminal jurisdiction and environmental issues
associated with U.S. base facilities. Despite publicity on
this subject, the new Japanese Government to date has made no
request to revise the SOFA.

--HNS: Host Nation Support (HNS) defines Government of Japan
cost-sharing for U.S. Forces stationed in Japan. HNS totaled
USD 4.3 billion in FY 2008, but has declined 15 percent since
1997. Currently, both sides are preparing to conduct a
"Comprehensive Review" of Host Nation Support to ensure that
the package is economically efficient and politically
sustainable.

-- IPCA: International Parental Child Abduction (IPCA), is
the highest priority consular issue for the Mission. There
are currently 75 cases in which a parent abducted a child
from the U.S. to Japan leaving the American Left Behind
Parent (LBP) with no access to his or her child. There are
also American parents living in Japan who have little or no
access to their children because the other parent abducted
the child in Japan or because they got divorced in Japan and
do not have enforceable visitation rights. In October 2009
the Ambassador led an eight embassy demarche on the Minister
of Justice calling upon Japan to accede to the Hague
Convention on the Civil Aspects of International Child
Abduction and implement measures to enable access by LBPs.
On January 30, 2010, the Ambassador and envoys from the same
embassies demarched the Foreign Minister calling for Japan to
accede to the Hague Convention, enable access, and establish
a mechanism for resolution of existing cases. In late
November 2009, the Ministry of Foreign Affairs (MOFA)
established the Division for Issues Related to Child Custody
(DIRCC) to coordinate matters related to child abduction. On
February 10, the Consul General, joined by colleagues from
seven nations, will meet with the DIRCC and Ministry of
Justice officials. Consular officers are working with MOFA
officials to establish a bilateral working group to discuss
individual cases, including improved access and visitation,
as well as ultimate resolution of these cases. A/S Campbell
met with LBPs in Japan on February 2 and encouraged them to
request a meeting with Senator Webb. He stated that if left
unresolved, this issue has the potential to raise serious
concerns, and added that legal measures, such as indictments,
may be necessary.

-----------------
Foreign Relations

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-----------------

-- Afghanistan-Pakistan: Japan has been a leading
international donor for Afghanistan reconstruction and
development since 2002, contributing over $2 billion in aid
for such important areas as rule of law/security sector
reform (e.g. paying salaries and training of 80,000 Afghan
National Police) aid, health improvements, and
rural/agricultural development. Prior to President Obama's
inaugural visit to Japan last November, Japan rapidly
developed and publicly committed to providing a substantial
package of increase civilian assistance for Afghanistan.
With this new $5 billion/5 year pledge, Japan is essentially
quadrupling its Afghanistan program, becoming the second most
significant bilateral donor there (after the U.S.) in terms
of aid funding levels. Japan's new assistance is targeted on
providing incentives and training for the re-integration of
ex-Taliban members, continued police reform assistance,
infrastructure improvements such as the development of a new
city to improve services and relieve severe overcrowding in
the Kabul Metropolitan Area, and expansion of its
agricultural assistance. As part of its expanded pledge,
Japan also confirmed its intent to provide on an expedited
basis $1 billion for assistance to Pakistan.

-- Iraq: Japan is the second-largest contributor to Iraq's
reconstruction and has established a new Japanese
International Cooperation Agency (JICA) regional office in
Erbil, and has committed several multi-billion major
infrastructure development loans to spur economic development.

-- Iran: Although Japan maintains what it terms a "normal"
relationship with Iran, it supports international efforts led
by the P-5 plus 1 to address concerns about Iran's nuclear
program and has diligently implemented UNSC resolutions on
Iran. Senior Japanese officials meet intermittently with
Iranian representatives and carry the message urging Iran to
abide by the will of the international community. Japan
imports virtually all its oil and relies heavily on imports
from Iran. Japan prefers the framework of UN Security
Council resolutions and has expressed support for additional
coordinated international pressure against Iran, including a
possible new UNSC resolution. Japan has stressed the
importance of broad international participation for measures
on Iran to be effective. Japan,s desires to be an
intermediary between the United States and Iran, maintain its
relationship with Tehran, and reluctance to work outside the
UNSC framework can create potential conflicts for the GOJ and
raise some concern that Japan will remain firm as we seek to
increase pressure on the regime.

