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UNCLAS SECTION 01 OF 04 TOKYO 006846 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
PARIS PLEASE PASS USOECD 
DEPT PASS USTR 
 
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. GOJ Backsliding on Triangular Mergers 
¶4. Japan Starts Indonesia EPA Process with Focus on 
Energy 
¶5. ANRE's Arima Outlines Sub-Cabinet Energy Goals 
¶6. Agriculture Minister Seeks to Increase Biofuel 
Production 
¶7. Hokkaido Agriculture Co-op Proposes Japan's Largest 
Ethanol Plant 
¶8. Northeast Asia Energy Newsletter 
¶9. Russia Oil Seminar Reveals Differing Views on Russian 
Energy Policy 
¶10. Yen Exchange Rate and GM and Chrysler Japan; No 
Complaints Here 
¶11. Embassy Attends Corporate Signing Ceremony, Direct 
Outcome of Investment Initiative 
¶12. Japan's "Core" Consumer Price Growth Decelerates 
Again in October, Up Mere 0.1% 
¶13. Recent Major Economic Indicators 
 
¶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 December 1, 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. (SBU) GOJ Backsliding on Triangular Mergers 
--------------------------------------------- - 
 
As we approach the end-game for implementation of new 
rules to facilitate FDI into Japan by allowing cross- 
border M&A through stock swaps ("triangular mergers"), 
the GOJ bureaucracy has begun to backslide and is 
proposing to deny tax deferral for the majority of these 
deals, making the procedure effectively unusable. 
 
This sudden shift in position in the final days before 
the Diet will decide on tax amendments for FY-2007 
contradicts repeated GOJ assurances to the foreign 
business community and to us and, if sustained, would 
cripple the Prime Minister's stated goal of doubling 
inward FDI by 2010. 
 
Japanese companies now have meaningful opportunities to 
acquire U.S. companies via M&A, but, without tax 
deferral, U.S. companies would be unable to acquire 
Japanese firms using all-stock deals. 
 
We will focus last lobbying efforts to overrule the 
bureaucracy on senior political leaders and LDP tax 
committee members and expect to raise this issue at the 
forthcoming sub-cabinet meetings. 
 
4.(SBU) Japan Starts Indonesia EPA Process with Focus on 
Energy 
--------- 
 
Prime Minister Shinzo Abe and visiting Indonesian 
President Susilo Bambang Yudyoyono on November 28 agreed 
in principal on elements of an economic pact that will 
form the basis for a free trade agreement. 
 
If completed, it also will be Japan's first to 
incorporate cooperation over a stable supply of energy 
and mineral resources, in particular, liquefied natural 
gas (LNG). 
 
Japan is the world's largest LNG importer-58 million 
tons in 2005-and Indonesia is Japan's largest supplier 
at about 24 percent. 
 
TOKYO 00006846  002 OF 004 
 
 
 
Indonesia's increased domestic consumption has forced 
the country to reassess whether to renew its current LNG 
supply contracts with Japan, which expire in 2010 and 
¶2011. 
 
Japan is hoping that an EPA by next year would ensure 
Japan continues to receive LNG from Indonesia. 
 
¶5. (SBU) ANRE's Arima Outlines Sub-Cabinet Energy Goals 
----- 
 
Japan's Trade Ministry is looking for USG support to 
ensure a secure world energy supply during next week's 
sub-cabinet meetings in Tokyo. 
 
Agency for Natural Resources and Energy (ANRE) 
International Affairs Division Director Jun Arima 
repeatedly emphasized to us that Japan was looking to 
"send a signal to emerging countries like India and 
China" and wanted a "coordinated approach" with the 
United States. 
 
Arima said that the plan for next week is that MOFA 
Deputy Minister for Economic Affairs Mitoji Yabunaka 
will give a general energy presentation and METI 
International Affairs Vice-Minister Toshiaki Kitamura 
will follow with a discussion of specifics. 
 
The two Ministries wish to make three main points: that 
the United States and Japan must engage China and India 
on energy at multi- and bilateral levels; that new 
investment in energy-producing countries must be fair 
and transparent; and that energy diversification, such 
as the use of clean coal and nuclear energy, must be the 
centerpiece of a global energy strategy.  Arima also 
stressed the need to end energy subsidies. 
 
¶6. (U) Agriculture Minister Seeks to Increase Biofuel 
Production 
---------- 
 
Agriculture Minister Toshikatsu Matsuoka hopes to 
replace ten percent of annual gasoline consumption, 
currently at 60 million kilo liters, with biofuel. 
 
If realized, the target could halt expansion in idle 
farmland -- a rising concern in the aging farming sector 
-- as it would trigger demand for rice, wheat, corn and 
sugarcane. 
 
Under Prime Minister Abe's orders, ministries of Trade, 
Agriculture, Environment, Transportation etc. have begun 
discussions on measures to increase biofuel production. 
A study group aims to draft a time schedule by the end 
of March 2007. 
 
The figures Matsuoka raise are hailed as somewhat 
optimistic, especially by the Ministry of Economy, Trade 
and Industry (METI), the authority for energy policies, 
which pursues in addition to biofuel, other possible 
alternatives for gasoline, such as fuel cells and hybrid 
electric cars etc. 
 
Trade Minister Amari has reportedly mentioned that 
"Japan needs to double the size of its farmland if it 
were to achieve (Minister Matsuoka's) target using sugar 
beets", hinting how difficult this would be. 
 
