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UNCLAS SECTION 01 OF 10 TOKYO 005559 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA; 
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION; 
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE; 
SECDEF FOR JCS-J-5/JAPAN, 
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA 
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR; 
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. 
 
E.O. 12958: N/A 
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
 
SUBJECT: JAPANESE MORNING PRESS HIGHLIGHTS 12/14/07 
 
 
Index: 
 
1) Top headlines 
2) Editorials 
3) Prime Minister's daily schedule (Nikkei) 
 
4) Latest Yomiuri-Gallup poll of American and Japanese mutual views 
shows alarming worsening of U.S.-Japan relations (Yomiuri) 
 
5) Prime Minister Fukuda assures NATO secretary general that Japan 
will soon resume refueling activities in the Indian Ocean (Asahi) 
 
Defense scandals: 
6) MSDF officer arrested for leaking Aegis information aware that he 
was handling special defense secrets (Nikkei) 
7) Defense Minister Ishiba finds the Aegis information leak 
"extremely regrettable" (Mainichi) 
8) Prime Minister Fukuda calls the Defense Ministry "shameful" for 
sloppy handling of secret information that leaked out (Nikkei) 
9) Top MSDF brass to resign to take responsibility for 
leaked-secrets scandal (Sankei) 
10) Former Vice Defense Minister Moriya re-arrested after 
investigators find another stash of bribery money in a family bank 
account (Mainichi) 
 
Political uproar: 
11) The Diet session extension gives time to pass the antiterrorism 
bill, but with a host of scandals for the opposition to pursue, it 
may be a double edged sword (Tokyo Shimbun) 
12) New Komeito facing the extended Diet session with trepidation, 
particularly worried about an early Diet dissolution (Sankei) 
 
Economic trends: 
13) Fukuda sets his international horizons on building an Asian 
community centered on environmental cooperation and a new growth 
strategy (Nikkei) 
14) Ruling camp's tax guidelines put off basic reform of tax system, 
aware that tax hikes could hurt its chances in the next election 
(Asahi) 
 
Articles: 
 
1) TOP HEADLINES 
 
Asahi: 
Ruling camp puts off bold reform of tax system, with eye on election 
 
 
Mainichi, Sankei & Tokyo Shimbun: 
Plaintiffs reject court settlement for drug-induced hepatitis C 
suffering 
 
Yomiuri: 
Government plans outlays for checking only 33 million unidentified 
pension records next fiscal year 
 
Nikkei: 
Five Japanese companies promoting talks on a plan to build refinery 
in Libya 
 
Akahata: 
JCP member points out continued orders made by Defense Ministry to 
 
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defense contractors under disposition by suspension of business 
 
2) EDITORIALS 
 
Asahi: 
(1) It's time for prime minister to make political decision for 
plaintiffs suffering from hepatitis C virus 
(2) Abolish securities preferential taxation 
 
Mainichi: 
(1) Government has responsibility to rescue all hepatitis C suffers 
(2) Honestly speak about the need for tax hikes to cover social 
security costs 
 
Yomiuri: 
(1) With arrest of MSDF officer, charges for negligence of oversight 
responsibility unavoidable for executives 
(2) Promote talks to settle hepatitis-C row 
 
Nikkei: 
(1) The ruling camp's package of tax reform proposals sidesteps 
drastic measures 
 
Sankei: 
(1) Prime minister's political decision needed in hepatitis-C 
lawsuit 
(2) Putting off drastic tax reform measures impermissible 
 
Tokyo Shimbun: 
(1) Government urged to make decision to rescue all hepatitis-C 
suffers 
(2) Government must make drastic tax reform to narrow tax-revenue 
discrepancies 
 
Akahata: 
(1) Ruling camp's tax reform proposal emphasizes use of consumption 
tax exclusively to cover social security costs, deceiving people 
 
3) Prime Minister's Official Residence (Kantei) 
 
Prime Minister's schedule, December 13 
 
NIKKEI (Page 2) (Full) 
December 14, 2007 
 
08:04 
Met Deputy Chief Cabinet Secretary Iwaki at the Kantei. 
 
09:00 
Attended an Upper House Foreign Affairs and Defense Committee 
meeting. 
 
12:47 
Met Assistant Deputy Chief Cabinet Secretary Saka at the Kantei. 
 
14:30 
Met former education ministers Nakayama and Kawamura and former 
senior vice education minister Shionoya, followed by FIFA Chairman 
Blatter. 
 
