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UNCLAS SECTION 01 OF 15 TOKYO 005668 
 
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:  DAILY SUMMARY OF JAPANESE PRESS 12/27/07 
 
 
Index: 
 
(1) Poll on Fukuda cabinet, political parties, pension 
record-keeping flaws, MSDF Indian Ocean refueling legislation 
(Asahi) 
 
(2) U.S. activating lobbying, making policy proposals; ACCJ playing 
pivotal role; Lessons learned from past trade friction (Sankei) 
 
(3) Nikko to become subsidiary of Citigroup - first case of 
successful triangular merger (Nikkei) 
 
(4) 23 bills to be enacted under divided Diet; Ruling coalition 
modifies bills to make compromises with DPJ (Nikkei) 
 
(5) Iwakuni mayor quits to run again; City's administration 
malfunctions; Mayor ambivalent over U.S. military realignment 
(Yomiuri) 
 
(6) Three months of Fukuda administration: In anguish over "negative 
legacy" (Yomiuri) 
 
(7) New policy clique in the Diet (Asahi) 
 
(8) Defense budget in "harsh winter" with ministry under fire for 
series of scandals, high-cost structure (Sankei) 
 
(9) Watanabe: Ozawa, out of sense of crisis, proposed grand 
coalition (Yomiuri) 
 
(10) Editorial: Political support imperative to promote regulatory 
reform (Nikkei) 
 
 ARTICLES: 
 
(1) Poll on Fukuda cabinet, political parties, pension 
record-keeping flaws, MSDF Indian Ocean refueling legislation 
 
ASAHI (Page 4) (Full) 
December 21, 2007 
 
Questions & Answers 
(Figures shown in percentage, rounded off. Bracketed figures denote 
proportions to all respondents. Figures in parentheses denote the 
results of the last survey conducted Dec. 1-2.) 
 
Q: Do you support the Fukuda cabinet? 
 
Yes 31 (44) 
No 48 (36) 
 
Q: Why? (One reason only. Left column for those marking "yes" on 
previous question, and right for those saying "no.") 
 
The prime minister is Mr. Fukuda 23(7) 7(3) 
It's an LDP-led cabinet 29(9) 24(12) 
From the aspect of policies 19(6) 57(28) 
No particular reason 25(8) 10(5) 
 
Q: Which political party do you support now? 
 
Liberal Democratic Party (LDP) 27 (31) 
 
TOKYO 00005668  002 OF 015 
 
 
Democratic Party of Japan (DPJ or Minshuto) 25 (23) 
New Komeito (NK) 3 (4) 
Japanese Communist Party (JCP) 2 (2) 
Social Democratic Party (SDP or Shaminto) 1 (2) 
People's New Party (PNP or Kokumin Shinto) 0 (0) 
New Party Nippon (NPN or Shinto Nippon) 0 (0) 
Other political parties 1 (0) 
None 33 (31 
No answer (N/A) + don't know (D/K) 8 (7) 
 
Q: There are pension records remaining unclear for 50 million 
persons, and the government has now found it difficult to identify 
about 20 million persons. In this July's election for the House of 
Councillors, the government and ruling parties said the government 
would check up all the unclear records by March next year. Then 
Prime Minister Abe also maintained that the government would check 
all persons to the last one and pay pensions without fail. It is now 
difficult to identify a large number of persons. Do you think this 
breaks a public pledge? 
 
Yes 60 
No 30 
 
Q: Do you appreciate the Fukuda cabinet's efforts on the issue of 
pension record-keeping flaws? 
 
Yes 36 
No 46 
 
Q: Do you expect the Fukuda cabinet to dissolve public distrust in 
the nation's pension system? 
 
Yes 17 
No 72 
 
Q: The U.S. and other countries have sent naval vessels to the 
Indian Ocean for antiterror operations in Afghanistan. The 
Antiterrorism Special Measures Law, which was for the Self-Defense 
Forces to back up their naval operations in the Indian Ocean, 
expired on Nov. 1, and the SDF discontinued its activities there. Do 
you think Japan should resume SDF activities there? 
 
Yes 37 (44) 
No 48 (44) 
 
Q: The government has presented a bill to create a new law replacing 
the Antiterrorism Special Measures Law, and the bill is now being 
discussed in the Diet. This legislation limits SDF activities in the 
Indian Ocean to fuel and water supply for a period of one year, and 
it does not require the government to ask the Diet for its approval 
of SDF activities there. Do you support this legislation? 
 
Yes 34 (36) 
No 44 (43) 
 
Q: If this legislation is voted down in the House of Councillors, 
the ruling coalition is thinking of revoting on it in the House of 
Representatives to enact it into law with a concurring majority of 
two-thirds or more. Do you think it is appropriate to do so? 
 
Yes 37 (46) 
No 43 (37) 
 
TOKYO 00005668  003 OF 015 
 
 
 
Q: Do you think the House of Representatives should be dissolved as 
soon as possible for a general election, or do you otherwise think 
there is no need to do so? 
 
Dissolve as soon as possible 39 (34) 
No need to do so 48 (55) 
 
Q: If you were to vote now in a general election, which political 
party would you like to vote for in your proportional representation 
bloc? 
 
