JAPANESE MORNING PRESS HIGHLIGHTS 07/10/06

UNCLAS SECTION 01 OF 11 TOKYO 003818 SIPDIS SIPDIS 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: JAPANESE MORNING PRESS HIGHLIGHTS 07/10/06 SPECIAL PRESS-HOLIDAY EDITION FROM THE WEEKEND DAILIES Index: 1) 48 PERCENT of public support Abe for next prime minister in Yomiuri poll 2) Yomiuri poll: 92 PERCENT would back sanctions on North Korea over missile issue; 63 PERCENT want MD installation speeded up 3) Kyodo poll finds 80 PERCENT favoring tougher sanctions on North Korea due to missile launches 4) JDA chief Nukaga: North Korea used new type of Scud missile in missile tests 5) JDA: Little chance of another North Korea missile launch soon 6) Government will impose financial sanctions on North Korea if another missile launched 7) Missile defense: PAC-3 deployment to be speeded up due to North Korea missile threat 8) Foreign Minister Aso strengthens cooperation on North Korea issues with Secretary Rice, seeks same with Russian counterpart 9) Government may float idea of Japan-North Korea foreign ministerial meeting; G8 summit to criticize North Korea in statement 10) US, Japan, China agree to push for restart of 6-party talks on North Korea issues this month 11) Joint seven-country proposed resolution to impose sanctions on North Korea to be presented to UNSC on July 10 12) Japan, US to try to persuade China, Russia to back proposed UNSC resolution against North Korea 13) Government is bullish that China, Russia will either abstain or be absent from UNSC vote on North Korea sanctions 14) GSDF begins pullout from Iraq 15) JDA suddenly refuses to let press corps cover the Kuwait portion of GSDF pullout from Iraq 16) Prime Minister Koizumi sets off on July 11 for the Middle East and then G8 Summit 17) Minshuto President Ozawa's soft statements on North Korea missile issue not sitting well with his party 18) Government sets economic policy guidelines for 2006 that gives consideration to future consumption tax hike Articles: 1) Poll: Abe tops all others at 48 PERCENT in post-Koizumi race YOMIURI (Page 2) (Full) July 8, 2006 In the latest Yomiuri Shimbun survey, respondents were asked to pick the most appropriate person as Prime Minister Koizumi's successor TOKYO 00003818 002 OF 011 from among five lawmakers in the ruling Liberal Democratic Party. In response, 48 PERCENT picked Chief Cabinet Secretary Abe, with one of his predecessors in the CCS post, Yasuo Fukuda, ranking second at 21 PERCENT . In this July's face-to-face survey, Abe stood at 44 PERCENT , followed by Fukuda at 19 PERCENT . The results of previous polls and the one taken this time cannot be simply compared due to different polling methodologies. However, the increase rate of Abe's popularity is higher than that of Fukuda, with Abe retaining his big lead over Fukuda. Abe is known as a hardliner toward North Korea. He meets the press every day as chief cabinet secretary and has shown a strong attitude toward North Korea. This can be taken as reflecting public support for Abe. 2) Poll on North Korea's missile launches: 92 PERCENT support sanctions, 63 PERCENT insist on need to hurry up missile defense YOMIURI (Page 2) (Full) July 8, 2006 In the wake of North Korea's recent firing of missiles, the Yomiuri Shimbun conducted a telephone-based spot nationwide public opinion survey on July 6-7. The government has already invoked such sanction measures as barring the North Korean ferry Mangyongbong's entry into Japanese ports and restricting visits to and from North Korea. In the survey, 92 PERCENT answered "yes" and 5 PERCENT said "no" when they were asked they if they supported these sanctions. The poll shows that many people, shocked at the missile launches, think Japan should take a tough stance toward North Korea. The government is preparing a draft resolution for the United Nations Security Council to denounce North Korea with sanctions. Asked whether to support this UNSC resolution, 90 PERCENT answered "yes," with only 4 PERCENT saying "no." The government is planning additional economic sanction measures, such as stopping remittances from North Korean residents in Japan to their country and restricting trade with North Korea. Asked about these measures, 65 PERCENT or a majority of respondents answered that the government should implement these measures immediately, with 28 PERCENT preferring to take such measures in stages. Respondents were also asked if they