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DE RUEHKO #4552/01 2710726
ZNR UUUUU ZZH
R 280726Z SEP 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8029
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5752
RUEHFK/AMCONSUL FUKUOKA 3402
RUEHNAG/AMCONSUL NAGOYA 2343
RUEHNH/AMCONSUL NAHA 5815
RUEHOK/AMCONSUL OSAKA KOBE 7058
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 004552 
 
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--September 27, 2007 
 
¶1. (U) This cable contains the Japan Economic Scope from 
September 27, 2007. 
 
¶2. (SBU) Table of Contents 
 
Political 
¶3.  New PM Fukuda Keeps Economic Team Intact 
¶4.  Less Uncertainty in Japan's Trade Team 
¶5.  Fukuda's Campaign Pledges Squishy on Reform ( 
 
International Interrelations 
¶6.  Asia is the Future of Energy 
¶7.  2007 FDI in Japan Hit Net Record 
¶8.  METI Seeks Early Implementation of Japanese Depositary 
Receipt 
 
Aviation and Industry 
¶9.  MLIT Leaks Abolishment on Double Approval Pricing System 
¶10. Boeing Dreamliner returns "magic" to flight 
¶11. JCAB Proposes Flight Schedule during Yokota Dual-Use Study 
Group Meeting 
¶12. Dubai Airline Offering Free Nagoya-Tokyo Bullet Train Tickets 
¶13. Nippon Steel Acquires Daido Steel Affiliate 
 
Economic Impact 
¶14. Japan Post Privatization Set to Begin 
¶15. Updated Economic Indicators 
¶16. Age-Restricted Employment Ads to Be Curtailed 
 
Trade 
¶17. Pork Importer Arrested Over Tariff Evasion 
¶18. Beef Still in Freezer? 
¶19. Pan-East Asian Trade "Merely a Dream" 
 
Sports 
¶20. Sumo World Rocked by Scandal -- Again 
¶21. Comeback for Kei Igawa? 
 
--------- 
POLITICAL 
--------- 
 
¶3.  (SBU) New PM Fukuda Keeps Economic Team Intact 
--------------------------------------------- ----- 
 
After winning the Liberal Democratic Party (LDP) presidency over 
the weekend, Yasuo Fukuda was officially elected prime minister 
September 26.  His Diet selection, though never in doubt, was 
delayed slightly by Democratic Party of Japan (DPJ) parliamentary 
maneuvering. 
 
Fukuda opted to keep 13 of the 17 ministers from former Prime 
Minister Shinzo Abe's cabinet, and he kept the entire economic 
team intact.  His four changes were the following: 1) moving 
Nobutaka Machimura from foreign minister to chief cabinet 
secretary; 2) moving Masahiko Komura from defense minister to 
 
SIPDIS 
foreign minister; 3) selecting Shigeru Ishiba as defense 
minister; and 4) appointing Kisaburo Tokai as education minister. 
 
Fukuda's retention of Justice Minister Hatoyama and METI Minister 
Amari, both of whom supported rival LDP presidential candidate 
Taro Aso, was somewhat surprising.  Commentators have stressed 
Fukuda's need for continuity, given the ongoing Diet session and 
the preparation time new ministers would have for parliamentary 
appearances. 
 
In other personnel matters, PM Fukuda selected former Finance 
Minister Sadakazu Tanigaki as LDP Policy Research Council 
Chairman.  When Tanigaki challenged former PM Abe for the LDP 
presidency in 2006, he was an outspoken advocate for raising the 
consumption tax, and media have interpreted his selection as an 
indication Fukuda will focus more on fiscal reconstruction than 
the more growth-oriented policies pursued under PM Abe. 
A photo gallery of the new cabinet is attached.  For more 
information on PM Fukuda's team, see classified cables Tokyo 4466 
(new cabinet members) and 4468 (LDP executive).  (ECON: Marc 
Dillard) 
 
¶4.  (SBU) Less Uncertainty in Japan's Trade Team 
--------------------------------------------- ----- 
 
Japan's trade policy under a new prime minister will be 
 
TOKYO 00004552  002 OF 007 
 
 
interesting to watch in coming weeks, but there is a little less 
uncertainty after Trade Minister Akira Amari and Agriculture 
Minister Masatoshi Wakabayashi retained their positions. 
 
Wakabayashi was installed -- or reinstalled -- last month as MAFF's 
 
fifth minister since May after a series of financial scandals 
derailed at least three previous incumbents.  New PM Fukuda 
apparently saw no reason to go find another minister at this time. 
 
