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RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #1324/01 0850221
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FM AMEMBASSY TOKYO
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RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5385
RUEHFK/AMCONSUL FUKUOKA 0381
RUEHNAG/AMCONSUL NAGOYA 9733
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RUEHOK/AMCONSUL OSAKA KOBE 3895
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 08 TOKYO 001324 
 
SIPDIS 
 
 
PARIS PLEASE PASS TO USOEDC 
STATE PLEASE PASS TO USTR 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - February 23, 2007 
 
Sensitive but unclassified.  Please protect accordingly. 
 
 
¶1. (U) This cable contains the Japan Economic Scope from February 
23, 2007. 
 
¶2. (U) Table of Contents 
 
¶3.  Vice President Cheney's Visit to Japan 
¶4.  Council on Economic and Fiscal Policy Reflects on Regulatory 
Reform 
¶5.  Triangular Mergers: the Good, the Bad and the Possibly Ugly 
¶6.  Doha and Japanese Agriculture - the Wagons Remain Circled? 
¶7.  Japan-Australia FTA: No Date for Launch Yet 
¶8.  BSE Update 
¶9.  Universal Studio Japan listed on Mothers Board of Tokyo Stock 
Exchange 
¶10. New Trade Insurance for Japan's Energy Supply 
¶11. Kyushu Electric Expands Business Ties with India 
¶12. Medical Devices and Pharmaceuticals Working Group Meetings in 
Tokyo 
¶13. IPR Cooperation: USPTO and JPO Share Info, Seek to Coordinate 
IPR Training Programs 
¶14. Survey Says:  Four of Top Five Best Places to Work in Japan 
Are U.S. Companies 
¶15. Autos: U.S. Automakers in Japan on Currency Manipulation 
Question 
¶16. CivAir: Kobe Airport's First Year: Little Cause for 
Celebration (SBU) 
¶17. KIX Upbeat on Upcoming Aviation Bilat 
¶18. Internationalizing Hokkaido's Civil Aviation Industry 
¶19. Rail: Shinkansen Tech Transfer to China; California High 
Speed Rail 
¶20. Maritime:  MLIT's International Shipping Division's Work and 
Reg Reform 
¶21. Regions: Western Japanese Business Leaders Debate Reforms and 
Workplace Issues in Kyoto 
¶22. BOJ Raises Short-Term Policy Rate to 0.5%, First Rate Hike in 
Seven Months 
 
¶3.  (SBU) Vice President Cheney's Visit to Japan 
------------------------------ 
 
Vice President Cheney visited Tokyo February 20-22, meeting PM 
Abe, Chief Cabinet Secretary Shiozaki, and FM Aso.  He also 
received briefings from several Japanese and U.S. military 
officers, held a troop rally at Yokosuka Naval Base, and had an 
audience with the Emperor. 
 
News coverage of the vice president's visit was very full, with 
all events covered.  Largely positive, the press coverage focused 
on the themes of U.S.-Japan cooperation in the six-party talks, 
the strength of the alliance, and Iraq. 
 
¶4.  (SBU) Council on Economic and Fiscal Policy Reflects on 
Regulatory Reform 
----------------- 
 
The Prime Minister's Council on Economic and Fiscal Policy on 
February 16 took up regulatory reform, reiterating its importance 
as "an engine for economic growth," that can unleash innovation, 
contribute to regional revitalization, and raise productivity 
particularly in the services sector. 
 
Takao Kusakari, Chairman of the Council on Regulatory Reform 
(CRR), elaborated on its priority areas and cited some examples 
on possible deregulatory measures, e.g., online medical receipts, 
one-stop trade procedures, regulatory reform to realize the Asian 
Gateway concept, reform of agricultural land use and financing. 
The private sector members of the Council -- including Keidanren 
Chairman Fujio Mitarai and a number of senior academic figures -- 
pointed to the work that remains even after a decade of progress 
on reform, particularly in areas such as medical care, 
agriculture, elderly care, education, and day care.  They 
recommended, for example, that the price of medical services 
should reflect demand rather than solely be on a cost-basis, and 
agreed that online medical receipts should be made available soon. 
On agriculture, they emphasized the need for land reform 
including the introduction of long-term leases, land ownership by 
food companies, and consolidation of unused agricultural land. 
 
