VZCZCXRO3938
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #0395/01 0570820
ZNR UUUUU ZZH
P 260820Z FEB 10
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 9671
INFO RUEKJCS/SECDEF WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHINGTON DC PRIORITY
RUEAWJA/USDOJ WASHDC PRIORITY
RULSDMK/USDOT WASHDC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC//J5//
RHHMUNA/HQ USPACOM HONOLULU HI
RHHMHBA/COMPACFLT PEARL HARBOR HI
RHMFIUU/HQ PACAF HICKAM AFB HI//CC/PA//
RHMFIUU/USFJ //J5/JO21//
RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
RUAYJAA/CTF 72
RUEHNH/AMCONSUL NAHA 1361
RUEHFK/AMCONSUL FUKUOKA 9029
RUEHOK/AMCONSUL OSAKA KOBE 2847
RUEHNAG/AMCONSUL NAGOYA 6022
RUEHKSO/AMCONSUL SAPPORO 9515
RUEHBJ/AMEMBASSY BEIJING 3265
RUEHUL/AMEMBASSY SEOUL 9946
RUCNDT/USMISSION USUN NEW YORK 9284

UNCLAS SECTION 01 OF 09 TOKYO 000395 
 
SIPDIS 
 
DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA; 
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION; 
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE; 
SECDEF FOR JCS-J-5/JAPAN, 
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA 
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR; 
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. 
 
E.O. 12958: N/A 
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
 
SUBJECT:  DAILY SUMMARY OF JAPANESE PRESS 02/26/10 
 
INDEX: 
 
(1) Potential negative impact of testimony by Toyota president on 
Japan-U.S. security arrangements (Sankei) 
 
(2) Focus on Iran's response to Japan's proposed solution to nuclear 
issue (Nikkei) 
 
(3) Japan proposes uranium enrichment for civilian use for Iran as 
solution to Iranian nuclear issue (Nikkei) 
 
(4) Okinawa governor states for first time he may oppose Futenma's 
relocation within Okinawa (Yomiuri) 
 
(5) Municipalities' chiefs express opposition to plan for land-based 
Futenma relocation facility to Naha Defense Bureau director (Okinawa 
Times) 
 
(6) Municipalities' association adopts resolution calling for review 
of SOFA (Okinawa Times) 
 
(7) U.S. Marines in Okinawa play important role of deterrence and 
crisis response (Asahi) 
 
(8) Keidanren to end its involvement in steering corporate 
donations; DPJ welcomes the decision, which will be a blow to LDP 
(Asahi) 
 
(9) Postal services likely to be bloated: Fate of massive funds at 
Japan Post Bank (Nikkei) 
 
ARTICLES: 
 
(1) Potential negative impact of testimony by Toyota president on 
Japan-U.S. security arrangements 
 
SANKEI (Page 8) (Full) 
February 25, 2010 
 
Yoshihisa Komori, Washington 
 
There have been times in the past when Japan and the U.S. were at 
loggerheads over automobile issues yet were still able to strengthen 
their ties. Toyota Motor Corp. president's testimony before a U.S. 
congressional committee will become one of the highlights of this 
distorted history. But behind this development, there must be some 
complicated political motives of the U.S. government in addition to 
"the threat to American people's lives." Given this, depending on 
how the American people respond to Toyoda's testimony, there could 
be a negative impact on other areas of Japan-U.S. relations, 
including security. 
 
Victims' family members also testify 
 
The U.S. Congress indicated its intention in a series of hearings to 
focus on Toyota's technical probe into the suspected problem of 
sudden unintended acceleration with Toyota's cars, which resulted in 
accidents. To this end, Congress also summoned family members of car 
accident victims as witnesses. In the hearing on Feb. 23 carried out 
on the premise that the responsibility for the threat to American 
people's lives rests with Toyota, Congress members grilled the 
company relentlessly. 
 
TOKYO 00000395  002 OF 009 
 
 
 
Moreover, congress members and the media blamed Toyota executives 
for their initial responses to claims as "trying to hide unpleasant 
realities" or "trying to evade responsibility." Many critics shed 
negative light on Japan as a whole in discussions on its culture and 
society, and even compared Japan with the U.S. in terms of corporate 
culture and legal systems. 
 
