The Japan Economic Scope - Economic News At-A-

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1. (SBU) Table of Contents


3. Japan and Australia Agree to Begin Talks on Free
Trade Agreement

4. Hokkaido Farmers Protest Japan-Australian EPA
Negotiations

5. PMs Singh, Abe Likely to Announce EPA Negotiations

6. Sec. Bodman, METI Minister Amari Agree to Cooperate
on Energy Security

7. IEA Selects Tanaka as Next Executive Director

8. 2007 Tax Code Revisions Hammered Out

9. Diet Cuts Cap on Consumer Loan Rate & Creates
Designated Credit Bureau

10. Miyazaki Bid-rigging Scandal: Has the Scale Tipped?

11. ACCJ Healthcare Services Sub-Committee Meets to
Discuss Priorities

12. Ford Japan; Yen-Dollar Exchange Rate Not Raised Here

13. New Haneda Airport Runway Plan Likely to be Delayed

14. ANA Sells Domestic Hotels to Solidify Lead Over JAL

15. Civil Aviation: Japanese Reservations about EU
Emission Trading Scheme

16. BOJ December "Tankan" Survey -- Slight Improvement
in Business Sentiment

17. Red Sox Land Matsuzaka; New Dynasty Emerging in
Boston


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 December 15, 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) Japan and Australia Agree to Begin Talks on Free
Trade Agreement
--------------

Prime Minister Shinzo Abe and his Australian
counterpart, John Howard, agreed officially to enter
talks on a free trade agreement in a December 12
telephone call.

The decision follows release of a joint feasibility
study pointing to the economic upside of inking a deal.

Japan hopes to acquire stable energy and mineral
supplies from Australia with an FTA, while Australia
looks to boost market access for its food and
agriculture commodities (see Canberra 1984).

Chief Cabinet Secretary Shiozaki hailed the agreement
for potentially strengthening "strategic ties between
the two countries."

One GOJ official reportedly mentioned that negotiations
with Australia are meant to serve as a case study for
future agreements with the United States or China, which
supply more agricultural products to Japan than
Australia.

Most print media coverage of the announcement, apart
from the Japan Agricultural News, an industry paper, was
low key.

The general view is that negotiations will move slowly,
with agricultural interest groups putting up a stiff
defense.

The ruling Liberal Democratic Party's calculations
reportedly show that the effect on Japan's farming
districts would total about three trillion yen.


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A resolution passed by the Agriculture Committee in the
Diet calls for negotiators to create exceptions on a
number of sensitive items, including rice, beef, wheat,
sugar and dairy products.

The resolution, supported by both the ruling and the
opposition parties, says that if Australia balks at
identifying a range of sensitive items Japan should halt
the talks.

4.(U) Hokkaido Farmers Protest Japan-Australian EPA
Negotiations
--------------

As the GOJ plans to begin negotiations with Australia on
an economic partnership agreement (EPA),Hokkaido
farmers are already mobilizing to oppose it.

On December 9, the Hokkaido Japan Agricultural
Cooperatives Youth Group rallied at JR Sapporo Station
to express their opposition to EPA negotiations and
promote Hokkaido-produced agricultural products.

On December 11, members of the Hokkaido Farmers
Federation held a "Dead Set Against Japan/Australia EPA
Negotiations" rally in the central Hokkaido city of
Obihiro. About 1,700 farmers from across Hokkaido
gathered for loud demonstrations that received media
coverage across the region.

Last week, the Hokkaido Prefectural Department of
Agriculture announced that proposed tariff reductions on
the prefecture"s four major agricultural products
(wheat, dairy products, sugar beets and beef) will
result in the worst economic impact in recent memory.
Officials claim Hokkaido"s GDP will shrink by 4.2% ($7
billion) and the unemployment rate will increase by 3.2
percentage point as 47,000 farmers will lose their jobs.


5. (SBU) PMs Singh, Abe Likely to Announce EPA
Negotiations
--------------

During Indian Prime Minister Singh's December 13-16
visit to Japan, he and PM Abe will likely announce the
start of negotiations toward an economic partnership
agreement, according to government officials and press
reports.

The EPA would be one of several measures designed to
improve Japanese-Indian political, economic, cultural,
and international diplomatic cooperation. See Tokyo
6926 for details.


6. (SBU) Sec. Bodman, METI Minister Amari Agree to
Cooperate on Energy Security
--------------

Energy Secretary Samuel Bodman met with Minister of
Economy, Trade and Industry Akira Amari on December 12
to discuss energy security in Northeast Asia prior to
the Beijing Energy Ministerial in Beijing on December

16.

Amari emphasized the importance of diversifying
resources with particular emphasis on nuclear energy.
He noted existing U.S.-Japan cooperation in the Global
Nuclear Energy Partnership (GNEP) and said he hoped to
see U.S.-Japan cooperation on the construction of new
nuclear power plants in the United States.

Amari also raised the need to improve the investment
environment in energy-producing countries as well as the
need to improve world-wide energy efficiency and
emergency measures during energy crises.

