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INFO RUEHFR/AMEMBASSY PARIS 5107
RUEHOK/AMCONSUL OSAKA KOBE 2094
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RUEHNAG/AMCONSUL NAGOYA 8352
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RUEHNH/AMCONSUL NAHA 1211
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 05 TOKYO 006384 
 
SIPDIS 
 
DEPT PASS USTR 
 
SIPDIS 
 
SENSITIVE 
 
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 
 
¶3. Keidanren to Call for FTA with U.S. 
¶4. Embassy Meets with GOJ Officials on Triangular 
Merger Issues 
¶5. Louisiana Governor Leads Trade Mission to Japan 
¶6. DPJ Member and Agriculture Expert Matsushita Voices 
Support for Cooperation on Food Safety 
¶7. MAFF Needs to Reduce Stocks of Imported Rice, Board 
of Audit Says 
¶8. Central Bank Holds Steady on Previous Growth 
Forecast 
¶9. Japan's Core Consumer Price Growth Decelerates 
Slightly to 0.2% in September 
¶10. Slight Rise in Unemployment Seen as Within Normal 
Volatility 
¶11. United Airlines Begins 1st Non-stop Narita-DC 
Service; Amb. Attends Ceremony 
¶12. American Chamber of Commerce Japan Pushes for 
Expanded BizAir 
¶13. Road Transport Vehicle Law - Devil Is In The 
Details 
¶14. Former Amb. Makoto Taniguchi on Japan, Asia and 
FTA 
¶15. Microsoft Helping to Upgrade Sapporo's IT Industry 
 
¶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 November 2, 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. 
 
¶3. (U) Keidanren to Call for FTA with U.S. 
------------------------------------------ 
 
The Japan Business Federation (Nippon Keidanren) will 
formally propose later this month that the GOJ 
negotiate an Economic Partnership Agreement with the 
U.S. according to media reports.  This is the first 
time the Federation has taken a formal position on 
this issue. 
 
The stories also said Keidanren chairman Fuijo Miterai 
plans to travel to the U.S. early next year to discuss 
the proposal with U.S. governmental and business 
leaders. 
 
Among the priorities Keidanren reportedly will include 
in its proposal are, unification of rules for 
protection of intellectual property rights and 
environmental standards as well as streamlining of 
investment rules, business licensing and business 
travel regulations. 
 
On the agricultural issue, the reports said Keidanren 
would call for measures to ensure "food security" in 
line with expected greater market opening for U.S. 
agricultural products. 
 
We note the inconsistency of Keidanren urging a closer 
economic partnership with the U.S. at the same time it 
is urging the GOJ to tighten regulation of cross 
border M&A (see JES 10/27/06) and will explore this 
inconsistency and seek other details of Keidanren's 
proposal in meetings with senior Federation officials 
in the weeks ahead. 
 
¶4. (SBU) Embassy Meets with GOJ Officials on 
Triangular Merger Issues 
 
TOKYO 00006384  002 OF 005 
 
 
------------------------ 
 
Econ Section met this week with both METI and MOJ 
officials working directly in the triangular mergers 
issue and began outreach to Diet members to impress on 
them the importance to Japan's investment climate of 
allowing a variety of cross border M&A. 
 
METI has taken a very public position opposing 
Keidanren's proposal for strict controls on the use of 
foreign stocks in triangular mergers. 
 
Mid-level METI officials in the International 
Organizations Bureau are in daily contact with 
Embassy.  They confirmed to us that Keidanren is split 
on the issue, with Federation Chairman Mitarai and two 
key Vice Chairmen (including one representing the 
steel industry) the strongest supporters. 
 
Mitarai told METI the issue has become a "symbol" of 
the threat of hostile takeovers and that he believes 
many Japanese companies have not yet implemented 
appropriate defensive measures. 
 
Senior METI officials, including Minster Amari have 
met with Mitarai and told him directly METI cannot 
support the Federation's position.  The two sides have 
"agreed to disagree." 
 
MOJ, which is responsible for drafting and 
implementing the governmental ordinances on the 2005 
Company Law, is taking a far more cautious stand. 
 
The Ministry has made no public statements and at the 
October 31 Investment working group DVC, MOJ 
representatives would only say they are awaiting the 
outcome of public discussion on the issue and were 
"willing to listen to all sides." 
 
