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UNCLAS SECTION 01 OF 08 TOKYO 007130 
 
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 12/26/06 
 
 
INDEX: 
 
(1) Separate budget framework to be set for US force realignment 
plans, outside reach of "1% of GNP" principle 
 
(2) Japan's review of energy strategy unavoidable to ensure stable 
supply, with initiative for Sakhalin-2 project given to Russia 
 
(3) JDA proposal for establishment of central readiness regiment 
approved in FY2007 draft budget 
 
(4) Final report by Regulatory Reform Council: Wording steps back 
from interim report; Concern about Kantei leadership 
 
(5) Defense Agency's upgrading to ministry (Part 3): Political 
dynamics needed for legislation 
 
(6) Prime Minister's schedule, December 25 
 
ARTICLES: 
 
(1) Separate budget framework to be set for US force realignment 
plans, outside reach of "1% of GNP" principle 
 
AKAHATA (Page 2) (Slightly abridged) 
December 23, 2006 
 
The Finance Ministry has decided to set up a separate framework for 
spending on the realignment of the US military presence from the 
ordinary defense-related budget for FY2007. The government has 
introduced the principle of capping the government's military 
spending at 1% of the nation's gross national product (GNP). But no 
matter how much spending on US force realignment increases, this 
principle will not be applied. This means that the separate 
framework can be used as a tool for Japan to increase armaments 
unlimitedly. 
 
The Miki cabinet set up the "1% of GNP" policy in November 1976 in 
response to growing criticism of ever-expanding military spending. 
Successive governments have abided by this policy, with one 
exceptional case in FY1989, when defense outlays exceeded the 1% 
ceiling by 0.006 percentage points. 
 
This policy is applicable only for conventional defense-related 
expenditures consisted of outlays for the Self-Defense Force and for 
host-nation support. Special Action Committee on Okinawa 
(SACO)-linked expenditures is also outside the reach of the 
principle. 
 
In the draft budget for FY2007, the initial year for the overall 
plan for the realignment of the US military presence in Japan, 7.2 
billion yen has been allocated. But the total amount of money to 
finance the plan is estimated to reach as much as 3 trillion yen 
over a decade. 
 
The "separate framework" formula is designed to enable the Abe 
cabinet to disburse huge funds for the US military, without being 
bound by the 1% principle. This means the government will be further 
dipping into the budget to support the people's livelihood. 
 
(2) Japan's review of energy strategy unavoidable to ensure stable 
supply, with initiative for Sakhalin-2 project given to Russia 
 
 
TOKYO 00007130  002 OF 008 
 
 
NIHON KEIZAI (Page 3) (Excerpts) 
December 22, 2006 
 
A decision has been made that the Sakhalin-2 project to exploit 
natural resources off Sakhalin will be promoted under the initiative 
of the Russian government-controlled gas company OAO Gazprom. Mitsui 
& Co., and another Japanese company involved in the project set 
forth as a precondition for transferring their shares that the 
supply contract they concluded should be steadily implemented. 
Keeping this condition in mind, the two Japanese companies expect no 
impact of the Russian government's new decision on LNG shipments. 
Under the current situation, though, since the Russian government's 
intentions will be unavoidably reflected in the management of the 
project, the Japanese companies will inevitably be pressed to review 
their profits projections. The Japanese government will also be 
urged to rewrite its strategy to become more independent in 
procuring energy resources. 
 
Resource suppliers strengthening state control over energy resource 
supplies 
 
Uncertainty is now looming large over Japan's energy security at a 
time when China is engaged in an offensive to secure oil 
exploitation rights while resource-producing countries, including 
Russia, are strengthening their governments' control over oil and 
natural gas supplies. Indonesia, the largest gas supplier for Japan, 
has also decided to significantly reduce gas supplies to Japan. In 
addition, Japan lost most of concession rights for the Azadegan oil 
field in Iran this October. 
 
