VZCZCXRO5094
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #2163/01 2200135
ZNR UUUUU ZZH
P 070135Z AUG 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 6397
INFO RUEKJCS/SECDEF WASHDC PRIORITY
RHEHAAA/THE WHITE HOUSE WASHINGTON DC PRIORITY
RUEAWJA/USDOJ WASHDC PRIORITY
RULSDMK/USDOT WASHDC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC//J5//
RHHMUNA/HQ USPACOM HONOLULU HI
RHHMHBA/COMPACFLT PEARL HARBOR HI
RHMFIUU/HQ PACAF HICKAM AFB HI//CC/PA//
RHMFIUU/USFJ //J5/JO21//
RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
RUAYJAA/CTF 72
RUEHNH/AMCONSUL NAHA 1641
RUEHFK/AMCONSUL FUKUOKA 9267
RUEHOK/AMCONSUL OSAKA KOBE 3006
RUEHNAG/AMCONSUL NAGOYA 7450
RUEHKSO/AMCONSUL SAPPORO 9850
RUEHBJ/AMEMBASSY BEIJING 4778
RUEHUL/AMEMBASSY SEOUL 0766
RUCNDT/USMISSION USUN NEW YORK 1133

UNCLAS SECTION 01 OF 10 TOKYO 002163 
 
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 08/07/08 
 
Index: 
 
China connection: 
1) Prime Minister Fukuda travels to China tomorrow for the opening 
ceremony of the Olympics and summit meeting with President Hu 
(Mainichi) 
2) Fukuda, Hu likely to take up cooperation in investigating 
poisoned dumpling cases, now a domestic issue in China with 
discovery of new outbreaks there (Nikkei) 
 
North Korea problem: 
3) Japan, DPRK talks restart on 11th after two-month hiatus 
(Mainichi) 
4) Restarted Japan-North Korean talks come against a background of 
U.S.-DPRK maneuvering on the issue of delisting (Mainichi) 
 
5) Australian woman "Jane", raped by a U.S. soldier, appeals for 
steps to prevent future case, says U.S., Japanese governments said 
to have concealed her case (Tokyo Shimbun) 
 
Political agenda: 
6) Likelihood growing stronger that Fukuda administration, caving in 
to New Komeito's wish, will convene the extra Diet session in 
September (Mainichi) 
7) Ruling parties will seek to speed up Diet agenda as economic and 
social welfare issues pile up (Nikkei) 
8) Opposition camp willing to return to the Diet but will not 
deliberate on the bill extending the anti-terrorism law allowing 
Indian Ocean refueling (Tokyo Shimbun) 
9) New Komeito becoming more powerful in Diet affairs, setting the 
political agenda (Tokyo Shimbun) 
10) Mood in ruling parties toward extending refueling mission in 
Indian Ocean has seemingly changed overnight, but concern remains 
about international reaction (Asahi) 
11) Ota, Watanuki meet and agree to be cautious about anti-terror 
bill revote (Yomiuri) 
12) Maehara says he will not run in the Democratic Party of Japan 
presidential race (Yomiuri) 
 
Economy: 
13) Indicators show that the economy is entering a recession 
(Mainichi) 
14) LDP Secretary General Aso in tug-of-war with LDP's Hidenao 
Nakagawa over course of economic policy line (Sankei) 
 
1) Fukuda to leave for China tomorrow to attend opening ceremony of 
Beijing Olympics, to hold talks with President Hu 
 
MAINICHI (Page 2) (Full) 
August 7, 2008 
 
Prime Minister Yasuo Fukuda will set out for Beijing, China, 
tomorrow to attend the opening ceremony of the Beijing Olympics. It 
will be the first time for a Japanese prime minister to attend an 
Olympics opening ceremony since Noboru Takeshita attended the 
opening ceremony of the Seoul Olympics in 1988. Fukuda is also 
scheduled to hold separate talks with President Hu Jintao and 
Premier Wen Jiabao. 
 
