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FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 6984
RHEHAAA/WHITE HOUSE WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5042
RUEHOK/AMCONSUL OSAKA KOBE 1625
RUEHKSO/AMCONSUL SAPPORO 9343
RUEHNAG/AMCONSUL NAGOYA 7981
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RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 06 TOKYO 005728 
 
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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. (SBU) Table of Contents 
 
3 - Abe's Conservative Cabinet 
4 - GM Rice Creates Stir with GOJ 
5 - Possible Resumption of Civair Negotiations in November 
6 - New ANRE Head Bullish on New METI Minister 
7 - U.S. Beef a Hot Item 
9 - North Korean Supernotes Seized in Western Japan 
11 - Governor Kimura questioned over alleged bid-rigging 
(dango)in Wakayama Prefecture 
13 - More Energy Security Woes 
14 - New METI Minister to Continue to Press Iran, China 
16 - JETRO Agrees on Need to "Push Hard" on China IPR 
Issues 
17 - ANRE's Arima looking for Support for IEA Candidate, 
Beijing Energy Ministerial 
18 - MOFA Works to Improve Economic Relationship with India 
19 - Osaka Bay's 4 major ports strive for integration 
20 - Central Japan JETRO Incubating New Firms and Coddling 
the Old 
21 - Central Japan's Economy Surges 
22 - APEC Conference on FTAs 
24 - Prefectures in the Kansai have high brand value 
 
¶2.  (U) 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 and 
published every Friday.  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 29, 
2006 JES, minus the attachments that accompany many of the 
individual stories in the e-mail version.  To be added to 
the e-mail list, please email ProgarJ@state.gov. 
 
Abe's Conservative Cabinet 
-------------------------- 
 
¶3.  (SBU) On September 26 newly elected Prime Minister 
Shinzo Abe announced his Cabinet.  In general, he made 
conservative choices and included many politicians with 
whom he has close relations as well as those who actively 
supported his campaign.  For a complete list of Cabinet 
Ministers and their biographies please see Tokyo 5600. 
 
GM Rice Creates Stir with GOJ 
----------------------------- 
 
¶4.  (U) The Embassy has been working with Japanese 
authorities to minimize the damage done after a strain of 
GM modified long grain rice was found in the United States. 
The problem potentially could have a major effect on U.S. 
food exporters who are being asked by the GOJ to prove that 
the GM strain is not in their products.  For more, please 
see Tokyo 5695 (classified). 
 
Possible Resumption of Civair Negotiations in November 
--------------------------------------------- --------- 
 
¶5.  (SBU) EMIN met with MLIT Civil Aviation Bureau DDG 
Maeda on September 26.  Maeda agreed to our proposal to 
resume talks on liberalizing the bilateral civil aviation 
market during the week of November 6, as long as the 
meeting take place in Tokyo.  While recognizing the 1998 
agreement's commitment to work toward full liberalization, 
Maeda warned that a discussion on full liberalization would 
immediately and unconstructively be dragged into the Narita 
slots morass.  As such, he recommended that negotiators 
work on issues that both sides can agree to now.  Maeda 
added that he differed both in terms of content and tactics 
with his predecessor's approach at the last session.  He 
stated he looks forward to working with the U.S. and 
offered, as consolation, that his predecessor didn't get 
along with any foreigners, having earned his Chinese 
counterpart's lasting enmity due to the contemptuous 
 
TOKYO 00005728  002 OF 006 
 
 
treatment he displayed.  Maeda noted that a lot of his time 
is spent on Narita privatization which is to happen in 
¶2008.  Regarding a September 23 Nikkei article on proposed 
limits on foreign investment in the privatized airport, 
Maeda acknowledged that caps of 25% or 33% are being 
considered on national security grounds.  Maeda forecast 
that a privatized Narita would not necessarily result in an 
increase in flights.  Current operations are profitable and 
the costs of negotiating with the remaining farmer or with 
neighboring communities on the cap on daily flights too 
high. 
 