Privately, however, they were more forthcoming. 
Senior attorneys in the Ministry's Civil Affairs 
Bureau told us the relevant ordinance was finalized 
month ago.  No further action is necessary to allow 
cross border triangular merger regulations to take 
effect as of May 1, 2007.  An MOJ official made clear 
this was the Ministry's preferred outcome.  "We had 
expected it would be in effect by this time." 
 
The one-year delay in implementation was a political 
compromise between the government and the LDP at the 
behest of Keidanren.  The same MOJ official appealed 
for understanding of the "difficult position the 
Ministry is in" now that Keidanren has renewed its 
opposition to the rule.  He could not rule out a new 
political decision within the ruling party acceding to 
Keidanren' request, which MOJ would have to follow. 
 
Meanwhile, the Econ Section has begun outreach to Diet 
members on the LDP Judicial Affairs Committee and its 
Commercial Law subcommittee.  Mitarai will reportedly 
meet with relevant Vice Chairs as early as the 13th to 
discuss this issue with a policy council meeting 
possible on November 21. 
 
¶5. (U) Louisiana Governor Leads Trade Mission to Japan 
--------------------------------------------- --------- 
 
Louisiana Governor Kathleen Blanco arrived in Japan 
October 31 on a trade mission. 
 
Her delegation is meeting with GOJ and senior 
corporate officials here to drum up business for 
Louisiana and to inform the Japanese of financial 
incentives set up to attract investment in the state 
after Hurricane Katrina. 
 
Key sections from the Embassy briefed the Governor and 
several officials from the Louisiana Office of 
 
TOKYO 00006384  003 OF 005 
 
 
Business Development on November 1 at the outset of 
their visit. 
 
¶6. (SBU) DPJ Member and Agriculture Expert Matsushita 
Voices Support for Cooperation on Food Safety 
--------------------------------------------- 
 
EMIN met with Upper House member Shinpei Matsushita on 
November 3 and raised possible collaboration between 
the U.S. and Japan on adopting food safety measures 
based on sound science and international standards. 
 
EMIN explained that the issue, already a point of 
concern for U.S. exporters, is something their 
Japanese counterparts could face in third countries if 
the GOJ's effort to expand food exports is successful. 
 
Matsushita welcomed the idea saying that it was 
important for the two countries to collaborate on a 
bilateral level. 
 
He acknowledged countries should observe international 
standards in general, but also pointed out the need to 
offer special differential treatment for developing 
countries, as these countries need such measures to 
protect specific agriculture commodities. 
 
Matsushita who is a member of the Upper House 
Committee on Agriculture, participated in a May 2006 
Embassy program that sent four younger Diet Members to 
Washington on a five day study program.  Pictures from 
the trip take up a prominent place in Matsushita's 
office. 
 
¶7.  (U) MAFF Needs to Reduce Stocks of Imported Rice, 
Board of Audit Says 
------------------- 
 
The Board of Audit, Japan's equivalent of the GAO, 
reports that the expanding inventory of imported rice 
has become a financial burden -- 2 mmt costing roughly 
$144 million annually -- and is urging the Ministry of 
Agriculture, Forestry and Fisheries (MAFF) to take 
action to reduce it. 
 
In response, in July MAFF started to release old 
import stocks to the feed sector, given its mandate to 
keep imported rice out of the food/table market. 
MAFF expects to release about 25,000 mt per month 
through June 2007.  U.S. rice makes up 63.5 percent of 
MAFF's stocks. 
 
¶8. (U) Central Bank Holds Steady on Previous Growth 
Forecast 
-------- 
 
In their semi-annual "Outlook for Economic Activity 
and Prices," Bank of Japan (BOJ) Policy Board members 
maintained their assessment laid out in last April's 
report, noting that "Japan's economy is likely to 
achieve sustainable growth under price stability." 
 
The BOJ's core CPI inflation and growth projections 
were more or less in line with those of private 
analysts.  Board members projected "core" CPI 
increases of 0.3 percent in FY06 (April 2006 to March 
2007) and 0.5 percent in FY07.  They also projected 
real GDP growth of 2.4 percent in FY06 and 2.1 percent 
in FY07. 
 
In the "Outlook," Board members expressed the view 
that Japan's positive output gap is "increasing at a 
moderate pace," and projected that over time the 
growth rate is likely to slow toward its potential 
growth rate of about 1.5-2.0 percent. 
 
¶9. (U) Japan's Core Consumer Price Growth Decelerates 
Slightly to 0.2% in September 
 
TOKYO 00006384  004 OF 005 
 
 
----------------------------- 
 
Japan's nationwide "core" CPI (excluding perishable 
food items), rose 0.2 percent in September from the 
year before, having increased 0.3 percent in August, 
the Ministry of Internal Affairs and Communication 
(MIC) announced October 27. 
 
