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INFO RUEHFR/AMEMBASSY PARIS 5696
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RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 11 TOKYO 003922 
 
SIPDIS 
 
PARIS PLEASE PASS TO USOECD 
STATE PLEASE PASS TO USTR 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--August 23, 2007 
 
¶1. (U) This cable contains the Japan Economic Scope from August 
23, 2007. 
 
2.(SBU) Table of Contents 
 
Political Moves 
¶3.  Official Discusses Japan's "Confused" Political Situation, 
East China Sea and More 
¶4.  WTO Talks Set to Resume as Japanese Negotiators Face Cabinet 
Reshuffle 
¶5.  Abe Visits Indonesia, EPA, LNG and Climate Change Top Agenda. 
Food Fights 
¶6.  Beef: Both Sides Feeling Grilled 
¶7.  Farm Sector Protectionists Keep Up Pressure Against Doha 
¶8.  Upper House Election Results Not Good for Japan Agriculture 
¶9.  After Round Two, Agriculture Continues to Divide Japan- 
Australia FTA Talks 
¶10. Japan's Food Self Sufficiency Rate Drops Below 40 Percent 
Business Interests 
¶11. DOI DAS David Cohen Touts Japanese Business Opportunities in 
Guam, Saipan and Palau 
¶12. Local Governments Expecting Economic Windfall From New Sharp 
Plant 
¶13. Japan's Parent-Child Problem 
¶14. Hoya-Pentax Merger 
¶15. Tax Revenues Up in the Kansai 
¶16. Bank of Japan Leaves Interest Rates Unchanged 
¶17. GE to Pull Plug on Consumer Finance? 
¶18. IAEA Says No Significant Damage to Plant (U) 
¶19. TEPCO Officials Brief Embassy on Kashiwazaki-Kariwa Nuclear 
Plant Damage 
¶20. Earthquake's Reverberations Affect Power Supply to Industry 
¶21. Showa Shell to Build One of World's Largest Solar Cell Plants 
in Miyazaki 
¶22. Inpex to Build LNG Terminal in Niigata 
Product Safety and Security 
¶23. Scrutinizes Product Safety 
¶24. Rules for Japanese Internet Service Providers to Fight 
Viruses 
Planes, Trains and Automobiles 
¶25. Japan Views Asia -- PM's Asia Gateway Report Online 
¶26. Yokohama Port and Japanese Megaterminal Policy:  Minor 
Reforms with a lot of Business as Usual 
¶27. Michigan's Gentex Dominates Unique and Growing Auto Parts 
Sector 
¶28. Toyota's "Sustainability Report 2007" 
Sporting 
¶29. Matsuzaka Victimized Again 
¶30. "Gaman-tsuyoi" Prize Goes to Motorcyclist 
 
--------------- 
POLITICAL MOVES 
--------------- 
 
¶3.  (SBU) Official Discusses Japan's "Confused" Political 
Situation, East China Sea and More 
--------------------------------------------- ----- 
 
According to our contacts, much of the legislation to be debated 
in the next session of the Diet, including a bill aimed at 
helping Japan meet its Kyoto Protocol carbon-emissions targets, 
will likely stall due to the "confused" political situation 
following the opposition victory in the recent Upper House 
elections. 
 
Our contacts also speculated the dispute with China over oil and 
gas exploration rights in the East China Sea may be rekindled as 
a result of this situation.  Please see Tokyo 3819 for more on 
the electoral fallout, the East China Sea dispute, Venezuela's 
investment environment and Japan's offer to stockpile Saudi 
Arabian oil. (ECON:  Sally Behrhorst) 
 
¶4.  (SBU) WTO Talks Set to Resume as Japanese Negotiators Face 
Cabinet Reshuffle 
--------------------------------------------- ----- 
 
Foreign Ministry (MOFA) officials told us August 23 they want to 
see a deal to bring the current multilateral trade round to a 
successful conclusion, but recognize that obstacles remain. 
Agriculture remains the most contentious area in the talks, 
particularly given Japan's domestic political climate. Japan's 
position will not be any easier after last month's Upper House 
 
TOKYO 00003922  002 OF 011 
 
 
elections. 
 
The officials said they were not sure what sort of attitude the 
Democratic Party of Japan and its coalition partners would take 
toward the Doha process. 
 
One official told us he did not anticipate any major changes to 
Japan's Doha posture after PM Abe unveils his new cabinet on 
August 27. 
 
He added, however, that in contrast to other cabinet reshuffles, 
this one was difficult to gauge.  Few names are emerging in the 
rumor mill.  (Econ: Nicholas Hill) 
 
¶5.  (U) Abe Visits Indonesia, EPA, LNG and Climate Change Top 
Agenda. 
--------------------------------------------- ----- 
 
Prime Minister Abe, on the first leg of a three-nation Southeast 
Asian tour, arrived in Jakarta on August 20 for a two-day visit 
to Indonesia.  Signing the Japan-Indonesia Economic Partnership 
Agreement, Japan's sixth bilateral free-trade agreement, tops his 
agenda. 
 
