INDEPENDENT NEWS

Cablegate: Japanese Politicians Quibble As Economy Shows

Published: Wed 9 Apr 2008 08:04 AM
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DE RUEHKO #0973 1000804
ZNR UUUUU ZZH
P 090804Z APR 08
FM AMEMBASSY TOKYO
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RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 0842
RUEHKSO/AMCONSUL SAPPORO PRIORITY 7767
RHEHAAA/NSC WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 3308
INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION PRIORITY
RUEHSS/OECD POSTS COLLECTIVE PRIORITY
RUEHMO/AMEMBASSY MOSCOW PRIORITY 2210
UNCLAS TOKYO 000973
SIPDIS
SIPDIS
TREASURY FOR IA POGGI AND DOHNER; NSC FOR TONG; STATE FOR
EAP/J WEBSTER
E.O. 12958: N/A
TAGS: ECON EFIN EINV JA
SUBJECT: JAPANESE POLITICIANS QUIBBLE AS ECONOMY SHOWS
SIGNS OF STRAIN
1. (SBU) Summary. Although signs are Japan's main political
parties may have finally agreed on a new central bank head,
there is little to suggest they are looking at indications of
an economic slowdown. Moreover, rather than undertake or
even focus on needed economic reforms, national politicians
argue endlessly over the fate of the provisional gas taxes
and look likely to begin pointing fingers again over the
scandal of Japan's lost pension records. The political
malaise is not the cause of the slowdown, but it contributes
at the margin to a lack of confidence by Japan's public in
their future and by foreigners over the ability of Japanese
policymakers to deal effectively with the short, medium, or
long-term issues facing the economy. End Summary.
2. (U) Getting less play than the headlines featuring
ongoing conflicts between the ruling coalition and the
opposition over extending provisional gas taxes, the
appointment of a new Governor for the Bank of Japan (BOJ),
and the loss of millions of pension records are reports of a
slowing Japanese economy. Despite good performance in fourth
quarter 2007 with real GDP growth at an annualized rate of
3.5 percent, downside risks to Japan,s economy are becoming
more apparent. Many analysts cite concern about the a rising
yen, the slowing U.S. economy's impact on Japan's exports to
the United States, as well on growth in Japan's other export
markets. Closer to home, sharp increases in materials prices
are damaging the prospects for the corporate sector,
particularly for SMEs; earlier in the calendar year, housing
investment plunged as the revised Building Standards Law
dramatically slowed approvals for new construction, with a
rebound not fully realized; and personal consumption remains
sluggish as real incomes are hit by higher food and gasoline
prices and some softening in the labor market.
3. (U) The BOJ's quarterly "tankan" survey of business
confidence, released April 1, showed across-the-board
deterioration in business sentiment among Japanese companies
of all sizes. In addition to the reading for large
manufacturers' views on whether business conditions were
favorable or unfavorable dropping to the lowest level in four
years, the survey found that new capital spending by all
enterprises in FY08 is likely to decline 5.3 percent from the
previous year, falling 1.6 percent for large firms. Large
manufacturers project pretax profits in FY08 to remain flat
from FY07 levels. However, that figure assumes an exchange
rate of 109 yen to the U.S. dollar. Should the yen remain
stronger than that assumption, profits could fall from year
earlier levels on average.
4. (U) Another BOJ survey of consumer sentiment released on
April 3 also finds deteriorating conditions, with more
consumers saying economic conditions have worsened than say
they have improved. The index is at its lowest level in five
years. Press reports speculate that the depressed consumer
outlook has been affected by recent price hikes, lower stock
prices, a stronger yen, slowing economies overseas and recent
political confusion in Japan.
5. (SBU) Comment. In terms of real effects on the economy,
the political confusion does not have a direct impact in the
short-term. However, the uncertainty created by the failure
to extend the provisional gas taxes, to be followed by
potential reinstatement in a month, and the general
perception that the government and politicians are incapable
of moving forward in a constructive manner have an indirect
impact on sentiment among both businesses and consumers. The
longer the political impasse continues, the more likely that
local and foreign investors will become convinced Japan's
policymakers are not only incapable of dealing effectively
with the immediate issues at hand, such as financing this
year's budget, but lack the vision and foresight to
adequately address the need for medium-term fiscal
consolidation and put in place policies to deal with Japan,s
aging population and changing social security commitments,
let alone other long-needed reforms.
SCHIEFFER
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