VZCZCXRO1397
RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #5025/01 3020004
ZNR UUUUU ZZH
R 290004Z OCT 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8997
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5805
RUEHFK/AMCONSUL FUKUOKA 4013
RUEHNAG/AMCONSUL NAGOYA 2864
RUEHNH/AMCONSUL NAHA 6424
RUEHOK/AMCONSUL OSAKA KOBE 7678
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 005025 
 
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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--October 25, 2007 
 
 
¶1. (U) This cable contains the Japan Economic Scope from 
October 25, 2007. 
 
¶2. (SBU) Table of Contents 
 
Financial News 
¶3.  Recent Major Economic Indicators 
¶4.  Public Pension Fund Goes Small Cap for Big Returns 
¶5.  GOJ's Six Fiscal Projections Point to Consumption Tax Hike 
 
Transportation 
¶6.  Fuel Cell Cars Hit the Road, but Commercialization is Years 
Away 
¶7.  Kansai International Airport Worries about Losing Japanese 
Tourists 
 
Postal Privatization 
¶8.  New Postal Union to be Japan's Largest 
¶9.  Bill to "Review" Postal Privatization Submitted to the 
Upper House 
¶10. Tokushima Governor appointed to PSPC 
 
Trade 
¶11. AUSTR Cutler Discusses Economic Agenda with Japanese 
¶12. Japan's Trade Surplus Grows 
¶13. Japan - Australia FTA Talks Resume in November 
 
Agriculture 
¶14. OECD Study: Japan's Pampered Farm Sector 
¶15. Ag Ministry Considers Buying Extra Rice to Bolster Domestic 
Prices 
¶16. Japan's Beef Trade Restrictions: Politics over Science 
 
IPR and Telecommunications 
¶17. Japan-Germany to Expand IPR Cooperation 
¶18. Government Seeks to Open Up Cell-Phone-Related Businesses 
 
Healthcare 
¶19. Taking the Pulse of Healthcare IT in Japan 
 
Sporting News 
¶20. Back from the Precipice 
¶21. With Popularity of MLB, Japanese Baseball Suffers? 
 
¶22.  This Week's Cables 
 
-------------- 
FINANCIAL NEWS 
-------------- 
 
¶3.  (SBU) Recent Major Economic Indicators 
--------------------------------------------- ---- 
 
In its monthly economic report, the Cabinet Office left its 
overall outlook unchanged, noting that the economy is 
recovering, while some weakness has been recently noted. 
 
Submitted to the Cabinet on October 22, the report confirmed 
that Japan's economy has now expanded for 69 consecutive months, 
a record postwar economic boom. 
 
However, the report downgraded its assessment of housing 
investment and private consumption.  The Bank of Japan (BOJ)'s 
report, released on October 11, also kept its core economic 
assessment unchanged, indicating that the economy is "expanding 
moderately." 
 
The BOJ said that personal consumption is firm and household 
income has continued to rise moderately.  The BOJ noted that 
exports have continued to increase, and business investment has 
also continued to trend upward against the background of high 
corporate profits.  The BOJ expects the economy to continue 
expanding moderately in the coming months. (FINATT:  Shuya 
Sakurai) 
 
¶4.  (SBU) Public Pension Fund Goes Small Cap for Big Returns 
--------------------------------------------- ---- 
 
In an effort to raise returns through broader holdings, the 
Government Pension Investment Fund (GPIF), which oversees 
public pension assets, will allocate 100 billion yen ($850 
million) toward small- and mid-cap stocks at the start of next 
 
TOKYO 00005025  002 OF 007 
 
 
year. 
 
While this sum represents slightly more than a tenth of the 90 
trillion yen ($780 billion) in assets GPIF manages for MHLW, 
the decision is in line with GPIF's asset reallocation plans to 
take effect by FY 2009, and could reflect a somewhat more 
aggressive posture toward risk and return.  At present, most of 
the fund's stock holdings are large-cap issues, with domestic 
equities accounting for 20 trillion yen ($175 billion) of the 
fund's portfolio.  GPIF's returns in FY 2006 were down 9.62 
percent from FY 2005, at 4.75 percent. (FINATT: Mateo Ayala) 
 
¶5.  (SBU) GOJ's Six Fiscal Projections Point to Consumption Tax 
Hike 
--------------------------------------------- ---- 
 
On October 17 the Cabinet Office submitted to the Council on 
Economic and Fiscal Policy a new set of projections for fiscal 
consolidation for the fiscal 2007-11 period and for the fiscal 
costs of social security through fiscal year 2025. 
 
