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UNCLAS SECTION 01 OF 13 TOKYO 001963 
 
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 07/16/08 
 
Index: 
 
1) Top headlines 
2) Editorials 
3) Prime Minister's daily schedule (Nikkei) 
 
Political agenda: 
4) Prime Minister Fukuda reportedly has made up his mind to shuffle 
his cabinet possibly on July 28 (Sankei) 
5) Fukuda takes 6-day vacation in July, unusual time for a prime 
minister, fueling speculation he is preparing to shuffle his cabinet 
 (Asahi) 
6) Prime Minister Fukuda coordinating schedule with the LDP, Komeito 
for the upcoming extraordinary session of the Diet that will start 
in late August  (Mainichi) 
 
Japan-ROK ties: 
7) Renewed dispute with South Korea over Takeshima isles to impact 
on Fukuda's diplomacy, including fall trilateral meeting and planned 
visit to ROK  (Nikkei) 
8) ROK ambassador to Japan recalled briefly to Seoul over Takeshima 
row  (Yomiuri) 
9) What is the Takeshima territorial dispute all about?  (Nikkei) 
 
10) Foreign Minister Koumura journeys to Vietnam and Singapore 
(Yomiuri) 
 
Economy under pressure; 
11) Bank of Japan sees economy slowing down, revises growth down to 
1.2 PERCENT   (Tokyo Shimbun) 
12) Fukuda promises additional measures this month to deal with oil 
prices  (Tokyo Shimbun) 
13) Financial Services Agency says the U.S. mortgage crisis is "not 
a fire on the other side of the bank," orders survey of Japan-owned 
mortgage securities  (Tokyo Shimbun) 
14) Government to strengthen restrictions on sub-prime lending to 
ward off crisis in Japan  (Tokyo Shimbun) 
15) LDP reluctant to render dedicated road taxes into general 
revenues, in contrast to New Komeito  (Asahi) 
 
16) In creating a Consumer Affairs Agency, the Food Safety 
Commission will be kept independent and neutral  (Mainichi) 
 
Defense and security affairs: 
17) Defense Ministry reform plan shows shift to political leadership 
 (Sankei) 
18) Defense Ministry's reform council report to strengthen 
minister's command and control function  (Mainichi) 
 
Articles: 
 
1) TOP HEADLINES 
 
Asahi: 
Internal Affairs and Communications Ministry plans to regulate TV 
shopping programs by new satellite broadcasters 
 
Mainichi and Yomiuri: 
Government eyes rule for new pension agency of not hiring Social 
Insurance Agency employees who have engaged in illegal union 
activities 
 
 
TOKYO 00001963  002 OF 013 
 
 
Nikkei and Tokyo Shimbun: 
Bank of Japan says economy further slows, CPI projected to rise 1.8 
PERCENT 
 
Sankei: 
MOD reform: Defense counselor (sanjikan) system to be abolished to 
build politician-led decision-making system 
 
Akahata: 
High fuel costs forced 200,000 fishing boats to halt operations 
yesterday 
 
2) EDITORIALS 
 
Asahi: 
(1) MOD reform: Civilian control and politicians' responsibility 
(2) DPJ leadership race 
 
Mainichi: 
(1) Fisheries industry needs structural reform 
(2) MOD reform: Lawmakers' competence to be tested 
 
Yomiuri: 
(1) Fishermen walking a fine line 
(2) U.S. financial crisis 
 
Nikkei: 
(1) Cooperation between civilian and SDF personnel essential 
(2) Fisheries industry needs structural reform 
 
Sankei: 
(1) MOD reform: Civilian control must be reviewed thoroughly 
(2) U.S. subprime mortgage crisis serious 
 
Tokyo Shimbun: 
(1) Fisheries crisis to hit dinner tables 
(2) U.S. financial woes require decisive measures 
 
Akahata: 
(1) U.S.-Iraq pact talks: U.S. withdrawal essential 
 
3) Prime Minister's Official Residence (Kantei) 
 
Prime Minister's schedule, July 15 
 
NIKKEI (Page 2) (Full) 
July 16, 2008 
 
09:22 
Handed letter of recommendation to a candidate-to-be for Gifu 
gubernatorial election at LDP headquarters, attended by Secretary 
General Ibuki, Election Strategy Council Chairman Koga, and Deputy 
Secretary General Hosoda. Attended LDP executive meeting. 
 
