Cablegate: Daily Summary of Japanese Press 12/26/06

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UNCLAS SECTION 01 OF 08 TOKYO 007130

SIPDIS

SIPDIS

DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION;
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE;
SECDEF FOR JCS-J-5/JAPAN,
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR;
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 12/26/06

INDEX:

(1) Separate budget framework to be set for US force realignment
plans, outside reach of "1% of GNP" principle

(2) Japan's review of energy strategy unavoidable to ensure stable
supply, with initiative for Sakhalin-2 project given to Russia

(3) JDA proposal for establishment of central readiness regiment
approved in FY2007 draft budget

(4) Final report by Regulatory Reform Council: Wording steps back
from interim report; Concern about Kantei leadership

(5) Defense Agency's upgrading to ministry (Part 3): Political
dynamics needed for legislation

(6) Prime Minister's schedule, December 25

ARTICLES:

(1) Separate budget framework to be set for US force realignment
plans, outside reach of "1% of GNP" principle

AKAHATA (Page 2) (Slightly abridged)
December 23, 2006

The Finance Ministry has decided to set up a separate framework for
spending on the realignment of the US military presence from the
ordinary defense-related budget for FY2007. The government has
introduced the principle of capping the government's military
spending at 1% of the nation's gross national product (GNP). But no
matter how much spending on US force realignment increases, this
principle will not be applied. This means that the separate
framework can be used as a tool for Japan to increase armaments
unlimitedly.

The Miki cabinet set up the "1% of GNP" policy in November 1976 in
response to growing criticism of ever-expanding military spending.
Successive governments have abided by this policy, with one
exceptional case in FY1989, when defense outlays exceeded the 1%
ceiling by 0.006 percentage points.

This policy is applicable only for conventional defense-related
expenditures consisted of outlays for the Self-Defense Force and for
host-nation support. Special Action Committee on Okinawa
(SACO)-linked expenditures is also outside the reach of the
principle.

In the draft budget for FY2007, the initial year for the overall
plan for the realignment of the US military presence in Japan, 7.2
billion yen has been allocated. But the total amount of money to
finance the plan is estimated to reach as much as 3 trillion yen
over a decade.

The "separate framework" formula is designed to enable the Abe
cabinet to disburse huge funds for the US military, without being
bound by the 1% principle. This means the government will be further
dipping into the budget to support the people's livelihood.

(2) Japan's review of energy strategy unavoidable to ensure stable
supply, with initiative for Sakhalin-2 project given to Russia

TOKYO 00007130 002 OF 008

NIHON KEIZAI (Page 3) (Excerpts)
December 22, 2006

A decision has been made that the Sakhalin-2 project to exploit
natural resources off Sakhalin will be promoted under the initiative
of the Russian government-controlled gas company OAO Gazprom. Mitsui
& Co., and another Japanese company involved in the project set
forth as a precondition for transferring their shares that the
supply contract they concluded should be steadily implemented.
Keeping this condition in mind, the two Japanese companies expect no
impact of the Russian government's new decision on LNG shipments.
Under the current situation, though, since the Russian government's
intentions will be unavoidably reflected in the management of the
project, the Japanese companies will inevitably be pressed to review
their profits projections. The Japanese government will also be
urged to rewrite its strategy to become more independent in
procuring energy resources.

Resource suppliers strengthening state control over energy resource
supplies

Uncertainty is now looming large over Japan's energy security at a
time when China is engaged in an offensive to secure oil
exploitation rights while resource-producing countries, including
Russia, are strengthening their governments' control over oil and
natural gas supplies. Indonesia, the largest gas supplier for Japan,
has also decided to significantly reduce gas supplies to Japan. In
addition, Japan lost most of concession rights for the Azadegan oil
field in Iran this October.

In China and India, demand for energy has been on the sharp rise,
eventually heating up global competition for securing oil and
natural gas. Japan came up with its new energy strategy this May,
which called for raising the ratio of Japan's independent oil
development from the current 15% to 40% by 2030.

However, the road ahead is likely to be bumpy. For the Azadegan oil
field, Japan was once given 75% of all concession rights, but this
figure was dropped to only 10% in connection with Iran's nuclear
development problem. Japan has continued negotiations with Russia on
a plan for Japanese companies to participate in a project designed
to develop oil fields in East Siberia, but no prospects are in sight
for both to find common ground due to an increased risk in
investment in natural resources in Russia.

The growing outlook that energy prices are likely to hover higher
over the long run has prompted resource-supplying countries to
strengthen their state control over energy resources. Even in many
cases involving American oil majors, American companies have yielded
to the governments of resource suppliers. A senior member of the
Ministry of Economy, Trade and Industry official said, "Japan has
stepped up efforts to diversify suppliers, such as Australia, so
there will be no concern about Japan's energy security for the time
being." But since Japan relies on imports for most of its oil and
gas supplies, it might face a more difficult situation.