LDP 23 (32) 
DPJ 38 (32) 
NK 3 (4) 
JCP 3 (3) 
SDP 1 (2) 
PNP 0 (1) 
NPN 0 (0) 
Other political parties 1 (1) 
N/A+D/K 31 (25) 
 
Q: Would you like the current LDP-led coalition government to 
continue, or would you otherwise like it to be replaced with a 
DPJ-led coalition government? 
 
LDP-led coalition government 28 (37) 
DPJ-led coalition government 41 (36) 
 
Polling methodology: The survey was conducted Dec. 19-20 over the 
telephone on a computer-aided random digit dialing (RDD) basis. 
Respondents were chosen from among the nation's voting population on 
a three-stage random-sampling basis. Valid answers were obtained 
from 939 persons (58 PERCENT ). 
 
(2) U.S. activating lobbying, making policy proposals; ACCJ playing 
pivotal role; Lessons learned from past trade friction 
 
SANKEI (Page 11) (Full) 
December 27, 2007 
 
It has often been said that Japan-U.S. economic relations have been 
in a lull over the past several years.  However, U.S. companies are, 
in fact, strengthening their approach to the Japanese government. 
Behind the move is a lesson learnt from the trade disputes of the 
1980s and 1990s, namely, that it is more effective to exercise 
influence at the policy-planning stage. The American Chamber of 
Commerce and Industry in Japan (ACCJ, located in Minato Ward in 
Tokyo) is playing a pivotal role in making such an approach to the 
Japanese government. The procedure is that the ACCJ makes policy 
proposals on center stage, and specific companies lobby the network 
of politicians, bureaucrats and business leaders in both Japan and 
the United States. C.E.O.s of each American company operating in 
Japan are busy building personnel networks, and lobbying in Japan is 
seen as a new frontier. 
 
"Japanese legislators and the ACCJ shared the same keen awareness of 
the problem. For example, should we enter into a free trade 
agreement (FTA) between the two countries? Or how should we bring 
the economies and societies of both countries together?" 
 
James Foster, chairman of the Government Relations Committee of the 
 
TOKYO 00005668  004 OF 015 
 
 
ACCJ visited 74 Japanese lawmakers in late October this year, 
accompanied by with 50 senior officers, including ACCJ President 
Charles Lake. This was the traditional Diet Doorknock, aimed at 
exchanging views on Japan-U.S. relations and making policy 
proposals. 
 
Unlike the 1990s, when much energy was spent in dealing with trade 
friction involving such trade items as textiles, autos and computer 
chips, bilateral economic issues have decreased as Japan has 
expanded direct investment in the U.S. The two countries launched a 
sub-cabinet-level economic dialogue in 2001 with the aim of 
eliminating the causes of trade disputes beforehand. Outwardly, 
there seem to be no major trade issues with the exception of the 
U.S. call for an expansion of imports beef by Japan. However, a 
skirmish is continuing behind the scenes. 
 
The ACCJ makes policy proposals to the governments of Japan and the 
U.S. Lobbyists in the private sector see them as business 
opportunities. A Japanese trailblazing pioneer, who now works at a 
foreign investment bank in Japan, categorically said, "Demands for 
lobbyists will increase in Japan in the future." That is because 
interest in lobbying is heightening, following the liberalization of 
the Japanese market to foreign companies as a result of 
deregulation. 
 
Lobbyists' major jobs include: (1) finding government-affiliated 
business (such as obtaining the post of lead managing underwriter 
and consultant); (2) talks with regulators, such as the Financial 
Services Agency; (3) responses to international financial 
regulations; and (4) analyzing the political situation. 
 
Yukiko Tokai, former manager of the government relations department 
of UPS Japan, the largest package delivery company in the world, and 
now manager of the energy affairs department of GE, underscored the 
following, based on her own lobbying activities: "Nobody would 
approach foreign companies if they keep quiet. However, they can do 
something before bills secure Diet approval. Just making proposals 
will not do. It is important to hold talks with policy makers." 
 
When postal services were privatized, her request that the Express 
Mail Service (EMS) system should be treated equally with products 
provided by private international express service operators. 
However, another request from the ACCJ for a revision of the tariff 
law coincided with moves by the Finance Ministry, and so was 
implemented. International mail with a value of over 200,000 yen 
became subject to import and export applications as is the case for 
the private express companies. 
 
The ACCJ and the U.S. Embassy in Japan play the role of linking 
lobbyists. Foster stressed the importance of personnel networks, 
noting, "The ACCJ has memberships of various Japanese organizations. 
It is not the only entity through which foreign companies make 
proposals to the Japanese company." Lobbying by U.S. companies is 
multi-tiered and their policy-related approach has become more 
effective. 
 
(3) Nikko to become subsidiary of Citigroup - first case of 
successful triangular merger 
 
NIKKEI (Top Play) (Excerpts) 
Evening, December 19, 2007 
 
 
TOKYO 00005668  005 OF 015 
 
 
In its extraordinary shareholders meeting today, the Nikko Cordial 
Group announced its plan to become a wholly owned subsidiary of U.S. 
bank Citigroup Inc. through an equity swap. The company used for the 
first time the triangular-merger formula, the ban on which was 
lifted in May, and obtained approval in the meeting. About 30,000 
shareholders will have their stock swapped for Citigroup shares at 
the end of January. Citigroup, which has posted large losses related 
to subprime mortgage loans, is ready to strengthen its marketing 
strategy in Japan, with Nikko Cordial playing the leading role. 
 