New ANRE Head Bullish on New METI Minister 
------------------------------------------ 
 
¶6.  (SBU) EMIN paid a courtesy call on new Director General 
of the Agency for Natural Resources and Energy (ANRE) 
Harufumi Mochizuki during which Mochizuki expressed his 
pleasure over the appointment of Akira Amari as head of the 
Ministry of Economy, Trade and Industry (METI).  Mochizuki, 
who is a friend of Amari, said that Amari may have minimal 
overseas experience, but he is fair and has a good 
international sense.  Amari knows METI very well, having 
previously served as the head of the LDP's commerce and 
industry committee.  Mochizuki also took the opportunity to 
reiterate Japan's desire to see Nobuo Tanaka become the 
next head of the International Energy Agency (IEA). 
Mochizuki thought the media had overblown the situation 
surrounding the environment permit for Russia's Sakhalin 2 
and that the Russian Ambassador had assured then METI 
Minister Toshihiro Nikai that Russia had no interest in 
halting the project.  Mochizuki told EMIN that he had 
accompanied then Prime Minister Koizumi on his trip to 
Kazakhstan and Uzbekistan and that it was the only time 
Koizumi had done anything with METI while prime minister. 
Mochizuki also commented on the gross disparity in income 
between Kazakhstan and Uzbekistan and said it was 
attributable to the different economic policies of their 
leaders.  Mochizuki's most recent position was as head of 
the Small and Medium Enterprise Agency but he said that his 
life's work has been energy. 
 
U.S. Beef a Hot Item 
-------------------- 
 
¶7.  (U) While the image of U.S. beef has benefited from a 
series of recent marketing and public relations activities, 
the availability of age-verified beef is emerging as the 
biggest constraint on sales in Japan.  On September 18, 
Yoshinoya, a national fast food chain and historically 
Japan's biggest importer of U.S. beef, re-launched its 
famous beef bowl to crowds of waiting customers. 
Ambassador Schieffer received extensive, front page 
coverage for his participation in the campaign.  In Nagoya, 
the Principal Officer waited for almost an hour for the re- 
launch at a Yoshinoya restaurant.  On September 19, Sakai, 
Japan's largest Korean barbecue chain, also announced that 
it was again serving U.S. beef. 
 
¶8.  (U) The U.S. Meat Export Federation is in the midst of 
its nationwide "Beef Caravan tour aimed at regaining the 
trust of the meat trade.  The result is that a shift in the 
image of U.S. beef appears to have begun and sales are 
brisk.  However, the limited supply of U.S. cattle 20 
months or under is leading the U.S. industry to offer cuts 
not traditionally sold in Japan.  FAS is forecasting that 
2007 beef imports will be about $700 million, or one-third 
of the pre-ban level. 
 
 
North Korean Supernotes Seized in Western Japan 
--------------------------------------------- -- 
 
¶9.  (SBU) On September 23, Kobe Customs officials and 
Tottori Prefectural Police took the unusual measure of 
raiding a DPRK-flagged freighter at the port of 
Sakaiminato, Tottori Prefecture in Western Japan after two 
 
TOKYO 00005728  003 OF 006 
 
 
counterfeit super-K 100 USD notes were discovered in an 
undeclared cash transaction between the captain and an 
ethnic Korean broker.  Authorities discount the possibility 
that this was a case of deliberate money laundering, and 
more likely a case of contaminated money supply.  No other 
contraband was found on board. 
 
¶10.  (SBU) The episode highlights the problems with Japan's 
ad hoc trading system with the DPRK and lack of 
governmental control of Japan's ports and harbors.  For 
Sakaiminato, whose small economy is dependent on DPRK 
marine product imports, it is a case of the negative 
externalities from the nearby port of Maizuru's refusal to 
offload DPRK vessels following the July 5 DPRK missile 
launches in the Japan Sea.  Maizuru and Sakaiminato are the 
top two ports for the Japan-DPRK trade.  For more details, 
please see Osaka 000526. 
 
Governor Kimura questioned over alleged bid-rigging (dango) 
in Wakayama Prefecture 
---------------------- 
 
¶11.  (SBU) Special Investigations Department of the Osaka 
Public Prosecutor's Office is investigating a joint venture 
(JV) between Wakayama Prefectural Government and Hazama 
Corporation (a major construction company) on suspicion of 
bid-rigging on a tunnel renovation public works project. 
An Osakan golf course owner close to Governor Kimura and 
other high level prefectural officials is alleged to have 
received 60 million yen for passing information on the 
project to the firm. 
 
¶12.  (SBU) A drop in public works projects has led to a 
serious hit in employment and public revenues in local 
rural economies in Western Japan where other forms of 
economic activity have not recovered from the collapse of 
the bubble economy 15 years ago, including Wakayama.  As a 
result, local construction companies appear to have become 
more aggressive in trying to secure public projects by any 
necessary means, including malfeasance. 
 