In China and India, demand for energy has been on the sharp rise, 
eventually heating up global competition for securing oil and 
natural gas. Japan came up with its new energy strategy this May, 
which called for raising the ratio of Japan's independent oil 
development from the current 15% to 40% by 2030. 
 
However, the road ahead is likely to be bumpy. For the Azadegan oil 
field, Japan was once given 75% of all concession rights, but this 
figure was dropped to only 10% in connection with Iran's nuclear 
development problem. Japan has continued negotiations with Russia on 
a plan for Japanese companies to participate in a project designed 
to develop oil fields in East Siberia, but no prospects are in sight 
for both to find common ground due to an increased risk in 
investment in natural resources in Russia. 
 
The growing outlook that energy prices are likely to hover higher 
over the long run has prompted resource-supplying countries to 
strengthen their state control over energy resources. Even in many 
cases involving American oil majors, American companies have yielded 
to the governments of resource suppliers. A senior member of the 
Ministry of Economy, Trade and Industry official said, "Japan has 
stepped up efforts to diversify suppliers, such as Australia, so 
there will be no concern about Japan's energy security for the time 
being." But since Japan relies on imports for most of its oil and 
gas supplies, it might face a more difficult situation. 
 
The government intends to back up Japanese firms' investment in 
developing energy resources by disbursing public funds. The 
government has decided to raise the maximum amount of its investment 
in petroleum exploration by Japan Oil, Gas and Metals National 
Corporation by 25 percentage points to 75% starting next fiscal 
year. Nonetheless, it is also true that "it is impossible to secure 
energy resources only with money," as a senior METI official said, 
 
TOKYO 00007130  003 OF 008 
 
 
for instance, a case in which resource suppliers use energy as a 
bargaining chip. Japan is being urged to hammer out a comprehensive 
diplomatic strategy making use of energy resources, such as official 
development assistance (ODA) and technical cooperation. 
 
(3) JDA proposal for establishment of central readiness regiment 
approved in FY2007 draft budget 
 
AKAHATA (Page 2) (Slightly abridged) 
December 23, 2006 
 
The Defense Agency (JDA) proposed in its FY2007 budgetary requests 
setting up a central readiness regiment. The government has approved 
of the proposal as of yesterday. The proposed regiment is an 
operational unit ready to go on overseas missions. The Defense 
Ministry Law, which was enacted in the latest extraordinary Diet 
session, designates overseas operations as a main duty of the 
Self-Defense Force. 
 
Under the JDA plan, about 700 troops will be deployed at the 
Utsunomiya Camp in Tochigi Prefecture within FY2007. 
 
The regiment will be placed under the Central Readiness Command 
(CRC), which will also be newly established and will be responsible 
for planning, training, and commanding regarding the dispatch of 
Ground Self-Defense Force troops overseas. 
 
The CRC will be set up in the Asaka Camp (Tokyo, Saitama) for the 
time being, but the CRC will be moved to the US Camp Zama (Kanagawa) 
by FY2012 in accordance with the agreement reached between Japan and 
the United States on the realignment of the US military presence in 
Japan. In the Finance Ministry's draft budget for FY2007, 
approximately 7 million yen has been earmarked to finance 
feasibility study for the relocation plan. 
 
The JDA will be upgraded to ministry status in January. The 
government has also accepted its proposals for newly establishing in 
the defense ministry a Japan-US defense cooperation division and an 
international policy division, as well as a strategic planning 
office in charge of laying out a long-term military strategy. The 
JDA is aiming to strengthen its policymaking capabilities, including 
Japan-US military cooperation and overseas deployment of troops, 
when the JDA is transformed into defense ministry. 
 
(4) Final report by Regulatory Reform Council: Wording steps back 
from interim report; Concern about Kantei leadership 
 
YOMIURI (Page 4) (Excerpts) 
December 26, 2006 
 
The government's Regulatory Reform and Privatization Promotion 
Council, chaired by Takao Kusakari, chairman of Nippon Yusen, 
yesterday adopted a final report. Step backs from the interim 
report, released in July under the Koizumi cabinet, were seen in 
some reform items, such as reform of the education board system. 
This is due to fierce resistance from concerned government agencies. 
Some sources connected with the panel voiced concern about the Prime 
Minister's Official Residence's (Kantei) leadership. 
 