The projections indicated the GOJ's present fiscal 
consolidation target -- achieving a combined central/local 
government primary surplus by FY11 -- is attainable only under 
favorable macroeconomic conditions together with a large cut in 
government spending. 
 
With the exception that all other scenarios project the need 
for major tax increases by FY11 to achieve the fiscal 
consolidation target.  If these revenue shortfalls are covered 
solely by an increase in the consumption tax, a hike of 
approximately 1- to 3-percentage-points would be required. 
The projections demonstrate that a consumption tax increase 
from the present relatively low rate of five percent is 
inevitable. 
 
However, it is still uncertain whether the Fukuda 
administration will flesh out a tax hike as part of the current 
tax reform proposals to be compiled by December. 
Please refer to the attached document for further details on 
the six scenarios.  (FINATT: Shuya Sakurai) 
 
-------------- 
TRANSPORTATION 
-------------- 
 
¶6.  (SBU) Fuel Cell Cars Hit the Road, but Commercialization is 
Years Away 
--------------------------------------------- ---- 
 
As part of the METI-sponsored Hydrogen & Fuel Cell 
Demonstration Project (JHFC) in Yokohama, Japanese automakers 
and energy companies, along with GM, Daimler, and others, are 
testing hydrogen fuel cell vehicles (FCVs) under actual road 
conditions. 
 
A Toyota FCV recently traveled 560 km from Osaka to Tokyo on a 
single hydrogen tank.  JHFC data shows that current FCVs are 50 
percent more energy efficient and produce half the "well-to- 
wheel" CO2 emissions as conventional gasoline vehicles. 
FCVs are powered by electricity created when hydrogen gas and 
air combine in the vehicle's fuel cell stack.  While the 
production and transport of hydrogen involve some greenhouse 
gas emissions, tailpipe emissions consist of just odorless heat 
and water. 
 
In test drives of two FCVs at the JHFC facility, Embassy 
officers noted smooth, quiet acceleration and performance 
comparable to conventional cars.  However, Toyota and Nissan 
officials speaking at JHFC conceded mass production of FCVs 
remains years away.  Click here to access JHFC's website. 
(ECON:  Toby Wolf) 
 
¶7.  (SBU) Kansai International Airport Worries about Losing 
Japanese Tourists 
--------------------------------------------- ---- 
 
According to Daily Aviation news, Kansai International Airport 
(KIX) Vice President Tadakuni Hirano is concerned about the 
decrease in international passengers at KIX.  While the total 
number of passengers has remained relatively steady over the 
past six years, the number of Japanese passengers traveling on 
 
TOKYO 00005025  003 OF 007 
 
 
international flights though KIX declined 17 percent during the 
same time period. 
 
Hirano attributes some of this loss to the suspension and 
reduction of flights to North America.  He would like to 
establish additional North American routes at KIX even if they 
are served by a third country, but the prospects are currently 
unclear. 
Hirano also said KIX has been hurt by the Haneda-Shanghai 
flights which started service on September 28.  He was 
disappointed that the Shanghai Airlines reduced KIX flights 
from ten to seven. 
He also said he anticipates negotiations regarding additional 
routes to China during the next round of air talks between 
Japan and China. (ECON:  Junko Nagahama) 
 
-------------------- 
POSTAL PRIVATIZATION 
-------------------- 
 
¶8.  (SBU) New Postal Union to be Japan's Largest 
--------------------------------------------- ---- 
 
Creating Japan's largest labor union, the Japan Postal Workers' 
Union (JPU) and All Japan Postal Labor Union (JPLU or Zen 
Yusei) officially merged October 22. Opposition to postal 
privatization led the unions, which had a long history as 
rivals, to join forces. 
 