TOKYO 00001324  002 OF 008 
 
 
The Council stressed the need to examine what is not working in 
the Special Zones initiative.  The private sector members 
suggested that the Expert Committee should negotiate directly 
with ministries on selected proposals, and that the CRR could use 
Special Zones as an option to realize certain regulatory reform. 
The Cabinet will adopt a new Three-Year Regulatory Reform plan in 
June, which kicks off the fifth round of the three-year cycle. 
 
¶5.  (SBU) Triangular Mergers: the Good, the Bad and the Possibly 
Ugly 
---- 
 
MOF draft legislation provides capital gains deferral to 
shareholders of companies acquired by a foreign parent through 
stock-swaps using a Japanese subsidiary, according to what METI 
officials told ECOUNS on February 20. 
 
The acquired company, however, may owe taxes on the market value 
of its assets compared to the book value, depending on 
characteristics of the subsidiary used to acquire the company, as 
stated in a LDP tax committee decision last December. 
MOF is in the process of interpreting this decision, and the 
requirement that the subsidiary be a company "working" in Japan 
could prove problematic. 
 
On the issue of which stocks could be used in the swap without 
requiring more-than-super-majority voting, the officials said the 
LDP corporate law committee had discussed this several times with 
no adverse result, but a final discussion will take place in 
March. 
 
We will continue to urge regulations on both issues that will 
enable triangular mergers to be a useful tool for new investment 
is Japan. 
 
¶6.  (SBU) Doha and Japanese Agriculture - the Wagons Remain 
Circled? 
-------- 
 
The Vice Minister for International Affairs at the Agriculture 
Ministry, Hidenori Murakami, headed to London this week seeking 
bilateral meetings with counterparts from the United States, the 
European Union, Brazil and India to discuss the Doha Development 
Agenda. 
 
Japan has very little new to offer to advance the Doha Round  -- 
at least for public consumption -- but the Agriculture Ministry 
(MAFF) remains concerned that the other parties to the talks 
could be working to cut a deal that would leave Japan unprepared. 
Officials continue to tell us they do not want a repeat of what 
happened at the end of the Uruguay Round, when Japan was forced 
to accept a deal on agriculture largely struck in bilateral talks 
between Washington and Brussels. 
 
 Meanwhile, the press this week played up a comment from 
Agriculture Minister Toshikatsu Matsuoka that the G10 countries 
and EU were discussing the possibility of a joint proposal on 
sensitive items for agriculture.  The Embassy talked to a contact 
at MAFF about the story.  He told us that the remarks were taken 
out of context, these discussions had been ongoing for over a 
year, and there was nothing new to report. 
 
Matsuoka indicated after the informal ministerial meeting in 
Davos in January his interest in pursuing bilateral talks with 
key countries.  Part of his purpose has been to round up support 
among key like-minded countries, such as India, bent on 
protecting their agricultural sectors.  Matsuoka indicated he 
wants to stay in touch with Indian Trade Minister Nath. 
 
¶7.  (SBU) Japan-Australia FTA: No Date for Launch Yet 
------------------------------- 
 
Since the announcement in December that Japan and Australia would 
launch negotiations on an Economic Partnership Agreement there is 
still no date for the two the sides to have their first meeting. 
On February 15 protestors were all over the streets of 
Kasumigaseki -- where the key ministries responsible for the EPA 
negotiations have their offices -- to condemn the initiative. 
Afterward, the organizers of the protest, including Japan 
Agriculture, the large cooperative that protects Japan's small 
 
TOKYO 00001324  003 OF 008 
 
 
farm interests, took their complaints to the neighborhood in Mita 
where their shouts could be heard by the Australian Embassy. 
The Japanese press has put the spotlight on the opposition: The 
Asahi Shimbun on February 21 described the "rural unrest" the 
Japanese government faces as it contemplates when to launch the 
talks. 
 
