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C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002305 
 
SIPDIS 
 
STATE FOR U/S HORMATS, EEB AND EAP/J 
STATE PLEASE PASS TO NSC FOR DANNY RUSSELL AND JIM LOI 
STATE PLEASE PASS TO USTR FOR WENDY CUTLER AND MICHAEL 
BEEMAN 
USAID FOR AA/EGAT MICHAEL YATES AND ODP KAREN TURNER 
 
E.O. 12958: DECL: 10/02/2019 
TAGS: ECON EFIN PREL INRB ETRD ETTC EAID JA
SUBJECT: DPJ CABINET PROVIDES OPPORTUNITIES TO ENGAGE JAPAN 
ON ECONOMIC ISSUES 
 
REF: A. TOKYO 2238 
     ¶B. TOKYO 2222 
     ¶C. TOKYO 2177 
     ¶D. TOKYO 2137 
     ¶E. TOKYO 2079 
     ¶F. TOKYO 2080 
     ¶G. TOKYO 1757 
     ¶H. TOKYO 1742 
 
Classified By: Ambassador John V. Roos, Reason 1.4 (B) and (D) 
 
¶1. (C) Summary:  Prime Minister Hatoyama is working on an 
eight or nine-month priority timeline until the Upper House 
elections in July 2010.  Washington agencies, in developing 
priority economic issues to engage the new Japanese 
Government, should consider focusing on issues where our two 
countries' interests converge during this period when the DPJ 
will want results.  We are likely to gain the most traction 
on issues where the DPJ government is already moving in a 
favorable direction, e.g., economic recovery, climate 
change/energy, APEC/regional integration, export controls and 
combating the financing of terrorism, and development 
assistance.  In these issue areas, the USG has an opportunity 
to make progress and build trust that enables our two 
governments to work on more difficult issues after the Upper 
House elections.  At the same time, we cannot neglect 
pressing the GOJ to address longstanding bilateral irritants 
such as beef and the pace and direction of postal 
privatization.  DPJ politicians are already querying the 
Embassy about establishing a bilateral economic dialogue (see 
comment, para 9), but have yet to approach the GOJ 
bureaucracy.  Though currently lacking a blueprint for such a 
dialogue, these politicians envision talks covering subjects 
including a U.S.-Japan Free Trade Agreement, China's rise, 
broader regional integration, and IPR protection.  End 
Summary. 
 
New to Governing, But not Inexperienced 
--------------------------------------- 
 
¶2. (C) Democratic Party of Japan (DPJ) President Yukio 
Hatoyama's cabinet, by many measures, is one of the most 
experienced and well regarded in recent memory.  The 
17-member cabinet includes former ministers (Finance Minister 
Fujii), subject matter experts (National Strategy Bureau and 
S&T Minister Kan), as well as business leaders (METI Minister 
Naoshima) and former bureaucrats (Foreign Minister Okada is a 
METI alumnus).  Observers, as a result, view the cabinet as 
experienced and competent, and new ministers are lending 
credence to this image in meetings with senior USG officials. 
 Following its inauguration on September 16, the Hatoyama 
government has set about meeting senior USG officials to 
explain its policies and build personal relationships.  PM 
Hatoyama, FM Okada, Finance Minister Fujii, Environment 
Minister Ozawa and other officials have or will soon travel 
to the United States.  While initial impressions are 
positive, concerns about the DPJ's ability to navigate some 
of the more sensitive economic issues remain. 
 
DPJ Time Line for Success is Short 
---------------------------------- 
 
¶3. (C) The DPJ tells us that the party and its policies will 
focus on winning the July 2010 Upper House elections so that 
the DPJ can jettison its unwieldy coalition with the People's 
New Party (PNP) and the Social Democratic Party.  This means 
that for at least the next ten months, the DPJ will focus on 
improving consumer welfare, economic recovery, income 
redistribution, and elimination of waste. 
 
¶4. (C) This short-term timeline is necessitated by the DPJ's 
Lower House coalition of convenience and the party's need to 
quickly and demonstrably help working families while keeping 
the opposition Liberal Democratic Party (LDP) off guard and 
off balance.  As Upper House member and former Morgan Stanley 
derivatives trader Tsutomu Okubo has noted, the DPJ's 
economic and social policies are July 2010-focused, and the 
coalition the Party has assembled is designed to rapidly pass 
pocketbook assistance and budget legislation through the 
Diet.  Okubo has further told us that following a DPJ Upper 
House election victory in July 2010, the Party could 
reshuffle the cabinet and turn to longer term economic and 
 
TOKYO 00002305  002 OF 004 
 
 
other issues.  All of this, however, is predicated on a 2010 
Upper House victory. 
 
¶5. (C) The DPJ's priorities and timeline suggest the USG 
should take a goals-oriented approach during the new Japanese 
government's first year.  This approach could aim for 
specific successes prior to July 2010 as part of an ongoing 
effort to build trust, facilitate cooperation, and deliver 
results.  To the extent Washington agencies could focus on 
DPJ priority agenda items, e.g., economic recovery, energy 
and the environment, and better quality and lower cost health 
care, there is a real opportunity to make short term progress 
and build momentum.  There is also a prospect to engage the 
DPJ on its stated desire for greater transparency in 
government law and rulemaking. 
 