Prime Minister Abe characterizes regulatory reform as part of his 
economic reform strategy. He is demonstrating his cabinet's stance 
of continuing to positively tackle deregulation. As part of such 
efforts, he will set up a panel that will succeed the Regulatory 
 
TOKYO 00007130  004 OF 008 
 
 
Reform Council next January. 
 
Regarding educational reform, the primary concern, coordination of 
views with the Ministry of Education, Culture, Sports, Science and 
Technology (MEXT) over reform of the education board system, an 
issue incorporated in the July interim report, encountered 
complications. Alarmed about the possibility of the panel taking 
over leadership in educational reform, MEXT opposed the idea of 
including the words "drastic reform." For this reason, the panel 
came to terms with MEXT on propelling debate on legal revisions, 
based on discussions pursued by the Educational Revitalization 
Council, instead of including those words in the list of specific 
measures. 
 
Consideration about the acceptance of foreign workers who have a 
social welfare care-giver license has been removed from items for 
specific regulatory reform, subjects of discussion at cabinet 
meetings. The issue has instead been included in the list of themes 
for which regulatory reform is to be promoted in the future. 
 
Some have pointed out that subtle differences between the interim 
report and the final reports reflect differences in approaches to 
reform between Kusakari, who took office as chairman in October, and 
his predecessor Miyauchi. Some officials of the secretariat of the 
panel expressed expectations that the wording of the report compiled 
under Kusakari is vague, but he would display ability to get things 
done in the process of realizing proposals with one noting: "Mr. 
Miyauchi's policy was to send the panel's messages through open 
hearings. However, Mr. Kusakari is not a confrontational type. He is 
a person who make moves in political terms with nifty footwork." 
 
There is also an aspect of targeted regulations changing in quality 
while deregulation has been in progress. The past deregulatory 
efforts have been centered on reform of economic regulations 
concerning corporate activities, such as the regulation on entry 
into the taxi business. However, deregulatory discussions have 
gradually begun to cover social regulations, such as the education 
issue and the way NHK should operate. 
 
Some government officials noted: "Just debating the education board 
issue will not raise growth rates. The panel that will succeed the 
Regulatory Reform Council should consider what its mission is." 
 
Regulatory reform: Already 6,000 items realized 
 
In the government's regulatory reform initiative, more than 6,000 
regulations have been subjected to reforms since the establishment 
of the Regulatory Reform Taskforce under the Administrative Reform 
Committee. The Cabinet Office calculated that the government's 
deregulatory efforts have yielded effects worth approximately 14.3 
trillion yen in fiscal 2002. The impact of the regulatory reform has 
spread to the surrounding living environment of the people, as can 
be seen in the facts that medicines, such as antiflatulent, which 
had been only available at drugstores, as it was categorized as 
pharmaceuticals, are now available at convenience stores as they are 
now categorized as quasi-drugs and that private companies can now 
crack down on illegal parking. 
 
Yoshihiko Miyauchi, chairman of Orix, who took office as chairman of 
the taskforce in 1996, has led deregulatory debate as chairman of 
the Regulatory Reform and Privatization Promotion Council until 
Kusakari replaced him. 
 
 
TOKYO 00007130  005 OF 008 
 
 
In a bid to counter the logics of government agencies, which are 
negative toward regulatory reform, Miyauchi picked employees of 
leading companies as staff members of the council, appointing them 
as pert-time national government employees. Of the current 33 
staffers of the council, about a half of them are from leading 
companies. However, this method has drawn criticism in the Diet that 
they make rules and make profits. With such criticism in mind, the 
government is now considering the proper form of a panel that will 
succeed the council. 
 
(5) Defense Agency's upgrading to ministry (Part 3): Political 
dynamics needed for legislation 
 
YOMIURI (Page 4) (Full) 
December 19, 2006 
 
The Defense Agency owes a great deal to the power of politics for 
its elevation to the status of a ministry. 
 