It has been 50 years since Toyota began selling its products in the 
U.S. and 25 years since the company started production there, as 
President Toyoda emphasized in his testimony. Toyota cars became 
hugely popular among American customers. The company created nearly 
200,000 jobs at its more than 10 plants across the U.S and laid out 
an extensive sales network in the nation. Toyota has achieved the 
record of selling the largest number of passenger cars in the U.S. 
These business results prove that the company has blended right in 
with American society. 
 
Toyota becomes a villain in just a few months 
 
This favorable image of Toyota changed completely in a few months. 
As the target of attacks in the congressional hearings, the company 
is now being treated as a villain. This change in the company's 
image is said to be attributed to the unusual circumstances of the 
accidents and the company's initial slow responses to the problems. 
The U.S. Congress members' demand for summoning President Toyoda as 
a witness was probably due to Toyota's strong presence in the U.S. 
community, as well as a reflection of their desire to listen to an 
explanation directly from the top leader of the company that has 
become such an integral part of U.S. society. 
 
Behind the rapidly growing and spreading criticism of Toyota, 
however, there certainly is another element. Rush Limbaugh, a 
political radio commentator who is critical of the Obama 
administration, has made the following comment almost every day: 
"The Obama administration encouraged the Toyota bashing to support 
state-run General Motors and also to cover up for its feeble 
policymaking." 
 
Democrats in Midwestern and Northern states, where U.S. automakers' 
production bases are concentrated, have taken the lead in lashing 
out at Toyota, given their close connections with auto labor unions. 
Meanwhile, Republicans in Southern states, where Toyota's plants are 
located, have stood up for the company. The conflict of views in 
Congress is regarded as a political showdown. 
 
As it stands, there are certainly differing views among Congress 
members, but the tension on auto issues between Japan and the U.S. 
runs deep, as symbolized by Toyoda's testimony before Congress. In 
the past, as well, there have been cases in which issues related to 
Japanese vehicles have had major effects not only on the U.S. 
economy but even on the political and security fronts. Now that the 
Japan-U.S. alliance has begun to fall apart, it is hard to feel 
optimistic about future developments in the Toyota issue. 
 
(2) Focus on Iran's response to Japan's proposed solution to nuclear 
issue 
 
NIKKEI (Page 2) (Full) 
Evening, February 24, 2010 
 
With the Japanese government sounding out Iran on its proposal for 
 
TOKYO 00000395  003 OF 009 
 
 
resolving Iran's nuclear issue, the focus is now on Iran's response. 
The U.S. and the European countries are stepping up calls for 
additional sanctions, and it remains unclear to what extent Japan's 
proposal can help resolve the problem. However, the Iranians have 
indicated their willingness to continue negotiations, so the 
possibility remains that Japan's proposal may yet become the focus 
of attention. 
 
Japan presented its proposal shortly after Iran's rejection of one 
from the U.S. and Europe. Japan reckoned that since it maintains 
relatively good relations with Iran through crude oil imports etc., 
it might be able to get Iran to compromise to an extent. It is 
believed that for the same reason the U.S. consented to Japan's 
making the proposal. 
 
The reason Iran rejected the U.S. and Europe's proposal to enrich 
uranium in France or Russia is that it does not trust the U.S. or 
Europe or Russia. Russia has repeatedly delayed the supply of fuel 
to the nuclear power plant under construction in Iran in an attempt 
to wield influence. It is widely believed that the U.S. and Europe 
are "apprehensive of Iran's reliance on Russia," according to a 
European diplomatic source. 
 
Part of the reason Iran is maintaining a tough stance toward the 
U.S. and Europe lies in the political strife between forces 
supporting President Mahmoud Ahmadinejad and Speaker of the 
Parliament Ali Larijani. Each time one side attempted to look for a 
compromise with the U.S. and Europe, the other side would thwart 
their efforts. 
 
(3) Japan proposes uranium enrichment for civilian use for Iran as 
solution to Iranian nuclear issue 
 
NIKKEI (Page 1) (Full) 
Evening, February 24, 2010 
 
It was learned on Feb. 24 that the government made a proposal to 
enrich and process uranium to be used as fuel for nuclear power 
plants in Japan for supply to Iran as a solution to the nuclear 
issue. At this stage the Iranian side has not given a clear answer 
to this proposal, but Speaker of the Parliament Ali Larijani, who is 
on a visit to Japan, is holding a meeting with Foreign Minister 
Katsuya Okada in the afternoon of Feb. 24, and the nuclear issue is 
expected to be discussed. 
 