The government intends to back up Japanese firms' investment in
developing energy resources by disbursing public funds. The
government has decided to raise the maximum amount of its investment
in petroleum exploration by Japan Oil, Gas and Metals National
Corporation by 25 percentage points to 75% starting next fiscal
year. Nonetheless, it is also true that "it is impossible to secure
energy resources only with money," as a senior METI official said,

TOKYO 00007130 003 OF 008

for instance, a case in which resource suppliers use energy as a
bargaining chip. Japan is being urged to hammer out a comprehensive
diplomatic strategy making use of energy resources, such as official
development assistance (ODA) and technical cooperation.

(3) JDA proposal for establishment of central readiness regiment
approved in FY2007 draft budget

AKAHATA (Page 2) (Slightly abridged)
December 23, 2006

The Defense Agency (JDA) proposed in its FY2007 budgetary requests
setting up a central readiness regiment. The government has approved
of the proposal as of yesterday. The proposed regiment is an
operational unit ready to go on overseas missions. The Defense
Ministry Law, which was enacted in the latest extraordinary Diet
session, designates overseas operations as a main duty of the
Self-Defense Force.

Under the JDA plan, about 700 troops will be deployed at the
Utsunomiya Camp in Tochigi Prefecture within FY2007.

The regiment will be placed under the Central Readiness Command
(CRC), which will also be newly established and will be responsible
for planning, training, and commanding regarding the dispatch of
Ground Self-Defense Force troops overseas.

The CRC will be set up in the Asaka Camp (Tokyo, Saitama) for the
time being, but the CRC will be moved to the US Camp Zama (Kanagawa)
by FY2012 in accordance with the agreement reached between Japan and
the United States on the realignment of the US military presence in
Japan. In the Finance Ministry's draft budget for FY2007,
approximately 7 million yen has been earmarked to finance
feasibility study for the relocation plan.

The JDA will be upgraded to ministry status in January. The
government has also accepted its proposals for newly establishing in
the defense ministry a Japan-US defense cooperation division and an
international policy division, as well as a strategic planning
office in charge of laying out a long-term military strategy. The
JDA is aiming to strengthen its policymaking capabilities, including
Japan-US military cooperation and overseas deployment of troops,
when the JDA is transformed into defense ministry.

(4) Final report by Regulatory Reform Council: Wording steps back
from interim report; Concern about Kantei leadership

YOMIURI (Page 4) (Excerpts)
December 26, 2006

The government's Regulatory Reform and Privatization Promotion
Council, chaired by Takao Kusakari, chairman of Nippon Yusen,
yesterday adopted a final report. Step backs from the interim
report, released in July under the Koizumi cabinet, were seen in
some reform items, such as reform of the education board system.
This is due to fierce resistance from concerned government agencies.
Some sources connected with the panel voiced concern about the Prime
Minister's Official Residence's (Kantei) leadership.

Prime Minister Abe characterizes regulatory reform as part of his
economic reform strategy. He is demonstrating his cabinet's stance
of continuing to positively tackle deregulation. As part of such
efforts, he will set up a panel that will succeed the Regulatory

TOKYO 00007130 004 OF 008

Reform Council next January.

Regarding educational reform, the primary concern, coordination of
views with the Ministry of Education, Culture, Sports, Science and
Technology (MEXT) over reform of the education board system, an
issue incorporated in the July interim report, encountered
complications. Alarmed about the possibility of the panel taking
over leadership in educational reform, MEXT opposed the idea of
including the words "drastic reform." For this reason, the panel
came to terms with MEXT on propelling debate on legal revisions,
based on discussions pursued by the Educational Revitalization
Council, instead of including those words in the list of specific
measures.

Consideration about the acceptance of foreign workers who have a
social welfare care-giver license has been removed from items for
specific regulatory reform, subjects of discussion at cabinet
meetings. The issue has instead been included in the list of themes
for which regulatory reform is to be promoted in the future.

Some have pointed out that subtle differences between the interim
report and the final reports reflect differences in approaches to
reform between Kusakari, who took office as chairman in October, and
his predecessor Miyauchi. Some officials of the secretariat of the
panel expressed expectations that the wording of the report compiled
under Kusakari is vague, but he would display ability to get things
done in the process of realizing proposals with one noting: "Mr.
Miyauchi's policy was to send the panel's messages through open
hearings. However, Mr. Kusakari is not a confrontational type. He is
a person who make moves in political terms with nifty footwork."