The new Japan Postal Group Union (JPGU or "JP Roso") 
substantially exceeds Japan's next largest union, NTT's, which 
has a membership of 185,000.  JP Roso's new chairman, Yoshikazu 
Yamaguchi said during the union's inaugural meeting that the 
group will aim to increase its membership from 233,000 to 
300,000 within two years by recruiting "non-regular" workers in 
addition to core membership of career employees. 
JP Roso is affiliated with the Japanese Trade Union 
Confederation (JTUC-Rengo).  (ECON:  Ai Kaneko) 
 
¶9.  (SBU) Bill to "Review" Postal Privatization Submitted to 
the Upper House 
--------------------------------------------- ---- 
 
Three opposition parties -- the Democratic Party of Japan (DPJ), 
the People's New Party (PNP) and the Social Democratic Party 
(SDP) -- jointly submitted a bill to the Upper House on October 
23 to "review" postal privatization.  The bill calls for the 
freeze of stock sales of the three companies formed on October 
1 as part of the privatization: Japan Post Holdings, Yucho Bank, 
and Kampo Insurance. 
 
The bill is not expected to pass, as a similar anti-postal 
privatization bill failed in the last Diet session.  The DPJ 
chose to endorse the bill, however, because it created a 
parliamentary coalition with the PNP, bringing its Upper House 
coalition Diet member count to 119 -- just three short of an 
outright majority. 
 
The PNP was formed by Liberal Democratic Party members who were 
thrown out of the LDP for opposing postal privatization in the 
summer of 2005.  (ECON:  Ai Kaneko) 
 
¶10.  (SBU) Tokushima Governor appointed to PSPC 
--------------------------------------------- ---- 
 
Tokushima Prefecture Governor Kamon Iizumi was named the newest 
member of the Postal Services Privatization Committee (PSPC) on 
October 5.  Iizumi replaced former Iwate Governor Hiroya Masuda, 
because Masuda  became Minister for Internal Affairs and 
Communications (MIC) in the second Abe Cabinet and was 
reappointed to the current Fukuda cabinet. 
 
Iizumi has a background in the Ministry of Home Affairs (later 
merged into MIC), which he joined after graduating from the Law 
Department of Tokyo University.  He ran for Tokushima's 
governorship in 2003, and is currently serving his second term. 
 
The PSPC is a five-member committee consisting of private 
sector experts, headed by Naoki Tanaka, President of Center for 
International Public Policy Studies.  It is charged with 
guiding the privatization process, including reviewing 
applications for new insurance and banking products. 
 
TOKYO 00005025  004 OF 007 
 
 
 
The other members of the Committee are, Prof. Eiko Tsujiyama, 
Professor at Waseda University, Mr. Kazuhiko Toyama, CEO of 
Industrial Growth Platform, Inc. (former COO of Industrial 
Revitalization Corporation of Japan) and Prof. Shuya Nomura, 
Professor at Chuo Law School.  (ECON:  Ai Kaneko) 
 
----- 
TRADE 
----- 
 
¶11.  (SBU) AUSTR Cutler Discusses Economic Agenda with Japanese 
--------------------------------------------- ---- 
 
Assistant U.S. Trade Representative for Japan, Korea, and APEC 
Affairs, Wendy Cutler, discussed with GOJ officials a range of 
topics on the economic agenda with Japan during her October 17- 
19 visit to Tokyo. 
 
For more on her meetings, please see Tokyo 4943.  Cutler also 
led Trade Forum talks on October 18, which will be reported 
separately. 
 
For a copy of Cutler's October 19 speech at the Japan National 
Press Club, entitled "U.S.-Japan Free Trade--Lessons from the 
U.S.-Korea FTA," please click here.  (ECON:  Nicholas Hill) 
 
¶12.  (SBU) Japan's Trade Surplus Grows 
--------------------------------------------- ---- 
 
Japan's trade figures are out and its surplus with the United 
States has declined even as its overall surplus has surged. 
According to Ministry of Finance data released this week, 
Japan's trade surplus with the United States declined by 5.5 
percent in the first half of 2007, while its surplus overall 
was up 46 percent. 
 
