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UNCLAS SECTION 01 OF 05 TOKYO 007115 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA 
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION; 
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE; 
SECDEF FOR JCS-J-5/JAPAN, 
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA 
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR; 
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. 
 
E.O. 12958: N/A 
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
SUBJECT:  DAILY SUMMARY OF JAPANESE PRESS 12/22/06 
 
 
INDEX: 
 
(1) Trends 2006: Abe administration advocates conservatism 
 
(2) Deregulation improves Japanese economy's productivity 7.59% from 
1995 through 2002, Cabinet Office estimates: Deregulation found 
effective in non-manufacturing industry 
 
(3) Editorial -- Honma's resignation: Abe-led reform initiative 
suffers a setback 
 
ARTICLES: 
 
(1) Trends 2006: Abe administration advocates conservatism 
 
YOMIURI (Page 13) (Abridged) 
December 21, 2006 
 
In late September, the administration of Prime Minister Shinzo Abe 
who advocates a "beautiful country" and "open conservatism" replaced 
the Koizumi administration of five years and five months. The 
Liberal Democratic Party has picked a young and nationally popular 
Abe as its president mostly for the sake of elections. But the Abe 
administration is deadlocked in its third month. 
 
The Abe cabinet's support rating marked 70.3% in a Yomiuri Shimbun 
poll shortly after its inauguration. The rate dropped to 55.9% this 
month. The plunge seems to reflect the public's negative reaction to 
the cabinet's responses to such issues as the reinstatement of 
postal rebels and staged town meetings. In an effort to reverse the 
trend, Kantei (Prime Minister's Official Residence) had come up with 
the idea of using gasoline tax revenue for general purposes. But 
that, too, has been shelved due to stiff resistance from the road 
industry, the ruling coalition, and the Land, Infrastructure, and 
Transport Ministry. 
 
For fear of losing public support further, Abe ordered the LDP not 
to accept donations from major banks. Landmark amendments to the 
Basic Education Law and bills to upgrade the Defense Agency to 
ministry status cleared the Diet in the just-ended extraordinary 
session. But they were all carried over form the administration of 
Abe's predecessor, Junichiro Koizumi. The year 2006 is drawing to a 
close without witnessing a real Abe imprint on policy. 
 
It is rare for an LDP prime minister to advocate conservatism 
outright. In the Oct. 2 Lower House plenary session, Abe explained 
conservatism this way: 
 
"To me, conservatism is not an ideology but an attitude of having 
confidence in this country, where I was born. It also based on 
considering Japan and its people, and to review Japan's long history 
from the viewpoint of the people of each period. Based on such 
history, conservatism must not be closed or exclusive. I want to 
achieve open conservatism by humbly turning my eyes to reality." 
 
His view that conservatism is not an ideology is correct. His aim 
for conservatism that is not closed or exclusive appears to be a 
warning to himself not to fall into nationalism. 
 
Before becoming prime minister, Abe established himself as a hawkish 
and unwavering lawmaker owing to his hard-line stance toward North 
Korea regarding the abduction issue. He also drew a distinction with 
China, alluding to reactionary values by making comments supportive 
 
TOKYO 00007115  002 OF 005 
 
 
of Class-A war criminals. Dovish voices critical of Abe did not 
spread in the LDP, and former Finance Minister Sadakazu Tanigaki 
came in last in the last LDP presidential race. The LDP has given 
its presidency to Abe in the hope of capitalizing on his high 
national popularity in elections. 
 
Soon after assuming office, Abe visited China and South Korea to 
improve Tokyo's relations with them that had been strained due to 
Koizumi's repeated visits to Yasukuni Shrine. Abe has also made it 
clear that he would follow former Prime Minister Tomiichi Murayama's 
postwar 50th year statement and former Chief Cabinet Secretary Yohei 
Kono's "comfortable women" statement. Abe is not all hawkish. 
 
Ichita Yamamoto, who spearheaded the campaign to realize the Abe 
administration, described Abe as a "new realist." Ichita took this 
view: 
 
"It is clear from his visits to China and South Korea that Mr. Abe 
is not an ideological neoconservative. Although he is guarded 
against China, he is eager to forge mutually beneficial strategic 
relations. True to his words to aim for open conservatism, Mr. Abe 
has demonstrated extremely well balanced strategic diplomacy. He 
deserves a perfect score on the diplomatic front." 
 