10:02 
Attended at Kantei cabinet meeting and Taskforce to Promote Reform 
of the Civil Servant System. Internal Affairs Minister Masuda 
remained. 
 
11:12 
Met with Space Development Minister Kishida, joined by Deputy Chief 
Cabinet Secretary Saka. Attended later Defense Ministry Reform 
 
TOKYO 00001963  003 OF 013 
 
 
Council meeting. 
 
12:05 
Met with Cabinet Intelligence Director Mitani, followed by Chief 
Cabinet Secretary Machimura. 
 
13:59 
Met with Lower House member Hosei Norota, followed by former Foreign 
Minister Nakayama. 
 
14:34 
Met with Finance Minister Nukaga, Vice Minister Sugita and Budget 
Bureau Director General Tango. 
 
15:54 
Reported to the Emperor in private at the Imperial Palace. 
 
17:16 
Met at Kantei with Diet Affairs Committee Chairman Oshima and New 
Komeito Diet Affairs Committee Chairman Urushibara, attended by 
Machimura. 
 
18:01 
Met with Foreign Minister Koumura, Nukaga, Agriculture Minister 
Wakabayashi and METI Minister Amari. Met afterwards with Consumer 
Administration Promotion Minister Kishida and Machimura. Machimura 
remained. 
 
19:29 
Met with Vice Administrative Foreign Minister Yabunaka, Deputy 
Foreign Minister Sasae and Asian and Oceanian Affairs Bureau 
Director General Saiki. 
 
20:34 
Returned to his official residence. 
 
4) Cabinet shuffle likely on July 28 
 
SANKEI (Page 1) (Full) 
July 16, 2008 
 
Prime Minister Fukuda made up his mind yesterday to shuffle his 
cabinet for the first time since coming into office. The Group of 
Eight (G-8) summit he hosted at Lake Toya in Hokkaido is over now, 
and he has come to take a break in policy implementation. Fukuda 
judged that it would be better to exercise his power to shuffle 
personnel so as to keep his influence over his ruling Liberal 
Democratic Party. This decision is based on his plan to convene an 
extraordinary Diet session in late August. 
 
This January and April, some LDP heavyweights voiced expectations 
that Fukuda would shuffle his cabinet. However, Fukuda, according to 
one of his aides, gave priority to continuing policies. He has 
therefore retained most of his predecessor Abe's cabinet. 
 
After the G-8 summit, however, there have been calls from within the 
LDP for a cabinet shuffle. Fukuda himself was cautious about 
shuffling his cabinet. However, Fukuda, partly because of pressure 
from the LDP, seems to have judged that it would be better to 
shuffle his cabinet to show his influence. 
 
Actually, some of the Fukuda cabinet's ministers and senior vice 
 
TOKYO 00001963  004 OF 013 
 
 
minister had plans to go abroad late this month, but Fukuda told 
them to abstain from doing so. As seen from this fact, Fukuda is now 
making preparations to shuffle his cabinet. When Fukuda shuffles his 
cabinet, the post of chief cabinet secretary and the post of health, 
labor and welfare minister, which is saddled with pension and 
healthcare issues, will be in focus. 
 
Fukuda yesterday called in Finance Minister Fukushiro Nukaga to his 
office and told him to work on a fiscal 2009 budget ceiling in 
preparation for cabinet approval late this month. One LDP executive 
said the LDP was coordinating to schedule this cabinet approval for 
July 29. Within the LDP, a cabinet shuffle is therefore expected to 
take place on July 30. In August, however, Fukuda will attend the 
opening ceremony of the Beijing Olympics. In addition, he will 
convene an extra Diet session. Given this schedule, Fukuda is highly 
likely to shuffle his cabinet on July 28. 
 