As for Amari, political pundits expected him to go after he 
supported Taro Aso over Fukuda in the PM race.  According to a 
METI official we talked to September 26, most ministry officials 
saw Amari's days as numbers. 
 
Amari thought he was on the way out too.  According to our source, 
the Trade Minister quipped to a large gathering of METI officials 
after the new cabinet announcement how surprised he was to be 
still on the job. 
 
Amari is very popular at METI and "very familiar" with the issues, 
our source indicated.  This would not have been a good time to 
find a new minister, he concluded.  (ECON: Nicholas Hill) 
 
¶5.  (SBU) Fukuda's Campaign Pledges Squishy on Reform 
--------------------------------------------- ----- 
 
During his short campaign for the LDP presidency, PM Fukuda 
expressed qualified support for former PM Koizumi's "reform 
agenda," but stressed the need to address regional disparity and 
pocketbook issues, along with the "stability" he would bring to 
office.  See Tokyo 4417 for details.   (ECON: Marc Dillard) 
 
---------------------------- 
INTERNATIONAL INTERRELATIONS 
---------------------------- 
 
¶6.  (U) Asia is the Future of Energy 
--------------------------------------------- ----- 
 
Non-OECD Asia will account for 75 percent of total growth in 
world energy consumption between now and 2030, said DOE's Energy 
Information Administration (EIA) Administrator Guy Caruso during 
a September 12--13 trip to Japan. 
 
Growth will occur across every fuel source, but will be 
especially predominant in coal with a commensurate growth in 
carbon dioxide emissions.  The EIA estimates world oil 
consumption will go from 85 million barrels today to 115 million 
barrels by 2030. 
 
China alone will increase from 7 million barrels to 20 million 
barrels per day over this same timeframe, although many have 
criticized this number as too conservative. 
 
The current sky-high oil prices are a result of a perfect storm 
of contributing factors.  Deterioration of the investment climate 
in such producer nations as Venezuela, Russia and Iraq added to 
the situation. 
 
Caruso noted that, under President Chavez, oil production in 
Venezuela has declined from 4.5 million barrels per day to 2.5 
million barrels per day, helping to push up prices for Middle 
East oil.  "Chavez is the Saudis' best friend," he joked. 
Second, the low price of oil and natural gas in the late 1980s 
and early 1990s acted as a disincentive to investment and 
investors are now racing to catch-up. 
 
Finally, China and India's voracious energy needs are adding fuel 
to the fire, Caruso stated.  (ECON:  Sally Behrhorst) 
 
¶7.  (U) 2007 FDI in Japan Hit Net Record 
--------------------------------------------- ----- 
 
Foreign Direct Investment (FDI) in Japan between January and July 
this year hit a record net capital inflow of 2.32 trillion yen, 
according to the Ministry of Finance.  This figure already 
exceeded the record annual net inflow of 1.45 trillion yen in 
¶1999. 
 
This increase is largely due to a significant amount of "out-in" 
M&A transactions including Citigroup's acquisition of Nikko 
 
TOKYO 00004552  003 OF 007 
 
 
Cordial Group (920 billion yen), Volvo's purchase of Nissan 
Diesel Motor (135 billion yen), and General Electric's purchase 
of Sanyo Electric Credit (126 billion yen). 
 
However, there is a concern that the latter half of the year is 
going as well, largely due to the financial market turmoil 
triggered by the sub-prime loan debacle in the U.S. 
 
Analysis by Thomson Financial already shows this tendency as the 
number of M&A transactions worldwide in August was already 22 
percent lower than in July.  Nikkei reported that many analysts 
see the M&A market in Japan could also be affected to some degree. 
 
 
Further improvements in the investment environment -- including 
progress on regulatory reform -- is necessary for Japan to promote 
further inward direct investment.  (ECON: Satoshi Hattori) 
 
¶8.  (U) METI Seeks Early Implementation of Japanese Depositary 
Receipt 
--------------------------------------------- ----- 
 
Ministry of Economy, Trade and Industry (METI) and its Global 
Industrial Finance Study Group issued a report discussing 
challenges and measures to achieve the Asia Industrial Finance 
Zone Initiative. 
 
As one step, the report calls for early implementation of the 
Japanese depositary receipt (JDR), the Japanese version of the 
American depositary receipt (ADR), to promote listings of foreign 
companies on Japanese stock exchanges. 
 
In order to disseminate JDRs in Asia and promptly issue them, the 
report makes several recommendations including: prepare brochures 
and organize fora abroad; promote JDRs as financing instrument 
for Indian companies in the Delhi-Mumbai Industrial Corridor 
project; review the disclosure requirements that could be a 
burden on foreign companies, and; encourage financial 
institutions to develop new products and services. 
 