The agreement will remove duties on 93 percent of Indonesian 
exports to Japan and 90 percent of Japanese exports to Indonesia, 
the latter representing a significant increase in tariff-free 
access.  The agreement exempts sensitive agricultural goods, 
notably rice, although Indonesia has become a slight net importer 
of rice in recent years. 
 
Japan sought and obtained specific "energy security" provisions 
in the new agreement that call for bilateral consultations after 
the expiration of the current long-term liquid natural gas (LNG) 
supply contracts expire in 2010-2011. The agreement does not 
provide Japan a guaranteed energy supply, something it wanted but 
which Indonesia, with its growing domestic energy demand, 
resisted.  Indonesian officials have already hinted that that 
country's LNG exports to Japan will decline in the future. 
Indonesia is currently Japan's number one supplier of LNG. 
 
In addition to the signing, Abe sought Indonesian support for a 
Japan climate change proposal for a post-Kyoto framework and gave 
a public speech on the future of ASEAN.  (ECON: David DiGiovanna) 
 
----------- 
FOOD FIGHTS 
----------- 
 
¶6.  (SBU) Beef: Both Sides Feeling Grilled 
--------------------------------------------- ----- 
 
U.S. and Japanese authorities continue to discuss the future of 
U.S. beef trade to Japan.  The United States would like to see 
Japan adopt international standards based on science and allow 
U.S. beef imports without age restrictions.  Japan prefers a 
political solution, allowing U.S. beef in from cattle under 30 
months old. 
 
On August 21, Japan's Agriculture Ministry (MAFF) passed its 
report to the Embassy on the experts-level talks that took place 
in June and early August.  The Embassy's FAS Office is currently 
translating the document. 
 
MAFF officials originally told us the report would contain a 
draft recommendation to open the market to U.S. beef from cattle 
under 30 months old, but nixed that idea when it became clear the 
two sides did not have a consensus. 
 
Currently only beef from cattle 20 months old and younger is 
allowed into Japan. 
 
MAFF is also pressing the Embassy for more information on the 
problem in Korea where banned bones were found in early August in 
a shipment -- an error that lead to a cut off of trade. 
 
Japanese authorities have told FAS that they anticipate a barrage 
of questions on the matter during Diet deliberations beginning 
August 23. 
 
Meanwhile, the U.S. Meat Export Federation (MEF) reported that 
U.S. beef imports to Japan doubled in June.  This is partly due 
 
TOKYO 00003922  003 OF 011 
 
 
to the end of 100 percent box inspections of U.S. shipments, but 
also due to seasonable availability of beef from cattle under 20 
months old, the only product allowed under Japan's current 
onerous trade regime.   (ECON:  Nicholas Hill) 
 
¶7.  (SBU) Farm Sector Protectionists Keep Up Pressure Against 
Doha 
--------------------------------------------- ----- 
 
Japan Agriculture (JA) does not like the modalities paper that 
WTO Agriculture negotiations Chair Falconer distributed among 
member countries over the summer and is working with other like- 
minded organizations internationally to make its views better 
known. 
 
A JA official told us August 22 that the farmers' lobbying 
organization had compiled a report of the views of similar 
agriculture organizations internationally, although would not 
share it with us. 
 
Japan Agriculture News reported that JA Chairman Isamu Miyata 
cannot accept the draft text in its current form.  In particular, 
he wants to see more latitude in identifying sensitive items. 
 
WTO member states should be allowed to identify up to around 10 
percent of all products as "sensitive," JA is arguing. 
 
According to the newspaper, Miyata is also concerned about any 
effort in the upcoming round of talks to boost Japan's market 
access for rice.  (Econ: Nicholas Hill/Ryoko Nakano) 
 
¶8.  (U) Upper House Election Results Not Good for Japan 
Agriculture 
--------------------------------------------- ----- 
 
Although last month's Upper House elections have been 
characterized as a bust for those who favor agricultural reform 
in Japan, that does not mean the country's leading protectionist 
lobby, Japan Agriculture, fared any better. 
 
According to the September edition of Foresight Magazine, the 
protectionist farm lobby and cooperative continues to lose 
political influence.  Only 52 percent of JA-supported candidates 
won seats. 
 
That is down from 75 percent in the previous round of Upper House 
elections when the LDP also suffered bad losses three years ago 
and substantially beneath the norm of recent years. 
 
Until its recent drop off in support, JA-supported candidates 
usually won elections about 90 percent of the time. 
 
