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UNCLAS SECTION 01 OF 06 TOKYO 006012 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PLEASE PASS USTR 
PARIS PLEASE PASS USOECD 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope Q Economic News At- 
A-Glance. 
 
Sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) Table of Contents 
 
Paragraph 3 Q Japan Announces DPRK Sanctions 
          4 Q Ambassador Addresses Business Leaders 
          5 Q MOFA DG Discusses APERM, Economic 
              Relationship 
          9 Q EMIN Pays Call on Former Foreign 
              Minister Nobutaka MACHIMURA 
          12 Q American Infinity Aviation Group Ties 
              with Nakanihon Air Service Co., Ltd. to 
              Sell Business Jets in Nagoya 
          14 Q Kusakari to Head CPRR 
          15 Q Next Generation Aerospace of Interest to 
              Kansas Visitors to Nagoya 
          17 Q Japan Appeals U.S. Use of "Zeroing" to 
              WTO Appellate Body 
          18 Q Bubble economy in Osaka, again? 
          19 Q Hankyu and Hanshin merge to create giant 
              Osaka conglomerate 
          21 Q Apple's Efforts in the Hokkaido PC 
              Market 
          23 Q Lehman Brothers Among Investors in $171 
              million Hokkaido Luxury Resort 
          25 Q Economic Benefit of Baseball 
              Championship Up to $185 million 
          26 Q Daihatsu Mini-car Sales to Set Record 
          27 Q Northeast Asia Monthly Newsletter 
 
¶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 October 6, 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. 
 
Japan Announces DPRK Sanctions 
------------------------------ 
 
¶3. (SBU) Japan Announces New Sanctions on North Korea: 
The Japanese government October 11 announced that it 
had decided to impose a third round of unilateral 
sanctions against North Korea, banning all imports, 
denying port access to vessels registered in that 
country, and barring North Korean citizens from 
entering Japan.  The restriction against North Korean 
citizens went into effect immediately.  North Korean 
vessels currently docked in Japanese ports will also 
be ordered to leave.  According to the Japan Coast 
Guard, North Korean ships entered the nation's main 
ports 578 times from January through September.  The 
import and port bans are slated to begin October 14, 
after gaining cabinet approval.  These sanctions are 
set to expire in six months.  Imports from North Korea 
totaled JPY 13.7 billion (about $124 million) for 
fiscal 2005, mainly consisting of apparel and such 
agricultural and marine products as mushrooms and 
clams.  According to one study prepared by the 
Australian Government, Japan was North Korea's second 
largest export market in 2004, accounting for 12 
percent of total exports, after China's 41 percent. 
 
Ambassador Addresses Business Leaders 
------------------------------------- 
 
¶4. (U) Ambassador Schieffer addressed on October 11 in 
Tokyo the Keizai Doyukai, a leading association of 
reform-oriented Japanese business leaders.  The 
ambassador's speech reviewed key challenges facing the 
U.S. and Japan: enhancing open, innovative and 
flexible markets; securing adequate energy supplies; 
and maintaining a clean environment.  During the 
 
TOKYO 00006012  002 OF 006 
 
 
ensuing Q&A, the first inquiry had to due with the 
possibility of a U.S.-Japan FTA.  The ambassador 
responded that any FTA would have to be comprehensive, 
inter alia requiring a solution to the problem of 
access to Japan's agricultural market.  Questions that 
followed touched on the U.S. response to the DPRK 
nuclear test, the future of the Kyoto Treaty, the 
challenge of aging societies, and differences in the 
way U.S. and Japanese baseball umpires count balls and 
strikes. 
 
MOFA DG Discusses APERM, Economic Relationship 
--------------------------------------------- - 
 
¶5. (SBU) MOFA DG for Economic Affairs Kaoru Ishikawa 
covered a range of subjects at a dinner he hosted 
October 11 to welcome EMIN to Tokyo.   Flanked by 2nd 
North Americas Division Director Mizushima and OECD 
Division Director Tsutsumi, Ishikawa termed MOFA's 
Asia Pacific Economic Research Mechanism an 
"apolitical" attempt to improve the region's economic 
data compilation and asked for USG support.  The GOJ 
will sponsor a conference on APERM November 6-7 in 
Kyoto (see Tokyo 5943). 
 