Iran is in dispute with the U.S. and Europe over the nuclear issue 
because it has been engaged in the enrichment of uranium, which 
could be converted for use in developing nuclear weapons. Tension 
has heightened, with Western countries seeking a new sanction 
resolution at the UN Security Council. Japan's proposal may become 
the focus of great interest depending on Iran's reaction. 
 
Japan sounded out this proposal with Saeed Jalili, director general 
of Iran's Supreme National Security Council and its top nuclear 
negotiator, when he was in Japan last December. Last October, the 
U.S. and Europe made a proposal for Russia and France to enrich and 
process uranium for fuel use, but Iran rejected the proposal from 
concerns about a plan initiated by the U.S., Russia, and Europe. 
 
In light of this, the Japanese government obtained the U.S. 
government's consent to make to Iran a new proposal for the supply 
of fuel for nuclear power plants. Japan maintains diplomatic 
 
TOKYO 00000395  004 OF 009 
 
 
relations with Iran. It is aiming to use its connection with Iran to 
play a bigger role in non-proliferation at the nuclear security 
summit to be held in Washington in April. 
 
Japan, as the world's only atomic-bombed country, has made nuclear 
disarmament diplomacy a top policy. However, it is uncertain whether 
Iran will respond positively to the proposal. A senior Japanese 
government official reckons that Iran's response "will also depend 
on the domestic political situation in Iran, where there is growing 
strife between the conservatives and the reformists." 
 
Iran's nuclear issue came up in September last year after it was 
found that Iran has a new uranium enrichment facility that was not 
declared to the International Atomic Energy Agency (IAEA). The U.S. 
and Europe demanded that Iran stop uranium enrichment activities, 
transport the slightly enriched uranium in its possession out of the 
country, and receive uranium supply from other countries. Rejecting 
this proposal, Iran upgraded its level of uranium enrichment this 
month, giving rise to increasing concerns in the international 
community. 
 
(4) Okinawa governor states for first time he may oppose Futenma's 
relocation within Okinawa 
 
YOMIURI (Page 5) (Full) 
Evening, February 26, 2010 
 
In connection with reports that the government regards relocation to 
an inland area of Camp Schwab (in Nago City, Okinawa) as a promising 
plan for the relocation of the U.S. forces' Futenma Air Station in 
Okinawa, Governor Hirokazu Nakaima stated at the Prefectural 
Assembly on Feb. 26: "There might be a situation in which I will 
have to reject (relocation) within the prefecture." This is the 
first time that he has mentioned the possibility of opposing such a 
plan. 
 
The governor has so far accepted Futenma's relocation to the coastal 
area of Camp Schwab based on the 2006 Japan-U.S. agreement. However, 
the prefectural legislature passed a unanimous statement demanding 
Futenma's relocation out of Okinawa or out of Japan for the first 
time on Feb. 24, pressing the governor to change his position. 
 
At the Prefectural Assembly on Feb. 26, Nakaima expressed his 
displeasure with the lack of any explanation from the government and 
the ruling parties on the Camp Schwab inland proposal. He said: "I 
don't know what they are up to. It's all a mystery to me." He added: 
"In light of the procedure taken at the assembly (the adoption of 
the statement), there might be a situation in which I will have to 
reject (relocation) within the prefecture. Needless to say, I am 
thinking about it." 
 
(5) Municipalities' chiefs express opposition to plan for land-based 
Futenma relocation facility to Naha Defense Bureau director 
 
OKINAWA TIMES (Page 1) (Full) 
February 26, 2010 
 
Chiefs of affected municipalities, including Henoko Ward Head 
Yasumasa Oshiro, called on Naha Defense Bureau director Ro Manabe in 
the bureau office yesterday and handed to him a letter opposing a 
plan to build a land-based alternative facility to the U.S. Marine 
Corps' Futenma Air Station. The new plan is being floated within the 
 
TOKYO 00000395  005 OF 009 
 
 
government. 
 
Oshiro told Manabe: "Under the new plan, the danger and noise caused 
by Futenma (air operations) would be shifted to the Kushi region. If 
that is the case, since local residents' livelihoods will inevitably 
be destroyed, we absolutely cannot accept the plan." Manabe replied: 
"I would like to make a report to the Defense Ministry so that (the 
examination committee on Okinawa base issues) will discuss the issue 
while bearing in mind the purport and contents of your request." 
 