In a speech at the outset of the meeting, Nikko Cordial President 
Shoji Kuwashima said: "We aim to make our company a comprehensive 
financial services provider through the tie-up with Citigroup when 
customer needs are diversifying." Asked about the effectiveness of 
the tie-up, Douglas Peterson, chief executive officer of Citigroup 
Japan Holdings Ltd., replied: "We will come up with specific 
measures next year or later. Japan is one of the most important 
countries in our global strategy." 
 
(4) 23 bills to be enacted under divided Diet; Ruling coalition 
modifies bills to make compromises with DPJ 
 
NIKKEI (Page 3) (Full) 
December 27, 2007 
 
Even though the current extraordinary Diet session has been 
conducted under a divided Diet, in which the opposition camp 
controls the House of Councillors, all the government-sponsored 
bills are expected to be enacted. Although the ruling and opposition 
camps are at odds over a bill to resume the Maritime Self-Defense 
Force's refueling mission, the ruling coalition has made some 
concessions to the Democratic Party of Japan (DPJ or Minshuto), 
which is the largest force in the Upper House, in order to get the 
bills through the Diet. 
 
As of Dec. 26, 13 government-sponsored bills and 10 bills sponsored 
by lawmakers have cleared the Diet. All the new bills submitted by 
the government to the ongoing session, excluding the bill to resume 
the MSDF refueling mission, have been enacted. The ruling and 
opposition camps passed most of them by making compromises. 
 
On the issue of amending the law to support the livelihoods of 
disaster victims, the ruling coalition submitted its own bill to the 
Lower House, while the DPJ presented its own bill to the Upper 
House. The two sides set up a consultative panel to modify the two 
bills. The ruling camp and the DPJ then enacted the unified bill. 
Placing importance on an early enactment, the ruling camp accepted 
all requests by the DPJ on a government-sponsored bill to revise the 
Broadcast Law. The DPJ had opposed the bill, arguing that imposing 
administrative punishment on broadcasting companies meant 
intervention in freedom of expression. The ruling coalition accepted 
the DPJ's assertion in order to enact the bill. 
 
The government and ruling camp will likely ram the bill resuming the 
MSDF refueling operation through the Diet at the end of the session. 
With an eye on a possible rejection of the bill by the Upper House, 
the government extended again the current Diet session until Jan. 15 
in order to have time to act again on it in the Lower House. There 
is a rule that if the Upper House fails to take a final action 
within 60 days after it received a bill from the Lower House, the 
lower chamber may take this to constitute a rejection of the bill by 
the upper chamber. The ruling coalition intends to readopt the MSDF 
 
TOKYO 00005668  006 OF 015 
 
 
bill with a two-thirds lower chamber majority override vote. It is 
now therefore certain that the bill will be enacted during the 
current Diet session. 
 
However, it is not that easy to use such a rule since the opposition 
camp is expected to toughen its adversarial stance toward the ruling 
bloc by submitting a censure motion against Prime Minister Yasuo 
Fukuda. 
 
The opposition camp approved a bill revising the law to secure the 
safety of consumer products, acknowledging the need for a revision 
of the law. 
 
Meanwhile, the DPJ has yet to take advantage of its being the 
largest force in the Upper House. Although it submitted to the Upper 
House 13 bills, including one to compensate farmers for their 
incomes and a child allowance bill, five bills cleared the upper 
chamber but only one bill to revise the law to support the 
livelihoods of disaster victims was enacted. Deliberations on most 
bills have yet to begin. 
 
The focus is now on a bill to help all hepatitis C patients. The DPJ 
has taken a stance of cooperating with the ruling camp, which is now 
drafting a bill, but coordination will only now start. 
 
(5) Iwakuni mayor quits to run again; City's administration 
malfunctions; Mayor ambivalent over U.S. military realignment 
 
YOMIURI (Page 18) (Abridged) 
December 27, 2007 
 
Iwakuni Mayor Katsusuke Ihara is now expected to resign tomorrow 
over the realignment of U.S. forces in Japan. Ihara has been raising 
an objection to the government's proposal of redeploying 
carrier-borne fighter jets from the U.S. Navy's Atsugi Naval Air 
Station in Kanagawa Prefecture to the U.S. Marine Corps' Iwakuni Air 
Station in the city of Iwakuni, Yamaguchi Prefecture. 
 
"I can no longer leave the citizens troubled by continuing a useless 
dispute (with Iwakuni City's municipal assembly)." With this, Ihara 
expressed his resignation in a plenary meeting yesterday of his 
city's municipal assembly. 
 
The city of Iwakuni is now wavering over the government-proposed 
redeployment of Atsugi-based carrier-borne fighter jets to the 
Iwakuni base. In the city, confrontation is intensifying between 
Ihara and pro-redeployment municipal assembly members. Furthermore, 
the government, upset at Ihara's anti-redeployment stance, has 
stopped subsidizing the city's project of constructing a new office 
building. This pressure caused the city's administration to 
malfunction, with its budget failing to get the assembly's approval. 
As it stands, the city's budget for next fiscal year cannot get 
through the assembly. Ihara, driven into a tight corner, appealed to 
the city's voting population. 
 