15:09 
Met Vice METI Minister Kitabata, Industrial Science and Technology 
 
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Policy and Environment Bureau chief Ishida, and Resources and Energy 
Agency Director General Mochizuki. 
 
16:09 
NATO Secretary General de Hoop Scheffer, followed by LDP General 
Council Chairman Nikai, and Lower House members Kazuo Aichi and 
Tetsuma Esaki. 
 
17:25 
Attended an Intellectual Property Strategic Headquarters meeting. 
 
17:49 
Met Chief Cabinet Secretary Machimura. 
 
18:02 
Attended an Education Rebuilding Council meeting. 
 
18:28 
Dined with Japan Business Federation Chairman Mitarai and others at 
the Grand Prince Hotel Akasaka. 
 
20:19 
Returned to his residence in Nozawa. 
 
4) Yomiuri-Gallup poll: Japan-U.S. ties rated worst 
 
YOMIURI (Page 1) (Full) 
December 14, 2007 
 
The Yomiuri Shimbun and the Gallup Organization, a U.S. pollster, 
conducted a joint public opinion survey in mid-November. In the 
survey, Japanese and American respondents were asked if they thought 
Japan-U.S. relations are currently in good shape. To this question, 
those who answered "yes" totaled 39 PERCENT  in Japan and 46 PERCENT 
 in the United States. The figures were respectively down 14 and 15 
percentage points from last year's survey. Both figures are lower 
than those in the previous telephone-based surveys conducted in 2000 
and after. The survey this time shows that the public sentiment 
toward Japan-U.S. relations has worsened in both countries. 
 
Meanwhile, those who think Japan-U.S. relations are in bad shape 
totaled 32 PERCENT  in Japan (23 PERCENT  last year) and 10 PERCENT 
in the United States (7 PERCENT  last year). In Japan, the 
proportion of those who think Japan-U.S. relations are in bad shape 
topped 30 PERCENT  for the first time since 2000. Those who "can't 
say which" accounted for 23 PERCENT  in Japan (20 PERCENT  last 
year) and 31 PERCENT  in the United States (24 PERCENT  last year). 
 
In the survey, Japanese and American respondents were also asked if 
they trusted each other's country. In Japan, the proportion of those 
negative topped that of those affirmative, with a total of 54 
PERCENT  saying they do not trust the United States and a total of 
34 PERCENT  saying they do. Negative answers outnumbered affirmative 
ones for the fifth year in a row. In the United States, those who 
trust Japan (totaling 61 PERCENT ) outnumbered those who do not (30 
PERCENT ). However, the proportion of those who trust Japan was down 
15 points from last year. The proportion of those who do not trust 
Japan was up 9 points. 
 
The public view and trust of each other's country worsened in the 
survey this time. This seems to reflect a growing gap over North 
Korea and the Maritime Self-Defense Force's pullout from its 
 
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refueling activities in the Indian Ocean. 
 
5) NATO pins hopes on Japan's refueling operations: Secretary 
general hold talks with premier 
 
ASAHI (Page 4) (Full) 
December 14, 2007 
 
Prime Minister Fukuda yesterday met with visiting North Atlantic 
Treaty Organization (NATO) Secretary General Jaap de Hoop Scheffer 
at the Prime Minister's Official Residence (Kantei). Touching on 
Japan's refueling assistance operations in the Indian Ocean, Fukuda 
told de Hoop Scheffer, "We are making our utmost for passage of a 
new bill aimed at resuming the operations at an early date." The 
secretary general expressed expectations for Japan's contributions 
 
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to the war on terror, saying, "We highly appreciate Japan's precious 
assistance to NATO member nations through its refueling 
operations." 
 
The secretary general noted that NATO has launched a dialogue with 
China. Fukuda responded, "It is important for NATO to take an 
interest in China and Asia. Japan will also strengthen its relations 
with China." 
 
The secretary general also met with Foreign Minister Koumura and 
Defense Minister Ishiba the same day. 
 
6) Aegis info leak: Arrested commander was aware that it was special 
defense secret 
 
NIKKEI (Page 43) (Abridged slightly) 
December 14, 2007 
 
Sumitaka Matsuuchi, a Maritime Self-Defense Force lieutenant 
commander stationed at the Yokosuka base, has been arrested on 
suspicion of violating the Law Concerning the Protection of Secrets 
for the Japan-U.S. Mutual Defense Assistance Agreement, in 
connection with the case in which pivotal data on the Aegis system 
circulated within the MSDF. It became clear yesterday that he has 
admitted to the Kanagawa prefectural police and the MSDF Criminal 
Investigation Command that he had been aware that (the leaked data) 
was a special defense secret. 
 