In the process of discussing the realignment of U.S. forces in 
Japan, too, the Henoko district was cited. Touching on this fact, 
Oshiro emphasized: "We confirmed the need to prevent the plan from 
being adopted even if we must enter the base. We would like you to 
work on the government to drop the plan to build a land-based base 
without fail." The mayor added: "We would like you to fully 
understand that all residents in the three districts of the Kushi 
region are determined to take preventive action." They did not refer 
to the existing plan, with Oshima saying: "That is what the 
government should decide." Besides Oshiro, Manabe also met with 
Toyohara Ward Head Masaaki Shiroma, Kushi Ward Head Kiyotaka Higa, 
the administrative committee chairmen of the two wards, and Futenma 
alternative facility countermeasures special committee chairman 
Hiroshi Kohagura. 
 
After the meeting, Oshiro told reporters: "The candidate who 
promised in the campaign not to allow the construction of a new U.S. 
base in the Henoko district was elected in the recent (Nago mayoral) 
election. We must cooperate in a way we can." He said: "Although the 
proposed plan for a land-based facility does not specify whether the 
relocated site is Camp Schwab (the district of barracks) or the 
maneuvering area (the district of exercise), we cannot accept either 
of the two options." 
 
(6) Municipalities' association adopts resolution calling for review 
of SOFA 
 
OKINAWA TIMES (Page 2) (Full) 
February 26, 2010 
 
The association of municipal governments (chaired by Kadena Mayor 
Tokujitsu Miyagi) held its regular general meeting in Naha City 
yesterday and unanimously adopted a resolution calling for the 
review of the Japan-U.S. Status of Forces Agreement (SOFA). Miyagi 
has headed the association since 1998. With the expiration of his 
term of office, the association picked Minami-Haibaru Town Mayor 
Toshiyasu Shiroma as chairman. 
 
The resolution notes that incidents and accidents involving U.S. 
military personnel have continued to occur despite repeated protests 
against the U.S. military whenever such incidents and accidents take 
place. It then points out: "The Okinawan people's lives, assets and 
human rights have continued to be trampled on." The resolution 
emphasizes the need to review the SOFA, saying that 50 years have 
passed since the two countries signed the accord and that this 
problem will never be resolved only by improving the operation of 
the SOFA. The letter is addressed to the prime minister, the foreign 
minister, the minister for Okinawa, and others. 
 
Chairman Miyagi reiterated the need for nationwide discussions on 
national security and the SOFA, remarking: "We naturally place 
expectations on Prime Minister Hatoyama's statement that the burden 
 
TOKYO 00000395  006 OF 009 
 
 
on the Okinawan people will be lightened. We hope the prime minister 
will live up to our expectations." 
 
As vice chairmen, the association reappointed Kin Town Mayor 
Tsuyoshi Gibu and Tarama Village Mayor Masaaki Shimoji and newly 
appointed Kitanakagusuku Village Mayor Kunio Arakaki. Their terms of 
office are two years starting on April 1. 
 
(7) U.S. Marines in Okinawa play important role of deterrence and 
crisis response 
 
ASAHI (Page 15) (Full) 
February 25, 2010 
 
Paul Giarra, former U.S. Defense Department senior country director 
for Japan 
 
The Japanese government is now looking into the future options for 
the U.S. Marine Corps' Futenma Air Station. The presence of the 
Marine Corps has become increasingly important for Japan. 
 
The Marines are the most highly competent combat troops in the 
world. The presence of the Marines in Japan has been a deterrent to 
"enemies," including North Korea, causing them to hesitate to attack 
(U.S. allies). At present the situation in Asia is extremely 
delicate. Since Japan has enjoyed security provided by the Marines, 
it has been able to devote itself to other challenges. 
 
However, the basic question of why the Marines are important for 
Japan's future is sometimes forgotten in the midst of debates on the 
realignment of U.S. bases in Okinawa. It is ironic and regrettable 
that there are Japanese politicians who argue that since the Marines 
have nothing to do with Japan's security, there would be no problem 
if the number of Marines were reduced. 
 
There are currently about 18,300 Marines and sailors stationed in 
Okinawa. Along with infantry troops stationed in Camp Fuji and an 
air unit at the Iwakuni Air Station, the Marines in Okinawa 
constitute the core of the III Marine Expeditionary Force (3rd MEF), 
which is headquartered in Okinawa. The 18,300 troops include 
infantry, air, artillery, intelligence, and supply units, as well as 
headquarters. One of the special characteristics of the Marines is 
that a Marine Air-Ground Task Force (MAGTAF) (sic) encompasses all 
these types of troops. 
 