The upcoming visit to China is the second for Prime Minister Fukuda, 
following the one last December. He will have met with Hu four times 
and Wen twice in just the one year since assuming office. Fukuda is 
 
TOKYO 00002163  002 OF 010 
 
 
likely to also visit the Olympic village on the day of the opening 
ceremony owing to China's cooperation, though such a visit would 
normally be impossible due to stepped-up security against terrorism. 
This arrangement shows Beijing's hospitality toward the pro-China 
Fukuda. 
 
Relations between the Japanese and Chinese governments have also 
improved on the working level, as seen from their agreement in June 
on joint development of gas fields in the East China Sea. The 
planned meetings with Hu and Wen will last only for a short time. 
The leaders are expected to confirm their friendship there without 
conducting probing discussions. A senior government official said: 
"It is significant for both sides to share the joy of the opening of 
the Olympics." 
 
2) Fukuda to ask for investigative cooperation on dumpling poisoning 
case during Japan-China summit 
 
NIKKEI (Page 1) (Full) 
August 7, 2008 
 
The government decided yesterday to ask for China's strong 
investigative cooperation regarding the poisoning case triggered by 
frozen gyoza meat dumplings made in China. The decision follows 
China's announcement that dumplings that had been recalled by their 
producer, Tianyang Food, were put on the market and that an unknown 
number of Chinese were poisoned by the pesticide methamidophos in 
mid-June. Prime Minister Yasuo Fukuda is scheduled to hold separate 
meetings with Chinese President Hu Jintao and Premier Wen Jiabao in 
Beijing on August 8. The prime minister is expected call for 
enhanced cooperation and an early settlement of the poisoning cases 
through talks with them. 
 
Chief Cabinet Secretary Nobutaka Machimura in a press conference 
yesterday indicated that the prime minister would naturally ask for 
investigative cooperation during the upcoming Japan-China summit 
talks. In response to the Nikkei's written questions, the Chinese 
Foreign Ministry has replied: "Poisoning cases occurred in China in 
mid-June. The Public Security Ministry is investigating them 
earnestly." According to the Chinese Foreign Ministry, it reported 
to the Japanese government on the cases in early July before the G-8 
Lake Toya summit. 
 
3) Japan-North Korea talks set for Aug. 11, with focus on abduction 
issue 
 
MAINICHI (Page 1) (Slightly abridged) 
August 7, 2008 
 
The Foreign Ministry announced yesterday that Japan and North Korea 
will hold working-level talks in Shenyang, China, on Aug. 11-12, 
aiming to resume talks by the working group on normalizing bilateral 
diplomatic relations under the framework of the six-party talks. In 
the upcoming talks, the focus of discussion will be on how to 
translate into action the promise the North made in the previous 
round of talks on June 11-12 in Beijing to reinvestigate the issue 
of Japanese nationals abducted by its agents and for Japan to 
partially remove its sanctions against Pyongyang. 
 
Akitaka Saiki, director general of the Foreign Ministry Asian and 
Oceanian Affairs Bureau, and Song Il Ho, North Korean envoy in 
charge of normalization talks with Japan, will be attending the 
 
TOKYO 00002163  003 OF 010 
 
 
talks. 
 
Following the agreement reached in the June talks on such matters as 
the start of reinvestigation, Tokyo had been calling on Pyongyang to 
resume working-level talks, but the other side had not responded. 
Given that the U.S. government has indicated the possibility of 
postponing the planned delisting of North Korea as a state sponsor 
of terrorism on Aug. 11, Pyongyang is apparently aiming to play up 
its positive posture about improving relations with Japan by 
agreeing to Japan's call for resuming bilateral talks. 
 
On the abduction issue, Japan has urged the North to commit itself 
to an effective reinvestigation, as Chief Cabinet Secretary Nobutaka 
Machimura said: "The North should conduct reinvestigation that will 
lead to repatriating more abductees," making North Korea wary. 
Pyongyang is expected to strongly demand Japan partially lift its 
sanctions. The issue of North Korea's handing over Japanese radicals 
who had hijacked a plane to North Korea decades ago is also likely 
to be on the agenda. 
 