5) Speculation rife that Prime Minister Fukuda may prepare for 
cabinet shuffle during six-day summer vacation 
 
ASAHI (Page 4) (Full) 
July 16, 2008 
 
Prime Minister Yasuo Fukuda starts his summer vacation today as he 
turns 72. While resting from the Group of Eight Hokkaido Toyako 
Summit, he will likely consider how to manage the upcoming 
extraordinary Diet session, as well as his administration this fall. 
Since it is unusual for a prime minister to take a summer vacation 
in July, there is speculation that he may be preparing for a cabinet 
shuffle. 
 
Fukuda will be on vacation until July 21. He is expected to stay 
either at his official residence or his private residence in Nozawa, 
Tokyo. He has no plans to go to any place far. It is the first time 
for him to take a vacation since he assumed office. He told 
reporters yesterday: "Kantei staff members have no time to rest. I 
hope they, too, will enjoy their breaks. I was told that I should 
not show up here." 
 
One ruling coalition member said: "He may shuffle the cabinet after 
the summer vacation." Asked about this point, Fukuda just said: 
"What should I do? Let me think it." 
 
For Fukuda, the six-day summer vacation will likely be but a brief 
respite, since he will have to compile in late July budgetary 
request guidelines for fiscal 2009, as well as a set of five policy 
measures, including measures to support child-rearing. 
 
6) Fukuda coordinating views on Diet schedule with LDP, New Komeito 
Diet Affairs Committee chairmen; Focus of attention on possibility 
of cabinet shuffle 
 
MAINICHI (Page 5) (Full) 
July 16, 2008 
 
Prime Minister Yasuo Fukuda called in the Diet Affairs Committee 
chairmen of the Liberal Democratic Party (LDP) and the New Komeito, 
Tadamori Oshima and Yoshio Urushibara, to his official residence 
yesterday to start coordination on an opening date for the 
extraordinary Diet session and other details. Learning that Fukuda 
had asked for their views about a Diet schedule just before his 
summer vacation, a senior LDP member speculated that "the prime 
 
TOKYO 00001963  005 OF 013 
 
 
minister may be thoroughly considering during the vacation the 
possibility of a cabinet shuffle." Asked about a shuffle of the 
cabinet, Fukuda has repeated the statement about "a clean slate." 
The focus of attention is on what decision Fukuda will come up with 
at the end of his vacation. 
 
The meeting lasted for about an hour, with Chief Cabinet Secretary 
Nobutaka Machimura also present. 
 
Oshima said: "If you decide to shuffle the cabinet before the 
extraordinary Diet session opens, it is necessary to give enough 
time for new cabinet members to be able to give satisfactory Diet 
replies." While keeping in mind the possibility of the session 
opening in late August, Oshima indicated that the shuffle at the 
latest would be carried out in early August. 
 
The prime minister, though, made no clear-cut reply, shopping short 
of clarifying whether he intends to shuffle the cabinet or not. 
 
On key bills that should be deliberated on in the extraordinary Diet 
session, Oshima cited a bill to extend the new antiterrorism special 
measures law, which expires next January, and a bill amending the 
Labor Standards Law, which has been carried over from the earlier 
regular Diet session. He then stressed: "A conclusion must be 
reached in the extraordinary Diet session." 
 
Fukuda replied: "I would like to give them my consideration now." He 
indicated that he would meet New Komeito President Akihiro Ota and 
make final coordination on details, including the opening day of the 
extraordinary Diet session. 
 
7) Takeshima issue casts pall over Fukuda diplomacy; Issue might 
take toll on Japan-China-ROK summit and Fukuda's visit to ROK 
 
NIKKEI (Page 2) (Abridged) 
July 16, 2008 
 
The confrontation between Japan and South Korea over Takeshima, a 
group of islets known as Dokdo in South Korea, might have a negative 
impact on the two countries' diplomatic timetables. A gloomy outlook 
hangs over such events as a Japan-ROK foreign ministerial expected 
to take place on the sidelines of the ASEAN foreign ministerial in 
Singapore next week and a Japan-ROK-China summit to be held in Tokyo 
in September. Prime Minister Yasuo Fukuda is likely to find it 
difficult to respond to those events. 
 