Marines' air units, especially helicopter units, conduct operations 
together with infantry, artillery, and supply units in 
contingencies. So they are required to jointly carry out training 
exercises under normal circumstances. As a result, the Marines must 
have a heliport facility in Okinawa. 
 
The geographical location of Okinawa is also significant. A base 
located near regions where there is a possibility of contingencies 
occurring can quickly and effectively deploy troops. Okinawa is 
situated in an ideal location. It takes about 36 hours from Okinawa 
to the mainland of Japan or South Korea by sea, three days to the 
South China Sea, and five days to the Strait of Malacca. It takes at 
least three weeks from the West Coast of the United States. 
 
The Marines are not only a deterrent force but also an emergency 
response unit that has powerful mobility. 
 
 
TOKYO 00000395  007 OF 009 
 
 
However, it is possible to split up the Marine Corps to a certain 
extent. Because the 3rd MEF has one of its two brigades stationed in 
Hawaii, its scale is smaller than those of the 1st and 2nd MEFs 
(stationed in the U.S. mainland). 
 
Under the realignment plan for U.S. forces in Japan, including the 
relocation of the Futenma airfield, about 40 PERCENT  of the Marines 
in Okinawa are scheduled to be transferred to Guam. These troops are 
mainly headquarters and supply unit members. The brigade comprising 
about an air-ground unit of 10,000 members, including the heliport 
unit troops at Futenma, will remain in Okinawa. If the relocation 
plan agreed upon between Tokyo and Washington is implemented, the 
3rd MEF will be split up and stationed in Hawaii, Guam, and Japan in 
a well-balanced manner. 
 
Some have contended that the Marines in Okinawa do not have a means 
of transportation. However, the need for transportation can be met 
by pre-positioning certain equipment and combining transport 
aircraft, amphibious assault ships, and high-speed transport 
vessels. 
 
Okinawa's Marines are "Japan's Marines." U.S. Marine Corps Forces 
Pacific Commanding General Keith Stalder said, "U.S. service members 
stationed in Japan are ready to give their lives to protect Japan." 
This is the origin of deterrence. 
 
(8) Keidanren to end its involvement in steering corporate 
donations; DPJ welcomes the decision, which will be a blow to LDP 
 
ASAHI (Page 4) (Excerpts) 
February 26, 2010 
 
Kyohei Matsuda, Akira Minami 
 
The announcement by Nippon Keidanren (Japan Business Federation) of 
its policy to end its involvement in corporate and organizational 
donations is creating a stir. The Democratic Party of Japan (DPJ), 
which is eager to ban corporate/organizational donations, welcomes 
the business lobby's decision in principle. At the same time, the 
decision is certain to reduce funds for the Liberal Democratic Party 
(LDP), which has been enjoying ample financial support from the 
business community. The LDP is likely to be driven into a tight spot 
financially as an opposition party. 
 
During a press conference yesterday, DPJ House of Councillors Caucus 
Chairman Azuma Koshiishi described Keidanren's decision as the 
result of the change of administration. Another veteran lawmaker 
noted: "Keidanren's announcement to end corporate donations at this 
particular time is a de facto declaration of its intent to keep its 
distance from the LDP." 
 
In 2008 Keidanren-affiliated corporations/organizations donated 
2.699 billion yen to the LDP in stark contrast to 190 million yen to 
the DPJ. The DPJ, which won a landslide victory in last year's House 
of Representatives election, is expected to receive 3.6 billion yen 
in party subsidies. "The massive sum of party subsidies will be 
enough to cover a drop in corporate/organizational donations," a 
mid-ranking lawmaker said. 
 
Prime Minister Yukio Hatoyama also mentioned the total abolition of 
corporate/organizational donations during a party-head debate last 
week. The DPJ is preparing a bill amending the Political Funds 
 
TOKYO 00000395  008 OF 009 
 
 
Control Law. 
 
In the first place, there are several complicated reasons behind the 
DPJ's plan to ban corporate donations. When illegal donations 
involving Ozawa came to light last March, the party dodged criticism 
by calling for a ban on donations. Last June the party presented to 
the Lower House a bill to amend the Political Funds Control Law, 
which was partly intended to cut off the LDP's funds at source by 
taking advantage of criticism over "politics and money." 
 
