DAILY SUMMARY OF JAPANESE PRESS 06/01/06

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 06/01/06

INDEX:

(1) Cabinet approval of next set of "big-boned" policy guidelines
likely to slip to July due to difficulty coordinating spending
cuts

(2) Tokyo, as ally of US, now in a double bind in face of
Washington's call on Japan to consider sanctions on Iran

(3) USFJ realignment: Cabinet decision a far cry from ensuring
implementation

(4) Full text of gov't policy to implement US force realignment
in Japan

(5) Aircraft carrier deployment to Yokosuka: Persuasive US
documentation of safety record

(6) Editorial: Measures necessary to build compact cities to
protect environment, stop population decrease

(7) The challenges of a resources-poor country (Chapter 3)-Energy
security (Part 1): No visible strategy for sea-lane security

(8) Nine prefectures to introduce own suburban large store-
opening restrictions

(Corrected copy) Draft trade white paper for 2006 proposes making
Japan an investment-oriented nation, boosting investment in Asia

ARTICLES:

(1) Cabinet approval of next set of "big-boned" policy guidelines
likely to slip to July due to difficulty coordinating spending
cuts

NIHON KEIZAI (Page 2) (Abridged)
June 1, 2006

Cabinet approval of the government's set of "big-boned" economic
and fiscal policy guidelines for fiscal 2006 that includes reform
to bring together national revenues and expenditures is likely to
slip from June to July.

Liberal Democratic Party Policy Research Council Chairman Hidenao
Nakagawa yesterday morning went before the fiscal and economic
reform council, which is composed of working-level officials of
the government and members of the ruling coalition, and said: "We
have to monitor the situation, but we will produce plans before
the G-8 Summit without fail." Nakagawa was talking about mapping
out plans to cut spending that would be a key element in the
guidelines.

Timeline flexible

Keenly aware of the LDP's mood, Economic and Fiscal Policy
Minister Kaoru Yosano told the Council on Economic and Fiscal
Policy last evening: "We will work hard for a cabinet decision in
June. But if that's not possible, we will get the basic policies
approved in early July before the Summit." The Council members
endorsed Yosano's view. Prime Minister Junichiro Koizumi also
told reporters last night: "A cabinet decision can wait.
Discussions must be conducted thoroughly."

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The delay in cabinet approval is partly ascribable to deadlocked
discussions in the LDP on spending cuts. Discussions are underway
in five subcommittees under the LDP expenditure reform project
team, chaired by Nakagawa. A study of social security has made no
progress. Stalled Diet deliberations on important bills,
including medical reform legislation, make it difficult to
accelerate discussions in the LDP.

"Things will remain difficult unless there are bright prospects
for important bills to clear the Upper House," a Policy Research
Council member said.

With the Upper House election coming up next year, Mikio Aoki,
chairman of the LDP caucus in the Upper House, is opposed to
budget cuts that would draw strong backlashes from local areas
and industries. With the ongoing Diet session scheduled to end on
June 18, LDP lawmakers, especially Upper House members, are eager
to eliminate as many destabilizing factors as possible.

LDP as central player

Usually, the Cabinet Office and the Finance Ministry make
adjustments to basic budgetary policy. But since Koizumi ordered
in late March the LDP to exhibit strong leadership in formulating
plans to slash expenditures, the initiative has totally shifted
to the party.

Calls are growing louder in the ruling coalition for bold
spending cuts, as chances are becoming stronger that the
government will give up on raising the consumption tax.

"We must not take half-baked steps, such as combining spending
cuts and a tax hike," Nakagawa said in his speech last night at
LDP headquarters.

(2) Tokyo, as ally of US, now in a double bind in face of
Washington's call on Japan to consider sanctions on Iran

NIHON KEIZAI (Page 3) (Full)
June 1, 2006

The issue of Iran's nuclear development seems likely to affect
Japan. The US government has asked Japan to consider financial
sanctions on Iran. This move came as part of Washington's effort
to explore the possibility of forming a "coalition of the
willing" led by the United States in case international
organizations, such as the United Nations Security Council
(UNSC),do not work properly. But as Iran is a major oil supplier
for Japan, Tokyo may wait for a while to see how the situation
develops. But should the US, an ally of Japan, urge it to take
more specific action in the weeks ahead, Japan will find itself
in a fix.

