DAILY SUMMARY OF JAPANESE PRESS 05/31/06

UNCLAS SECTION 01 OF 09 TOKYO 002980

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 05/31/06

INDEX:

(1) Economic Minister at US Embassy sees Japan-US FTA as
premature, cites agricultural protection policies as impediment

(2) Iran appeals to Japan to start work on Azadegan oil-field
project, citing that removal of land mines is 96% complete

(3) Japan's FDI exceeds 5 trillion yen in FY2005, with more
earnings set aside for reinvestment

(4) China calls on METI to remove 14 firms from list of firms
that may use products, technologies for developing nuclear
weapons

(5) Nago City does not intend to participate in consultative body
on Futenma relocation unless prefecture agrees; Refusal could
delay implementation of Cabinet decision on USFJ realignment

(6) Kakushin (heart of matter) column - point and counterpoint:
The cabinet approves US force realignment plan, but what will
happen to Okinawa's burden?

(7) What underlies relations between Abe and Fukuda as rivals for
LDP presidency (Part 5 - conclusion): Relying on Fukuda is Anti-
Koizumi force's weakness

(8) Energy Agency's "plan for building nuclear power-oriented
nation" proposes augmenting funds for reprocessing nuclear fuel

ARTICLES:

(1) Economic Minister at US Embassy sees Japan-US FTA as
premature, cites agricultural protection policies as impediment

NIKKAN KOGYO SHIMBUN (Page 2) (Full)
May 31, 2006

James Zumwalt, economic minister at the US Embassy in Japan, gave
a speech in Tokyo on May 30, prior to his leaving post in July.
In it, he expressed the view that "it would seem too early" to
think about the possibility of a free-trade agreement (FTA)
between Japan and the United States. Regarding the East Asia
economic zone initiative, he gave this advice: "If an
organization is to be created that is in line with World Trade
Organization (WTO) rules and is open and does not exclude other
countries, the US would not oppose it."

The economic minister is slated to assume the position of Japan
Desk director at the State Department in August. In his speech,
he predicted that if concessions are made to reach agreement on a
US-South Korea FTA, now being negotiated, "It may possibly
stimulate Japan (to move toward an FTA, too)." But he pointed to
the negative stance of the Japanese government, which is shackled
by agricultural protection policies. He said the US was not
insisting on an FTA, for "there are many areas in which the US
and Japan cooperate (outside of an FTA). It would be better to
move forward from what we can do now." He appealed for a
strengthening of the relationship in a layered fashion.

In addition, he cited as examples of US companies that had
successfully invested in Japan such companies as Pfizer, P&G, and
AIG. He mentioned that among those companies, AIG in particular

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had created approximately 2,000 new jobs at its facility in
Nagasaki. He proudly pointed out, "American firms have
contributed to the regional economies in Japan, as well,"

He added: "The reason that companies are concentrated in Tokyo is
because the power to make decisions is centered there. As
decentralization of authority to the regions progresses, we can
expect to see the effects (there) of foreign direct investment
(FDI) and policies to invite in companies." He expressed his high
hopes for regional decentralization reform, if only to reach the
Koizumi Cabinet's target of doubling FDI.

(2) Iran appeals to Japan to start work on Azadegan oil-field
project, citing that removal of land mines is 96% complete

NIHON KEIZAI (Page 3) (Full)
Evening, May 31, 2006

By Kazushige Sagaya in Teheran

At a meeting of oil companies held in Teheran on May 30 to
discuss the plan to develop the Azadegan oil field in southern
Iran, Mehdi Bazargan, managing director of the Petroleum
Engineering and Development Co., an affiliate of National Iranian
Oil Co. that is in charge of negotiating with foreign companies,
appealed to INPEX, Japan's major oil-development enterprise, to
start development "by September 22, the time limit under the
contract." The report was carried by the Iran's government-run
news service.
Bazargan stated that several foreign companies had sounded him
out with their own development plans, so if INPEX should pull
out, he expected that "we could sign a contract with one of these
companies." INPEX has insisted that the reason for the delay is
because Iran had not removed the land mines in the oil field, as
promised. But Managing Director Bazargan refuted that claim,
stating, "Removal of land mines is 96% complete, there is no
problem with work in the field."