According to South Korea, South Korean Ambassador to Japan Kwon Chul 
Hyun called on Vice Foreign Minister Mitoji Yabunaka at his ministry 
yesterday and told him: "It has become difficult to extend proactive 
cooperation in the international scene. It is unknown how much the 
South Korean people will welcome a visit to Japan in September by 
President Lee Myung Bak to attend the ROK-China-Japan summit." 
 
The bilateral confrontation was sparked by a new Japanese teaching 
manual that mentioned the Takeshima issue for the first time. 
Ambassador Kwon returned to South Korea temporarily last night in 
compliance with an order from his government. 
 
The governments of Japan and South Korea have joined efforts at a 
variety of international conferences, including the six-party talks 
on North Korea's denuclearization. Ambassador Kwon's statement 
revealed that such cooperative relations might stall. 
 
TOKYO 00001963  006 OF 013 
 
 
 
For instance, Japan, China and South Korea are scheduled to hold 
their first trilateral summit in September apart from other 
international conferences. President Lee's decision not to attend 
the trilateral summit could deal a serious blow to the Fukuda 
administration. 
 
Japan is also exploring ways to hold a Japan-ROK foreign ministerial 
on the sidelines of the ASEAN foreign ministerial to be held in 
Singapore next week. There has been no clear response from South 
Korea to Japan's call for a bilateral foreign ministerial, according 
to a government source. 
 
South Korea's response depends on public opinion to a certain 
extent. Its stance is to monitor public opinion for the time being 
instead of taking hard-line steps right away, such as postponing a 
series of diplomatic events. The government intends to calmly watch 
the situation in South Korea for the time being. 
 
Prime Minister Fukuda, who puts high priority on Asia, is also 
scheduled to make his second visit to South Korea this fall, 
following one in February to attend President Lee's inauguration. 
According to South Korea, Ambassador Kwon also told Vice Foreign 
Minister Yabunaka: "It is unknown if the South Korean public will 
truly welcome Prime Minister Fukuda's visit to South Korea." 
 
8) South Korean ambassador temporarily returns home in protest 
against Takeshima reference in teaching manual for middle schools 
 
YOMIURI (Page 2) (Excerpts) 
July 16, 2008 
 
The Japanese government's decision to include in a teaching manual 
for middle schools reference to the Takeshima islets as Japan's 
territory has created a row between Japan and South Korea that 
continues to grow. Acting on instructions from his home government, 
Ambassador to Japan Kwon Chul Hyun returned home yesterday in 
protest of Japan's decision. This is the first time in about seven 
years for a South Korean ambassador to be recalled due to an issue 
that could sour bilateral ties. The Japanese government is wary that 
a prolonging of the problem could adversely affect a trilateral 
summit meeting of Japan, China, and South Korea scheduled for 
September in Japan, as well as cooperation between Japan and South 
Korea in dealing with North Korea. 
 
In criticizing the Japanese government, Ambassador Kwon told 
reporters in a strong tone at Haneda Airport: "I won't easily come 
back to Japan. I am greatly disappointed. Japan is really a nation 
close geographically but distant politically,". 
 
Before leaving Japan, Kwon visited the Foreign Ministry in the 
morning and met Administrative Vice Foreign Minister Mitoji 
Yabunaka. In the meeting, Kwon reiterated the South Korean 
government's position over the Takeshima issue. 
 
Yabunaka said "The two countries should calmly deal with the 
differences in positions." He then called for a calm response so 
that the issue would  not damage bilateral ties and that the two 
countries would move toward building "a new era for Japan-South 
Korea relations," as agreed on between the two countries. 
 
9) Questions and answers on Takeshima issue 
 
TOKYO 00001963  007 OF 013 
 
 
 
NIKKEI (Page 2) (Abridges slightly) 
July 16, 2008 
 
Q: What is the origin of the confrontation between Japan and South 
Korea over the Takeshima islets, known as Dokdo in South Korea? 
 