According to the data, exports from the United States grew for 
the sixth consecutive half-year period, helped along by strong 
growth in demand for U.S. feed grains, including corn. 
Japan's trade surplus with the European Union was up 17 percent, 
spurred by the decline in the value of the yen against the Euro 
and British pound. 
 
For more on the trade data from the Ministry of Finance's 
website (in English), please click here.  Click here to access 
a Nikkei article that tells a similar story about Japan's 
growing trade surplus.  (ECON:  Nicholas Hill/Ryoko Nakano) 
 
¶13.  (SBU) Japan - Australia FTA Talks Resume in November 
--------------------------------------------- ---- 
 
The last round of talks in August did not see much progress, 
but Australian and Japanese negotiators still plan to meet in 
November to see what can be accomplished in advancing their FTA 
agenda.  A MOFA official told us, however, that no date has 
been set yet for the next round, which will likely take place 
in Canberra. 
 
The official noted that Australia may think differently, but 
Japan still has no deadline to arrive at a deal.  Another MOFA 
official we talked to was not optimistic about the prospects of 
concluding a deal with Australia, given the tough opposition 
put up by Japan's Agriculture Ministry and protectionist farm 
interests. 
 
Meanwhile, the Japan - Australia Cooperation Committee, a 
business group in Japan of long standing, issued a joint 
statement with their Australian counterparts urging early 
progress on reaching a comprehensive agreement.  According to 
the Yomiuri, the Australian business group attached priority to 
including the word "comprehensive" in the statement. 
An Australian Embassy source told us that the Japan Australia 
Business Cooperation Committee meets every year, alternating 
venues between the two countries.  Attached is its joint 
statement issued in Tokyo.  (ECON:  Nicholas Hill) 
 
----------- 
AGRICULTURE 
----------- 
 
¶14.  (SBU) OECD Study: Japan's Pampered Farm Sector 
 
TOKYO 00005025  005 OF 007 
 
 
--------------------------------------------- ---- 
 
According to a recent OECD study (see link below), Japan ranks 
fifth among OECD members in the level of government support for 
farmers.  The report credits the Japanese government for 
"gradually reducing" its role in setting prices, noting that it 
no longer sets prices for wheat, rice, and barley.  Overall 
government support accounts for 53 percent of farm sector 
incomes. 
Separately, an OECD team arrived in Japan last week to continue 
work on its regularly scheduled Japan country survey, which 
should be completed by next spring. 
An OECD official told us that so far they have had a good 
reception by authorities.  The report, as is OECD practice, 
will be the subject of review by the GOJ, which makes it more 
difficult to produce, but ultimately more influential.  Click 
here to view the report.  (ECON:  Nicholas Hill) 
 
¶15.  (SBU) Ag Ministry Considers Buying Extra Rice to Bolster 
Domestic Prices 
--------------------------------------------- ---- 
 
According to a Nikkei article on October 24, Japan's 
Agriculture Ministry is considering buying up extra rice to 
prop up domestic prices, which have fallen about 10 in the past 
year.  According to the article the Ministry has traditionally 
avoided using government purchases as a way of supporting 
prices. 
Japan's current stockpile stands at about 770,000 tons. 
According to Nikkei, authorities are considering boosting the 
stockpiles to about one million tons.  Sources we have talked 
to, including rice farmers, have lamented the drop in Japan's 
rice prices.  It is more a structural than cyclical problem, as 
diets have changed and Japanese consume less rice. 
In an article in the October 23 Daily Yomiuri, Junichi Maruyama 
points to two main reason for the recent falling rice prices: 
first, some farmers are exceeding government and farming 
organization production targets; and second, speculation that 
rice prices would fall has spurred buyers to delay purchases. 
This has suppressed demand even further.  (ECON:  Nicholas 
Hill) 
 
¶16.  (SBU) Japan's Beef Trade Restrictions: Politics over 
Science 
--------------------------------------------- ---- 
 
