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FM AMEMBASSY TOKYO
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INFO RUEHFR/AMEMBASSY PARIS 5084
RUEHOK/AMCONSUL OSAKA KOBE 1911
RUEHKSO/AMCONSUL SAPPORO 9601
RUEHNAG/AMCONSUL NAGOYA 8210
RUEHFK/AMCONSUL FUKUOKA 8531
RUEHNH/AMCONSUL NAHA 1066
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 006140 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
PARIS PLEASE PASS USOECD 
DEPARTMENT PLEASE PASS USTR 
 
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. Japan Announces DPRK Sanctions 
Paragraph 11. Abe: Council on Economic and Fiscal 
Policy to be "Engine for Reform" 
Paragraph 18. Japan and Vietnam Agree To Launch FTA 
Negotiations 
Paragraph 22. GE Facing Sanctions 
Paragraph 27. U.S. Telecoms Policy Delegation Meets 
Top Telecoms Leaders in GOJ and Industry 
Paragraph 36. Former Japan Fair Trade Commission 
Secretary- General Discusses Trends in Competition 
 
SIPDIS 
Policy 
Paragraph 38. Wood Products:  Trilateral Technical 
Meetings in Nara 
Paragraph 44. Greater Nagoya Initiative (GNI) Heads to 
the U.S. 
Paragraph 48. Universal Studios Japan May Have Turned 
the Corner on Profitability 
Paragraph 53. Daikin Chairman Inoue Officially Refused 
the Position of Kankeiren Chairman 
Paragraph 58. Fukuoka Bank Another Step Closer to 
Becoming Japan's No. 1 Regional Bank? 
Paragraph 65. BOJ's Tankan Q The Kansai Economy 
Continued to Grow Over Last Three Months 
 
¶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. 
 
Economic Impact Of North Korean Nuclear Test on 
Western Japan 
------------- 
 
¶3. (SBU) Due to GOJ sanctions, cities in western Japan 
with high volumes of trade with North Korea are 
bracing for the economic impact, even as they support 
the sanctions politically. 
 
¶4. (SBU) The local economy of Sakaiminato City, 
Tottori Prefecture, (pop. 37,000), which sees the 
largest amount of North Korean maritime traffic among 
Japanese ports, largely depends on imported fish, 
crabs and matsutake mushrooms from North Korea.  Fish 
processing is a major industry in Sakaiminato and 
there are many related businesses such as can makers, 
box makers, and shipping companies.  Without the North 
Korean business, these industries are headed for a 
crisis. 
 
¶5. (SBU) According to a Sakaiminato city official, 
over 50 percent of the city's economy is dependent on 
fish products from North Korea.  In contrast, in the 
second largest market for DPRK ship traffic, the Port 
of Maizuru in Kyoto Prefecture, only about 7 percent 
of the local economy depends on North Korean imports. 
 
¶6. (SBU) For the nation the economic impact will be 
limited to a potential increase in prices for luxury 
food items, but in Tottori this will be another blow 
to the prefecture's economic health, already reeling 
from the aging crisis, unemployment and high public 
debt levels. 
 
¶7. (SBU) The next problem for regional economies is 
the GOJ Fishing Agency prohibition on crabbing boats 
trawling for their own catch near North Korean 
territorial waters.  Crab from the northern edge of 
 
TOKYO 00006140  002 OF 007 
 
 
the Sea of Japan is a lucrative product during the 
fall and winter seasons. 
 
¶8. (SBU) Despite the economic costs, the political 
mood, for the moment, is supportive of sanctions. 
Sakaiminato's maritime products industry is going 
along with the GOJ's DPRK policy without complaints. 
 
¶9. (SBU) Sakaiminato Mayor Katsuji Nakamura announced 
on October 10 that the city would dissolve its 
"friendship city" relationship (the only such 
relationship in Japan) with the North Korean city of 
Wonsan, which was launched in 1992.  The mayor 
rebuffed city assembly attempts to merely "freeze" 
ties to the North. 
 
¶10. (SBU) A city official, however, noted that over 
time opposition to sanctions would grow. 
 