Bodman welcomed Amari's call for joint cooperation in
energy security and suggested that the Beijing meeting
would be an excellent venue for engaging China and

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India.

He also praised Japan's world class energy saving
efforts and called for Japan to lead the rest of the
world in improving energy efficiency.


7. (SBU) IEA Selects Tanaka as Next Executive Director
-------------- --------------

The Governing Board of the International Energy Agency
(IEA) in a meeting in Sydney, Australia, announced the
selection of Nobuo Tanaka as the next Executive Director
of the Agency.

He will succeed Frenchman Claude Mandil who completes
his term in August 2007.

Tanaka joined the Ministry of Economy, Trade and
Industry (METI) during the first oil crisis in 1973 with
an economics degree from the University of Tokyo and an
MBA from Case Western Reserve University in Cleveland,
Ohio.

His first assignment was to the Ministry's petroleum
office.

Since then he has served in the Japanese Embassy in
Washington and at the Paris-based Organization of
Economic Cooperation and Development (OECD) as well as
throughout METI and the Agency for Natural Resources and
Energy (ANRE).

Currently, Tanaka is OECD Director for Science,
Technology and Industry.


8. (U) 2007 Tax Code Revisions Hammered Out
--------------

The ruling coalition unfurled their 2007 tax code
revisions on December 14.

Highlights include reductions in the corporate tax
burden by allowing 100 percent depreciation of capital
investments (from 95 percent),which will not only lead
to a 450 billion yen tax cut in 2007, but also support
the Abe administration's growth strategy.

On the other hand, if last year's estimated one trillion
yen derived from the fixed-rate cut in income tax is
taken into account, taxes for the next fiscal year will
be increased, on balance.

Consumption tax increases, and the effective tax rate
levied on firms was put off for another year.

9. (U) Diet Cuts Cap on Consumer Loan Rate & Creates
Designated Credit Bureau
--------------

On December 13, the Diet enacted a controversial bill
revising the Money Lending Business (MLB) Law.

The bill lowers the maximum allowable interest charge on
uncollateralized consumer loans, and introduces a legal
limit on the total amount of consumer loans that
individuals can borrow from moneylenders.

The bill also calls on the establishment of a designated
credit bureau(s) to share credit information among
moneylenders.

It also contains a clause requiring the government to
review the status of lending rates and business
conditions of moneylenders, within 30 months after the
revised Law takes effect. Please see attached for
further details.


10. (SBU) Miyazaki Bid-rigging Scandal: Has the Scale
Tipped?
--------------

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On December 8, Miyazaki Governor Tadahiro Ando became
the third Japanese governor to be arrested on bid-
rigging charges in recent months.

Although southern Japan's Miyazaki prefecture ranks
first nationwide in the ratio of winning bid-to-
estimated contract price, a typical indicator of bid-
rigging, some legal experts estimate that about 80-85%
of all local Japanese public works projects may involve
some form of collusive bidding.

Furthermore, there are presently few disincentives to
persuade people from engaging in the activity.
Nevertheless, given current calls for fundamental
reforms in various key sectors of the Japanese economy
and the high profile arrests, there is some hope that
the Japanese public will become increasingly intolerant
of bid-rigging, especially those cases involving senior
elected officials. See Fukuoka 0070 for more details.


11. (U) ACCJ Healthcare Services Sub-Committee Meets to
Discuss Priorities
--------------

The ACCJ Healthcare Services Sub-Committee met on
December 11 to outline priorities for the coming year.
Sub-committee chair Barry Louie expressed willingness to
make a presentation to the Regulation Reform healthcare
working group as he did last year.

Louie also distributed data comparing Japan's spending
on healthcare compared to other countries, something
which had been requested by Kiyoshi Kurokawa, a
healthcare expert and adviser to Prime Minister Abe who
has been asked to improve Japanese competitiveness in
the sector.

The sub-committee also discussed re-issuing its
Viewpoint paper on healthcare after widening its focus.


12. (SBU) Ford Japan; Yen-Dollar Exchange Rate Not
Raised Here
--------------

ECONOFF and ECONFSN met with Ford Japan's Chairman,
Katsuhiko Satoh, and President and CEO, Randy Krieger,
this week to complete our discussions with U.S.
automakers in Japan about the Big Three automakers'
complaints to the President last month over the
undervalued yen.

Ford here, like GM and Chrysler, is not making an issue
of the yen-dollar exchange rate.

Mr. Krieger noted the appreciation of the Euro, however,
affects the imports to Japan from Ford's European
production facilities. (For our GM and Chrysler
meetings see: JES Volume 2 Issue #47 December 1, 2006)
Unlike GM and Chrysler, Ford sells a range of autos in
Japan, including economy models, imported from plants in
Taiwan and Europe. Ford sells about 5,000-6,000 units a
year.

Ford's main concern is how to meet Japanese pedestrian
safety, emissions, and fuel economy standards.
Krieger noted that Japan and Europe have similar
standards and China is going in the direction of Japan
and Europe.

