Cablegate: The Japan Economic Scope--November 16, 2007

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INFO RUEHFR/AMEMBASSY PARIS 5845
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UNCLAS SECTION 01 OF 06 TOKYO 005300

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PARIS PLEASE PASS TO USOECD
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E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--November 16, 2007

1. (U) This cable contains the Japan Economic Scope from November
16, 2007.

2. (SBU) Table of Contents

Beef
3. Spinning Wheels on Beef (SBU)
4. Ag Reform Going Backwards? (SBU)
5. Montana State Officials Discuss Beef in Kumamoto -Their Sister
State (SBU)

MOD Scandal
6. MOD Announces $370,000 NVG Fraud (SBU)

Health and Social Issues
7. Court Rules No Ground for Ban on Kongo Shinryo (Mixed Treatment)
(U)
8. Niigata Proposes Special Zone for Foreign Doctors to Practice
Medicine. (U)
9. Japan: 91 of 128 in Gender Equality (SBU)

Infrastructure
10. Government to Grant Licenses for Next-generation Wireless
Internet (SBU)
11. Report Proposes Anonymous Complaints (MIC seeking public
comments) (U)
12. Chubu Electric Only Electric Utility to Increase Profitability
(U)

Pan-Asia Issues
13. Koizumi Advocates Reform in Singapore Speech (SBU)

Trade
14. FTC Commissioner Meets with GOJ (U)
15. Keidanren, Others, Issue Another Statement in Support of Doha
(SBU)

Money Matters
16. BOJ Holds the Line at 0.5% (U)
17. Sinking FIEL-ing: Investment Trust Funds Flow Weaken (U)
18. Fukuda Nixes Consumption Tax Hike (U)

Auto
19. Very Green! Tokyo's 40th Annual Motor Show Highlights New
Atmosphere Friendly Cars (U)

Sporting News
20. World Series Champions to Open 2008 Season in Japan (U)

21. This Week's Cables (SBU)

----
BEEF
----

3. (SBU) Spinning Wheels on Beef
--------------------------------

There has been considerable attention at high levels of government
on both sides to the beef problem, but so far little progress to
show for it. On the eve of the summit between PM Fukuda and
President Bush, the GOJ continues to object to accepting the
international standards set by the World Animal Health Organization
(OIE) on beef trade.
For more details, please read Tokyo 5206 and Tokyo 5434.

4. (SBU) Ag Reform Going Backwards?
-----------------------------------

As the Scope has reported previously, the Liberal Democratic Party
may be going backwards on the modest agricultural reforms it
advanced during the previous Koizumi and Abe governments.

After suffering major setbacks in Upper House Diet elections last
summer, particularly in rural areas, efforts at consolidation of the
farming sector look set to be rolled back, at least in part.
According to press reports, the LDP wants to expand the scope of the
government's subsidy program to include smaller farms and cover a
broader range of products.

The LDP is considering introducing a bill in the Diet early next
year worth an additional 100 billion yen. A source at Japan

TOKYO 00005300 002 OF 006

Agriculture (JA), Japan's major agricultural cooperative and
lobbying arm for small farmers, told us this week that previous
efforts at consolidation had proven "hugely unpopular."

The organization was pleased to see the LDP doing its part to catch
up with the opposition Democratic Party of Japan (DPJ) in slowing
down recent reform efforts.
Previous reforms had been implemented with the intention of boosting
farm size in Japan and also making the government's support
mechanisms for farmers slightly more WTO-friendly.

The JA source also indicated that the government will probably try
to strengthen government control over rice production adjustments,
which would represent a step backwards from previous efforts to be
slightly more market-oriented.

Senior LDP officials have been visiting farm areas - including
districts where the DPJ defeated LDP incumbents in the last election
- to drum up support.

5. (SBU) Montana State Officials Discuss Beef in Kumamoto -Their
Sister State
--------------------------------------------- --------

A trade delegation led by Montana Lt. Governor John Bohlinger
visited Kumamoto during a week-long tour of Japan to promote U.S.
beef and gain a better understanding of the issues surrounding U.S.
beef exports to Japan.

Consulate Fukuoka briefed the delegation on the state of the Kyushu
economy. During discussions regarding current efforts of the USG to
eliminate all age restrictions on U.S. beef, the delegation noted
that the GOJ's proposed limit of 30 months would open the market to
nearly 99 of all U.S. beef products.

Delegation members expressed serious concerns about Canadian beef,
which they worry might be imported into Japan under the label of
American beef. According to U.S. Meat Export Federation (USMEF)
figures, Canadian beef imports are less than 10 percent of U.S.
imports and are currently only sold wholesale to restaurants in
central Japan.

