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FM AMEMBASSY TOKYO
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UNCLAS SECTION 01 OF 03 TOKYO 000345 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - January 12, 2007 
 
Sensitive but unclassified.  Please protect accordingly. 
 
¶1. (SBU) Table of Contents 
 
¶3.  CPRR Insider Disappointed with Reform Report 
¶4.  Japanese Stock Markets Merging? 
¶5.  Electricity Deregulation: METI Backing Away; Commercial 
Customers Face Continued Price Discrimination 
¶6.  MHLW: Number of Drug Reviewers to Be Increased 
¶7.  Agriculture Protectionists in LDP Circling the Wagons 
¶8.  Swiss Econ Counselor on Narita and Swiss-Japan FTA Ag issues 
¶9.  Civair: Chiba Prefecture on Asia Gateway, Haneda and Narita 
Expansion 
¶10. FedEx Looks at Central Japan Routes 
¶11. Protesters at Narita Airport Few but Still Active 
¶12. JAL Restructuring Plan Expected in February 
¶13. Ports: Reform Problems Continue 
¶14. Mitsubishi UFJ Financial Group Tops Survey 
 
¶2. (U) This cable contains the Japan Economic Scope from January 
12, 2007. 
 
 
¶3. (SBU) CPRR Insider Disappointed with Reform Report 
------------------------------- 
 
In a meeting with EMIN on January 7, a Council for the Promotion 
of Regulatory Reform (CPRR) board member expressed her 
disappointment with the Council's final report of recommendations 
of matters on which the GOJ should focus its reform efforts (see 
Tokyo 7180). 
 
Fierce bureaucratic resistance on issues such as selling off some 
770,000 apartments managed by the GOJ to pay down national debt 
resulted in many impasses and few concrete results. 
 
So bleak is her outlook for reform that she recently decided to 
pull her dual-citizen daughter out of the Japanese educational 
system and enroll her in an English-based international school. 
"Japan is going nowhere."  See Tokyo 00154 for more detail. 
 
¶4. (U) Japanese Stock Markets Merging? 
------------------------------- 
 
The Yomiuri Shimbun reported on January 5  that the Tokyo Stock 
Exchange and five other Japanese stock markets may be merged by 
¶2009. 
 
Three market management companies -- one led by the TSE on spot 
markets, another led by the Osaka Securities Exchange on futures 
markets and a third one merged from markets for start-up 
companies such as the TSE's Mothers and Jasdaq -- would operate 
under a to-be-established holding company,  according to the 
Yomiuri. 
 
The Embassy contacted a press officer at the Japan Securities 
Dealers Association, who said, however, the Association was "not 
planning anything." 
 
The Osaka Securities Exchange also issued a press release stating 
that "There is nothing that should be publicly announced at the 
moment." 
 
 
¶5. (U) Electricity Deregulation: METI Backing Away; Commercial 
Customers Face Continued Price Discrimination 
------------------------------- 
 
METI will delay plans to allow new power providers into the 
residential electricity market, according to the Nikkei Shimbun. 
Because of the dramatic rise in fuel costs, the ministry has 
decided against lifting restrictions in 2009 that would have 
allowed new companies to enter the market and would have enabled 
consumers to choose electric companies based on pricing and other 
criteria. 
 
Japan began liberalizing the electric power market in 1995 at the 
wholesale level.  Partial easing of the retail sector began in 
2000 resulting in a market that now is about 60 percent 
deregulated.  Opening the remaining market, which would have 
included households and small businesses, was expected to spur 
competition and push down prices. 
 
In a separate but related area, ECOUNS was told during a recent 
visit to the Embassy by Spectol Power Design Co. that Japan's 
two-tiered electricity pricing system begun after WWII continues 
to exist, affecting such commercial customers as Aeon/Jusco, 
Costco and Wal-Mart, which are likely unaware that they pay 10-20 
percent more for electricity than industrial companies. 
This system offers cheaper electricity to heavy industry than to 
commercial users and was begun after the war to promote export- 
oriented manufacturers. 
 
TOKYO 00000345  002 OF 003 
 
 
 
According to Spectol, Japanese utility companies also 
discriminate in price based on the size of the client, charging 
small mom-and-pop shops more than larger-scale customers. 
Because utilities continue to control this market, the small- 
scale user has no other option. 
 
¶6. (U) MHLW: Number of Drug Reviewers to Be Increased 
------------------------------- 
 
Yomiuri Shimbun has reported that the Ministry of Health, Labor 
and Welfare plans to double over the next three years the number 
of personnel who examine applications for new drugs in order to 
shorten the approval time.  Currently there are 197 Japanese 
reviewers compared to 2,200 in the United States, 693 in the 
United Kingdom and 942 in France. 
 
In addition, the media is also reporting that the Council for 
Science and Technology approved a report on December 25 which, 
along with the recommendation to increase the number of drug 
reviewers, also calls for increasing the fees paid by 
manufacturers to fund the cost of additional reviewers and 
deregulating employment rules to allow staff to be hired from 
industry. 
 
¶7. (U) Agriculture Protectionists in LDP Circling the Wagons 
------------------------------- 
 
The Liberal Democratic Party is set to establish in January an 
Economic Partnership Agreement Forum, consisting of agriculture 
caucuses and producer associations which share largely 
protectionist agendas -- particularly with respect to sensitive 
items such as rice, wheat, beef, dairy and sugar. 
 
The Forum plans to offer recommendations on free trade agreements, 
focusing initially on FTA talks with Australia. 
 
Reports show as possible members of the forum the Central Union 
of Agricultural Cooperatives, Dairy Farmers Political Federation 
of Japan, Flour Millers Association, Dairy Industry Association 
of Japan, and the Japan Sugar Refiners' Association. 
 