U.S. standards are weaker and this places the exports of
U.S.-made cars to Japan at a competitive disadvantage;
Ford will probably rely on its European production for
exports to Japan.

(The Nihon Keizai Shimbun reports this week that the GOJ
plans to call for automakers to improve the fuel
efficiency of their vehicles by about 20% by 2015,
giving Japan the world's strictest fuel efficiency

TOKYO 00007023 005 OF 006


regulations.)

In regards to pedestrian safety standards, Ford is
trying to meet the Japanese requirements, but is seeking
more time from the GOJ to introduce the necessary design
changes.


13. (U) New Haneda Airport Runway Plan Likely to be
Delayed
--------------

Construction of Haneda airport's fourth runway is now
unlikely to start before the end of the year, according
to the Yomiuri Shimbun, because the negotiations with
local fishermen's associations have not been completed.
The Yomiuri says the delay will push back the projected
in service date from the end of 2009 to at least May
2010 as construction is expected to take some 35 months
followed by about six months of equipment and runway
checks.

A Japan Civil Aviation Bureau official told ECONFSN that
their ministry, the Ministry of Land, Infrastructure and
Transportation (MLIT),has not officially announced the
delay and still maintains that the ministry will try
its best to pursuit the project according to the
timeline, but also said that there is no specific
expected date for when the construction will start.


14. (SBU) ANA Sells Domestic Hotels to Solidify Lead
Over JAL
--------------

The press reported this week that ANA is moving to
concentrate on its core aviation business and planning
to sell its domestic hotels to raise money to buy the
next generation of fuel efficient aircraft and further
strengthen its lead over struggling JAL in the domestic
market (See Nikkei story attached).

The move will also help ANA to take advantage of the new
slots that will be available when Haneda and Narita
airport expansion are completed. For example, ANA plans
to add a Narita-Delhi route using a latest generation
Boeing 737 outfitted with business class seating
throughout the plane.

A transport industry executive confirmed to EMIN this
week that JAL is in a desperate situation and ANA sees
an opportunity to go for the juggler.


15. (SBU) Civil Aviation: Japanese Reservations about
EU Emission Trading Scheme
--------------

The GOJ has concerns about the European Commission's
proposal for including aircraft emissions in the EU
Emissions Trading Scheme, MOFA Climate Change officials
told us on December 11.

The GOJ will try to finalize its position before the end
of the year in time for PM Abe's scheduled trip to
Europe in the first part of January. For more
information please see: Tokyo 6955


16. (U) BOJ December "Tankan" Survey -- Slight
Improvement in Business Sentiment
--------------

The Bank of Japan's quarterly "tankan" survey of
business sentiment, a closely watched business circle
indicator and a principal input in central bank's
monetary policy deliberations, revealed a slight
improvement in business sentiment among almost all
categories -larger, mid-sized and small firms.

The survey's "headline" business sentiment diffusion
index (DI) for large manufacturers was in line with
market expectations, while that for non-manufacturers

TOKYO 00007023 006 OF 006


was a bid stronger than expected.

The December survey also revealed that all enterprises
on average revised modestly upward their FY06
projections of business investment from the September
survey.

These firm survey results are likely to underpin the
BOJ's policy adjustment to raise interest rates soon.
The BOJ Policy Board is scheduled to hold its first
post-"tankan" meeting on December 18/19. Please see
attached for more details.


17. (U) Red Sox Land Matsuzaka; New Dynasty Emerging in
Boston
--------------

The deal got done. The Saitama economy is set to get a
boost and Japan's tax collectors an estimated $20
million dollars after Daisuke Matsuzaka, the Seibu Lions
ace, agreed to terms with the Boston Red Sox on December

14.

He is the final link in what Kyodo news service reported
could become the finest starting rotation in baseball,
joining Curt Shilling, Josh Beckett, Jonathan Papelbon,
and Jon Lester.

All have Cy Young Award-caliber arms. With the addition
of right fielder J.D. Drew and shortstop Julio Lugo, the
Red Sox are beginning to look like a dynasty in the
making -- not of the meek, Bill Belichick, three
championships in four years variety, but of the Bill
Russell, Boston Celtics, 11 championships in 13 years
type.

The Red Sox are tapping into the Japanese market in a
big way. The story has splashed prominently in all the
key Japanese newspapers (Click for Mainichi English
coverage). Matsuzaka's introductory Fenway Park press
conference was carried live on Japanese TV.
The right hander's signing comes two weeks after former
Hokkaido Ham Fighter Hideki Okajima also inked a
contract with the Red Sox. A third Japanese pitcher is
rumored to be close to a deal.

Why Boston? Some insight may come from what New York
Yankee left fielder Hideki Matsui said when he visited
the Embassy earlier this year.

Asked by Japanese reporters what his favorite American
city was, he said Boston -- and pointed to the vibrant
university town atmosphere and the deep history.

He had little, if anything, to say about New York. Nor
did he have any comment about the Yankees controversial
ownership.

SCHIEFFER