The Japan Economic Scope - Economic News At-

UNCLAS SECTION 01 OF 05 TOKYO 005526

SIPDIS

SIPDIS

SENSITIVE

PARIS PLEASE PASS USOECD
STATE PLEASE PASS TO USTR FOR CUTLER AND BEEMAN
STATE PLEASE PASS TO NSC FOR KURT TONG
STATE PLEASE PASS TO USDOC FOR MELCHER

E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - Economic News At-
A-Glance.

Sensitive but unclassified. Please protect
accordingly.


1. (U) Summary. The Japan Economic Scope (JES) is a
weekly e-newsletter produced by Embassy Tokyo's ECON
section in collaboration with other sections and
constituent Posts. It provides a brief overview of
recent economic developments, insights gleaned from
contacts, summaries of the latest cables and a list of
upcoming visitors. This cable contains the September
22, 2006 JES, minus the attachments that accompany
many of the individual stories in the e-mail version.
To be added to the mailing list, please email
ProgarJ@state.gov. End Summary.


It's Official! Abe Wins!
--------------


2. (SBU) Shinzo Abe won a decisive victory in the
ruling Liberal Democratic Party (LDP) election on
September 20, defeating Foreign Minister Taro Aso and
Finance Minister Sadakazu Tanigaki in a contest that
was never really close. He became the 21st LDP
president immediately upon the resignation of the
current president, Prime Minister Junichiro Koizumi,
and other party executives later in the day. He also
is the youngest president and the first born after
World War II. Abe won 66.1 percent of the vote, less
than the 70 percent he had hoped to garner, while Aso
came in second with 19.4 percent and Tanigaki was
third with 14.5 percent, both having done better than
expected.


3. (SBU) Next comes the appointments of the three LDP
executive positions: Secretary General, Chairman of
the Policy Research Council (PARC) and Chairman of the
General Council, which will be announced on Monday,
September 25. Speculation is rife but leading
contenders for Secretary General include Hidenao
Nakagawa or Taro Aso. Hidenao Nakagawa has also been
suggested for PARC chairman. Fumio Kyuma, Fukushiro
Nukaga and Yuya Niwa are on various lists for General
Council Chairman and Hakuo Yanagisawa and Bunmei Ibuki
have also been mentioned as possibilities for any of
these three jobs.


4. (SBU) Abe has said he would announce Cabinet
Ministers on Tuesday, September 26. Again, the gossip
mills are working overtime but some names have
appeared in more than one place. Below is a list of
positions and possible contenders gathered from a
number of sources:

--Chief Cabinet Secretary - Nobuteru Ishihara,
Nobutaka Machimura, Kaoru Yosano, Yasuhisa Shiozaki

--Foreign Ministry - Shoichi Nakagawa, Nobutaka
Machimura, Taro Aso, Sadayuki Hayashi (former
Ambassador to the UK)

--Finance Ministry - Kaoru Yosano, Hakuo Yanagisawa,
Yasuhisa Shiozaki, Toshihiro Nikai, Toshiaki Amari

--MEXT - Nobutaka Machimura, Shoichi Nakagawa, Sanae
Takaichi

--MIC - Fumio Kyuma

--METI - Akira Amari, Yuji Yamamoto, Tsutomu Takebe

--Justice Ministry - Yuji Yamamoto, Shoichi Nakagawa

--Defense Agency - Fukushiro Nukaga, Sanae Takaichi,
Fumio Kyuma

--State Min for Financial Services - Kaoru Yosano,

TOKYO 00005526 002 OF 005


Hakuo Yanagisawa, Yasuhisa Shiozaki, Toshihiro Nikai,
Toshiaki Amari

--State Min for Econ/Fiscal Policy - Kaoru Yosano,
Hakuo Yanagisawa, Yasuhisa Shiozaki, Toshihiro Nikai,
Toshiaki Amari

--State Min for Abduction Issue - Kyoko Nakayama

CPRR Chairman Resigns, Rumors on Replacement
--------------


5. (U) The Chairman of the Committee for the
Promotion of Regulatory Reform (CPRR),Yoshihiko
Miyauchi, resigned his position September 21 in a move
we anticipated based on comments Miyauchi made to EMIN
during a recent courtesy call (see Tokyo 05180).
Miyauchi, who was chairman of the Committee for nearly
ten years, is widely credited with steadfastly driving
the regulatory reform process forward. Newspaper
reports speculate he will be replaced by CPRR board
member Takao Kusakari, the Chairman of Japan Yusen
Shipping company. A Keio University graduate and
former rugby player, Kusakari is also seen as a strong
proponent of regulatory reform and has championed
changes in medical services and education. A contact
in the CPRR secretariat told us that none of the
staffers had anticipated Miyauchi's resignation before
the end of his term (March 2007) and that they had
only learned of his departure via the internet.

