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RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #5176/01 3130307
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R 090307Z NOV 07
FM AMEMBASSY TOKYO
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RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5830
RUEHFK/AMCONSUL FUKUOKA 4325
RUEHNAG/AMCONSUL NAGOYA 3135
RUEHNH/AMCONSUL NAHA 6730
RUEHOK/AMCONSUL OSAKA KOBE 7992
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 005176 
 
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--November 8, 2007 
 
¶1. (U) This cable contains the Japan Economic Scope from 
November 8, 2007. 
 
¶2. (SBU) Table of Contents 
 
¶3.  EisMAP and Fostering Sustainable Development in the 
Asia/Pacific Region 
 
Politics 
¶4.  Deja vu...D(PJ)eja -Vu 
¶5.  Unlikely to Get into Business School 
¶6.  Secretary of Defense Robert Gates Visits Tokyo 
 
Asian Issues 
¶7.  Chinese Outmaneuvering Japanese Industry with Aid to Africa 
¶8.  Japan, New Zealand Sign Strategic Oil Reserve Pact 
Scandals 
¶9.  Press reports on MOD's "Cozy" Relationship with Defense 
Subcontractors 
¶10. MLIT Press Release Discloses Fraudulent Fire Retardant 
Building Material Tests 
¶11. A Private Postal Affair: Employee Fired 
¶12. Nagoya Slush Fund "Scandal" Produces No Titillating 
Disclosures 
 
Trade and Business 
¶13. Part of Nova Salvaged By M&A Operation 
¶14. Call to Launch U.S. - Japan EPA Talks 
 
Food and Farming 
¶15. Japanese Rice Exports 
¶16. Ag Reform: Prospects Dim Despite Good Intentions 
¶17. CEFP Private Members Want More, Not Less, Agricultural 
Reform 
 
Aviation 
¶18. Japan Liberalizes Foreign Carriers' Access to Rural 
Airports 
 
Stocks 
¶19. Tokyo Stock Prices Lose 2.0 %, Lowest Close in Two Months 
 
Sports 
¶20. Japan is Part of Red Sox Nation Too 
 
MOFA Actions 
¶21. ASEAN-Japan Negotiations 
¶22. Japan-Thailand Economic Partnership Agreement 
 
¶23. This Week's Cables 
 
¶3.  (SBU) EisMAP and Fostering Sustainable Development in the 
Asia/Pacific Region 
--------------------------------------------- ----- 
 
Japan's Foreign Ministry and the University of Kyoto hosted a 
seminar of Japanese officials, business people and academics 
with counterparts from the region Oct. 25 -- 26 to discuss 
factors influencing development in East Asia.  Participants 
generally saw the region benefiting from globalization, perhaps 
at a higher level than other parts of the world.  Global 
imbalances, e.g., the U.S. current account deficit and the 
surpluses in China and some other countries in the region, "the 
spaghetti bowl effect" resulting from multiple free trade 
arrangements, and energy/environment were frequently cited as 
concerns and opportunities by the various speakers. 
 
The Japanese sponsors, however, did not seem to win much strong 
support for one of their key purposes of the meeting, 
consideration of establishing a shared data base with economic, 
social, environment, and other data pertinent to measuring a 
country's development progress.  Participants from the UN 
Economic and Social Council for Asia and the Pacific, the IMF, 
and the OECD all noted work their organizations already do to 
collect, analyze, and make available reliable data.  One idea 
suggested by some of the academic participants, that the EiSMAP 
be housed in APEC raised questions among other participants as 
to whether it would fit into the agreed areas of work. 
 
-------- 
POLITICS 
-------- 
 
TOKYO 00005176  002 OF 007 
 
 
 
¶4.  (SBU) Deja vu...D(PJ)eja -Vu 
--------------------------------------------- ----- 
 
In another turbulent week for Japanese politics, opposition 
Democratic Party of Japan (DPJ) leader Ichiro Ozawa offered his 
resignation, only to be asked by the party to stay.  He 
eventually withdrew the resignation. 
 