In October 2005, the Japanese and U.S. governments released an 
interim report on the realignment of U.S. forces in Japan, 
incorporating an agreement to redeploy carrier-borne fighter jets 
from Atsugi to Iwakuni. In March 2006, Ihara conducted a poll of 
residents in the city of Iwakuni before its consolidation with 
neighboring municipalities. In the local referendum, 
anti-redeployment votes accounted for 87 PERCENT  of all votes cast 
 
TOKYO 00005668  007 OF 015 
 
 
by the city's voting population. In April that year, Iwakuni held 
its first mayoral election after its consolidation. In the mayoral 
race as well, Ihara won an overwhelming victory. Ihara stepped up 
his anti-redeployment stance. In October last year, the city held an 
election for its municipal assembly. After that, there was an 
increase in the proportion of pro-redeployment assembly members. At 
present, those in favor of redeployment account for a majority. 
 
Meanwhile, Iwakuni, based on a 1996 agreement of the Special Action 
Committee on Facilities and Areas in Okinawa (SACO), consented to 
accept the transfer to Iwakuni of air tankers from the U.S. Marine 
Corps' Futenma Air Station in the city of Ginowan, Okinawa 
Prefecture. The city's new office building is under construction 
with state subsidies given in return for its acceptance of air 
tankers. Subsidies from the state coffers for Iwakuni up to last 
fiscal year totaled 1.4 billion yen. In December last year, however, 
the government called off its remaining subsidization of 3.4 billion 
yen for the current fiscal year due to the city's opposition to the 
redeployment of carrier-borne aircraft. 
 
Iwakuni City's municipal government therefore planned to issue 
fund-raising special bonds in order to make up for the cost of 
constructing its new office building. However, the city's municipal 
assembly voted down this initial general account budget plan. "The 
city can get no subsidies. The responsibility rests with the mayor 
who remains opposed to the redeployment of carrier-borne aircraft." 
With this, the assembly laid the onus on the mayor. The city's 
municipal government proposed a total of four similar budget plans 
up to November. However, the assembly rejected them all. It is 
unusual that the government's security policy affects the 
administration of a local city. 
 
In October, Ihara met with Parliamentary Defense Secretary Minoru 
Terada at the Defense Ministry to resolve such a situation. "If the 
government provides subsidies, I will once haul down the 
anti-redeployment flag." With this, Ihara gave way to Terada. In 
November, Ihara showed a flexible posture to the Defense Ministry's 
Chugoku-Shikoku bureau. He then took up the issue of reviewing the 
Japan-U.S. Status of Forces Agreement (SOFA) to fully ensure Japan's 
investigative authority on U.S. military personnel's crimes. "If we 
can get a convincing solution," he told the bureau, "then I will 
accept the redeployment of carrier-borne aircraft." However, there 
was no positive answer from the government. 
 
Iwakuni will likely announce a mayoral election in late January and 
elect its new mayor in late February. Ihara will run again. The 
municipal assembly's pro-redeployment members are also ready to 
field a candidate against Ihara. The race is expected to get hard 
going. Moreover, the city's voting population will also be called to 
show a judgment on the U.S. military's realignment in Japan. 
 
The process of realigning U.S. forces in Japan is indispensable for 
Japan and the United States to maintain their mutual confidence as 
allies. The government is required to carry it out in a steady way 
while fulfilling its accountability. Meanwhile, it is only natural 
that local residents are worried about the possible deterioration of 
noise pollution with carrier-borne aircraft being redeployed to the 
Iwakuni base. Needless to say, the government ought to do its utmost 
efforts to dissolve local concerns. 
 
(6) Three months of Fukuda administration: In anguish over "negative 
legacy" 
 
TOKYO 00005668  008 OF 015 
 
 
 
YOMIURI (Page 4) (Full) 
December 27, 2007 
 
Decision 
 
Prime Minister Yasuo Fukuda met at his office in the Prime 
Minister's Official Residence (Kantei) with former Chief Cabinet 
Secretary Kaoru Yosano on Dec. 21 around 2:00 p.m. They discussed 
 
SIPDIS 
how to settle the class-action suit filed by hepatitis C patients. 
 
"You will get into trouble if you take no action now. It's better to 
settle the case as quickly as possible. One idea for that end would 
be to establish a law initiated by Diet members" Yosano told Fukuda, 
taking out a piece of paper and putting it on the table. What was 
written on the paper was the key points of legislation intended to 
rescue those patients by offering uniform compensation, as called 
for by the plaintiffs. The legislation was outlined by Yosano, based 
on the results of his discussions with officials from the Ministry 
of Justice (MOJ). 
 
Reading the memo presented by Yosano, Fukuda said: "I see. 
Preparations having gone this far, the legislation is likely to take 
shape quickly." He then decided to enact a bill initiated by 
lawmakers and telephoned Liberal Democratic Party's (LDP) Policy 
Research Council Chairman Sadakazu Tanigaki to tell him to work on 
drafting a bill. 
 
Some in the LDP had previously called for uniform compensation, but 
Fukuda did not side with them when he announced a settlement offer 
on Dec. 20. 
 
If the government uniformly provides compensation even to those for 
whom the court said the government is not responsible, this action 
will be seen as a typical case of populism. 
 
