VZCZCXRO7305
RR RUEHFK RUEHKSO RUEHNH
DE RUEHKO #4096/01 2471026
ZNY CCCCC ZZH
R 041026Z SEP 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 7224
INFO RUEHBJ/AMEMBASSY BEIJING 8785
RUEHBY/AMEMBASSY CANBERRA 2320
RUEHMO/AMEMBASSY MOSCOW 1871
RUEHUL/AMEMBASSY SEOUL 4846
RUEHFK/AMCONSUL FUKUOKA 2972
RUEHNH/AMCONSUL NAHA 5398
RUEHOK/AMCONSUL OSAKA KOBE 6600
RUEHKSO/AMCONSUL SAPPORO 3708
RUEHIN/AIT TAIPEI 6636
RUALSFJ/COMUSJAPAN YOKOTA AB JA
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUETIAA/DIRNSA FORT GEORGE G MEADE MD
RHMFISS/DISA WASHINGTON DC
RHHMUNA/HQ USPACOM HONOLULU HI
RHEHAAA/NSC WASHDC
RUEATRS/TREASURY DEPT WASHDC
RUEKJCS/SECDEF WASHDC
RHEHAAA/WHITE HOUSE WASHDC

C O N F I D E N T I A L SECTION 01 OF 05 TOKYO 004096 
 
SIPDIS 
 
SIPDIS 
 
DEPT. PLEASE PASS TO USTR/MBEEMAN 
 
E.O. 12958: DECL: 2017/08/29 
TAGS: PGOV PREL JA
SUBJECT: JAPAN'S NEW CABINET: GOOD NEWS FOR U.S.-JAPAN 
RELATIONS 
 
 
Classified By: CDA Joseph R. Donovan for reasons 1.4 (b,d) 
 
 Summary and Comment 
 ------------------- 
 
¶1. (C) Prime Minister Shinzo Abe has picked a line-up of 
cabinet ministers friendly to the U.S. and committed to 
continuing to make progress in the areas of defense, 
security, trade, economic reform, and the environment.  On 
defense and security issues the new ministers already have 
pledged support for OEF and realignment.  On economic and 
environmental issues, reforms already in place should 
continue unchanged, but we do not anticipate any new 
initiatives. 
 
¶2. (C) Abe's cabinet choices promise a more experienced 
approach to on-going problems.  However, scandals continue to 
plague the Liberal Democratic Party (LDP).  If support for 
Abe weakens further, emboldening the opposition-led Upper 
House to push forward with all-out obstructionist tactics, 
progress on the issues important to U.S.-Japan relations 
could be very difficult to achieve.  Whether the Abe 
cabinet's latest blow -- the resignation under a cloud of his 
Agriculture Minister after only one week (septel) -- is a 
sign of what is to come is a larger question.  End summary 
and comment. 
 
Security Relations 
------------------ 
------------------ 
 
OEF Top Priority 
---------------- 
 
¶3. (C) The ruling LDP's need for a strong team to lead the 
upcoming Diet debate on extending Japan's Operation Enduring 
Freedom (OEF) mission has been credited for the appointment 
of veteran faction leaders Nobutaka Machimura and Masahiko 
Komura as Foreign Minister and Defense Minister.  Both were 
directly involved in managing Diet deliberations on the OEF 
issue in the past, during Machimura's previous tenure as 
Foreign Minister and when Komura was Chairman of the Lower 
House Special Anti-Terror Committee.  In a brief encounter 
with Embassy officers, Machimura listed "OEF and realignment" 
as his top two priorities. 
 
Realignment On Course 
--------------------- 
 
¶4. (C) The cabinet reshuffle and personnel changes within 
Ministry of Foreign Affairs (MOFA) and Ministry of Defense 
(MOD) will not weaken Japan's commitment to implement the May 
1, 2006, Alliance Transformation Roadmap.  MOD Deputy 
Director General for Realignment Daikichi Momma commented 
that Defense Minister Komura has made clear to his staff that 
he fully supports MOD's engagement strategy with Okinawa on 
the Futenma Replacement Facility (FRF).  Momma added that 
"Komura is a big picture guy, and will not insert himself on 
the details."  The more significant appointment, Momma added, 
was Fukushiro Nukaga as Finance Minister.  Momma expressed 
confidence that Nukaga would support withholding not only 
realignment-related subsidies, but also the full range of 
central government support to Okinawa if local officials do 
not cooperate on realignment. 
 