A: It all started with South Korean President Lee Seung Man's 
announcement in 1952 of the "Lee line" declaring unilateral maritime 
rights on the high seas including Takeshima. South Korea's coast 
guard has stationed personnel on the largest islet since 1954. The 
islets are now effectively under South Korea's control. 
 
Q: What are the standpoints of the two countries? 
 
A: Japan's standpoint is that it has sovereignty over the islets 
based on its effective control over them in the mid-17th century. In 
1905, a cabinet decision was made to include the islets in Shimane 
Prefecture. But South Korea says that it has had sovereignty since 
before Japan claimed its sovereignty and that historical documents 
show that South Korea's sovereignty was established more than 200 
years earlier than Japan's. 
 
Q: Why are the two countries vying for the islets so fiercely? 
 
A: Takeshima covers only an area of 0.2 square kilometers, which is 
equivalent to the size of Tokyo's Hibiya Park. But the waters around 
the islets are good fishing grounds rich in squids, crabs and so on, 
and they are also connected with securing marine resources. 
 
Q: Are the economic interests only at stake? 
 
A: That is not all. In 1905 when Japan decided to include the islets 
in Shimane Prefecture, a second Japan-South Korea agreement was also 
concluded enabling Japan to deprive South Korea of its right to 
diplomacy as a protected state. The level of interest in South Korea 
is extremely high. People receive "Dokdo education" as a symbol of 
patriotism. In South Korea, the issue is often directly connected to 
nationalism. 
 
10) Foreign Minister Koumura to visit Vietnam 
 
YOMIURI (Page 4) (Full) 
July 16, 2008 
 
The Ministry of Foreign Affairs (MOFA) announced yesterday that 
Foreign Minister Masahiko Koumura will visit Singapore and Vietnam 
on July 21-26. In Singapore, Koumura is expected to attend a foreign 
ministerial of the Association of Southeast Asian Nations (ASEAN) 
Plus Three (Japan, China and South Korea), as well as a conference 
of the ASEAN Regional Forum (ARF) cabinet ministers. In Vietnam, he 
will serve as joint chair of a meeting on the 25th of the 
Japan-Vietnam Cooperation Committee. Since North Korea is a formal 
member of the ARF, there are moves to seek the holding of an 
informal foreign ministerial of the six-party countries on North 
Korea's nuclear in an ARF meeting on the 24th. 
 
11) The economy is slowing further, says BOJ: Downward revision of 
GDP growth to 1.2 PERCENT 
 
TOKYO SHIMBUN (Top Play) (Full) 
July 16, 2008 
 
TOKYO 00001963  008 OF 013 
 
 
 
Bank of Japan (BOJ) Governor Masaaki Shirakawa during a press 
conference on July 15 held after the central bank's policy board 
meeting on monetary policy revised downward the domestic economic 
outlook, noting that the economy is slowing down due to slow growth 
in capital spending and consumer spending. Concerns about a downturn 
in the economy and price rises are mounting due to the steep rise in 
the prices of raw materials, such as crude oil. The BOJ is being 
pressed to implement even more difficult policy management. 
 
The BOJ at its policy board meeting presented an interim review of 
the semi-annual Outlook for Economic Activity and Prices, released 
in April. In the interim review, the central bank lowered the 
forecast for growth in real gross domestic production (GDP) for 
fiscal 2008 from 1.5 PERCENT  as projected in April to 1.2 PERCENT . 
It revised up its outlook for a rise in the consumer price index 
(CPI) to 1.8 PERCENT , up 0.7 points from the previous estimate. 
This is the first time for the bank to indicate the margin of 
revisions with numbers. 
 
Alarmed about price hikes, starting with a rise in gas prices, 
Shirakawa expressed concern, "The CPI will continue to rise for the 
time being."  However, regarding the future outlook, he maintained 
the basic scenario that the economy will continue sustainable 
growth, based on stable prices. He predicted that the economy will 
return to the mild growth track, although it could occur later than 
projected. He also estimated that prices rises will also slow 
gradually. 
 
Concerning the flagging U.S. economy, Shirakawa expressed hopes that 
a package of assistance measures for two government-affiliated 
housing loan companies that the U.S. government announced on the 
13th, would lead to the stabilization of the housing and financial 
markets. However, when those markets will recover remains 
unpredictable. 
 