What about the domestic front? 
 
"Mr. Abe is aware that he has been pulled toward 'retrospective 
conservatism' peculiar to the LDP despite his words to keep the 
torch of reform burning. I think he is being torn between the two 
conflicting ideas." 
 
Retrospective conservatism specifically means conventional 
influence-peddling politics. LDP administrations in the postwar 
period have created a country with relatively small social disparity 
that is mocked as the most successful socialist in the world. 
Needless to say, the flip side of that was influence-peddling 
politics exemplified by former Prime Minister Kakuei Tanaka. 
 
Under the long Koizumi administration, Japan finally climbed out of 
the long recession that followed the burst of the bubble economy. 
The social disparity also widened during that period. Was it because 
of the Koizumi reform drive or the long recession? Or such is 
unavoidable in this age of global competition? It must be 
attributable to multiple factors. Correcting the social disparity is 
an important political theme, but the government must not lavishly 
distribute funds to public works projects in the name of correcting 
disparity. 
 
Reform takes an iron will and a deaf ear to disturbing noises, 
according to Asahi Research Center President Yoshio Suzuki, who have 
been involved in the government's administrative reform since the 
Second Ad Hoc Commission on Administrative Reform in the 1980s. The 
LDP is now at a crossroads. 
 
The public will not support "open conservatism" if it returns to 
influence-peddling politics. The question Abe faces today is how to 
keep the torch of reform burning. 
 
(2) Deregulation improves Japanese economy's productivity 7.59% from 
1995 through 2002, Cabinet Office estimates: Deregulation found 
effective in non-manufacturing industry 
 
NIHON KEIZAI (Page 5) (Full) 
 
TOKYO 00007115  003 OF 005 
 
 
December 22, 2006 
 
The Cabinet Office calculated to what extent deregulatory efforts in 
the 1995-2002 period pushed up the productivity of the Japanese 
economy. The calculations found that deregulation pushed up 
productivity 7.59% -- 2.98% in the manufacturing sector and 4.61% in 
the non-manufacturing sector. The greatest effect was seen in the 
non-manufacturing sector. In particular, the impact of deregulation 
was huge in the telecommunications sector. The report once again 
confirmed the importance of boosting productivity through 
deregulation. 
 
The potential growth of the Japanese economy is said to be between 
1% and 2% . In order to heighten the potential, it is necessary to 
increase capital stocks, such as facilities and the like, boost 
labor power injection and improve total factor productivity (TFP). 
However, a forced increase in capital stocks will lead to excessive 
introduction of plants and facilities. The effect of the labor force 
into the economy is already on the decline due to the falling 
population. In order to enhance potential growth by overcoming these 
factors, it is considered essential to boost productivity. 
 
The Cabinet Office analyzed deregulation and productivity in the 
structural reform appraisal report, noting that the amount of 
regulation has decreased 60% since 1995. Annual productivity is 
increasing following this trend. The major effect of deregulation 
was felt in the non-manufacturing industry, where the number of 
regulations is relatively large. Quintessential examples are the 
real estate industry and the services industry. 
 
More than 80% of regulations were scrapped in the telecommunications 
industry. Its share of value added prices in the economy as a whole 
increased. On the other hand, the construction industry and the 
agricultural sector saw only 10% of regulations scrapped. Their 
share of value added prices has fallen. It can be said that these 
results confirmed that the introduction of competitive principles 
trough regulatory reform has revitalized the economy. 
 
The Cabinet Office analyzed how productivity would change if the 
number of regulations were halved over the next two years. The 
current rate of an increase in industry-wide productivity is 0.7% a 
year. Scrapping regulations 50% over two years is expected to yield 
the effect of pushing up productivity by 0.11 points a year. 
 
In particular, the pushing up effect of deregulation is clearly 
observable in the tightly regulated medical, agricultural and 
financial services fields. By sector, such an effect is estimated to 
be 0.24 points a year in the agricultural sector and 0.12 points in 
the public services sector, such as medical services and education. 
The report noted that if regulations on entries into and pullout of 
the financial services sector are reduced by 10% a year, it could 
produce the effect of increasing productivity by 0.64 points over 
three years. The Cabinet Office has estimated that Japan's 
productivity will rise from 0.69 to 0.74 against a base of 1 for the 
US financial industry. 
 