A leading candidate for the panel chair is former Agriculture 
Minister Tadamori Oshima, a conservative.  At present he chairs 
the LDP Research Commission on Trade in Agricultural and Marine 
Products, which urged the government to halt negotiations last 
month if Australia failed to appreciate Japan's concerns about 
sensitive products. 
 
¶8. (SBU) Swiss Econ Counselor on Narita and Swiss-Japan FTA Ag 
issues 
------------------------------- 
 
Swiss Econ Counselor Alberto Groff told Econoff on January 9 that 
after several years of talks, Japan finally granted Switzerland 
two more slots at Narita, allowing SWISS airlines to have daily 
flights into Japan.  The new flights are expected to begin in 
February.  For SWISS press release, click here. 
 
Switzerland is also in the final stages of reaching an agreement 
on a FTA with Japan.  Even though Switzerland is hardly an ag 
export powerhouse, agricultural products were an issue in the 
negotiations.  The Japanese deemed as sensitive some the items on 
the Swiss list of potential agricultural exports. 
 
¶8. (SBU) Civair: Chiba Prefecture on Asia Gateway, Haneda and 
Narita Expansion 
------------------------------- 
 
Chiba Prefecture officials responsible for airport matters felt 
PM Abe's Asia Gateway proposal for 24 hour operations at airports 
must relate to Haneda airport as they could not foresee night 
time flight operations being allowed at Narita.  Neither the 
Prime Minister's office nor the MLIT officials have approached 
them about Narita night time operations. 
 
Econoff and EconFSN met with these officials on January 10 as 
they have responsibilities for mediating between the residents of 
Chiba prefecture and the central government.  Narita airport is 
located in Chiba prefecture and many of the flight paths for 
Haneda pass over Chiba.  A memo summarizing the meeting is 
attached. 
 
¶9. (SBU) FedEx Looks at Central Japan Routes 
------------------------------- 
 
Federal Express is exploring the possibility of adding additional 
routes to Nagoya's Centrair airport, Haruya Kato, FedEx Managing 
Director for Japan, Guam, and Saipan told Nagoya PO at a January 
11 meeting. 
 
Kato, who met earlier in the day with Centrair CEO Yukihisa 
 
TOKYO 00000345  003 OF 003 
 
 
Hirano, noted that while FedEx has no immediate plans to add new 
lines, the company is evaluating how best to handle growing 
shipments from Central Japan. 
 
FedEx currently routes shipments from Central Japan to Europe and 
Asia through Centrair and shipments to North America through 
Kansai International Airport. 
 
Although FedEx has maintained its leading share in the expanding 
market for overnight shipments out of Japan, Kato described 
competition as fierce with Japanese carriers posing an increasing 
challenge. 
 
¶10. (SBU) Protesters at Narita Airport Few but Still Active 
------------------------------- 
 
On January 7, the only active faction of radical protesters of 
Narita Airport called the Farmer's League Against the Narita 
Airport (known as Sanrizuka Domei; click here for their website) 
held a New Year meeting with a pledge to fight against Narita's 
expansion. Approximately 150 people attended. 
 
The faction calls the northern expansion of the runway at Narita 
airport a national crime and claims Prime Minister Abe is seeking 
to break their movement. 
 
The League's New Year pledge calls for a gathering of protesters 
in March. 
 
¶11. (U) JAL Restructuring Plan Expected in February 
------------------------------- 
 
The Asahi Shimbun reported that JAL should announce a wide 
ranging reform plan on February 6.  This news comes amidst 
several press stories this week on JAL's attempts to reduce costs 
and attract new customers. 
 
These efforts include plans to cancel money-losing domestic 
routes, introduce first class seats on domestic flights, and cut 
some 3,000 jobs over three years through early retirement, 
attrition and outsourcing. 
 
¶12. (SBU) Ports: Reform Problems Continue 
------------------------------- 
 
A foreign ship operator told Econoff and EconFSN this week that 
informal barriers to entry continue to exist for Japanese port 
operations hindering competition among port operators, preventing 
new port operators from entering the market, and keeping costs of 
doing business high. 
 
This is a problem for Japanese companies as well as foreign ones. 
One dramatic example he provided was Toyota's recent attempt to 
take over port operations at a new wharf opening in Nagoya in 
2005 to streamline its shipping operations.  Even Toyota could 
not get a license for port operations and the end result was 
three existing Japanese firms and local operators in Nagoya doing 
the port operations. 
 
He referred us to last year's EU?s "Proposals for Regulatory 
Reform in Japan," (see pp. 42-43) for a description of the 
situation, the prior notification system, and the role of the 
industry's group -- the Japan Harbor Transportation Association 
(JHTA) -- in forestalling competition. 
 
The JHTA is apparently vindictive, as our contact said it has 
held up approvals of applications for foreign shippers in the 
past when negative commentary about it appeared in foreign 
publications. 
 
When queried about the President of the Council for the Promotion 
of Regulatory Reform, Takao Kusakari, who is chairman of the NYK 
shipping line, our contact said he apparently has been interested 
in regulatory reform but as it relates to regulations over 
shipping, not necessarily port operations. 
 
¶13. (U) Mitsubishi UFJ Financial Group Tops Survey 
------------------------------- 
 
The Nikkei Financial Daily's annual survey of accounting and 
finance officers at publicly traded companies ranked Mitsubishi 
UFJ Financial Group as the top financial institution in Japan. 
According to Nikkei, MUFG outshone its rivals in seven of 10 
categories, including reliability for international operations 
and emphasis on compliance. 
 
MUFG beat out rivals Mizuho (which was ranked highest for M&A 
expertise) and Sumitomo Mitsui for the top spot. 
 
SCHIEFFER