Even its former Chairman, Toshio Yamada, barely squeaked out a 
victory in his proportional seat, with only 450,000 votes. 
Pundits noted that he probably had to get all the votes of the 
270,000 nationwide JA staff.  (Econ: Nicholas Hill/Ryoko Nakano) 
 
¶9.  (SBU) After Round Two, Agriculture Continues to Divide Japan- 
Australia FTA Talks 
--------------------------------------------- ----- 
 
Australian and Japanese negotiators concluded their second round 
of FTA talks on August 10 in Tokyo.  Some 18 sessions over five 
days covered a range of areas that would be included in a free 
trade agreement, with agriculture again providing the sticking 
point. 
 
MOFA and an Australian Embassy official told us the talks went 
generally well across a number of other areas, including rules of 
origin, goods market access, technical barriers to trade, energy, 
government procurement, services, and investment. 
 
Japanese negotiators, however, led by the Agriculture Ministry, 
are continuing to insist that sensitive products -- including 
dairy, barley, beef, rice, and tuna -- be carved out of the 
discussions. 
 
A Japanese official involved in the talks attempted to put the 
best face on the impasse, but acknowledged that the agriculture 
talks lagged behind the rest.  Asked if the two sides moved their 
agriculture discussion beyond what should be on or off the table, 
the MOFA official said not yet. 
 
TOKYO 00003922  004 OF 011 
 
 
 
At this stage, the Japanese agriculture negotiators wanted to 
state their case on why certain products needed to be carved out 
of any deal, and the Australian side was prepared to hear them 
out. 
 
The MAFF officials who led the discussion asserted that including 
sensitive items in an eventual deal with Australia would 
devastate the local industry.  They rehashed some of the static 
analysis that the ministry put forward during a Council of 
Economic and Fiscal Policy hearing in the spring. 
The Australians will respond to the Japanese argument to exclude 
sensitive items the next time the two sides meet, which is 
expected to be in November in Canberra or Sydney.  (ECON: 
Nicholas Hill) 
 
¶10.  (SBU) Japan's Food Self Sufficiency Rate Drops Below 40 
Percent 
--------------------------------------------- ----- 
 
Japan's quixotic attempt to boost food self-sufficiency rates is 
bumping up against another force: reality. 
 
The Agriculture Ministry (MAFF) released data on August 10 
showing that the country's food self-sufficiency rate dropped to 
39 percent in 2006, down from 40 percent the previous year and 
further away from its target of 45 percent by 2015. 
 
The farm labor population is growing older and shrinking, with 
farms going out of business and the Agriculture Ministry is 
trying to turn back the tide by announcing the creation of 
another office. 
 
According to reports in Nikkei and the Tokyo Shimbun on August 22, 
MAFF will open a Food Security Division to help boost the 
country's self-sufficiency rates. A MAFF official confirmed to us 
press reports that a study group under the Ministry will restart 
discussions on liberalizing regulations on farmland that had been 
temporarily shelved during the summer. 
 
The Council for the Promotion of Regulatory Reform will also be 
covering the same topic this fall. 
 
Some officials in the Agriculture Ministry have been fairly frank 
about the difficulty of raising the country's food self- 
sufficiency rate much above where it is right now, including to 
the press. 
 
"It will be difficult to achieve that target," a Nikkei story 
quoted a MAFF official on the likelihood of reaching the 45 
percent self-sufficiency rate the government has set for itself 
by 2015. 
 
Economists we have talked to also do not see much prospect that 
the government can reverse a trend that is deeply rooted in the 
country's demographic trends and social realities.  ECON: 
Nicholas Hill) 
 
------------------ 
BUSINESS INTERESTS 
------------------ 
 
¶11.  (U) DOI DAS David Cohen Touts Japanese Business 
Opportunities in Guam, Saipan and Palau 
--------------------------------------------- ----- 
 
During a visit to Japan, Department of Interior (DOI) Deputy 
Assistant Secretary David B. Cohen met with Japanese business 
groups and politicians, the American Chamber of Commerce in Japan 
(ACCJ), and the Japanese press.  He received a high degree of 
interest in the upcoming 4th Annual Secretary of the Interior's 
Conference on "Island Business Opportunities" scheduled for 
October 8-9 in Guam.   (ECON:  Josh Handler) 
 
¶12.  (SBU)Local Governments Expecting Economic Windfall From New 
Sharp Plant 
--------------------------------------------- ----- 
 
Sakai city of Osaka prefecture estimates that Sharp's new LCD 
panel plant will create 11.11 trillion yen ($93 billion) for the 
local economy over the first ten years of operation (the plant is 
slated to open in 2010).  Sharp's investment of one trillion yen 
 
TOKYO 00003922  005 OF 011 
 
 
($8.3 billion) is expected initially to infuse the local economy, 
especially local construction companies, with 800 billion yen 
($6.7 billion). 
 