-- Middle East Peace Process: Japan plays a role in
supporting the Middle East Peace Process and is broadly
supportive of U.S. efforts to restart negotiations. In that
context, the Ministry of Foreign Affairs (MOFA) has sounded
out Southeast Asian countries, in particular Indonesia,
Malaysia, and Singapore, about a Japan-led initiative to
build international support for Peace Process discussions,
particularly among Southeast Asian countries. Japan's
Special Middle East Envoy Iimura traveled to Southeast Asia
late last year to discuss the proposal, receiving cautious
but interested responses. Although Japan maintains its
traditional focus on development assistance to the
Palestinians, in December 2009, the GOJ announced $15 million
in "non-project" assistance to the Palestinian Authority in
response to U.S. entreaties to provide budget support to the
PA to ease its fiscal crisis. Japan used the February 7-10
visit of Palestinian Authority President Abbas to reaffirms
its support for the Middle East Process and to strengthen
Abbas, political standing.

-- China: Japan's relations with its other immediate
neighbors are generally stable, although problems persist
just beneath the surface. Prime Minister Hatoyama is
continuing the efforts of Former Prime Minister Aso, who had
been successful in defusing the sharp conflicts over history
that damaged relations with China during the Koizumi years.
Hatoyama participated in the second stand-alone
Japan-China-South Korea Trilateral Dialogue in October 2009.
Japan also recently hosted PRC Vice President Xi Xinping, the

TOKYO 00000284 005 OF 007

presumptive next president, in a visit that had all the bells
and whistles of a state visit. Japan restarted its version
of the Strategic and Economic Dialogue (S&ED) last year after
a long hiatus.

While Japanese acknowledge that good U.S.-China relations are
in Japan's interest, they also fear that the United States
will discount Japan's interests in pursuit of more robust
relations with China. Japan has opposed China's apparently
unilateral exploration of oil and gas fields in the East
China Sea the two countries have pledged to jointly develop.
Japan also has been wary of falling behind China in securing
access to natural resources.

-- North Korea: Japan and the United States coordinate
closely on North Korea and the Six Party Talks, and there is
no daylight between our positions on how to move forward: a
return to the Six Party Talks and progress on
denuclearization must precede any lifting of sanctions and
discussion of a peace regime. Japan remains exceedingly
uneasy about the DPRK in light of its nuclear tests, missile
launches over the Sea of Japan, and bellicose rhetoric. You
will be expected to express concern for the fate of Japanese
citizens abducted by the DPRK.

-- South Korea: Territorial disputes over the Liancourt
Rocks (Takeshima/Tokdo) and history issues remain an irritant
to Japan's relations with South Korea, but both sides have
expressed a desire to build a Japan-ROK relationship that is
"different from the relationship up until now." The ROK
Government sees the Hatoyama Government as a much more
sympathetic interlocutor. Under the administration of former
Prime Minister Aso, the pace of "shuttle diplomacy" picked up
markedly. The year 2010 marks the 100th anniversary of
Japan's annexation of Korea, and both sides are seeking to
avoid controversy and use the opportunity to create a more
future-oriented relationship. The bilateral defense
relationship between the ROK and Japan, in particular, has
improved since the 2008 change in administration in South
Korea. Senior-level exchanges among both uniformed and
civilian defense officials increased substantially. This, in
turn, has allowed trilateral defense talks among the United
States, Japan, and South Korea to gain momentum, culminating
in Secretary Gates, participation in the first-ever
trilateral defense ministerial in May 2009.

--Japan's Concept of an East Asian Community: As part of its
overall efforts to improve relations with its neighbors, the
DPJ government initially proposed the establishment of an
East Asian Community with the goal of pursuing an ambitious
program for regional integration along the lines of the
European Union. While short on specifics, the idea
nevertheless generated a certain amount of controversy,
mainly because it was unclear at first whether Japan was
proposing an East Asia community that was open to the United
States. More recently, however, PM Hatoyama and others have
clarified that Japan's relationship with the United States is
the cornerstone of its foreign policy, and that Japan would
on this basis seek to strengthen and expand its ties with its
Asian neighbors.