According to investigation, Matsuuchi used to engage in the 
development of ship systems as a member of the programming unit 
(currently the ship development unit) that compiled the data on the 
Aegis system, a special defense secret that must not be leaked under 
the law. 
 
Police and other authorities think Matsuuchi was authorized to 
handle special defense secrets. His statement seems to back that 
up. 
 
Under the law based on the Japan-U.S. Mutual Defense Assistance 
Agreement, ship and aircraft structures and their efficiency 
provided by the United States are classified as special defense 
secrets that must not be leaked. In the event a person handling 
 
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special defense secrets leaked such secrets, he could face a prison 
term of up to 10 years. 
 
Matsuuchi allegedly copied the data into a CD around August 2002 and 
sent it to a 43-year-old lieutenant commander, who was an instructor 
 
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at the MSDF's First Service School (Etajima, Hiroshima Prefecture), 
via the internal mail system. 
 
Matsuuchi also indicated that he had given the data at the request 
of the lieutenant commander. Prefectural police and other 
investigative authorities are trying to find out how the information 
leaked out and how it spread within the MSDF. 
 
7) Ishiba describes Aegis info leak incident as extremely 
regrettable 
 
MAINICHI (Page 31) (Full) 
December 14, 2007 
 
In the wake of the arrest of a Maritime Self-Defense Force 
lieutenant commander in connection with the Aegis data leak 
incident, Defense Minister Shigeru Ishiba held a press conference 
yesterday. He said: "The matter concerns the foundation of the 
Japan-U.S. alliance; it is extremely regrettable." Ishiba also 
indicated that he will take disciplinary action against persons 
concerned, saying, "A lack of awareness of information security or 
lax discipline is a grave problem." 
 
8) Prime Minister Fukuda critical of intelligence leaks, calls the 
Defense Ministry "shameful" (Nikkei) 
 
NIKKEI (Page 2) (Full) 
December 14, 2007 
 
Prime Minister Yasuo Fukuda yesterday commented on the arrest of a 
Maritime Self-Defense Force lieutenant commander for the leakage of 
material with key information about the Aegis ship: "What in the 
world system do they have to let vital defense intelligence leak out 
so simply? I think it is shameful." He was responding to a question 
from the press corps. 
 
9) MSDF top brass to quit over misconducts 
 
SANKEI (Page 1) (Full) 
December 14, 2007 
 
The Maritime Self-Defense Force's top brass officer, Eiji Yoshikawa, 
has made up his mind to resign as MSDF chief of staff, sources 
revealed yesterday. Yoshikawa will take responsibility for MSDF 
personnel's misconducts, such as leaking classified data about an 
Aegis-equipped ship and covering up a mistaken amount of fuel 
supplied by an MSDF vessel in the Indian Ocean, according to the 
sources. He is expected to be replaced in March next year. 
 
In the information leakage incident, Sumitaka Matsuuchi, an 
incumbent MSDF officer in the rank of lieutenant commander, was 
arrested yesterday by Kanagawa prefectural police and MSDF shore 
police on the charge of violating an information security law 
relating to a mutual defense assistance agreement between Japan and 
the United States. 
 
According to informed sources, leaked information contained 
classified data about missile defense systems. The incident marred 
the United States' trust of the MSDF. The United States is Japan's 
ally. In particular, the MSDF is closely related with the U.S. Navy. 
Considering these facts, the Defense Ministry recognized the need 
for it to take some action in order to recover the United States' 
 
TOKYO 00005559  006 OF 010 
 
 
trust. Yoshikawa, who became MSDF chief of staff in August last 
year, is highly likely to be replaced. 
 
In addition, the MSDF covered up a mistaken amount of fuel supplied 
by its vessel in the Indian Ocean and mistakenly scrapped vessel 
logbooks. These are related to civilian control and archives. Police 
authorities are still investigating the truth about those scandals. 
 
The Defense Ministry will release a fact-finding report of 
investigations within the year, according to Defense Ministry and 
MSDF officials. The Defense Ministry is expected to announce 
preventive steps and punish those involved in January next year or 
after. After paving the way to prevent such scandals, the MSDF chief 
of staff will step down. He is likely to be replaced with Vice Adm. 
Yoji Koda, commander-in-chief of the Self-Defense Fleet. 
 