Sakai city tax revenue will see a 19 billion yen ($158 million) 
increase in the first ten years and an additional 58 billion yen 
($483 million) the following ten years as initial tax incentives 
given to Sharp are phased out. 
 
Sakai's job market stands to reap significant gains as well. 
Professor Katsuhiro Miyamoto of Kansai University predicts the 
number of new jobs could reach 80,000 with Sakai city being the 
recipient of 52,000. 
 
Job growth can be attributed to Sharp's encouragement of parts 
makers such as glass manufacturers to set up shop near the site 
of the new factory to help keep production costs down. 
 
In addition, a solar battery plant with a production capacity of 
100 mega watts will be constructed on site and will open in 2009. 
 
The Osaka Prefectural Government has promised to provide Sharp 
with a 15 billion yen ($12.5 million) subsidy for the new plant. 
An Osaka prefectural official commented that the sizeable subsidy 
will pale in comparison to the significant influx in tax revenue 
from Sharp.  (Osaka-Kobe: Scott Ravenhill/Naomi Shibui) 
 
¶13.  (SBU) Japan's Parent-Child Problem 
--------------------------------------------- ----- 
 
U.S. private investment fund Perry Capital LLC is seeking to 
acquire a larger stake in NEC Electronics, Co., a spin-off of the 
Japanese IT giant, NEC Corporation, believing the smaller company 
would be profitable if it were allowed to operate independently 
of its larger parent. 
 
The problem of an independently listed "child" firm operating in 
the financial interests of its larger, "parent" company to the 
detriment of minority shareholders' interests affects about ten 
percent of all Japanese listed companies (compared to less than 
one percent in the U.S.) and highlights a number of problems that 
afflict minority shareholders in Japan. 
 
Although Perry Capital has the support of the Tokyo Stock 
Exchange and Japan's Pension Fund Association, NEC executives are 
showing no signs of accepting the offer or giving credit to the 
rights and interests of its child's minority shareholders. 
Please see cable Tokyo 03771 for more details.  (ECON:  Antonio 
Gonzalez) 
 
¶14.  (SBU) Hoya-Pentax Merger 
--------------------------------------------- ----- 
 
This year's annual general shareholder meetings and the first 
ever poison-pill ingestion had some investors' stomachs in knots 
about M&A forecasts.  But Hoya Corp.'s recent successful takeover 
of Pentax Corp. shows that there is still room for corporate 
takeovers in Japan. 
 
Pentax issued a memorandum of understanding of a merger with Hoya 
at the end of 2006 at 709 yen per share, a premium of about 10.5 
percent over the price the day before the memo was released. 
After heated internal debate, Pentax management ousted its CEO 
and director, who had promoted the deal, and abandoned the plan. 
 
Even though infighting among Pentax management effectively 
resisted the deal, Hoya's persistence in seeking to acquire the 
optical equipment maker paid off because U.S. firms Sparx Group 
Co. and Fidelity Investments, Pentax's largest two main 
shareholders, were eventually convinced of the value of Hoya's 
bid. 
 
The Hoya takeover shines hope for prospective takeovers in Japan, 
boding well for investors that intend on building corporate value 
for shareholders.  Please see cable Tokyo 3823 for more details. 
(ECON:  Antonio Gonzalez) 
 
¶15.  (SBU) Tax Revenues Up in the Kansai 
--------------------------------------------- ----- 
The Osaka National Tax Agency announced that 2006 tax revenues in 
the Kansai's six prefectures from both individuals and 
corporations have risen over the last three years.  This year's 
 
TOKYO 00003922  006 OF 011 
 
 
overall tax revenue saw an increase of 4.5 percent from the 
previous year with corporate tax revenues experiencing the 
greatest jump at 9.3 percent.  When comparing prefectures, Kyoto 
had the largest tax revenue growth at 11.9 percent while Wakayama 
only registered a 1.1 percent increase. 
 
A senior economist at the Osaka Prefecture Institute of Advanced 
Industry Development pointed out that economic gaps are becoming 
more pronounced in the Kansai region despite its relatively small 
area. 
 
For example, the profit disparity between the top (large 
companies) and bottom companies Small and Medium Enterprises 
(SME) is expanding.  On an individual level, while average income 
tax revenue is rising, it is not being driven by higher salaries 
for a wide swath of workers, but rather a few cases of large 
increases in income by top-level earners.  (Osaka-Kobe: Scott 
Ravenhill/Naomi Shibui) 
 
¶16.  (U) Bank of Japan Leaves Interest Rates Unchanged 
--------------------------------------------- ----- 
 
At its meeting which concluded on August 23, the Bank of Japan's 
(BOJ) Monetary Policy Board decided to leave its target unsecured 
overnight call rate at 0.50 percent by a vote of 8-1. 
 
Market expectations of a rate hike had been as high as 70 percent 
prior to the past week's financial turmoil, which saw these 
expectations dissipate down to near zero just before the BOJ 
meeting. 
 