On the other hand, a spokesperson for Iran's Foreign Ministry at
a press conference on May 30 pointed out, "There is plenty of
time until the September deadline; this is not the time to make
speculations."

(3) Japan's FDI exceeds 5 trillion yen in FY2005, with more
earnings set aside for reinvestment

NIHON KEIZAI (Page 1) (Full)
May 31, 2006

Direct investment abroad by Japanese companies in fiscal 2005
increased 32% over a year ago to 5.8 trillion yen, exceeding 5
trillion yen for the first time in 15 years. The amount of
earnings put aside by Japanese affiliates abroad for reinvestment
doubled to 1.6 trillion yen, greatly expanding foreign direct
investment (FDI) from Japan. This result underscores that
Japanese companies' globalization has entered a new phase where
affiliates abroad use their profits for reinvestment, without
relying on the parent companies in Japan.

Japan's FDI began to surge briskly in the late 1980s and reached
a record 7.35 trillion yen in fiscal 1989 because of the
appreciation of the yen and responses to increased trade disputes
with the US and European countries. With the bursting of the

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asset-price bubble around 1990, however, Japan's annual outflows
declined sharply to 1.6 trillion yen in fiscal 1993.

The surge in FDI is attributed to sharply increasing earnings
reserved by Japanese affiliates abroad for reinvestment. The
amount of such reserves climbed to 1.6 trillion yen - about 30%
of Japan's total FDI, reaching its highest level ever,
outstripping the 1.7 trillion yen record set in fiscal 2001. The
increased portion of retained earnings is included in the amount
of FDI.

Meanwhile, FDI outflows from Japan for such purposes as takeover
bids or establishing new firms increased 17% over a year ago to
2.99 trillion yen.

The expansion of retained earnings overseas reflects the success
of Japanese affiliates overseas. In Japan, given that the
declining population might shrink domestic earnings, Japanese
corporations will inevitably be pressed to earn more in foreign
markets than now. It is likely that the localization of Japanese-
owned companies overseas will accelerate even more.

(4) China calls on METI to remove 14 firms from list of firms
that may use products, technologies for developing nuclear
weapons

SANKEI (Page 1) (Full)
May 30, 2006

China has demanded that the Japanese government remove 14 Chinese
firms from its End User List, a list of foreign firms placed
under export restrictions on the basis of the prospect that they
might use imported products or technologies to develop nuclear
weapons, according to informed sources yesterday. The Ministry of
Economy, Trade and Industry (METI) has compiled the list based on
information exchanged with the US and European countries, so it
is impossible for Japan to independently redefine such companies
as "free from any concerns." In part also because China's demand
will affect the basis of Japan's national security policy, METI
has no intention to respond to the request.

According to METI, Chinese Commercial Minister Bo Xilai made the
above request when he met with METI Minister Toshihiro Nikai in
Beijing this February. In another meeting with Nikai in the Kyoto
Guest House on May 27, Bo repeated the request. In the second
meeting, though, both agreed to have their responsible officials
continue to exchange views.

METI introduced in 2002 the End User List, together with catch-
all restrictions as a new system for trade management. The export-
control system that had been adopted until then, such as the
Coordinating Committee on Multilateral Export Controls (COCOM),
was designed to restrict the export of items that might be
diverted for military use, but under the catch-all restriction
system, suspicious firms are listed, and if a company plans to
export products to a listed firm, the company is required to
submit the plan to METI for screening.

In the past, Israel and other countries asked Japanese
authorities to remove their domestic firms from the black list.
According to an expert on trade management, however, "This is the
first case of a request brought into a ministerial meeting as a
formal agenda item," adding: "Should nuclear-related technology

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be transferred to China, the technology might flow into Pakistan
or North Korea."

Japan's list reflects information based on the lists of the State
Department and the Commerce Department. Japan's list and those
worked out by such industrialized democratic countries as
Britain, Canada and Germany have contributed to preventing the
proliferation of nuclear weapons.

A senior METI official said: "We will not engage in negotiations
with China" in response to its repeated requests, but based on
the judgment that cooperative relations with China is
indispensable for trade management, the ministry has agreed to
continue talks.