The drama erupted after two one-on-one meetings between Ozawa 
and Prime Minister Fukuda, in which the possibility of a grand 
coalition between the DPJ and ruling Liberal Democratic Party 
(LDP) was raised.  Who originated the proposal has been hotly 
contested, but Ozawa described the DPJ's swift rejection of the 
proposal as like a "vote of no confidence."  After tendering 
his resignation, Ozawa lashed out during a press conference, 
doubting the DPJ's ability to govern and its chances in a 
general election. 
 
Ozawa ends the kefuffle at the DPJ's helm, but the cost of the 
episode remains unclear.  The DPJ's support rate in polls 
dropped slightly, and party internal squabbling spilled into 
the press. 
 
For more detail, see Tokyo 5059, 5114, and 5138.  (ECON: Marc 
Dillard) 
 
¶5.  (SBU) Unlikely to Get into Business School 
--------------------------------------------- ----- 
 
The opposition Democratic Party of Japan (DPJ) will receive no 
A's in the Japan Business Federation's (Keidanren) annual 
report on party policies, according to a draft report obtained 
by the press.  Put in the language of a report card, the DPJ's 
"policy GPA" would be a C-.  Keidanren assesses party policies 
across ten areas, awarding grades from A (completely in line 
with Keidanren) to E (totally opposed). 
 
 Liberal Democratic Party (LDP) policies will fare somewhat 
better, with a B+ average.  According to the Nikkei newspaper, 
Keidanren values the LDP's work on decentralization of power 
and education policies and is especially critical of the DPJ's 
stances on foreign affairs and employment policies. 
 
This year's evaluation of party policies have been delayed by 
more than a month, as Keidanren tries to assess the DPJ's more 
prominent role in the Diet.  Some member companies use the 
evaluation in decisions about political contributions.  (ECON: 
Marc Dillard) 
 
¶6.  (SBU) Secretary of Defense Robert Gates Visits Tokyo 
--------------------------------------------- ----- 
 
Secretary of Defense Robert Gates arrived in Tokyo on November 
 
SIPDIS 
¶7.  His two-day schedule includes meetings with Prime Minister 
Fukuda, Chief Cabinet Secretary Machimura, Foreign Affairs 
Minister Koumura and Defense Minister Ishiba. 
 
In addition, the Defense Secretary will give a speech on the 
East Asia Pacific security architecture to 120 students at 
Sophia University with an opportunity for students to ask 
questions. 
 
Gates will join some enlisted service personnel for lunch at 
the U.S. military-operated New Sanno Hotel, and will enjoy a 
cultural presentation of traditional dance and martial arts 
demonstrations at Meiji Shrine. (ECON:  Charlotte Crouch) 
 
------------ 
ASIAN ISSUES 
------------ 
 
¶7.  (SBU) Chinese Outmaneuvering Japanese Industry with Aid to 
Africa 
--------------------------------------------- ----- 
 
Although ostensibly not trying to compete with Chinese-financed 
development projects, the GOJ is considering extending yen 
loans to Angola and may focus assistance efforts there to serve 
as a model for development in Africa according to an executive 
at the Japan Business Federation (Keidanren). 
 
 
TOKYO 00005176  003 OF 007 
 
 
The official noted Japanese business is frustrated with the 
lack of progress in the Tokyo International Conference on 
African Development (TICAD), in contrast to what is seen here 
as China's highly effective aid-for-resources strategy. 
Please see Tokyo 5132 for more on this topic.  (ECON:  Sally 
Behrhorst/Eriko Marks) 
 
¶8.  (U) Japan, New Zealand Sign Strategic Oil Reserve Pact 
--------------------------------------------- ----- 
 
Japan and New Zealand signed a pact on November 5 which allows 
New Zealand access to Japan's strategic oil reserves for 
emergency use, according to a METI press release. 
 
New Zealand may purchase up to 90,000 metric tons, or 659,700 
barrels of oil from Japan in 2008 and could apply this amount 
toward the 90-day strategic reserves required under its 
commitments to the International Energy Agency (IEA). 
 