¶6. (SBU) On bilateral trade issues, Ishikawa quipped 
that if Japan and Australia cannot work out an FTA, he 
was ready to work on one with the United States.  The 
MOFA DG noted that Vice Foreign Minister Yachi raised 
the idea in Washington of the two countries proposing 
a private sector study on the feasibility of an FTA. 
Ishikawa was cautious on the concept's immediate 
prospects, and spoke in particular of the agriculture 
interests that would oppose it.  Mizushima was even 
more frank about the difficulties. 
 
¶7. (SBU) On the bilateral economic relationship with 
the United States, Ishikawa sees no reason to make a 
big public event out of the exchange of 
recommendations for the two countries' regulatory 
reform process.  Specifically, he said that the 
November APEC Summit in Hanoi would not be an 
appropriate place for the exchange.  Although both 
countries' interests are addressed in the process, 
regulatory reform is too much of a lightning rod for 
Diet members in advance of Upper House elections next 
summer. 
 
¶8. (SBU) On the sub cabinet meeting, he underscored 
that success would be determined by attention to the 
details.  The two sides must avoid potential land 
mines to be sure the sub cabinet goes well and there 
is progress where possible. 
 
EMIN Pays Call on Former Foreign Minister Nobutaka 
MACHIMURA 
--------- 
 
¶9. (SBU) Machimura was happy to share his views with 
the EMIN on a wide range of topics including next 
steps for the bilateral economic relationship and the 
new Kantei organization.  Machimura noted that a 
possible bilateral FTA currently is not a subject of 
discussion in Diet circles.  He hailed ongoing 
initiatives such as regulatory reform, while 
suggesting that we should freshen it up with a new 
name and agenda to reflect the start of the new Abe 
administration.  He noted the occasional criticism the 
regulatory reform initiative has encountered from the 
opposition party in the Diet as being overly driven by 
American objectives.  He also worried that anti- 
globalization sentiments could gain traction in Japan, 
as some associated deregulation with an increase in 
crime and a loss of national values. 
 
¶10. (SBU) Machimura welcomed foreign direct investment 
into Japan and supported Prime Minister Abe's policy 
to double FDI stock by 2010, specifically pointing out 
the need to increase productivity in the service 
 
TOKYO 00006012  003 OF 006 
 
 
sector made it an area which could be subject to 
further bilateral cooperation. 
 
11.(SBU) On the new Kantei organization, Machimura 
revealed that the Policy Advisors to the Prime 
Minister, especially Yuriko Koike (national security) 
and Takumi Nemoto (economic and fiscal affairs), need 
to choose their issues carefully and not duplicate the 
work of the respective ministries.  Machimura pointed 
out that he had advised Koike personally to work on 
improving e coordination among Japan's intelligence 
agencies, something he believes is very necessary.  To 
our surprise (given the sensitivities surrounding the 
sector), Machimura raised port services as a sector 
ripe for reform. 
 
American Infinity Aviation Group Ties with Nakanihon 
Air Service Co., Ltd. to Sell Business Jets in Nagoya 
--------------------------------------------- -------- 
 
¶12. (U) The daily "Mid-Japan Economist" reported 
October 12 that aircraft and helicopter chartering 
firm Nakanihon Air Service of the Nagoya Railroad 
Company group will team up with New Hampshire's 
Infinity Aviation Group to sell U.S.-registered used 
business jets to Central Japan corporations with 
operations in Asia, particularly China.  Infinity will 
operate and maintain the jets, supplying pilots and 
other staff, for customers out of the Aichi 
Prefecture-owned Nagoya Airport. 
 
¶13. (U) This will be the first joint effort by U.S. 
and Japanese companies to sell and operate business 
jets in Japan.  A used business jet typically costs 
about $11 million and annual operating costs are about 
$2.6 million, based on 40 round trips to China and a 
total of 400 flight hours per year.  The firms plan to 
start small, aiming at sales of two jets in 2007 and a 
third in 2009.   To date, the Japanese business 
aviation market remains miniscule, with only 26 
business jets registered in the country, compared to 
over 14,000 in the U.S. 
 
Kusakari to Head CPRR 
--------------------- 
 
¶14.  (U) As reported in the September 22 JES, Takao 
Kusakari, Chairman of Nihon Yusen, will officially 
succeed Yoshihiko Miyauchi as the Chairman of the 
Council for the Promotion of Regulatory Reform (CPRR) 
on October 19.  Kusakari, who has been an executive 
member of CPRR since April 2004, is expected to carry 
forward the Council's reform agenda until its term 
ends in March 2007.  In addition, he will lead the 
Council in developing a proposal regarding the form of 
CPRR's successor body as the end of its term 
approaches.  Press reports state that Kusakari was 
personally recommended by former CPRR Chairman 
Yoshihiko Miyauchi and speculate that he will likely 
stay on to chair the next version of the organization. 
 