thought even more strongly of North Korea as a threat after its firing of missiles. In response to this question, 77 PERCENT answered "yes," with 20 PERCENT saying "no." In the survey, respondents were further asked if they thought Japan should expedite its introduction of a missile defense system to shoot down enemy missiles in cooperation with the United States. In response, 63 PERCENT answered "yes," with 24 PERCENT saying "no." Asked about diplomatic normalization talks between Japan and North Korea, 43 PERCENT answered that Japan should normalize its diplomatic relations with North Korea but there was no need to hurry, with 21 PERCENT saying there is no need to normalize diplomatic relations with North Korea. The proportion of those who think Japan should normalize diplomatic relations with North Korea but there is no need to hurry showed a decrease of 11 percentage points over a previous telephone-based survey taken after Prime Minister Koizumi's second visit to North Korea in May 2004. There was an increase of 10 points in the proportion of those who think there is no need to normalize diplomatic relations with North Korea. TOKYO 00003818 003 OF 011 Meanwhile, 28 PERCENT said Japan should normalize diplomatic relations with North Korea. In the latest survey, 78 PERCENT answered "yes" when they were asked if they thought the missile launches would further delay a solution to the issue of Japanese nationals abducted to North Korea. Negative answers accounted for 13 PERCENT . 3) Poll: 80 PERCENT call for stronger pressure on North Korea TOKYO SHIMBUN (Page 1) (Full) July 9, 2006 In the wake of North Korea's July 5 firing of missiles, Kyodo News conducted a telephone-based spot nationwide public opinion survey on July 7-8. In the survey, 80.7 PERCENT said Japan should step up its economic sanctions against North Korea, including measures to stop remittances from North Korean residents living in Japan to their country, and intensify trade controls. Those negative about such strengthened economic sanctions accounted for 12.6 PERCENT . The government has now invoked economic sanctions for the time being, including an order to bar the North Korean ferry Mangyongbong-92's entry into Japanese ports. In the survey, respondents were asked if they supported these measures. In response to this question, 82.6 PERCENT answered "yes," with 12.9 PERCENT saying "no." The poll shows that the Japanese people are taking a serious view of the missile launches. Respondents were also asked if they felt uneasy about North Korea's missile launches. In response, a total of 87.0 PERCENT answered "yes," broken down into 45.2 PERCENT feeling very uneasy and 41.8 PERCENT feeling somewhat uneasy. Among other answers, 9.9 PERCENT did not feel very uneasy, with 2.8 PERCENT not feeling uneasy at all. Polling methodology: The survey was conducted by Kyodo News Service over a period of two days, July 7-8, on a random digit-dialing (RDD) basis. The computer-aided RDD methodology, which makes and puts out telephone numbers at random for polling, can survey those who do not have their telephone numbers listed in telephone directories. Among those randomly generated telephone numbers, those actually for household use with one or more eligible voters totaled 1,461. Answers were obtained from 1,011 persons. 4) North Korea fires 3 Rodong, 3 Scud missiles: Nukaga YOMIURI (Page 1) (Full) Eve., July 8, 2006 Appearing on a Fuji-TV program this morning, Defense Agency Director-General Nukaga said three of the seven missiles North Korea fired on July 5 were possibly of the Rodong type with a range of 1,300 kilometers and three others the Scud type with a range of 300-500 kilometers. Nukaga also said the three Scud missiles might have included a new-type Scud missile with a longer range. "I hear they might have tested a new enhanced version of the Scud missile with a range close to the Rodong's range," Nukaga said. North Korea reportedly has about 200 Rodong missiles and about 600 Scud missiles. The Rodong could reach Japan, but a conventional Scud could not. TOKYO 00003818 004 OF 011 Nukaga has also indicated that North Korea would not fire a second long-range Taepodong-2 missile soon. "They're not ready for now to launch another one," Nukaga said on a Yomiuri TV program. 