UNCLAS SECTION 01 OF 05 TOKYO 006384

SIPDIS

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

Sensitive but unclassified. Please protect
accordingly.


1. (SBU) Table of Contents


3. Keidanren to Call for FTA with U.S.

4. Embassy Meets with GOJ Officials on Triangular
Merger Issues

5. Louisiana Governor Leads Trade Mission to Japan

6. DPJ Member and Agriculture Expert Matsushita Voices
Support for Cooperation on Food Safety

7. MAFF Needs to Reduce Stocks of Imported Rice, Board
of Audit Says

8. Central Bank Holds Steady on Previous Growth
Forecast

9. Japan's Core Consumer Price Growth Decelerates
Slightly to 0.2% in September

10. Slight Rise in Unemployment Seen as Within Normal
Volatility

11. United Airlines Begins 1st Non-stop Narita-DC
Service; Amb. Attends Ceremony

12. American Chamber of Commerce Japan Pushes for
Expanded BizAir

13. Road Transport Vehicle Law - Devil Is In The
Details

14. Former Amb. Makoto Taniguchi on Japan, Asia and
FTA

15. Microsoft Helping to Upgrade Sapporo's IT Industry


2. (U) 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 and published every Friday. 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 November 2, 2006, JES, minus the attachments that
accompany many of the individual stories in the e-mail
version. To be added to the e-mail list, please email
ProgarJ@state.gov.


3. (U) Keidanren to Call for FTA with U.S.
--------------

The Japan Business Federation (Nippon Keidanren) will
formally propose later this month that the GOJ
negotiate an Economic Partnership Agreement with the
U.S. according to media reports. This is the first
time the Federation has taken a formal position on
this issue.

The stories also said Keidanren chairman Fuijo Miterai

plans to travel to the U.S. early next year to discuss
the proposal with U.S. governmental and business
leaders.

Among the priorities Keidanren reportedly will include
in its proposal are, unification of rules for
protection of intellectual property rights and
environmental standards as well as streamlining of
investment rules, business licensing and business
travel regulations.

On the agricultural issue, the reports said Keidanren
would call for measures to ensure "food security" in
line with expected greater market opening for U.S.
agricultural products.

We note the inconsistency of Keidanren urging a closer
economic partnership with the U.S. at the same time it
is urging the GOJ to tighten regulation of cross
border M&A (see JES 10/27/06) and will explore this
inconsistency and seek other details of Keidanren's
proposal in meetings with senior Federation officials
in the weeks ahead.


4. (SBU) Embassy Meets with GOJ Officials on
Triangular Merger Issues

TOKYO 00006384 002 OF 005


--------------

Econ Section met this week with both METI and MOJ
officials working directly in the triangular mergers
issue and began outreach to Diet members to impress on
them the importance to Japan's investment climate of
allowing a variety of cross border M&A.

METI has taken a very public position opposing
Keidanren's proposal for strict controls on the use of
foreign stocks in triangular mergers.

Mid-level METI officials in the International
Organizations Bureau are in daily contact with
Embassy. They confirmed to us that Keidanren is split
on the issue, with Federation Chairman Mitarai and two
key Vice Chairmen (including one representing the
steel industry) the strongest supporters.

Mitarai told METI the issue has become a "symbol" of
the threat of hostile takeovers and that he believes
many Japanese companies have not yet implemented
appropriate defensive measures.

Senior METI officials, including Minster Amari have
met with Mitarai and told him directly METI cannot
support the Federation's position. The two sides have
"agreed to disagree."

MOJ, which is responsible for drafting and
implementing the governmental ordinances on the 2005
Company Law, is taking a far more cautious stand.

The Ministry has made no public statements and at the
October 31 Investment working group DVC, MOJ
representatives would only say they are awaiting the
outcome of public discussion on the issue and were
"willing to listen to all sides."