In its report following the meeting, the Bank of Japan confirmed 
its view that the Japanese economy is expected to continue 
expanding moderately.  The Bank's comments on recent financial 
developments were sanguine, noting that "the environment for 
corporate finance remains accommodative," although "funding costs 
for firms have risen slightly." 
 
The report simply stated that "against the backdrop of increased 
global uncertainties stemming from the sub-prime mortgage problem 
in the United States," Japan's stock prices and long-term 
interest rates had fallen and the yen's exchange rate against the 
dollar had risen. 
 
Finance Minister Omi welcomed the BOJ's decision at a press 
conference.  The Bank of Japan last raised interest rates in 
February 2007.  (FINATT:  Maureen Grewe) 
 
¶17.  (U) GE to Pull Plug on Consumer Finance? 
--------------------------------------------- ----- 
 
GE's consumer finance subsidiary Honobono Lake is believed to be 
up for sale, according to media sources.  Although GE Money 
contacts would neither confirm nor deny the reports, GE is 
apparently taking steps to sell Japan's sixth largest consumer 
finance firm, following last year's Money Lending and Banking Law 
revisions and the 2005's Supreme Court decision that exposed 
money lenders to massive retroactive liabilities for "grey zone" 
(overpaid interest) lending. 
 
GE had previously announced plans to shutter 73 of 115 branches, 
200 of its 1,342 cash machines and 48 regional collection offices 
by the end of the calendar year. 
 
All of Japan's major consumer finance firms have undergone 
profound restructuring while making dizzying provisions against 
grey zone claims; Citigroup has reduced its consumer finance 
branch network in Japan by 80 percent and there has been ongoing 
consolidation among smaller operators. 
 
GE's Lake has approximately 800 billion yen in outstanding loans, 
2500 employees, and could be auctioned off as early as next month. 
 
(FINATT:  Mateo Ayala) 
 
----------- 
JAPAN POWER 
----------- 
 
¶18.  (U) IAEA Says No Significant Damage to Plant 
--------------------------------------------- ----- 
 
 
TOKYO 00003922  007 OF 011 
 
 
The Kashiwazaki-Kariwa Nuclear Power Plant, affected by a 6.8 
magnitude earthquake on July 16, safely shut down and damage 
appears less than expected, according to a 47-page report 
submitted by IAEA seismic safety review mission experts in early 
August.  Nuclear Safety Commission (NSC) Chairman Atsuyuki Suzuki 
asserted that some IAEA observations were in line with the 
positions that NSC made public on July 30. 
 
IAEA experts conducted a three-day physical examination of the 
seven reactor units, analysis of instrument logs and interviews 
with plant staff.  The scope of the mission was limited to three 
main areas: 1) study of the plant's seismic design; 2) 
investigations of operational safety management response to the 
release of radioactive material and 3) observation of the amount 
of damage to the plant's structures, systems and components. 
The report summarized that although the earthquake exceeded the 
level of the seismic input taken into account in the design of 
the plant, the installations behaved in a safe manner during and 
after the earthquake. According to the team, this is probably due 
to the conservatism in designing facilities at Japanese nuclear 
power plants. 
 
IAEA confirmed initial reports that the amount of radioactive 
materials released was well below the authorized limits and posed 
no threat to the environment.  However, IAEA did ping TEPCO for 
their delay in reporting the leakage of radioactive material and 
recommend an improved accident reporting system. There were two 
minor incidents of the release of radioactive material: one 
through the exhaust stack of unit 7 and a second from the spent 
fuel pool of unit 6. 
 
For more information on the impact of the earthquake on the 
nuclear power plant, see Tokyo 03296 and Tokyo 03263.  (EST: 
Ayanna Hobbs) 
 
¶19.  (SBU) TEPCO Officials Brief Embassy on Kashiwazaki-Kariwa 
Nuclear Plant Damage 
--------------------------------------------- ----- 
 
Two TEPCO officials were cautiously optimistic about meeting 
electrical demand if the summer remained cool at a briefing for 
Embassy staffers on the earthquake's impact on the Kashiwazaki- 
Kariwa nuclear power plant on August 1.  They anticipated a 
maximum summer electricity demand of 61.1 million kw, but noted 
that cutting supplies to heavy industrial users was a way to meet 
a spike in demand. 
 
When asked if they had a demand management approach that allowed 
them to subsidize energy saving steps taken by end-users, they 
replied they do not have such a system. 
 
In terms of replacement power, they said they could obtain up to 
62.14 million kw without the Kashiwazaki-Kari plant, but at an 
additional cost.  Aside from what TEPCO could get from other 
utilities, TEPCO was exploring whether industrial sites that have 
independent power systems could make some contribution to the 
grid this summer since TEPCO would need several months to bring 
moth-balled oil-fired plants back on line. 
 