During their visit to Kumamoto, Lt. Gov. Bohlinger, Sen. Greg Barkus
and Miss Rodeo Montana also hosted a booth at the annual Country
Gold International country music festival in Kumamoto in conjunction
with the USMEF's American beef promotion booth, which sold 200
kilograms of prime rib, raising $7,000 for Charity.

-----------
MOD SCANDAL
-----------

6. (SBU) MOD Announces $370,000 NVG Fraud
-----------------------------------------

Ministry of Defense (MOD) officials informed the DHS-ICE Attach
November 13 that MOD intended to make a public statement concerning
a 2006 fraudulent order of night vision goggles (NVGs), valued at
approximately $370,000.
The U.S. Immigration and Customs Enforcement (ICE) Attach has been
investigating allegations that Fresco International, a trading
company located in Elmsford, New York and Science Technology Trading
(STT), a Tokyo firm, conspired to illegally export and sell to MOD
136 sets of NVGs purportedly manufactured by Northrop Grumman.
DHS-ICE Attach has examined documentation for the transaction and
determined MOD received a knock-off generic NVG instead of the
Northrop Grumman item called for in the MOD sales contract with
STT.

DHS-ICE is examining whether FRESCO INTERNATIONAL falsified
documents submitted to Department of State to obtain the export
license.

On November 5, 2007, the President of STT informed MOD the NVGs were
not manufactured by Northrop Grumman and STT would return all money
received plus a 10% penalty.

------------------------
HEALTH AND SOCIAL ISSUES
------------------------

7. (U) Court Rules No Ground for Ban on Kongo Shinryo (Mixed

TOKYO 00005300 003 OF 006

Treatment)
--------------------------------------------- --------

On November 7, the Tokyo District Court ruled illegal the
Government's regulation requiring patients bear the entire cost of
medical treatment should a portion of that treatment not be covered
by Japan's national health insurance (see Tokyo 5080).

On November 9, Health, Labor and Welfare (MHLW) Minister Masuzoe
announced at a press conference that the Ministry will appeal the
ruling, and will not change its stance on the regulation for the
time being. Masuzoe noted the Ministry is cautious about revising
the current system due to concerns doctors may over-prescribe
medicines not yet proven to be safe. He added, however, that MHLW
will consider the ruling seriously and will start discussions within
the Ministry's advisory panel.

Also on November 9, the Japan Medical Association (JMA), a
politically powerful lobbying group, announced the court had ruled
only on the lack of legal grounds for the regulations, which does
not necessarily mean that mixed treatment will be allowed in the
future.

The JMA plans to urge the GOJ to establish the legal framework
necessary to continue the ban.

8. (U) Niigata Proposes Special Zone for Foreign Doctors to Practice
Medicine
--------------------------------------------- --------

On November 8, Niigata prefecture submitted a proposal to the
central government to create a "special zone" in which foreign
doctors without a Japanese medical license but who had studied or
trained in Japan could practice medicine.
Established under former Prime Minister Koizumi, special zones allow
Japan to implement reform on a trial basis in a limited area with an
eye to expanding the measure nationwide if successful.

The current proposal is an attempt to address the critical shortage
of physicians in rural areas throughout Japan. A Niigata prefecture
government official told us that, while the central government has
rejected similar proposals before, Niigata is hopeful the gravity of
the doctor shortage will result in an approval this time.

"Time is running out," he said. The Cabinet and related ministries
will discuss the request between December and January, with a final
decision in February, the official said.

9. (SBU) Japan: 91 of 128 in Gender Equality
--------------------------------------------

Japan ranked 91 of 128 countries in a gender equality study released
by the World Economic Forum. It slipped eleven places from the 2006
rankings.

Rated on economic participation, educational opportunities, health,
and political empowerment, Japan fared worse in the study than the
Philippines, China, Cuba, and Vietnam. It fared best in the health
category and worst in economic opportunities and political
empowerment. The United States ranked 31 on the list.

--------------
INFRASTRUCTURE
--------------

10. (SBU) Government to Grant Licenses for Next-generation Wireless
Internet
--------------------------------------------- ---------

According to a Nikkei report, the Ministry of Internal Affairs and
Communication (MIC) is expected to issue licenses for
next-generation, high-speed wireless Internet services to consortia
led respectively by KDDI and Willcom in mid-December.

The groups led by KDDI and Willcom are expected to beat out rival
groups involving DoCoMo and Softbank in competition for the two
licenses. The subtext is that MIC, wanting to promote competition
and open the market further, required that bids come from new market
entrants. Three of the four bids, however, came from groups formed
by the dominant cell phone carriers NTT DoCoMo, KDDI and Softbank,
although they were prohibited from holding more than a one third
stake in the venture.

