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RUCNDT/USMISSION USUN NEW YORK 1735

UNCLAS SECTION 01 OF 08 TOKYO 002614 
 
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 09/23/08 
 
Index: 
 
Aso victory: 
1) Taro Aso nets 70 PERCENT  of the LDP votes in a landslide 
victory, becoming party president and premier; Kawamura to be chief 
cabinet secretary  (Mainichi) 
2) Aso's victory cannot mask anxiety in the LDP about his ability to 
maintain a high support rate, keep party together in going into the 
next election  (Nikkei) 
3) Aso will bring in a new cast in his cabinet, while keeping Ishiba 
on with a different portfolio  (Nikkei) 
4) Hosoda, the new LDP secretary general, is an expert on election 
strategy  (Tokyo Shimbun) 
5) Former Prime Minister Mori was sounded out to be secretary 
general in order to bolster the party's weak structure  (Mainichi) 
6) New Komeito now preparing for a Nov. 2 general election  (Tokyo 
Shimbun) 
 
Economic affairs: 
7) Stimulating the economy will be Aso's next challenge as prime 
minister, but still no concrete measures on the table  (Tokyo 
Shimbun) 
8) Battle of the giants: DPJ's Ichiro Ozawa who advocates great 
changes in fiscal policy, and Aso, who gives top priority to growing 
the economy  (Mainichi) 
9) Nomura Holdings to buy out Lehman's Asia division  (Asahi) 
10) Mitsubishi-UFJ to invest up to 20 PERCENT  in Morgan Stanley 
(Asahi) 
 
Articles: 
 
1) Aso elected LDP president, collecting 70 PERCENT  of votes; 
Kawamura most likely to be named chief cabinet secretary 
 
MAINICHI (Top play) (Excerpts) 
September 23, 2008 
 
The ruling Liberal Democratic Party chose Secretary General Taro 
Aso, 68, as its 23rd president in a general meeting yesterday 
afternoon of its lawmakers from both chambers of the Diet and 
representatives of its prefectural chapters. The presidential race 
was contested by a record high of five candidates. Aso won a 
landslide in the first voting, collecting 351 votes or nearly 70 
PERCENT  of the entire votes. Aso was elected the new LDP president 
to replace Prime Minister Yasuo Fukuda, 72. Aso is in the final 
stage of coordinating the appointment of former education minister 
Takeo Kawamura, 65, an Ibuki faction member, as chief cabinet 
secretary, a key cabinet post. He will likely to pick former Defense 
Minister Shigeru Ishiba, 51, another presidential candidate, as 
minister of agriculture, forestry and fisheries. It is regarded as 
more likely that former Policy Research Council Chairman Shoichi 
Nakagawa will be given a cabinet post. 
 
Aso to become prime minister tomorrow and launch his cabinet 
 
Aso will be named tomorrow the 92nd prime minister or 59th lawmaker 
to serve in the prime minister's post. He will then launch his 
cabinet later in the day. His term in office will run through 
September 2009, the remainder of Fukuda's term in office. 
 
Kawamura has built close ties with Aso through education and sports 
policy. Aso aims to put his cabinet on track as quickly as possible, 
 
TOKYO 00002614  002 OF 008 
 
 
by picking Kawamura, who served as cabinet minister, as chief 
cabinet secretary. 
 
A total of 527 votes -- 386 by LDP Diet members and three votes by 
each of the prefectural chapters -- were cast in the presidential 
election. Regarding the number of votes collected by other 
candidates than Aso, Economic and Fiscal Policy Minister Kaoru 
Yosano won 66 votes, followed by former Defense Minister Yuriko 
Koike with 46, former LDP policy chief Nobuteru Ishihara with 37, 
and former Defense Minister Shigeru Ishiba with 25. There were two 
invalid ballots. 
 
2) Woes behind Aso's victory 
 
NIKKEI (Page 2) (Full) 
September 23, 2008 
 
Taro Aso, newly elected president of the ruling Liberal Democratic 
Party, won an overwhelming victory in the LDP's presidential 
election with two-thirds of all votes. His support base in the LDP 
appears to be rock solid, but what is in store for his future is 
still murky. In the LDP, Aso's role is expected to represent his 
party as a 'campaign face' for a potential election. However, the 
new LDP president could lose his momentum to run the party once his 
leadership wanes. "I can say I have fulfilled my role only when we 
have won in the election," Aso declared after he was elected LDP 
president. The LDP has now set sail with a vulnerable engine to plow 
the stormy waters of a general election to be followed by a 
dissolution of the House of Representatives. 
 