In the meantime, sensing opportunities, trading firms 
and petroleum related sectors are reportedly starting to 
pursue the possibility of imports from Brazil. 
Experiments for biofuel production that are subsidized 
by the Agriculture Ministry are already underway in six 
locations, including Hokkaido and Okinawa.  However, 
annual turnout is still limited to 30 kiloliters. In 
order to serve as an alternative for gasoline, costs 
need to be cut by streamlining facilities for mass 
production, accelerating technical innovation and 
 
TOKYO 00006846  003 OF 004 
 
 
implementing exemption or reduction in tax rates for the 
fuel. 
 
¶7.  (U) Hokkaido Agriculture Co-op Proposes Japan's 
Largest Ethanol Plant 
--------------------- 
 
Isami Miyata, president of Japan Agricultural 
Cooperatives Central Hokkaido (JACH), announced in late 
October that JACH plans to build a new ethanol testing 
plant by as early as 2009 in the Tokachi region of 
Hokkaido if it receives funding from the Ministry of 
Agriculture, Forestry and Fisheries(MAFF). 
 
The new ethanol plant would be located in the town of 
Shimizu at the center of current LDP Policy Research 
Council Chairman and Former MAFF and METI Minister 
Shoichi Nakagawa's electoral district. If realized, the 
plant would produce 15,000 kiloliters of ethanol 
annually from locally grown sugar beets, rice and wheat, 
making it the largest ethanol plant in the country. 
 
MAFF has included funding in next year's budget for 
three ethanol plants. Sensitive about moving into an 
energy sector traditionally controlled by METI, Tokyo- 
based rather than Hokkaido-based MAFF officials have 
been conducting talks with JACH to see if the proposed 
plant might qualify for this funding. 
 
¶8. (SBU) Northeast Asia Energy Newsletter 
----------------------------------------- 
 
The Northeast Asia energy officers produce a monthly 
newsletter on regional energy topics, attached below. 
If you would like to be included on the mailing list 
please send a note to John Wecker. 
 
(U) Russia Oil Seminar Reveals Differing Views on 
Russian Energy Policy 
--------------------- 
 
Two Russian guest panelists at a November 9 seminar on 
Russian energy strategy in Tokyo displayed starkly 
different views on Moscow's energy policy. 
 
An executive of the energy company Rosneft strenuously 
defended the Russian government and its environmental 
policies, particularly as they relate to the Russian 
island Sakhalin. 
 
A journalist specializing in energy issues had a more 
cynical view of Russian motives and was particularly 
critical of the government's relationship with Russian 
gas major Gazprom. 
 
A Japanese guest panelist, the chief researcher at Japan 
Oil, Gas and Metals National Corporation (JOGMEC) said 
little other than to outline concerns over the Sakhalin 
2 project, the one project out of six on Sakhalin Island 
in which Rosneft has not investment. 
 
For more details please see Tokyo 6758. 
 
¶10. (SBU) Yen Exchange Rate and GM and Chrysler Japan; 
No Complaints Here 
------------------ 
 
Following up on the Big Three automakers' meeting with 
the President last month in Washington, in which they 
complained about an artificially undervalued yen, we met 
with GM and Chrysler Japan to get their perspectives. 
 
Neither company is making an issue of the yen exchange 
rate here.  Their main concerns are to promote their 
premium car sales in Japan, which they anticipate to be 
on the order of several thousand units a year. 
 
We will meet with Ford shortly to get their take as 
well. 
 
TOKYO 00006846  004 OF 004 
 
 
 
¶11. (U) Embassy Attends Corporate Signing Ceremony, 
Direct Outcome of Investment Initiative 
--------------------------------------- 
 
On November 29 we attended a signing ceremony between a 
U.S. high tech company and its Japanese sole agent. 
 
The U.S. company, Ann Arbor-based Coherix Corporation, 
makes high precision measuring equipment for use in 
machine tools.  Its sales focus is on Japan's auto 
manufacturers. 
 
Coherix participated in the Embassy-JETRO sponsored 
investment seminars in Sendai and Yokohama in early 
October. 
 
¶12. (SBU) Japan's "Core" Consumer Price Growth 
Decelerates Again in October, Up Mere 0.1% 
------------------------------------------ 
 
Japan's nationwide "core" CPI, which excludes perishable 
food items, rose 0.1 percent in October from the year 
before, after increases of 0.3 percent in August and 0.2 
percent in September, the Ministry of Internal Affairs 
and Communication (MIC) announced December 1. 
 
¶13. (SBU) Recent Major Economic Indicators 
------------------------------------------ 
 
The Cabinet Office states that Japan's economy has set a 
post-war boom record, although conditions have worsened 
slightly. 
 
The monthly economic report, submitted to the Cabinet on 
November 22, indicated that the economy is in its record 
58th month of growth, exceeding the "Izanagi" boom of 
1965-1970. 
 
The report said that the economy is recovering, despite 
some weakness in consumption.  It added that private 
consumption is almost flat. 
 
The BOJ report, released on November 16, kept unchanged 
its overall assessment, indicating that the economy is 
"expanding moderately." 
 
The BOJ said that domestic private demand is likely to 
continue increasing against the background of strong 
corporate profits, and a moderate rise in household 
income. 
 
As for the outlook, the BOJ expects the economy to 
continue expanding moderately. 
 
 
SCHIEFFER