Fukuda, who dislikes dramatizing events, did not want to see his 
government in favor of populism, but when his settlement offer was 
rejected by the plaintiffs, he turned around in only one day, 
sensing that he was being buffeted by a heavier headwind than he had 
expected. 
 
Litmus test 
 
In the LDP presidential election in September, Fukuda received 
overwhelming support, but he now anguishes over the "negative 
legacy" left by Prime Minister Abe, namely, a divided Diet where the 
ruling bloc holds the lower-house majority, and the opposition bloc 
holds the upper-house majority. In order to resolve this situation, 
Fukuda met with the major opposition Democratic Party of Japan's 
(DPJ) President Ozawa in early November and sounded out the 
possibility of forming a grand coalition. 
 
Various news companies' polls show the approval ratings for the 
Fukuda cabinet declining, owing to the lack of remarkable results in 
domestic affairs and the recent revelation of the difficulties in 
resolving the debacle over pension premium payment records. 
 
On Dec. 12, Fukuda said it had become difficult to identify all of 
50 million pension records and he noted: "Even though those records 
are not identified, I don't think this necessarily can be seen as a 
breach of our policy pledge." But because of this comment, Fukuda 
 
TOKYO 00005668  009 OF 015 
 
 
came under heavy fire from the opposition parties, with DPJ 
President Ozawa arguing, "That attitude shows disrespect of the 
nation." 
 
Fukuda, realizing that matters could not be worse, made an 
about-face in order to deal with the suit brought by the hepatitis C 
sufferers and decided to create a law initiated by lawmakers in 
order to provide uniform compensation to them. 
 
Fukuda is trying to open a "new path" in the current divided Diet by 
using the constitutional provision that a bill passed by the Lower 
House, and upon which the Upper House makes a decision different 
from that of the Lower House, becomes a law when passed a second 
time by the Lower House by a majority of two-thirds of the members 
present. The new antiterrorism special measures bill aimed at 
resuming the Maritime Self-Defense Force's refueling mission in the 
Indian Ocean will be the litmus test for this. 
 
If the bill is approved, the DPJ may submit a censure motion against 
the prime minister, which could trigger a dissolution of the Lower 
House. 
 
Sealed remark 
 
"Progress?" President Bush retorted, showing his disapproval during 
the Japan-U.S. summit held in the White House on Nov. 16, when 
Fukuda touched on the North Korean issue by saying, "I welcome 
progress in U.S.-North Korea relations. I think it is important for 
the countries concerned to move forward simultaneously." 
 
When Fukuda was about to express his concern over America's move to 
delist North Korea as a state sponsor of terrorism, Bush made the 
above remark. 
 
Speaking of the move by Assistant Secretary of State Christopher 
Hill to have North Korea abandon its nuclear programs, Bush noted, 
"I am dissatisfied with the process," and eloquently expressed his 
distrust of North Korea. 
 
Fukuda eventually "put a seal" on voicing his concern about 
America's move to delist the North because he was able to confirm 
Bush's attitude toward the North. 
 
Back home, however, many expressed concern that the abduction issue 
would be left behind. When it is difficult to yield results in 
domestic affairs, diplomacy is an important tool to boost his 
administration. Fukuda's failure to raise an objection to the 
question of delisting North Korea could give a bad impression of his 
first overseas trip. 
 
Considering this possibility, the Foreign Ministry gave this 
explanation to reporters: "During the summit meeting, the leaders of 
the two countries confirmed the importance of bilateral cooperation 
in dealing with issues including the question of delisting North 
Korea as a state sponsor of terrorism." But the ministry refrained 
from revealing the details of the exchanged views between the two 
leaders, noting that this was a promise made to the U.S. 
 
Three months have passed since Fukuda became prime minister. His 
first task next year will be passing the antiterrorism special 
measures bill, as he promised during the summit meeting with Bush. 
The question is whether Fukuda will move to dissolve the Lower House 
 
TOKYO 00005668  010 OF 015 
 
 
for a snap general election, taking into account such political 
calendars as the upcoming ordinary session of the Diet and the Group 
of Eight summit conference at Lake Toya in Hokkaido. 
 
Fukuda's anguish is likely to continue for some time. 
 
(7) New policy clique in the Diet 
 
ASAHI (Page 4) (Slightly abridged) 
December 22, 2007 
 
The pattern of relations between politicians and business leaders is 
now undergoing a change as the annual battle over tax code revisions 
reaches a year-end climax and a maneuvering to revise the system of 
the medical-fee reimbursement to hospitals intensifies. Business 
circles seeking changes now target not only the ruling parties but 
also the Democratic Party of Japan (DPJ or Minshuto), which controls 
the Upper House. Under such a situation, there have appeared "new 
breed of special interest legislators (zokugiin)" ready to listen to 
the petitions.  Mid-ranking lawmakers of the LDP are seen as now 
asserting their importance, elbowing away those veteran members of 
established Diet policy cliques who may stand in their way. A 
tug-of-war involving business circles is under way behind the scenes 
in the Diet, where the opposition camp holds a majority in the Upper 
House. 
 