Abe: Council on Economic and Fiscal Policy to be 
"Engine For Reform" 
------------------- 
 
¶11. (U) The Council on Economic and Fiscal Policy 
(CEFP) met for the first time with its new membership 
on Friday, October 13, as council chair Prime Minster 
Abe urged the CEFP to "consider promptly the course of 
reform so that we can achieve further economic 
growth," and underscored that, "I would like the CEFP 
to become the main engine for reform."  Prime Minister 
Abe further instructed the CEFP to finalize a five- 
year reform framework by January. 
 
¶12. (U) The CEFP's new non-government members -- Japan 
Business Federation Chairman Fujio Mitarai, Itochu 
Corp. Chairman Uichiro Niwa, University of Tokyo 
graduate school professor Takatoshi Ito, and 
International Christian University professor Naohiro 
Yashiro -- called for "concentrated reform" for the 
first two and a half years so that Japan can complete 
its shift to a new growth path in about five years. 
 
¶13. (U) The proposal also listed issues that need to 
be addressed in seven areas, including productivity 
improvement and deregulation.  CEFP members agreed to 
set specific topics for "intensive deliberation", such 
as decentralization of the national government. 
 
¶14. (U) Local press noted that the role of the 
minister for economic and fiscal policy seems to have 
changed from "group leader to host," suggesting that 
the Abe government aims to strengthen the policy- 
making capabilities of the Prime Minister's Office. 
 
¶15. (U) Indeed, we've been told that Cabinet Advisor 
Nemoto (one of five such advisors appointed by PM Abe 
to handle key policy objectives) will participate in 
council meetings in a non-voting capacity and will be 
particular focused on the committee's review of growth 
policies. 
 
¶16. (U) During former Prime Minister Koizumi's tenure, 
the CEFP addressed the final cleanup of the banking 
sector's non-performing loan problem, assessed road 
construction revenue, and directed cuts to public 
works spending. 
 
¶17. (U) Whether or not the CEFP can take on an 
economic reform leadership role should bureaucrats re- 
assert policy influence under the new administration 
promises to be an ongoing question. 
 
Japan and Vietnam Agree to Launch FTA Negotiations 
--------------------------------------------- ----- 
 
¶18. (U) Following an October 19 meeting between Prime 
Minister Shinzo Abe and Vietnamese Prime Nguyen Tan 
Dong, the two governments announced plans to begin 
negotiations on an "economic partnership agreement" 
 
TOKYO 00006140  003 OF 007 
 
 
(EPA, essentially a free trade agreement).  The first 
negotiating session is expected in January 2007. 
 
¶19. (U) In their joint statement, Abe and Nguyen put 
forward a goal of nearly doubling bilateral trade from 
8.5 billion USD in 2005 to 15 billion USD by the year 
¶2010. 
 
¶20. (U) The two sides also recognized the growing 
importance of intellectual property protection and 
called for greater cooperation in this field in order 
to attract investment and stimulate market growth. 
 
¶21. (U) Although most likely regarded by the Japanese 
as a way to improve the investment environment in 
Vietnam for Japanese business, the EPA with Vietnam, 
if successful, would mark Japan's first agreement with 
a transitional economy, thus establishing a conceptual 
framework for possible negotiations with China in the 
future. 
 
GE Facing Sanctions 
------------------- 
 
¶22. (SBU) Citing a violation of anti-harassment 
Article 21 of the Money Lending Business Law, the 
Financial Services Agency (FSA) is poised to impose 
sanctions on GE Consumer Finance's collection 
business. 
 
¶23. (SBU) GE representatives reported that among 1.5 
million collections calls made in April, in a case of 
human error, one call was made erroneously to a 
delinquent borrower's workplace, following a previous 
request by the borrower not to contact him at work. 
Though the GE representative left no message or return 
number, the borrower surmised the nature of the call 
and made an official complaint to the local finance 
bureau. 
 
¶24. (SBU) GE reports that in subsequent consultations, 
the FSA cited Article 21's language prohibiting 
"intimidation, harassment, and embarrassment," 
excessive calls, and third-party disclosure as 
justification for their inquiry. 
 
¶25. (SBU) Although the FSA lauded GE's compliance 
practices, the FSA informed GE that "a violation is a 
violation," and is reportedly planning to shut down GE 
Consumer Finance's nationwide collections operations 
for five days, a sanction that GE estimates will cost 
them $1.5-$2 million. 
 