In order to determine a number of risks, the bank at the meeting 
unanimously decided to maintain the current monetary policy of 
guiding the policy-related discretionary interest rates to 0.5 
PERCENT  a year. 
 
12) Additional measures against surging crude oil prices before end 
of month, prime minister reveals: Fukuda caught on horns of dilemma 
with no fiscal resources available 
 
TOKYO SHIMBUN (Page 2) (Excerpts) 
July 16, 2008 
 
Prime Minister Yasuo Fukuda yesterday evening revealed his plan to 
map out additional emergency measures before the end of the month 
with the aim of addressing the steep rise in crude oil prices. He 
noted, "The government adopted a set of measures in late June. 
However, there has been no change in the situation. If possible, I 
would like to take additional measures before the end of the 
month." 
 
He made that remark in response to a question asked by reporters at 
the Prime Minister's Office (Kantei). Regarding the details of 
envisaged additional measures, the prime minister simply said, "I 
would like to adopt various measures. I would also like to undertake 
coordination with the parties." 
 
 
TOKYO 00001963  009 OF 013 
 
 
He indicated understanding to the suspension of operations the same 
day by fishermen all over the nation, saying, "I am fully aware that 
fishermen are suffering tremendously. This is an abnormal 
situation." 
 
Fukuda revealed his plan to compile additional measures to address 
the soaring crude oil prices before the end of the month because he 
wanted to show the public appeal his stance of quickly helping 
embattled fishermen, who have suspended operations all over the 
country. In reality, however, there are no fiscal resources 
available for financing additional measures, including the 
compilation of a supplementary budget. The prime minister is facing 
a policy dilemma that fiscal conditions do not easily permit the 
implementation of his policy that shares the public's view. 
 
At first, the prime minister had been negative toward taking 
additional measures, saying, "It is necessary to implement measures 
within the existing budget." He had been stressing a policy of 
tiding over the crisis with a set of emergency measures, which the 
government adopted on June 26. 
 
The emergency measures included consideration for improving the 
fishing industry assistance fund (approximately 10 billion yen), 
including an increase in the amount of the fund to help fishermen 
purchase energy-efficient fishing boats. The package also included 
consideration for lowering highway tolls designed for the trucking 
industry, which is also suffering from the steep rise in gas 
prices. 
 
However, those measures are just flexible application of existing 
projects earmarked in the budget, according to a government source. 
The fishermen's public appeal regarding their difficult situation 
has revealed that those measures are not giving them immediate 
relief. 
 
The ruling parties also called for additional measures and the 
compilation of a supplementary budget. Under such circumstances, the 
prime minister had to veer toward considering additional measures. 
 
13) Financial Services Agency: U.S. housing finance crisis is "not a 
fire on the other side of the river"; Minister orders survey to 
determine extent of U.S. mortgage securities Japan possesses 
 
TOKYO SHIMBUN (Page 9) (Full) 
July 16, 2008 
 
Financial Services Minister Yoshimi Watanabe, meeting the press 
yesterday after a cabinet meeting, made this statement about the two 
troubled U.S. government-related housing finance corporations: "The 
government and private sectors of Japan and China possess a fair 
amount (of related securities); it is not a fire on the other side 
of the river." The Financial Services Agency (FSA) plans to carry 
out a survey of domestic financial institutions to determine the 
extent of U.S. government agency securities issue by the two 
corporations they possess. 
 
The U.S. government has announced already a rescue package for the 
two corporations that will include the injection of public money. On 
this point, Minister Watanabe gave the U.S. high marks, saying, "It 
was good that they made a swift decision." 
 
FSA stated that as of June 2007, Japan's public and private sectors 
 
TOKYO 00001963  010 OF 013 
 
 
possessed approximately $23 billion (or approximately 24 trillion 
yen) in U.S. government-related securities, including holdings other 
than the two corporations. It stressed, "We will heighten the alarm 
level." 
 
