VZCZCXRO1101
OO RUEHFK RUEHGH RUEHKSO RUEHNAG RUEHNH
DE RUEHOK #0045/01 0752313
ZNR UUUUU ZZH
O 162313Z MAR 09
FM AMCONSUL OSAKA KOBE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1309
INFO RUEHKO/AMEMBASSY TOKYO PRIORITY 8431
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0255
RUEHNAG/AMCONSUL NAGOYA PRIORITY 2381
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0247
RUEHNH/AMCONSUL NAHA PRIORITY 0274
RUEHBJ/AMEMBASSY BEIJING 0445
RUEHUL/AMEMBASSY SEOUL 1142
RUEHSH/AMCONSUL SHENYANG 0066
RUEHGH/AMCONSUL SHANGHAI 0036
RUEHGZ/AMCONSUL GUANGZHOU 0012
RUEHHK/AMCONSUL HONG KONG 0207
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SECTION 01 OF 03 OSAKA KOBE 000045 
 
TREASURY FOR FOSTER AND WINSHIP 
STATE PASS USTR FOR CUTLER AND BEEMAN 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV JA
SUBJECT: KANSAI ECONOMIC RECOVERY OUTLOOK 
 
SENSITIVE BUT UNCLASSIFIED.  CONTAINS PROPRIETARY 
INFORMATION. 
 
¶1.  (SBU) Summary.  Kansai-based business people and 
experts are generally optimistic on the mid to long 
term outlook for Kansai's economic recovery.  In the 
short term, they cite lack of economic confidence and 
the uncertainty over Japan's leadership and political 
outlook are the biggest obstacles to recovery.  As 
elsewhere in Japan, there is a tendency to look to the 
U.S. for action to resolve the current global economic 
crisis and a sense that a number of Japanese companies 
are using the situation to execute restructuring 
decisions that might not be possible in more prosperous 
times.  End summary. 
 
------------- 
Bank of Japan 
------------- 
¶2. (SBU)  Meeting with Embassy Tokyo EMIN March 10, a 
top BOJ Osaka Branch official identified public 
disappointment with the political leadership and the 
mass media's negative economic reports as primary 
contributors to record low consumer confidence.  Still, 
the BOJ official was generally optimistic about the 
long term prospects for economic recovery in the region 
that includes Osaka, Kobe, and Kyoto, saying the 
economic downturn is cyclical in nature and that the 
dramatic global economic stimulus efforts will have 
equally dramatic effects after the inevitable lag 
between action and effect. 
 
¶3.  (SBU) The BOJ Osaka Branch official does not 
believe that Kansai's and Japan's model of export-led 
growth has been discredited and is in need of 
replacement.  With a greater percentage of Kansai's 
economy in manufacturing, the shocks are heavier and 
more apparent, especially in the auto and consumer 
electronics industries, he says, but China and India 
will begin to recover within a year and resume buying 
Japan's exports.  Kansai manufacturing levels may not 
completely return to prior levels, but they will 
revive to a large extent.  It is neither reasonable nor 
fair, he continued, to suggest Kansai manufacturers 
should have been more proactive in diversifying from 
the export oriented manufacturing model that was so 
successful over the past years.  The currently popular 
argument that former Prime Minister Koizumi, Minister 
of State for Privatization of the Postal Services Heizo 
Takenaka, and President of the Council for Promoting 
Regulatory Reform Yoshihiko Miyauchi were wrong to 
deregulate the economy is "really stupid" as are the 
media articles equating the reforms with succumbing to 
USG pressure.  Koizumi's direction was correct and the 
USG does not need to worry that Japan will reverse 
course, opined this BOJ official. 
 
¶4.  (SBU)  Citing the the most recent BOJ survey of 
consumer sentiment (seikatsusha ishiki chosa), the BOJ 
Osaka official said 86 percent of respondents answered 
that the current economic situation is "bad."  When 
asked why they thought so the two most popular 
responses were that "the Mass Media says the economy is 
bad" and "statistics show it is bad."  The result is 
surprising, he continued; one would have expected more 
responses such as reductions in salary or lay-offs. 
 