Issuance of JDRs will be recognized under the revised Trust Law 
and the amended Securities and Exchange Law (Financial 
Instruments and Exchange Law).  (ECON: Satoshi Hattori) 
 
--------------------- 
AVIATION AND INDUSTRY 
--------------------- 
 
¶9.  (U) MLIT Leaks Abolishment on Double Approval Pricing System 
--------------------------------------------- ----- 
 
The Construction and Transport Ministry will abolish the de facto 
lower limit on fares for international flights from Japan to 
foreign destinations beginning in fiscal 2008, according to 
ministry sources. 
 
The ministry will also scrap what it calls the double approval 
system, which requires countries at both end points of a route to 
approve a ticket price, according to the Yomiuri Shimbun article. 
After the deregulation, airlines will need approval only from the 
country of departure. 
 
The changes will make it easier for foreign budget airlines to 
operate in Japan and are expected to trigger a price war.  (ECON: 
Junko Nagahama) 
 
¶10.  (U) Boeing Dreamliner returns "magic" to flight 
--------------------------------------------- ----- 
 
President of Boeing Japan Nicole Piasecki explained the market 
strategy for Boeing's newest aircraft, the 787 Dreamliner, during 
a lunch at the Tokyo American Club September 27. 
 
"We want to bring the magic back to flight," she explained 
showing photos of larger windows, softer lighting and smoother 
curves on the aircraft.  She noted that the Dreamliner is a 
global project, designed and built in a variety of countries 
including 35 percent of its construction in Japan. 
 
The aircraft designer explained an increase in demand for point 
to point travel.  Customers want the shortest travel time 
possible, according to Boeing research.  More non-stop flights 
 
TOKYO 00004552  004 OF 007 
 
 
and more frequencies give customers more options, she said. 
 
"We estimate the Dreamliner will allow airlines to create 600 new 
routes, making flight more convenient for the customer," she 
explained.  Using China as an example, she noted that the number 
of flights originating from or arriving to China has increased 
nearly 20 times since 1999.  (ECON:  Charlie Crouch) 
 
¶11.  (SBU) JCAB Proposes Flight Schedule during Yokota Dual-Use 
Study Group Meeting 
--------------------------------------------- ----- 
 
During the 8th Study Group bilateral meeting for Civilian- 
Military Dual Use of Yokota Air Base on September 26, the 
Japanese Civil Aviation Bureau representative presented a plan to 
inaugurate 15 weekly civilian flights out of Yokota Air Base. 
 
The plan included specific landing and take-off times 
illustrating how these flights would fit into the flight 
operations of a sample week based on data from noise-pollution 
monitoring of the air base. 
 
The USG representative noted that, though presented as a part of 
this feasibility study, the flight schedule seemed more like an 
implementation plan.  Both sides agreed to exchange their 
respective versions of the final report by October 3, and agreed 
that the final report should be publicly available.  However, 
they were not able to agree on a proposed publication date. 
(ECON:  Charlie Crouch) 
 
¶12.  (U) Dubai Airline Offering Free Nagoya-Tokyo Bullet Train 
Tickets 
--------------------------------------------- ----- 
 
Dubai-based Emirates Airline, which does not serve airports in 
Tokyo, is handing out free round-trip Shinkansen tickets to Tokyo 
passengers using Nagoya's Central Japan International Airport, 
according to a September 27 article in Nikkei. 
 
Emirates Airline currently serves the Nagoya airport and Osaka's 
Kansai International Airport, with daily direct flights to Dubai. 
Seat occupancy rates of these flights have been more than 80 
percent. 
 
But residents of the greater Tokyo area account for only about 20 
percent of passengers using the flights into and out of Nagoya. 
By passing out free Shinkansen tickets to first- and business- 
class passengers, the airline hopes to boost the percentage to 
around 50 percent. (ECON: Charlie Crouch) 
 
¶13.  (U) Nippon Steel Acquires Daido Steel Affiliate 
--------------------------------------------- ----- 
 
Nippon Steel Corp. announced an agreement to acquire Daido Steel 
Company's entire stake in an electric furnace steelmaking 
affiliate, bringing its own interest to 42.8 percent according to 
a September 26 article in the Nikkei. 
 
Daido Steel will sell its 35.6 percent Oji Steel stake to Nippon 
Steel, which already holds a 7.2 percent interest. The sale price 
has yet to be hammered out, but is expected to be around 10 
billion yen. Daido Steel will withdraw from Oji Steel's 
management and focus on specialized steel products.  (ECON: 
Charlie Crouch) 
 
--------------- 
ECONOMIC IMPACT 
--------------- 
 
¶14.  (SBU) Japan Post Privatization Set to Begin 
--------------------------------------------- ----- 
 
Japan Post, with almost $3 trillion in banking and insurance 
assets, 24,800 post offices, and 260,000 employees, will split 
into six entities October 1, marking the beginning of a ten-year 
privatization process. 
 