5) JDA: Possibility of another missile launch soon now slim NIHON KEIZAI (Page 2) (Full) July 8, 2006 North Korea had deployed a patrol boat into the Sea of Japan when it launched its missiles, but according to Defense Agency (JDA) officials yesterday, the boat returned to port on the night of July ¶6. Based on the view that the deployment of the boat was intended to track the projectiles' paths, JDA officials have made this analysis: "Judging from the patrol boat's moves, the possibility has now become slim that the North will launch an eighth missile soon." The patrol boat appears to be on a mission of spotting the point of impact based on the angle of reflection calculated by irradiating a missile with a laser. It reportedly is possible to spot frequency band waves emitted from a missile anytime day or night. 6) Government starts preparations to impose financial sanctions if North Korea launches another missile NIHON KEIZAI (Page 2) (Excerpts) July 8, 2006 The government has started preparations to impose additional sanctions in the event that North Korea launches another Taepodong-2 missile. If the process of adopting a resolution denouncing North Korea does not smoothly move forward at the United Nations Security Council, Tokyo will consider invoking financial sanctions, including limiting or banning remittances and trade under the revised Foreign Exchange and Foreign Trade Law, also keeping in mind sanctions by a possible "coalition of the willing" under the lead of the United States. There is a possibility that North Korea would launch a Taepodong-2 missile from the missile base located in northeastern North Korea. The Defense Agency considers: "Although a missile has yet to be set on the launch pad, assembly work might have been underway at a nearby missile silo." In a press conference after a cabinet meeting yesterday, Finance Minister Sadakazu Tanigaki said that the government would make full preparations on the assumption of North Korea launching another missile. He said: "It is necessary to make preparations for the government to be able to apply (the revised Foreign Exchange and Foreign Trade Law) when needed. 7) Defense Agency to deploy four sets of PAC-3 missiles in 2007 as part of missile defense YOMIURI (Top play) (Excerpts) July 8, 2006 The government decided yesterday to deploy three sets of Patriot Advance Capability-3 (PAC-3) ground-to-air missiles in 2007 as part of missile defense (MD) ahead of the original timeline of March TOKYO 00003818 005 OF 011 ¶2008. In the wake of North Korea's ballistic missile launches, the government has recognized the need to build the interceptor system. The Defense Agency plans to deploy by the end of fiscal 2006 one set at the Air Self-Defense Force's Iruma base in Saitama Prefecture, which houses headquarters of the 1st surface-to-air missile group. The agency originally planned to deploy one set each at Kasumigaura (Ibaraki Prefecture),Narashino (Chiba),and Takeyama (Kanagawa) by the end of fiscal 2007. But now, the agency intends to complete deploying them in 2007. 8) Aso, Rice reaffirm Japan-US cooperation in adopting resolution condemning North Korea's missile launches NIHON KEIZAI (Page 2) (Full) July 8, 2006 Foreign Minister Taro Aso held a telephone conversation with United States Secretary of State Rice for about 10 minutes last night. They reaffirmed that Japan and the US would cooperate in ensuring the adoption of a resolution submitted by Japan to the United Nations Security Council denouncing North Korea for missile launches. Aso also talked with Russian Foreign Minister Lavrov on the phone for about 20 minutes, In reference to missile parts landing in waters off Nakhodka, Aso asked Lavrov to support Japan's draft resolution, saying: "It should be in the interest of Japan and Russia to send a resolute message." Lavrov stopped short of making a clear-cut reply, just saying: "We share Japan's concern." Aso proposed that North Korea's missile problem should be taken up at the upcoming G-8 summit (St. Petersburg Summit). Lavrov replied: "We are ready to discuss the issue." 