Cablegate: Daily Summary of Japanese Press 12/27/07

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FM AMEMBASSY TOKYO
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INFO RUEKJCS/SECDEF WASHDC PRIORITY
RHEHAAA/THE WHITE HOUSE WASHINGTON DC PRIORITY
RUEAWJA/USDOJ WASHDC PRIORITY
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RHHMUNA/HQ USPACOM HONOLULU HI
RHHMHBA/COMPACFLT PEARL HARBOR HI
RHMFIUU/HQ PACAF HICKAM AFB HI//CC/PA//
RHMFIUU/USFJ //J5/JO21//
RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
RUAYJAA/CTF 72
RUEHNH/AMCONSUL NAHA 7567
RUEHFK/AMCONSUL FUKUOKA 5171
RUEHOK/AMCONSUL OSAKA KOBE 8836
RUEHNAG/AMCONSUL NAGOYA 3871
RUEHKSO/AMCONSUL SAPPORO 5801
RUEHBJ/AMEMBASSY BEIJING 0820
RUEHUL/AMEMBASSY SEOUL 6881
RUCNDT/USMISSION USUN NEW YORK 7573

UNCLAS SECTION 01 OF 15 TOKYO 005668

SIPDIS

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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 12/27/07

Index:

(1) Poll on Fukuda cabinet, political parties, pension
record-keeping flaws, MSDF Indian Ocean refueling legislation
(Asahi)

(2) U.S. activating lobbying, making policy proposals; ACCJ playing
pivotal role; Lessons learned from past trade friction (Sankei)

(3) Nikko to become subsidiary of Citigroup - first case of
successful triangular merger (Nikkei)

(4) 23 bills to be enacted under divided Diet; Ruling coalition
modifies bills to make compromises with DPJ (Nikkei)

(5) Iwakuni mayor quits to run again; City's administration
malfunctions; Mayor ambivalent over U.S. military realignment
(Yomiuri)

(6) Three months of Fukuda administration: In anguish over "negative
legacy" (Yomiuri)

(7) New policy clique in the Diet (Asahi)

(8) Defense budget in "harsh winter" with ministry under fire for
series of scandals, high-cost structure (Sankei)

(9) Watanabe: Ozawa, out of sense of crisis, proposed grand
coalition (Yomiuri)

(10) Editorial: Political support imperative to promote regulatory
reform (Nikkei)

ARTICLES:

(1) Poll on Fukuda cabinet, political parties, pension
record-keeping flaws, MSDF Indian Ocean refueling legislation

ASAHI (Page 4) (Full)
December 21, 2007

Questions & Answers
(Figures shown in percentage, rounded off. Bracketed figures denote
proportions to all respondents. Figures in parentheses denote the
results of the last survey conducted Dec. 1-2.)

Q: Do you support the Fukuda cabinet?

Yes 31 (44)
No 48 (36)

Q: Why? (One reason only. Left column for those marking "yes" on
previous question, and right for those saying "no.")

The prime minister is Mr. Fukuda 23(7) 7(3)
It's an LDP-led cabinet 29(9) 24(12)
From the aspect of policies 19(6) 57(28)
No particular reason 25(8) 10(5)

Q: Which political party do you support now?

Liberal Democratic Party (LDP) 27 (31)

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Democratic Party of Japan (DPJ or Minshuto) 25 (23)
New Komeito (NK) 3 (4)
Japanese Communist Party (JCP) 2 (2)
Social Democratic Party (SDP or Shaminto) 1 (2)
People's New Party (PNP or Kokumin Shinto) 0 (0)
New Party Nippon (NPN or Shinto Nippon) 0 (0)
Other political parties 1 (0)
None 33 (31
No answer (N/A) + don't know (D/K) 8 (7)

Q: There are pension records remaining unclear for 50 million
persons, and the government has now found it difficult to identify
about 20 million persons. In this July's election for the House of
Councillors, the government and ruling parties said the government
would check up all the unclear records by March next year. Then
Prime Minister Abe also maintained that the government would check
all persons to the last one and pay pensions without fail. It is now
difficult to identify a large number of persons. Do you think this
breaks a public pledge?

Yes 60
No 30

Q: Do you appreciate the Fukuda cabinet's efforts on the issue of
pension record-keeping flaws?

Yes 36
No 46

Q: Do you expect the Fukuda cabinet to dissolve public distrust in
the nation's pension system?

Yes 17
No 72

Q: The U.S. and other countries have sent naval vessels to the
Indian Ocean for antiterror operations in Afghanistan. The
Antiterrorism Special Measures Law, which was for the Self-Defense
Forces to back up their naval operations in the Indian Ocean,
expired on Nov. 1, and the SDF discontinued its activities there. Do
you think Japan should resume SDF activities there?

Yes 37 (44)
No 48 (44)

Q: The government has presented a bill to create a new law replacing
the Antiterrorism Special Measures Law, and the bill is now being
discussed in the Diet. This legislation limits SDF activities in the
Indian Ocean to fuel and water supply for a period of one year, and
it does not require the government to ask the Diet for its approval
of SDF activities there. Do you support this legislation?