With the two U.S. corporations in trouble, the prices of their 
shares on the market have plummeted, creating the possibility that 
the business conditions of domestic financial institutions also 
would be affected. 
 
14) Government to establish system of registering rating companies 
in order to strengthen regulation of the sub-prime market and bring 
them on par with Europe and U.S. 
 
TOKYO SHIMBUN (Page 9) (Abridged) 
July 16, 2008 
 
Financial Services Minister Watanabe, meeting with the press 
yesterday after a cabinet meeting, revealed that he is mulling 
public regulation of rating companies that have been showered with 
criticism in connection with the sub-prime loan problem. The 
ministry's financial advisory council would debate whether to create 
a registration system for rating companies and whether financial 
authorities would have inspection and monitoring rights over rating 
companies. 
 
The collapse of market for sub-prime-related commercial commodities 
is seen as a cause of lowering of ratings of previously highly-rated 
commodities. The lack of transparency of the process of rating such 
commodities, coupled with the relation of the securities houses that 
sell commodities and the rating companies that receive service fees 
for their evaluations are seen as problematical. 
 
The U.S.' Securities Exchange Commission (SEC) already has announced 
a new proposal that would include strengthening information 
disclosure of the process of rating. The EU early this month agreed 
to introduce a registration system. 
 
15) LDP reluctant to free up road-related tax revenues for general 
expenditures 
 
ASAHI (Page 4) (Excerpts) 
July 16, 2008 
 
The ruling parties yesterday set up an advisory panel to mull a plan 
to shift tax revenues earmarked for road construction and 
maintenance into the general spending account. Can the budget for 
road projects be cut? Will the ruling coalition really be able 
review the provisional tax rates system? Debate has begun four 
months after Prime Minister Yasuo Fukuda revealed his plan to free 
up revenues from the road-related taxes now used solely for road 
construction and maintenance and use the funds for general 
expenditures. 
 
The advisory council meeting was attended by Liberal Democratic 
Party (LDP) and New Komeito policy research council and tax system 
panel members. In the first meeting held in the Diet building, there 
was an obvious gap between the two ruling parties. 
 
One representative from the New Komeito, which has sought a 10 
percent cut in the road-related budget, asserted in the meeting: 
"Unless the budget for road projects is slashed, we will disappoint 
 
TOKYO 00001963  011 OF 013 
 
 
public expectations." The LDP, however, took a cautious stance, with 
one member saying: "There would be no change in demand for road 
projects." 
 
Referring to the current provisional rates for gasoline and other 
road-related taxes, the New Komeito called for abolishing the 
provisional rates part of the automobile weight tax. However, LDP 
Policy Research Council Deputy Chairman Hiroyuki Sonoda stressed: 
"The purpose of discussion is not to reduce tax revenues." 
 
The New Komeito intends to appeal its stance of prioritizing reforms 
to the public, with an eye on the next House of Representatives 
election. Although the New Komeito included a plan to cut the 
automobile weight tax in its manifesto (set of campaign pledges), it 
withdrew its plan last year in the process of coming up with a tax 
system reform outline, after meeting with a strong objection from 
the LDP. The New Komeito hopes to make the council, which was formed 
with the backing of Fukuda, a forum to display its political 
presence. 
 
16) Government not to move Food Safety Commission to consumer agency 
to ensure neutrality 
 
MAINICHI (Page 2) (Full) 
July 16, 2008 
 
The government decided yesterday that it would not move the Food 
Safety Commission (FSC), now in the Cabinet Office, to a consumer 
agency that will be set up in FY2009. The Council for Promoting 
Consumer Policy, led by Gakushuin University Professor Takeshi 
Sasaki, will formally adopt this policy in its meeting next week. 
 
The government had discussed the idea of shifting the FSC to the 
consumer agency when it is launched. 
 
But it decided not to move the FSC from the perspective of "ensuring 
the neutrality of the commission in evaluating the safety of food 
and pharmaceuticals from an objective, neutral and fair position, 
based on scientific knowledge," as said by a government source. 
 
Prime Minister Yasuo Fukuda and Consumer Affairs Minister Fumio 
Kishida met at the Prime Minister's Office yesterday afternoon and 
affirmed this policy. 
 
