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UNCLAS SECTION 01 OF 06 TOKYO 000021 
 
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 01/04/08 
 
Index: 
 
Age of oil at $100 a barrel: 
1) High price of crude oil weighs heavy on the Japanese economy, but 
endurance much better than in past oil crises  (Nikkei) 
2) Survey of 120 major companies finds 58 PERCENT  positive about 
economy recovering in 2008, but concern about U.S. economy and high 
price of oil  (Mainichi) 
 
Defense and security: 
3) Intelligence analysts to be unified under the Prime Minister's 
Official Residence (Kantei)  (Tokyo Shimbun) 
4) Hard drive stolen from NTT affiliate had defense information on 
it  (Mainichi) 
5) Some Defense Ministry secret materials leaked out and found in 
the home of Chinese person  (Sankei) 
 
Political agenda: 
6) Democratic Party of Japan's presidential election: If held before 
Diet dissolution, Ozawa is a shoo in  (Yomiuri) 
7) Reformist governors to form new political alliance  (Tokyo 
Shimbun) 
 
Articles: 
 
1) High price of crude oil a burden on Japan's economy, but 
durability has risen with the lowering of dependency on oil 
 
NIKKEI (Page 3) (Full) 
January 4, 2008 
 
The soaring price of crude oil will likely have an impact to a 
certain extent on the Japanese economy. The rising cost of raw 
materials will bear down of corporate profits, and the rise in 
petroleum products, such as gasoline and kerosene will be a burden 
on family budgets. Compared to the sub-prime loan problem that has 
affected individual mortgage holders in the U.S. and lowered 
confidence in the U.S., as well as impacted on housing starts, the 
high price of crude oil has become the main risk factor for the 
Japanese economy. 
 
According to a computer simulation by NEEDS, the Nikkei Digital 
Media's comprehensive economic data bank, if the price of oil 
remains at $100 dollars a barrel after the January-March quarter of 
2008, corporate returns for fiscal 2008 will be driven down 2.0 
PERCENT , compared to the standard scenario of oil at $80 a barrel. 
 
 
Sluggish corporate earnings could become a factor for suppressing 
capital investments. With a rising sense of uncertainty about the 
economy, small to medium sized businesses, which are especially 
vulnerable to rising costs, will find it difficult to transfer costs 
(to customers). The Small Business Agency, in a survey last 
November, found that an 88.9 PERCENT  share of small to medium-sized 
companies said they found it difficult to pass along the rising 
price of crude oil and petroleum products to their customers, a 2.3 
point increase since a survey in July. And 92.5 PERCENT  of small to 
medium companies replied that there would be moderate to great 
impact on their profits from the rising price of oil. 
 
If the costs are passed along by the companies, family budgets would 
be adversely affected. The per capita wages of salaried workers 
 
TOKYO 00000021  002 OF 006 
 
 
since the beginning of 2007 have been dropping, compared to the 
previous year. On the other hand, set off by the high price of crude 
oil, consumer prices have been rising. Real income, which excludes 
the effect of price fluctuations, has been experiencing downward 
pressure. The real purchasing power of consumers has been dropping. 
 
 
However, even with crude oil prices at their highest level ever, 
these are nominal prices which do not take into consideration the 
effect on price fluctuations. The exchange rate, as well, has 
greatly moved in the direction of yen appreciation since the first 
oil crisis occurred in 1973, when the yen was at approximately 280 
to the dollar. If the real base, which excludes the effect on prices 
of the entry price of crude oil, is looked at, making August 1981, 
when prices reached their highest point in the past, the base of 
100, the price of oil in Nov. 2007 was no more than 85. 
 
Moreover, since then, conservation of energy in Japan and the 
diversification of energy resources have both advanced. The import 
volume of crude oil since 1973 has dropped 15 PERCENT . The 
proportion of crude oil as a primary energy (rate of reliance on 
oil) has been reduced from 77 PERCENT  in 1973 to approximately 50 
PERCENT  now. That is because "oil" as a portion of corporate and 
family expenses has dropped. Even at the current price level, many 
economists say that the shock experienced at the time of the earlier 
oil crises can be avoided. 
 