On July 15, the ruling Liberal Democratic Party's Nikai faction held 
a workshop of its members in the town of Oyama, Shizuoka Prefecture. 
Deputy Director General for Defense Takemasa Moriya, the No. 2 man 
of the Defense Agency, was invited to the workshop as a guest 
speaker. Moriya made the case for passing a pending package of bills 
then before the Diet in its ordinary session to upgrade the Defense 
Agency to ministry status. Toshihiro Nikai, who leads the faction, 
gave encouragement to Moriya at once. 
 
Nikai told Moriya: "In the ruling parties, there are also some 
people who are negative about upgrading the Defense Agency to a 
ministry, but we absolutely must upgrade the Defense Agency to a 
ministry." He added, "I want the Defense Agency to have confidence 
we will work it out." 
 
The first time Nikai committed himself to upgrading the Defense 
Agency to ministry status, he was chairman of the Diet Affairs 
Committee of the New Conservative Party (NCP or Hoshuto), which was 
one of the LDP's two coalition partners including the New Komeito. 
 
In January 2001, the government reorganized its ministries and 
agencies under the Central Government Offices Restructuring Law. At 
the time, the Defense Agency was not upgraded to ministry status. 
Later on, in June that year, the NCP's Nikai, teaming up with some 
LDP and independent lawmakers, brought a bill before the Diet to 
establish a defense ministry. The bill died stillborn in 2003. 
However, it left a chance of raising the Defense Agency's status to 
a ministry in the future. 
 
In September this year, Nikai became chairman of the LDP Diet 
Affairs Committee. In the extraordinary session of the Diet, for a 
while, it seemed uncertain the Defense Agency would be upgraded in 
the aftermath of a tug of war between the ruling and opposition 
camps over the now-amended Fundamentals of Education Law. However, 
Nikai urged Defense Agency Director General Kyuma to keep pushing 
for the elevating of the Defense Agency to ministry status. "We will 
never fail to get the legislation through the Diet during the 
current session," Nikai told Kyuma. 
 
Meanwhile, in the leading opposition Democratic Party of Japan (DPJ, 
Minshuto) as well, former President Seiji Maehara urged Secretary 
General Hatoyama to vote to upgrade the Defense Agency. "I'm 
absolutely in favor of this legislation," Maehara told Hatoyama. 
Conservative lawmakers in the DPJ pressured the party's leadership. 
 
TOKYO 00007130  006 OF 008 
 
 
This became the clincher for the DPJ to decide to vote for the 
upgrading legislation. Consequently, the legislation cleared both 
the House of Representatives and the House of Councillors with an 
overwhelming majority of votes -- about 90% of all legislators in 
both chambers of the Diet. 
 
The Defense Agency will be formally upgraded to a ministry in 
January next year. Even so, the agency will need to ask for 
political judgments on a number of challenges in store. One example 
is to establish a permanent law for Japan's dispatch of Self-Defense 
Forces troops instead of making an ad hoc law for each SDF 
dispatch. 
 
In its manifesto for the House of Representatives election in 2005, 
the LDP upheld its policy proposal to create a permanent law for the 
SDF's overseas missions. Prime Minister Abe also exhibited a 
positive stance on Dec. 14, saying it would be possible to take 
"flexible" action if there is a permanent law. 
 
The Special Measures Law for Assistance with Iraq's Reconstruction 
is to expire in July next year, and the Special Measures Law on 
Terrorism is also to expire in November. Shigeru Ishiba, former 
director general of the Defense Agency, insisted on the necessity of 
enacting a permanent law in a Dec. 5 meeting of the LDP's executive 
board, raising a question about making a time-limited law and 
extending it for each SDF dispatch. 
 