TOKYO 00005300 004 OF 006

KDDI was reportedly successful because of its strong business plan
and because it began developing the technology in 2003, well before
the others. Willcom aims to develop a next-generation PHS (personal
handy phone system) service offering high-speed data transmission
based on proprietary technology.

The new wireless broadband services are expected to offer
communication speeds 10 times faster than those available via
current third-generation mobile phone services.

11. (U) Report Proposes Anonymous Complaints (MIC seeking public
comments)
--------------------------------------------- ---------

MIC is soliciting until December 11th public comments regarding
'Implementation Guidelines for Submission of Opinion System in the
field of Telecommunications'. This is in response to another draft
committee report under the 'New Competition Promotion Program 2010.'
Click here.
This discussion advances a recommendation under the 'New Competition
Promotion Program 2010' to strengthen the dispute settlement
mechanism by establishing guidelines to allow for anonymity in the
submission of opinions. One potential use will be for telecom
carriers to file complaints about the business practices of
competitors, which MIC can then investigate.

12. (U) Chubu Electric Only Electric Utility to Increase
Profitability
--------------------------------------------- ---------

Bolstered by continuing strength in the manufacturing sector and the
exceptionally hot summer, Nagoya-based Chubu Electric Power Company
(CEPCO) was the only one of the ten major electricity suppliers in
Japan to increase its profitability in the first half of JFY07
ending September 30.

With a year-on-year 7.3 percent increase in sales to 1.18 trillion
yen ($10.7 billion), CEPCO's pretax profit soared 33 percent to 146
billion yen ($1.3 billion) for the half year. Surging oil prices
weighed heavily on utilities nationwide, but in addition to strong
demand, CEPCO benefited from an increase in the nuclear share of its
overall power generation.

---------------
PAN-ASIA ISSUES
---------------

13. (SBU) Koizumi Advocates Reform in Singapore Speech
--------------------------------------------- ---------

In a keynote address to Morgan Stanley's Asia-Pacific Summit in
Singapore on November 13, former PM Koizumi rejected claims that
"excessive" reform had led to the Liberal Democratic Party's (LDP)
defeat in July's Upper House election. "Nonsense," he said. "If
Japan is suffering, it is suffering from too little reform, not too
much."

Koizumi added that if the parties do not offer reform, party
reorganization is "clearly possible" and that Japan's next general
election will define Japan's economic and political vision "for the
next decade."

Notably, Koizumi has not given speeches of this kind inside Japan
since ending his term as prime minister. Japanese media covered the
basics of the speech, but it has not attracted widespread attention.
Koizumi delivered his prepared remarks in English and responded to
questions through an interpreter.

-----
TRADE
-----

14. (U) FTC Commissioner Meets with GOJ
---------------------------------------

Japanese officials who met with Federal Trade Commission (FTC)
Commissioner Pamela Jones Harbour November 8 showed interest in
stronger cooperation with the United States on antitrust issues as
well as in initiatives related to e-commerce and consumer
protection.

TOKYO 00005300 005 OF 006

The Japan Fair Trade Commission Chairman hoped for stronger ties
with the United States and the EU in dealing with international
cartels. Relevant officials of the Cabinet Office and the Ministry
of Economy, Trade, and Industry (METI) were supportive of an APEC
initiative on e-commerce privacy, but could not yet confirm GOJ
participation. METI is also looking to establish a working-level
dialogue with the FTC on Internet regulation.

Tokyo 5232 summarizes the Commissioner's meetings.

15. (SBU) Keidanren, Others, Issue Another Statement in Support of
Doha
--------------------------------------------- ---------

A delegation from the Japan Business Federation (Keidanren) visited
Geneva to push for a successful conclusion to the Doha Development
Round November 5-7.

Keidanren joined with other like-minded associations - including the
National Association of Manufacturers (NAM) and the Chinese National
Federation of Industries - to issue a statement in support of the
round (see statement below).

A successful conclusion to the negotiations would "deliver a huge
boost to global economic growth and development," the organizations
asserted.

While in Geneva, representatives from the organizations met with WTO
Director General Pascal Lamy and key people in the different
negotiating committees.

Keidanren's visit came less than a week after Japan's main
agricultural protectionist lobbying group, Japan Agriculture (JA),
sent its chairman, Isami Miyata, to Geneva to deliver a cautious
message against too sweeping a deal.

-------------
MONEY MATTERS
-------------

16. (U) BOJ Holds the Line at 0.5 percent
-----------------------------------------

The Bank of Japan's Board of Governors voted 8-1 to hold the key
overnight call rate target at 0.50 percent on November 13. Since
raising the rate from 0.25 percent in February, the BOJ has held the
line in 11 successive meetings, a decision to be revisited at the
next policy board meeting on December 19-20; markets are pricing a
rate hike no sooner than next year, however.