Information Security Moving Ahead 
--------------------------------- 
 
¶5. (C) Continuity in key positions in the Cabinet Office will 
 
TOKYO 00004096  002 OF 005 
 
 
ensure that Japan's recent commitments to strengthen 
information security will be carried out.  Rumors that the 
National Police Agency (NPA) was seeking both the Deputy 
Chief Cabinet Secretary and Assistant Chief Cabinet Secretary 
for National Security Affairs positions turned out to be 
false.  Incumbents in both positions, who have been 
intimately involved in bilateral information security 
efforts, were retained in the new cabinet.  In addition, 
newly appointed Foreign Minister Machimura has led the LDP's 
effort to enhance the legal underpinnings of Japan's 
information security regime.  Machimura focused on 
strengthening Japanese intelligence gathering capabilities 
during his tenure as Foreign Minister in the Koizumi Cabinet. 
 He is expected to inject new energy into the Japanese 
Government's efforts in his new position. 
 
Views on HNS, SMA Mixed 
----------------------- 
 
¶6. (C) The new cabinet offers a mixed picture for Host Nation 
Support (HNS).  MOD's Momma noted that the appointment of 
Nukaga, who pledged in 2006 to seek an extension of the 
current USD 1.1 billion Special Measures Agreement (SMA), as 
Finance Minister is "very good for the United States." 
However, he cautioned that Ministry of Finance (MOF) 
bureaucrats are skilled at boxing in their ministers on such 
issues.  Foreign Minister Nobutaka Machimura is an advocate 
of cutting Japan's HNS.  MOFA's SOFA Division Director Osamu 
Izawa (strictly protect) said that Machimura lived up to this 
reputation during his initial in-brief at the Foreign 
Ministry. 
 
Economy and Environment -- Little New Impetus for Reform 
--------------------------------------------- ----------- 
--------------------------------------------- ----------- 
 
¶7. (SBU) Chief Cabinet Secretary (CCS) Kaoru Yosano will not 
take a strong role in developing economic policy if he 
repeats his performance as State Minister for Economic and 
Fiscal Policy in 2005-06.  However, he will coordinate 
consensus on economic policies within the LDP along with LDP 
Policy Affairs Research Council Chairman Nobuteru Ishihara. 
One part of Yosano's responsibilities during his tenure in 
the Koizumi Cabinet was to coordinate the Council on Economic 
and Fiscal Policy (CEFP), which was created during 
administrative reforms of 2001 to give politicians a greater 
role in macroeconomic and fiscal policy.  Under Yosano, the 
top-down approach of previous Minister of Economic and Fiscal 
Policy Heizo Takenaka was put aside in favor of a more 
conciliatory one, which took into account the views of LDP 
heavyweights outside the CEFP, as well as bureaucrats.  As 
CCS, Yosano already has appointed two bureaucrats as his 
deputies rather than following the tradition of appointing 
one bureaucrat and one politician.  Yosano has a good 
reputation in business circles.  Central Japan Rail chairman 
and Abe confidante Yoshiyuki Kasai has long pushed for Yosano 
to be in the cabinet in order to fill the gaps in Abe's 
economic and fiscal expertise. 
 
Return of the Postal Rebels? 
---------------------------- 
 
¶8. (C) Prime Minister Abe heightened concerns about his 
reform agenda by appointing four postal rebels to senior vice 
minister posts.  Two of these four appointees -- Hiroshi 
Moriyama and Masahiro Imamura -- left the LDP in 2005 along 
with 16 other legislators over their opposition to the postal 
privatization bills but PM Abe invited them back into the 
party in December 2006.  The other two -- Yoshio Nakagawa and 
 
TOKYO 00004096  003 OF 005 
 
 
Hiromi Iwanaga -- opposed the postal privatization bills in 
the Upper House vote.  Concerns about the postal rebels have 
been tempered, however, by the appointment of Minister of 
Internal Affairs and Communications Hiroya Masuda, who was 
formerly governor of Iwate Prefecture, sits as a member of 
the Postal Services Privatization Committee, and will wield 
direct influence on the privatization process. 
 