Yes 34 (36)
No 44 (43)

Q: If this legislation is voted down in the House of Councillors,
the ruling coalition is thinking of revoting on it in the House of
Representatives to enact it into law with a concurring majority of
two-thirds or more. Do you think it is appropriate to do so?

Yes 37 (46)
No 43 (37)

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Q: Do you think the House of Representatives should be dissolved as
soon as possible for a general election, or do you otherwise think
there is no need to do so?

Dissolve as soon as possible 39 (34)
No need to do so 48 (55)

Q: If you were to vote now in a general election, which political
party would you like to vote for in your proportional representation
bloc?

LDP 23 (32)
DPJ 38 (32)
NK 3 (4)
JCP 3 (3)
SDP 1 (2)
PNP 0 (1)
NPN 0 (0)
Other political parties 1 (1)
N/A+D/K 31 (25)

Q: Would you like the current LDP-led coalition government to
continue, or would you otherwise like it to be replaced with a
DPJ-led coalition government?

LDP-led coalition government 28 (37)
DPJ-led coalition government 41 (36)

Polling methodology: The survey was conducted Dec. 19-20 over the
telephone on a computer-aided random digit dialing (RDD) basis.
Respondents were chosen from among the nation's voting population on
a three-stage random-sampling basis. Valid answers were obtained
from 939 persons (58 PERCENT ).

(2) U.S. activating lobbying, making policy proposals; ACCJ playing
pivotal role; Lessons learned from past trade friction

SANKEI (Page 11) (Full)
December 27, 2007

It has often been said that Japan-U.S. economic relations have been
in a lull over the past several years. However, U.S. companies are,
in fact, strengthening their approach to the Japanese government.
Behind the move is a lesson learnt from the trade disputes of the
1980s and 1990s, namely, that it is more effective to exercise
influence at the policy-planning stage. The American Chamber of
Commerce and Industry in Japan (ACCJ, located in Minato Ward in
Tokyo) is playing a pivotal role in making such an approach to the
Japanese government. The procedure is that the ACCJ makes policy
proposals on center stage, and specific companies lobby the network
of politicians, bureaucrats and business leaders in both Japan and
the United States. C.E.O.s of each American company operating in
Japan are busy building personnel networks, and lobbying in Japan is
seen as a new frontier.

"Japanese legislators and the ACCJ shared the same keen awareness of
the problem. For example, should we enter into a free trade
agreement (FTA) between the two countries? Or how should we bring
the economies and societies of both countries together?"

James Foster, chairman of the Government Relations Committee of the

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ACCJ visited 74 Japanese lawmakers in late October this year,
accompanied by with 50 senior officers, including ACCJ President
Charles Lake. This was the traditional Diet Doorknock, aimed at
exchanging views on Japan-U.S. relations and making policy
proposals.

Unlike the 1990s, when much energy was spent in dealing with trade
friction involving such trade items as textiles, autos and computer
chips, bilateral economic issues have decreased as Japan has
expanded direct investment in the U.S. The two countries launched a
sub-cabinet-level economic dialogue in 2001 with the aim of
eliminating the causes of trade disputes beforehand. Outwardly,
there seem to be no major trade issues with the exception of the
U.S. call for an expansion of imports beef by Japan. However, a
skirmish is continuing behind the scenes.

The ACCJ makes policy proposals to the governments of Japan and the
U.S. Lobbyists in the private sector see them as business
opportunities. A Japanese trailblazing pioneer, who now works at a
foreign investment bank in Japan, categorically said, "Demands for
lobbyists will increase in Japan in the future." That is because
interest in lobbying is heightening, following the liberalization of
the Japanese market to foreign companies as a result of
deregulation.

Lobbyists' major jobs include: (1) finding government-affiliated
business (such as obtaining the post of lead managing underwriter
and consultant); (2) talks with regulators, such as the Financial
Services Agency; (3) responses to international financial
regulations; and (4) analyzing the political situation.

Yukiko Tokai, former manager of the government relations department
of UPS Japan, the largest package delivery company in the world, and
now manager of the energy affairs department of GE, underscored the
following, based on her own lobbying activities: "Nobody would
approach foreign companies if they keep quiet. However, they can do
something before bills secure Diet approval. Just making proposals
will not do. It is important to hold talks with policy makers."

When postal services were privatized, her request that the Express
Mail Service (EMS) system should be treated equally with products
provided by private international express service operators.
However, another request from the ACCJ for a revision of the tariff
law coincided with moves by the Finance Ministry, and so was
implemented. International mail with a value of over 200,000 yen
became subject to import and export applications as is the case for
the private express companies.

The ACCJ and the U.S. Embassy in Japan play the role of linking
lobbyists. Foster stressed the importance of personnel networks,
noting, "The ACCJ has memberships of various Japanese organizations.
It is not the only entity through which foreign companies make
proposals to the Japanese company." Lobbying by U.S. companies is
multi-tiered and their policy-related approach has become more
effective.

