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E.O. 12958: DECL: 09/20/2016
TAGS: PGOV PREL ECON JA
SUBJECT: TAKENAKA RESIGNATION UNSURPRISING


Classified By: Ambassador J. Thomas Schieffer. For reasons 1.4 (b,d)


1. (C) Summary. On September 15 Heizo Takenaka, well known
economist, reluctant politician, and symbol of Prime Minister
Koizumi's reform agenda, announced that he would give up his
Diet seat on September 26. Faced with the imminent
retirement of Koizumi, his biggest supporter, Takenaka was
not expected to remain in the Cabinet and appears to have
decided that a Diet seat was not a sufficient incentive to
stay, especially because politicians he had clashed with over
banking reform may be part of the new administration. One
contact told the Embassy the "real" reason for Takenaka's
resignation is that a new story about his financial
improprieties came out this week in one of Japan's weeklies;
financial scandals have dogged Takenaka for the last five
years. Nonetheless, we expect Takenaka may retain some
policy influence as he returns to academia and possibly
starts a think tank of his own. Under Election Law,
Takenaka's vacated proportional representation seat will be
filled by Shinobu Kandori, formerly a female professional
wrestler. End summary.

Replaced by his Detractors?
--------------

2. (C) Takenaka has been a driving force behind Koizumi's
push to reform the economy. An academic who came to
political prominence when Koizumi appointed him Minster of
State for Economic and Fiscal Policy in 2001, Takenaka is
credited with accelerating the disposition of bad loans left
over from the bursting of Japan's bubble economy. His
hardball approach using massive infusions of taxpayer money -
and the accompanying threat of nationalization - to pressure
big banks into fixing their balance sheets won him the enmity
of politicians such as Kaoru Yosano and Hakuo Yanagisawa, who
believed that a soft landing for the banks was the better
choice. Takenaka was also instrumental in enacting
legislation to privatize the postal services, helping Koizumi
pull off one of his most important political achievements.

This fight, which played out spectacularly last fall in
Koizumi's landslide Lower House election victory, also won
Takenaka new enemies. Rumors that Takenaka's replacement in
the Abe Cabinet might be Yosano or Yanagisawa may have helped
convince Takenaka that his time was up.

Reform Path Unclear
--------------

3. (C) It is unlikely that Takenaka's exit per se heralds the
end of Koizumi's reforms, but it may be associated with a
mild slowing. This is not surprising given that the new
Prime Minister likely will have one eye on the Upper House
election in Summer 2007 and so will be reluctant to pursue
any new economic reform too vigorously. Embassy contacts
expect that Takenaka may still advise on the postal
privatization process from a new think tank and note he had
not been expected to continue in the Cabinet after Koizumi
resigned.

Plagued by Scandal
--------------

4. (C) Takenaka's term has been dogged by scandal with new
allegations about political donations surfacing just last
week. He reportedly received political donations amounting
to close to 12 million yen at several seminar/cocktail
parties last summer, but he only formally notified receipts
of 1.52 million yen. Takenaka also has been accused of
switching his residential status between Japan and the United
States in order to avoid income tax.

Road to the Upper House
--------------

5. (C) Criticism that Takenaka had too much power for a
non-politician led Koizumi to ask Takenaka to run for an
Upper House seat in the summer of 2004. Takenaka received
the greatest number of votes of any Liberal Democratic Party
(LDP) candidate in that proportional race and successfully
extinguished criticism that he was not a representative of
the people. Takenaka was elected to a six year term but with
his departure will serve only two years. He will be replaced
by a female wrestler named Shinobu Kandori, who has little
political experience but has been active in social welfare.
Charismatic and popular, she is 41 years old and widely known
as "Mister Female Professional Wrestler." Kandori has
already said she plans to take Takenaka's seat as well as run
in the Upper House election in 2007.

Comment
--------------

6. (C) Takenaka's resignation is not surprising given his

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close relationship with Koizumi. His decision probably
derives from a sense that he has done as much as he can in
active politics and from a realization that the new
administration is unlikely to include him. That his
resignation coincides with new allegations of financial
scandal indicates he may have decided he is unable or
unwilling to fight this one politically, but it probably will
not effect his academic career. Takenaka outlasted all of
his political rivals while a member of Koizumi's Cabinet and
we expect him to continue to be influential in the economic
policy arena.
SCHIEFFER