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UNCLAS SECTION 01 OF 02 TOKYO 000675 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PLEASE PASS TO USTR JOHN NEUFFER/MICHAEL BEEMAN. 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV JA
SUBJECT: CAN THE KOIZUMI GOVERNMENT MANAGE HIS ECONOMIC 
AGENDA IN THE DIET? 
 
REF: A. REF A: TOKYO 399 
     ¶B. REF B: TOKYO 597 
     ¶C. REF C: TOKYO 325 
     ¶D. REF D: TOKYO 408 
     ¶E. REF E: TOKYO 441 
     ¶F. REF F: TOKYO 533 
 
¶1. (SBU) Summary.  The economic debate in this Diet session 
is shaping up to be more contentious than we anticipated, due 
to the convergence of five issues the opposition party has 
exploited to criticize government handling of the economy. 
Some observers believe the Prime Minister has emerged with a 
weakened mandate for economic reform but the Embassy expects 
Koizumi to remain determined to press on with his reform 
agenda.  With firm control over two-thirds of the Diet Lower 
House and a history of emerging stronger after adversity, we 
should not discount his prospects too much despite his rocky 
beginning.  Septel reports on the individual economic bills 
before this Diet session and the prospects for each.  End 
Summary 
 
¶2. (SBU) This year,s Ordinary Diet session began badly for 
Prime Minister Koizumi due to the unfortunate convergence of 
five issues -- the earthquake building code scandal, the 
Livedoor mess (see Ref A), allegations of bid-rigging at the 
Defense Facilities Administration Agency (DFAA) (see Ref B), 
the suspension of U.S. beef imports (see Refs C, D, E, and 
F), and an unexpected surge in opposition within the ruling 
Liberal Democratic Party (LDP) to the amendment of the 
Imperial House Law over succession. 
 
¶3. (SBU) The earthquake building code scandal broke in late 
2005 when a Japanese architect admitted falsifying quake 
resistance data in designs for at least 71 buildings in 
Japan.  The Livedoor debacle began with a raid on the 
Internet company in January followed by the arrest of its 
colorful CEO, Takafumi Horie, and several other top managers. 
 They are accused of falsifying accounts and misleading 
investors.  In addition, three current and former 
high-ranking officials of the DFAA have been arrested on 
suspicion of colluding with manufacturers over projects worth 
billions of yen. 
 
¶4. (SBU) The government's ability to manage the docket of 
economic legislation in this Diet session became even more 
complicated on the Diet's opening day on January 20 when 
Japan suspended processing of U.S. beef imports because a 
U.S. company mistakenly shipped a cut of beef banned in Japan 
under our bilateral agreement.  The opposition party has 
blamed the government for too hastily allowing importation to 
resume. Agricultural Minister Shoichi Nakagawa further 
inflamed the controversy by first accepting responsibility 
for not sending Japanese inspectors to U.S. plants prior to 
lifting the ban and then reversing himself. 
 
¶4. (SBU) Finally, after several months of study and 
relatively smooth sailing, the government's succession 
amendment to the Imperial House Law has encountered 
unexpected LDP opposition, including among some new members 
who owe their election to endorsement of the Prime Minister's 
reform agenda.  This likely will become a distraction for the 
ruling party but with very little impact on its economic 
agenda. 
 
¶5. (SBU) The opposition DPJ had already begun calling this 
session the &Safety8 Diet.  With plans to pursue the 
Livedoor scandal, the earthquake building code scandal, and 
the bid-rigging accusations at DFAA already in place, the 
suspension of U.S. beef imports further emboldened the 
opposition party.  After successfully delaying the passage of 
the supplementary budget with acrimonious questions over 
beef, the DPJ seemed to be finding its voice again and likely 
will be reluctant to allow the LDP to pass all of the 
government economic bills without careful scrutiny and 
debate.  However, the arrests of lower house member Yoshitake 
Kimata -- the third DPJ arrest since late last year -- will 
likely hobble the DPJ in future Diet confrontations with the 
LDP. 
 
TOKYO 00000675  002 OF 002 
 
 
 
¶6. (SBU) The Prime Minister has labeled this Diet session the 
&administrative reform8 Diet to emphasize his continuing 
commitment toward the structural reform of Japan's economy. 
Important economic bills include an administrative reform 
bill, to be submitted by the Cabinet Office after the passage 
of the budget (see septel for a discussion of this and other 
economic bills.).  It provides a general framework for reform 
that should prevent the restructuring achieved thus far from 
stalling or moving backwards after Prime Minister Koizumi 
leaves office, as expected, in September.  In addition, 
Koizumi has identified the consolidation of the eight 
government-affiliated financial institutions, included in the 
administrative reform bill, as his next goal after postal 
privatization. 
 
¶7. (SBU) Comment. Despite the fact that some observers 
believe the Prime Minister has emerged with a reduced mandate 
to devote his remaining time in office to sustaining economic 
reform, we should not discount his prospects too much.  The 
ruling coalition still boasts a two-thirds majority in the 
Lower House and the Prime Minister has a history of emerging 
from adversity with renewed determination to pursue his 
reform agenda. 
SCHIEFFER