Iranian oil embargo certain if sanctions imposed

An international conference on Iran's nuclear program was held in
London in late May. The conference was attended by Deputy Foreign
Minister Tsuneo Nishida and other officials from Japan. During
the session, the US reportedly pushed Japan to consider financial
sanctions on Iran.

The US expects Japan to take action under its Foreign Exchange

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Law, which was amended in 2004 to impose economic sanctions on
North Korea. If Japan were to suspend remittances to certain
firms and individuals, "Iran without fail would respond,
including a suspension of oil exports," a senior Foreign Ministry
official explained. In fact, Iranian Foreign Minister Mottaki has
stated that if Japan were to take part in sanctions on Iran,
"Iran will reconsider economic cooperation (with Japan)." It will
be extremely difficult for Japan to decide to sign on to
financial sanctions on Iran.

Japan concerned about China's possible move to snatch oil
interests

Some in Japan have begun expressing the concern that there may be
an impact on the joint development project for the Azadegan oil
field in the southern part of Iran. This oil field is the largest
in the Middle East and estimated to have 5 to 26 billion barrels
of oil reserves. Should this project be dropped, China or other
countries trying to secure natural resources could acquire oil
interests from Japan.

The Japanese government expects the situation to calm down
without sanctions. At a press conference yesterday, the Foreign
Ministry's Spokesman Yoshinori Katori made only this comment: "We
hope to see Iran take the international call seriously and engage
in discussions in a way to get Iran to halt its uranium
enrichment activities."

(3) USFJ realignment: Cabinet decision a far cry from ensuring
implementation

SANKEI (Page 3) (Abridged)
May 31, 2006

The government yesterday made a cabinet decision approving a
basic course of action regarding the planned realignment of US
forces in Japan. The cabinet-adopted realignment blueprint,
however, is devoid of specificity, as it avoids specifying where
to relocate the US Marine Corps' Futenma Air Station. The cabinet
decision is a far cry from ensuring its effectiveness. The
Koizumi cabinet has now left local coordination and budgetary
steps to its successor. The US military's realignment in Japan
will rely heavily on the post-Koizumi cabinet.

"I hear that Okinawa Prefecture and Nago City can't agree (to the
planned US force realignment)." With this, Minister of State
Yuriko Koike, who is in charge of Okinawa and the northern
territories, upbraided the Defense Agency in yesterday's cabinet
meeting regarding the agency's rush for a cabinet decision. The
Cabinet Office is in charge of Okinawa development. Meanwhile,
the Defense Agency did not conduct spadework with the Cabinet
Office and fast-tracked its negotiations with Okinawa and its
base-hosting localities over Futenma relocation. Koike therefore
implied her dissatisfaction with the agency in the cabinet
meeting.

Base-hosting localities are strongly critical of the Defense
Agency for its negotiating stance. The agency, feeling pressed
for cabinet approval, changed a number of officials in its
negotiations with local officials. In the end, the agency
appointed a senior official who was not in charge of base issues.
This is one of the reasons why Okinawa Prefecture and its base-
hosting municipalities stiffened their attitudes. "The Defense

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Agency is trying to push its way through with someone who is
ignorant of the circumstances in the past," said a senior
official of the Okinawa prefectural government.

On May 26, the Defense Agency was at a moment of truth in its
coordination over the wording of its basic policy documentation
regarding the US force realignment. Foreign Minister Taro Aso
called Defense Agency Director General Fukushiro Nukaga to urge
the defense chief to retouch the document's wording. "This will
create problems in the future," Aso told Nukaga over the phone.
That is because the agency's policy document did not specify a
coastal area of Camp Schwab in the city of Nago as the site for
Futenma relocation.

In its policy document for cabinet approval, the Defense Agency
put the Japan-US agreement on the backburner and gave priority to
Okinawa Prefecture, which has rejected the agency's plan to lay
down a pair of runways in a V-shape at a new facility. That is
why the agency avoided specifying the relocation site in the
document. With the June 29 Japan-US summit ahead, the agency only
glossed it over with cabinet approval.