This is the first time Japan has entered into such an agreement. 
METI sources said, should New Zealand opt to purchase Japanese 
oil, the reserves would come from Japan's private sector 
stockpile and not from national reserves.  (ECON:  Sally 
Behrhorst/Eriko Marks) 
 
-------- 
SCANDALS 
-------- 
 
¶9.  (SBU) Press reports on MOD's "Cozy" Relationship with 
Defense Subcontractors 
--------------------------------------------- ----- 
 
Local newspapers and TV news covered the former Vice Defense 
Minister Takemasa Moriya's testimony to the Diet which shed new 
light on the "cozy" relationship between Defense Ministry 
officials and the trading companies that assist in defense 
procurement. 
 
Embassy enforcement officials closed in on a suspect believed 
to have provided export controlled items to a subcontractor in 
Tokyo.  The American citizen suspect took the 5th Amendment and 
hired a lawyer. 
 
Japan is probably unique in the extent to which trading 
companies play a central role in the procurement of defense- 
related and other equipment from foreign manufacturers. 
See Tokyo 4928 for details on a related defense procurement 
problem involving falsified documentation for night vision 
goggles, also covered in the Japanese press.  (ECON:  Charlotte 
Crouch) 
 
¶10.  (U) MLIT Press Release Discloses Fraudulent Fire Retardant 
Building Material Tests 
--------------------------------------------- ----- 
 
Nichias Corp., which is a major building material maker in 
Japan, submitted falsified building materials tests to the 
Ministry of Land, Infrastructure and Transport (MLIT), 
according to newspaper reports November 2 and 3. 
 
The company fabricated the performance of its fire resistant 
construction materials used in houses and other buildings 
nationwide through Japan's major home builders.  According to a 
press release on MLIT's homepage, the ministry set up a team at 
the Center for Housing Renovation and Dispute Settlement 
Support to respond to consumers' inquiries on this issue. 
 
MLIT has also already revoked 16 of the 20 approvals the 
company obtained because of the products' failure to meet the 
required standards.  Minister Fuyushiba stated he was extremely 
disappointed that the company has falsified statements about 
its product.  (ECON:  Junko Nagahama) 
 
¶11.  (SBU) A Private Postal Affair: Employee Fired 
--------------------------------------------- ----- 
 
Japan Post Group's mail delivery subsidiary fired its first 
employee for disciplinary reasons since postal privatization 
began, media reported November 8.  The 32-year-old employee was 
apparently reluctant to deliver mail; more than 1,000 
undelivered letters and post cards were reportedly found 
 
TOKYO 00005176  004 OF 007 
 
 
stuffed in his desk, his locker, and in his home. 
 
Interviews with co-workers suggested that the employee's errant 
behavior had persisted for years.  Formerly, the employee had 
status as a civil servant, but that changed when postal 
privatization began October 1. 
 
In addition to being fired, the employee was charged with 
violating postal laws.  (ECON: Marc Dillard) 
 
¶12.  (U) Nagoya Slush Fund "Scandal" Produces No Titillating 
Disclosures 
--------------------------------------------- ----- 
 
Nagoya Mayor Matsubara held a press conference October 7 to 
respond to growing concerns over a slush fund scandal that hit 
the press at the end of October. 
 
Local media allege that ten wards and two sections in Nagoya 
City have accumulated about 92 million yen (about $800,000) in 
slush funds over the past 15 to 30 years.  The funds were 
originally uncovered through a whistleblower's e-mail to 
Nagoya's public hearing section on September 10. 
 
The city began its own investigation, and was able to keep it 
out of the press for over a month.  The ward offices in 
question allegedly hoarded money from the margins of normal 
expenditures and excessive claims for part-time staff to spend 
off-budget on mundane office items such as computers, umbrellas, 
and shelves. 
 
To date, there have been no allegations that any city staff 
profited personally or used the funds for personal 
entertainment.  (Nagoya:  Tamiki Mizuno) 
 
------------------ 
TRADE AND BUSINESS 
------------------ 
 
¶13.  (U) Part of Nova Salvaged By M&A Operation 
--------------------------------------------- ----- 
 
Nagoya-based G..communication, a firm currently operating 1924 
restaurant and education outlets throughout Japan, announced 
November 6 that it will acquire 30 English schools from the 
failed Nova Corp. and plans to take over up to a total of 200 
Nova schools in the near future. 
 
G..communication has reportedly offered to retain Nova's 
English teachers at the schools it is acquiring (but not 
necessarily pay the back salary owed them by Nova) and employ 
many other Nova teachers at existing G..communication English 
centers and cram schools. 
 