(3) Nikko to become subsidiary of Citigroup - first case of
successful triangular merger

NIKKEI (Top Play) (Excerpts)
Evening, December 19, 2007

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In its extraordinary shareholders meeting today, the Nikko Cordial
Group announced its plan to become a wholly owned subsidiary of U.S.
bank Citigroup Inc. through an equity swap. The company used for the
first time the triangular-merger formula, the ban on which was
lifted in May, and obtained approval in the meeting. About 30,000
shareholders will have their stock swapped for Citigroup shares at
the end of January. Citigroup, which has posted large losses related
to subprime mortgage loans, is ready to strengthen its marketing
strategy in Japan, with Nikko Cordial playing the leading role.

In a speech at the outset of the meeting, Nikko Cordial President
Shoji Kuwashima said: "We aim to make our company a comprehensive
financial services provider through the tie-up with Citigroup when
customer needs are diversifying." Asked about the effectiveness of
the tie-up, Douglas Peterson, chief executive officer of Citigroup
Japan Holdings Ltd., replied: "We will come up with specific
measures next year or later. Japan is one of the most important
countries in our global strategy."

(4) 23 bills to be enacted under divided Diet; Ruling coalition
modifies bills to make compromises with DPJ

NIKKEI (Page 3) (Full)
December 27, 2007

Even though the current extraordinary Diet session has been
conducted under a divided Diet, in which the opposition camp
controls the House of Councillors, all the government-sponsored
bills are expected to be enacted. Although the ruling and opposition
camps are at odds over a bill to resume the Maritime Self-Defense
Force's refueling mission, the ruling coalition has made some
concessions to the Democratic Party of Japan (DPJ or Minshuto),
which is the largest force in the Upper House, in order to get the
bills through the Diet.

As of Dec. 26, 13 government-sponsored bills and 10 bills sponsored
by lawmakers have cleared the Diet. All the new bills submitted by
the government to the ongoing session, excluding the bill to resume
the MSDF refueling mission, have been enacted. The ruling and
opposition camps passed most of them by making compromises.

On the issue of amending the law to support the livelihoods of
disaster victims, the ruling coalition submitted its own bill to the
Lower House, while the DPJ presented its own bill to the Upper
House. The two sides set up a consultative panel to modify the two
bills. The ruling camp and the DPJ then enacted the unified bill.
Placing importance on an early enactment, the ruling camp accepted
all requests by the DPJ on a government-sponsored bill to revise the
Broadcast Law. The DPJ had opposed the bill, arguing that imposing
administrative punishment on broadcasting companies meant
intervention in freedom of expression. The ruling coalition accepted
the DPJ's assertion in order to enact the bill.

The government and ruling camp will likely ram the bill resuming the
MSDF refueling operation through the Diet at the end of the session.
With an eye on a possible rejection of the bill by the Upper House,
the government extended again the current Diet session until Jan. 15
in order to have time to act again on it in the Lower House. There
is a rule that if the Upper House fails to take a final action
within 60 days after it received a bill from the Lower House, the
lower chamber may take this to constitute a rejection of the bill by
the upper chamber. The ruling coalition intends to readopt the MSDF

TOKYO 00005668 006 OF 015

bill with a two-thirds lower chamber majority override vote. It is
now therefore certain that the bill will be enacted during the
current Diet session.

However, it is not that easy to use such a rule since the opposition
camp is expected to toughen its adversarial stance toward the ruling
bloc by submitting a censure motion against Prime Minister Yasuo
Fukuda.

The opposition camp approved a bill revising the law to secure the
safety of consumer products, acknowledging the need for a revision
of the law.

Meanwhile, the DPJ has yet to take advantage of its being the
largest force in the Upper House. Although it submitted to the Upper
House 13 bills, including one to compensate farmers for their
incomes and a child allowance bill, five bills cleared the upper
chamber but only one bill to revise the law to support the
livelihoods of disaster victims was enacted. Deliberations on most
bills have yet to begin.

The focus is now on a bill to help all hepatitis C patients. The DPJ
has taken a stance of cooperating with the ruling camp, which is now
drafting a bill, but coordination will only now start.

(5) Iwakuni mayor quits to run again; City's administration
malfunctions; Mayor ambivalent over U.S. military realignment

YOMIURI (Page 18) (Abridged)
December 27, 2007

Iwakuni Mayor Katsusuke Ihara is now expected to resign tomorrow
over the realignment of U.S. forces in Japan. Ihara has been raising
an objection to the government's proposal of redeploying
carrier-borne fighter jets from the U.S. Navy's Atsugi Naval Air
Station in Kanagawa Prefecture to the U.S. Marine Corps' Iwakuni Air
Station in the city of Iwakuni, Yamaguchi Prefecture.

"I can no longer leave the citizens troubled by continuing a useless
dispute (with Iwakuni City's municipal assembly)." With this, Ihara
expressed his resignation in a plenary meeting yesterday of his
city's municipal assembly.