¶26. (SBU) GE contacts noted, "this decision could be 
political blowback," acknowledging GE's active role in 
the debate over pending interest-rate cap legislation. 
 
U.S. Telecoms Policy Delegation Meets Top Telecoms 
Leaders in GOJ and Industry 
--------------------------- 
 
¶27. (U) The U.S. Telecommunications Policy group, 
including FCC Chairman Kevin Martin, Ambassador David 
Gross, Coordinator for International Communications 
and Information Policy, and John Kneuer, Assistant 
Secretary and National Telecommunications and 
 
SIPDIS 
Information Administration, U.S. Department of 
Commerce met with Ministry of Internal Affairs and 
Communications (MIC) officials, including the new 
Minister, Yoshihide Suga, and the leaders of Japan's 
telecommunications industry in Tokyo, October 16-18. 
 
¶28. (U) Bilateral consultations focused on 
coordinating U.S.-Japan positions before the upcoming 
annual International Telecommunications Union (ITU) 
meetings (budget, elections, future role and structure 
of ITU). 
 
¶29. (U) The two governments also discussed their 
 
TOKYO 00006140  004 OF 007 
 
 
approaches to new regulatory issues such as VoIP 
(voice over internet protocol), IPTV (internet 
protocol TV), and changes in the broadband and mobile 
phone markets. 
 
¶30. (U) In meetings with the Presidents and CEOs of 
all of Japan's major fixed and mobile phone operators 
and internet providers, as well as the new entrants -- 
NTT, DoCoMo, KDDI, Softbank, and eAccess -- the 
delegation discussed the differences in the U.S. and 
Japanese telecoms markets, regulatory obstacles, and 
new technologies. 
 
¶31. (U) All of NTT's competitors agreed that NTT is 
trying to resume its monopoly status via its control 
of FTTH (fiber to the home). 
 
¶32. (U) The delegation visited showrooms demonstrating 
Japan's latest phones and gadgets and some ideas the 
companies are working on for the future. 
 
¶33. (U) ACCJ leaders told the delegation that the 
strength of the dominant carriers still impedes 
competition in Japan and keeps prices high. 
 
¶34. (U) They also expressed concerns about the 
continuing tendency of Japanese regulators and 
manufacturers to develop proprietary standards, the 
lack of investment in healthcare IT, and the fact that 
the consumer finance industry was singled out as 
ineligible to use e-notification under GOJ rules. 
 
¶35. (U) Although U.S. companies are much less 
concerned now about the enforcement of the GOJ's new 
privacy regulations, they are worried that as each 
country develops its own privacy policy, the cost will 
go up for multinationals.  One suggestion was to 
develop a framework for a model Asian privacy policy 
for countries to use. 
 
Former Japan Fair Trade Commission Secretary-General 
Discusses Trends in Competition Policy 
-------------------------------------- 
 
¶36. (U) Former Japan Fair Trade Commission (JFTC) 
Secretary-General Akinori Uesugi (now a senior 
 
SIPDIS 
consultant for the law firm of Freshfields, Bruckhaus, 
Deringer) told EMIN Klemm October 13 that the JFTC 
hoped to gain greater discretion in the use of its 
authority, notably the application of punitive 
surcharges, through the mandatory review of the 
Antimonopoly Act (AMA) that will take place in 2008. 
 
¶37. (U) Uesugi was pleased and somewhat surprised at 
the efficacy to date of the amendments to the AMA that 
went into effect at the beginning of this year, 
particularly the leniency program that encourages 
companies involved in bid rigging to inform on their 
partners in crime in the hope of avoiding surcharges. 
 
Wood Products: Trilateral Technical Meetings in Nara 
--------------------------------------------- ------- 
 
¶38. (U) The U.S., Japan, and Canada held annual 
trilateral technical meetings October 11-12 on wood 
products in Nara. 
 
¶39. (U) The Ministry of Land, Infrastructure and 
Transport (MLIT) represented Japan in the Building 
Experts Committee Meeting (BEC) and the Ministry of 
Agriculture, Forestry and Fisheries led Japan's 
participation in the Agricultural Standards Technical 
Committee meeting (JASTC). 
 