Privately, however, they were more forthcoming.
Senior attorneys in the Ministry's Civil Affairs
Bureau told us the relevant ordinance was finalized
month ago. No further action is necessary to allow
cross border triangular merger regulations to take
effect as of May 1, 2007. An MOJ official made clear
this was the Ministry's preferred outcome. "We had
expected it would be in effect by this time."

The one-year delay in implementation was a political
compromise between the government and the LDP at the
behest of Keidanren. The same MOJ official appealed
for understanding of the "difficult position the
Ministry is in" now that Keidanren has renewed its
opposition to the rule. He could not rule out a new
political decision within the ruling party acceding to
Keidanren' request, which MOJ would have to follow.

Meanwhile, the Econ Section has begun outreach to Diet
members on the LDP Judicial Affairs Committee and its
Commercial Law subcommittee. Mitarai will reportedly
meet with relevant Vice Chairs as early as the 13th to
discuss this issue with a policy council meeting
possible on November 21.


5. (U) Louisiana Governor Leads Trade Mission to Japan
-------------- --------------

Louisiana Governor Kathleen Blanco arrived in Japan
October 31 on a trade mission.

Her delegation is meeting with GOJ and senior
corporate officials here to drum up business for
Louisiana and to inform the Japanese of financial
incentives set up to attract investment in the state
after Hurricane Katrina.

Key sections from the Embassy briefed the Governor and
several officials from the Louisiana Office of

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Business Development on November 1 at the outset of
their visit.


6. (SBU) DPJ Member and Agriculture Expert Matsushita
Voices Support for Cooperation on Food Safety
--------------

EMIN met with Upper House member Shinpei Matsushita on
November 3 and raised possible collaboration between
the U.S. and Japan on adopting food safety measures
based on sound science and international standards.

EMIN explained that the issue, already a point of
concern for U.S. exporters, is something their
Japanese counterparts could face in third countries if
the GOJ's effort to expand food exports is successful.

Matsushita welcomed the idea saying that it was
important for the two countries to collaborate on a
bilateral level.

He acknowledged countries should observe international
standards in general, but also pointed out the need to
offer special differential treatment for developing
countries, as these countries need such measures to
protect specific agriculture commodities.

Matsushita who is a member of the Upper House
Committee on Agriculture, participated in a May 2006
Embassy program that sent four younger Diet Members to
Washington on a five day study program. Pictures from
the trip take up a prominent place in Matsushita's
office.


7. (U) MAFF Needs to Reduce Stocks of Imported Rice,
Board of Audit Says
--------------

The Board of Audit, Japan's equivalent of the GAO,
reports that the expanding inventory of imported rice
has become a financial burden -- 2 mmt costing roughly
$144 million annually -- and is urging the Ministry of
Agriculture, Forestry and Fisheries (MAFF) to take
action to reduce it.

In response, in July MAFF started to release old
import stocks to the feed sector, given its mandate to
keep imported rice out of the food/table market.
MAFF expects to release about 25,000 mt per month
through June 2007. U.S. rice makes up 63.5 percent of
MAFF's stocks.


8. (U) Central Bank Holds Steady on Previous Growth
Forecast
--------------

In their semi-annual "Outlook for Economic Activity
and Prices," Bank of Japan (BOJ) Policy Board members
maintained their assessment laid out in last April's
report, noting that "Japan's economy is likely to
achieve sustainable growth under price stability."

The BOJ's core CPI inflation and growth projections
were more or less in line with those of private
analysts. Board members projected "core" CPI
increases of 0.3 percent in FY06 (April 2006 to March
2007) and 0.5 percent in FY07. They also projected
real GDP growth of 2.4 percent in FY06 and 2.1 percent
in FY07.

In the "Outlook," Board members expressed the view
that Japan's positive output gap is "increasing at a
moderate pace," and projected that over time the
growth rate is likely to slow toward its potential
growth rate of about 1.5-2.0 percent.


9. (U) Japan's Core Consumer Price Growth Decelerates
Slightly to 0.2% in September

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--------------

Japan's nationwide "core" CPI (excluding perishable
food items), rose 0.2 percent in September from the
year before, having increased 0.3 percent in August,
the Ministry of Internal Affairs and Communication
(MIC) announced October 27.