The city of Iwakuni is now wavering over the government-proposed
redeployment of Atsugi-based carrier-borne fighter jets to the
Iwakuni base. In the city, confrontation is intensifying between
Ihara and pro-redeployment municipal assembly members. Furthermore,
the government, upset at Ihara's anti-redeployment stance, has
stopped subsidizing the city's project of constructing a new office
building. This pressure caused the city's administration to
malfunction, with its budget failing to get the assembly's approval.
As it stands, the city's budget for next fiscal year cannot get
through the assembly. Ihara, driven into a tight corner, appealed to
the city's voting population.

In October 2005, the Japanese and U.S. governments released an
interim report on the realignment of U.S. forces in Japan,
incorporating an agreement to redeploy carrier-borne fighter jets
from Atsugi to Iwakuni. In March 2006, Ihara conducted a poll of
residents in the city of Iwakuni before its consolidation with
neighboring municipalities. In the local referendum,
anti-redeployment votes accounted for 87 PERCENT of all votes cast

TOKYO 00005668 007 OF 015

by the city's voting population. In April that year, Iwakuni held
its first mayoral election after its consolidation. In the mayoral
race as well, Ihara won an overwhelming victory. Ihara stepped up
his anti-redeployment stance. In October last year, the city held an
election for its municipal assembly. After that, there was an
increase in the proportion of pro-redeployment assembly members. At
present, those in favor of redeployment account for a majority.

Meanwhile, Iwakuni, based on a 1996 agreement of the Special Action
Committee on Facilities and Areas in Okinawa (SACO), consented to
accept the transfer to Iwakuni of air tankers from the U.S. Marine
Corps' Futenma Air Station in the city of Ginowan, Okinawa
Prefecture. The city's new office building is under construction
with state subsidies given in return for its acceptance of air
tankers. Subsidies from the state coffers for Iwakuni up to last
fiscal year totaled 1.4 billion yen. In December last year, however,
the government called off its remaining subsidization of 3.4 billion
yen for the current fiscal year due to the city's opposition to the
redeployment of carrier-borne aircraft.

Iwakuni City's municipal government therefore planned to issue
fund-raising special bonds in order to make up for the cost of
constructing its new office building. However, the city's municipal
assembly voted down this initial general account budget plan. "The
city can get no subsidies. The responsibility rests with the mayor
who remains opposed to the redeployment of carrier-borne aircraft."
With this, the assembly laid the onus on the mayor. The city's
municipal government proposed a total of four similar budget plans
up to November. However, the assembly rejected them all. It is
unusual that the government's security policy affects the
administration of a local city.

In October, Ihara met with Parliamentary Defense Secretary Minoru
Terada at the Defense Ministry to resolve such a situation. "If the
government provides subsidies, I will once haul down the
anti-redeployment flag." With this, Ihara gave way to Terada. In
November, Ihara showed a flexible posture to the Defense Ministry's
Chugoku-Shikoku bureau. He then took up the issue of reviewing the
Japan-U.S. Status of Forces Agreement (SOFA) to fully ensure Japan's
investigative authority on U.S. military personnel's crimes. "If we
can get a convincing solution," he told the bureau, "then I will
accept the redeployment of carrier-borne aircraft." However, there
was no positive answer from the government.

Iwakuni will likely announce a mayoral election in late January and
elect its new mayor in late February. Ihara will run again. The
municipal assembly's pro-redeployment members are also ready to
field a candidate against Ihara. The race is expected to get hard
going. Moreover, the city's voting population will also be called to
show a judgment on the U.S. military's realignment in Japan.

The process of realigning U.S. forces in Japan is indispensable for
Japan and the United States to maintain their mutual confidence as
allies. The government is required to carry it out in a steady way
while fulfilling its accountability. Meanwhile, it is only natural
that local residents are worried about the possible deterioration of
noise pollution with carrier-borne aircraft being redeployed to the
Iwakuni base. Needless to say, the government ought to do its utmost
efforts to dissolve local concerns.

(6) Three months of Fukuda administration: In anguish over "negative
legacy"

TOKYO 00005668 008 OF 015

YOMIURI (Page 4) (Full)
December 27, 2007

Decision

Prime Minister Yasuo Fukuda met at his office in the Prime
Minister's Official Residence (Kantei) with former Chief Cabinet
Secretary Kaoru Yosano on Dec. 21 around 2:00 p.m. They discussed

SIPDIS
how to settle the class-action suit filed by hepatitis C patients.

"You will get into trouble if you take no action now. It's better to
settle the case as quickly as possible. One idea for that end would
be to establish a law initiated by Diet members" Yosano told Fukuda,
taking out a piece of paper and putting it on the table. What was
written on the paper was the key points of legislation intended to
rescue those patients by offering uniform compensation, as called
for by the plaintiffs. The legislation was outlined by Yosano, based
on the results of his discussions with officials from the Ministry
of Justice (MOJ).