METI filed a criminal charge against Yamaha Motor Co. this
January for illegally exporting to China and other countries
unmanned helicopters that could be turned into mass-destruction
weapons.

(5) Nago City does not intend to participate in consultative body
on Futenma relocation unless prefecture agrees; Refusal could
delay implementation of Cabinet decision on USFJ realignment

OKINAWA TIMES (Page 1) (Excerpts)
May 31, 2006

Nago City

The prefectural government has taken a stance of not
participating in the consultative body between the central
government and local governments to discuss such matters as the
construction plan for the alternate facility to the US Marines'
Futenma Air Station. In that connection, a senior Nago official
revealed that his city, too, would not participate, taking the
view that "the precondition for Nago City joining the talks would
be the prefecture's agreeing to join them." The central
government, having made a cabinet decision, aims at quickly
drafting a construction plan, but the possibility has emerged now
of a major delay.

The senior official expressed the understanding that "the
decision on the basic document of agreement in which the central
government received the concurrence of the prefecture is still
valid." He also said that there is also Nago City's decision in
1999 to accept the request from the prefecture and let Nago be
the site for the relocation of the alternate facility.

The construction of an alternate facility is difficult to
implement without the cooperation of the prefecture, such as
procedures for an environmental assessment and reclamation of
public waters. In the official's view, "Nago City and the central
government cannot move ahead on this issue on their own."

Moreover, even the cabinet decision stated that in connection
with the construction plan, "a consultative body would be
established with the prefecture and local governments."

(6) Kakushin (heart of matter) column - point and counterpoint:
The cabinet approves US force realignment plan, but what will
happen to Okinawa's burden?

TOKYO SHIMBUN (Page 3) (Almost full)

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May 31, 2006

By Masakazu Kaji

At a cabinet meeting yesterday, the government approved a basic
policy on the US force realignment plan. The basic policy
includes the construction of two runways in a V-shape at Camp
Schwab in Nago City, Okinawa Prefecture, to relocate the
functions of the US forces' Futenma Air Station there, and the
transfer of 8,000 Marines from Okinawa to Guam. All these steps
are reportedly intended to alleviate the burden on Okinawa, home
to 75% of US military facilities in Japan, but what are the local
people's views of this development? We interviewed two lawmakers,
one from the ruling camp and the other from the opposition.

Kozaburo Nishime of the Liberal Democratic Party (LDP): I give
the government a score of 70 out of 100 for choosing the best
available option

-- What is your evaluation of the new Futenma relocation plan?

"Frankly, the construction of two runways (as shown in the plan)
astonished me, but this will help reduce noise pollution that may
affect nearby communities. Relocating the base outside the
prefecture would be the best choice, but given that there are no
prefectures that would accept the relocation, this plan is a good
choice."

-- Do you think the relocation will make progress under the
government's plan?

"The construction work will be done within the US military
facility that is fenced in, so opponents will find it difficult
to obstruct the construction work. However, the construction work
will not go as planned without full local understanding. Although
Okinawa remains heavily burdened with US military facilities, I
think the central government needs to explain in detail and even
more carefully that the US military presence in Japan has
contributed to peace in the country."

-- What is your view of the overall US force realignment plan?

"My impression is that this is not a groundbreaking agreement
between the two countries. Both sides, having in mind the
situation on the Korean Peninsula and China-Taiwan tensions,
reached an accord on reducing the military burden (on Okinawa).
As for this accord, I have a sort of favorable opinion of the
central government and give it a score of 65 to 70 out of 100.
The Futenma relocation and the transfer of Marines must be
realized as quickly as possible. If burden reduction is realized
in a visible manner, more local people will show their
understanding toward the realignment plan."

-- What do you think are the issues that Japan will have to deal
with in the months ahead?

"A matter of national concern is who will bear the costs relating
to the realignment plan. It would be ideal if this did not cost
any money, but we want to move forward to reduce the burden. We
must be accountable to the nation."

-- Okinawa Gov. Keiichi Inamine has expressed discontent with the
central government's adoption of the realignment plan.

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"Supposedly, the governor is in distress, partly because he has
been forced to scrap the plan he has until recently advanced. But
it is not necessarily correct to say that economic assistance for
the local economy will come to an end. Rather, it is possible to
take the government decision this time to mean that the promotion
measures have been secured."