¶6. (C) This is not to say we should abandon the more 
difficult and protracted issues such as postal privatization 
and beef.  These longstanding concerns should be discussed 
and explained, and solutions sought.  However, the DPJ will 
only reluctantly address issues in politically charged areas 
before consolidating its hold on the Upper House of the Diet. 
 Open disputes related to the U.S.-Japan trade and economic 
relationship could strain the coalition and are unlikely to 
result in progress during this period. 
 
Convergence 
----------- 
 
¶7. (C) Embassy Tokyo sees at least five main areas on the 
economic and trade front where U.S. interests and DPJ policy 
priorities will converge over the next ten months: 
 
(a) Economic Recovery:  Japan's support for stabilizing and 
reviving the global financial and trading systems, as 
evidenced by its engagement in the G7 and G20 fora, the IMF, 
as well as the government's domestic stimulus and overseas 
assistance programs, dovetail in many respects with similar 
U.S. efforts to facilitate economic recovery.  The DPJ's 
focus on domestic demand-led growth is consistent with the 
necessary rebalancing of global growth.  Finance Minister 
Fujii reiterated to Ambassador Roos (ref B) that Japan 
intends to work with the USG and the G20 partners toward this 
goal.  He further added the DPJ is "hard at work" revising 
the FY10 budget to meet the party's objectives outlined in 
its election manifesto to improve consumer welfare and boost 
business confidence.  Fujii, a former Finance Minister and 
career bureaucrat with experience in the ministry's Budget 
Bureau, is well versed in the intricacies of the Japanese 
budget. 
 
(b) Energy/Climate Change:  The DPJ has a deep commitment to 
address climate change, reduce the carbon intensity of the 
economy, develop and diffuse new technologies for renewable 
fuels, build more efficient transportation, and adapt other 
energy saving technologies.  PM Hatoyama highlighted this 
commitment in his September 20 call at the United Nations 
Environment Conference for a 25 percent reduction in Japan's 
GHG emissions over 1990 levels (ref E).  The DPJ's aggressive 
policy and its pledge to increase assistance to developing 
countries for climate change mitigation and adaptation under 
the "Hatoyama Initiative" provide fertile ground for 
increased bilateral cooperation on the environment.  Minister 
of Environment Ozawa told Ambassador Roos (ref A) the U.S. 
and Japan have much common ground for cooperation on clean 
energy and measures to address global warming.  Ozawa also 
stressed the importance of technological innovation to solve 
climate change, as well as the support of the next generation 
of business leaders.  This is clearly an area the USG can 
work with the DPJ to improve business and export 
opportunities. 
 
(c) APEC:  The DPJ wants to host a successful APEC Leaders' 
Meeting in 2010, and is committed to strengthening relations 
with the U.S. and its Asian partners.  The Embassy is 
confident that DPJ leaders seek close cooperation with the 
USG, especially with the APEC chairmanship passing to the 
U.S. in 2011, as key to achieving their regional economic, 
trade and investment objectives.  Washington should consider 
working with the DPJ government to advance our regional trade 
liberalization agenda, but at the same time recognize the 
DPJ's maneuverability may be hindered by domestic 
 
TOKYO 00002305  003 OF 004 
 
 
considerations. 
 
(d) Export Controls and Counter Terrorism Financing:  The DPJ 
appears interested in continuing to work with the USG to 
prevent the flow of illicit funds and materials from reaching 
regimes and individuals determined to undermine regional 
stability, in particular when they involve North Korea and 
Iran.  For example, FM Okada told Iranian FM Mottaki 
September 23 on the margins of the UNGA that Iran should 
cease uranium enrichment.  The United States and Japan have 
cooperated closely on non-proliferation issues, and the U.S. 
campaigned hard for Japanese candidate Yukiya Amano in his 
successful run for Director General of the IAEA.  However, we 
should also encourage the DPJ to assume a leadership role to 
improve global export control and sanctions efforts.  One 
area where steps could be taken is in shoring up Japan's 
inadequate system to combat money laundering and the 
financing of terrorism.  Improving Japan's compliance with 
the Financial Action Task Force (FATF) recommendations (a 
FATF peer review determined that Japan was non-compliant in 
10 areas and only partially-compliant in 15 areas) would send 
a strong signal of enhanced bilateral and multilateral 
cooperation in an important economic and law enforcement area. 
 