There is also an aspect of targeted regulations changing in quality
while deregulation has been in progress. The past deregulatory
efforts have been centered on reform of economic regulations
concerning corporate activities, such as the regulation on entry
into the taxi business. However, deregulatory discussions have
gradually begun to cover social regulations, such as the education
issue and the way NHK should operate.

Some government officials noted: "Just debating the education board
issue will not raise growth rates. The panel that will succeed the
Regulatory Reform Council should consider what its mission is."

Regulatory reform: Already 6,000 items realized

In the government's regulatory reform initiative, more than 6,000
regulations have been subjected to reforms since the establishment
of the Regulatory Reform Taskforce under the Administrative Reform
Committee. The Cabinet Office calculated that the government's
deregulatory efforts have yielded effects worth approximately 14.3
trillion yen in fiscal 2002. The impact of the regulatory reform has
spread to the surrounding living environment of the people, as can
be seen in the facts that medicines, such as antiflatulent, which
had been only available at drugstores, as it was categorized as
pharmaceuticals, are now available at convenience stores as they are
now categorized as quasi-drugs and that private companies can now
crack down on illegal parking.

Yoshihiko Miyauchi, chairman of Orix, who took office as chairman of
the taskforce in 1996, has led deregulatory debate as chairman of
the Regulatory Reform and Privatization Promotion Council until
Kusakari replaced him.

TOKYO 00007130 005 OF 008

In a bid to counter the logics of government agencies, which are
negative toward regulatory reform, Miyauchi picked employees of
leading companies as staff members of the council, appointing them
as pert-time national government employees. Of the current 33
staffers of the council, about a half of them are from leading
companies. However, this method has drawn criticism in the Diet that
they make rules and make profits. With such criticism in mind, the
government is now considering the proper form of a panel that will
succeed the council.

(5) Defense Agency's upgrading to ministry (Part 3): Political
dynamics needed for legislation

YOMIURI (Page 4) (Full)
December 19, 2006

The Defense Agency owes a great deal to the power of politics for
its elevation to the status of a ministry.

On July 15, the ruling Liberal Democratic Party's Nikai faction held
a workshop of its members in the town of Oyama, Shizuoka Prefecture.
Deputy Director General for Defense Takemasa Moriya, the No. 2 man
of the Defense Agency, was invited to the workshop as a guest
speaker. Moriya made the case for passing a pending package of bills
then before the Diet in its ordinary session to upgrade the Defense
Agency to ministry status. Toshihiro Nikai, who leads the faction,
gave encouragement to Moriya at once.

Nikai told Moriya: "In the ruling parties, there are also some
people who are negative about upgrading the Defense Agency to a
ministry, but we absolutely must upgrade the Defense Agency to a
ministry." He added, "I want the Defense Agency to have confidence
we will work it out."

The first time Nikai committed himself to upgrading the Defense
Agency to ministry status, he was chairman of the Diet Affairs
Committee of the New Conservative Party (NCP or Hoshuto), which was
one of the LDP's two coalition partners including the New Komeito.

In January 2001, the government reorganized its ministries and
agencies under the Central Government Offices Restructuring Law. At
the time, the Defense Agency was not upgraded to ministry status.
Later on, in June that year, the NCP's Nikai, teaming up with some
LDP and independent lawmakers, brought a bill before the Diet to
establish a defense ministry. The bill died stillborn in 2003.
However, it left a chance of raising the Defense Agency's status to
a ministry in the future.

In September this year, Nikai became chairman of the LDP Diet
Affairs Committee. In the extraordinary session of the Diet, for a
while, it seemed uncertain the Defense Agency would be upgraded in
the aftermath of a tug of war between the ruling and opposition
camps over the now-amended Fundamentals of Education Law. However,
Nikai urged Defense Agency Director General Kyuma to keep pushing
for the elevating of the Defense Agency to ministry status. "We will
never fail to get the legislation through the Diet during the
current session," Nikai told Kyuma.

Meanwhile, in the leading opposition Democratic Party of Japan (DPJ,
Minshuto) as well, former President Seiji Maehara urged Secretary
General Hatoyama to vote to upgrade the Defense Agency. "I'm
absolutely in favor of this legislation," Maehara told Hatoyama.
Conservative lawmakers in the DPJ pressured the party's leadership.

TOKYO 00007130 006 OF 008

This became the clincher for the DPJ to decide to vote for the
upgrading legislation. Consequently, the legislation cleared both
the House of Representatives and the House of Councillors with an
overwhelming majority of votes -- about 90% of all legislators in
both chambers of the Diet.