9) Japan to call for adoption of statement condemning North Korea at G8 summit at St. Petersburg and other international arenas; Japan also working on North Korea to hold foreign ministerial talks NIHON KEIZAI (Page 2) (Excerpts) July 9, 2006 The Japanese government intends to call for the adoption of a statement condemning North Korea for its recent missile launches at the series of international conferences to take place during July, including the Group of Eight industrialized countries (G8) summit conference at St. Petersburg that will start on July 15. The purpose is to put pressure on North Korea to exercise self-restraint in the way for a broad range of countries, such as the G8 and Asian nations, to express concerns. Tokyo has also begun sounding out on North Korea about arranging a foreign ministerial meeting on the sidelines of the ASEAN Regional Forum (ARF). The Japanese government is working on other G8 members to put the North Korean issue including missile launches on agenda for the upcoming G8 Summit. While condemning North Korea's moves, Japan intends to call on North Korea to (1) exercise self-restraint on taking such provocative acts as re-launching missiles; and (2) return to the six-party talks. The Foreign Ministry is considering creating a special statement (on TOKYO 00003818 006 OF 011 North Korea) to be released at the upcoming G8 Summit, but the host nation of the Summit is Russia, a country that is friendly with North Korea. Russia may express disagreement to releasing a strong message that could irritate North Korea. Whether such a statement will be released in the form of a special statement, a chairman's summary statement or a chairman's statement remains unclear. 10) Japan, US and China agree to urge North Korea to resume six-party talks within July NIHON KEIZAI (Page 1) (Excerpts) July 8, 2006 Hirotada Momoi, Beijing The governments of Japan, the United States and China held government-to-government meetings separately on July 7 in Beijing of their chief envoys to the six-party talks on North Korea's nuclear programs. In order to prevent another ballistic missile launch by North Korea, the three chief negotiators reached an accord to work on Pyongyang to rejoin the six-party talks, which have been suspended, before the end of this month. They also confirmed that Chinese Vice Foreign Minister Wu Dawei, who is expected to travel to Pyongyang early next week, would convey the decision by the three countries to North Korea. Tokyo, Washington and Beijing, which have different views on whether to impose sanctions on the North, are keeping in step on this matter. 11) Seven countries to jointly submit UN resolution condemning North Korea for a vote on July 10; 13 UNSC members support it, China against it, Russia keeps silent YOMIURI (Top play) (Excerpts) Evening, July 8, 2006 Yoshikazu Shiraishi, New York Japan, the United States, Britain, and France jointly submitted to an informal UN Security council meeting held on the afternoon of July 7 (early hours of July 8, Japan time) a resolution condemning North Korea's missile launches. Denmark, Slovakia, and Greek are also expected to become cosponsors of the resolution. Opposed to the resolution, China is prepared to exercise its veto. Japan, the US, Britain, and France, however, are expediting efforts with the aim of adopting the resolution on July 10. An outline of the draft resolution condemning North Korea 7The series of missile launches by North Korea posed a threat to international peace and stability. 7The Security Council will act in accordance with Article 7 of the UN Charter (allowing economic sanctions and military action). 7The United Nations condemns North Korea's missile launches. 7North Korea must immediately halt developing, testing, deploying, and proliferating ballistic missiles. 7The transfer of funds, supplies, and technologies to North Korea for the development of missiles and weapons of mass destruction and the procurement of missile-related materials and technologies from North Korea must be blocked. 7North Korea must return to the six-party talks immediately and unconditionally and implement swiftly the joint declaration issued TOKYO 00003818 007 OF 011 by the six-party talks in September 2005. 12) Japan, US to do everything to persuade China, Russia to agree to sanctions resolution NIHON KEIZAI (Page 1) (Excerpts) July 9, 2006 The Japanese and US governments will do everything to persuade China and Russia, which are both opposed to the sanctions resolution against North Korea as jointly proposed by Japan, the United States, Britain, France, and other countries on the United Nations Security Council (UNSC). Japan and the US also are considering an option of imposing sanctions by a "coalition of the willing" that would consist of nations favoring the resolution if their efforts to persuade China and Russia end in failure. "We will firmly pursue the issuance