¶40. (U) The BEC meeting focused on construction and 
building codes, including fire and earthquake related 
standards, as they relate to building products.  Among 
the topics, GOJ officials explained how they were 
addressing recent building code scandals. 
 
TOKYO 00006140  005 OF 007 
 
 
 
¶41. (U) The JASTC meeting focused on the JAS quality 
labeling system that applies to various wood products 
such as flooring, panels, glued laminated timber, and 
lumber. 
 
¶42. (U) The meetings, considerably less contentious 
than in past years, have been held annually for 18 
years and are used to share information and resolve 
existing or potential trade barriers for wood 
products. 
 
¶43. (U) The U.S. delegation consisted of members from 
FAS, FCS and industry. 
 
Greater Nagoya Initiative (GNI) Heads to the U.S. 
--------------------------------------------- ---- 
 
¶44. (U) The Greater Nagoya Initiative (GNI), Central 
Japan's combined effort to attract FDI, will send its 
first mission to the U.S. November 6 to 12 to promote 
business ties and partnerships between the U.S. and 
the region. 
 
¶45. (U) The mission is led by Gifu Governor Hajime 
Furuta and includes about a dozen others from various 
local government organizations and the private sector, 
including Chubu METI Director General Kiichiro Sato 
and Toyota Senior Advisor (former executive vice 
president) Kanji Kurioka. 
 
¶46. (U) The GNI will hold a seminar and exhibition in 
San Francisco November 6, with the assistance of Sun 
Microsystems, which has an office at the "Softopia 
Advanced Information Hub" in Gifu. 
 
¶47. (U) The delegation will also participate in the 
"JETRO Business Strategy Forum 2006" in Santa Clara 
November 7, at which U.S. participants include APEC 
Ambassador Mike Michalak before heading elsewhere in 
Silicon Valley and to Washington, DC, to meet with 
Greater Washington Initiative counterparts. 
 
Universal Studios Japan May Have Turned the Corner on 
Profitability 
------------- 
 
¶48. (U) After 5 years of operations, Universal Studio 
Japan (USJ) is finally reducing its debt levels and 
may move into the black. 
 
¶49. (U) Although for most of its existence it was a 
member of Osaka City Government's money-losing quasi- 
public enterprises club, the facility experienced a 
dramatic turnaround after a 25 billion yen capital 
infusion by Goldman Sachs and Japanese banks last 
summer and having a reorganization plan.  Starting in 
2004, Goldman-affiliated President Glenn Gumpel worked 
on cutting costs and boosting management efficiency. 
USJ is studying plans to list on the Mothers stock 
market of the Tokyo Stock Exchange. 
 
¶50. (U) The company posted a pretax loss of 500 
million yen in FY 2005, an improvement from a loss of 
3.1 billion the previous year.  Also, this year, USJ 
made its largest investment, 4-6 billion yen over two 
years, for a new roller coaster. 
 
¶51. (U) The company remains concerned over how to 
increase attendance.  Attendance in FY 2005 was 8.3 
million people, a three percent increase from 2004, 
largely attributed to special discount packages and 
park annual passes. 
 
¶52. (U) A USJ official said that it is hard to 
increase attendance without continuing those one-time 
measures.  He said that, although the park's balance 
sheet improved by cost cutting last year, USJ would 
need to grow its visitor base in order to achieve 
 
TOKYO 00006140  006 OF 007 
 
 
sustainable profit levels in the future. 
 
Daikin Chairman Inoue Officially Refused the Position 
Of Kankeiren Chairman 
--------------------- 
 
¶53. (SBU) Daikin Industries Ltd. Chairman Noriyuki 
Inoue, Vice Chairman of Kansai Economic Federation 
(Kankeiren), firmly refused to take over the helm of 
the business lobbying organization after current Chair 
Akiyama retires in May 2007. 
 
¶54. (SBU) Mr. Inoue was the main candidate being 
considered for the post.  According to press accounts 
and Kankeiren officials, the news came as a bombshell 
to Kankeiren's secretariat.  Mr. Inoue mentioned that 
he would like to concentrate on his business in 
Daikin. 
 