4) N. Korea bargaining with U.S. over delisting 
 
MAINICHI (Page 2) (Abridged) 
August 7, 2008 
 
North Korea has now agreed to resume working-level talks with Japan 
on Aug. 11-12. What lies behind this is that the United States, 
which is expected to delist North Korea as a state sponsor of 
terrorism, is now uncertain to do so that day. In late June, the 
U.S. government told the U.S. Congress of its delisting decision, 
which was expected to go into effect on Aug. 11. Though the leverage 
of delisting had weakened since then, it is not becoming effective 
again. 
 
"The United States will not delist North Korea unless there is 
progress in its talks with North Korea," a senior official of the 
Foreign Ministry said. "North Korea may also think it would be 
better to talk with Japan to move forward its talks with the United 
States," the official added. It was Aug. 5 when Pyongyang answered 
that it would agree to hold working-level talks with Japan, 
according to the official. 
 
President Bush, in his Aug. 6 press remarks, said the United States 
would not automatically delist North Korea, implying that the U.S. 
government could postpone its delisting action slated for Aug. 11. 
In June, Japan and North Korea held talks. North Korea had expected 
the U.S. government to report its delisting decision to the U.S. 
Congress in late June. Meanwhile, the United States called on North 
Korea to make progress in its relations with Japan. Given this, 
Pyongyang likely wanted to play up its cooperation with Tokyo, thus 
agreeing to resume working-level talks with Japan. 
 
The Japanese government intends to explore agreements with North 
Korea for better relations and wants to resolve the issue of 
Japanese nationals abducted to North Korea on the sidelines of talks 
over its nuclear issues. However, North Korea is certain to call for 
Japan to lift some of its economic sanctions. The Japanese 
government could come under fire from public opinion should it fail 
to ensure that North Korea reinvestigates the abduction issue and 
produces substantive results. 
 
5) Australian woman who was victim of crime by U.S. serviceman calls 
 
TOKYO 00002163  004 OF 010 
 
 
for recurrence prevention; Japanese, U.S. governments try to cover 
up incident 
 
TOKYO SHIMBUN (Page 3) (Full) 
August 7, 2008 
 
"Police never asked me till the end, 'Are you all right?' No one 
believed me. That day, it was like I was killed." 
 
In April 2002, Jane was in the city of Yokosuka, Kanagawa 
Prefecture. She was getting into a car, and then she was raped by a 
U.S. serviceman. She ran into a police station even without her 
underwear. She was not taken to a hospital. Surrounded by policemen, 
she was photographed for an investigation of what happened to her. 
It was 13 hours after that when she was released. 
 
Japan still suffers from post-traumatic stress disorder (PTSD). Her 
pain was doubled, because the criminal was a U.S. serviceman. About 
three months later, the Yokohama District Public Prosecutors Office 
decided not to prosecute the U.S. serviceman. The U.S. military also 
did not court-martial him. 
 
"The Japanese and U.S. governments try to cover up the crimes 
committed by American soldiers. They are lightly charged in many 
cases, so the victims have no choice but to just give in." 
 
In 2004, the Tokyo District Court handed down a ruling that ordered 
the U.S. serviceman-who was not there-to pay 3 million yen in 
compensation. Jane cried aloud. She won the court fight after she 
was driven into a tight corner both financially and mentally. 
 
"I thought to myself that I was not all alone," Jane said. "And," 
she added, "we can change it together." Jane has been calling for 
recurrence prevention. She is now making every effort to set up a 
24-hour center to prevent rapes. She is from Australia. 
 