The Defense Agency is going to work out the V-shaped construction
plan this October. However, the agency backpedaled on the
construction plan with insubstantial wording, as the document
only says the agency will "immediately work out" the construction
plan. Despite such a concession, Okinawa Prefecture is upset at
the cabinet decision, with Governor Keiichi Inamine calling it
"extremely regrettable."

The document says the Defense Agency will take legislative and
budgetary measures in order for Japan to facilitate cost sharing
for the relocation of US Marine Corps troops from Okinawa to
Guam. However, Prime Minister Junichiro Koizumi has clarified
that the government would not introduce a realignment
facilitation bill to the Diet at its current session and would
leave the legislation for this fall's extraordinary session or
later. At this point, the legislation is up in the air.

In the meantime, the government has yet to find a way to cover
realignment costs or to clear up whether to earmark a separate
budget slot for such costs outside defense spending. To begin
with, it will take time, as Koizumi has noted, to calculate and
estimate the total cost of realignment. The government will
review the current midterm defense buildup program and study fund-
raising measures in order to share the realignment costs.
However, the government will inevitably find it difficult to do
so.

The post-Koizumi cabinet will face difficulties upon its
inauguration. The realignment talks lasted two and a half years.
To wrap up the talks, however, the basic policy paper is too
empty and unsubstantial. Japan may have to pay for it later in
the process of implementing the planned realignment, which is to
be completed in eight years.

(4) Full text of gov't policy to implement US force realignment
in Japan

MAINICHI (Page 6) (Full)
May 31, 2006

The government yesterday made a cabinet decision that approved

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its policy regarding the planned realignment of US forces in
Japan. Its full text is as follows:

Government efforts to restructure the presence of US forces in
Japan
(Approved by the Cabinet, May 30, 2006)


1. Japan and the United States have held intergovernmental
consultations, in which the Japanese and US governments reviewed
the structure of US forces in Japan as well as the Self-Defense
Forces' roles, tasks, and capabilities. On Oct. 29, 2005, the
Japan-US Security Consultative Committee (SCC) approved an
interim report of recommendations on these matters. Japan and the
United States continued their intergovernmental consultations
thereafter. On May 1, 2006, the SCC approved a final report of
bilateral agreements reached between the Japanese and US
governments on specific steps for the realignment of US forces in
Japan (hereinafter referred to as "realignment-related steps).


2. It is important that Japan and the United States maintain and
develop their bilateral security arrangements in order to
continue ensuring Japan's national security in the new security
environment and in order to maintain peace and stability in the
Asia-Pacific region in such an environment. The US military
presence in Japan is the core of the bilateral security
arrangements, and it is therefore necessary to secure the US
military's use of facilities and areas. Okinawa Prefecture is
home to a large number of facilities and areas in the US
military's use. In Japan's mainland prefectures as well,
localities hosting US military facilities and areas are becoming
urbanized. These US military facilities and areas there are
greatly affecting the living environment and development of local
communities. Given such a situation, it is important to continue
securing the US military's use of facilities and areas with broad
understanding and cooperation obtained from the Japanese people.
At the same time, it is also important to alleviate the burden of
base-hosting localities while sustaining deterrent capabilities
in order to maintain and develop bilateral security arrangements.


3. The final report of agreements between Japan and the United
States on the US force realignment incorporates specific steps,
such as:

-- Reducing about 8,000 US Marine Corps troops in Okinawa
Prefecture, where US forces use a large number of facilities and
areas;
-- Relocating Futenma airfield to Camp Schwab;
-- Returning the sites of US military facilities and areas to a
considerable extent in densely populated districts south of
Kadena airbase (including the overall reversion of Futenma
airfield, Makiminato service area, and Naha port facility);
-- Consolidating bilateral intercommand cooperation with the Air
Self-Defense Force setting up the Air Defense Command's
headquarters at Yokota airbase and with some other command
relocations;
-- Revamping the command functionality of US Army Japan at Camp
Zama;
-- Installing a US military radar system at the ASDF's Shariki
Detachment base for ballistic missile defense;
-- Redeploying a carrier-based air wing from Atsugi base to
Iwakuni base;
-- Returning Camp Zama and Sagami Depot in part; and
-- Transferring some training missions

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Japan and the United States have agreed to implement these
realignment-related steps in a steady way, giving heed to the
timeframes specified in the final report.