The TEPCO officials spent some time reviewing the origins of the 
radioactivity that was released into the environment outside the 
plant. 
 
Small amounts were in the water sloshed out of the spent fuel 
storage pool and managed to get into a drain system that exited 
the plant. 
 
The iodine-131 that was detected was trace amounts that resulted 
from the normal operations of the plant and did not indicate the 
fuel was damaged. 
 
The chromium-51 and colbalt-60 were activation products found in 
the crud and unrelated to the fuel. 
 
The TEPCO officials were pleased that the plant as a whole had 
withstood a quake that exceeded its general design limits and 
that the SCRAM system had operated effectively.  They could not 
provide the specific design basis for the fuel or fuel assemblies, 
however.  One-third of the fuel rods are exchanged approximately 
every 13 months, thus the oldest set had been operating some 
three years.  (ECON:  Josh Handler) 
 
 
TOKYO 00003922  008 OF 011 
 
 
¶20.  (SBU) Earthquake's Reverberations Affect Power Supply to 
Industry 
--------------------------------------------- ----- 
 
Tokyo Electric Power Co. (TEPCO) invoked power supply reduction 
agreements with large-lot customers for the first time in 17 
years because of heavy electrical demand during a heat-wave while 
its Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture 
remains out of action due to the July earthquake, according to 
TEPCO's website and Japanese press reports. 
 
Showa Denko, a supplier of petrochemicals and aluminum products, 
and Tokyo Steel cut power consumption; overall a total of 23 
sites reduced electrical use by 120,000 kw, although TEPCO was 
seeking reductions as high as 150,000-200,000 kw. 
 
Other TEPCO clients with different agreements have not been 
affected yet.  Nissan Motor, however, could face up to a 40 
percent cut in power, which could impact engine production, 
according to a Nissan official quoted in the press.  Other 
industry and commercial groups are taking proactive steps to 
reduce energy consumption. 
 
According to TEPCO, power usage on Thursday peaked at 61.47 
million kw, up 2.2% from Wednesday and the highest yet this 
summer.  (ECON:  Josh Handler) 
 
¶21.  (U) Showa Shell to Build One of World's Largest Solar Cell 
Plants in Miyazaki 
--------------------------------------------- ----- 
 
To meet the growing global demand for residential solar cells, 
Showa Shell Sekiyu K.K., the Japanese unit of Royal Dutch Shell 
PLC, announced on August 15 that it plans to build its second 
solar cell plant in Miyazaki prefecture by June 2009.  Once 
completed, the $130 million plant, capable of generating 60 
megawatts (mw) annually, will be one of the world's largest next- 
generation thin-film solar cell plants.  The firm's pilot plant, 
also in Miyazaki, with a capacity of 20 mw began commercial 
production in July. 
 
While Kyushu currently accounts for only one percent of Japan's 
total solar cell production capacity, the Development Bank of 
Japan projects that share to expand to 10 percent of the nation's 
total by the end of JFY 09. 
 
Other solar cell production in Kyushu includes Fuji Electric 
Systems in Kumamoto since 2006, Honda Motor, which will begin 
mass production of thin-film cells in Kumamoto this October, as 
well as Mitsubishi Heavy Industry, which is stepping up its 
investment in its Isahaya plant in Nagasaki. (Fukuoka:  Yuko 
Nagatomo/Jim Crow) 
 
¶22.  (U) Inpex to Build LNG Terminal in Niigata 
--------------------------------------------- ----- 
 
On August 9 Inpex announced it had started negotiations with 
Niigata prefecture and Joetsu city to construct a liquid natural 
gas (LNG) import terminal at Naoetsu Port in Joetsu city. 
 
The terminal will consist of two 180,000 kl storage tanks and 
should start operations at the end of 2013.  Inpex owns pipelines 
running from Naoetsu to seven nearby prefectures as well as Tokyo. 
 
 
The imported LNG would go to city gas companies and manufacturers 
in those areas.  The terminal would initially handle 500,000 to 
700,000 tons of LNG per year with volume gradually increasing 
based on the demand. (The media speculates that it could handle 
up to 2 million tons a year, or roughly three percent, of Japan's 
current LNG imports.) 
 
Inpex's initial investment would not exceed 100 billion yen. 
Inpex is currently involved in natural gas projects in 
northwestern Australia and Indonesia, some of which would be 
shipped to the new terminal.  Inpex would thus become the first 
Japanese company to handle LNG from field development to domestic 
sales. (ECON:  Eriko Marks) 
 
--------------------------- 
PRODUCT SAFETY AND SECURITY 
--------------------------- 
 
TOKYO 00003922  009 OF 011 
 
 
 
¶23.  (U) GOJ Scrutinizes Product Safety 
--------------------------------------------- ----- 
 
Recent discoveries regarding unsafe imports from China prompted 
the Japanese to launch an interagency committee, Ministry of 
Foreign Affairs officials told us in an August 20 meeting. 
Domestically generated product safety scandals also focused 
public and government attention on the issue, Ministry of Economy, 
Trade and Industry (METI) officials told us in an Aug. 21 meeting. 
 