G..communication was founded in 1994 by then 25-year-old former 
Gamagori City bureaucrat Masaki Inayoshi, but the company only 
started to grow rapidly in 2006, when it began aggressive 
mergers and acquisitions activity.  (Nagoya:  Dan Rochman) 
 
¶14.  (SBU) Call to Launch U.S. - Japan EPA Talks 
--------------------------------------------- ----- 
 
Most Japanese media covered the story out of Washington that 
the U.S. - Japan Business Council would like to see the two 
countries launch free trade talks by 2009.  The news has not 
generated much excitement, with little if any editorial 
commentary to speak of so far.  A Trade Ministry official told 
us on November 7 he welcomed the news. 
 
The timing of the announcement comes precisely as Japanese 
negotiators are in Canberra to resume talks with the 
Australians on a free trade agreement. 
 
Japan's Agriculture Ministry (MAFF) remains strongly opposed to 
substantial liberalization of agricultural trade with Australia. 
Observers note that MAFF's opposition is in part because the 
ministry fears a deal with Australia would only increase the 
likelihood of having to work out a deal with the United States 
later.  (ECON:  Nicholas Hill) 
 
---------------- 
FOOD AND FARMING 
 
TOKYO 00005176  005 OF 007 
 
 
---------------- 
 
¶15.  (U) Japanese Rice Exports 
--------------------------------------------- ----- 
 
With an export beachhead established in China over the summer, 
Japan aims to start exporting rice to Russia this month. 
Despite rice prices sometimes in excess of 10 times the world 
price, Japanese farmers are finding a market among Russia's 
increasing numbers of high-end consumer outlets, including 
Japanese restaurants.  The initial cargo in November will be 
0.6 tons. 
 
According to the Ministry of Agriculture (MAFF), Japan's 
agricultural exports were worth 400 billion yen in 2005.  The 
Ministry aims to raise agricultural exports to 1 trillion yen 
by 2013, although some observers describe this as a quixotic 
goal. 
MAFF claims to be pleased with the reception Japanese rice has 
had in China, where 24 tons have been shipped since the market 
opened in June.  (ECON:  Nicholas Hill/Ryoko Nakano) 
 
¶16.  (SBU) Ag Reform: Prospects Dim Despite Good Intentions 
--------------------------------------------- ----- 
 
The urgency to reform Japan's agriculture sector is felt by 
many in the know, but prospects to bring it about remain slim. 
During a November 1 meeting of the Council on Economic and 
Fiscal Policy (CEFP), the Agriculture Ministry (MAFF) unveiled 
a paper with farmland reform proposals that would focus on 
consolidating land. 
 
The report proposes a new system that would allow farmers to 
extend leasing terms from six to 20 years, and to eliminate 
derelict farmland within five years.  The average size of 
Japanese farms is about 1.6 hectares, only one percent of the 
average U.S. farm. 
 
Prime Minister Fukuda, present in his capacity as Chair of the 
CEFP, underscored during the November 1 session the need for 
Japan to press ahead on farm sector reform.  Press reports 
afterward, however, were skeptical that the reforms the 
government was putting forward would be enough. 
 
The media pointed out that the Prime Minister's policy speech 
after taking office in September on agriculture called for more 
resources to be devoted to small-scale and elderly farmers--a 
policy approach at variance with the need to encourage more 
consolidation in the sector.   (ECON:  Nicholas Hill/Ryoko 
Nakano) 
 
¶17.  (SBU) CEFP Private Members Want More, Not Less, 
Agricultural Reform 
--------------------------------------------- ----- 
 
After MAFF presented its report to the Council on Economic and 
Fiscal Policy, the private members of the body, including Japan 
Business Federation (Keidanren) Chairman Mitarai, urged the 
government to consider more measures to boost productivity of 
rice farmers, who make up 70 percent of Japan's total farming 
population. 
 
In a report they submitted at the CEFP session, the private 
members -- who come from academia and business and tend to be 
more reform-minded than the larger body -- also want to see 
more measures to encourage corporate farming and a more 
aggressive approach to consolidating farmland. 
 