4. It is one of the government's most critical policy measures to
ensure bilateral security arrangements in order for Japan to
maintain its peace and national security, and the government
therefore needs to make efforts for that purpose on its own
responsibility. As it stands, the government will consider the
wishes of local public entities to be additionally burdened in
implementing the realignment-related steps. In return for their
great contributions to Japan's peace and national security, the
government will implement economic stimulus packages, including
measures for the development of local communities. In addition,
the government will continue to make its utmost efforts to
facilitate the utilization of sites after their reversion and
ensure the job security of employees working at US military
bases.


5. It is extremely important to redeploy US Marine Corps troops
from Okinawa Prefecture to Guam in order to alleviate its
intensive base-hosting burden. Japan will share costs needed for
this Marine relocation to Guam and will expedite it.


6. Under this policy, the government will take measures,
including legislative and budgetary measures, in order to
implement the realignment-related steps in an adequate and prompt
manner. However, Japan is in dire fiscal straits. The government
will therefore need to carry out further streamlining-oriented
cost reductions in an even more drastic manner to improve the
efficiency of Japan's defense buildup. The government will review
its midterm defense buildup program for fiscal 2005-2009-which
was approved in a cabinet decision of Dec. 12, 2004-as soon as
the government can estimate total costs needed for the
realignment-related steps in consideration of specific
realignment plans.


7. When it comes to the relocation of Futenma airfield, the
government will facilitate Futenma relocation based on a plan
approved by the SCC on May 1, 2006. In this Futenma relocation,
the government will factor in the standpoints of the Okinawa
prefectural government and other relevant local public entities.
In addition, the government will also consider the past
consultations over Futenma-related measures, such as building a
new facility, entering into a basing agreement, and taking
measures for the development of base-hosting local communities.
Based on these factors, the government will proceed with Futenma
relocation while heeding the necessity of removing Futenma
airfield's danger and preserving the natural environment as well
as the feasibility of Futenma relocation. The government will
immediately work out a plan to build an alternative facility for
Futenma airfield. When it comes to its specifics, the government
will set up a consultative body with the Okinawa prefectural
government and other relevant local public entities to discuss
measures in terms of the Futenma alternative construction plan,
safety and environmental protection, and local development.
Accordingly, the government will repeal its previous policy
documentation pertaining to Futenma airfield's relocation, which
was approved in a cabinet decision of Dec. 28, 1999. In fiscal
2006, the government will implement projects that are based on a
clause subtitled "II. Local development" in the abovementioned
government policy.

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(5) Aircraft carrier deployment to Yokosuka: Persuasive US
documentation of safety record

Commentary by Tetsuya Endo, 71, former deputy chairman of the
Nuclear Energy Council.

YOMIURI (Page 13) (Full)
May 31, 2006

Following its decision to deploy in 2008 the USS George
Washington to Yokosuka Naval Base (in Kanagawa Prefecture),
Washington has made efforts to dispel local anxiety by issuing
"factsheets" that explain the safety of nuclear-powered warships.
The contents of the factsheets are fully appreciated. Though I
defer to others on the security-related significance of the
deployment, I would like to speak out here as an expert on
nuclear affairs. Despite the restrictions on military secrecy,
the US government has provided Japan, probably for the first
time, with detailed technical information that explain how
nuclear warships can continue their operations safely even in
combat.

Civilian nuclear power reactors do not have the same
characteristics as a nuclear-powered carrier, which carries
enough fuel to last for 25 years and can resist impacts up to 50
times the force of gravity. One can easily expect the USS George
Washington as a major US military warship has multiple defense
systems, including a quick emergency shutdown system and a
seawater cooling system. It is also built with multiple safety
systems such as a robust nuclear container and hull structure.
The US builds nuclear-powered carriers without being restricted
by commercial profitability. It can be said that with a crew of
up to 5,500 living aboard a carrier proves the safety of nuclear-
powered warships.

Apart from getting into what the definition of an "accident" is,
experts recognize that there has never been an accident in the
nuclear power reactors of US Navy carriers. Preparedness and then
response in case there trouble occurs is of the utmost
importance. The track record of operations of US nuclear-powered
warships over the past 50 years shows that appropriate responses
have always been taken.