For his part, the Australian ambassador, Murray McLean, is making 
the case that an agreement will be a boon for both countries' 
economies.  He told a Fukuoka- based daily that Australia will 
insist that a partnership agreement include agriculture, although 
he has hinted that tariff reductions could be phased in over a 
longer period.  A deal, McLean said, could add up to $5.4 billion 
annually to Japan's GDP. 
 
Meanwhile, a JA delegation was in Australia for meetings with 
their counterpart organizations on February 20-24.  There is no 
word yet on how the discussions have gone.  JA told us before the 
visit that they had no particular agenda, except to express the 
organizations concerns about an EPA, and to do some fact finding. 
According to Asahi, however, in what is probably a more accurate 
characterization, JA is lobbying Canberra to exclude sensitive 
agricultural goods from a deal. 
 
We have sought a status report on the talks at MOFA and the 
Australian Embassy.  An official in MOFA's Economic Partnership 
Division was very cautious. 
 
 Since the December announcement, she told us, "nothing has 
happened."  She pointed out that the problem was in part a 
"manpower" issue for the ministries, which were otherwise 
stretched thin right now in other negotiations.  She conceded, 
however, that the situation was "very delicate," particularly at 
the Agriculture Ministry, where the bureaucrats are fighting what 
another observer described to us as a "rear guard effort" to 
scuttle the negotiations. 
 
At the Australian Embassy on February 20, an official underscored 
that the economics of a deal were good for both countries, but 
recognized that in advance of Upper House elections in July, 
progress will be slow. 
 
¶8.  (SBU) BSE Update 
-------------------- 
 
There continues to be fallout from the discovery earlier this 
month of a couple of packages of beef banned under the export 
agreement that Tyson Fresh Meats inadvertently shipped to Japan. 
In the Diet, Agriculture Minister Matsuoka and Health Minister 
Yanagisawa fielded at times difficult questions on the subject, 
with Matsuoka stating that he saw no significant flaws in the BEV 
program.  Replying to one suggestion, the ministers said it would 
be difficult for Japan to insist on blanket testing by its 
trading partners. 
 
Meanwhile, bowing to what continue to be relatively uninformed 
consumer sensitivities, officials at Seiyu, a nationwide 
department and grocery store chain majority-owned by Wal Mart, 
told us that it had decided to delay its (internal) plans to 
market U.S. beef. 
 
According to press reports, two consumer interest groups -- the 
Consumer Union of Japan and the Food Safety Citizen's Watch -- 
submitted requests to Matsuoka and Yanagisawa to block all U.S. 
beef imports.  The request came after Tyson admitted that it had 
erred in shipping some beef to Japan that did not meet the 
agreement between the two countries. 
 
The GOJ has been fairly measured in its reaction since issuing a 
press release on the incident February 16.  Press coverage, 
although continuing to gloss over the facts about BSE, has been 
less sensationalistic than in the past.  Authorities have refused 
to discuss further market opening while the Tyson incident is 
still being studied. 
 
¶9.  (U) Universal Studio Japan listed on Mother's Board of Tokyo 
Stock Exchange 
-------------- 
 
Universal Studio Japan in Osaka announced that the company would 
 
TOKYO 00001324  004 OF 008 
 
 
be listed on the "Mother's Board" (for new listings) of the Tokyo 
Stock Exchange starting in March.  After many years of debt, the 
company expects to see a profit for the current fiscal year 
ending in March, for the first time since opening in 2001. 
Currently Goldman Sachs (GS) holds about 48 percent of USJ's 
stock, Development Bank of Japan has 11 percent, and Osaka city 
government has 10 percent. 
 
The USJ Japanese sales manager commented that the amusement park 
has been increasing its attractions and expanding its business, 
so the firm is eager to use the market for more financing. 
 
¶10.  (U) New Trade Insurance for Japan's Energy Supply 
----------------------------- 
 
At a press conference on February 20, METI Minister Amari 
announced the establishment of new trade insurance to ensure 
Japan's energy supply. 
 