An agricultural economist we talked to on November 8, close to 
the CEFP private members, expressed skepticism that MAFF's 
current call for more farmland consolidation would go anywhere 
given the political climate.  He was resigned to the fact that 
nothing on agricultural reform would pass the Diet in advance 
of a general election.    (ECON:  Nicholas Hill/Ryoko Nakano) 
 
-------- 
AVIATION 
-------- 
 
¶18.  (SBU) Japan Liberalizes Foreign Carriers' Access to Rural 
Airports 
--------------------------------------------- ----- 
 
TOKYO 00005176  006 OF 007 
 
 
 
Japan has liberalized foreign air carriers' access to rural 
airports in principle in a bid to help invigorate rural 
economies, according to a November 2 announcement from the 
Ministry of Land, Infrastructure and Transport (MLIT). 
 
MLIT Deputy Director General of the Civil Aviation Bureau, 
Ryuhei Maeda, told U.S. airline representatives that this 
program is only for Asian airlines.  The liberalization has 
effectively been implemented since the idea is included in the 
government's Asian Gateway initiative to promote international 
exchange in May. 
 
Narita, Kansai and Chubu international airports and Haneda and 
Osaka airports are not on the list of airports participating in 
this program.  (ECON:  Charlotte Crouch) 
 
------ 
STOCKS 
------ 
 
¶19.  (U) Tokyo Stock Prices Lose 2.0 %, Lowest Close in Two 
Months 
--------------------------------------------- ----- 
 
Following both a steep fall on Wall Street and the yen's 
appreciation, Tokyo stock prices dropped sharply November 8. 
The Nikkei Stock Average lost 325 points, or 2.0 percent to 
close at 15,771.57, below the 16,000 line for the first time 
since September 18 and the lowest close since September 10. 
This represents a decline of 2,490 points, or 13.6 percent, 
from the recent peak of 18,261.98 on July 9.  The TOPOX index 
fell 2.6 percent on Thursday to 1,516.94, the lowest level 
since September 18.  (FINATT:  Shuya Sakurai) 
 
------ 
SPORTS 
------ 
 
¶20.  (U) Japan is Part of Red Sox Nation Too 
--------------------------------------------- ----- 
 
"This fall, Japan became a Red Sox nation."  That is how Gaku 
Tashiro of Sankei Sports described the phenomena in the Boston 
Globe on November 6. 
 
Tashiro notes how the Red Sox World Series victory splashed 
over all of Japan's sports papers, and interest was not just 
limited to the Red Sox's two Japanese imports -- Daisuke 
Matsuzaka and Hideki Okajima.  For 
 
Meanwhile, the Red Sox may be looking to Japan for more talent 
as the team's management attempts to restock what is already 
baseball's most dominant powerhouse.  (ECON:  Nicholas Hill) 
 
------------ 
MOFA ACTIONS 
------------ 
 
¶21.  (U) ASEAN-Japan Negotiations 
--------------------------------------------- ----- 
 
The 11th round of negotiations on the ASEAN-Japan Comprehensive 
Economic Partnership Agreement will be held from November 4 to 
6 in Philippines. 
 
¶22.  (U) Japan-Thailand Economic Partnership Agreement 
--------------------------------------------- ----- 
 
To access the Joint Press Statement for the Inaugural Meeting 
of the Japan-Thailand Joint Committee on Economic Partnership, 
see MOFA's website.  (ECON:  Ritsu Yamashiro) 
 
¶23.  (SBU) THIS WEEK'S CABLES 
5138 Ozawa withdraws resignation to critical reaction 
5137 North Korea:  Diet members press for abductions progress 
before delisting 
5134 Governor feeling pressure on Futenma move 
5132 Chinese outmaneuvering Japanese industry with aid to 
Africa 
5128 Under Secretary of Defense Clapper presses Defense 
Minister Ishiba information security 
 
TOKYO 00005176  007 OF 007 
 
 
5127 Piracy: Japan not in a position to exercise jurisdiction 
5114 Fukuda-Ozawa meetings incite latest  political crisis 
5113 Japan considering piracy response 
5101 DAS Christensen's October 21 meeting with  Asian Affairs 
DDG Kohara 
 
¶24.  (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