More Energy Security Woes 
------------------------- 
 
¶13.  (SBU) The Japanese press reported Friday that 
Indonesia, Japan's main source for liquefied natural gas 
(LNG), has decided to significantly reduce LNG exports to 
Japan.  Japanese companies such as Tokyo Gas and Kansai 
Electric Power have a number of long-term contracts that 
will expire between 2010 and 2011 and the companies have 
been unable to secure new contracts for similar amounts of 
gas.  Japan faces a reduction of more than 10 percent of 
its overall LNG imports.  Japan has long been the world's 
largest importer of LNG but China, South Korea, India and 
Indonesia have all increased consumption on the back of 
economic growth.  Japan is faced with losing not only its 
Indonesian LNG supply but possibly its Russian supply as 
well as uncertainty continues to swirl around whether 
Russian authorities will halt the Sakhalin2 project over 
environmental violations. 
 
New METI Minister To Continue to Press Iran, China 
--------------------------------------------- ----- 
 
¶14.  (SBU) Newly appointed Minister of Economy, Trade and 
Industry Akira Amari told a group of reporters on Tuesday, 
September 27, that it was vital for Tehran to accept United 
Nations calls to stop its uranium enrichment.  In the 
meantime, the September 30 deadline looms for negotiations 
between Japan and Iran over the Iranian oil field Azadegan, 
but Amari said he thought discussions should continue and 
that he believed Iran also intended to continue the talks 
past the end of September. 
 
¶15.  (SBU) On a related note, Amari said he would continue 
to urge China to agree to joint development of oil and 
natural gas in the East China Sea.  He lamented, however, 
 
TOKYO 00005728  004 OF 006 
 
 
that the negotiations would be extremely tough because 
China's proffered area for joint development differed from 
Japan's. 
 
JETRO Agrees on Need to "Push Hard" on China IPR Issues 
--------------------------------------------- ---------- 
 
¶16. (SBU) In a courtesy call by Embassy EMIN, Japan 
External Trade Organization (JETRO) chairman Osamu Watanabe 
said he supports strong efforts to push China to clean up 
its IPR situation.  Among Japanese government entities, 
JETRO probably is most familiar with the Chinese IPR 
situation and recently provided detailed information on 
Chinese counterfeiters to U.S. Customs.  Watanabe said 
JETRO has a multi-prong approach to the issue, including 
aggressive identification of violators,  "daily" 
interaction with China's Directorate General of Customs and 
an active program of education and capacity building of 
China's IPR enforcement agencies.  Watanabe said he has 
noticed an increasing positive reaction to Japan's 
complaints from China's officialdom when he has met with 
senior Ministry of Commerce and Customs officials.  He 
thought this was, in part, because Chinese companies 
themselves were starting to be hurt by IPR infringement. 
Watanabe responded positively to EMIN's suggestion that the 
U.S. was considering bringing a WTO case against China 
noting, "China has been in WTO for five years now, they 
have to learn to play by the rules."  He stopped short, 
however, of saying he thought Japan's should join a U.S.- 
led WTO case. 
 
ANRE's Arima looking for Support for IEA Candidate, Beijing 
Energy Ministerial 
------------------ 
 
¶17.  (SBU) Newly appointed Director of the International 
Affairs Division at the Agency for Natural Resources and 
Energy (ANRE) Jun Arima reiterated the GOJ's request that 
USG support the appointment of Nobuo Tanaka as the new head 
of the International Energy Agency (IEA) in Paris.  Arima 
was anxious to see the Beijing Energy Ministerial, 
scheduled for October, be followed by substantive working- 
level meetings.  He is also concerned about Russia's 
increasing power from energy sales.  For a complete readout 
of this meeting please see the attached cable. 
 
MOFA Works to Improve Economic Relationship with India 
--------------------------------------------- --------- 
 
¶18.  (SBU) Tokyo 5574 (classified) reports on recent GOJ 
efforts to upgrade its bilateral economic relationship with 
India, including a joint study group's June recommendation 
that the two countries launch negotiations for an Economic 
Partnership Agreement and an August reorganization of the 
Ministry of Foreign Affairs (MOFA) to devote more working- 
level and senior attention to Southwest Asia.  India's 
status as a top recipient of Japanese aid, as well as its 
increasingly vibrant trade relations with China, have set 
the stage for the diplomatic efforts. 
 