USTR Special Envoy Richard Crowder led a delegation in Tokyo 
October 22 to underscore that Japan should adopt international, 
science-based standards in setting restrictions on U.S. beef 
imports.  He told senior GOJ officials that he was on a five 
stop tour of the region and was conveying the same message. 
The United States expects its trading partners to abide by the 
decision of the World Animal Health Organization (OIE) which 
classified the United States as in a safe, or "controlled 
risk," category.  Although this category means that U.S. beef 
from cows of any age can be traded, GOJ officials told Crowder 
that they cannot recommend this level of trade liberalization. 
The government is prepared to recommend to the Food Safety 
Commission (FSC) a liberalization to allow imports of beef from 
cows of 30 months or younger.  For further information on the 
Crowder meetings, please contact us.  (ECON:  Nicholas Hill) 
 
-------------------------- 
IPR AND TELECOMMUNICATIONS 
-------------------------- 
 
¶17.  (SBU) Japan-Germany to Expand IPR Cooperation 
--------------------------------------------- ---- 
 
Japan recently announced the launch of a pilot program with 
Germany to expand Patent processing cooperation from March 2008. 
This brings to four the number of countries with which Japan 
has agreements under the Patent Prosecution Highway (PPH), 
following the US, Korea, and the UK. 
 
Under the PPH, an applicant may request that a patentable claim 
filed in one office also undergo accelerated examination in 
other participating offices.  This is expected to reduce 
average examination periods from 26 months for first filings 
down to 2-3 months for second filings, and to reduce required 
supplemental documentation to as little as a single document. 
 
 
TOKYO 00005025  006 OF 007 
 
 
The Patent Prosecution Highway is expected not only to reduce 
the cost of filings but also reduce the burden and enhance the 
quality of examinations. Click here for information on the 
Japan-Germany pilot launch and click here for information on 
patent examination activities.  (ECON:  Scott Smith/Kaoru 
Nakata) 
 
¶18.  (SBU) Government Seeks to Open Up Cell-Phone-Related 
Businesses 
--------------------------------------------- ---- 
 
Japan wants to revitalize its telecommunications industry and 
break the grip of incumbent cell phone carriers.  This is the 
aim of a Ministry of Communications (MIC) report released on 
October 23 on competition promotion programs for 2010, which 
outlines measures to open and promote competition in a number 
of related business fields.  One priority is to make it easier 
for MVNOs (mobile virtual network operators) to lease cell 
phone networks from service providers.  The Government also 
hopes to open competition in businesses such as: handsets, 
billing and personal authentication, and Web sites for Net- 
enabled phones. 
 
MIC will draw up guidelines for cell phone service providers to 
ensure they will not stifle deregulation efforts. The 
guidelines are expected improve accountability and transparency, 
requiring service providers to disclose usage rules and charges 
for companies leasing networks. 
 
The Ministry plans to revise accounting rules to stop cell 
phone service providers from tacking sales incentives onto 
connection fees.  This will mean an end to 1 Yen phone sales 
but should rationalize service charges for retail as well as 
wholesale users. 
 
More reasonable interconnection rates would reduce a 
significant barrier to prospective virtual network operators. 
(ECON:  Scott Smith/Kaoru Nakata) 
 
---------- 
HEALTHCARE 
---------- 
 
¶19.  (SBU) Taking the Pulse of Healthcare IT in Japan 
--------------------------------------------- ---- 
 
Japan is currently looking to upgrade and integrate its 
Healthcare IT network to support electronic medical records and 
interface with Japan's national medical insurance system.  A 
Senior Researcher from the Japan Medical Association (JMA) 
briefed ACCJ on the challenges and prospects for better 
utilizing IT in Japan's healthcare reform. 
 
Early priority objectives in establishing the system will 
include increasing users while ensuring system security.  The 
JMA researcher reassured the U.S. business audience that 
competition should be "promoted" as the system architecture is 
developed. 
 