-- Gov. Inamine says he will not run in the gubernatorial
election in November.

"We on the part of the ruling camp think we are in a very severe
situation. Taking over what the Inamine-led prefectural
government has done so far is, I think, a way to bring stability
to Okinawa. We'd like to ask his help to back a successor
candidate. Doing so would be the shortest path to realization of
the realignment plan."

Masahide Ota of the Social Democratic Party (SDP): Construction
of alternative facility means the facility will be permanent

-- What is your evaluation of the central government's Futenma
relocation plan?

"Building a new base within the same prefecture does not reduce
the Okinawan people's burden. A new base, if constructed, will be
permanent. The central government says two runways will be
constructed to use one for landings and the other for takeoffs,
but there is no guarantee that that rule will be observed by US
forces. Seventy percent of the prefecture's residents are opposed
to the central government's plan."

-- What do you think are problems in terms of the environment?

"The planned relocation site is within an area described as the
most wonderful natural environment in Okinawa. However, an iron
frame will be constructed on atolls there. If heavy oil spills
out from the construction site into the sea, it will be
impossible to stop the spread of oil contamination. Fishery
operators who have until recently supported the relocation are
now opposed to the central government's plan. It is impossible to
put the base policy into practice without concurrence with
affected local residents."

-- What do you think about the overall US force realignment plan?

"My impression is that America's interests come first before
anything else. A new base, which is likely to be a permanent
facility, will be constructed, and even after the Futenma base is
relocated, the Futenma site will not be returned to Okinawa for
at least the next eight years. Should an accident resulting in
injury or death occur in the future, the public will erupt in
rage to an extent the central government cannot control; if that
happens, the Japan-US security arrangements will collapse. Even
if all programs laid out this time under the US force realignment
plan are implemented, 70% of the US military bases in Japan will
remain in Okinawa."

-- What is your view of the central government's action?

"It has yet to come up with a clear answer to the question of
what structure the US forces in Japan will have after they return
some of their bases in Japan. There is a plan to construct a

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large military depot in Urasoe City. There is also a rumor that
nuclear submarines will be allowed to make port calls. If that
happens, (all the central government is doing) will only lead to
strengthening the bases.

"It is also unclear how the realignment costs have been
calculated. The Futenma relocation has been estimated to be at
least 400 billion yen, but some in the Defense Agency estimate
the cost at some 1 trillion yen. The central government has yet
to make clear the details of the estimate."

-- Okinawa will have a gubernatorial election in November.

"Gov. Inamine complained about the central government's plan but
allowed it. He did so perhaps because he had to accept requests
from the construction industry, which backed him in the previous
election. The US force realignment will be an issue in the
election. Opposition parties would be able to form a more united
front than ever."

(7) What underlies relations between Abe and Fukuda as rivals for
LDP presidency (Part 5 - conclusion): Relying on Fukuda is Anti-
Koizumi force's weakness

MAINIHCHI (Page 2) (Full)
May 30, 2006

On the morning of May 24, Makoto Koga, a former secretary general
of the Liberal Democratic Party (LDP),called on Taku Yamasaki, a
former LDP vice president, at the office of the LDP faction
headed by Yamasaki. Koga proposed on May 18 that Class-A war
criminals now enshrined at Yasukuni Shrine be separated from it.
The two discussed Prime Minister Junichiro Koizumi's visits to
the Shinto shrine. They also criticized the Koizumi government.
Yamasaki lashed out at LDP Policy Research Council Chairman
Hidenao Nakagawa, who has close ties with Koizumi, saying, "The
present LDP Policy Research Council has automatically followed
proposals by the government." Koga responded: "I have the same
feeling."

The current assumption is that Chief Cabinet Secretary Shinzo Abe
is the person whom Koizumi is thinking of as his successor. The
strategy of the cross-factional group that is critical of the
Koizumi government is to tighten the noose around Abe by
developing an Asia diplomacy argument. As part of that effort,
Koga, who heads the Japan Association for the Bereaved Families
of the War Dead, seems to have proposed a study of removing Class-
A war criminals from the list of those enshrined at Yasukuni
Shrine.

