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RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 06 TOKYO 007023 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PASS USTR 
PARIS PLEASE PASS USOECD 
 
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. Japan and Australia Agree to Begin Talks on Free 
Trade Agreement 
¶4. Hokkaido Farmers Protest Japan-Australian EPA 
Negotiations 
¶5. PMs Singh, Abe Likely to Announce EPA Negotiations 
¶6. Sec. Bodman, METI Minister Amari Agree to Cooperate 
on Energy Security 
¶7. IEA Selects Tanaka as Next Executive Director 
¶8. 2007 Tax Code Revisions Hammered Out 
¶9. Diet Cuts Cap on Consumer Loan Rate & Creates 
Designated Credit Bureau 
¶10. Miyazaki Bid-rigging Scandal: Has the Scale Tipped? 
¶11. ACCJ Healthcare Services Sub-Committee Meets to 
Discuss Priorities 
¶12. Ford Japan; Yen-Dollar Exchange Rate Not Raised Here 
¶13. New Haneda Airport Runway Plan Likely to be Delayed 
¶14. ANA Sells Domestic Hotels to Solidify Lead Over JAL 
¶15. Civil Aviation:  Japanese Reservations about EU 
Emission Trading Scheme 
¶16. BOJ December "Tankan" Survey -- Slight Improvement 
in Business Sentiment 
¶17. Red Sox Land Matsuzaka; New Dynasty Emerging in 
Boston 
 
¶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 15, 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) Japan and Australia Agree to Begin Talks on Free 
Trade Agreement 
--------------- 
 
Prime Minister Shinzo Abe and his Australian 
counterpart, John Howard, agreed officially to enter 
talks on a free trade agreement in a December 12 
telephone call. 
 
The decision follows release of a joint feasibility 
study pointing to the economic upside of inking a deal. 
 
Japan hopes to acquire stable energy and mineral 
supplies from Australia with an FTA, while Australia 
looks to boost market access for its food and 
agriculture commodities (see Canberra 1984). 
 
Chief Cabinet Secretary Shiozaki hailed the agreement 
for potentially strengthening "strategic ties between 
the two countries." 
 
One GOJ official reportedly mentioned that negotiations 
with Australia are meant to serve as a case study for 
future agreements with the United States or China, which 
supply more agricultural products to Japan than 
Australia. 
 
Most print media coverage of the announcement, apart 
from the Japan Agricultural News, an industry paper, was 
low key. 
 
The general view is that negotiations will move slowly, 
with agricultural interest groups putting up a stiff 
defense. 
 
The ruling Liberal Democratic Party's calculations 
reportedly show that the effect on Japan's farming 
districts would total about three trillion yen. 
 
 
TOKYO 00007023  002 OF 006 
 
 
A resolution passed by the Agriculture Committee in the 
Diet calls for negotiators to create exceptions on a 
number of sensitive items, including rice, beef, wheat, 
sugar and dairy products. 
 
The resolution, supported by both the ruling and the 
opposition parties, says that if Australia balks at 
identifying a range of sensitive items Japan should halt 
the talks. 
 
4.(U) Hokkaido Farmers Protest Japan-Australian EPA 
Negotiations 
------------ 
 
As the GOJ plans to begin negotiations with Australia on 
an economic partnership agreement (EPA), Hokkaido 
farmers are already mobilizing to oppose it. 
 
On December 9, the Hokkaido Japan Agricultural 
Cooperatives Youth Group rallied at JR Sapporo Station 
to express their opposition to EPA negotiations and 
promote Hokkaido-produced agricultural products. 
 
On December 11, members of the Hokkaido Farmers 
Federation held a "Dead Set Against Japan/Australia EPA 
Negotiations" rally in the central Hokkaido city of 
Obihiro.  About 1,700 farmers from across Hokkaido 
gathered for loud demonstrations that received media 
coverage across the region. 
 
Last week, the Hokkaido Prefectural Department of 
Agriculture announced that proposed tariff reductions on 
the prefecture"s four major agricultural products 
(wheat, dairy products, sugar beets and beef) will 
result in the worst economic impact in recent memory. 
Officials claim Hokkaido"s GDP will shrink by 4.2% ($7 
billion) and the unemployment rate will increase by 3.2 
percentage point as 47,000 farmers will lose their jobs. 
 