DPJ becomes new point of contact for lobbyists 
 
The DPJ on Dec. 21 held a plenary meeting of the Tax System Research 
Commission at party headquarters. Chairman Hirohisa Fujii explained 
the party's draft tax code revision guidelines centering on the 
reallocation of special-purpose road construction revenues for other 
purposes. Members of the road policy clique lashed out at Fujii. 
Decision-making was postponed. Senior Vice Minister for Land, 
Infrastructure and Transport Yasuhiro Oe of the DPJ's Next Cabinet 
(shadow cabinet), who spearheads the drive of those opposing the 
panel's proposal, told reporters after the meeting, "We have 
submitted our opinions that we have assembled over the past two 
months. We cannot possibly accept the panel's proposal."  Fujii, a 
former Finance Ministry official who once served as finance 
minister, used to be a member of the finance policy clique before 
the Finance Ministry was reorganized. He called in Land, 
Infrastructure and Transport Minister Hiroyuki Nagahama of the Next 
Cabinet to his office and urged him to accept the panel's draft, 
arguing, "The reallocation of road funds is in the DPJ's 
constitution." However, Nagahama rejected Fujii's plea, saying, "If 
we do it in compliance with our party's constitution, there will be 
a harmful effect." 
 
In contrast to the LDP, the DPJ has no road policy specialists. 
However, when Oe and Nagahama were elected in the July Upper House 
election and assumed posts responsible for convening meetings of the 
party's land, infrastructure and transport division, local 
petitioners have begun visiting them. A number of heads of local 
governments far away from their home constituencies have begun 
asking them to secure road funds for their communities. 
 
The four road-related public corporations were privatized during the 
Koizumi administration. The Abe administration at the end of last 
year decided at a cabinet meeting to reallocate surplus portions of 
road funds for other purposes. Those who were characterized as 
"forces of resistance" in those processes have now launched a 
 
TOKYO 00005668  011 OF 015 
 
 
petition offensive targeting the DPJ, which now controls the Upper 
House. Nearly 40 Lower and Upper House members signed their names on 
a request paper calling for the securing of road funds. A certain 
senior official at the Land and Infrastructure Ministry who has long 
experience in negotiations with the LDP, pointed out, "What is 
happening in the DPJ is almost the same as what the LDP previously 
experienced when the road policy clique confronted the former 
finance policy clique." 
 
LDP lawmakers belonging to policy cliques respond to requests from 
industrial circles and serve points of contact for the petitioners. 
The industries return the favor by delivering votes. The deep ties 
that had existed between the LDP and industrial associations were 
truncated during the Koizumi administration. Proportional 
representation candidates for the July Upper House election, who ran 
on the LDP ticket recommended by the All Japan Doctors' Federation 
(Nichiiren), the Japan Nursing Federation and the All Japan Land 
Improvement Political Federation, all lost their elections. 
 
The LDP has started reconstructing ties with industrial associations 
since Fukuda took office as prime minister. The DPJ is trying to cut 
into LDP supporters. This is where the new Diet policy cliques came 
into existence. 
 
LDP: Eto aims at becoming mainstreamer 
 
Former Health, Labor and Welfare minister (MHLW) Hidehisa Otsuji 
half sarcastically introduced Upper House member Seiichi Eto of the 
LDP at his fund-raising party held at a Tokyo hotel on Dec. 18: 
"When everybody was satisfied, thinking, 'this is perhaps all we 
could do,' Mr. Eto alone was bracing himself up, saying, 'This is 
not enough.'" 
 
Otsuji was referring to the revision of the system of the 
reimbursement of medical fees to hospitals under the medical 
insurance system for fiscal 2008. The mainstay portion of the 
reimbursement, which had been slashed during the Koizumi 
administration, was raised 0.38 PERCENT  for the first time in eight 
years. Otsuji, who fine-tuned opinions along with former MHLW 
Minister Yuya Niwa, distanced himself from Eto, who was loudly 
calling for a substantial increase. 
 
Though Eto, who served as Lower House Health, Labor and Welfare 
Committee chairman and senior vice MHLW minister, had been viewed in 
the LDP as a member of the health, labor and welfare policy clique, 
he was a non-mainstreamer in the eyes of Otsuji. However, Eto began 
aiming at becoming a mainstreamer after serving as chairman of the 
Health, Labor and Welfare Division following the Upper House 
election. 
 
Many in the DPJ are critical of the way the party's new road policy 
clique is behaving. Former President Katsuya Okada during a meeting 
of the staff members' council on Dec. 18 drove the point home to 
participants: "Local governments that are petitioning our party are 
already in the grip of the Ministry of Land, Infrastructure and 
Transport. We should listen to opinions of automobile drivers and 
people in general." 
 
(8) Defense budget in "harsh winter" with ministry under fire for 
series of scandals, high-cost structure 
 
SANKEI (Page 2) (Slightly abridged) 
 
TOKYO 00005668  012 OF 015 
 
 
December 23, 2007 
 
In the aftermath of the arrest of former Vice Defense Minister 
Takemasa Moriya for receiving bribes from a defense contractor, many 
of the items requested by the Defense Ministry were deleted in the 
process of compiling the FY2008 budget. In reinstatement 
negotiations between Finance Minister Fukushiro Nukaga and Defense 
Minister Shigeru Ishiba yesterday, the value of restored items was 
only approximately 300 million yen, including the establishment of a 
Self-Defense Force intelligence-integrity unit (tentative name). The 
defense budget for next fiscal year will record the lowest level 
since FY1995. 
 