As a part of efforts to expand more aggressive and strategic 
energy diplomacy, the new insurance plan will be established and 
sold starting this April.  In the current trend of strengthening 
state control of energy resources and escalation of competition 
for energy resources, it is necessary for the government to be 
out in front strategically, Minister Amari said.  METI will use 
this new trade insurance as an important energy diplomacy tool, 
and work strategically with the private sector to ensure the 
supply of natural resources. 
 
The outline of the new insurance is as follows: The Independent 
Administrative Corporation (Nippon Export and Investment 
Insurance (NEXI)) will accept the insurance. The GOJ will accept 
the reinsurance, thus, the GOJ will cover the risk. 
 
The ceiling of acceptance will be 300 billion yen and the premium 
rate will be "irresistibly" low -- or 50 to 75 percent below the 
current rate -- so that it will be accessible for private 
development entities.  Projects will be 100 percent covered for 
both political and commercial risks. 
 
When a private entity negotiates alone with another government, 
it is difficult for the GOJ to get involved in the negotiations 
with the other government; however, if we provide insurance, the 
GOJ will be one of the interested parties, therefore, the GOJ 
would be able to get involved in government to government 
negotiations. 
 
¶11.  (SBU) Kyushu Electric Expands Business Ties with India 
--------------------------- 
 
On February 19, Kyushu Electric Power (Kyuden) became the first 
private Japanese utility to sign a Memorandum of Agreement (MOA) 
with National Thermal Power Corporation (NTPC), India's largest 
and mostly state-owned power producer, to explore possible joint 
business development. 
 
As part of its aggressive expansion strategy abroad to increase 
business performance and profitability, Kyuden had already 
entered into similar agreements with 13 other companies in 10 
countries/regions. 
 
While no specific business plans have been announced, Kyuden aims 
to offer consultancy in power efficiency and environmental 
protection technologies as well as participating in power plant 
construction. 
 
A Kyuden official notes that the MOA is also partly the result of 
a request by Japanese companies operating in India (i.e., Suzuki 
Motors) for more stable power sourcing. 
 
¶12.  (SBU) Medical Devices and Pharmaceuticals Working Group 
Meetings in Tokyo 
----------------- 
 
Good news emerged that could speed the approval process for new 
drugs in Japan during Regulatory Reform talks February 8-9 in 
Tokyo. 
 
After some U.S. prodding about Japan's glacial approval process 
for innovative new drugs, Japan's Pharmaceuticals and Medical 
 
TOKYO 00001324  005 OF 008 
 
 
Devices Agency (PMDA) agreed to double the number of drug 
reviewers over three years to roughly 400. 
 
To fund the increase, authorities plan to introduce higher user 
fees for new drug reviews, effective April 1.  When the U.S. 
delegation expressed reservations that the increase in user fee 
costs would be introduced without also being tied to performance 
metrics, the Health Ministry (MHLW) agreed to extend the public 
comment period until the end of February. 
 
Also during the talks, the U.S. side expressed appreciation to 
MHLW for the decision not to impose annual price cuts in 
¶2007.  The issue is expected to come up again in April 
¶2008.  Throughout the talks the Commerce-led delegation 
emphasized the need to seek input from U.S. industry, especially 
before making broad changes to the healthcare system. 
 
The next round of talks is slated for early April in 
Washington.  The final round of talks will occur in late 
May/early June, when the Report to the Leaders is discussed. 
 
¶13.  (SBU) IPR Cooperation: USPTO and JPO Share Info, Seek to 
Coordinate IPR Training Programs 
-------------------------------- 
 
Following up side meetings during the week of Regulatory Reform 
talks in Tokyo in January, the US Patent Office (USPTO) and the 
Japan Patent Office (JPO) have begun exchanging schedules and 
information on their training and assistance programs, 
particularly in Asia. 
 