¶5. (SBU) PMs Singh, Abe Likely to Announce EPA 
Negotiations 
------------ 
 
During Indian Prime Minister Singh's December 13-16 
visit to Japan, he and PM Abe will likely announce the 
start of negotiations toward an economic partnership 
agreement, according to government officials and press 
reports. 
 
The EPA would be one of several measures designed to 
improve Japanese-Indian political, economic, cultural, 
and international diplomatic cooperation.  See Tokyo 
6926 for details. 
 
¶6. (SBU) Sec. Bodman, METI Minister Amari Agree to 
Cooperate on Energy Security 
---------------------------- 
 
Energy Secretary Samuel Bodman met with Minister of 
Economy, Trade and Industry Akira Amari on December 12 
to discuss energy security in Northeast Asia prior to 
the Beijing Energy Ministerial in Beijing on December 
¶16. 
 
Amari emphasized the importance of diversifying 
resources with particular emphasis on nuclear energy. 
He noted existing U.S.-Japan cooperation in the Global 
Nuclear Energy Partnership (GNEP) and said he hoped to 
see U.S.-Japan cooperation on the construction of new 
nuclear power plants in the United States. 
 
Amari also raised the need to improve the investment 
environment in energy-producing countries as well as the 
need to improve world-wide energy efficiency and 
emergency measures during energy crises. 
 
Bodman welcomed Amari's call for joint cooperation in 
energy security and suggested that the Beijing meeting 
would be an excellent venue for engaging China and 
 
TOKYO 00007023  003 OF 006 
 
 
India. 
 
He also praised Japan's world class energy saving 
efforts and called for Japan to lead the rest of the 
world in improving energy efficiency. 
 
¶7. (SBU) IEA Selects Tanaka as Next Executive Director 
--------------------------------------------- --------- 
 
The Governing Board of the International Energy Agency 
(IEA) in a meeting in Sydney, Australia, announced the 
selection of Nobuo Tanaka as the next Executive Director 
of the Agency. 
 
He will succeed Frenchman Claude Mandil who completes 
his term in August 2007. 
 
Tanaka joined the Ministry of Economy, Trade and 
Industry (METI) during the first oil crisis in 1973 with 
an economics degree from the University of Tokyo and an 
MBA from Case Western Reserve University in Cleveland, 
Ohio. 
 
His first assignment was to the Ministry's petroleum 
office. 
 
Since then he has served in the Japanese Embassy in 
Washington and at the Paris-based Organization of 
Economic Cooperation and Development (OECD) as well as 
throughout METI and the Agency for Natural Resources and 
Energy (ANRE). 
 
Currently, Tanaka is OECD Director for Science, 
Technology and Industry. 
 
¶8. (U) 2007 Tax Code Revisions Hammered Out 
------------------------------------------- 
 
The ruling coalition unfurled their 2007 tax code 
revisions on December 14. 
 
Highlights include reductions in the corporate tax 
burden by allowing 100 percent depreciation of capital 
investments (from 95 percent), which will not only lead 
to a 450 billion yen tax cut in 2007, but also support 
the Abe administration's growth strategy. 
 
On the other hand, if last year's estimated one trillion 
yen derived from the fixed-rate cut in income tax is 
taken into account, taxes for the next fiscal year will 
be increased, on balance. 
 
Consumption tax increases, and the effective tax rate 
levied on firms was put off for another year. 
¶9. (U) Diet Cuts Cap on Consumer Loan Rate & Creates 
Designated Credit Bureau 
------------------------ 
 
On December 13, the Diet enacted a controversial bill 
revising the Money Lending Business (MLB) Law. 
 
The bill lowers the maximum allowable interest charge on 
uncollateralized consumer loans, and introduces a legal 
limit on the total amount of consumer loans that 
individuals can borrow from moneylenders. 
 
The bill also calls on the establishment of a designated 
credit bureau(s) to share credit information among 
moneylenders. 
 
It also contains a clause requiring the government to 
review the status of lending rates and business 
conditions of moneylenders, within 30 months after the 
revised Law takes effect.  Please see attached for 
further details. 
 