of a resolution that contains sanctions," Foreign Minister Taro Aso stressed in a speech delivered in Osaka City on the afternoon of July 8. Aso held consultations with senior officials of his ministry at the minister's office until late at night the previous day. During the discussions, they confirmed the policy direction of opposing China's move to have the UNSC issue a less binding chairman's statement instead. Japan's tough stands comes from the judgment that if it fails to take a severe stance now, it would set a bad precedent for the future. Most UNSC members favor the resolution, but China and Russia, both of which have a veto right, are reluctant to adopt it. Tokyo has made this analysis about Russia: (1) Given that the Group of Eight industrialized nations (G8) summit conference at St. Petersburg is nearing, it would be difficult for Russia, the host of the G8 St. Petersburg Summit, to be lenient toward North Korea; and (2) China appears reluctant to exercise its veto right alone. Considering these factors, Japan has calculated that China and Russia would prefer to abstain from voting. Diplomatic maneuvering over this resolution involving the UNSC is likely to affect the now stalled six-party talks. China has begun moving to get the talks resumed. Reportedly, the Japanese government has informally conveyed to the countries concerned this stance: "If the six-party talks are restarted, the resolution could be modified on a step by step basis." If North Korea were to move to try to gain time, Tokyo is ready to impose sanctions by the UN or a join a coalition of the willing to oppose that country. Japan intends to use a carrot-and-stick policy in order to encircle North Korea. 13) Kantei pushing China, Russia not to veto resolution on North Korea; hopes they will be absent or abstain ASAHI (Page 1) (Excerpts) July 9, 2006 Japan has led the move to submit a punitive resolution on North Korea's missile launches to the United Nations Security Council, reflecting the strong desire of the Prime Minister's Official Residence (Kantei). By pushing China and Russia not to use their veto when the resolution is put to a vote at the UNSC, Japan intends to get these two countries to be absent or abstain from voting. "Japan's move this time is far different from the previous tendency TOKYO 00003818 008 OF 011 of Japanese representatives to the UN, who have given priority to balance and been attentive to others." This sort of view was exchanged in hallways and lounges at the UN headquarters among representatives from other countries who were surprised at Japan's rush to submit a resolution. A Japanese diplomatic source at the UN revealed: "The Kantei made the decision without regard to our situation at the UN." On July 6, the day after missile launches, Prime Minister Koizumi told reporters: "Even China and Russia cannot accept North Korea launching missiles." 14) 1st group of GSDF troops arrives in Kuwait from Iraq by air TOKYO SHIMBUN (Top play) (Excerpts) July 8, 2006 Takeshi Hamaguchi, Kuwait City The first group of Ground Self-Defense Force troops has arrived in Kuwait from the southern Iraqi city of Samawah to head home. Following a withdrawal order issued on June 20, the 10th GSDF contingent in Samawah and a support group have begun transporting equipment and supplies. Some 600 GSDF troops will head for Kuwait by air in groups. All GSDF troops are scheduled to leave Iraq in July, bringing an end to Japan's first "battlefront" mission. The first group composed of some 30 GSDF troops left the Samawah camp at around 6:10 a.m., July 7 (11:10, July 7, Japan time) on a coalition helicopter and arrived at the Kuwaiti Abdulah Al-Mubarak Air Base via Tallil Airport some 100 kilometers southeast of Samawah. The withdrawal from Iraq will be completed in a short period of time for security reasons. After spending about a week in Kuwait, troops from Iraq will head for Japan in groups. The transport of vehicles, including light-armored vehicles, and equipment started June 25 by using private firm trailers. A 100-strong transport unit dispatched to Kuwait will load them onto civilian vessels after thoroughly cleaning them. The Air Self-Defense Force's C-130s will airlift weaponry and ammunition to Kuwait. They will later be transported to Japan on civilian planes. The transport unit is expected to return home in September. 