USPTO is also proposing a meeting in Bangkok this spring to bring 
together the main donor countries providing IPR training in Asia, 
including USPTO, JPO, ECAP (the European EC-ASEAN Intellectual 
Property Rights Co-operation Programme) and IP Australia, to 
discuss information-sharing and better coordination among their 
various activities and programs. 
 
¶14.  (U) Survey Says:  Four of Top Five Best Places to Work in 
Japan Are U.S. Companies 
------------------------ 
 
Nikkei Business magazine published in its February 19 issue the 
results of an annual survey on Japanese workplace conditions 
conducted by the Great Place to Work Institute Japan (GPTWJ). 
Four of the top five companies on the list of best places to work 
in Japan were U.S. firms. 
 
The Japanese job search agency Recruit Agent received the highest 
score, followed by Morgan Stanley, Microsoft, Eli Lilly and 
Hewlett-Packard. GPTWJ collected survey data from 62 companies in 
Japan utilizing two methods: an online questionnaire sent to 
companies about company culture, office infrastructure, 
opportunities for advancement and employee benefits; and an 
online questionnaire sent to individual employees about feelings 
towards management and the company as a whole as well as employee 
levels of enthusiasm for their work. 
 
Post's contact at Eli Lilly in Sapporo confirmed his company's 
participation in the survey, explaining that 400 Eli Lilly 
employees were randomly selected to respond to the questionnaires. 
 
¶15.  (SBU) Autos: U.S. Automakers in Japan on Alleged Currency 
Manipulation Question 
--------------------- 
 
Ford responded to our inquiry to the Big 3 in Japan for 
commentary on early February news reports that the Big 3, 
buttressed by former Treasury Undersecretary for International 
Affairs John Taylor's revelations in his book Global Financial 
Warriors that the Japanese intervened the currency markets, had 
launched a campaign to get the Administration to oppose alleged 
currency manipulation by Japan. 
 
Ford referred us to a 2006 report produced by the Automotive 
Trade Policy Council, entitled, "The Economic Impact of Japanese 
Currency Manipulation," which the automakers are using on the 
Hill to make their case. (A 2005 version of the report is 
available on the ATPC website.  The 2006 report is a 2MB file. 
Please contact Joy Progar if you want a copy.) 
 
TOKYO 00001324  006 OF 008 
 
 
 
The 13-page report has some quotes from Japanese government 
officials, Japanese auto industry executives, and financial 
analysts that suggest the Japanese government does intervene in 
the currency markets to keep the yen's value artificially low and 
provides a series of graphs and charts showing the effect of the 
low yen on the auto market in the United States. 
 
Ford also provided some talking points from their U.S. office 
which underscored the importance of this issue to Ford. (See 
attached e-mail) 
 
Finally, Ford reported in their discussions with METI in late 
2006, it became apparent Japan had two key strategies for 
developing the Japanese auto industry:  global technological 
leadership, particularly through hybrids, and more exports, as 
there is not an expectation of any great growth in domestic auto 
demand. 
 
Ford took from these discussions that facilitating more exports 
is a GOJ objective and a weak yen is helpful to this end. 
 
¶16.  (SBU) CivAir: Kobe Airport's First Year: Little Cause for 
Celebration 
----------- 
 
Kobe Airport (UKB), which opened last February, will not meet its 
first year sales and passenger targets.  Kobe City estimated 3.19 
million passengers in the first year, but UKB is 500,000 
passengers short of that goal. 
 
The average annual load factor for all routes combined was 61.3 
percent, with a low of 52.7 percent in January 2007.  Cargo 
volume is worse: Kobe only moved half of the target, at 24,000 
tons. 
 
The city government, which runs the airport, started issuing 
public bonds in 1999 to raise 200 billion yen for land purchase 
and airport construction.  The city's financing plan appears to 
have been wildly optimistic: Kobe has only sold 0.3 ha of the 
82.6 ha of public land it had intended to sell in order to pay 
for the bonds, keeping the city in heavy debt.  A source in the 
city government says it will consider dropping its asking price 
for the property it is offering. 
 