The Aso faction, led by Aso, has a total of 20 members, and its 
intraparty base is vulnerable. Aso therefore needed to win an 
overwhelming victory for his prospective government. However, he 
could not pitch a 'perfect game' since the number of votes he 
garnered fell short of his expectations. 
 
In the end, Aso has no weapons but his popularity. The question is 
how the rate of public support will turn out after his cabinet comes 
into office. The Fukuda cabinet's inaugural support rate was nearly 
60 PERCENT . Aso, should his cabinet's support rate proves to be 
disappointing, will lose his momentum from the very start. If he 
thinks of setting sail with a high rate of support, he will need to 
clarify his own imprint and ready himself to dissolve the House of 
Representatives at any time. 
 
Aso may also have to be attentive to those called "ageshioha" 
(rising-tide faction) (a group of LDP lawmakers insisting on 
economy-first policy measures for economic growth instead of raising 
taxes for fiscal reconstruction). One of them, former Defense 
Minister Yuriko Koike, garnered 46 voters from among the LDP's 
lawmakers, and she won many more votes than expected. "I think she 
got many more votes than you had expected," said former LDP 
Secretary General Hidenao Nakagawa, an influential leader of the 
Machimura faction and one of the ageshioha group. 
 
Some in the LDP took it that Koike's candidacy was a touchstone for 
political realignment in the future. LDP lawmakers were split over 
the number of votes she garnered. "She couldn't get enough votes for 
the ageshioha group to get out of the party," one spat out. 
Meanwhile, some others think Koike has now ensured her voice to a 
certain extent. She must be disquieting to Aso. 
 
 
TOKYO 00002614  003 OF 008 
 
 
Under the Fukuda government, Aso has worked together with Kazuo 
Kitagawa, secretary general of the New Komeito, the LDP's coalition 
partner. However, some of Aso's campaign staff for the LDP race are 
insisting that he should tackle one-on-one debates with the heads of 
opposition parties and Diet deliberations on the supplementary 
budget for the current fiscal year. 
 
"How far is he going to hold deliberations on the supplementary 
budget?" one of the New Komeito's leaders wondered. If Aso and his 
government come under fire from the opposition parties in Diet 
deliberations, his cabinet's support rate is likely to go down. The 
New Komeito could also distance itself from the LDP. 
 
3) Ishiba certain to get cabinet post 
 
NIKKEI (Page 2) (Full) 
September 23, 2008 
 
Liberal Democratic Party President Taro Aso continued coordination 
to form his cabinet before its inauguration tomorrow. Aso wants to 
replace the current Fukuda cabinet's lineup on a large scale and is 
screening a wide range of candidates for his cabinet. Former Defense 
Minister Shigeru Ishiba, 51, and Economic and Fiscal Policy Minister 
Kaoru Yosano, 70, who struggled in the LDP presidential election, 
are certain to enter Aso's cabinet. Yosano may be retained in his 
current cabinet post or will likely be appointed to the post of 
finance minister. 
 
Economy, Trade and Industry Minister Toshihiro Nikai, 69, will 
likely be retained. Former Justice Minister Kunio Hatoyama, 60, 
close to Aso, and former Economy, Trade and Industry Minister Akira 
Amari, 59, are also regarded as likely candidates. Health, Labor and 
Welfare Minister Yoichi Masuda, 59, who has advocated repealing the 
healthcare insurance system for the elderly in coordination with 
Aso, and Minister of State for Consumer Affairs Seiko Noda, 48, are 
highly likely to be retained. 
 
4) Hiroyuki Hosoda appointed as LDP secretary general: Election 
expert with established reputation for business ability 
 
TOKYO SHIMBUN (Page 2) (Full) 
September 23, 2008 
 
In 2004, he succeeded then Chief Cabinet Secretary Yasuo Fukuda, who 
had suddenly stepped down over his failure to pay pension premiums. 
He steadily fulfilled the weighty responsibility of the key post of 
the cabinet. He is a former official of the previous Ministry of 
International Trade and Industry. He built a reputation for his 
excellent business ability. 
 
He supported former Secretary Genera Taro Aso as acting secretary 
general of the Liberal Democratic Party (LDP) during the Abe and 
Fukuda cabinets. He has been promoted to secretary general, winning 
the deep confidence of Aso. 
 
He is a scholarly type good at analyzing things. His hobby is 
playing contract bridge. Since he is versed in the election system 
and election situations, he has earned himself the nickname of an 
election expert. 
 