It sometimes takes time for deregulation to yield effects. There is 
also a strong possibility of impact on the real economy turning out 
to be greater than the estimated figure due to the spillover effect 
on other industrial areas. In order to boost potential growth amid 
the shrinking population, it is essential to improve productivity. 
Continuing deregulatory efforts is bound to become more important. 
 
 
TOKYO 00007115  004 OF 005 
 
 
(3) Editorial -- Honma's resignation: Abe-led reform initiative 
suffers a setback 
 
ASAHI (Page 3) (Full) 
December 22, 2006 
 
Masaaki Honma resigned as chairman of the government's Tax 
Commission after serving in the post for less than one month. The 
allegation that he had lived with a woman, who is not a member of 
his family, in a luxury public residence located at a prestigious 
downtown area in Tokyo, provoked harsh public criticism. 
 
Honma was appointed to the post at the strong request of Prime 
Minister Abe. The Ministry of Finance (MOF) recommended a 
reappointment of former Tax Commission chair Hiromitsu Ishi, but Abe 
rejected this recommendation, and he instead picked Honma as a 
flagship appointment for his administration, the aim of which is to 
avoid bureaucratic interference in the economy. Honma's resignation 
will deal a great blow to the Abe administration, even though the 
resignation itself came because of his mixing public and private 
affairs. 
 
Honma is a professor at Osaka University and has a home in Osaka. He 
was chosen as a private-sector member of the Council on Economic and 
Fiscal Policy (CEFP) in the days of the Koizumi administration. This 
job forced him to come and go between Tokyo and Osaka almost daily; 
he was eventually offered a public residence in Tokyo. He had used 
it since 2003 until recently. 
 
Providing him a public apartment is understandable if the apartment 
rent is less than hotel lodging. But in the case of Honma, a number 
of questions about the room rent were left unanswered. 
 
Honma lives separate from his wife even in Osaka, but he reported to 
the government that he would live with his wife in a public 
residence. He was able to use a 96-m2 residence accordingly at a 
monthly rent of 77,000 yen, a favorable term in view of a lease 
contract. 
 
But if he had lived with a woman other than his wife in the public 
residence, that's another story. Taxpayers will get angry. 
 
The government's tax panel is a venue to debate the tax system from 
a broader perspective and is expected to be fair and highly 
transparent in comparison with the ruling Liberal Democratic Party's 
tax committee. It also is required to be even more sensitive to the 
taxpayers' livelihood and their pain. 
 
However, the chairman of that panel drew public suspicions about his 
behavior. No matter how wonderful a report such a chairman will come 
up with, the public will not lend an ear to it. It is only natural 
for Honma to quit since it is unlikely that he will be able to 
fulfill the responsibilities expected of him as the chair of the 
panel. 
 
In general, the government's tax panel has been headed by those who 
are recommended by MOF, even though it is said to be an advisory 
panel to the prime minister. 
 
Regardless of this practice, Honma was chosen as chairman of the 
panel. Soon after assuming the post, Honma came up with a report 
positive about cutting the corporate tax and drew a clear line 
between former chairman Ishi, who had implied a consumption tax 
 
TOKYO 00007115  005 OF 005 
 
 
hike, and himself. Honma also has clearly projected his stance of 
backing the prime minister's economic growth-emphasized line in the 
area of the tax system. 
 
Honma was the "brains" of the Abe administration for reform as 
former Minister of Internal Affairs and Communications Heizo 
Takenaka, a professor at Keio University, had been in supporting the 
Koizumi administration's structural reform. 
 
Abe, however, lost his brains that way. This loss will deal a 
serious blow to his administration. The Abe cabinet, after accepting 
the reinstatement of the so-called "postal rebels" in the LDP, has 
faced a string of events that may bolster the image of the cabinet 
are backing away from reforms. For this or some other reasons, its 
approval ratings are sliding sharply in public opinion polls. 
 
Abe was on the defensive of Honma, but veteran LDP lawmakers 
questioned Honma's course of action. Abe came into power after 
decisively defeating other candidates in the LDP presidential race. 
Now, he has received a "yellow card" over his leadership capability 
only three months after taking office as prime minister. 
 
DONOVAN