Reading the memo presented by Yosano, Fukuda said: "I see.
Preparations having gone this far, the legislation is likely to take
shape quickly." He then decided to enact a bill initiated by
lawmakers and telephoned Liberal Democratic Party's (LDP) Policy
Research Council Chairman Sadakazu Tanigaki to tell him to work on
drafting a bill.

Some in the LDP had previously called for uniform compensation, but
Fukuda did not side with them when he announced a settlement offer
on Dec. 20.

If the government uniformly provides compensation even to those for
whom the court said the government is not responsible, this action
will be seen as a typical case of populism.

Fukuda, who dislikes dramatizing events, did not want to see his
government in favor of populism, but when his settlement offer was
rejected by the plaintiffs, he turned around in only one day,
sensing that he was being buffeted by a heavier headwind than he had
expected.

Litmus test

In the LDP presidential election in September, Fukuda received
overwhelming support, but he now anguishes over the "negative
legacy" left by Prime Minister Abe, namely, a divided Diet where the
ruling bloc holds the lower-house majority, and the opposition bloc
holds the upper-house majority. In order to resolve this situation,
Fukuda met with the major opposition Democratic Party of Japan's
(DPJ) President Ozawa in early November and sounded out the
possibility of forming a grand coalition.

Various news companies' polls show the approval ratings for the
Fukuda cabinet declining, owing to the lack of remarkable results in
domestic affairs and the recent revelation of the difficulties in
resolving the debacle over pension premium payment records.

On Dec. 12, Fukuda said it had become difficult to identify all of
50 million pension records and he noted: "Even though those records
are not identified, I don't think this necessarily can be seen as a
breach of our policy pledge." But because of this comment, Fukuda

TOKYO 00005668 009 OF 015

came under heavy fire from the opposition parties, with DPJ
President Ozawa arguing, "That attitude shows disrespect of the
nation."

Fukuda, realizing that matters could not be worse, made an
about-face in order to deal with the suit brought by the hepatitis C
sufferers and decided to create a law initiated by lawmakers in
order to provide uniform compensation to them.

Fukuda is trying to open a "new path" in the current divided Diet by
using the constitutional provision that a bill passed by the Lower
House, and upon which the Upper House makes a decision different
from that of the Lower House, becomes a law when passed a second
time by the Lower House by a majority of two-thirds of the members
present. The new antiterrorism special measures bill aimed at
resuming the Maritime Self-Defense Force's refueling mission in the
Indian Ocean will be the litmus test for this.

If the bill is approved, the DPJ may submit a censure motion against
the prime minister, which could trigger a dissolution of the Lower
House.

Sealed remark

"Progress?" President Bush retorted, showing his disapproval during
the Japan-U.S. summit held in the White House on Nov. 16, when
Fukuda touched on the North Korean issue by saying, "I welcome
progress in U.S.-North Korea relations. I think it is important for
the countries concerned to move forward simultaneously."

When Fukuda was about to express his concern over America's move to
delist North Korea as a state sponsor of terrorism, Bush made the
above remark.

Speaking of the move by Assistant Secretary of State Christopher
Hill to have North Korea abandon its nuclear programs, Bush noted,
"I am dissatisfied with the process," and eloquently expressed his
distrust of North Korea.

Fukuda eventually "put a seal" on voicing his concern about
America's move to delist the North because he was able to confirm
Bush's attitude toward the North.

Back home, however, many expressed concern that the abduction issue
would be left behind. When it is difficult to yield results in
domestic affairs, diplomacy is an important tool to boost his
administration. Fukuda's failure to raise an objection to the
question of delisting North Korea could give a bad impression of his
first overseas trip.

Considering this possibility, the Foreign Ministry gave this
explanation to reporters: "During the summit meeting, the leaders of
the two countries confirmed the importance of bilateral cooperation
in dealing with issues including the question of delisting North
Korea as a state sponsor of terrorism." But the ministry refrained
from revealing the details of the exchanged views between the two
leaders, noting that this was a promise made to the U.S.

Three months have passed since Fukuda became prime minister. His
first task next year will be passing the antiterrorism special
measures bill, as he promised during the summit meeting with Bush.
The question is whether Fukuda will move to dissolve the Lower House

TOKYO 00005668 010 OF 015

for a snap general election, taking into account such political
calendars as the upcoming ordinary session of the Diet and the Group
of Eight summit conference at Lake Toya in Hokkaido.

Fukuda's anguish is likely to continue for some time.

(7) New policy clique in the Diet

ASAHI (Page 4) (Slightly abridged)
December 22, 2007

The pattern of relations between politicians and business leaders is
now undergoing a change as the annual battle over tax code revisions
reaches a year-end climax and a maneuvering to revise the system of
the medical-fee reimbursement to hospitals intensifies. Business
circles seeking changes now target not only the ruling parties but
also the Democratic Party of Japan (DPJ or Minshuto), which controls
the Upper House. Under such a situation, there have appeared "new
breed of special interest legislators (zokugiin)" ready to listen to
the petitions. Mid-ranking lawmakers of the LDP are seen as now
asserting their importance, elbowing away those veteran members of
established Diet policy cliques who may stand in their way. A
tug-of-war involving business circles is under way behind the scenes
in the Diet, where the opposition camp holds a majority in the Upper
House.