---------------- 
Proctor & Gamble 
---------------- 
¶5. (SBU) The Osaka BOJ branch's generally optimistic 
outlook was echoed by Proctor and Gamble President 
Hatsunori Kiriyama.  While noting some cost cutting 
efforts including a shift away from television and 
toward web-based advertising, slight dips in consumer 
 
OSAKA KOBE 00000045  002 OF 003 
 
 
consumption and increased price competition from store 
brand products, P&G continues to do well, says 
Kiriyama.  Following a decade or more of recession 
since the 1990s, Japanese consumption of beauty and 
skincare products is unlikely to contract much from the 
current levels.  Demographic shifts will likely mean a 
shrinking market for some P&G items like diapers, but 
an increase in consumption in skin care and hair 
coloring among Japan's aging population. 
 
¶6.  (SBU) Ms. Yukiko Tsujimoto, P&G Director for 
External Relations raised concerns with the "overly 
protective nature" of the GOJ on regulatory issues.  In 
particular, P&G is concerned with restrictive consumer 
protection limitations on advertising, the potential 
for new, more constraining rules on employment,  and 
protectionist sentiment emerging out of the current 
economic climate.  Approximately half of P&G products 
sold in Japan are imported or use imported raw material 
and some Japanese regulatory requirements have been 
constraints, added Kiriyama. 
 
------------------------ 
Short Term Pain for SMEs 
------------------------ 
¶7. (SBU) While generally agreeing the long term outlook 
for Kansai's economy is good, an advisor to small and 
medium sized enterprises, Nobutaka Uenaka of the 
Higashi-Osaka Creation Core, wonders whether many of 
the SMEs he advises can survive long enough to be part 
of the recovery.  One larger SME he advises, an 
automobile parts supplier with operations in the Nagoya 
area as well as China and Malaysia, has cut salaries by 
50 percent and taken other steps such as moving offices 
out of Nagoya to a cheaper location.  Without new 
orders, says Uenaka, the company cannot survive for 
more than about six more months. 
 
¶8.  (SBU) Takumi Hirai, an economic commentator and 
associate professor at Poole Gakuin University, notes 
an additional strain on SMEs.  As large Japanese 
companies have gone to commercial banks to boost 
liquidity, the SMEs have been crowded out.  Hirai 
cautions, however, that the special credit guarantee 
program for SMEs could create "zombie" companies. 
While recognizing that many "SMEs may be fading quietly 
away", like the BOJ's Matsuda, Hirai believes the 
biggest obstacle to recovery is psychological, 
overcoming the widely-held perception that the economy 
is bad. 
 
------------------------- 
Politics Lags the Economy 
------------------------- 
¶9.  (SBU) Panasonic Vice Chairman Masayuki Matsushita 
commented that while the economic situation remains 
severe, Japan's politicians and politics are failing to 
provide policy solutions.  Neither he nor Kansei 
Economic Federation Chairman Hiroshi Shimozuma were 
positive on the GOJ's actions taken thus far to 
stimulate the country's economy.  Matsushita noted, 
however, companies are taking actions to restructure 
and to come out of the current crisis more competitive. 
Panasonic's founder, Matsushita told EMIN, "Bad 
economic times -- like booming economies -- can be good 
times for a company."  Panasonic too is making changes 
during the downturn; he would not, however, discuss 
company thinking regarding the laying off of employees. 
 
---------------------------- 
Pro-Business Policies Needed 
---------------------------- 
¶10.  (SBU) Kankeiren Chairman (and Sumitomo Metals 
President) Hiroshi Shimozuma did indicate he would 
prefer the continuation of a Liberal Democratic Party- 
 
OSAKA KOBE 00000045  003 OF 003 
 
 
led government after the general election.  Above all, 
strong pro-business policies that stimulate the 
economy, including through tax cuts, are needed.  While 
government policies to strengthen the safety net for 
the unemployed are important, it is not a wise course 
for the government to mandate job-sharing to try to 
staunch unemployment.  "Job sharing might work in a 
department store, but not on the factory floor," he 
said. 
 
¶11.  (U) This cable was cleared with Embassy Tokyo. 
 
DONG