(e) Development Assistance and the "Hatoyama Initiative": 
The DPJ pledged during the election campaign to use foreign 
assistance to support "human security" by fighting global 
pandemic diseases, protecting the environment and reducing 
poverty.  Short on specifics, the DPJ pledge appears to 
diverge little if any from the Japan's priorities to date for 
its substantial ODA program.  At the same time, the DPJ has 
indicated it intends to review ODA policy and funding levels, 
along with other government spending, and may also bring in 
some new priorities including a greater role for NGO 
involvement in foreign aid implementation.  Hatoyama already 
has identified development assistance as pivotal to Japan's 
role as a bridge between developed and developing countries. 
In his speech to the UN General Assembly, Hatoyama 
underscored that national security and human security are 
intertwined and said Japan will work in partnership with NGOs 
and international organizations to increase the quality and 
quantity of foreign assistance toward such efforts as Afghan 
reconstruction, African development and realizing the 
Millennium Development Goals (MDGs).  Hatoyama also announced 
his intention to ramp up GOJ assistance to developing 
countries to help mitigate and adapt to the effects of 
climate change.  Calling his plan the "Hatoyama Initiative", 
the Prime Minister seems intent on making climate change 
assistance a signature area of foreign aid.  The USG should 
continue to cooperate with Japan on mutual priorities, 
stressing in particular the importance of Japanese civilian 
assistance in Afghanistan and looking for linkages between 
our programs in Sub-Saharan Africa, the Asia-Pacific, and on 
climate change. 
 
Managing Areas of Divergence 
---------------------------- 
 
¶8. (C) As the DPJ's leadership continues to articulate and 
refine its economic and trade agenda, Embassy Tokyo also sees 
areas where Japanese government policies could diverge from 
those of the USG: 
 
(a) Trade:  The new DPJ-led government is unlikely to further 
liberalize trade before the Upper House elections next 
summer.  Traditional, entrenched interests will resist any 
liberalization efforts, but this should not deter the U.S. 
from continuing to encourage the DPJ government to live up to 
its party platform pledges.  The DPJ is, however, unlikely to 
significantly change Japan's position on the Doha Development 
Agenda, and will likely support NAMA and services 
liberalization efforts while maintaining its reluctance to 
liberalize trade in agriculture.  Cooperation via APEC and a 
steadily improving economy will help generate some positive 
movement, but we expect Japan to pursue objectives that have 
minimal effect on its protected domestic economy.  For 
example, we believe it will work to improve the food security 
of the poorest APEC member economies in a way that minimizes 
change to Japan's own protectionist agriculture policies.  We 
need to continue to press on access for U.S. beef and beef 
products, even though we are pessimistic about progress under 
new Socialist Food Safety Minister Fukushima Mizuho and new 
 
TOKYO 00002305  004 OF 004 
 
 
Minister for Agriculture, Forestry and Fisheries (MAFF) 
Hirotaka Akamatsu.  Over the longer term we are more 
optimistic that Minister Kan (a scientist), FM Okada (a METI 
trade bureaucrat alum), and Ichiro Ozawa, who was behind the 
DPJ's election campaign proposal (later scaled back) to 
pursue a Free Trade Agreement with the U.S., might steer the 
DPJ to a more open trade policy.  Their decisions to weigh in 
on trade, agriculture, investment, and other international 
economic issues could set the tone for successful engagement 
with Japan in these areas following the summer 2010 election. 
 
(b) Redistribution vs. Productivity:  the DPJ's particular 
brand of economic populism suggests its domestic agenda will 
be aimed at promoting redistribution such as more handouts 
for families with children, free education, direct payments 
to farmers, and more small business support, than at 
productivity increases to drive future growth.  In order to 
lay the groundwork for progress in the longer term, we should 
continue to stress in our discussions with the Japanese the 
need to increase productivity, particularly services sector 
productivity, and to undertake key structural reforms, 
particularly labor market liberalization. 
 
Comment:  Discrete Objectives and the DPJ Election Timeline 
--------------------------------------------- -------------- 
 
¶9. (C) Comment:  The next several weeks leading up to the 
President's visit to Tokyo in November and Japan's assumption 
of the APEC chair for 2010 in December present an opportunity 
to partner with the Hatoyama Administration.  Selection of a 
few economic objectives where we stand the best chance of 
making progress prior to the Upper House elections can result 
in accomplishments and generate momentum to resolve some of 
our more intractable issues such as beef and postal 
privatization later.  We are working to identify the levers 
of power in the new DPJ government so that we are able to 
focus our limited resources on the decision-makers.  Key DPJ 
politicians are already querying the Embassy about 
establishing a bilateral economic dialogue, i.e., a 
"Strategic Economic Dialogue" (the DPJ's term).  They 
currently have no blueprint for such a dialogue, but envision 
talks covering subjects including a U.S.-Japan Free Trade 
Agreement, China's rise, broader regional integration (APEC 
and the "East Asian Community" concept), and IPR protection, 
e.g., the  Anti-Counterfeiting Trade Agreement (ACTA).  DPJ 
politicians, notably Kitagami Keiro, Fujisue Kenzo, Odachi 
Motoyuki, Ogushi Hiroshi, and Okubo Tsutomu, have put thought 
into the substance of a U.S.-Japan dialogue, but the DPJ has 
not initiated discussions with Japanese bureaucrats.  The 
first summit meeting between the President and PM Hatoyama in 
Tokyo in November could help focus what the two governments 
aim to accomplish in these "economic partnership areas" by 
summer 2010.  End Comment. 
ROOS