Koichi Kato, a former LDP secretary general who has been critical
of Koizumi, has formed a study group that mainly discusses views
of history, particularly World War II. Those attending the first
meeting included former Foreign Minister Masahiko Komura,
Economy, Trade and Industry Minister Toshihiko Nikai, and former
Education Minister Kunio Hatoyama. They exchanged views on what
drove Japan and China to fight the Sino-Japanese War.

Kato and Yamasaki expect that former Chief Cabinet Secretary
Yasuo Fukuda will run in the upcoming LDP presidential race.
Fukuda has criticized Koizumi's visits to Yasukuni Shrine. If
both Abe and Fukuda run for the LDP presidency, the Mori faction,
the largest party faction, would split in two, forcing other

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factions to field their own candidates. If so, Abe would not be
able to obtain a majority of votes in the first casting of votes,
and he would be defeated in the runoff, according to a veteran
lawmaker.

The parliamentary group to study building a national war memorial
held a meeting on May 25, but Fukuda, a key group member, did not
attend the session.

Anti-Koizumi lawmakers are skeptical about Fukuda's candidacy
since he seems to be intentionally distancing himself from party
members. They have found it difficult to field a candidate beside
Fukuda even though they strongly suspect that Fukuda will not run
in the end.

Factions with not presidential candidates are uneasy about the
standoff between Abe and Fukuda growing more intense. On the
evening of May 25, Defense Agency Director General Fukushiro
Nukaga, a member of the Tsushima faction, and faction members now
serving in their first to fifth term in the Diet gathered
together in a Tokyo restaurant. Koizumi has given the cold
shoulder to the faction since he gained control of his
government. As a result, the faction that was once the largest
faction in the LDP slipped to the second largest one, replaced by
the Mori faction. The faction has 74 members and the Mori faction
has 86.

The meeting was intended to prevent the Tsushima faction from
becoming a hunting ground for the presidential election. LDP
Upper House Chairman Mikio Aoki, a Tsushima faction member, has
remained silent about the presidency. Aoki is regarded as a
person who is trying to field a post-Koizumi contender under
cooperation between the Mori and Tsushima factions.

If the Mori faction splits, major existing factions will step
down from the center stage without fail. If the Mori faction can
field a single candidate, it alone will stick out from other
factions. If so, such a situation will continue even after the
presidency.

(8) Energy Agency's "plan for building nuclear power-oriented
nation" proposes augmenting funds for reprocessing nuclear fuel

TOKYO SHIMBUN (Page 3) (Full)
May 31, 2006

The Agency for National Resources and Energy in the Ministry of
the Economy, Trade and Industry (METI) yesterday submitted an
outline of its report titled "Plan to Build a Nuclear Energy-
Oriented Nation" to the Nuclear Power Subcommittee under the
Study Committee for National Resources and Energy. The report
proposes that Japan continue to supply in 2030 and beyond 30% to
40% of domestic electric power with nuclear power. It also calls
for increasing funds set aside for reprocessing nuclear fuel and
constructing or expanding nuclear plants as part of efforts to
promote the nuclear fuel cycle.

Recently, many countries have begun to focus again on nuclear
power as an energy source as part of efforts to successfully cope
with surging oil prices and the need to address global warming.
In response to such a global trend, the agency will come up with
a nuclear fuel-cycle policy, which has been put on the backburner
in the wake of the Monju incident and the disastrous nuclear

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accident in Tokaimura. Before promoting the policy, though, there
are a host of tasks to clear, such as the deadlock in the
pluthermal energy project, the delay in resuming operating the
Monju fast-breeder reactor, the disposal of nuclear waste.

The outline of the report notes that the government will come up
with an inconsistent policy from a medium to long-term
perspective and present a major policy direction for electric
power companies and manufacturers based on the policy. It also
promises that the government will boost investment in
constructing, expanding, or renovating nuclear plants and helping
the domestic nuclear power industry to do business overseas.

The draft report also suggests that the government will instruct
power companies to reserve funds for constructing the second
reprocessing plant to dispose of nuclear waste that cannot be
disposed of at the reprocessing plant of Japan Nuclear Fuel
Limited in Aomori Prefecture. It also will allow such companies
to reserve money for constructing nuclear plants in the future.

SCHIEFFER