Industry and government officials have told us the operational 
transition will be highly complex.  Splitting the group and 
setting up core information technology systems, for example, have 
required more than twice the IT upgrades than were needed to 
privatize telecommunications giant NTT. 
 
TOKYO 00004552  005 OF 007 
 
 
 
Keep an eye on your cable queue for more details.   (ECON: Marc 
Dillard) 
 
¶15.  (U) Updated Economic Indicators 
--------------------------------------------- ----- 
 
Overall economic assessments: In its monthly economic report 
submitted to the cabinet on September 14, the Cabinet Office left 
its overall assessment unchanged, noting that "the economy is 
recovering, while some weakness has been seen recently." 
 
The report confirmed that Japan's economy has entered its 68th 
consecutive month of expansion, the longest postwar economic boom. 
 
However, the report downgraded its view on corporate capital 
spending, and expressed caution about the future course of the 
U.S. economy hit by sub-prime loan problems. 
 
The Bank of Japan report, released on September 19, also kept its 
core economic assessment unchanged, indicating that the economy 
is "expanding moderately." 
 
The BOJ said that personal consumption is firm in this situation 
where household income has continued to rise moderately.  The BOJ 
noted that exports are expected to continue rising, and business 
investment has also continued to trend upward against the 
background of high corporate profits.  (FINATT:  Shuya Sakurai) 
 
¶16.  (SBU) Age-Restricted Employment Ads to Be Curtailed 
--------------------------------------------- ----- 
 
A revised Employment Promotion Law, which would prohibit 
companies setting age limits when advertising jobs and recruiting 
workers, will go into effect on October 1, according to media 
reports.  The revision is intended to improve the employment 
situation of middle-aged and elderly people, as well as so-called 
"freeters" (part-time employees). 
 
Currently, companies are only asked to "make efforts" to not set 
age limits, but with this legal revision, the prohibition will 
become mandatory.  Also, the number of exceptions to the 
prohibition, which often limit job availability to young people, 
would be reduced from ten to six. 
 
The revised law will also require the employers of foreign 
workers to report to the Ministry of Health, Labor, and Welfare 
the name of the worker, as well as the status of residence and 
duration of stay -- both at the time of recruitment and employment 
termination.  (ECON: Ai Kaneko) 
 
----- 
TRADE 
----- 
 
¶17.  (SBU) Pork Importer Arrested Over Tariff Evasion 
--------------------------------------------- ----- 
 
According to press reports, in what was described as the largest 
tariff evasion criminal case in Japanese history, authorities 
have arrested an importer of Canadian pork for evading some 11.8 
billion yen in tariffs. 
 
Noboru Sogabe was sentenced September 24 for taking advantage of 
Japan's complicated gate pork price tariff system by over- 
invoicing for import shipments between January and November 2006. 
 
Sogabe was sentenced to 16 months in prison and fined 600 million 
yen. 
 
Japan's gate price system sets a floor on pork import prices and 
charges a variable tariff that encourages importers to file false 
invoices claiming they are paying higher prices for the pork than 
they actually are. 
 
Japan, the largest overseas market for U.S. pork, buys over $1 
billion last year. In a recent cable (Tokyo 3304), the Embassy 
reported on the potential for corruption created by the gate 
price system and the impact this could have on U.S. trade. 
(ECON: Nicholas Hill) 
 
¶18.  (SBU) Beef Still in Freezer? 
 
TOKYO 00004552  006 OF 007 
 
 
--------------------------------------------- ----- 
 
In his first press conference since retaining his position as 
Agriculture Minister in PM Fukuda's newly-minted cabinet, 
Masatoshi Wakabayashi restated a familiar line on the beef issue. 
 
He told reporters September 26 that Japan would not relent to 
"political pressure" from the United States to relax beef import 
rules.  A final decision would be based on "scientific analysis" 
by professionals. 
 
The United States position remains that Japan should respect 
science-based standards, set by the World Animal Health 
Organization (OIE), and allow U.S. beef to enter Japan without 
age restrictions on the cattle used in production. 
 
It is a position that Acting Secretary of Agriculture Conner 
restated earlier in the week.  As reported in Nikkei, Conner told 
reporters that it was a "simple issue" and he hoped Japan would 
observe international standards. 
 