Next Generation Aerospace of Interest to Kansas 
Visitors to Nagoya 
------------------ 
 
¶15. (U) During a three-day visit to Nagoya, a 
delegation from the State of Kansas and the Greater 
Wichita Economic Development Coalition focused on 
deepening ties with manufacturers in the booming 
Central Japan aerospace sector, including Mitsubishi 
Heavy Industries and Kawasaki Heavy Industries, as 
part of efforts to make a smooth transition to the 
next generation of aircraft manufacture.  Wichita has 
established a $40 million technical training center, 
in large part to help workers gain skills in composite 
materials manufacturing, and is a "center of 
excellence" for both the FAA and NASA. 
 
¶16. (U) Kansas and Wichita are seeking FDI from Japan, 
 
TOKYO 00006012  004 OF 006 
 
 
particularly from suppliers of advanced aviation 
technologies, to maintain their strength as a key 
aerospace hub.  At the same time, Wichita companies 
like Boeing spin-off Spirit Aerospace, the world's 
biggest supplier of commercial aircraft assemblies and 
components, are working with Japanese companies like 
Toray to develop jointly the specs for composite 
materials to be used in future aircraft. 
 
Japan Appeals U.S. Use of "Zeroing" to WTO Appellate 
Body 
---- 
 
¶17. (U) Just weeks after losing its anti-dumping case 
against the United States at the WTO, Japan launched 
an appeal on October 11.  The GOJ is contesting a WTO 
dispute settlement panel's finding that rejected 
Japan's challenge against the U.S. "zeroing" 
methodology, a case first brought by Japan in November 
¶2004.  The WTO panel issued its finding in September, 
indicating that the U.S. methodology was consistent 
with the WTO Antidumping Agreement.  Japan's Ministry 
of Economy, Trade and Industry claims that the WTO 
panel's decision is not in tune with earlier decisions 
in which it ruled against the United States in what it 
claims are similar cases brought by the EU and Canada. 
For more details on this case, see the link below. 
http://www.wto.org/english/tratop_e/dispu_e/c ases_e/ds 
322_e.htm 
 
Bubble economy in Osaka, again? 
------------------------------- 
 
¶18.  (SBU) Office real estate prices in the center of 
Osaka are rising.  The market prices of land under 
large-scale office buildings on major business streets 
have almost doubled to a level three times the 
government-appraised land prices.  Investment trust 
companies have begun grabbing major office buildings. 
MD REIT Investment Ltd in MID Urban Development Group, 
formerly Matsushita Real Estate, has recently 
purchased six office buildings and commercial 
facilities for 113.5 billion yen in Osaka.  This is 
the highest trade price for real estate in the region 
following the collapse of the bubble economy.  MD REIT 
raised 94 billion yen from investors, mostly 
individuals, for the purchase.  The recent market 
prices are high but still one third of that during the 
peak of the bubble. 
 
 
Hankyu and Hanshin merge to create giant Osaka 
conglomerate 
------------ 
 
¶19.  (SBU) Hankyu Holdings and Hanshin Electric 
Railways Co. have merged to become Hankyu and Hanshin 
Holdings as of October 1.  The new entity is the third 
largest railway company in Japan, following Tokyo- 
based Tokyu and Kansai-based Kintetsu.  Hankyu and 
Hanshin Holdings is also a huge transportation, 
distribution, and service company, boasting more than 
1 trillion yen in annual sales.  Nonetheless, the new 
firm has acquired the same amount in debt through the 
merger, and management faces challenges in how to 
resolve overlaps in Hankyu and Hanshin subsidiary 
business units. 
 
¶20.   (SBU) Their hotel operations have begun to 
consolidate under Hankyu's lead.  However, the giant 
conglomerate's other businesses, such as travel, rail 
and bus transportation, distribution, retail, and real 
estate operations have not worked out their new modus 
operandi.  Hankyu and Hanshin are targeting JR as the 
rival for its full portfolio of businesses in the 
Osaka-Kobe corridor.  A contact at Mitsubishi-Tokyo 
UFJ Bank commented that the local economy will benefit 
from the merger; the bank welcomed the increased 
competition between JR and Hankyu/Hanshin as a way to 
 
TOKYO 00006012  005 OF 006 
 
 
enhance asset values and boost consumer convenience. 
 