10. (SBU) Slight Rise in Unemployment Seen as Within
Normal Volatility
--------------

The seasonally adjusted unemployment rate ticked up
slightly in September to 4.2 percent. Noting that
voluntary employment departures rose while job-related
departures fell, one private sector analyst argued the
rise was within normal monthly volatility and called
it a sign of the labor market's tightness. His
analysis continues to forecast unemployment eventually
falling below 4 percent.


11. (U) United Airlines Begins 1st Non-stop Narita-DC
Service; Amb. Attends Ceremony
--------------

United Airlines inaugurated its first Tokyo-Washington
Dulles daily non-stop service from Narita on October

28. Amb. Schieffer attended the ceremony at the
invitation of United.

This route will replace United's Narita-New York
service and allow United to use its Dulles hub,
routing more passengers onto other United flights to
other U.S. destinations.


12. (U) American Chamber of Commerce Japan Pushes for
Expanded BizAir
--------------

The American Chamber of Commerce in Japan (ACCJ)
issued a policy paper this week calling on the
Japanese government to support the growth of business
aviation in Japan. Business aviation in Japan lags
behind other countries, and the ACCJ paper urges the
GOJ and the Ministry of Land, Infrastructure and
Transport (MLIT) to revise policies and regulations
that restrict the development of business aviation
here.


13. (U) Road Transport Vehicle Law - Devil Is In The
Details
--------------

Representatives from General Electric's Fleet Vehicle
Division told Econoff, while legislation amending the
Road Transport Vehicle Law (RTVL) was passed in May
2006 that allows "one stop omnibus" registration of
fleet vehicles, MLIT has given itself five plus years
to develop and roll-out the actual implementation,
leaving fleet owners stuck with a registration system
with which they cannot comply.

This issue continues to be a subject of bilateral
discussions in the U.S. - Japan Regulatory Reform
talks. GE plans to continue to lobby for early
implementation of the law and has also submitted a
viewpoint on the issue that will be incorporated in
ACCJ's business whitepaper.


14. (U) Former Amb. Makoto Taniguchi on Japan, Asia
and FTA
--------------

Professor Makoto Taniguchi -- currently a president of
Iwate Prefectural University and formerly Deputy
Secretary-General of the OECD and Ambassador

SIPDIS
Extraordinary and Plenipotentiary and Deputy
Representative of Japan to the UN -- gave a talk on

TOKYO 00006384 005 OF 005


the East Asian Community and Sino-Japanese relation at
the International Economic Research Center on October
20th.

He said that the lack of coordination in the recent
years between Japan and China is the reason why an
East Asian Community has not been realized. He noted
that Japan is mainly to blame for the situation in
Asia, and the absence of a long-term foreign policy by
MOFA is the fundamental reason that Japan is and will
be falling behind in the wave of FTAs.

For Asian regionalism, he said that ASEAN+3 is the
original formation that should be pursued and
countries such as Australia, New Zealand and India
should remain as observers. They are not "East Asian"
countries.


15. (U) Microsoft Helping to Upgrade Sapporo's IT
Industry
--------------

Microsoft Japan is creating a special training program
in Sapporo on embedded software essential for
upgrading mobile phone and digital electric
appliances.

In collaboration with the city of Sapporo and the
Sapporo Electronics and Industries Cultivation
Foundation, Microsoft is now providing direct training
to local software engineers who will eventually take
over teaching of the course. Beginning in 2007, the
training program plans to graduate 30 new software
engineers every year.

This is the first time Microsoft is offering such a
training program in Japan. The company and local
leaders hope the program will help encourage long term
development of Sapporo's IT community and slow the
trend towards outsourcing to China.

Specifically, Sapporo Mayor Ueda hopes that over ten
years, the program will help create 600 companies,
30,000 employees and sales of $85 billion for Hokkaido
IT-related industries.

If successful, Microsoft plans to expand this training
program to other parts of Japan.

SCHIEFFER