The reasons cited for opposing an aircraft carrier deployment
include: 1) concern that an enriched uranium reactor might cause
a disaster similar to the Chernobyl accident; and 2) radioactive
waste might be discharged from the ship.

The Chernobyl accident was caused by structural defects that
included the danger of a reactor runaway under low-power
operations, the lack of an emergency shutdown system, and the
absence of a containment reservoir around the reactor. The
accident was marked by a disdain of safety. This kind of accident
will never occur in Japanese nuclear power plants or in the light-
water reactors (including pressurized-water reactors) of US
nuclear-powered warships.

The factsheets explains that the aircraft career possesses
multiple safeguards and that the crews have been trained for
emergencies. It also states that the US Navy never conducts
special disaster drills outside its bases even on the mainland,
since it does not need to take any special defense measures. I

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have heard that a survey team that visited US Naval San Diego
Base in April heard first-hand this point from local government
officials.

In order to secure the peace of mind of Yokosuka residents,
building a relationship of trust between the local residents and
US military will be the most important challenge in the future as
well. For example, one idea is to open a hotline connecting
Yokosuka City Hall and an off-site facility that would be built
within the base.

The factsheets confirm that: the discharge of radioactive waste
within 12 nautical offshore would be banned; fuel changes and the
repair of nuclear reactors would be carried out within the US;
and the operation of nuclear reactor would be suspended while the
carrier is in port. The US military will never carry out work
that requires radiation control.

The nuclear reactors of US warships have been operating for about
50 years. The number of operating-years of all warships totals
5,700 years. Japanese commercial nuclear reactors total less than
1,500 years. No one can predict that since there were no
accidents in the past, there will never be an accident in the
future, as well. But I think one can certainly say that US
nuclear-powered warships have kept an excellent safety record.

(The author, who is 71, served as the first ambassador to the
International Organization In Vienna and as ambassador to the
Korean Peninsula Energy Development Organization (KEDO).)

(6) Editorial: Measures necessary to build compact cities to
protect environment, stop population decrease

TOKYO SHIMBUN (Page 5) (Full)
May 31, 2006

The White Paper on the Environment for 2006 gives consideration
to environmental protection with an eye on the advent of an age
of population decrease and looks back over the 50 years since the
first official report of the outbreak of Minamata disease behind
the nation's high economic growth.

The Environment Ministry is not optimistic about the effect of
the declining population on the environment. The white paper
predicts: "The volumes of resources and energy consumed in Japan
are expected to decrease, but this effect might be wiped out as
the number of households increases, and public lifestyles change
over the short run."

As a result of more people moving into urban areas, the
destruction of mountain villages will become even more serious.
An expansion of abandoned farmland and a decrease in the number
of storage reservoirs will deprive living creatures of their
habitats, and escalate the crisis of the loss of biodiversity.

Changes will also occur in cities, once highly populated during
the high growth period. The cities will become less populous, and
the distance of travel by humans and goods will be lengthened. As
a result, the burden of transportation on the environment will
become heavier.

Given this, the white paper calls for measures to reduce the
urban sprawl of regional cities. As good models, the paper cites

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Toyama's revival of streetcars as a downtown revitalization
measure and Futatsui-machi's project to create bicycle-friendly
towns by recycling abandoned bicycles in Akita Prefecture.

As an overseas case, a project in Montreal, Canada, can be cited.
The city succeeded in developing a people-friendly urban
environment within walking distance by concentrating urban
functions into a underground shopping complex newly established
within a one-kilometer radius. Montreal reportedly took the multi-
storied city envisioned by Leonard da Vinci 500 years ago as a
model.

In designing a compact city, the local environment and
circumstances must be carefully examined. It is also necessary to
look into the capabilities of local communities to protect the
environment.

The so-called Cool Biz program, the revival of Japanese wrapping
cloths (furoshiki),and other nationwide environment-conscious
performance are much needed efforts. But it might be even more
important when managing the environment during a period of
population decrease for the Environment Ministry to coordinate
views with other government agencies to draw out local
communities' potentials.