The consumer policy council on June 13 released its final report in 
which the panel proposed shifting 30 laws or ordinances to the 
consumer agency but noted that "discussion will be continued" on 
what to do about the FSC. 
 
17) Political initiative eyed for Defense Ministry reform 
 
SANKEI (Top play) (Abridged) 
July 16, 2008 
 
A government advisory panel reforming the Defense Ministry worked 
out a report yesterday and presented it to Prime Minister Yasuo 
Fukuda. The report proposes abolishing the Defense Ministry's 
defense counselor posts for bureaucrats and setting up advisory 
posts for political appointees to assist the defense minister. 
Specifically, the report recommends appointing a uniformed officer 
from the Self-Defense Forces to the Defense Ministry's internal 
bureau post of deputy director general for the Defense Policy Bureau 
 
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and appointing a civilian official from the Defense Ministry's 
internal bureaus to the SDF post of deputy chief for the Joint Staff 
Office. The government will incorporate the report's recommended 
ideas in a Defense Ministry reform bill to be presented to the Diet 
in its ordinary session next year. 
 
The government plans to overhaul the Defense Ministry for the first 
time since its establishment in 1954. 
 
The advisory panel's report of recommendations came out in the wake 
of scandals involving the Defense Ministry and the Self-Defense 
Forces, such as a former administrative vice minister's bribery case 
over procurement and a Maritime Self-Defense Force Aegis vessel's 
collision with a fishing boat. The report suggests the need for the 
Defense Ministry to restructure its organization in order to comply 
with regulations and establish professionalism. It recommends both 
the prime minister's office and the Defense Ministry to strengthen 
their control functions. 
 
In addition, the report also proposes abolishing the defense 
counselor system, which has been for some of the Defense Ministry's 
bureaucrats to monopolize and formulate defense policies. Instead, 
the report recommends setting up advisory posts for political 
appointees to assist the defense minister. In concrete terms, it 
proposes utilizing a defense conference of advisors under the 
political initiative with the participation of senior officials from 
the Defense Ministry's internal bureaus and uniformed officers from 
the SDF staff offices as the ministry's highest decision-making 
body. The idea of abolishing the defense counselor system is aimed 
at changing the superiority of civilian officials over SDF personnel 
and promoting personnel exchanges between civilian officials and SDF 
personnel. 
 
Main points from the panel report 
 
? Abolish the Defense Ministry's Operational Policy Bureau and 
integrate its functions of planning SDF operations into the SDF 
Joint Staff Office. 
? Integrate the defense buildup sections of the Defense Ministry's 
internal bureaus and the Ground, Maritime, and Air Self-Defense 
Forces. 
? Retain the Defense Ministry's internal bureaus and the GSDF, ASDF, 
and MSDF staff offices and promote exchanges between bureaucrats and 
SDF staff officers. 
? Set up a security policy advisor post to assist the prime minister 
and strengthen the control functions of the prime minister's 
office. 
? Abolish the defense counselor system and set up advisory posts to 
assist the defense minister. 
? Give legal status to a defense conference as the highest 
decision-making body. 
 
18) Reform council's report to strengthen command and control of 
Defense Minister, but amending the law will be difficult given the 
divided Diet 
 
MAINICHI (Page 2) (Excerpts) 
July 16, 2008 
 
The report finalized on the 15th by the government's Defense 
Ministry Reform Council contains such main features as merging 
personnel from the internal bureaus (suits) and the uniformed 
 
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services (uniforms) in order to improve ministry practices that have 
led to a series of incidents, and the strengthening of the command 
and control of the minister (a politician), by inserting leverage on 
the Defense Council, which is the highest advisory council in the 
ministry. The control tower function of the Prime Minister's 
Official Residence (Kantei) will be strengthened, as well. 
 
However, the unification of the sectors that deal with enhancing 
defense capabilities has run into trouble, with some uniformed 
officers taking the view of constraining this effort and discussing 
it later. And a bill amending the law next regular session also will 
inevitably bog down due to the divided Diet. 
 
CEKUTA