6) Extraordinary Diet session most likely to be convened in 
September: LDP leadership gives consideration to New Komeito's 
argument 
 
MAINICHI (Page 5) (Excerpts) 
August 7, 2008 
 
The ruling parties remain unable to decide when to convene the next 
extraordinary Diet session, because they are at odds over the issue 
of whether to extend the New Antiterrorism Special Measures Law. 
Even though the secretaries general, Policy Research Council 
chairmen and Diet Policy Committee Chairmen of the Liberal 
Democratic Party (LDP) and the New Komeito met on August 6 at a 
Tokyo hotel and conferred on the matter, they failed to reach a 
decision. However, there is a growing possibility of the timetable 
of convening the extraordinary Diet session being delayed from late 
August, as originally proposed, to September, with consideration 
given to the New Komeito. That party is insisting that the session 
should be convened in late September, the idea being to put on the 
backburner the bill that would extend the anti-terror law. 
 
A formal decision will likely be reached in mid-August or so, after 
coordination of views with the government. 
 
The prevailing view in the LDP is that they should enact a bill 
amending the New Antiterrorism Special Measures Law, the main focus 
 
TOKYO 00002163  005 OF 010 
 
 
of attention in the extraordinary Diet session, by taking a revote 
in the Lower House (after the bill is rejected in the 
opposition-controlled Upper House). However, the New Komeito is 
reluctant to do so, since it wants to see the extraordinary Diet 
session close early. The party wants the Lower House to be dissolved 
around the turn of the year. New Komeito Diet Policy Committee 
Chairman Yoshio Urushibara said, "It is questionable to set a date 
to convene the extraordinary Diet session, making a revote in the 
Lower House a foregone conclusion." 
 
Referring to the extension issue, New Komeito Secretary General 
Kazuo Kitagawa at an executive meeting of the ruling parties on the 
6th said, "The ruling parties should make efforts so as to obtain 
the public's understanding."  He took a stance that the ruling camp 
should seek cooperation from the opposition parties, instead of 
making a revote in the Lower House a precondition. 
 
When he was LDP secretary general, Bunmei Ibuki had insisted that 
the extraordinary Diet session should be convened in late August, 
creating discord with the New Komeito. However, the new leadership 
has shown a stance of giving consideration to the New Komeito with 
Ibuki's successor Taro Aso noting, "I do not think that the 
extraordinary Diet session should be convened in late August." 
 
7) With eye on next Lower House election, ruling bloc expediting 
efforts for economic countermeasures, freeing up road revenues, and 
social security panel report 
 
NIKKEI (Page 2) (Excerpts) 
August 7, 2008 
 
Both the Liberal Democratic Party and New Komeito have decided to 
gear up their policies for the next Lower House election. In their 
executive meeting yesterday, the two parties confirmed the policy 
course to expedite efforts to come up with economic countermeasures, 
concluding steps against rising prices of commodities, including 
oil, and specific ways to free up road-related tax revenue for 
general purposes. Conclusions to the two parties' outstanding issues 
have been postponed. The two parties are now determined to 
expeditiously make track records in unity, with an eye on the next 
Lower House election that could occur in December or early January. 
The plan to implement policies ahead of schedule seems to be 
designed to give some latitude to their year-end timetable, as 
well. 
 
Yesterday's meeting was held among the secretaries general, policy 
research council chairmen and other executives of the two ruling 
parties. In the session, LDP Secretary General Taro Aso reminded the 
attendants of the need to speedily produce bold economic 
countermeasures. 
 
The ruling camp is scheduled to draw up an outline of its economic 
countermeasures today featuring assistance for maintaining sea 
routes to remote islands. The ruling bloc is also set to consider 
increasing the funding for such measures that were initially 
projected to cost 500 billion yen. 
 
The ruling parties are also planning to resume talks on freeing up 
road-related revenues for general spending before the end of the 
month and to consider a green tax, as well, with the aim of 
submitting related bills to the Diet in November during the next 
extraordinary Diet session. The ruling coalition will also call upon 
 
TOKYO 00002163  006 OF 010 
 
 
the Democratic Party of Japan for revision talks on Consumer Affairs 
Agency-related bills with a view to enacting them in the upcoming 
Diet session. Further, the two ruling parties will ask the 
government's National Commission on Social Security to release its 
final report earlier than October as originally planned. 
 