For instance, the Ministry of Agriculture, Forestry and Fisheries
has been at a loss about what to do with fallow land left
uncultivated. Cooperation must be a new source of power.
Attention should be paid to the remarkable reconstruction of
Minamata City as a model case.

By using the disgraceful labeling of an unprecedentedly seriously
polluted town as the springboard, Minamata succeeded in turning
itself into one of the greatest environment-friendly towns, owing
to residents' wisdom and actions, as well as the local
government's coordination capability.

(7) The challenges of a resources-poor country (Chapter 3)-Energy
security (Part 1): No visible strategy for sea-lane security

SANKEI (Page 1) (Abridged)
June 1, 2006

In April this year, Qatar-a country facing the Persian
Gulf-hosted an international energy forum at a high-class resort
hotel in its capital city of Doha. Energy ministers gathered
there from about 70 countries. The forum heated up and turned
into a battle of words between oil producers and consumers. US
and European delegates asked oil-producing countries to step up
their outputs. Their request, however, encountered rebuttals from
the delegates of oil-producing countries. "There's no problem
with our supply capacity," one oil-producing country's minister
argued. This oil minister went on, "Oil prices are now
skyrocketing, but that's because of diplomatic tensions."

In fact, waves of tension are surging across the Persian Gulf
community. The United States and Europe are trying to stop Iran
from enriching uranium that can be used potentially to develop
nuclear weapons. In March, Iranian Interior Minister Pur-
Mohammadi countered by issuing a warning: "We have the world's
most sensitive energy shipping route." He implied with this
remark a military blockade of the Straits of Hormuz. This remark
triggered a runup of oil prices. In April, the oil market hit an

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all-time high of 75 dollars per barrel.

Japan is a resourceless country, which imports crude oil for
domestic consumption. In particular, Japan depends on the Middle
East for nearly 90% of its oil imports.

It takes a shipment of oil to travel more than 20 days at sea
from the Persian Gulf to Japan. There are at any one time 80
large oil tankers moving to or from the Persian Gulf along the
sea-lane that reaches Japan. Japan therefore needs sea-lane
security there for oil supply.

The Straits of Hormuz, which are situated between Iran and the
Oman Peninsula, are the most important point on the 6,000-
kilometer oil road to Japan. The straits are about 50 kilometers
wide. However, the straits are rocky on the side of Iran. The
rock-free waterway for tankers' safe passage through the straits
is only several kilometers wide. The greater part of oil
shipments from the Middle East to Japan passes through these
waters.

Oil-shipping tankers bound for Japan have to clear another
difficult pass, the Straits of Malacca, which are situated
between Malaysia, Indonesia, and Singapore. The narrowest
waterway in the straits is 2.5 kilometers. There are many
shallows in the straits, so large tankers can pass through the
straits only when the tide is in. In addition, Malacca is also a
dangerous point, where armed pirates are ambushing ships.

One solution to overcome the risk of Japan's sealane is to lower
the degree of dependence on the Middle East. In May, the Ministry
of Economy, Trade and Industry (METI) revised Japan's energy
strategy. METI, in its new strategy paper, underscored the need
for Japan to break away from its dependence on the Middle East.
However, METI did not specify any numerical benchmark. That is
because it could not find any other steady oil suppliers.

If Iran should mine the Straits of Hormuz, all tankers would
inevitably have to halt at sea. As a result, oil exports to the
daily extent of 15 million barrels would be stopped. "If that is
the case," Institute of Energy Economics, Japan (IEEJ) President
Masahisa Naito said, "the price of oil would go higher than 200
dollars per barrel."

What can Japan do to avoid such a worst-case scenario? "Japan has
to make every possible diplomatic effort," a senior METI official
stressed. However, the government has several competent offices
for Japan's sealane. One of them is the Ministry of Land,
Infrastructure and Transport. The Japan Coast Guard and the
Defense Agency are also in charge. They are not monolithic,
however.

Japan is now reaching a moment of truth in reconsidering its
energy security, which will affect Japan's national interests.

(8) Nine prefectures to introduce own suburban large store-
opening restrictions

ASAHI (Top Play) (Slightly abridged)
June 1, 2006

Nine prefectural governments have introduced or are looking into
introducing their own stricter restrictions on building

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supermarkets and other large-scale stores in the suburbs. A bill
amending the Downtown Revitalization Law was enacted yesterday by
the Diet. Including this law, three laws designed to prohibit
suburban large-scale store openings in principle will be
introduced across the nation by the fall of next year. The nine
prefectures intend to add their own restrictions to the
regulations in these three laws.