2) Survey of major 120 companies: Those who see economic recovery 
continuing drops to 58 PERCENT , express concerns about U.S., rising 
oil prices 
 
MAINICHI (Page 1) (Full) 
January 4, 2008 
 
Shun Kimura 
 
A survey conducted by the Mainichi Shimbun of major 120 firms found 
that they are increasingly cautious about the outlook for the 
Japanese economy. In response to the question of asking about the 
current situation of the Japanese economy, those companies that see 
the Japanese economy "recovering, albeit in a moderate way," reached 
58 PERCENT , the largest figure, but as much as 39 PERCENT  said 
"the economy is leveling off." In the survey conducted one year ago, 
83 PERCENT  said the economy is "recovering in a moderate way." But 
now optimistic outlooks recede and instead the analysis that 
business conditions continue to be at a standstill is spreading. 
 
The survey was conducted at the end of last year. Regarding an 
outlook for businesses for 2008, the largest figure of 63 PERCENT 
said "business conditions will stay the same." 
 
The survey conducted one year ago also indicated the similar 
percentage, but at that time, in the midst of the moderate recovery 
of the economy, most firms said "business conditions will stay the 
same." But in the survey this time, noteworthy is those firms that 
said "the economy will continue to be at a standstill." 
 
Yet, despite the deepened subprime mortgage loans issue in the 
United States and soaring oil and raw material prices, only 11 
PERCENT  of the firms responded said the business conditions for 
this year "will worsen than now (compared to 6 PERCENT  in the last 
survey). Firms that take a pessimistic view about the business 
 
TOKYO 00000021  003 OF 006 
 
 
conditions are still a minority. 
 
In response to the question of citing three concerns for the 
Japanese economy, 88 PERCENT  cited "the future of the U.S. 
economy," followed by "soaring prices of raw and processed materials 
(77 PERCENT ) and then "sluggish personal consumption" (37 PERCENT 
). Their concerns stemmed mainly from the U.S. economy, which is 
rocked by the subprime mortgage loans issue, and rising oil prices. 
 
3) Post of intelligence analyst to be established in fiscal 2008 to 
centralize intelligence in the Kantei 
 
TOKYO SHIMBUN (Page 2) (Full) 
January 4, 2008 
 
The government will establish the post of cabinet intelligence 
analyst in fiscal 2008 with the aim of strengthening the cabinet's 
function of collecting and analyzing intelligence. It will also 
establish a counterintelligence center that will safeguard the 
government's intelligence. Currently, intelligence is collected 
separately by each government office, such as the National Police 
Agency, the Defense Ministry, and the Foreign Ministry. The aim is 
to centralize such intelligence under the Prime Minister's Office 
(Kantei) to reflect it in government policies. As related expenses, 
the government has earmarked in its fiscal 2008 budget 240 million 
yen, which is 12 times greater than that in fiscal 2007. 
 
The government is expected to have a total of five intelligence 
analysts for specific regions, such as North Korea, and for specific 
themes, such as nuclear weapons and terrorism. 
 
4) MOD's information on communications network found to have been 
stolen from commission NTT Communications 
 
MAINICHI (Page 1) (Excerpts) 
January 4, 2008 
 
Akihiro Kawakami, Hiroshi Sasaki, Toshiki Koseki 
 
An external hard disk drive (HDD) that recorded the network the 
Ministry of Defense (MOD) used for communications of secrets was 
stolen last June from an NTT Communications' office (in Tokyo's 
Chiyoda Ward), sources revealed. The Tokyo Metropolitan Police 
Department (MPD) arrested a male temporary worker (32) who had 
worked at the NTT office, but the HDD contained information about 
the locations of facilities that might be targeted by terrorists. 
This incident exposed the MOD's poor management of information. 
 
The theft occurred at the NTT's office at Uchisaiwai-cho in Chiyoda 
Ward on the night of June 23 of last year. What was stolen was a HDD 
that had recorded information on the NTT Communications' exclusive 
networks, including information about MOD. A few days later, the man 
was arrested by the MPD on charge of stealing one HDD (equivalent to 
5,000 yen). 
 