On the other hand, the airport's non-aviation business has had a 
modest positive impact on the local economy.  Since last February, 
more than 30 companies, both domestic and foreign, have started 
operating on neighboring Port Island, including Boehringer 
Ingelheim, BMW group, and Estee Lauder.  Local hotels are 
reporting an increase in customers from the new airport. 
 
¶17.  (SBU) KIX Upbeat on Upcoming Aviation Bilat 
------------------------------ 
 
Kansai International Airport Company officials told ECOUNS and 
Econoff in Kyoto that in upcoming bilateral aviation talks, the 
airport officials think MLIT is prepared to be more flexible on 
"Open Skies" services than in the past, for airports outside of 
Tokyo, if the USG is flexible on new Narita slot allocations. 
For more details of this, views on PM Abe's Asian Gateway concept, 
and other civair insights, please see Osaka Kobe 00036. 
 
¶18.  (U) Internationalizing Hokkaido's Civil Aviation Industry 
------------------------------ 
 
Although Hokkaido's civil aviation industry is well equipped to 
support international air travel, the market for such travel 
remains underdeveloped. Despite heavy domestic traffic in Japan, 
the number of direct international flights to Sapporo's New 
Chitose International Airport is limited. 
 
Hokkaido government officials are initiating a number of policies 
aimed at transforming New Chitose into an international hub. 
However, stronger local political support for the proposed 
Hokkaido Shinkansen bullet train project and rising oil prices 
both present tough obstacles to making this a reality. For more 
information, please see Sapporo 0009. 
 
¶19.  (SBU) Rail: Shinkansen Tech Transfer to China; California 
 
TOKYO 00001324  007 OF 008 
 
 
High Speed Rail 
--------------- 
 
The press in January and February reported on the start of high- 
speed rail services in China using JR East's E-2 1000 Hayate 
Shinkansen trains.  Sixty trains consisting of eight-car sets 
have been ordered by China, over 50 of which are to be 
constructed in China on the basis of technology transfer. 
 
News reports were unclear as to how much of this crown jewel of 
Japanese transportation technology had been given away.  Econoff 
approached an official of JR Central for commentary. 
 
The JR Central official felt that JR East had given away the 
store.  He related how a consortium of Shinkansen manufactures 
led by Kawasaki Heavy Industries and including Japanese trading 
companies had wanted to sell the high-speed trains to China.  He 
explained that the three Japanese passenger rail companies, JR 
West, JR Central and JR East, however, own the design rights to 
the Shinkansen trains they operate.  Each rail company has its 
own team of engineers that creates design specifications based on 
the common Shinkansen technologies they all inherited in 1987 
with the breakup of Japan National Railways.  Manufactures then 
produce trains to their designs. 
 
In the case of overseas sales, he noted, JR Central prefers to 
sell the whole system -- wagons, control systems, high-speed 
signal system, tracks, etc. -- to maximize the sale and ensure 
that high safety standards are maintained.  China, however, 
wanted to pick and choose the technology it wanted to buy.  JR 
East, he said, was willing to sell just the train design along 
with its control and signal system and so that is how China ended 
up with the E-2 train. 
 
According to him, all parts of the wagons, including the 
sophisticated distributed electric motors that drive the train, 
will be manufactured in China. 
 
The JR Central official worried about this tech transfer.  Not 
only does it give the Chinese the potential to copy and build the 
wagons themselves for domestic use or export, but he speculated 
that there might be some military tech transfer. 
 
Econoff also contacted the California High Speed Rail Authority 
about their manufacturing plans for the State of California high- 
speed rail system when it is built. 
 
They responded that it is estimated that 300,000 job years will 
be needed for the construction of the system and an additional 
450,000 jobs will be generated throughout the state as a result 
of the train system.  They said, however, it was too early to 
decide whether the wagons would be manufactured in California. 
 