Apple's Efforts in the Hokkaido PC Market 
----------------------------------------- 
 
¶21. (U) Over the summer, Apple Computer opened its 
seventh Japan-based Apple Store in a prime location 
near Sapporo's Odori Park.  Offering hi-tech, chic 
displays of more than 1000 products, Apple Store 
Sapporo is proving popular with longtime Hokkaido Mac 
users and local iPod customers, who flock to the store 
to obtain limited edition Sapporo iPod covers. Since 
its opening a few months ago, it has attracted local 
clientele in their twenties and thirties, especially 
female customers. Apple Store Sapporo has also had 
some success attracting older customers by offering a 
variety of services unknown at typical Japanese 
electronic stores. These include daily in-store Mac 
intro sessions, additional private and group lessons 
for new Mac users, advanced Mac computing courses for 
professional users, and in-store concerts twice a 
month.  However, since Mac sales make up only four 
percent of total computer sales in Japan, it remains 
to be seen if Apple can continue to find customers 
here looking to buy more than iPod accessories. 
 
¶22. (U) Hokkaido's prefecture-wide emphasis on local 
IT and biotech development may offer new market 
opportunities to Apple. In 2005, the city of Fukagawa 
(about 150km north of Sapporo) replaced the PCs used 
by all five of its junior high schools with 160 iMac 
computers.  Using Mac's "NetBoot System," the city 
built a centrally managed and controlled information 
network for the schools that saved $51,000 in 
operating costs during the school year.  Apple hopes 
news of this success story will generate additional 
sales to local governments throughout Hokkaido. 
 
Lehman Brothers Among Investors in $171 million 
Hokkaido Luxury Resort 
---------------------- 
 
 
¶23. (U) Nikkei reported 10/7 that Lehman Brothers 
Japan will join The Windsor Hotels International and 
SECOM in investing in $171 million to build a new 
luxury resort complex at Lake Toya, Hokkaido. 
Construction on the time-share resort is slated for 
2008-2011. 200 individual suites at the resort, priced 
at $2.2 million each, will go on sale overseas in 
February 2007 and in Japan from Fall 2008. The hotel's 
management will partner with the NY-based luxury 
hospitality organization Leading Hotels of the World 
and Cornell University's School of Hotel 
Administration. 
 
¶24. (U) The resort will be constructed next to the 
successful Windsor Hotel Toya Resort & Spa. Located 
1.5 hours southeast of Sapporo Chitose International 
Airport at one of Hokkaido's most famous tourist 
attractions, the five-star hotel has maintained a 90% 
summer room occupancy rate since opening in 2002. 
 
Economic Benefit of Baseball Championship Up to $185 
million 
------- 
 
¶25. (U) The regional economic impact of a victory by 
Nagoya's Chunichi Dragons in the Japan Series could be 
up to %22 billion (approx. $185 million) according to 
Mitsubishi UFJ Research & Consulting.  The direct 
impact of a Series victory by the Central Baseball 
League champion Dragons, including tickets and 
increased sales at department stores and supermarkets 
is estimated at %13.2 billion (approx. $111 million), 
and the indirect impact, such as inducement of 
additional production, is pegged at %8.8 billion 
(approx. $74 million).  The Dragons have not won a 
Japan Series in 52 years, explaining the strong 
 
TOKYO 00006012  006 OF 006 
 
 
interest. 
 
Daihatsu Mini-car Sales to Set Record 
------------------------------------- 
 
¶26.  (U)  According to Bloomberg, Osaka mini-car maker 
Daihatsu has revamped its popular Move and Move Custom 
lines in an attempt to beat Suzuki as the largest 
seller of mini-cars, which use engines of 0.66 liters 
or less.  Sales are reportedly on a record pace for 
the firm, as consumers have been shifting to the 
vehicles to combat rising fuel and maintenance costs. 
Owning a mini-car is estimated to save Japanese 
consumers nearly half a million yen (USD 4,000) in 
taxes, insurance and other costs over five years. 
Daihatsu sales are up two percent so far in the 
calendar year.  Toyota Motor Corp. has a 51 percent 
ownership stake in the company. 
 
Northeast Asia Monthly Newsletter 
--------------------------------- 
 
¶27. (U) The Northeast Asia energy officers produce a 
monthly newsletter on regional energy topics.  This 
month's newsletter features a new look courtesy of the 
Seoul Embassy.  If you would like to be included on 
the mailing list please send a note to John Wecker 
mailto:WeckerJA@state.gov 
 
 
SCHIEFFER