Some say that he is weak in negotiations and bargaining due to his 
mild character. When he was serving as Diet Affairs Committee 
 
TOKYO 00002614  004 OF 008 
 
 
chairman, he came under fire because he changed his Diet strategy 
toward the establishment of conspiracy offenses many times. 
 
Hiroyuki Hosoda: Graduated from Tokyo University. Served as chief 
cabinet secretary, Diet Affairs Committee chairman and acting 
secretary general. 64 years old. Elected from the Shimane 
constituency no. 1. Six-term Lower House member. Machimura faction 
member. 
 
5) New LDP President Aso approaches former Prime Minister Mori about 
serving as secretary general, reflecting weak political base in 
party 
 
MAINICHI (Page 5) (Full) 
September 23, 2008 
 
Taro Aso, the new president of the ruling Liberal Democratic Party 
(LDP), appointed former Deputy Secretary General Hiroyuki Hosoda, a 
member of the Machimura faction, as secretary general and retained 
Kosuke Hori, who belongs no faction, in the Policy Research Council 
chairman's post; Takashi Sasagawa, a Tsushima faction member, in the 
General Council chairman's post; and Makoto Koga, who heads a 
faction, in the Election Strategy Council chairman's post. Aso 
placed importance on factional balance in selecting the four party 
executives, aiming at building unanimity in the party with an eye on 
the looming House of Representatives election. Aso's selection of 
Hosoda as secretary general reflects the weakness of his footing in 
the party. He has no choice but to give consideration to the 
Machimura faction, the largest in the LDP, in managing his 
administration. 
 
On Sept. 18, Aso telephoned former Prime Minister Yoshiro Mori, a 
supreme advisor to the Machimura faction, who just returned home 
from an overseas trip. 
 
Aso: "Thanks to you, I am doing well in the presidential race. Could 
you do me one more favor? I would like you to control the party." 
 
Mori: "What in the world do you mean?" 
 
Aso: "I would like you to serve as secretary general." 
 
Mori firmly declined to accept Aso's offer. Mori seems to have 
refused the offer for the reason that there was no precedent for a 
former prime minister to serve as secretary general. 
 
Mori paved the way for Aso's victory in the presidential race, while 
the Machimura faction was split in two groups -- one supporting Aso 
and the other backing former Defense Minister Yuriko Koike. In 
return, Mori had expressed hope that a Machimura faction member 
would become secretary general. 
 
In consideration of that, Aso took a stance of placing importance on 
the largest faction, by sounding Mori out on the secretary general 
post. He picked, however, Hosoda, who has the image of a person 
working behind the scenes, as secretary general. It can be said that 
Aso took a bullish stance of contesting the next Lower House 
election under his name alone. 
 
6) Komeito ready for election on Nov. 2 
 
TOKYO SHIMBUN (Page 1) (Abridged) 
 
TOKYO 00002614  005 OF 008 
 
 
September 23, 2008 
 
The New Komeito yesterday launched preparations for a snap election, 
expecting the general election to be announced on Oct. 21 and held 
on Nov. 2. The New Komeito made this judgment, given that the ruling 
Liberal Democratic Party's new president, Taro Aso, has indicated 
that he will fast-track the fiscal 2008 supplementary budget in Diet 
deliberations before dissolving the House of Representatives. 
 
The LDP and the New Komeito will hold a meeting of their heads 
today, in which the two parties are expected to enter into final 
coordination over the House of Representatives' dissolution and Diet 
deliberations on the extra budget. 
 
The House of Representatives Budget Committee is expected to enter 
into deliberations on Oct. 6 at the earliest. In this case, the 
general election can hardly be announced on Oct. 14 and held on Oct. 
¶26. 
 
At first, the New Komeito was cautious about deliberating on the 
extra budget. In response to Aso's indication, however, a New 
Komeito executive clarified that the New Komeito's election 
committee is preparing for voting on Nov. 2. 
 
7) LDP yet to come up with concrete measures to counter DPJ's 
economy-oriented policy 
 
TOKYO SHIMBUN (Page 2) (Abridged slightly) 
September 23, 2008 
 
New LDP President Taro Aso declared yesterday that his party would 
fight the next Lower House election centering on economic stimulus 
measures. The declaration was intended to counter the major 
opposition Democratic Party of Japan, which has come up with a 
series of policies pleasing the public. However, without any 
specifics, the effectiveness of the LDP's economic stimulus measures 
remains unclear 
 
Aso had this to say in his inaugural press conference: "Through my 
nationwide tour, I have realized that the economy is slipping into 
recession. Easing economic uncertainty is my mission." 
 