The Defense Agency will be formally upgraded to a ministry in
January next year. Even so, the agency will need to ask for
political judgments on a number of challenges in store. One example
is to establish a permanent law for Japan's dispatch of Self-Defense
Forces troops instead of making an ad hoc law for each SDF
dispatch.

In its manifesto for the House of Representatives election in 2005,
the LDP upheld its policy proposal to create a permanent law for the
SDF's overseas missions. Prime Minister Abe also exhibited a
positive stance on Dec. 14, saying it would be possible to take
"flexible" action if there is a permanent law.

The Special Measures Law for Assistance with Iraq's Reconstruction
is to expire in July next year, and the Special Measures Law on
Terrorism is also to expire in November. Shigeru Ishiba, former
director general of the Defense Agency, insisted on the necessity of
enacting a permanent law in a Dec. 5 meeting of the LDP's executive
board, raising a question about making a time-limited law and
extending it for each SDF dispatch.

However, Kyuma remains cautious about the idea of creating a
permanent law, saying: "I wonder if it's possible to enact permanent
legislation in the form of including a law to back up US forces
going to war like the Antiterrorism Special Measures Law." The
Defense Agency recognizes the need to expand the scope of
authorization for SDF members to use weapons for the purpose of
ensuring their security on their overseas missions. "But," one in
the agency says, "the constitutional hurdle is high." This is
contrasting to the Foreign Ministry, which is positive about
enacting permanent legislation in an aim to ensure more diplomatic
cards.

There are also some people who presume that full-fledged
coordination within the government and the ruling coalition will be
after next summer's House of Councillors election.

The government's constitutional prohibition against collective
self-defense is also a critical issue to address.

In that respect, the prime minister has specified missile defense as
one of those subject to case studies for Japan's possible
participation in collective self-defense. This gave heed to the
advisability of intercepting US-bound missiles.

However, Kyuma has stated that it would be "technically difficult"
to shoot down missiles headed for the United States. "We need to
clear this problem before going on to collective self-defense,"
Kyuma said. With this, Kyuma took a different stance within the
government on collective security.

"Japan can shoot down a missile that is obviously headed for the
United States. But if Japan says it's not allowed under domestic law
to do so, that's crazy. That's not an alliance." With this, US
Deputy Under Secretary of Defense Lawless voiced his strong
dissatisfaction when he met with Ishiba in Tokyo in early December.
He was concerned because Japan would not give substance to its

TOKYO 00007130 007 OF 008

debate on collective self-defense.

Former Prime Minister Yasuhiro Nakasone (who once served as director
general of the Defense Agency) has suggested the need for Japan to
make a bottom-up review of its defenses next year when the Defense
Agency will be elevated to ministry status. It will be considerably
difficult to overcome legal constraints. It will be necessary not
only for bureaucrats but also for politicians to settle down and
meet the challenge.

(6) Prime Minister's schedule, December 25

NIHON KEIZAI (Page 2) (Full)
December 26, 2006

09:36
Met at Kantei with Finance Ministry Vice Minister Fujii and Vice
Minister of Finance for International Affairs Watanabe.

10:10
Met former Ambassador to Thailand Hisahiko Okazaki. Followed by
members of the expert council on promotion of administrative
streamlining, including Chairman Iida and next Chairman Mogi.

10:41
Responded to an interview for the New Year by the Yamaguchi Shimbun
and Yamaguchi Broadcasting Station. Later, met Vice Foreign Minister
Yachi.

12:48
Attended a council meeting of Nihon Keidanren at the Keidanren Hall
in Otemachi.

13:43
Met at Kantei with LDP Women's Section Head Yamanaka and Youth
Section Head Hagioda.

14:07
Met National Association of Commercial Broadcasters in Japan
Chairman Hirose and others. Followed by Chief Cabinet Secretary
Shiozaki, and deputy chief cabinet secretaries Shimomura, Suzuki,
and Matoba.

15:41
Met Deputy Secretary General Ishihara at party headquarters. Hands
over a recommendation letter to the LDP-endorsed candidate for the
Miyazaki gubernatorial election.

16:15
Met Science and Technology Minister Takaichi, Comprehensive Science
and Technology Conference member Hiroyuki Abe and others at Kantei.
Later met Regulatory Reform and Privatization Promotion Conference
Chairman Kusakari and others.

17:03
Attended a meeting of the Comprehensive Science and Technology
Conference.

18:04
Attended a meeting of cabinet ministers responsible for drawing up
monthly economic reports. Met Economic and Fiscal Policy Minister
Ota, Special Advisor Nemoto, and others. Nemoto stayed behind.

TOKYO 00007130 008 OF 008

19:28
Dined with singer Agnes Chang in her office in Hiroo, together with
his wife Akie.

20:58
Returned to his official residence.

DONOVAN

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