¶10. (SBU) Slight Rise in Unemployment Seen as Within 
Normal Volatility 
----------------- 
 
The seasonally adjusted unemployment rate ticked up 
slightly in September to 4.2 percent.  Noting that 
voluntary employment departures rose while job-related 
departures fell, one private sector analyst argued the 
rise was within normal monthly volatility and called 
it a sign of the labor market's tightness.  His 
analysis continues to forecast unemployment eventually 
falling below 4 percent. 
 
¶11. (U) United Airlines Begins 1st Non-stop Narita-DC 
Service; Amb. Attends Ceremony 
------------------------------ 
 
United Airlines inaugurated its first Tokyo-Washington 
Dulles daily non-stop service from Narita on October 
¶28.  Amb. Schieffer attended the ceremony at the 
invitation of United. 
 
This route will replace United's Narita-New York 
service and allow United to use its Dulles hub, 
routing more passengers onto other United flights to 
other U.S. destinations. 
 
¶12. (U) American Chamber of Commerce Japan Pushes for 
Expanded BizAir 
--------------- 
 
The American Chamber of Commerce in Japan (ACCJ) 
issued a policy paper this week calling on the 
Japanese government to support the growth of business 
aviation in Japan.  Business aviation in Japan lags 
behind other countries, and the ACCJ paper urges the 
GOJ and the Ministry of Land, Infrastructure and 
Transport (MLIT) to revise policies and regulations 
that restrict the development of business aviation 
here. 
 
¶13. (U) Road Transport Vehicle Law - Devil Is In The 
Details 
------- 
 
Representatives from General Electric's Fleet Vehicle 
Division told Econoff, while legislation amending the 
Road Transport Vehicle Law (RTVL) was passed in May 
2006 that allows "one stop omnibus" registration of 
fleet vehicles, MLIT has given itself five plus years 
to develop and roll-out the actual implementation, 
leaving fleet owners stuck with a registration system 
with which they cannot comply. 
 
This issue continues to be a subject of bilateral 
discussions in the U.S. - Japan Regulatory Reform 
talks.  GE plans to continue to lobby for early 
implementation of the law and has also submitted a 
viewpoint on the issue that will be incorporated in 
ACCJ's business whitepaper. 
 
¶14. (U) Former Amb. Makoto Taniguchi on Japan, Asia 
and FTA 
------- 
 
Professor Makoto Taniguchi -- currently a president of 
Iwate Prefectural University and formerly Deputy 
Secretary-General of the OECD and Ambassador 
 
SIPDIS 
Extraordinary and Plenipotentiary and Deputy 
Representative of Japan to the UN -- gave a talk on 
 
TOKYO 00006384  005 OF 005 
 
 
the East Asian Community and Sino-Japanese relation at 
the International Economic Research Center on October 
20th. 
 
He said that the lack of coordination in the recent 
years between Japan and China is the reason why an 
East Asian Community has not been realized.  He noted 
that Japan is mainly to blame for the situation in 
Asia, and the absence of a long-term foreign policy by 
MOFA is the fundamental reason that Japan is and will 
be falling behind in the wave of FTAs. 
 
For Asian regionalism, he said that ASEAN+3 is the 
original formation that should be pursued and 
countries such as Australia, New Zealand and India 
should remain as observers.  They are not "East Asian" 
countries. 
 
¶15. (U) Microsoft Helping to Upgrade Sapporo's IT 
Industry 
-------- 
 
Microsoft Japan is creating a special training program 
in Sapporo on embedded software essential for 
upgrading mobile phone and digital electric 
appliances. 
 
In collaboration with the city of Sapporo and the 
Sapporo Electronics and Industries Cultivation 
Foundation, Microsoft is now providing direct training 
to local software engineers who will eventually take 
over teaching of the course.  Beginning in 2007, the 
training program plans to graduate 30 new software 
engineers every year. 
 
This is the first time Microsoft is offering such a 
training program in Japan.  The company and local 
leaders hope the program will help encourage long term 
development of Sapporo's IT community and slow the 
trend towards outsourcing to China. 
 
Specifically, Sapporo Mayor Ueda hopes that over ten 
years, the program will help create 600 companies, 
30,000 employees and sales of $85 billion for Hokkaido 
IT-related industries. 
 
If successful, Microsoft plans to expand this training 
program to other parts of Japan. 
 
SCHIEFFER