The LDP achieved an overwhelming victory in the 2005 Lower House 
election by making postal privatization the major campaign issue 
under the Koizumi administration. But in the 2007 Upper House 
election, the party was badly defeated by the DPJ, which put top 
priority on national livelihood. The LDP reportedly suffered the 
crushing defeat due to expanded social and income disparities and 
impoverishment in local areas as part of the Koizumi reform 
initiative. 
 
Aiming to repeat the 2007 election, the DPJ is promising for the 
next Lower House election to eliminate expressway tolls, provide 
child allowances, and give income support to farmers on the slogan 
of making Japan into a fair society with no disparity. 
 
From bitter lessons learned from the previous Upper House election, 
Aso in the LDP presidential race played up the need to take economic 
stimulus measures rather than pursuing the reform policy course that 
would force a greater burden on the public. 
 
That helped Aso to defeat by large margins former Defense Minister 
 
TOKYO 00002614  006 OF 008 
 
 
Yuriko Koike, who advocated the structural reform line, and Economic 
and Fiscal Policy Minister Kaoru Yosano, who called for fiscal 
reconstruction. 
 
It is particularly noteworthy that Aso won 134 local votes out of 
¶141. Backed by overwhelming support from within the LDP, Aso is set 
to pursue an economy-centered policy course. 
 
In the LDP presidential race, Aso pledged as a means to shore up the 
economy such steps as the implementation of a fiscal 2008 
supplementary budget, a comprehensive economic package, including a 
flat-sum tax cut, tax cuts on capital investments in R&D, and the 
exemption of the real estate acquisition tax. 
 
To achieve economic recovery, he also ruled out a consumption tax 
hike, at least for the time being. He also presented a plan to 
review such polities as attaining a black-ink primary balance in 
fiscal 2011 and reducing the growth of social security spending by 
220 billion yen in the fiscal 2009 budget. His plan lacks punch, 
however. 
 
Aso, who has criticized the DPJ's policy as lacking concrete revenue 
resources, cannot afford to project himself as a big spender. As 
such, he is cautious about issuing deficit-covering government 
bonds, although he has indicated that he would not hesitate to 
resort to fiscal disbursements. 
 
The LDP will accelerate its efforts to produce its campaign pledges 
for the nest Lower House election. Whether or not the party can come 
up with economic stimulus measures appealing to the public is likely 
to determine the outcome of the election. 
 
8) LDP President Aso to give top priority to economy; Ozawa to turn 
around fiscal structure; Both yet to present clear fiscal resources 
 
MAINICHI (Page 9) (Excerpts) 
September 23, 2008 
 
By Kenji Shimizu, Kiyohiro Akama 
 
Secretary General Taro Aso's victory in yesterday's LDP presidential 
election has generally paved the way for the Aso-led LDP to lock 
horns with DPJ President Ichiro Ozawa in the next Lower House 
election with the reins of government at stake. How should the two 
parties' assertions regarding their economic and fiscal policies be 
viewed? The newspaper examined them while asking for economists' 
views. 
 
In his inaugural press conference, LDP President Aso played up his 
determination to ease economic uncertainty. He diagnosed the 
Japanese economy as having slipped into a recession that will "take 
three years to heal completely." He also made it clear that he would 
focus on economic stimulus measures, such as cutting taxes on 
individuals and corporations, for the next three years even by 
shelving fiscal reconstruction targets, such as bring the primary 
balance to the black in fiscal 2011. 
 
Aso also pledged early implementation of an economic stimulus 
package designed, for instance, to assist small businesses in 
raising funds. BNP Paribas chief economist Ryutaro Kono warned that 
the step that might result in the issuance of additional 
deficit-covering government bonds and pork-barrel spending on the 
 
TOKYO 00002614  007 OF 008 
 
 
excuse of the U.S. financial crisis and Japan's recession. At the 
same time, some analysts welcome such steps as tax breaks on capital 
investment and R&D and preferential tax treatment intended to 
encourage overseas corporate gains to flow back into Japan. 
 
Aso also promised to review the healthcare system for people aged 75 
and older. At the same time, Aso indicated that the idea of a 
consumption tax hike would he shelved for three years. Credit Suisse 
chief economist Hiromichi Shirakawa said: "Can one discuss a stable 
social security system without talking about tax increases? Without 
the alleviation of anxiety for the future, economic stimulus 
measures would go to waste." A market source watching the situation 
said, "If Yosano Kaoru, who advocates the restoration of soundness 
in the nation's finances, joins a new cabinet, he would be able to 
put a brake on (government spending)." 
 
