VZCZCXRO9781
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #5526/01 2682331
ZNR UUUUU ZZH
R 252331Z SEP 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 6714
RHEHAAA/WHITE HOUSE WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5037
RUEHOK/AMCONSUL OSAKA KOBE 1541
RUEHKSO/AMCONSUL SAPPORO 9267
RUEHNAG/AMCONSUL NAGOYA 7928
RUEHFK/AMCONSUL FUKUOKA 8183
RUEHNH/AMCONSUL NAHA 0734
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 05 TOKYO 005526 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
PARIS PLEASE PASS USOECD 
STATE PLEASE PASS TO USTR FOR CUTLER AND BEEMAN 
STATE PLEASE PASS TO NSC FOR KURT TONG 
STATE PLEASE PASS TO USDOC FOR MELCHER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - Economic News At- 
A-Glance. 
 
Sensitive but unclassified.  Please protect 
accordingly. 
 
¶1.  (U) Summary.  The Japan Economic Scope (JES) is a 
weekly e-newsletter produced by Embassy Tokyo's ECON 
section in collaboration with other sections and 
constituent Posts.  It provides a brief overview of 
recent economic developments, insights gleaned from 
contacts, summaries of the latest cables and a list of 
upcoming visitors.  This cable contains the September 
22, 2006 JES, minus the attachments that accompany 
many of the individual stories in the e-mail version. 
To be added to the mailing list, please email 
ProgarJ@state.gov.  End Summary. 
 
 
It's Official!  Abe Wins! 
------------------------- 
 
¶2.  (SBU) Shinzo Abe won a decisive victory in the 
ruling Liberal Democratic Party (LDP) election on 
September 20, defeating Foreign Minister Taro Aso and 
Finance Minister Sadakazu Tanigaki in a contest that 
was never really close.  He became the 21st LDP 
president immediately upon the resignation of the 
current president, Prime Minister Junichiro Koizumi, 
and other party executives later in the day.  He also 
is the youngest president and the first born after 
World War II.  Abe won 66.1 percent of the vote, less 
than the 70 percent he had hoped to garner, while Aso 
came in second with 19.4 percent and Tanigaki was 
third with 14.5 percent, both having done better than 
expected. 
 
¶3.  (SBU) Next comes the appointments of the three LDP 
executive positions: Secretary General, Chairman of 
the Policy Research Council (PARC) and Chairman of the 
General Council, which will be announced on Monday, 
September 25.  Speculation is rife but leading 
contenders for Secretary General include Hidenao 
Nakagawa or Taro Aso.  Hidenao Nakagawa has also been 
suggested for PARC chairman.  Fumio Kyuma, Fukushiro 
Nukaga and Yuya Niwa are on various lists for General 
Council Chairman and Hakuo Yanagisawa and Bunmei Ibuki 
have also been mentioned as possibilities for any of 
these three jobs. 
 
¶4.  (SBU) Abe has said he would announce Cabinet 
Ministers on Tuesday, September 26.  Again, the gossip 
mills are working overtime but some names have 
appeared in more than one place. Below is a list of 
positions and possible contenders gathered from a 
number of sources: 
 
--Chief Cabinet Secretary - Nobuteru Ishihara, 
Nobutaka Machimura, Kaoru Yosano, Yasuhisa Shiozaki 
 
--Foreign Ministry - Shoichi Nakagawa, Nobutaka 
Machimura, Taro Aso, Sadayuki Hayashi (former 
Ambassador to the UK) 
 
--Finance Ministry - Kaoru Yosano, Hakuo Yanagisawa, 
Yasuhisa Shiozaki, Toshihiro Nikai, Toshiaki Amari 
 
--MEXT - Nobutaka Machimura, Shoichi Nakagawa, Sanae 
Takaichi 
 
--MIC - Fumio Kyuma 
 
--METI - Akira Amari, Yuji Yamamoto, Tsutomu Takebe 
 
--Justice Ministry - Yuji Yamamoto, Shoichi Nakagawa 
 
--Defense Agency - Fukushiro Nukaga, Sanae Takaichi, 
Fumio Kyuma 
 
--State Min for Financial Services - Kaoru Yosano, 
 
TOKYO 00005526  002 OF 005 
 
 
Hakuo Yanagisawa, Yasuhisa Shiozaki, Toshihiro Nikai, 
Toshiaki Amari 
 
--State Min for Econ/Fiscal Policy - Kaoru Yosano, 
Hakuo Yanagisawa, Yasuhisa Shiozaki, Toshihiro Nikai, 
Toshiaki Amari 
 
--State Min for Abduction Issue - Kyoko Nakayama 
 
CPRR Chairman Resigns, Rumors on Replacement 
-------------------------------------------- 
 