Some attribute the DPJ's move to the feud between Ozawa and 
Keidanren. During his tenure as LDP secretary general, Ozawa asked 
individual companies for 15 billion yen in donations behind 
Keidanren's back. This drew a backlash from the business community. 
Even after Ozawa joined the DPJ, there have been hardly any 
exchanges between the top leaders of the two organizations. 
 
Keidanren's new policy direction is likely to deal a serious blow to 
the LDP. 
 
Many corporations, including trading companies and the Japan 
Department Stores Association, are making moves to reduce their 
donations to the LDP. "The move to quit making donations will 
probably gain momentum following Keidanren's decision," a 
mid-ranking LDP lawmaker predicted. "We might get knocked out 
completely, which is even worse than receiving a body blow." 
 
(9) Postal services likely to be bloated: Fate of massive funds at 
Japan Post Bank 
 
NIKKEI (Page 5) (Abridged slightly) 
February 24, 2010 
 
In late January a Japan Post Bank executive visited a number of 
ruling party members and explained to them (Japan Post Bank's 
situation) with a sense of crisis: "If Japan Post Bank's deposit 
balance falls below 150 trillion yen, the bank could slip into the 
red." In principle, Japan Post Bank is not authorized to engage in 
financing business, with the exception of taking part in joint 
financing. It reaps profits by investing money deposited by 
individuals in government bonds. The size of its deposit balance is 
directly connected with profits. Japan Post Bank estimates that if 
investment yields and costs remain unchanged, and the deposit 
balance falls below 150 trillion yen, the bank would earn no 
profits. Japan Post Bank's deposit balance has been on a downtrend 
since 2000, marking 177 trillion yen as of the end of 2009. 
Furthermore, fixed-amount postal savings worth roughly 20 trillion 
yen will reach maturity dates in two years' time, starting in fiscal 
¶2010. 
 
Arguments calling for abolishing cap on postal savings 
 
Unlike sluggish postal services, Japan Post Bank is the most 
profitable member of the Japan Post group. It is expected to account 
for 60 percent of the consolidated net profits of 430 billion yen 
estimated by the group. If the bank's deposit balance actually falls 
below 150 trillion yen, it would be difficult to subsidize the cost 
of maintaining nationwide uniform services such as financial 
services under the plan of the government and the ruling parties. 
Management and labor of the Japan Post group and the national 
special postmasters association (Zentoku) usually keep far apart. 
However, they are united in calling for boosting the deposit 
 
TOKYO 00000395  009 OF 009 
 
 
balance. 
 
State Minister for Financial Affairs and Postal Reform Shizuka Kamei 
is envisioning the deposit balance expanding once again as a result 
of raising the cap on postal savings. The draft postal reform plan 
prepared by the government earlier in the month hints at a possible 
rise in the upper limit on postal savings in the future, noting that 
necessary measures are to be taken. Some in the government and the 
ruling parties are even calling for abolishing the cap. 
 
Japan Post Bank has a huge amount of funds - roughly 1.4 times the 
amount held by the Mitsubishi UFJ Financial Group. Does Japan Post 
intend to further boost the amount? Pursuing an even larger amount 
of funds will not guarantee increased income. 
 
Profit performance is not high 
 
If long-term interest rates rise 2 percent, Japan Post will incur 
appraisal security losses of more than 1 trillion yen in postal 
savings and postal insurance. Japan Post is concerned about the 
present situation, in which 70-80 percent of its funds have been 
invested in government bonds. However, new investment ideas, such as 
launching into housing loans and loans to small and medium-sized 
businesses, as proposed in the government's draft plan, are fraught 
with the danger of becoming irrecoverable. 
 
Provided that post offices rooted in local regions advance into the 
lending business, their competitors will likely be credit unions or 
credit cooperatives, whose main customers are SMEs and individual 
owner-managers rather than mega-banks. Competition among small- and 
medium-size financial institutions to capture them as customers is 
fierce. The standard thinking in the financial sector is that in the 
current economic climate, it is difficult to boost interest rates as 
a hedge against bankruptcy risks. Profit performance would not be 
high either. 
 
There is concern that if post offices launch into the lending 
business without personnel possessing know-how or experience they 
could suffer a huge amount of bad loans. The government has also 
devised a policy of simplifying financial inspection and oversight 
of post offices. It appears that it gave consideration to the view 
that it is burdensome for small post offices to operate like a bank 
branch, as the postmaster of a post office in Tokyo noted. However, 
anxieties remain from the perspective of protecting consumers. 
(Second of two parts) 
 
ROOS