Defense Minister Ishiba said in a ministry meeting held after the 
negotiations with Nukaga: "This year was a relentless year for the 
Defense Ministry." 
 
Moriya was found to have received bribes from defense contractor 
Yamada Corp. in return for influence peddling. This scandal worked 
to the serious disadvantage of the Defense Ministry in the 
budget-compilation process. 
 
The ministry had made a budgetary request to improve the radar 
performance of 32 F-15 fighters, but the expense for only 20 
fighters was approved. The ministry also hoped to purchase AH-64D 
Apache attack helicopters, but the budget bill included no outlays 
for even one unit. 
 
The Defense Ministry concluded contracts with Yamada Corp., based on 
estimates padded by the defense contractor, to purchase an engine 
for CX next-generation transport aircraft and a vehicle to 
reconnoiter areas contaminated by biologically destructive gases. 
But outlays for them were not included in the budget bill. 
 
In procuring equipment, the ministry needs to enter into licensing 
agreements with foreign manufacturers and starts domestic 
production. Given this, the prices of such products tend to be more 
than 20 PERCENT  to 30 PERCENT  higher than imports. There are cases 
in which the cost doubles. This circumstance also made it difficult 
for the Defense Ministry to make an effective counterargument to the 
Finance Ministry. 
 
By setting up a project team, the Defense Ministry has been 
reviewing the current system under which trading firms that have 
concluded contracts with foreign makers as their agents are able to 
exclusively receive orders by the ministry for equipment. The 
ministry set the goal of reducing the total of equipment-related 
costs by 15 PERCENT  over the next five years. As measures to 
prevent trading houses from falsifying estimates, the ministry will 
increase the number of experts on imports stationed in the United 
States from the current three to 10. But the ministry remains 
cautious about introducing a direct contract system, because "it 
will be necessary to increase personnel by the thousands," according 
to a senior Defense Ministry official. 
 
On the budget bill for FY2008, a ranking ministry official said: 
"The price of one AH-64D Apache helicopter is 8.3 billion yen, but 
the licensed production cost of 13.3 billion yen is added to the 
price. This is viewed as a typical high-cost product." But the 
official added: "We must use this experience as an opportunity to 
introduce a proper pricing system." 
 
 
TOKYO 00005668  013 OF 015 
 
 
(9) Watanabe: Ozawa, out of sense of crisis, proposed grand 
coalition 
 
YOMIURI (Page 4) (Full) 
December 22, 2007 
 
On an NTV program "Nakasone-so" to be aired on Dec. 22, Tsuneo 
Watanabe, chairman and editor in chief of The Yomiuri Shimbun 
Holdings, talked about the circumstances leading to the moves to 
establish a grand coalition between the ruling Liberal Democratic 
Party (LDP) and the major opposition Democratic Party of Japan 
(DPJ). 
 
The following are main points from his remarks. 
 
Terry Ito (emcee): Did you telephone Mr. (Prime Minister) Fukuda to 
propose a grand coalition? 
 
Tsuneo Watanabe: No. It was Mr. Ozawa (president of the DPJ) who 
 
SIPDIS 
broached the idea (of establishing a grand coalition). 
 
Terry: Did Mr. Ozawa telephone you? 
 
Watanabe: Yes, he did. He (telephoned) me and we met. (Mr. Ozawa) 
insisted that "Mr. Fukuda broached the subject with Watanabe acting 
as a go-between, and that he did not initiate the subject, but that 
was not true. The news media including the Asahi Shimbun are loudly 
criticizing me for being mum about (the circumstances as to the idea 
of creating a grand coalition), but if I lose the trust of my news 
sources, they will never again give me information. As political 
maneuvering is still going on, it's impossible to reveal everything 
now. To comply with reporting ethics, I can't talk about what should 
not be talked about. I have my ethical and moral values. 
 
Mr. Ozawa asserted that the idea was proposed by Mr. Fukuda and that 
the party-head talks were mediated by Watanabe, but that was not 
true. Rather, Mr. Ozawa felt his party faced a crisis. He believes 
that the DPJ will have difficulty winning a majority in the next 
Lower House election and will remain the minority party in the Lower 
House even though it will the majority party in the Upper House. He 
also believes that the government can't function properly with a 
divided Diet, so he tried to take action to tackle the issue. 
 
Mr. Ozawa, however, is a secretive person and didn't tell his party 
leaders about the idea. He thought he could convince them, but the 
leaders rose in revolt against him, resulting in causing a fuss over 
his offer to resign. Mr. Fukuda repeatedly asked Mr. Ozawa whether 
the DPJ would support the idea of establishing a grand coalition. 
Mr. Ozawa reassured Mr. Fukuda that there would be no problem. I 
wondered whether everything would be really OK, but the plan went up 
in smoke about one or two hours later. Mr. Ozawa would found himself 
wearing the emperor's new clothes. He thought that his party leaders 
would automatically support him if he made the proposal. This was 
the biggest reason that the grand coalition failed. 
 
Terry: What were the conditions for the grand coalition? 
 