¶5.  (U) The Chairman of the Committee for the 
Promotion of Regulatory Reform (CPRR), Yoshihiko 
Miyauchi, resigned his position September 21 in a move 
we anticipated based on comments Miyauchi made to EMIN 
during a recent courtesy call (see Tokyo 05180). 
Miyauchi, who was chairman of the Committee for nearly 
ten years, is widely credited with steadfastly driving 
the regulatory reform process forward.  Newspaper 
reports speculate he will be replaced by CPRR board 
member Takao Kusakari, the Chairman of Japan Yusen 
Shipping company.  A Keio University graduate and 
former rugby player, Kusakari is also seen as a strong 
proponent of regulatory reform and has championed 
changes in medical services and education.  A contact 
in the CPRR secretariat told us that none of the 
staffers had anticipated Miyauchi's resignation before 
the end of his term (March 2007) and that they had 
only learned of his departure via the internet. 
 
Takenaka Resignation Unsurprising 
--------------------------------- 
 
¶6.  (SBU) On September 15 Heizo Takenaka, well known 
economist, reluctant politician, and symbol of Prime 
Minister Koizumi's reform agenda, announced his plan 
to give up his Diet seat on September 26.  Faced with 
the imminent retirement of Koizumi, his biggest 
supporter, Takenaka was not expected to remain in the 
Cabinet and appears to have decided that a Diet seat 
was not sufficient incentive to stay, especially 
because politicians he had clashed with over banking 
reform may be part of the new administration.  For 
further information, please see Tokyo 5450. 
 
Confusion Over Revoked Sakhalin Permit 
-------------------------------------- 
 
¶7.  (SBU) The media has reported that Russian 
authorities have cancelled a key environmental permit 
for Sakhalin-2, the $20 billion project on the Russian 
island of Sakhalin led by Royal Dutch Shell. 
Subsequent reports have sought to clarify this action. 
Sakhalin Energy CEO Ian Craig was quoted as saying 
that the Russian General Prosecutor's Office believes 
an order involving Sakhalin-2 Phase 2 had been issued 
illegally but that a new order would be issued and 
validated, presumably replacing the invalid order. 
Craig went on to say that none of this involves 
Sakhalin-2 Phase 1, which is already producing over 
70,000 barrels of oil per day for about half the year. 
This amount should more than double during Phase 2, 
which also includes the construction and complete 
enclosure of the world's biggest liquefied natural gas 
(LNG) plant.  Japan's Mitsubishi Corp. and Mitsui & 
Co. won 20 percent and 25 percent of the project 
respectively.  Japanese utilities have already 
contracted to buy a combined total of about 4.5 
million tons of LNG from the project, which expects to 
produce around 9.6 million tons of LNG a year 
beginning in 2008. 
 
Shiozaki Supports Regional Architecture 
--------------------------------------- 
 
¶8.  (SBU) Yasuhisa Shiozaki, Senior Vice Minister for 
 
TOKYO 00005526  003 OF 005 
 
 
Foreign Affairs and possible member of the next 
Cabinet, last week spoke with EMIN about regional 
architecture and indicated his strong support for 
continued discussion with the US on how to strengthen 
and better utilize the various frameworks available in 
East Asia without excluding the US.  He expressed his 
hope for improved relations with China under the new 
administration and was also eager to identify US 
officials who support an FTA with Japan.  For further 
information please see the attached memorandum. 
 
Japan-Philippines Economic Partnership Agreement 
Signed but Other FTAs Going Nowhere Fast 
------------------------------ 
 
¶9.  (SBU) Prime Minister Koizumi and Philippine 
President Arroyo signed the Japan-Philippines 
"Economic Partnership Agreement" (EPA, in effect a 
free trade agreement) September 9 on the margin of the 
Asia-Europe Summit Meeting (ASEM) in Helsinki, 
Finland.  The final document largely reflects the 
basic agreement reached between the two countries at 
the end of 2004, according to officials of the 
Japanese Foreign Ministry.  The reasons behind the 
delay in signing the agreement are recounted in 
telegram Tokyo 5329 (classified).  The Japanese 
Government will submit the agreement to the Diet for 
approval during the upcoming extraordinary session due 
to convene at the end of September.  It is expected, 
however, that ratification by the Philippine Congress 
may take somewhat longer.  The full text of the signed 
agreement is available on the Japanese Ministry of 
Foreign Affairs website at the address: 
http://www.mofa.go.jp/region/asia- 
paci/philippine/epa0609/index.html 
 
¶10.  (SBU) Telegram Tokyo 5329 (classified) also 
conveys the views of a Foreign Ministry official 
involved in Japan's ongoing free trade agreement 
negotiations on the dim prospects for various regional 
and bilateral agreements, including Japan-ASEAN, 
Japan-Australia, and Japan-Thailand. 
 