¶10. (SBU) Miyazaki Bid-rigging Scandal: Has the Scale 
Tipped? 
------- 
 
TOKYO 00007023  004 OF 006 
 
 
 
On December 8, Miyazaki Governor Tadahiro Ando became 
the third Japanese governor to be arrested on bid- 
rigging charges in recent months. 
 
Although southern Japan's Miyazaki prefecture ranks 
first nationwide in the ratio of winning bid-to- 
estimated contract price, a typical indicator of bid- 
rigging, some legal experts estimate that about 80-85% 
of all local Japanese public works projects may involve 
some form of collusive bidding. 
 
Furthermore, there are presently few disincentives to 
persuade people from engaging in the activity. 
Nevertheless, given current calls for fundamental 
reforms in various key sectors of the Japanese economy 
and the high profile arrests, there is some hope that 
the Japanese public will become increasingly intolerant 
of bid-rigging, especially those cases involving senior 
elected officials.  See Fukuoka 0070 for more details. 
 
¶11. (U) ACCJ Healthcare Services Sub-Committee Meets to 
Discuss Priorities 
------------------ 
 
The ACCJ Healthcare Services Sub-Committee met on 
December 11 to outline priorities for the coming year. 
Sub-committee chair Barry Louie expressed willingness to 
make a presentation to the Regulation Reform healthcare 
working group as he did last year. 
 
Louie also distributed data comparing Japan's spending 
on healthcare compared to other countries, something 
which had been requested by Kiyoshi Kurokawa, a 
healthcare expert and adviser to Prime Minister Abe who 
has been asked to improve Japanese competitiveness in 
the sector. 
 
The sub-committee also discussed re-issuing its 
Viewpoint paper on healthcare after widening its focus. 
 
¶12. (SBU) Ford Japan; Yen-Dollar Exchange Rate Not 
Raised Here 
----------- 
 
ECONOFF and ECONFSN met with Ford Japan's Chairman, 
Katsuhiko Satoh, and President and CEO, Randy Krieger, 
this week to complete our discussions with U.S. 
automakers in Japan about the Big Three automakers' 
complaints to the President last month over the 
undervalued yen. 
 
Ford here, like GM and Chrysler, is not making an issue 
of the yen-dollar exchange rate. 
 
Mr. Krieger noted the appreciation of the Euro, however, 
affects the imports to Japan from Ford's European 
production facilities.  (For our GM and Chrysler 
meetings see: JES Volume 2 Issue #47  December 1, 2006) 
Unlike GM and Chrysler, Ford sells a range of autos in 
Japan, including economy models, imported from plants in 
Taiwan and Europe.  Ford sells about 5,000-6,000 units a 
year. 
 
Ford's main concern is how to meet Japanese pedestrian 
safety, emissions, and fuel economy standards. 
Krieger noted that Japan and Europe have similar 
standards and China is going in the direction of Japan 
and Europe. 
 
U.S. standards are weaker and this places the exports of 
U.S.-made cars to Japan at a competitive disadvantage; 
Ford will probably rely on its European production for 
exports to Japan. 
 
(The Nihon Keizai Shimbun reports this week that the GOJ 
plans to call for automakers to improve the fuel 
efficiency of their vehicles by about 20% by 2015, 
giving Japan the world's strictest fuel efficiency 
 
TOKYO 00007023  005 OF 006 
 
 
regulations.) 
 
In regards to pedestrian safety standards, Ford is 
trying to meet the Japanese requirements, but is seeking 
more time from the GOJ to introduce the necessary design 
changes. 
 
¶13. (U) New Haneda Airport Runway Plan Likely to be 
Delayed 
------- 
 
Construction of Haneda airport's fourth runway is now 
unlikely to start before the end of the year, according 
to the Yomiuri Shimbun, because the negotiations with 
local fishermen's associations have not been completed. 
The Yomiuri says the delay will push back the projected 
in service date from the end of 2009 to at least May 
2010 as construction is expected to take some 35 months 
followed by about six months of equipment and runway 
checks. 
 
A Japan Civil Aviation Bureau official told ECONFSN that 
their ministry, the Ministry of Land, Infrastructure and 
Transportation (MLIT), has not officially announced the 
delay and still maintains that the ministry will try 
its best to pursuit the project according to the 
timeline, but also said that there is no specific 
expected date for when the construction will start. 
 