DPJ becomes new point of contact for lobbyists

The DPJ on Dec. 21 held a plenary meeting of the Tax System Research
Commission at party headquarters. Chairman Hirohisa Fujii explained
the party's draft tax code revision guidelines centering on the
reallocation of special-purpose road construction revenues for other
purposes. Members of the road policy clique lashed out at Fujii.
Decision-making was postponed. Senior Vice Minister for Land,
Infrastructure and Transport Yasuhiro Oe of the DPJ's Next Cabinet
(shadow cabinet), who spearheads the drive of those opposing the
panel's proposal, told reporters after the meeting, "We have
submitted our opinions that we have assembled over the past two
months. We cannot possibly accept the panel's proposal." Fujii, a
former Finance Ministry official who once served as finance
minister, used to be a member of the finance policy clique before
the Finance Ministry was reorganized. He called in Land,
Infrastructure and Transport Minister Hiroyuki Nagahama of the Next
Cabinet to his office and urged him to accept the panel's draft,
arguing, "The reallocation of road funds is in the DPJ's
constitution." However, Nagahama rejected Fujii's plea, saying, "If
we do it in compliance with our party's constitution, there will be
a harmful effect."

In contrast to the LDP, the DPJ has no road policy specialists.
However, when Oe and Nagahama were elected in the July Upper House
election and assumed posts responsible for convening meetings of the
party's land, infrastructure and transport division, local
petitioners have begun visiting them. A number of heads of local
governments far away from their home constituencies have begun
asking them to secure road funds for their communities.

The four road-related public corporations were privatized during the
Koizumi administration. The Abe administration at the end of last
year decided at a cabinet meeting to reallocate surplus portions of
road funds for other purposes. Those who were characterized as
"forces of resistance" in those processes have now launched a

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petition offensive targeting the DPJ, which now controls the Upper
House. Nearly 40 Lower and Upper House members signed their names on
a request paper calling for the securing of road funds. A certain
senior official at the Land and Infrastructure Ministry who has long
experience in negotiations with the LDP, pointed out, "What is
happening in the DPJ is almost the same as what the LDP previously
experienced when the road policy clique confronted the former
finance policy clique."

LDP lawmakers belonging to policy cliques respond to requests from
industrial circles and serve points of contact for the petitioners.
The industries return the favor by delivering votes. The deep ties
that had existed between the LDP and industrial associations were
truncated during the Koizumi administration. Proportional
representation candidates for the July Upper House election, who ran
on the LDP ticket recommended by the All Japan Doctors' Federation
(Nichiiren), the Japan Nursing Federation and the All Japan Land
Improvement Political Federation, all lost their elections.

The LDP has started reconstructing ties with industrial associations
since Fukuda took office as prime minister. The DPJ is trying to cut
into LDP supporters. This is where the new Diet policy cliques came
into existence.

LDP: Eto aims at becoming mainstreamer

Former Health, Labor and Welfare minister (MHLW) Hidehisa Otsuji
half sarcastically introduced Upper House member Seiichi Eto of the
LDP at his fund-raising party held at a Tokyo hotel on Dec. 18:
"When everybody was satisfied, thinking, 'this is perhaps all we
could do,' Mr. Eto alone was bracing himself up, saying, 'This is
not enough.'"

Otsuji was referring to the revision of the system of the
reimbursement of medical fees to hospitals under the medical
insurance system for fiscal 2008. The mainstay portion of the
reimbursement, which had been slashed during the Koizumi
administration, was raised 0.38 PERCENT for the first time in eight
years. Otsuji, who fine-tuned opinions along with former MHLW
Minister Yuya Niwa, distanced himself from Eto, who was loudly
calling for a substantial increase.

Though Eto, who served as Lower House Health, Labor and Welfare
Committee chairman and senior vice MHLW minister, had been viewed in
the LDP as a member of the health, labor and welfare policy clique,
he was a non-mainstreamer in the eyes of Otsuji. However, Eto began
aiming at becoming a mainstreamer after serving as chairman of the
Health, Labor and Welfare Division following the Upper House
election.

Many in the DPJ are critical of the way the party's new road policy
clique is behaving. Former President Katsuya Okada during a meeting
of the staff members' council on Dec. 18 drove the point home to
participants: "Local governments that are petitioning our party are
already in the grip of the Ministry of Land, Infrastructure and
Transport. We should listen to opinions of automobile drivers and
people in general."