However, Kyuma remains cautious about the idea of creating a 
permanent law, saying: "I wonder if it's possible to enact permanent 
legislation in the form of including a law to back up US forces 
going to war like the Antiterrorism Special Measures Law." The 
Defense Agency recognizes the need to expand the scope of 
authorization for SDF members to use weapons for the purpose of 
ensuring their security on their overseas missions. "But," one in 
the agency says, "the constitutional hurdle is high." This is 
contrasting to the Foreign Ministry, which is positive about 
enacting permanent legislation in an aim to ensure more diplomatic 
cards. 
 
There are also some people who presume that full-fledged 
coordination within the government and the ruling coalition will be 
after next summer's House of Councillors election. 
 
The government's constitutional prohibition against collective 
self-defense is also a critical issue to address. 
 
In that respect, the prime minister has specified missile defense as 
one of those subject to case studies for Japan's possible 
participation in collective self-defense. This gave heed to the 
advisability of intercepting US-bound missiles. 
 
However, Kyuma has stated that it would be "technically difficult" 
to shoot down missiles headed for the United States. "We need to 
clear this problem before going on to collective self-defense," 
Kyuma said. With this, Kyuma took a different stance within the 
government on collective security. 
 
"Japan can shoot down a missile that is obviously headed for the 
United States. But if Japan says it's not allowed under domestic law 
to do so, that's crazy. That's not an alliance." With this, US 
Deputy Under Secretary of Defense Lawless voiced his strong 
dissatisfaction when he met with Ishiba in Tokyo in early December. 
He was concerned because Japan would not give substance to its 
 
TOKYO 00007130  007 OF 008 
 
 
debate on collective self-defense. 
 
Former Prime Minister Yasuhiro Nakasone (who once served as director 
general of the Defense Agency) has suggested the need for Japan to 
make a bottom-up review of its defenses next year when the Defense 
Agency will be elevated to ministry status. It will be considerably 
difficult to overcome legal constraints. It will be necessary not 
only for bureaucrats but also for politicians to settle down and 
meet the challenge. 
 
 (6) Prime Minister's schedule, December 25 
 
NIHON KEIZAI (Page 2)  (Full) 
December 26, 2006 
 
09:36 
Met at Kantei with Finance Ministry Vice Minister Fujii and Vice 
Minister of Finance for International Affairs Watanabe. 
 
10:10 
Met former Ambassador to Thailand Hisahiko Okazaki. Followed by 
members of the expert council on promotion of administrative 
streamlining, including Chairman Iida and next Chairman Mogi. 
 
10:41 
Responded to an interview for the New Year by the Yamaguchi Shimbun 
and Yamaguchi Broadcasting Station. Later, met Vice Foreign Minister 
Yachi. 
 
12:48 
Attended a council meeting of Nihon Keidanren at the Keidanren Hall 
in Otemachi. 
 
13:43 
Met at Kantei with LDP Women's Section Head Yamanaka and Youth 
Section Head Hagioda. 
 
14:07 
Met National Association of Commercial Broadcasters in Japan 
Chairman Hirose and others. Followed by Chief Cabinet Secretary 
Shiozaki, and deputy chief cabinet secretaries Shimomura, Suzuki, 
and Matoba. 
 
15:41 
Met Deputy Secretary General Ishihara at party headquarters. Hands 
over a recommendation letter to the LDP-endorsed candidate for the 
Miyazaki gubernatorial election. 
 
16:15 
Met Science and Technology Minister Takaichi, Comprehensive Science 
and Technology Conference member Hiroyuki Abe and others at Kantei. 
Later met Regulatory Reform and Privatization Promotion Conference 
Chairman Kusakari and others. 
 
17:03 
Attended a meeting of the Comprehensive Science and Technology 
Conference. 
 
18:04 
Attended a meeting of cabinet ministers responsible for drawing up 
monthly economic reports. Met Economic and Fiscal Policy Minister 
Ota, Special Advisor Nemoto, and others. Nemoto stayed behind. 
 
 
TOKYO 00007130  008 OF 008 
 
 
19:28 
Dined with singer Agnes Chang in her office in Hiroo, together with 
his wife Akie. 
 
20:58 
Returned to his official residence. 
 
DONOVAN