Improved Fiscal Health through Economic Growth 
--------------------------------------------- - 
 
¶9.  (SBU) Much is being made in the press about the possible 
differences among new cabinet officials over the continuation 
of the Abe "growth strategy," which calls for sustained 
economic growth by raising productivity, while pursuing 
fiscal reconstruction, primarily through expenditure cuts. 
Yosano is said to be fiscally conservative, and thus a 
favorite of MOF bureaucrats, favoring spending cuts and tax 
hikes over measures to accelerate growth.  During the Koizumi 
Administration, Yosano had a public debate with former 
Minister for Economic and Fiscal Policy Takenaka and then LDP 
Policy Affairs Research Council Chairman Hidenao Nakagawa, 
raising concerns that their approach for accelerating Japan's 
economic growth rate would harm fiscal reconstruction efforts 
by raising long-term interest rates and thus payments on 
Japan's very large government debt.  Finance Minister Nukaga 
and Economic and Fiscal Policy Minister Ota have reiterated 
Abe's initial policy of rebuilding the nation's fiscal health 
through economic growth.  In fact, the differences may not 
amount to much more than degrees of emphasis.  The largest 
constraint on implementing economic policy is likely to be 
the need to negotiate with the DPJ. 
 
Continued Budget Restraint 
-------------------------- 
 
¶10. (SBU) The track for the FY08 budget was set following the 
election and before the cabinet reshuffle, when the budget 
guidelines were approved by the previous cabinet on August 
¶10.  The guidelines call for a continuation of the Abe 
Administration's emphasis on spending restraint, setting the 
level of ministerial budget spending at roughly the same 
level where it has been since FY02, and necessitating 
spending cuts in public works and most other spending 
categories to offset increases in social security spending. 
CCS Yosano, Finance Minister Nukaga and Health, Labor and 
Welfare Minister Masuzoe have all stated that continued 
spending cuts are necessary for fiscal consolidation.  While 
there will clearly be pressure within the LDP and from the 
DPJ for more spending, particularly to support faltering 
regional economies, it appears that the new Abe cabinet will 
continue along the path charted before the election with some 
allowance for increased spending on several priority areas, 
including regional revitalization, within the overall 
spending cap. 
 
Consumption Tax Not Off the Table 
--------------------------------- 
 
¶11. (SBU) Earlier this summer, the Abe Administration had 
called for "drastic" tax reform discussions to begin this 
autumn.  Following the election, there had been initial 
speculation that this approach would be dropped and that a 
consumption tax increase might not even be discussed, never 
mind recommended, due to the opposition of the DPJ and fear 
among LDP members that such an unpopular proposal would 
further weaken support for the party.  However, an increase 
in the consumption tax is seen by many as a stable source of 
revenue to fund the increased government contribution to the 
 
TOKYO 00004096  004 OF 005 
 
 
basic pension scheme that will take effect in FY09.  While it 
remains unlikely that a consumption tax hike will be approved 
during next year's ordinary Diet session, Finance Minister 
Nukaga has called for discussions between the LDP and the DPJ 
on the consumption tax and other tax issues beginning this 
fall.  The business community's hopes for a cut in corporate 
taxes, as part of a package with a consumption tax hike, have 
dissipated, more due to the opposition in principle from the 
DPJ than the cabinet appointments. 
 
Government Focus On BOJ Likely to Ease 
-------------------------------------- 
 
¶12. (SBU) Conflicts between the Abe government and the Bank 
of Japan (BOJ) have flared at times over the past year, due 
to the government's concern that the BOJ's plans to normalize 
interest rates might adversely impact economic growth.  Then 
LDP Secretary General Hidenao Nakagawa was vocal in 
criticizing the BOJ, going so far as to say following the 
election that the BOJ's interest rate hikes had contributed 
to the LDP's defeat.  The appointment of CCS Yosano, a strong 
supporter of BOJ independence, has given the impression that 
these tensions may subside a bit.  Yosano was quoted in the 
press on August 31 saying that the BOJ's independence and 
responsibility for its policy-making are two sides of the 
same coin.  With many market participants pushing back 
forecasts for BOJ's next rate hike until December or January, 
due to the recent market turmoil and uncertainty over global 
economic prospects, the opportunity for further conflict on 
this issue will likely come later, rather than sooner. 
 