The ruling bloc is expediting its policy discussion from the desire 
to play up its achievements to the public ahead of Lower House 
dissolution for a snap general election that is likely to occur in 
the year-end and New Year period following the latest cabinet 
shuffle. The New Komeito, which hopes for the Lower House election 
by next January, underlined in yesterday's meeting the need to 
materialize policies early in preparation for the political climate 
in the fall and beyond. 
 
8) Opposition parties call off Diet boycott, but will not deliberate 
the refueling mission bill 
 
TOKYO SHIMBUN (Page 2) (Abridged) 
August 7, 2008 
 
Three opposition parties-the Democratic Party of Japan (Minshuto), 
the Social Democratic Party, and the People's New Party-held a 
meeting of their Diet affairs committee chairmen yesterday in the 
Diet and agreed to return to parliamentary deliberations at the next 
extraordinary Diet session on legislative measures, except for those 
on a bill amending the new Antiterrorism Special Measures Law to 
allow the Maritime Self-Defense Force's refueling activities in the 
Indian Ocean to continue. 
 
The three opposition parties boycotted Diet deliberations at the 
recent ordinary Diet session after the House of Councillors passed a 
censure motion against Prime Minister Fukuda. However, they deemed 
it better to attend deliberations and pursue the government and the 
ruling parties at the extraordinary session over the soaring oil 
prices and social security issues. 
 
After the meeting, Kenji Yamaoka, chairman of the DPJ's Diet affairs 
committee, met with Tadamori Oshima, chairman of the ruling Liberal 
Democratic Party, and proposed holding an out-of-session hearing on 
a U.S. nuclear-powered submarine's radiation leakage and food 
poisoning caused by frozen Chinese-made 'gyoza' dumplings. 
 
9) New Komeito's influence growing stronger, controlling such issues 
as Lower House election, revoting on bills in Lower House; LDP 
unable to ignore the party's wishes 
 
TOKYO SHIMBUN (Page 2) (Abridged) 
August 7, 2008 
 
The outlook now is likely that the convening of the extraordinary 
Diet session will slip to September. The reason is that coalition 
partner New Komeito has expressed its strong objection to convening 
the session in late August, as the government and some members of 
the Liberal Democratic Party (LDP) had wanted. Prior to the next 
Lower House election, the influence of the New Komeito, which is 
backed by a powerful religious sect, Soka Gakkai, has gradually 
grown stronger in the ruling camp. 
 
LDP Secretary General Taro Aso and other senior LDP members on 
August 6 met at a local hotel with Komeito Secretary General Kazuo 
Kitagawa and other executives, the first for the new coalition 
 
TOKYO 00002163  007 OF 010 
 
 
leadership. Kitagawa proposed: 
 
"We must make efforts as much as possible to obtain the 
understanding of the public toward the bill to amend the new 
anti-terrorism special measures law (refueling mission law) and work 
on the opposition camp, as well, to obtain their cooperation." 
 
Aso responded by saying, "I totally agree with you." 
 
The reason for the new LDP executive's being filled with willingness 
to give consideration to the New Komeito lies in the fact that the 
LDP alone is unable to pass the amendment to that law.  The 
Democratic Party of Japan (DPJ) is opposed to the law, and will 
definitely vote down the bill in the Upper House. The only way to 
pass the bill is for a two-thirds override vote in the Lower House. 
 
However, to do so requires full attendance by all members of the 
Lower House: 320 members must attend the plenary session and vote 
for the bill. The LDP (excluding Lower House Speaker Yohei Kono) has 
304 seats, and there are five independents who voted for an override 
last January. The number is still shy of the two-thirds needed to 
pass the bill, so the cooperation of the New Komeito with its 30 
seats is absolutely necessary. 
 