10) Prosecutors to re-arrest Moriya, judging over 3 million yen sent 
to family members' accounts as bribes; U.S. law enforcement asked 
for investigative cooperation 
 
MAINICHI (Page 31) (Excerpts) 
December 14, 2007 
 
The special investigation squad of the Tokyo District Public 
Prosecutors Office seems to have decided to re-arrest early next 
week former Administrative Vice-Defense Minister Takemasa Moriya, 
63, on suspicion of taking bribes totaling over 3 million yen from 
defense contractor Yamada Corp. Yamada allegedly sent the money to 
bank accounts held by Moriya's family members. A certain amount of 
money was remitted to a bank account opened in the United States in 
the name of his second daughter. The special investigation squad has 
asked U.S. law enforcement for investigative cooperation. 
 
According to an informed source, former Yamada executive Motonobu 
Miyazaki, 69, who was re-arrested on suspicion of giving bribes, 
instructed former Yamada U.S. subsidiary president Osamu Akiyama, 
70, who was indicted on corporate embezzlement, to send over 3 
million yen to the Moriya side from the slush funds in the United 
States. At Miyazaki's instructions, Akiyama allegedly sent several 
hundred thousand yen to an account held by Moriya's wife Sachiko, 
56, under arrest on suspicion of taking bribes, every time she asked 
for money for paying tuitions, oversea travel expenses, and the 
like. 
 
It has also become clear that cash in U.S. dollars has been remitted 
to the U.S. bank account held by Moriya's second daughter, who was 
studying English in the United States. Requesting investigative 
cooperation of U.S. law enforcement, the special investigation squad 
seems to be investigating money transfers between bank accounts in 
the United States. 
 
11) Extended Diet session a double-edged sword for the ruling camp: 
Pension issue, Defense Ministry scandals bound to be pursued 
 
TOKYO SHIMBUN (Page 2) (Excerpts) 
December 14, 2007 
 
The government and ruling parties have decided to re-extend the 
current extraordinary Diet session until Jan. 15 next year in order 
to enact a new antiterrorism special measures bill to allow the 
Self-Defense Force to resume its refueling activities in the Indian 
Ocean. But with identifying the 50 million pension accounts that 
 
TOKYO 00005559  007 OF 010 
 
 
remain missing running into trouble, coupled with the series of 
bribery scandals involving the Defense Ministry, the government and 
ruling coalition by extending the session have given the opposition 
camp more chances to pursue them. The government and ruling bloc 
face a severe atmosphere in the Diet straight through the New Year. 
 
"The campaign pledge did not come to my mind immediately," said 
Prime Minister Yasuo Fukuda yesterday in a House of Councillors 
Foreign Affairs and Defense Committee session. He responded this way 
to a question about his remark on the pension-record fiasco: "Is 
failing to fulfill a campaign pledge such a serious matter?" 
 
In a House of Representatives Budget Committee session in January 
2003, former Prime Minister Junichiro Koizumi, when asked about his 
government's failure to fulfill its pledge not to issue more than 30 
trillion yen in government deficit bonds, quipped: "That's not such 
a big deal." His remark gave the opposition a golden opportunity to 
attack the government and ruling coalition. Fukuda's remark is 
reminiscent of Koizumi's famous slip of the tongue. 
 
The pension issue, in which voters have a strong interest, is 
another unlucky development for the ruling camp. The long-running 
pension fiasco hurt the ruling parties in the 2004 and 2007 Upper 
House elections, going down to defeat to the main opposition party 
Democratic Party of Japan (DPJ or Minshuto). If the broken pledge 
and pension fiasco form a synergistic effect, the re-extension of 
the Diet session will be a double edged sword for the ruling camp. 
 
Chief Cabinet Secretary Nobutaka Machimura, who has come under fire 
for his remark that the government never pledged to completely 
identify every last person and last yen by the end of next March, 
offer an apology in a meeting of his faction: "I apologize for 
causing trouble by my insufficient explanation. I will deal with 
this matter as sincerely as possible." Liberal Democratic Party 
(LDP) Secretary General Bunmei Ibuki expressed his resolve in his 
faction's meeting, saying: "Three months are left until March. I 
will do my best until the last minute." The two were desperate to 
assuage criticism of the government and ruling camp. 
 
Another source of trouble is the bribery scandal involving a former 
administrative vice defense minister. If the investigation expands 
to political circles, it will deal a serious blow to the Fukuda 
government. A mid-level LDP member pointed out: "I wonder whether 
the new refueling bill should be enacted even by re-extending the 
Diet session." A senior New Komeito member said: "It is a 
significant decision. We will see if it was a good one or not." 
 