NTT Communications leases lines to government offices and firms for 
their exclusive use and provides them with networks linking several 
locations specified by customers via relay stations. Reportedly, MOD 
uses its exclusive lines for its Defense Information Infrastructure 
(DII) to link its head office to the Ground, Maritime, and Air 
Self-Defense Forces' bases. Also, those lines are reportedly used at 
the time of commanding troops to communicate coded classified 
 
TOKYO 00000021  004 OF 006 
 
 
information. 
 
5) Police found "secret" GSDF information when investigating the 
home of a Chinese person on drug charges 
 
SANKEI (Top play) (Excerpts) 
January 4, 2008 
 
It was learned yesterday that an organizational chart of the Ground 
Self-Defense Force, which was classified "secret" under the 
Self-Defense Forces (SDF) Law, had been discovered in the room of a 
male Chinese national living in Tokyo's Shinjuku Ward. The document 
was found when police raided the room as part of an investigation 
into a drug case. The organizational chart is one used as a basis 
for strategic planning in the event of a contingency. The Chinese 
man submitted the chart on a voluntarily basis. Police authorities 
are investigating how and why the chart leaked out. Last year, the 
leakage of classified information on the Aegis system was uncovered, 
and a Maritime Self-Defense Force's (MSDF) lieutenant commander was 
charged with leaking the classified information. The SDF has once 
again displayed evidence of sloppy management of intelligence about 
national security with another leakage case revealed. 
 
According to police authorities, as part of an investigation into a 
drug case, last August the police raided a suspicious man's house 
located in Shinjuku Ward and discovered documents, including the 
GSDF organizational chart placed in a cardboard box in the room. 
 
The documents, in view of their contents, seemed to be created 
before 2003. They consist of 50 sheets of papers. The word "secret" 
was printed on every sheet. The front cover of the documents was cut 
away, but as a result of examining them, it was learned that they 
contained the opening portion of chart that revealed all GSDF units, 
the names of the GSDF bases, a portion of each unit's equipment and 
capabilities, and where the units belonged to. 
 
The man living in the room raided by the police responded to 
questioning by the police: "These belonged to another Chinese who 
had rented the room before me. I didn't know what was in the box." 
 
Police authorities are continuing investigations to identify the 
Chinese who had rented the room in the past and the people who had 
visited the room in the past. Obtaining cooperation from the GSDF, 
the police are investigating how the documents came to be passed to 
the person in that room in Shinjuku. 
 
According to an informed SDF source, the chart is important 
information to be used as a basis for reorganizing troops to be 
dispatched in a tactical way that meets the nature of situation. The 
chart is classified as "secret." Usually, each unit securely stores 
the chart in a safe. 
 
6) Next Lower House election likely to affect DPJ presidential race; 
If presidential election is held before Lower House dissolution, 
Ozawa expected to stay on in office beyond September; Party members 
to cast votes for first time in six years 
 
YOMIURI (Page 4) (Excerpts) 
January 4, 2008 
 
The major opposition Democratic Party of Japan (DPJ or Minshuto) 
will hold a presidential election in September this year as 
 
TOKYO 00000021  005 OF 006 
 
 
incumbent president Ichiro Ozawa's term of office expires. Views 
supporting Ozawa's continuation in office are dominant at this point 
in time. This comes from the fact that the party unanimously 
dissuaded Ozawa from resigning from office in early November 2007, 
pleading him to spearhead the election campaign for the next House 
of Representatives election. At the same time, some in the party 
think that in order to increase the party's strength, full-fledged 
policy debates should be conducted among several candidates. The 
DPJ's presidential race is likely to be swayed substantially by the 
timing for the next Lower House election and its results. 
 
If regime change is realized 
 
On Jan. 1, Ozawa held his usual New Year party at his Tokyo 
residence. Ozawa there expressed his New Year resolve to aim at a 
change of government through the next Lower House election, saying: 
"We will achieve a majority in the next Lower House election. I will 
make utmost efforts for achieving that major goal as long as my 
physical ability allows." Over 50 DPJ lawmakers attended the party. 
A person close to Ozawa said with confidence, "The party exposed Mr. 
Ozawa's strong support base." 
 