The New Komeito has changed its stance and now opposes a revote on 
the bill, fearing this would invite a strong reaction from the 
public, just prior to a possible Lower House election. The party is 
also calling for delaying the convening of the extraordinary Diet 
session, creating a gap with former LDP Secretary General Ibuki and 
others in the LDP who favor convening the Diet session in August. 
 
For the LDP executive, who had anticipated that the next Lower House 
election would be a bitter struggle to accumulate votes, an enmity 
toward the New Komeito and its powerful backer has been added. 
 
10) Mood in LDP suddenly changes on continuing the Indian Ocean 
refueling mission; The party is now lined up with the New Komeito; 
Government worried about the reaction from the international 
community 
 
ASAHI (Page 4) (Excerpts) 
August 7, 2008 
 
Calls for taking a cautious approach to continuing the refueling 
mission in the Indian Ocean are growing stronger. On the issue of 
passing a bill extending refueling activities during the 
extraordinary session of the Diet, the New Komeito has mouthed its 
objections that such would be a disadvantage in the next Lower House 
election. Even in the Liberal Democratic Party (LDP) executive a 
similar chord is being struck. On the other hand, LDP Secretary 
General Taro Aso has announced that consideration be given to 
separate assistance measures, without a simple extension of the law. 
 
 
The government at this point has not changed its basic policy course 
of extending the mission. The reason is the judgment that without 
there being some other assistance measures than supplying fuel, 
continuing the mission is necessary in order to cooperate with the 
international community, starting with the United States. With 
Japan-U.S. relations recently being strained over such issues as the 
U.S. entering into procedures to remove North Korea from the list of 
states sponsoring terrorism, if the refueling operations are ended, 
 
TOKYO 00002163  008 OF 010 
 
 
the mood between the two countries could get ugly. 
 
11) Ota, Watanuki agree that cautious approach should be taken to a 
revote in Lower House on New Antiterrorism Special Measures Law 
 
MAINICHI (Page 5) (Full) 
August 7, 2008 
 
New Komeito head Akihiro Ota and People's New Party President 
Tamisuke Watanuki on the evening of August 6 met at a Japanese 
restaurant in Tokyo. They agreed that a cautious approach should be 
taken to a revote in the Lower House on a bill intended to extend 
the New Antiterrorism Special Measures Law, a focal point in the 
next extraordinary Diet session. 
 
Watanuki during the meeting indicated that it is necessary to 
compile a large supplementary budget as part of an economic stimulus 
package. He also called for a switch from the structural reform 
policy line. The meeting was also joined by Diet Affairs Committee 
Chairmen Yoshio Urushibara and Masaaki Itokawa from the two 
parties. 
 
12) Maehara not to run in DPJ leadership race 
 
YOMIURI (Page 4) (Excerpts) 
August 7, 2008 
 
Democratic Party of Japan Vice President Seiji Maehara, holding a 
press conference yesterday at the Japan National Press Club, 
announced that he would not run in the party presidential election 
in September, which is less than one month away. The election will 
be officially announced on the 8th and the voting will take place on 
the 21st. Maehara's announcement came shortly after Katsuya Okada, 
another vice president, expressed reluctance to become a candidate. 
Whether anyone will run against President Ozawa remains unclear. 
 
Maehara said: "I want to remain engaged as one of the coordinators. 
I firmly believe that a presidential election (involving more than 
one candidate) must be held for the evolution of the manifesto 
(campaign pledges)." 
 
Ozawa rebutted this in a press conference in Osaka yesterday: "We 
have just produced the manifesto (for the Upper House election) 
after conducting discussion one year ago. Even if (the next Lower 
House election) is held in the fall, how are we going to explain if 
our manifesto is different from last year's?" 
 
At present, only Public Relations Committee Chair Yoshihiko Noda and 
former Policy Research Committee Chair Yukio Edano are regarded as 
likely candidates against Ozawa. Noda said: "We will be able to take 
the reins of government once we can present political culture in 
which everyone follows (the new leaders) after heated policy 
debate." But Noda keeps mum about his candidacy. Edano simply said: 
"I want to consult with other fellow DPJ members with my candidacy 
in mind." 
 