Watanabe: A policy consultative body should be established to pass 
the antiterrorism special measures bill and address the question of 
whether to hike the consumption tax, and social welfare and pension 
problems. There was no question that both Mr. Ozawa and Mr. Fukuda 
met with the intention of doing something good for the people. I'll 
 
TOKYO 00005668  014 OF 015 
 
 
write all (about the background) to the events sometime in the 
future. 
 
Terry: What would Mr. Ozawa's position have been in the grand 
coalition? 
 
Watanabe: He would have been vice prime minister without portfolio. 
It was decided that the LDP would have 10 cabinet posts, the DPJ six 
and the New Komeito one. It was agreed that the six cabinet posts 
included the one heading the Ministry of Land, Infrastructure and 
Transport, the one heading the Ministry of Health, Labor and 
Welfare, and the one heading the Ministry of Agriculture, Forestry 
and Fisheries. 
 
Terry: Will the Lower House be dissolved soon? 
 
Watanabe: If the Lower House is dissolved, it is likely that the DPJ 
will retain control of the Upper House, making the division of the 
Diet look like it is here to stay. That will paralyze Diet business. 
If that happens, the two parties will have to seriously consider a 
grand coalition. I think they will do so. 
 
DPJ President Ozawa: That was not true 
 
Speaking of remarks about the circumstances leading to the moves to 
establish a grand coalition made by Tsuneo Watanabe, chairman and 
editor in chief of The Yomiuri Shimbun Holdings, in which he said, 
"It was Mr. Ozawa who brought the idea of a grand coalition," DPJ 
President Ozawa said: "It's troublesome if I was asked about remarks 
made by someone who did not join the party-head talks. I don't have 
to make any comment on them. At any rate, that was not true." 
 
Ozawa was replying to reporters at party headquarters. 
 
(10) Editorial: Political support imperative to promote regulatory 
reform 
 
NIKKEI (Page 2) (Full) 
December 27, 2007 
 
The government's Council for Regulatory Reform, chaired by Nippon 
Yusen K.K. Chairman Takao Kusakari, submitted its second report for 
this fiscal year to Prime Minister Yasuo Fukuda. The report lists 
specific measures to enhance economic growth by boosting convenience 
for consumers and correcting costs mainly in areas where high 
barriers have been erected by vested interests, such as the medical 
service and agriculture areas. 
 
Regulatory reform has tended to be put on the backburner in the 
Fukuda administration's economic policy. The panel planned to submit 
the report earlier than this week, but it had to put it off because 
of opposition from the Liberal Democratic Party's policy cliques in 
the Diet acting in tandem with industrial groups that will be 
negatively affected by the proposed reform plans. This action proves 
that the administration's domestic base has weakened. There are few 
scenes in which State Minister for Regulatory Reform Fumio Kishida 
demonstrated leadership to support the views of economists and 
academics who are panel members. 
 
The prime minister has reiterated the increased need for policy 
measures that will promote economic growth against the backdrop of 
economic globalization and population decrease. To that end, it is 
 
TOKYO 00005668  015 OF 015 
 
 
imperative to carry out regulatory reform. The government should be 
aware that this difficult challenge will not move forward without 
political support. 
 
The report places importance on the reform of social regulations in 
line with the former Abe administration's stance. 
 
The Pharmaceutical Affairs Law requires hospitals to obtain approval 
from the Ministry of Health, Labor and Welfare (MHLW) for providing 
for both health insurance and private treatment. The report calls on 
the ministry to abolish this requirement, which has hindered the 
wide use of the so-called double-billing system. The ministry 
remains cautious about completely deregulating the double-billing 
system, but it intends to remove the approval requirement. The 
government should accelerate the speed of discussion in the 
direction of completely deregulating the system in the future. 
 
To cope with the shortage of doctors, the report calls for measures 
to lighten the excessive burden now being levied on doctors, for 
instance, by allowing nurses to be responsible for dose adjustment 
based on doctors' prior instructions and care givers to use 
aspirators in nursing facilities for the patients. MHLW has decided 
to ease related regulations by next fiscal year. 
 
As measures to improve the fixed-rate system for remuneration for 
medical treatment, the panel proposes also introducing a flat-rate 
system for hospitalization, in addition to the daily-fixed-rate 
system. Such regulatory reform measures in the medical area must be 
powerfully carried out in order to increase the benefits of patients 
and the people. 
 
To assist in child rearing, the panel calls for a new system to 
authorize even those without having a care-taker's credential as 
"child-care givers" engaged in daycare service on the condition that 
they will receive basic training. The Tokyo Metropolitan Government 
has already adopted such a system on a trial basis. The report urges 
the central government to introduce this system. 
 
In the education area, the panel suggests that the government take 
steps for a system that allows parents to send their children to 
public schools outside their school zones to be widely used. In the 
agricultural area, it proposes digitalizing farmland data kept 
separately by agricultural cooperatives and agricultural committees 
and publicizing it, with the aim of increasing market opportunities. 
The Education Ministry and the Ministry of Agriculture, Forestry and 
Fisheries should implement these measures promptly. 
 
The Democratic Party of Japan also a number of opponents to 
regulatory reform, but it is now imperative for both the ruling and 
opposition parties to work together to promote reform plans; 
otherwise, the people will give both camps the thumbs-down. 
 
DONOVAN