16a. (U) Third Quarter GDP Numbers Grow
--------------------------------------

Japan's real Gross Domestic Product (GDP) grew at a 2.6 percent
annualized rate in the third quarter of 2007, stronger than the 1.9
percent consensus forecast, and rebounding substantially from the
1.6 percent decline in the preceding quarter.

17. (U) Sinking FIEL-ing: Investment Trust Funds Flow Weaken
--------------------------------------------- --------

Largely reflecting the late September introduction of new
regulations under the Financial Instruments and Exchange Law (FIEL)
and recent financial market volatility due to sub-prime mortgage
loan problems, the flow of funds into investment trust products
slowed notably in October.
On November 13, the Japan Investment Trusts Association (JITA)
announced that the outstanding balance of publicly and privately
placed investment trusts totaled yen 123.0 trillion ($1.1 trillion)
at the end of October, representing an increase of yen 2.2 trillion
($20 billion) from the previous month. However, this is sizably
smaller than a yen 4.0 trillion ($36 billion) month-to-month
increase in September.

18. (U) Fukuda Nixes Consumption Tax Hike
-----------------------------------------

Prime Minister Fukuda indicated to reporters on November 15 that tax
reform proposals for fiscal year 2008 would not include a
consumption tax increase, dispelling speculation that the

TOKYO 00005300 006 OF 006

consumption tax rate might be subject to an increase in the upcoming
tax cycle.

----
AUTO
----

19. (U) Very Green! Tokyo's 40th Annual Motor Show Highlights New
Atmosphere Friendly Cars
--------------------------------------------- -----

Presented with wall murals of open green fields and windmills, the
40th Tokyo Motor Show 2007 closed its seventeen-day event on
November 11. At the opening ceremony, Transport Minister Fuyushiba
stressed Japan's eco-friendly stance by remarking that it will
aggressively promote the world's strictest automobile emissions
standards. He also noted that there is an ever-increasing public
interest in environmental issues in Japan as it will host the G8
Summit in July 2008.

A total of 1,425,800 visitors witnessed the latest eco-car and other
sophisticated technology developments in the auto industry. Toyota
sported a new hybrid car whose fuel efficiency will be only half of
that of Prius by adopting carbon fiber for the body material and a
small (500cc) engine. Honda featured a fuel cell car that protects
passengers during minor traffic accident with a shock-absorbing
silicon surface. BMW sported a hydrogen car that recorded the
maximum speed of 302.4km/h and has attained the same fuel cost as
normal gasoline cars in Germany.
The Japan Automobile Manufacturers Association Inc. (JAMA) sponsored
the event and hosted 246 exhibitors.

-------------
SPORTING NEWS
-------------

20. (U) World Series Champions to Open 2008 Season in Japan
--------------------------------------------- ---------

After months of negotiations and mounting speculation, Major League
Baseball finally announced November 14 that the Boston Red Sox will
open its 2008 season in Japan.
Red Sox Nation has already expanded to this corner of East Asia, but
the announcement has created a buzz for the Japanese fans of the
world's best baseball team.
There is one small complication: according to press reports, Daisuke
Matsuzaka's wife is expecting a baby around the same time and
reportedly she wants to have it in the United States.

Whether the Red Sox ace Japanese right hander will be in Tokyo for
the face off between the Red Sox and the Oakland A's, remains to be
seen.

----------------------------
21. (SBU) THIS WEEK'S CABLES
----------------------------

5237 S/CRS team urges strategic thinking during Japan's G-8
presidency
5236 Decision time for opposition as OEF bill reaches Upper House
5235 Ministry of Finance objects to SMA offer
5234 Beef trade: with summit looming, GOJ still bulks at moving to
international standards
5232 FTC Commissioner Harbour meetings with GOJ
5231 Japanese official see benefit in new North American chemicals
regime over the EU's reach
5224 Japan will oppose amendments to resolution condemning rape
5221 STAS meeting on U.S. - Japan framework initiative for a safe
and secure society
5219 Komeito lawmaker analyzes Ozawa's strategy, Diet mechanics
5206 Ambassador discusses beef with VFM Yachi
5203 Japan will attend ADPD breakfast, still unsure about
participation
5197 Japan, New Zealand sign strategic oil reserve pact
5196 Japan: from growing the pie to handing out pork?
5194 Response to: terrorist finance
5193 Japan opposes restricting PDG membership
5192 Burma: slain videographer's Burmese interpreter now in Japan
5177 EAP DAS Arvizu's meetings with MOFA, MOD officials on alliance
issues

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