DPJ Secretary General Yukio Hatoyama took a stance of opposing a 
re-extension of the session, saying: "The government is responsible 
for fiddling around for two months." The opposition, however, 
actually seems to be waiting for the re-extension. 
 
12) New Komeito concerned about political situation after 
re-extended Diet session 
 
MAINICHI (Page 5) (Full) 
December 14, 2007 
 
It was decided yesterday that the current extraordinary Diet session 
would be extended again until Jan. 15 next year. With an eye on 
avoiding an early dissolution of the House of Representatives and a 
snap general election, the New Komeito, which had been reluctant to 
 
TOKYO 00005559  008 OF 010 
 
 
re-extend the extra Diet session, accepted the re-extension of the 
session in consideration of the government and the ruling Liberal 
Democratic Party (LDP), which are only focused on the passage of the 
new antiterrorism special measures bill. However, if the bill is put 
to a second vote at the Lower House, (overriding the Upper House's 
rejection,) the Democratic Party of Japan (DPJ or Minshuto) and 
other opposition parties may submit a censure motion against Prime 
Minister Yasuo Fukuda. Since the party's concern about the 
possibility of a Lower House dissolution still remains, the New 
Komeito will continue to face a tough political situation. 
 
"It means we have crossed the Rubicon," said a senior New Komeito 
member to reporters after a meeting of the secretaries general of 
the ruling and opposition camps, in which the ruling coalition 
conveyed its decision to re-extend the extra Diet session to the 
opposition camp. 
 
Until immediately before accepting the re-extension idea, senior New 
Komeito members were fretting over how to clear three conditions: 
whether to enact the new antiterrorism bill or not; how to avoid a 
dissolution of the Lower House; and whether a regular Diet session 
could be convened smoothly. 
 
Since Prime Minister Fukuda pledged in his summit meeting with U.S. 
President George W. Bush to do his best to enact the bill, if the 
bill is not passed through the Diet, the government will suffer a 
serious blow, and the New Komeito, the junior coalition partner of 
the LDP, will feel the backlash. Therefore, the New Komeito had no 
choice but to accept Fukuda's decision on the re-extension. 
 
Meanwhile, election cooperation between the LDP and New Komeito has 
not moved forward. The candidate backed the two countries was 
defeated in the mayoral election of Osaka City. The religious sect 
Soka Gakkai, the New Komeito's chief supporter, has given a warning 
since the April unified local elections: "The New Komeito must avoid 
an early dissolution of the Lower House." 
 
In order to coordinate their views of the political situation, 
Fukuda and New Komeito leader Akihiro Ota had a two-hour meeting on 
the night of Dec. 11. Ota said that his intention to prevent the 
Lower House from dissolving was understood by Fukuda. He noted: "I 
said that it would be desirable to dissolve the Lower House next 
fall or after. I think the Prime Minister has already been aware of 
that." A senior New Komeito member told the press yesterday: Even if 
a censure motion against the Prime Minister is submitted, unless he 
has the resolve to pass the budget, the bill will not be readopted 
in the Lower House." He commented that Fukuda's decision led to the 
New Komeito's approval. 
 
However, it is uncertain how the political situation will develop 
after the re-extended Diet session. The DPJ and other opposition 
parties will inevitably step up their offensive over the pension 
fiasco and other issues. There is no way to predict how 
investigations on the Defense Ministry by the special investigation 
squad of the Tokyo Public Prosecutors Office will develop. 
 
There is concern about the future course of the political situation, 
with one New Komeito member saying: "We really don't know what will 
happen two weeks and one month from now." 
 
13) Fukuda administration as part of new growth strategy proposes 
Asia Community, centered on cooperation in environment area 
 
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NIKKEI (Page 1) (Full) 
December 14, 2007 
 
The government yesterday outlined a new economy-growth strategy to 
be advocated by Prime Minister Yasuo Fukuda. In it, the prime 
minister will propose establishing an Asia economic and 
environmental community in which Japan will cooperate with Asian in 
protecting the environment and intellectual property and in saving 
energy in a bid to grow the regional economy. As domestic measures, 
the strategy places emphasis on efforts to increase job 
opportunities and demand by strengthening cooperation between urban 
and rural areas, as well as between big and small businesses. By 
taking these measures, the administration aims to keep the nation's 
real growth rate at more than 2 PERCENT  over the next decade 
despite the nation's declining birth rate. 
 