Takenaka Resignation Unsurprising
--------------


6. (SBU) On September 15 Heizo Takenaka, well known
economist, reluctant politician, and symbol of Prime
Minister Koizumi's reform agenda, announced his plan
to 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 sufficient incentive to stay, especially
because politicians he had clashed with over banking
reform may be part of the new administration. For
further information, please see Tokyo 5450.

Confusion Over Revoked Sakhalin Permit
--------------


7. (SBU) The media has reported that Russian
authorities have cancelled a key environmental permit
for Sakhalin-2, the $20 billion project on the Russian
island of Sakhalin led by Royal Dutch Shell.
Subsequent reports have sought to clarify this action.
Sakhalin Energy CEO Ian Craig was quoted as saying
that the Russian General Prosecutor's Office believes
an order involving Sakhalin-2 Phase 2 had been issued
illegally but that a new order would be issued and
validated, presumably replacing the invalid order.
Craig went on to say that none of this involves
Sakhalin-2 Phase 1, which is already producing over
70,000 barrels of oil per day for about half the year.
This amount should more than double during Phase 2,
which also includes the construction and complete
enclosure of the world's biggest liquefied natural gas
(LNG) plant. Japan's Mitsubishi Corp. and Mitsui &
Co. won 20 percent and 25 percent of the project
respectively. Japanese utilities have already
contracted to buy a combined total of about 4.5
million tons of LNG from the project, which expects to
produce around 9.6 million tons of LNG a year
beginning in 2008.

Shiozaki Supports Regional Architecture
--------------


8. (SBU) Yasuhisa Shiozaki, Senior Vice Minister for

TOKYO 00005526 003 OF 005


Foreign Affairs and possible member of the next
Cabinet, last week spoke with EMIN about regional
architecture and indicated his strong support for
continued discussion with the US on how to strengthen
and better utilize the various frameworks available in
East Asia without excluding the US. He expressed his
hope for improved relations with China under the new
administration and was also eager to identify US
officials who support an FTA with Japan. For further
information please see the attached memorandum.

Japan-Philippines Economic Partnership Agreement
Signed but Other FTAs Going Nowhere Fast
--------------


9. (SBU) Prime Minister Koizumi and Philippine
President Arroyo signed the Japan-Philippines
"Economic Partnership Agreement" (EPA, in effect a
free trade agreement) September 9 on the margin of the
Asia-Europe Summit Meeting (ASEM) in Helsinki,
Finland. The final document largely reflects the
basic agreement reached between the two countries at
the end of 2004, according to officials of the
Japanese Foreign Ministry. The reasons behind the
delay in signing the agreement are recounted in
telegram Tokyo 5329 (classified). The Japanese
Government will submit the agreement to the Diet for
approval during the upcoming extraordinary session due
to convene at the end of September. It is expected,
however, that ratification by the Philippine Congress
may take somewhat longer. The full text of the signed
agreement is available on the Japanese Ministry of
Foreign Affairs website at the address:
http://www.mofa.go.jp/region/asia-
paci/philippine/epa0609/index.html


10. (SBU) Telegram Tokyo 5329 (classified) also
conveys the views of a Foreign Ministry official
involved in Japan's ongoing free trade agreement
negotiations on the dim prospects for various regional
and bilateral agreements, including Japan-ASEAN,
Japan-Australia, and Japan-Thailand.