 
The division of labor on product safety issues is complicated, 
METI officials indicated.  METI has jurisdiction over specific 
manufactured items identified in Japanese law, but food safety 
oversight is divided between the health and agricultural 
ministries.  Numerous regulations divide product oversight 
responsibilities.  For example if a toy has a mechanical defect, 
METI would be responsible, but the presence of lead in the paint 
on the toy would fall under the health ministry's purview. 
 
In addition to the ministries' oversight, the National Institute 
of Technology and Evaluation (NITE), a government-owned non- 
profit corporation, investigates and tests products to determine 
if they are safe.  However, according to NITE's own website, the 
most assertive institution is the media which accounted for 64.9 
percent of all consumer product defect reports in 2005.  See 
Tokyo 3879 for more information.  (ECON:  Charlie Crouch) 
 
¶24.  (U) New Rules for Japanese Internet Service Providers to 
Fight Viruses 
--------------------------------------------- ----- 
 
The Communications Ministry, according to a Nikkei report, will 
revise rules governing Internet service providers (ISPs) in order 
to allow them to block temporarily computers infected with 
viruses from accessing the Internet.  New guidelines were sent to 
ISPs last week, which are expected to review their own procedures 
and gradually adopt new measures. 
 
The guidelines outline circumstances under which ISPs can cut off 
users, and will allow disconnection of computers that have 
launched cyber-attacks through telecommunications networks, as 
well as infected personal computers that pose a risk to others. 
To date, Internet companies have followed their own policies and 
practices, but technically such measures have violated Japanese 
laws on telecommunications and privacy.  The new guidelines are 
therefore aimed at protecting public interest and rationalizing 
rules governing ISPs. 
 
According to Japan's Information-Technology Promotion Agency, 
44,800 reported virus infections in 2006 was double the rate from 
five years earlier.  Even the Bank of Japan's Web site was 
infected and inaccessible to the public for a short time last 
December.  (ECON:  Scott Smith/Kaoru Nakata) 
 
------------------------------ 
PLANES, TRAINS AND AUTOMOBILES 
------------------------------ 
 
¶25.  (SBU) Japan Views Asia -- PM's Asia Gateway Report Online 
--------------------------------------------- ----- 
 
"The 21st century is the century of Asia," is the bold opening of 
PM Abe's Asia Gateway Strategy Council's May 16 "Asia Gateway 
Initiative" report, an English-language translation of which is 
now online. 
 
Now disbanded, the Council's report was incorporated into the 
Council on Economic and Fiscal Policy's annual economic policy 
recommendations.  Led by Special Advisor to the Prime Minister 
for Economic and Fiscal Policy Takumi Nemoto and comprised of 
several prominent industry leaders and academics, the Council's 
report, nonetheless, is notable as an example of the current 
Japanese political leadership's thinking about Japan's political, 
economic and cultural relationship with the growing economies of 
Asia. 
 
Parts of the reports recommendations on aviation reform have been 
covered in the Scope and in Tokyo 2180, but aviation plus the 
big-picture introduction and the sections on trade, financial 
markets, agriculture, culture, Japan's image abroad, tourism and 
 
TOKYO 00003922  010 OF 011 
 
 
foreign study are worth a glance. (ECON:  Josh Handler) 
 
¶26.  (SBU) Yokohama Port and Japanese Megaterminal Policy:  Minor 
Reforms with a lot of Business as Usual 
--------------------------------------------- ----- 
 
Japan is creating megaterminals in three port areas to boost the 
competitiveness of its major ports and attract super-sized 8,000- 
plus TEU container vessels.  PM Abe also has called for 24/7 port 
operations as part of his Asia Gateway Initiative to increase 
port competitiveness. 
 
In July, we visited Japan's first megaterminal, the Honmoku BC 
Container terminal in Yokohama.  The amount of containers handled 
by the port has increased by 10 percent a year, but this may be 
due to Japan's export-led growth rather than any cost reductions 
at the megaterminal. 
 
Prices for services and the number of stevedoring and port 
services companies seemingly have not changed, and employment 
levels remain about the same.  The terminal cannot implement 24- 
hour operations until trucking companies are willing to do the 
same. 
 