Meanwhile, Ichiro Ozawa, who won his third term as president of the 
major opposition Democratic Party of Japan on Sept. 21, has declared 
an overhaul of the makeup of the national budget, saying: "Giving 
top priority to the public livelihood, we are going to turn around 
the economic and fiscal structures." His party has pledged to 
eliminate expressway tolls and provide each child with an allowance 
of 26,000 yen a month starting in fiscal 2009. The DPJ's pledges 
also include the abolition of the provisional rate of the gasoline 
tax to lower gasoline prices, which is easy to understand for 
general public, according to Hideo Kumano, chief economist at 
Daiichi Life Research Institute. 
 
There is strong criticism that how Ozawa will secure the 22 trillion 
yen for those plans is unclear. But Ozawa dismissed that as 
"poisoned thinking bred under the bureaucracy-led system under the 
long LDP administration." He stressed that 22 trillion yen could be 
spent for policies from the general and special accounts. He also 
presented a plan to implement policies in three stages: in fiscal 
2009, in two years, and in four years. 
 
9) Nomura to purchase Lehman Brothers' Asia business 
 
ASAHI (Page 1) (Full) 
September 23, 2008 
 
Nomura Holdings has reached a basic agreement with Lehman Brothers 
that it would succeed the failed company's Asia business, which is 
in effect a takeover. Nomura reportedly won the bid for hundreds of 
billions of yen. 
 
Lehman Brothers' business in the Asia-Pacific Region, including 
Japan and Australia, will come under Nomura's wing. The concerned 
business area includes the investment section responsible for 
mergers and acquisitions. Nomura said that since the purchased 
business does not include the principal transaction section's assets 
and debts, such as stocks and bonds, it has avoided risks of 
incurring losses in the future. The contract also includes that 
Nomura will also take over its employees, which number more than 
3,000. As such, it will likely be able to secure very important 
human resources for securities business. 
 
Nomura is deemed as the most promising bidder for Leyman's Europe 
business as well. Britain's Financial Times online reported that 
Lehman's negotiation partners have been narrowed down to Nomura. 
 
Lehman Brothers, established in 1850, was one of leading U.S. 
 
TOKYO 00002614  008 OF 008 
 
 
securities firms. It, however, filed for bankruptcy with its bid to 
sell itself falling through. The firm will thus be disbanded with 
its businesses throughout the world split and sold off. 
 
10) MUFG to take up to 30 PERCENT  stake in Morgan Stanley to become 
top shareholder 
 
ASAHI (Top Play) (Abridged slightly) 
September 23, 2008 
 
The Mitsubishi UFJ Financial Group (MUFG), which has Tokyo 
Mitsubishi-UFJ Bank under its wing, on September 22 said that it 
plans to make a massive investment in Morgan Stanley, a leading U.S. 
securities firm. Nomura Holdings, the largest domestic securities 
company has also released a plan to effectively take over the 
Asia-Pacific division of Lehman Brothers. The global financial 
crisis has led to the border-crossing reorganization of the 
securities industry. Japanese banks, which once suffered from bad 
loans, are now bailing out U.S. financial institutions. 
 
MUFG will aim to obtain up to a 20 PERCENT  stake in the ordinary 
shares of Morgan Stanley. Its aim is to become an equity-method 
affiliate of that firm. As the top shareholder, it will strengthen 
its business areas, such as stock trading and consultancy for M&As, 
by using Morgan Stanley's global operation network. 
 
MUFG is said to have been approached by Morgan Stanley and agreed to 
invest in it. It will swiftly determine the assets of Morgan Stanley 
and obtain that firm's shares, using the system of third-party 
allocation in increasing capital. The two companies will confer on 
the investment ratio with a focus on between 10 PERCENT  and 20 
PERCENT . If MUFG has a 15 PERCENT  stake in that company, it would 
become its top shareholder. Securing a 20 PERCENT  stake means it 
will invest more than 900 billion yen on the basis of the company's 
net assets as of the end of August. 
 
MUFG has been strengthening its overseas presence. It has decided to 
make UnionBancal Corporation under its wing a wholly owned company, 
investing about 380 billion yen. MUFG will increase its presence in 
the U.S. market. 
 
Since the subprime mortgage crisis became serious last year, Japan's 
megabanks, whose financial standing is relatively stable, have been 
approached by many European and U.S. banks for financial assistance. 
In response, Mizuho Corporate Bank invested approximately 130 
billion yen in Merrill Lynch, a leading U.S. securities firm. 
Sumitomo Mitsui Banking Corporation also decided in June to invest 
approximately 100 billion yen in Barclays Bank, a leading British 
Bank. 
 
SCHIEFFER