¶14. (SBU) ANA Sells Domestic Hotels to Solidify Lead 
Over JAL 
-------- 
 
The press reported this week that ANA is moving to 
concentrate on its core aviation business and planning 
to sell its domestic hotels to raise money to buy the 
next generation of fuel efficient aircraft and further 
strengthen its lead over struggling JAL in the domestic 
market (See Nikkei story attached). 
 
The move will also help ANA to take advantage of the new 
slots that will be available when Haneda and Narita 
airport expansion are completed. For example, ANA plans 
to add a Narita-Delhi route using a latest generation 
Boeing 737 outfitted with business class seating 
throughout the plane. 
 
A transport industry executive confirmed to EMIN this 
week that JAL is in a desperate situation and ANA sees 
an opportunity to go for the juggler. 
 
¶15. (SBU) Civil Aviation:  Japanese Reservations about 
EU Emission Trading Scheme 
-------------------------- 
 
The GOJ has concerns about the European Commission's 
proposal for including aircraft emissions in the EU 
Emissions Trading Scheme, MOFA Climate Change officials 
told us on December 11. 
 
The GOJ will try to finalize its position before the end 
of the year in time for PM Abe's scheduled trip to 
Europe in the first part of January.  For more 
information please see:  Tokyo 6955 
 
¶16. (U) BOJ December "Tankan" Survey -- Slight 
Improvement in Business Sentiment 
--------------------------------- 
 
The Bank of Japan's quarterly "tankan" survey of 
business sentiment, a closely watched business circle 
indicator and a principal input in central bank's 
monetary policy deliberations, revealed a slight 
improvement in business sentiment among almost all 
categories -larger, mid-sized and small firms. 
 
The survey's "headline" business sentiment diffusion 
index (DI) for large manufacturers was in line with 
market expectations, while that for non-manufacturers 
 
TOKYO 00007023  006 OF 006 
 
 
was a bid stronger than expected. 
 
The December survey also revealed that all enterprises 
on average revised modestly upward their FY06 
projections of business investment from the September 
survey. 
 
These firm survey results are likely to underpin the 
BOJ's policy adjustment to raise interest rates soon. 
The BOJ Policy Board is scheduled to hold its first 
post-"tankan" meeting on December 18/19.  Please see 
attached for more details. 
 
¶17. (U) Red Sox Land Matsuzaka; New Dynasty Emerging in 
Boston 
------ 
 
The deal got done.  The Saitama economy is set to get a 
boost and Japan's tax collectors an estimated $20 
million dollars after Daisuke Matsuzaka, the Seibu Lions 
ace, agreed to terms with the Boston Red Sox on December 
¶14. 
 
He is the final link in what Kyodo news service reported 
could become the finest starting rotation in baseball, 
joining Curt Shilling, Josh Beckett, Jonathan Papelbon, 
and Jon Lester. 
 
All have Cy Young Award-caliber arms.  With the addition 
of right fielder J.D. Drew and shortstop Julio Lugo, the 
Red Sox are beginning to look like a dynasty in the 
making -- not of the meek, Bill Belichick, three 
championships in four years variety, but of the Bill 
Russell, Boston Celtics, 11 championships in 13 years 
type. 
 
The Red Sox are tapping into the Japanese market in a 
big way.  The story has splashed prominently in all the 
key Japanese newspapers (Click for Mainichi English 
coverage).  Matsuzaka's introductory Fenway Park press 
conference was carried live on Japanese TV. 
The right hander's signing comes two weeks after former 
Hokkaido Ham Fighter Hideki Okajima also inked a 
contract with the Red Sox.  A third Japanese pitcher is 
rumored to be close to a deal. 
 
Why Boston?  Some insight may come from what New York 
Yankee left fielder Hideki Matsui said when he visited 
the Embassy earlier this year. 
 
Asked by Japanese reporters what his favorite American 
city was, he said Boston -- and pointed to the vibrant 
university town atmosphere and the deep history. 
 
He had little, if anything, to say about New York.  Nor 
did he have any comment about the Yankees controversial 
ownership. 
 
SCHIEFFER