In a meeting of the Council on Economic and Fiscal Policy today, 
Economy, Trade and Industry Minister Akira Amari and State Minister 
in Charge of Economic and Fiscal Policy Hiroko Ota will spell out 
their respective basic views about the new strategy. The government 
will compile by next January a mid-term guideline for economic 
management that will include strategic growth measures. The prime 
minister instructed in a meeting of the economic council on Nov. 8 
that the panel draw up a new growth strategy. 
 
The new strategy puts forward ways to beef up Japan's economic 
growth potential through cooperation with Asia. In particular, the 
strategy focuses on cooperation in making rules to protect the 
environment and intellectual property, as well as to conserve 
energy. For these areas, proper systems have yet to be prepared. As 
an energy-conservation measure, for instance, the new strategy 
proposes creating a fund invested by Japanese government-affiliated 
financial institutions and companies and investing in projects 
designed to save energy or to develop new energy sources. It also 
suggests Japan's support for creating a system for energy-saving. 
 
Japan will also aim to improve the environment for Japan's 
investment in Asia by introducing common rules through cooperation 
in setting up economic systems. The strategy envisions the 
establishment of an Asia economic and environmental community that 
includes China, South Korea, India, and the Association of Southeast 
Asian Nations (ASEAN) in 2018. 
 
As domestic measures to narrow the income discrepancies between 
urban and rural areas, and between big and small companies, the 
strategy stresses the importance for both sides to share information 
and personnel. Specifically, the administration proposes introducing 
the regional system and a mechanism to enable those who retired from 
big companies to get new jobs at small companies in small cities. 
The Council on Economic and Fiscal Policy will include the measures 
in the strategy in its annual economic and fiscal policy guidelines 
for 2008. 
 
14) Ruling party guidelines for tax code revision leave out drastic 
tax system reform policy: Consideration given to local areas with 
eye on next election 
 
ASAHI (Top Play) (Excerpts) 
December 14, 2007 
 
The Liberal Democratic Party (LDP) and the New Komeito yesterday 
 
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adopted their ruling-party guidelines for tax code revisions for 
fiscal 2008. They made a strategic move for a future tax hike by 
incorporating a phrase into the package that the consumption tax 
will be made a major fiscal resource to finance increasing social 
security expenses. However, neither the margin of the envisaged hike 
or a timetable has been included. The government's and the ruling 
parties' policy of realizing a drastic reform of the tax system, 
including the consumption tax, possibly in fiscal 2007 has thus been 
put on the back burner. Their policy of calling on opposition 
parties, such as the Democratic Party of Japan (DPJ or Minshuto), to 
take part in tax system discussions has been included in the 
guidelines with the opposition camp's dominance in the Upper House 
taken into account. 
 
Following the adoption of the guidelines, the government will 
introduce related bills to the regular Diet session next year. The 
DPJ also plans to compile its own tax code reform guidelines 
possibly next week. Differences in the views of the ruling and 
opposition parties are already surfacing over the handling of 
specific road-construction revenues and some other issues. Fierce 
debate is expected. 
 
The major issue in the debate on the tax system is the handling of 
the consumption tax. The guidelines characterized the consumption 
tax as a major fiscal resource to cover the cost of the payments of 
social security benefits, such as pension benefits, and medical and 
nursing-care services, and measures on the declining birthrate. The 
LDP Fiscal Reform Study Council, chaired by Kaoru Yosano, proposed 
turning the consumption tax into a social security tax. Part of this 
idea was adopted in the guidelines. The aim is to lead a proposal 
for clear-cut usage of consumption tax revenues to a tax hike 
debate. 
 
Though the panel called for raising the consumption tax to about 10 
PERCENT  by around 2015, the package did not include a specific 
margin of the hike. 
 
Referring to a timetable for drastic tax system reform, including 
the consumption tax, LDP Tax System Research Committee Chairman Yuji 
Tsushima during a press conference indicated the idea of 
 
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implementing such a reform in fiscal 2009. He noted, "Increasing the 
government share of contributions to the national pension system by 
fiscal 2009 is an unavoidable issue." 
 
A central focus in the process of compiling the guidelines was 
consideration to regional areas aimed at the next Lower House 
election. Corporate tax revenues are concentrated in major cities, 
centered on Tokyo. The guidelines call for an increase in 
allocations to local governments by turning nearly half the 
corporate tax revenues or approximately 2.6 trillion yen, into a 
special local corporate tax starting in October 2008. The 
reallocation will start in fiscal 2009. 
 
SCHIEFFER