An amended Town Planning and Zoning Law was also enacted during
the current Diet session. Under this measure, retailers will not
be allowed to open large facilities with a floor space of 10,000
square meters or larger in the suburbs, such as supermarkets or
movie theaters. Of the urban areas designated by municipalities,
category-2 restricted residential areas, quasi-residential areas,
and industrial areas will be added to the list of areas where
large store openings are restricted, in addition to residential
areas. Urbanization control districts are also subject to the
restriction. Retailers will be allowed to open new large stores
only in downtown commercial districts, neighborhood commercial
districts, and quasi-industrial districts.

But there are quasi-industrial districts located near downtown
areas. It is also possible to build facilities even in the
restricted areas if their floor space is slightly less than
10,000 square meters. The nine prefectures will cover such
loopholes by introducing their own regulations.

Fukushima Prefecture enacted an ordinance on store-opening
restrictions last October as the first prefecture in the nation.
Hokkaido, Yamagata, Kyoto, Hyogo, Fukuoka, and Kumamoto
prefectures have already drafted or are drafting guidelines on
regulations. Iwate and Kanagawa prefectures have also studied the
possibility of introducing their own regulations.

Fukushima Prefecture's ordinance, which will come into effect
this October, sets the allowable maximum floor space at 6,000
square meters. The ordinance gives the prefectural government the
authority to order the store-opening applicants to review their
plans if it is feared that their plans might negatively affect
nearby municipal governments. If potential store openers submit
falsified plans, they will be fined up to 200,000 yen.

Hokkaido plans to apply the brakes to store opening in quasi-
industrial areas. Under its guidelines due out in July, municipal
governments will be required to designate quasi-industrial areas
as special-use districts.

Hyogo Prefecture has decided to designate areas that come under
its store-opening restrictions in August. In cities and towns
along the coastline of the Seto Island Sea, the prefecture allows
retailers to open stores with a floor space of 10,000 square
meters or less in small shopping malls in front of stations and
stores with a floor space of 6,000 square meter or less in
suburban areas. Fukuoka Prefecture also plans to draw up store-
opening guidelines by the end of this fiscal year.

Reflecting views solicited this April from nearby local
communities, Yamagata Prefecture has introduced a system to give
the prefectural government the right to call for a review of
store-opening plans. Kyoto Prefecture also intends to formulate
guidelines to introduce a similar system.

(Corrected copy) Draft trade white paper for 2006 proposes making

TOKYO 00003012 012 OF 012


Japan an investment-oriented nation, boosting investment in Asia

NIHON KEIZAI (Page 5) (Full)
June 1, 2006

The draft trade white paper for 2006 proposes making Japan an
investment-oriented nation by increasing its surplus in the trade
balance, based on the prospect that its trade surplus is expected
to shrink given the current population decrease. The paper
reiterates the necessity for Japan to boost direct investment
particularly in growing Asia.

The Ministry of Economy, Trade and Industry, which drafted the
paper and released it yesterday, will submit it in a cabinet
meeting late June. Japan's surplus in the income balance in
fiscal 2005 totaled about 12.6 trillion yen, outstripping the
surplus in the trade balance (about 9.6 trillion yen) for the
first time. The white paper, though, notes that the rate of
Japan's earnings from its overseas assets is still at the upper
range of 2%, lower than those of the US and Britain (the upper
range of 3%).

Japanese firms have invested mainly in securities, on which the
earning ratio remains low. The ratio of Japan's foreign direct
investment (FDI) to its all assets overseas is 9%, lower than
Britain's 17% and the United States' 33%. The white paper defines
this result as one of the main reasons for Japan's low earnings
rate.

In 2004, 38% of Japanese firms invested in the US, while 19.5%
invested in Asian countries. The white paper suggests that
Japanese firms should shift their investment destinations to Asia
with high growth potential, in order to increase their earning
rates. The paper emphasizes the importance of removing
restrictions on trade and investment by promoting EPAs.

SCHIEFFER