GOJ officials have told us that Japan cannot move to 
international standards given the political climate. 
 
Separately, some 15 representatives from the Japan Meat Trade 
Association met with Embassy FAS officers on September 26 to 
underscore their desire to see the United States accept a 
political compromise and move away from insisting that Japan base 
its import restrictions on OIE standards. 
 
The association wants to boost available supplies of U.S. beef in 
Japan and moving to a 30-month age restriction, they indicated, 
could be a plausible compromise.  (ECON: Nicholas Hill) 
 
¶19.  (U) Pan-East Asian Trade "Merely a Dream" 
--------------------------------------------- ----- 
 
Despite lofty rhetoric about the future goals of ASEAN, ASEAN + 1 
and other pan-East Asia organizations, there is no East Asia 
community, and it is unlikely one will emerge in the foreseeable 
future,  said a leading Chinese scholar during a regional 
economic reporting conference sponsored by Embassy Beijing. 
 
ASEAN member countries are good at making ambitious announcements 
but rarely set concrete targets.  Pan-East Asian trade is "merely 
a dream" as no progress has been made in establishing a common 
currency, the scholar lamented. 
 
The professor suggested three issues impeding ASEAN's further 
development.  First, Beijing and Tokyo are both jockeying for 
regional leadership.  Until an agreement can be reached between 
the two governments, no progress can be made, he suggested. 
Second, both Korea and Japan fear that closer integration would 
result in an influx of labor. 
 
Finally, ethnic tensions are on the rise with ASEAN members who 
believe mainland Chinese investors are using local Chinese 
networks to buy-up assets to gain economic leverage in the region, 
the professor stated.  (ECON:  Sally Behrhorst) 
 
------ 
SPORTS 
------ 
 
¶20.  (U) Sumo World Rocked by Scandal -- Again 
--------------------------------------------- ----- 
 
The sumo world, already beleaguered by several scandals involving 
Yokozuna Asashoryu, is once again hanging its head in shame. 
Accusations have been leveled at famed stablemaster Tokitsukaze 
and several of his wrestlers alleging that, on June 25, they 
severely beat 17-year-old sumo wrestler Takashi Saito.  Saito 
died the following day at a local hospital.  The 57-year-old 
stablemaster has reportedly confessed his crime to the police. 
 
Investigators have so far determined that Saito had attempted to 
run away from the stable on the morning of June 25, but was 
caught and forcibly returned by fellow stablemates. 
 
Later that day, Tokitsukaze purportedly struck the youngster over 
the head with a beer bottle while other wrestlers kicked and 
punched him for approximately 20 minutes.  They claimed the 
 
TOKYO 00004552  007 OF 007 
 
 
treatment was part of Saito's "instruction."  Police suspect that 
Saito's stablemates assaulted him on a daily basis. 
 
At a press conference on June 28, Tokitsukaze told reporters he 
did not know why the boy had died as he was not forced to endure 
any unreasonable training. 
 
Family members suspected otherwise and asked investigators to 
perform and autopsy on the body.  The results of the autopsy 
suggest Saito may have died of shock due to physical trauma. 
(ECON: Sally Behrhorst) 
 
¶21.  (U) Comeback for Kei Igawa? 
--------------------------------------------- ----- 
 
The New York Yankees $46 million Japanese import spent most of 
the summer plying in the minor leagues, but got another chance 
with the big team in the middle of a pennant race. 
 
Igawa replaced the ailing Roger Clemens, the Yankees' $28 million 
(prorated) hurler, for a start against the Tampa Bay Devil Rays 
on September 26.  The much maligned lefty shut the Rays out for 
five innings, surrendering only two hits. 
 
In the end it did not matter.  The Yankees blew a five run lead 
and lost 7-6 in 10 innings to a Tampa team that is the worst in 
baseball. 
 
Meanwhile, despite the fact that their own Japanese imports, 
Daisuke Matsuzaka and Hideki Okajima, have been struggling, the 
Red Sox expanded their lead over New York to three games.  The 
magic number is two, with four games in the season remaining. 
(Econ:  Nicholas Hill) 
 
¶22.  (SBU) THIS WEEK'S CABLES 
--------------------------------------------- ----- 
 
Tokyo 4468  New LDP Executive Lineup 
Tokyo 4466  New Prime Minister Fukuda Leaves Cabinet Largely 
Intact 
Tokyo 4467  GOJ Concerned Over OEF Refueling Issue 
Tokyo 4419  Fukuda Wins 
Tokyo 4417  Aso and Fukuda Softpedaling Reform, Stressing 
"Stability" 
 
¶23.  (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) 
 
¶24.  (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. 
SCHEIFFER