MOF Rejects Marlboro Price Increase
--------------


11. (SBU) Philip Morris representatives told us that
MOF rejected its pro forma price increase request on
Marlboro and other PM brand cigarettes saying that
such an increase would harm Japanese consumers. MOF
and Philip Morris established this pro forma price
approval system under a USTR 301 agreement in 1986 to
address concerns that American manufacturers would
dump cheap cigarettes on the Japanese market. This is
the first time the company's price-setting request has
been denied. Philip Morris had previously enjoyed
steady market growth, climbing from 1 percent market
share in 1986 to 25 percent share today. However,
company representatives stated the 30 yen per pack
proposed increase is necessary to achieve revenue
targets in the face of 3-4 percent volume declines.
They speculated that MOF wants to maintain some
control over cigarette pricing because, should
manufacturers, and particularly Japan Tabacco, have
the freedom to raise prices, cigarette smoking would
decrease and tabacco leaf farmers would suffer.
FinAtt is engaging MOF to learn more.

Alternative Energy Sources Not In the Mix To Meet
Increasing Power Demands in Central Japan
--------------


12. (SBU) Based on the continuing expansion of
regional industry, Chubu Electric (Chuden),the power
company for five Central Japan prefectures centered on
Nagoya, projects electricity demand to grow steadily
in the one to three percent range per annum over the

TOKYO 00005526 004 OF 005


next decade, Vice President Takuo Yamauchi told Nagoya
PO on September 21. Although alternative energy
sources receive a lot of media attention and a fairly
substantial amount of Chuden research, according to
Yamauchi, sources like solar and wind account for a
nearly negligible proportion of Chuden's generation
and will likely stay so for the foreseeable future.
Currently, about 70 percent of Chuden's generation
comes from fossil fuels, 20 percent is nuclear, and 10
percent is hydroelectric.


13. (SBU) Over the next one to two decades, Yamauchi
anticipates the only significant change will come from
two new nuclear plants under development by the Japan
Atomic Power Company (partially owned by Chuden) in
Tsuruga, Fukui prefecture, and a relatively minor bump

SIPDIS
from a large dam currently in the final stages of
opening in Gifu. If the nuclear plants stay on
schedule (potentially a big if, considering political
concerns and the fact that their opening would likely
necessitate the decommissioning of two other plants),
and accounting for growth in demand, by around the
year 2020, Chuden's production breakdown is likely to
be about 59 percent fossil fuels, 30 percent nuclear,
and 11 percent hydroelectric.

BOJ Policy Board Member Sends Mixed Messages
--------------


14. (SBU) Atsushi Mizuno, member of the Bank of Japan
(BOJ) policy board, spoke at a Jiji Press financial
forum on September 20 about the recent world financial
and economic situation with emphasis on the United
States and Japan. Most notably, Mizuno missed an
opportunity during the question and answer session to
emphasize the BOJ's independence in light of the
election of new Liberal Democratic Party (LDP) leader
Shinzo Abe on the same day. Mizuno instead
underscored the importance of dialogue on economic
matters between the new administration and the Central
bank. He also sent a mixed message about the
transparency of BOJ policy, at one point stressing its
importance and at another, warning that sometimes
transparency could be a bad thing because it was
unable to create a world without uncertainty.

Sapporo CEO Cites American Influence in Receiving UN
Refugee Assistance Award
--------------


15. (U) The UN Refugee Agency (UNHCR) presented Dr.
Akio Kanai, CEO of Hokkaido-based Fuji Optical, with
the 2006 Nansen Refugee Award. The UNHCR recognized
Dr. Kanai for his work over the past two decades to
provide free eye examinations and eyeglasses to more
than 100,000 refugees worldwide. This is the first
time that a Japanese citizen has received this
prestigious award.


16. (U) Dr. Kanai received his doctorate degree in
optometry from Southern California College of
Optometry in 1972. In a Asahi Shimbun interview on
why he is dedicated to helping refugees, Dr. Kanai
explains that he learned about volunteerism,
hospitality and kindness towards others while living
with his American host family during his PhD studies.
It was also a fellow American optometrist friend who
introduced him to his first volunteer work in 1972,
offering free eye examinations on a Native American
reservation.

Co-op Working Group Continues Deliberations on Legal
Revisions
--------------


17. (SBU) The Ministry of Health, Labor, and Welfare
(MHLW) Working Group on co-operatives (kyosai)

TOKYO 00005526 005 OF 005


continues to work on revising MHLW's governing
legislation. Attached is a summary of the group's
latest discussions, including MHLW suggestions on
changing co-operatives' geographic restrictions and
insurance policyholder protection regulations, as well
as transparency concerns.