¶55. (SBU) Other candidates now include Mr. Tsutomu 
Okuda, Chairman of Daimaru Co., Ltd. (former Co- 
Chairman of Kansai Keizai Doyukai) and Mr. Yoshio 
Tateishi, Chairman of Omron.  According to Kankeiren 
staff, Chairman Akiyama is now considering whether to 
look for other candidates or continue to urge Inoue to 
reconsider. 
 
¶56. (SBU) The post of Kankeiren's Chairman used to be 
competitive among Kansai business leaders.  Past 
chairmen had strong relationships with GOJ and Diet 
members, and the position was very important in 
charting economic growth in the Kansai.  After the 
economy declined, the region's major companies turned 
inward to concentrate on their own businesses at the 
expense of leadership of business organizations like 
Kankeiren. 
 
¶57. (SBU) Ironically, many of the Osaka business 
leaders who could pilot Kankeiren have moved to Tokyo 
already and are involved in Keidanren in the capital- 
despite the fact that Kankeiren was established 60 
years ago as a foil to Keidanren in Tokyo. 
 
Fukuoka Bank Another Step Closer to Becoming Japan's 
No. 1 Regional Bank? 
-------------------- 
 
¶58. (SBU) On October 13, Bank of Fukuoka (BOF), 
Kyushu's largest bank, announced plans to become the 
leading shareholder of Kyushu-Shinwa Holdings Inc. 
(KSH), a midsize regional bank based in Sasebo, 
Nagasaki. 
 
¶59. (SBU)  According to post's local banking contacts, 
Tokyo-based investment fund J-Will Partners Co. (JWP), 
run by a former Goldman Sachs (GS) Japan managing 
director, initiated the tie-up scheme.  Together, BOF 
and GS will invest 30 billion yen to rehabilitate the 
ailing KSH. 
 
¶60. (SBU) With nonperforming loans accounting for well 
over 10 percent of its portfolio, KSH had been facing 
difficulty in repaying 30 billion yen in public funds 
on its own.  As a result, it had no choice but to seek 
capital and business alliances with stronger partners 
such as BOF and JWP, both of whom have a good track 
record of turning Kyushu businesses around through 
jointly established rehabilitation funds. 
 
¶61. (SBU) Nagasaki Governor Kaneko and Sasebo Mayor 
Mitsutake have welcomed the news, and are hoping that 
the tie-up will contribute to greater financial and 
economic stability throughout Nagasaki prefecture. 
 
¶62. (SBU) The alliance with KSH is another example of 
BOF's aggressive expansion strategies, which includes 
BOF and Kumamoto Family Bank setting up a joint 
holding company "Fukuoka Financial Group (FFG)" in 
April 2007. 
 
TOKYO 00006140  007 OF 007 
 
 
 
¶63. (SBU) If KSH joins FFG in the future, their 
combined assets of 11.5 trillion yen will enable them 
to surpass the Bank of Yokohama as Japan's largest 
regional financial group. 
 
¶64. (SBU) Increasing competition from Tokyo-based mega 
banks, possible future implementation of "doshusei" 
(which will convert Japan's 47 prefectures into 9-13 
larger regional blocs), and Japan's postal 
privatization in October 2007 are among the major 
factors behind BOF's campaign to pro-actively engage 
in the accelerating regional bank consolidation now 
taking place across prefectural borders in many parts 
of Japan. 
 
BOJ's Tankan -- The Kansai Economy Continued to Grow 
Over Last Three Months 
---------------------- 
 
¶65. (U) According to Osaka Branch of the BOJ, there 
was good news from the diffusion index for all 
industries in the Kansai's six prefectures, which at 
an 8 percent score, beat the national average of 6 
percent.  However, compared to the last period (April 
- June), it dropped 2 percent.  Manufacturing is still 
booming, but oil prices made the non-manufacturing 
sector slow down. 
 
¶66. (U) The director of the Osaka City Credit Union 
Research Institutes predicted that in the last quarter 
of CY 2006 the Kansai economy would continue to slow 
due to rising interest rates stemming from the end of 
the zero-interest-rate policy, which would exert 
pressure on business activities, and reduce the demand 
for housing purchases. 
 
¶67. (U) Most of the businesses in the Kansai are 
becoming increasingly cautious about expanding their 
operations given talk of a potential slow down of the 
U.S. economy and rising interest rates. 
 
SCHIEFFER