(8) Defense budget in "harsh winter" with ministry under fire for
series of scandals, high-cost structure

SANKEI (Page 2) (Slightly abridged)

TOKYO 00005668 012 OF 015

December 23, 2007

In the aftermath of the arrest of former Vice Defense Minister
Takemasa Moriya for receiving bribes from a defense contractor, many
of the items requested by the Defense Ministry were deleted in the
process of compiling the FY2008 budget. In reinstatement
negotiations between Finance Minister Fukushiro Nukaga and Defense
Minister Shigeru Ishiba yesterday, the value of restored items was
only approximately 300 million yen, including the establishment of a
Self-Defense Force intelligence-integrity unit (tentative name). The
defense budget for next fiscal year will record the lowest level
since FY1995.

Defense Minister Ishiba said in a ministry meeting held after the
negotiations with Nukaga: "This year was a relentless year for the
Defense Ministry."

Moriya was found to have received bribes from defense contractor
Yamada Corp. in return for influence peddling. This scandal worked
to the serious disadvantage of the Defense Ministry in the
budget-compilation process.

The ministry had made a budgetary request to improve the radar
performance of 32 F-15 fighters, but the expense for only 20
fighters was approved. The ministry also hoped to purchase AH-64D
Apache attack helicopters, but the budget bill included no outlays
for even one unit.

The Defense Ministry concluded contracts with Yamada Corp., based on
estimates padded by the defense contractor, to purchase an engine
for CX next-generation transport aircraft and a vehicle to
reconnoiter areas contaminated by biologically destructive gases.
But outlays for them were not included in the budget bill.

In procuring equipment, the ministry needs to enter into licensing
agreements with foreign manufacturers and starts domestic
production. Given this, the prices of such products tend to be more
than 20 PERCENT to 30 PERCENT higher than imports. There are cases
in which the cost doubles. This circumstance also made it difficult
for the Defense Ministry to make an effective counterargument to the
Finance Ministry.

By setting up a project team, the Defense Ministry has been
reviewing the current system under which trading firms that have
concluded contracts with foreign makers as their agents are able to
exclusively receive orders by the ministry for equipment. The
ministry set the goal of reducing the total of equipment-related
costs by 15 PERCENT over the next five years. As measures to
prevent trading houses from falsifying estimates, the ministry will
increase the number of experts on imports stationed in the United
States from the current three to 10. But the ministry remains
cautious about introducing a direct contract system, because "it
will be necessary to increase personnel by the thousands," according
to a senior Defense Ministry official.

On the budget bill for FY2008, a ranking ministry official said:
"The price of one AH-64D Apache helicopter is 8.3 billion yen, but
the licensed production cost of 13.3 billion yen is added to the
price. This is viewed as a typical high-cost product." But the
official added: "We must use this experience as an opportunity to
introduce a proper pricing system."

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(9) Watanabe: Ozawa, out of sense of crisis, proposed grand
coalition

YOMIURI (Page 4) (Full)
December 22, 2007

On an NTV program "Nakasone-so" to be aired on Dec. 22, Tsuneo
Watanabe, chairman and editor in chief of The Yomiuri Shimbun
Holdings, talked about the circumstances leading to the moves to
establish a grand coalition between the ruling Liberal Democratic
Party (LDP) and the major opposition Democratic Party of Japan
(DPJ).

The following are main points from his remarks.

Terry Ito (emcee): Did you telephone Mr. (Prime Minister) Fukuda to
propose a grand coalition?

Tsuneo Watanabe: No. It was Mr. Ozawa (president of the DPJ) who

SIPDIS
broached the idea (of establishing a grand coalition).

Terry: Did Mr. Ozawa telephone you?

Watanabe: Yes, he did. He (telephoned) me and we met. (Mr. Ozawa)
insisted that "Mr. Fukuda broached the subject with Watanabe acting
as a go-between, and that he did not initiate the subject, but that
was not true. The news media including the Asahi Shimbun are loudly
criticizing me for being mum about (the circumstances as to the idea
of creating a grand coalition), but if I lose the trust of my news
sources, they will never again give me information. As political
maneuvering is still going on, it's impossible to reveal everything
now. To comply with reporting ethics, I can't talk about what should
not be talked about. I have my ethical and moral values.

Mr. Ozawa asserted that the idea was proposed by Mr. Fukuda and that
the party-head talks were mediated by Watanabe, but that was not
true. Rather, Mr. Ozawa felt his party faced a crisis. He believes
that the DPJ will have difficulty winning a majority in the next
Lower House election and will remain the minority party in the Lower
House even though it will the majority party in the Upper House. He
also believes that the government can't function properly with a
divided Diet, so he tried to take action to tackle the issue.

Mr. Ozawa, however, is a secretive person and didn't tell his party
leaders about the idea. He thought he could convince them, but the
leaders rose in revolt against him, resulting in causing a fuss over
his offer to resign. Mr. Fukuda repeatedly asked Mr. Ozawa whether
the DPJ would support the idea of establishing a grand coalition.
Mr. Ozawa reassured Mr. Fukuda that there would be no problem. I
wondered whether everything would be really OK, but the plan went up
in smoke about one or two hours later. Mr. Ozawa would found himself
wearing the emperor's new clothes. He thought that his party leaders
would automatically support him if he made the proposal. This was
the biggest reason that the grand coalition failed.