Port officials were unaware of USG/DOE's MegaPorts Initiative for 
radiation monitoring of U.S.-bound containers.  Based on our 
observations, the megaterminal policy has had a marginal impact 
on heightening the competitiveness of the port.  More USG 
outreach to port officials and through them to port operating 
companies could be useful for implementing a requirement to 
screen all U.S.-bound containers for radiation sources.  For more 
see Tokyo 03910.  (ECON:  Josh Handler) 
 
¶27.  (SBU) Michigan's Gentex Dominates Unique and Growing Auto 
Parts Sector 
--------------------------------------------- ----- 
 
Gentex Corporation, of Zeeland, Michigan, which controls 80 
percent of the global market for auto-dimming automobile mirrors, 
has had similar success in the Japanese market.  Gentex has 
captured about 95 percent of Japanese automakers' OEM business in 
their sector, and Toyota is one of their most profitable accounts 
globally. 
 
Nagoya PO met on August 21 with Gentex Japan President Kazuhiko 
Nishijima, who said Gentex's annual Japanese sales have expanded 
to $160 million from $8 million since opening its first Japanese 
office in Nagoya 10 years ago.  Most of Gentex's sales in Japan 
are for autos bound for export.  Currently, only about 2 percent 
of Japan's cars have auto-dimming mirrors, compared with one- 
third new cars in the U.S. 
 
Nishijima said Gentex is the first American company to win 
Toyota's Quality Excellence Award, largely due to its low level 
of defects at well under 10 parts per million for its products, 
which are made in Michigan.  (Toyota keeps about three months' 
inventory on hand in Japan.) 
 
The low defect rate is despite the mirror's surprising complexity. 
 
Each of Gentex's electrochromic mirrors is controlled by an 
internal microcomputer system and many contain other components 
such as interior lighting, headlamp controls, tire pressure 
monitors, rear camera display, and hands-free microphone. 
 
This relatively obscure parts sector is experiencing strong 
revenue growth, and mirrors will continue to gain added 
functionality since, as described by Nishijima, they are located 
at eye level, highest value real estate in an auto's cabin. 
(Nagoya:  Tamiki Mizuno) 
 
¶28.  (U) Toyota's "Sustainability Report 2007" 
--------------------------------------------- ----- 
On August 8, Toyota released its "Sustainability Report 2007: A 
New Future for People, Society and the Planet" that covers 
Toyota's initiatives on energy and global warming, and reduction 
of CO2 emissions as well as social and economic questions. 
(ECON:  Junko Nagahama) 
 
-------- 
SPORTING 
-------- 
 
TOKYO 00003922  011 OF 011 
 
 
 
¶29.  (U) Matsuzaka Victimized Again 
--------------------------------------------- ----- 
 
These are frustrating times for Boston's star Japanese import 
Daisuke Matsuzaka.  The right-handed starter for the Red Sox is 
pitching well but his team is not giving him any run support. 
His most recent loss came in Tampa Bay on August 22 (August 23 in 
Japan) when he surrendered a two-run home run to Justin Upton and 
the Major League's best team -- that is, the Red Sox -- lost 2-1 to 
 
the lowly Devil Rays. 
 
Matsuzaka's record slipped to 13-10. 
 
Combined with the Yankees 8-2 victory over the Los Angeles Angels, 
the Red Sox lead over the forces of darkness -- that is, the 
Yankees -- has slipped to only five games. 
 
On a related subject, Kei Igawa, the Yankees $46 million pick up 
last winter, continues to turn in average numbers for the 
Scranton-Wilkes Barre Yankees of the International League. 
He is 4-4 overall with an earned run average of 3.62 after two 
demotions this season from the big club.  (Econ: Nicholas Hill) 
 
¶30.  (U) "Gaman-tsuyoi" Prize Goes to Motorcyclist 
--------------------------------------------- ----- 
 
Beating out Naha Consul General Kevin  "Night" Maher, who had 
been nominated for continuing to serve after being flayed by the 
Okinawa press, 54-year-old Kazuo Nagata, who continued to drive a 
large motorcycle about two kilometers after hitting the center 
divider on a national highway and losing his right leg below the 
knee, has won Japan's "Gaman-tsuyoi" award. 
Nagata, a salaried worker, was apparently unaware of the loss of 
his leg despite the acute pain he experienced from the impact, 
police reported. 
Nagata, who was on his way to Gifu Prefecture with a group of 
about 10 friends, did not fall in the accident and continued the 
ride before noticing part of his leg was missing.  (POL:  Michael 
Meserve) 
 
¶31.  (U) This SENSITIVE BUT UNCLASSIFIED e-newsletter from U.S. 
Embassy Tokyo's Economic Section, with contributions from the 
consulates, is for internal USG use only.  Please do not forward 
in whole or in part outside of the government.  The Scope is 
edited this week by Charlie Crouch (CrouchCA@state.gov) and Joy 
Progar (ProgarJ@state.gov). 
 
¶32.  (U) Please visit the Tokyo Econ Intranet webpage for back 
issues of the Scope.  Apologies, this option is only available to 
State users.  Please contact Joy Progar if you are from a different 
 
agency and are interested in a back issue. 
DONOVAN