-- Climate Change/Energy Security: Before taking office, PM
Hatoyama announced that the GOJ would target a 25 percent
reduction in greenhouse gas emissions, from 1990 levels, by
2020 - a far more ambitious target than the cuts proposed by
former Prime Minister Aso. In late January, Japan inscribed
its commitment to these targets under the Copenhagen Accord,
conditional upon "ambitious" reductions by other major
emitters. The new targets were set with little or no
consultation with Japanese ministries to the dismay of the
bureaucracy, particularly the Ministry of Economy, Trade and
Industry (METI). A Government panel is expected to release
its roadmap for achieving Japan's climate goals in March. A
substantial part of these cuts -- up to 40 percent -- will
have to come in the form of carbon credits from developing
countries, most likely through expanded Japanese ODA for
clean energy projects, especially in Asia. Prime Minister
Hatoyama has proposed substantially increasing Japan's
already robust climate change assistance programs. While
final budget numbers are still being considered by the GOJ

TOKYO 00000284 006 OF 007

and Diet, climate change assistance to developing countries
for mitigation and adaptation is likely to exceed $10 billion
over the next three years.

Domestically, the DPJ is expected to propose a cap-and-trade
program, some form of carbon tax, an expanded feed-in-tariff
for renewable energy, and incentives for the purchase of
efficient vehicles and appliances. Despite stiff opposition
from certain Japanese businesses and the opposition LDP, some
sectors such as next-generation vehicles, solar, wind and
nuclear expect to see expanded business opportunities under
the new Administration. Japan is home to a number of
world-class "clean tech" companies, some of whom have
commercial tie-ups with American businesses. Encouraging
Japan to support open global standards for emerging
technologies like smart grid is a priority for the Mission.
The DPJ, like its predecessor, has also emphasized
diversification of Japan's energy supply and stable relations
with a broad range of natural resource suppliers.

-----------
The Economy
-----------

Japan remains the world's second largest economy with a GDP
of $4.9 trillion (2008). The economy emerged from four
consecutive quarters of contraction in the second quarter of
2009 ending the country's deepest economic recession since
World War II. After contracting 5.4 percent in 2009, the
International Monetary Fund projects GDP to grow 1.7 percent
in 2010. Growth is projected to be driven by a domestic
stimulus package and a modest recovery in net exports. The
latest unemployment rate of 5.1 percent is down from last
October's record high 5.5 percent, but that figure masks a
large number of unemployed Japanese who are paid small
subsidies to not seek work. Japan's financial services
industry was relatively insulated from the global financial
crisis due to its conservatism and limited exposure to
structured securities. However, export-oriented sectors of
the economy, such as automobiles and electronics, suffered
immensely. Deflation remains a concern, as the "core-core"
consumer price index (CPI) fell 1.2 percent in December,
2009, its steepest decline ever. Foreign direct investment
(FDI) in Japan, while up significantly over the past decade,
remains low compared to other OECD nations, with FDI stock in
Japan totaling $179.6 billion in 2008 (3.6 percent of GDP),
of which $65 billion came from the United States. The
comparatively low level of inward FDI hinders innovation,
hampers competition and limits opportunities for increased
productivity and transfer of knowledge -- all of which are
important to promoting sustainable economic recovery.

Domestic Economy: The Hatoyama Cabinet has stressed the
importance of higher domestic demand, which is very welcome
in the broader context of returning to more balanced pattern
of global growth. However, their proposed fiscal policy,
outlined in its August 2009 campaign platform, has a populist
bent as it primarily seeks to channel fiscal resources to
households. The DPJ pledges called for increasing disposable
income and encouraging consumption by abolishing provisional
taxes rates, eliminating highway tolls, and providing
subsidies for children and farmers. The proposed
expenditures would cost about $177 billion annually, or 3.6
percent of Japanese GDP. The administration also supports the
development, production, and marketing of the latest
technologies such as IT, biotechnology, and nanotechnology
with particular focus on reducing the impact of global
warming through renewable energy development and other green
technologies, which the DPJ believes will foster new and
large-scale employment, spur innovation and boost long-term
GDP growth.

DPJ Economic Policies: Economists believe the DPJ's policies
should boost short-term economic growth, but worry that the
new spending measures will cause additional strain in the
medium term by adding to the national debt, which already
totals almost 180% of GDP and is expected to surpass 200
percent of GDP in 2010. The Hatoyama Cabinet, originally
insisted it had identified existing revenue sources for these
expenditure increases: "cuts in wasteful government

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spending"; rebalancing of surplus funds in special accounts;
tax increases; and sales of government assets, but has
recently reneged on its promise to not issue additional
government bonds to pay for the stimulus measures citing a
shortfall in tax revenue from the economic slowdown. Whether
higher growth over the longer term can be sustained is open
to question without productivity increases, particularly in
the services sector.

End text of checklist.
ROOS

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