Osaka Bay's 4 major ports strive for integration 
--------------------------------------------- --- 
 
¶19.  (U) The Osaka Bay Port Promotion Council was 
established on September 4 to try to integrate the 4 major 
ports of Osaka Bay into a single port.  These ports are the 
Port of Osaka, managed by Osaka City, the Port of Kobe, 
managed by Kobe City, Sakai Semboku Port, managed by Osaka 
Prefecture, and the Port of Nishinomiya Ashiya, managed by 
Hyogo Prefecture.  Currently, ships making multiple stops 
in Osaka Bay have to pay tonnage and other taxes to each 
port, but the Council is aiming to change to a single fee 
system in 2007.  If successful, it will be the second case 
in Japan, following Keihin Port, which was created from the 
separate ports of Tokyo and Yokohama.  The Council consists 
of Osaka City Port and Harbor Bureau, Kobe City Port and 
Harbor Bureau, Kinki Regional Development Bureau, and the 
 
TOKYO 00005728  005 OF 006 
 
 
Harbor Bureau from MLIT.  The Kansai economy has a higher 
ratio of trading business than the Japanese average, so 
Kansai business leaders are strongly in favor of swift 
integration. 
 
Central Japan JETRO Incubating New Firms and Coddling the 
Old 
--- 
 
¶20.  (SBU) At a September 21 courtesy call on Nagoya PO, 
newly arrived JETRO Nagoya Chief Director Hiroki Matsumoto 
described his three top priorities as inbound FDI, 
promoting exports from regional small and medium-sized 
firms in "traditional" industries, and venture capital firm 
incubation.  Matsumoto explained that JETRO's three 
incubation centers in Boston, Chicago, and San Francisco 
contract with American consultants to provide free space 
and advice to small Japanese firms hoping to develop 
products and attract capital, primarily in the IT and 
biotech sectors.  At the same time as promoting tomorrow's 
potential winners, JETRO is also working to support today's 
losers, helping regional firms in traditional but shrinking 
sectors like ceramics and textiles find new markets. 
Despite the booming regional economy in other fields such 
as autos and aerospace, firms in "traditional" sectors in 
Central Japan, as in the rest of the country, continue to 
struggle. 
 
Central Japan's Economy Surges 
------------------------------ 
 
¶21.  (U) The Central Japan economy continues to hum along, 
although there is some concern that regional labor 
shortages and a possible rise in the yen could dampen 
future growth. That is what chiefs of the Nagoya branches 
of the Bank of Japan and METI told the Principal Officer on 
September 20.  For more on their discussions, please see 
attached cable. 
 
APEC Conference on FTAs 
----------------------- 
 
¶22. (U) A Conference we attended at Aoyama Gakuin 
University September 27 on regional architecture was 
largely a review of where Japan and the region are to date 
with all the bilateral and multilateral FTAs being 
negotiated.  In general, no one thought that regional 
economic integration was going to advance quickly, because 
economies were not going to make concessions on a regional 
basis that they would not make in the WTO.  Some of the 
highlights included Chairman Kitashiro of the Japan 
Association of Corporate Executives (Keizai Doyukai) saying 
good things about the need for further reform domestically 
in Japan, including in the agricultural sector, but also 
pushing hard for an ASEAN+3 FTA.  Simon Tay of the 
Singapore Institute of International Affairs basically 
chastized the Japanese for failing to take real leadership 
of the regional integration process. 
 
¶23.  (U) Andrew Elek of Australian National University said 
that the structure of current FTAs in the region -- in 
particular, restrictive rules of origin -- prohibited their 
easy combination into a larger pan-East Asia or pan-APEC 
agreement.  He said sensitive trade issues are better 
discussed in the context of the WTO.  Kim Heungchong of the 
Korea Institute for International Economic Policy called 
the latest rounds of KORUS negotiations "disappointing" and 
highlighted the growing domestic opposition in Korea to the 
proposed FTA.  Ruan Zongze of the Chinese Foreign 
Ministry's Institute of International Relations said a big 
reason for APEC's declining popularity in the region was 
the excessive emphasis of the United States on security 
issues.  APEC needed to get back to its trade and 
investment roots. 
 
Prefectures in the Kansai have high brand value 
--------------------------------------------- -- 
 
TOKYO 00005728  006 OF 006 
 
 
 
¶24. (U) According to Nikkei Research, 4 of the Kansai's 
prefectures (Kyoto, Osaka, Hyogo, and Nara) are ranked in 
the top 10 prefectures for high commercial brand value 
among Japan's 47 prefectures.  The study was made based on 
the value of local commercial products, popularity, local 
services both for local residents and tourists, and how the 
place names can be utilized for business.  Nara Chamber of 
Commerce and Industry, visited recently by ConGen econoff, 
commented that it shows that the Kansai needs to contribute 
more to the GOJ "Visit Japan" campaign and to consider 
tourism a core industry, and that business leaders and 
heads of local governments in Kansai have to work harder to 
coordinate plans for regional tourism development.