13) Strong indications of economy in recession: June index drops 1.6 
points: Cabinet Office downgrades its economic outlook to 
"worsening" 
 
MAINICHI (Top Play) (Excerpts) 
August 8, 2008 
 
TOKYO 00002163  009 OF 010 
 
 
 
The Cabinet Office on August 6 released the composite index (spot 
report) for June. The composite index of coincident economic 
indicators, the key gauge of the current state of the nation's 
economy, stood at fell to 101.7 against the 2005 base of 100, down 
1.6 from the previous month. It downgraded its economic assessment 
to "worsening," which tentatively indicates that "there is strong 
possibility of the economy having entered a recessionary phase." 
This is the first time in two months for the Cabinet Office to 
downgrade its economic outlook. Accordingly, the government will 
likely remove the word "recovery" from its monthly economic report 
for August to be released on the 7th and instead use the downgraded 
term "weak note." The data suggest that Japan's longest postwar 
expansion, which kicked in in February 2002, ground to a halt and 
that there is a strong possibility of the economy already having 
entered a recessionary phase. 
 
Some in the Cabinet Office take the view that judging from the 
composite index, there is a strong possibility that the economy had 
entered a downward phase at the end of the fall last year, as one 
senior official said. 
 
The industrial production index has significantly dropped in the 
wake of a decline in exports following the slowdown of the global 
economy and the steep rise in crude oil and raw material prices. 
Many other indexes, such as an employment-related index, have also 
dropped. The Cabinet Office up until May had used in its economic 
outlook based on the composite index the words "possible turning 
point," which indicate that the economy passed the peak several 
months ago. However, now that the downward trend of the CI has 
become clearer mainly due to a drop in industrial output in June, a 
factor that has shored up the economic recovery, the Cabinet Office 
downgraded its economic outlook. 
 
14) Battle heating up between Hidenao Nakagawa, Aso over economic 
policy 
 
SANKEI (Page 4) (Full) 
August 7, 2008 
 
Liberal Democratic Party Secretary General Taro Aso has proposed 
delaying the government's goal of putting the primary balance of the 
central and local governments in the black by FY 2011. In reaction, 
former Secretary General Hidenao Nakagawa, who has advocated 
prioritizing economic growth, criticized Aso on his website 
yesterday. In part because a number of lawmakers insisting on the 
importance of fiscal discipline have joined the second Fukuda 
cabinet, including State Minister for Economic and Fiscal Policy 
Kaoru Yosano, the battle over economic policy is likely to heat up 
in the LDP. 
 
On his website, Nakagawa posted this message: "I can't believe that 
a person who is opposed to the prime minister's clear and precise 
economic and fiscal policy is in the party leadership." He lashed 
out at Aso, though avoiding calling him by name. The message notes 
that Aso's argument for postponing the goal "is not within the scope 
of policy debate but is a policy switch that would mean the 
immediate dissolution of the Diet." Emphasizing that Prime Minister 
Yasuo Fukuda has clarified his intention to hold fast to the goal, 
the message says: "What the prime minister says is right. I will 
carefully watch how the prime minister and party executives form a 
consensus." 
 
TOKYO 00002163  010 OF 010 
 
 
 
Meanwhile, Aso said in a speech in Fukui City yesterday: "Persons 
who can understand the state of the economy and business activities 
have joined the new cabinet, such as Policy Research Council 
Chairman Kosuke Hori and Yosano." He then rapped former Internal 
Affairs Minister Heizo Takenaka, an advocate of economic growth, 
saying: "His views are quite different from mine." Aso stressed the 
effectiveness of a positive fiscal policy, remarking: "Although a 
primary budget surplus must be achieved sometime in the future, when 
to do so is a separate matter. It is proper to expand the economic 
pie first and then pay back loans." 
 
SCHIEFFER