The dominant view in the party is that the next Lower House election 
will take place before the DPJ presidential election in September 
and that if a change in government is realized, Ozawa will naturally 
become the prime minister and his reelection would follow. 
 
If DPJ fails to take reins of government 
 
In the event the party fails to take the reins of government even 
thought it was able to add a large number of seats to its current 
strength of 113 seats (including Vice Speaker Takahiro Yokomichi), a 
"dump Ozawa" move might arise. There is this opinion among mid-level 
and junior DPJ lawmakers: "Mr. Ozawa has said that he would risk his 
political life. If he fails to bring about a change in government, 
the party should have a new president." 
 
As candidates to replace Ozawa, such persons as former Deputy 
Presidents Katsuya Okada and Seiji Maehara and former Diet Affairs 
Committee Chairman Yoshihiko Noda are being mentioned. 
 
In the party leadership, however, the view is prevalent that even if 
the opposition bloc fails to win a majority in the Lower House 
election, the DPJ would still have large gain in seats, so Ozawa 
should stay on in office. 
 
If DPJ presidential election is carried out before the next Lower 
House election 
 
If the next Lower House election was put off until September or 
later and the DPJ presidential election was carried out ahead of the 
national election, calls for Ozawa's continuation in office are 
expected to grow louder. "The party's overwhelming victory in the 
Upper House election last summer owes much to Mr. Ozawa's 
leadership. In order for us to win again the next Lower House 
election, we need strength," one member explained. 
 
Late last November, former Lower House Vice-Speaker Kozo Watanabe, a 
veteran lawmaker, invited such DPJ leaders as Okada, Maehara, and 
Noda to a Japanese restaurant. Watanabe told them: "The Liberal 
Democratic Party is in a terminal state. The party must be united 
under Mr. Ozawa at least until after we win the next Lower House 
 
TOKYO 00000021  006 OF 006 
 
 
election." Watanabe reportedly said to persons close to him, "If a 
strong candidate vies with Mr. Ozawa in the presidential race, that 
could result in a schism in the party." 
 
7) Reformist governors to launch decentralization promotion 
federation, while seeking consent of nonpartisan lawmakers 
 
TOKYO SHIMBUN (Top play) (Excerpts) 
January 4, 2008 
 
It became clear yesterday that former and incumbent reformist 
governors, such as Masayasu Kitagawa of Mie, Shigefumi Matsuzawa of 
Kanagawa, and Keiji Yamada of Kyoto, will shortly launch what is 
tentatively called the Bunken kaikaku rengou (Decentralization 
reform federation) to aim at structural reform from the viewpoint of 
average citizens. Knowledgeable persons from the private sector also 
will join the new group. The new organization will be supported by 
the National Council for Building a New Japan (National Congress on 
21st Century Japan), which is jointly represented by Kitagawa, 
former University of Tokyo President Takeshi Sasaki and others. They 
will aim at establishing an organizers' group later this month. With 
the next Lower House election that could occur later this year in 
mind, the group will aim at reforms in cooperation with lawmakers of 
all parties, including the Liberal Democratic Party and the 
Democratic Party of Japan. 
 
The reformist federation will aim at achieving reforms independently 
while applying pressure on the political parties and the 
Kasumigaseki bureaucratic district, making a clear distinction with 
conventional groups tasked chiefly with lobbying the political 
community and central government agencies. 
 
The reformist federation's position is that efforts by the central 
political community, Kasumigaseki, and six local groups, including 
the Association of Prefectural Governors, are insufficient. There is 
a possibility that it will become a group of actions replacing the 
six groups. 
 
The group will also be joined by municipal chiefs, such as Mayor 
Tamio Mori of Nagaoka, Niigata Prefecture. The group is also calling 
for participation by reform-oriented assemblymen of local 
assemblies, such as the Mie Prefectural Assembly. 
 
As specific policies, the group will propose not to shy away from 
discussing a consumption tax hike. It will also urge the central 
government to promote decentralization by fundamentally reviewing 
the subsidy system regarding the relationship between the central 
and local governments. It will also propose specific efforts for 
creating a society that can achieve economic growth while addressing 
environmental issues. 
 
DONOVAN