15) Defense Agency shuts out press in Kuwait TOKYO SHIMBUN (Page 1) (Full) July 8, 2006 In order to cover the arrival of the first group of Ground Self-Defense Force troops from Iraq, some 40 journalists were waiting at the Kuwaiti Abdulah Al-Mubarak Air Base. But shortly before the troops' arrival, the journalists were forced onto a bus prepared by the Defense Agency and moved outside of the airport. An agreement had been reached between the Defense Agency press club composed of major newspapers and television broadcasters and the Defense Agency to allow the press to cover the troops' arrival at the airport. But the press was shut out of the airport without any clear explanation. TOKYO 00003818 009 OF 011 16) Prime Minister Koizumi to leave tomorrow for Middle East and then G-8 summit in Russia YOMIURI (Page 2)(Excerpts) July 9, 2006 Prime Minister Junichiro Koizumi will leave tomorrow for a three-day trip to Israel and the Palestinian-ruled territory. Koizumi intends to urge both sides' self-restraint to ease tensions caused by the series of armed conflicts, such as Israeli military's intrusion into the Palestinian-controlled Gaza Strip on the pretext of rescuing a soldier abducted by Palestinians. The Japanese prime minister will visit Israel and the Palestinian Authority for the first time in 11 years since Prime Minister Tomiichi Murayama went in 1995. After visiting Jordan on July 12-15, he will fly to Russia to attend the G-8 summit to be held in St. Petersburg. He will report the results of his Middle East tour to the summit. Koizumi will meet on July 12 with Israeli Prime Minister Ehud Olmert to urge him to resume a dialogue with the Palestinian Authority for an early peace settlement and to express his concern about the armed conflicts. The expectation is that the two leaders will agree to strengthen bilateral relationships on such areas as politics, the economy, and culture. Koizumi will hold talks on the 13th with Palestinian leader Abbas to announce Japan's support for his peace policy. He will also tell Abbas that Tokyo will continue to assist the Palestinian Authority. He will then urge the Palestinian leader to release the Israeli soldier as early as possible since his abduction by a Palestinian armed group has brought about the present turmoil. 17) Minshuto head Ozawa plays up stance of placing emphasis on China; Some party members unhappy with remarks about sanctions on North Korea YOMIURI (Page 4) (Full) July 8, 2006 Ryota Akatsu, Tailien Minshuto (Democratic Party of Japan) President Ichiro Ozawa wrapped up on July 7 the main part of his trip to China. He will return home on the 8th. With Prime Minister Junichiro Koizumi unable to find ways to repair relations with China, Ozawa was about to realize a meeting with Chinese President Hu Jintao and succeeded in playing up a stance of attaching importance to China relations. During his China tour, he was also required to make clear his party's position when North Korea launched missiles. Ozawa proudly said to reporters accompanying him to China: "To resolve the North Korea issue, the Chinese side promised to deal with it through calm discussion. As I happen to be in Beijing, I was able to obtain a certain level of achievement." All eyes were focused on a series of his meetings with Chinese leaders as he was in Beijing where countries concerned were working TOKYO 00003818 010 OF 011 actively on North Korea's missile launches. Chinese Vice Foreign Minister Wu Dawei told Ozawa that he would visit Pyongyang soon. As a result, Ozawa succeeded in strengthening his political identity. Some senior Minshuto members looked into the possibility of having Ozawa and other senior party members visiting China protest at the North Korean Embassy in Beijing, but Ozawa rejected such an idea, saying, "That's what the Japanese government should do." He appeared to have been alert to the possibility of it being taken as just a performance by the main opposition party. Ozawa told the reporters: "There is a possibility of using military power as a sanction. We need to consider what countermeasures would then be taken." His remarks created quite a stir in Japan since Ozawa was taken as being negative about imposing economic sanctions on North Korea. Junior Minshuto lawmakers, who believe that tough sanctions are needed, were unhappy with Ozawa's remarks. One young lawmaker said, "Since Mr. Ozawa is not in Japan, he does not understand public opinion." One senior member explained: "Mr. Ozawa