Climate and Environment 
----------------------- 
 
¶13. (C) The emphasis PM Abe has placed on the environment led 
many observers to believe the new Minister of Environment 
would be a heavier hitter than Ichiro Kamoshita, whose most 
prominent environmental posting was as Parliamentary Vice 
Minister of Environment in 1994.  Abe already has announced 
that he plans for climate and the environment to take center 
stage at the G8 in summer 2008 and that the "Cool Earth 50" 
proposal would be the centerpiece of Japan's climate push. 
Kamoshita has been far more active on health issues, having 
served as director of the Lower House Health, Labor and 
Welfare Committee in 2005 and as Vice Minister of Health, 
Labor and Welfare under former PM Koizumi in 2002. 
 
¶14. (C) It is unclear whether Kamoshita can influence the 
direction Japan takes in negotiations for a post-Kyoto 
regime, or reassert Ministry of Environment influence on the 
issue.  Currently, METI's ideology is carrying the day, with 
a MOFA bureaucrat, Global Affairs Director General Tsuruoka, 
as lead negotiator.  Judging by Kamoshita's hobby since 
college -- automobiles -- he would appear to favor the line 
that technology, not abstinence, will be the solution to 
climate change.  The Jidosha Shimbun ("Automobile Trade 
Paper") reports that Kamoshita belonged to a car club in 
school and is currently Secretary General of the LDP Motor 
Sports Caucus.  Kamoshita believes that the joy of driving 
should not be denied even in these environment-conscious 
times, according to the newspaper. 
 
WTO, Agriculture and Beef 
------------------------- 
 
¶15.  (C) The agriculture team consisting of Economy and Trade 
Minister Amari and newly appointed Agriculture Minister 
Masatoshi Wakabayashi likely will maintain Japan's current 
posture in the WTO Doha Development Agenda (DDA) -- one of 
 
TOKYO 00004096  005 OF 005 
 
 
official support for the DDA offset by insistence that the 
deal on agriculture not be too ambitious.  Wakabayashi was 
Minister of Environment in PM Abe's first cabinet.  Abe asked 
him to fill in as acting Minister for Agriculture after the 
suicide of Toshikatsu Matsuoka.  When Norihiko Akagi, 
Matsuoka's permanent replacement, resigned over a money 
scandal, Wakabayashi added the agriculture portfolio to his 
environment duties.  Wakabayashi is a former Ministry of 
Agriculture bureaucrat and has a thorough understanding of 
the issues.  He hails from rural Nagano Prefecture, but as an 
Upper House Diet member is not beholden to any constituency. 
His age (73) and his wife, who is also his secretary and 
reportedly very protective of his schedule, may constrain his 
travel, which may be problematic as the efforts on the WTO 
DDA resume. 
 
EPAs on Back Burner 
------------------- 
 
¶16. (C) The prospect of additional economic partnership 
agreements (EPAs), in effect free trade agreements with 
Japanese characteristics, is not promising.  Under Abe's 
leadership no new bilateral studies for EPAs -- the prelude 
to actual negotiations -- have been launched, although the 
business community is increasingly interested in pursuing 
more aggressive policies, including with the EU and United 
States.  During the Koizumi era, the Prime Minister played 
the key role in forcing the bureaucracy to begin the 
labor-intensive and frequently fractious interagency process 
of negotiating EPAs, and while negotiations continue on 
several agreements and several are already in effect -- all 
with their genesis in the Koizumi Administration -- there are 
no more waiting in the wings.  Although not a forward 
thinker, METI Minister Amari is well liked by his ministry's 
bureaucrats and has a good relationship with the Ambassador. 
There seems little chance, however, that Amari can or will 
try to assert the kind of strong leadership over Japan's 
international economic policy that might result in new 
multilateral or bilateral initiatives for trade 
liberalization.  In addition, Japan's trade policy is in some 
respects hostage to its backward, protectionist-minded farm 
sector.  Given the government's poor showing in rural areas 
in the recent election, implementing the sort of wrenching 
agricultural reforms necessary for the government to shift 
toward a more open trade policy may be all the more difficult. 
DONOVAN