Terry: What were the conditions for the grand coalition?

Watanabe: A policy consultative body should be established to pass
the antiterrorism special measures bill and address the question of
whether to hike the consumption tax, and social welfare and pension
problems. There was no question that both Mr. Ozawa and Mr. Fukuda
met with the intention of doing something good for the people. I'll

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write all (about the background) to the events sometime in the
future.

Terry: What would Mr. Ozawa's position have been in the grand
coalition?

Watanabe: He would have been vice prime minister without portfolio.
It was decided that the LDP would have 10 cabinet posts, the DPJ six
and the New Komeito one. It was agreed that the six cabinet posts
included the one heading the Ministry of Land, Infrastructure and
Transport, the one heading the Ministry of Health, Labor and
Welfare, and the one heading the Ministry of Agriculture, Forestry
and Fisheries.

Terry: Will the Lower House be dissolved soon?

Watanabe: If the Lower House is dissolved, it is likely that the DPJ
will retain control of the Upper House, making the division of the
Diet look like it is here to stay. That will paralyze Diet business.
If that happens, the two parties will have to seriously consider a
grand coalition. I think they will do so.

DPJ President Ozawa: That was not true

Speaking of remarks about the circumstances leading to the moves to
establish a grand coalition made by Tsuneo Watanabe, chairman and
editor in chief of The Yomiuri Shimbun Holdings, in which he said,
"It was Mr. Ozawa who brought the idea of a grand coalition," DPJ
President Ozawa said: "It's troublesome if I was asked about remarks
made by someone who did not join the party-head talks. I don't have
to make any comment on them. At any rate, that was not true."

Ozawa was replying to reporters at party headquarters.

(10) Editorial: Political support imperative to promote regulatory
reform

NIKKEI (Page 2) (Full)
December 27, 2007

The government's Council for Regulatory Reform, chaired by Nippon
Yusen K.K. Chairman Takao Kusakari, submitted its second report for
this fiscal year to Prime Minister Yasuo Fukuda. The report lists
specific measures to enhance economic growth by boosting convenience
for consumers and correcting costs mainly in areas where high
barriers have been erected by vested interests, such as the medical
service and agriculture areas.

Regulatory reform has tended to be put on the backburner in the
Fukuda administration's economic policy. The panel planned to submit
the report earlier than this week, but it had to put it off because
of opposition from the Liberal Democratic Party's policy cliques in
the Diet acting in tandem with industrial groups that will be
negatively affected by the proposed reform plans. This action proves
that the administration's domestic base has weakened. There are few
scenes in which State Minister for Regulatory Reform Fumio Kishida
demonstrated leadership to support the views of economists and
academics who are panel members.

The prime minister has reiterated the increased need for policy
measures that will promote economic growth against the backdrop of
economic globalization and population decrease. To that end, it is

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imperative to carry out regulatory reform. The government should be
aware that this difficult challenge will not move forward without
political support.

The report places importance on the reform of social regulations in
line with the former Abe administration's stance.

The Pharmaceutical Affairs Law requires hospitals to obtain approval
from the Ministry of Health, Labor and Welfare (MHLW) for providing
for both health insurance and private treatment. The report calls on
the ministry to abolish this requirement, which has hindered the
wide use of the so-called double-billing system. The ministry
remains cautious about completely deregulating the double-billing
system, but it intends to remove the approval requirement. The
government should accelerate the speed of discussion in the
direction of completely deregulating the system in the future.

To cope with the shortage of doctors, the report calls for measures
to lighten the excessive burden now being levied on doctors, for
instance, by allowing nurses to be responsible for dose adjustment
based on doctors' prior instructions and care givers to use
aspirators in nursing facilities for the patients. MHLW has decided
to ease related regulations by next fiscal year.

As measures to improve the fixed-rate system for remuneration for
medical treatment, the panel proposes also introducing a flat-rate
system for hospitalization, in addition to the daily-fixed-rate
system. Such regulatory reform measures in the medical area must be
powerfully carried out in order to increase the benefits of patients
and the people.

To assist in child rearing, the panel calls for a new system to
authorize even those without having a care-taker's credential as
"child-care givers" engaged in daycare service on the condition that
they will receive basic training. The Tokyo Metropolitan Government
has already adopted such a system on a trial basis. The report urges
the central government to introduce this system.

In the education area, the panel suggests that the government take
steps for a system that allows parents to send their children to
public schools outside their school zones to be widely used. In the
agricultural area, it proposes digitalizing farmland data kept
separately by agricultural cooperatives and agricultural committees
and publicizing it, with the aim of increasing market opportunities.
The Education Ministry and the Ministry of Agriculture, Forestry and
Fisheries should implement these measures promptly.

The Democratic Party of Japan also a number of opponents to
regulatory reform, but it is now imperative for both the ruling and
opposition parties to work together to promote reform plans;
otherwise, the people will give both camps the thumbs-down.

DONOVAN

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