made that remark thinking that if Japan imposes sanctions, it must prepare for the aftermath. He did not reject sanctions. He was just calling for a calm argument in consideration of the situation in the party in which there were cautious and Hard-line arguments." All the more because the missile issue will likely be prolonged, Ozawa will probably find it difficult to set the party's policy after he returns home. 18) Primary balance to be brought into black in fiscal 2011; Government adopts basic policy guidelines on economic and fiscal management and structural reforms for fiscal 2006 budget; Consumption tax hike eyed as social security funding resource NIHON KEIZAI (Top Play) (Full) July 8, 2006 The government during a special cabinet meeting on July 7 adopted basic policy guidelines on economic and fiscal management and structural reforms for the fiscal 2006 budget. For fiscal reconstruction, it intends to bring the primary balance of both the national and local finances into the black without fail by fiscal ¶2011. It will aim at achieving a balanced budget, under which necessary expenditures are covered without borrowings. The report also included a plan to cut expenditures up to 14.3 trillion yen. Under the guidelines, the government will consider increasing the consumption tax in order to finance social security expenditures, which are expected to rise, though a specific rate has not been included in the package. The basic policy guidelines for fiscal 2006 is the last package mapped out under Prime Minister Junichiro Koizumi, who has declared his intention to step down in September. The prime minister told reporters after the cabinet meeting: "It was unprecedented for the ruling camp to have been cooperative for spending cuts to this extent. I want to make the best use of this cooperative relationship for the compilation of the next fiscal year's budget." Koizumi also released a dialogue, in which he pointed out the need to facilitate his reform initiative over the mid- to long-term in order to settle TOKYO 00003818 011 OF 011 such issues as the declining birthrate and the colossal amount of fiscal deficit. The package clearly indicates a government policy of achieving fiscal reconstruction by the middle of the 2010s under two timeframes. In the first stage, the deficit in the primary balance - an indication of impossibility of financing administrative expenses without borrowing - will be reviewed and the national and local finance will be brought into the black in combined terms. The report then noted that in the second timeframe, the underlining uptrend in government debts would be stemmed so as to lower their ratio to gross domestic product (GDP) in a stable manner. Regarding the first task of bringing the primary balance into the black, the report estimated under the reliable premise of a nominal economic growth rate of about 3 PERCENT that there would be a shortage of 16.5 trillion yen, of which 11.4 - 14.3 trillion yen would be covered through spending cuts and 2-5 trillion yen with a tax hike. The Liberal Democratic Party (LDP) undertook coordination of spending cuts at the order of the prime minister. As a result, a 2.6 trillion yen cut in personnel expenses for national and local government employees and 1.6 trillion yen cut in social security spending have been decided. Public works expenditures are expected to be slashed in the range between 3.9 trillion and 5.6 trillion yen. The latitude has been allowed out of consideration for local economies. For other spending items, the report noted that necessary examinations and revisions would be carried out. To this end, a flexible clause allowing a revision of the latitude has been incorporated. Regarding revenues, the report referred to the need to reform the tax system, including a tax increase. Though it did not touch on a possible timeline and tax items subject to a hike, it judged that an increase in expenditures in the social security field would be unavoidable due to an increase in social security payments and the need to improve measures to deal with the declining birthrate. Consideration will be given to the possibility of characterizing the consumption tax as a stable funding resource for the payouts of social security benefits. Following the adoption of the guidelines, the government will get down to compiling the fiscal 2006 budget. It will adopt budgetary request guidelines on the 21st. SCHIEFFER