¶20.  (SBU) Maritime:  MLIT's International Shipping Division's 
Work and Reg Reform 
------------------- 
 
EconOff and EconFSN met with MLIT's International Shipping 
Division on February 20 to discuss the work of the Maritime 
Subcommittee, the Maritime Economic Council and the Asia Gateway 
Initiative in order to understand developments in Japanese 
shipping policy and address some questions from the Federal 
Maritime Commission, possibility relating to U.S. regulatory 
reform initiatives vis--vis Japan. 
 
The Maritime Subcommittee is looking at ways to increase the 
number of Japanese flagged ships and seafarers through changes in 
the tax structure.  In addition, it is examining how to end a 
program that buys out small and medium sized shipbuilding 
enterprises to reduce over capacity in the industry. 
 
As a result of a request from the Japanese Fair Trade Commission, 
the Maritime Economic Council is reviewing whether liner 
conferences are anti-competitive.  MLIT has concluded they are 
not, but the Council is looking into this matter nonetheless. 
The International Shipping division is examining safety and 
environmental issues for shipping in the Straits of Malacca as 
its contribution to the Asia Gateway initiative. 
 
For a memo on the meeting with more information see the attached. 
 
TOKYO 00001324  008 OF 008 
 
 
 
¶21.  (U) Regions: Western Japanese Business Leaders Debate 
Reforms and Workplace Issues in Kyoto 
-------------------------------- 
 
Major business organizations in western Japan held the Kansai 
Zaikai Seminar (Kansai Economic and Management Summit), the 
largest annual business event in the Kansai region, February 8-9 
in Kyoto.  LDP Secretary General Hidenao Nakagawa gave the 
keynote address, and Senichi Hoshino, Senior Director of the 
Hanshin Tigers, also delivered a business leadership lecture. 
The participants broke into seven groups to discuss economic 
topics of interest, but the most heated discussions were about 
corporate ethics in the face of repeated business scandals across 
Japan, and about the decline in the birthrate, productivity, 
educational standards of the workforce, and related labor issues. 
Employers described the difficulty in changing the ratio of 
regular employees to contractors, although there was wide 
acceptance that this was a problem that needed urgent 
rectification. 
 
There was a high level of interest in pushing for civil service 
reform and institution of doshusei decentralization in the Kansai, 
the latter of which the business community here has promoted for 
decades.  There was wide support for businesses playing a bigger 
role in education reforms, and support for PM Abe's education 
reform platform-along with criticism of the slow pace of actual 
reforms.  Executives such as Daikin Industry's Noriyuki Inoue 
called for changes to Japan's "relaxed" education program in 
order to revive the elite education model. 
 
Other Osakan business leaders were unable to hide their unease at 
the pace of globalization and westernization of the Japanese 
economy, while at the same time improving their balance sheets 
through Western management techniques, FDI, and an increasing 
amount of M&A activity. 
 
There was open hostility to the idea of boosting the declining 
workforce through immigration, with executives citing French and 
British immigrant community unrest while rejecting the 
applicability of the U.S. immigration model in Japan.  There was 
a high level of support for increasing meaningful employment 
opportunities and flexible work modes for women, especially when 
faced with the choice of either boosting immigration or 
increasing the participation of women in the Japanese workforce. 
 
¶22.  (U) BOJ Raises Short-Term Policy Rate to 0.5%, First Rate 
Hike in Seven Months 
-------------------- 
 
On January 21 the Bank of Japan Monetary Policy Board decided to 
raise its operating target for the uncollateralized overnight 
call money rate by a quarter point to 0.5 percent. 
This is the second rate hike since last July, when the BOJ raised 
the policy rate to 0.25 percent by terminating the zero interest 
rate policy (ZIRP). 
 
In making this decision, the Board cited as determining factors 
the likelihood of both continued modest expansion of the economy 
with a moderate increasing trend of private consumption, and an 
increase in consumer prices over a long-term perspective, as well 
as its concerns about the increasing simulative effect of 
monetary policy on economic activities. 
 
The Board indicated that it would adjust interest rates 
"gradually," and would maintain an accommodative stance with very 
low interest rates for some time. Please see attached document 
for more details. 
DONOVAN