This is consistent with the ACCJ's position that the 
implementation of strategic healthcare IT throughout Japan 
should be an open and transparent process and allow for the 
full participation of non-Japanese firms.  (FCS:  John Fleming) 
 
------------- 
SPORTING NEWS 
------------- 
 
¶20.  (U) Back from the Precipice 
--------------------------------------------- ---- 
 
The baseball world -- and Japan's national TV broadcaster NHK - 
- can breathe more easily.  The Boston Red Sox, behind the good, 
if not spectacular, pitching of Daisuke Matsuzaka and Hideki 
Okajima, beat the Cleveland Indians October 21 to advance to 
the World Series. 
 
The Red Sox outscored the Indians 30-5 in winning three games 
in a row to win the series in seven.  Matsuzaka and Okajima 
combined to give up only two runs in seven innings in the 
clincher, making NHK, the national network that carries MLB 
nationally in Japan, very happy. 
 
TOKYO 00005025  007 OF 007 
 
 
 
Photos of the pair splashed all over Japan's media.  NHK 
rebroadcast the game in prime time on Monday night, with a 
different focus from that in the U.S.  There were lots of shots 
of Matsuzaka rubbing his eyebrow and Okajima staring out 
pensively from the bullpen -- but the network ran out of time 
to show the six run Red Sox explosion in the eighth inning. 
With the Indians out of the picture, the World Series promises 
to be a better media attraction in Japan.  All eyes will be on 
the Red Sox pitching pair and the Colorado Rockies second 
baseman, Kaz Matsui, the former Yomiuri Giant. 
The scores will scarcely matter. (Econ: Nicholas Hill) 
 
¶21.  (U) With Popularity of MLB, Japanese Baseball Suffers? 
--------------------------------------------- ---- 
 
A singles hitter in his thirties--in particular Ichiro Suzuki 
of the Seattle Mariners--is not worth a five-year $100 million 
contract.  A Japan Press Club official didn't seem comfortable 
with the statement and changed the subject. 
 
The conversation moved on to the economics of Japanese 
professional baseball, and the impact of the recent exodus of 
Japanese stars to Major League Baseball (MLB) is having on the 
domestic game. 
 
To judge from an article by Robert Whiting, who spoke at the 
Press Club, the news is not good.  The Japanese professional 
league needs an overhaul if it is to survive financially. 
(Econ: Nicholas Hill) 
 
¶22.  (SBU) THIS WEEK'S CABLES 
 
4992 CAPEC expresses Japan Post Express Mail Service fair 
competition concerns 
4971 Japan will demarche Bolivia at high level over Iran 
relations 
4970 Japan's strategy for the Third Committee 
4963 Japan still undecided about APDP, depends on PM Fukuda 
4968 Japan will decide UNIAAC vote at the last minute 
4953 Advocating for TIP victim identification procedures in 
Japan 
4951 Burma:  Japanese assistance for police training 
4946 Tokyo Governor Ishihara urges Ambassador for progress on 
Yokota dual-use 
4943 AUSTR Cutler in Tokyo covers key issues on bilateral 
agenda 
4930 Japan plans outreach to MTCR non-partners, asks to 
coordinate 
4928 Japan's defense ministry may have purchased illegal night 
vision goggles 
4926 Ambassador and Defense Minister on def, alliance 
management 
4912 Foreign affairs experts on regional political and security 
architecture 
4905 Opposition DPJ struggles for consensus on OEF 
counterproposal 
4904 Japan demarche delivered MTCR non-papers, GOJ delegation 
identified 
4903 Government submits new OEF bill; MSDF to withdraw from 
Indian Ocean on  November 2 
4901 Panel analyzes Fukuda, Japanese politics, regional 
disparities 
4890 Ambassador discusses Fukuda visit, North Korea, OEF, host 
nation support with MOFA Minister Komura 
4887 DPJ's Hatoyama explains DPJ views on elections, Diet, ISAF 
4884 Finance Minister Nukaga agrees to discuss host nation 
support with Ambassador 
4883 WIREC:  Japan undecided, suggests Minister-level 
invitation 
 
¶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 Charlotte Crouch 
(CrouchCA@state.gov) and Joy Progar (ProgarJ@state.gov). 
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. 
SCHIEFFER