MOF Rejects Marlboro Price Increase 
----------------------------------- 
 
¶11. (SBU) Philip Morris representatives told us that 
MOF rejected its pro forma price increase request on 
Marlboro and other PM brand cigarettes saying that 
such an increase would harm Japanese consumers.  MOF 
and Philip Morris established this pro forma price 
approval system under a USTR 301 agreement in 1986 to 
address concerns that American manufacturers would 
dump cheap cigarettes on the Japanese market.  This is 
the first time the company's price-setting request has 
been denied.  Philip Morris had previously enjoyed 
steady market growth, climbing from 1 percent market 
share in 1986 to 25 percent share today.  However, 
company representatives stated the 30 yen per pack 
proposed increase is necessary to achieve revenue 
targets in the face of 3-4 percent volume declines. 
They speculated that MOF wants to maintain some 
control over cigarette pricing because, should 
manufacturers, and particularly Japan Tabacco, have 
the freedom to raise prices, cigarette smoking would 
decrease and tabacco leaf farmers would suffer. 
FinAtt is engaging MOF to learn more. 
 
Alternative Energy Sources Not In the Mix To Meet 
Increasing Power Demands in Central Japan 
----------------------------------------- 
 
¶12.  (SBU) Based on the continuing expansion of 
regional industry, Chubu Electric (Chuden), the power 
company for five Central Japan prefectures centered on 
Nagoya, projects electricity demand to grow steadily 
in the one to three percent range per annum over the 
 
TOKYO 00005526  004 OF 005 
 
 
next decade, Vice President Takuo Yamauchi told Nagoya 
PO on September 21.  Although alternative energy 
sources receive a lot of media attention and a fairly 
substantial amount of Chuden research, according to 
Yamauchi, sources like solar and wind account for a 
nearly negligible proportion of Chuden's generation 
and will likely stay so for the foreseeable future. 
Currently, about 70 percent of Chuden's generation 
comes from fossil fuels, 20 percent is nuclear, and 10 
percent is hydroelectric. 
 
¶13.  (SBU) Over the next one to two decades, Yamauchi 
anticipates the only significant change will come from 
two new nuclear plants under development by the Japan 
Atomic Power Company (partially owned by Chuden) in 
Tsuruga, Fukui prefecture, and a relatively minor bump 
 
SIPDIS 
from a large dam currently in the final stages of 
opening in Gifu.  If the nuclear plants stay on 
schedule (potentially a big if, considering political 
concerns and the fact that their opening would likely 
necessitate the decommissioning of two other plants), 
and accounting for growth in demand, by around the 
year 2020, Chuden's production breakdown is likely to 
be about 59 percent fossil fuels, 30 percent nuclear, 
and 11 percent hydroelectric. 
 
BOJ Policy Board Member Sends Mixed Messages 
-------------------------------------------- 
 
¶14.  (SBU) Atsushi Mizuno, member of the Bank of Japan 
(BOJ) policy board, spoke at a Jiji Press financial 
forum on September 20 about the recent world financial 
and economic situation with emphasis on the United 
States and Japan.  Most notably, Mizuno missed an 
opportunity during the question and answer session to 
emphasize the BOJ's independence in light of the 
election of new Liberal Democratic Party (LDP) leader 
Shinzo Abe on the same day.  Mizuno instead 
underscored the importance of dialogue on economic 
matters between the new administration and the Central 
bank.  He also sent a mixed message about the 
transparency of BOJ policy, at one point stressing its 
importance and at another, warning that sometimes 
transparency could be a bad thing because it was 
unable to create a world without uncertainty. 
 
Sapporo CEO Cites American Influence in Receiving UN 
Refugee Assistance Award 
------------------------ 
 
¶15.  (U) The UN Refugee Agency (UNHCR) presented Dr. 
Akio Kanai, CEO of Hokkaido-based Fuji Optical, with 
the 2006 Nansen Refugee Award. The UNHCR recognized 
Dr. Kanai for his work over the past two decades to 
provide free eye examinations and eyeglasses to more 
than 100,000 refugees worldwide. This is the first 
time that a Japanese citizen has received this 
prestigious award. 
 
¶16.  (U) Dr. Kanai received his doctorate degree in 
optometry from Southern California College of 
Optometry in 1972.  In a Asahi Shimbun interview on 
why he is dedicated to helping refugees, Dr. Kanai 
explains that he learned about volunteerism, 
hospitality and kindness towards others while living 
with his American host family during his PhD studies. 
It was also a fellow American optometrist friend who 
introduced him to his first volunteer work in 1972, 
offering free eye examinations on a Native American 
reservation. 
 
Co-op Working Group Continues Deliberations on Legal 
Revisions 
--------- 
 
¶17.  (SBU) The Ministry of Health, Labor, and Welfare 
(MHLW) Working Group on co-operatives (kyosai) 
 
TOKYO 00005526  005 OF 005 
 
 
continues to work on revising MHLW's governing 
legislation.  Attached is a summary of the group's 
latest discussions, including MHLW suggestions on 
changing co-operatives' geographic restrictions and 
insurance policyholder protection regulations, as well 
as transparency concerns.