DAILY SUMMARY OF JAPANESE PRESS 12/18/06-2

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 12/18/06-2


INDEX:

(2) Minshuto's strategy of confrontation ends in vain; Party's
reluctance to submit censure motion against prime minister causes
other opposition parties to lose trust in it

(3) Ruling camp focuses on tax breaks for corporations; Heavier
burden expected on households after elections

(4) Defense Agency's upgrading to ministry: Debate on permanent law
to be accelerated

(5) Editorial: What lies ahead now that a Defense Ministry is being
established

(6) LDP's Aso to launch faction tomorrow; Mixed motives to create
"grand Kochikai"

(7) Sakhalin-2 project: Japan facing challenge in securing
resources; Future course of supply contract unclear

ARTICLES:

(2) Minshuto's strategy of confrontation ends in vain; Party's
reluctance to submit censure motion against prime minister causes
other opposition parties to lose trust in it

NIHON KEIZAI (Page 2) (Abridged)
December 16, 2006

The first extraordinary Diet session under the Abe administration
ended on Dec. 15. All in all, the session was marked by the largest
opposition Minshuto's (Democratic Party of Japan) futile attempts to
turn the tables. The party, for instance, unsuccessfully submitted a
no-confidence motion against the Abe cabinet over its responsibility
for a series of staged town meetings. A lack of cooperation between
the Minshuto lower and upper chambers of the Diet and discord among
opposition parties were also evident throughout the Diet session.
The ruling coalition, which employed the carrot-and-stick approach,
also continued struggling exercising its leadership in running Diet
business.

Diet affairs chiefs of Upper House opposition parties met around
noon on Dec. 15. In the session, the Japanese Communist Party and
the Social Democratic Party urged Minshuto to jointly submit a
censure motion against Prime Minister Shinzo Abe. But Minshuto's
Upper House Diet chief Akira Gunji flatly refused their request,
saying: "Minshuto has made clear its stance in the Lower House. We
must not submit a censure motion against the prime minister so
lightly."

The proposal was intended to form a united front among opposition
parties following the no-confidence motion in the Lower House
against the cabinet. The People' New Party, too, refused to
cosponsor a censure motion due to Minshuto's reluctance. The Upper
House steering committee, which determines agenda items for plenary
sessions, does not include any directors from the three opposition
parties excluding Minshuto. The option of submitting a censure
motion against the prime minister did not realize.

JCP Secretariat Head Tadayoshi Ichida and SDP Secretary General
Seiji Mataichi held a joint press conference in which Ichida
criticized Minshuto, saying: "Not submitting a motion just because

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it is unlikely to clear the Diet is suicidal." Mataichi also blasted
the main opposition party: "We asked Minshuto to come up with a
unified view between its upper and lower house members. They should
not have made a promise they could not keep."

The secretaries general of the four opposition parties met on Dec.
14 in which they agreed to take every possible measure by
maintaining close cooperation between the two chambers of the Diet
with the aim of blocking the enactment of amendments to the Basic
Education Law. Minshuto Secretary General Yukio Hatoyama explicitly
stated in a press conference after the meeting that the agreement
covered the Upper House's plan to submit a censure motion against
the prime minister, as well. But when he met the press after major
Diet events were over on the night of Dec. 15, Hatoyama insisted
that there had been no agreement with other opposition parties,
reversing his earlier statement.

As the Diet session continued, the other opposition parties
developed strong doubts about Minshuto. Some Minshuto members, who
had produced their own plan to revise the Basic Education Law,
conducted revision talks with the ruling coalition behind the
scenes.

The party also softened its stance and supported a set of bills to
upgrade the Defense Agency to ministry status following the
opposition bloc's defeat in the Nov. 19 Okinawa gubernatorial race.

The JCP and the SDP's distrust of Minshuto might adversely affect
the ruling bloc's plan to join efforts in running Diet business and
the Upper House election next summer.

"We tried very hard to communicate with the Upper House, but to our
regret, they did not listen to us," Minshuto Diet Affairs Committee
Chairman Yoshiaki Takagi criticized the Minshuto Upper House at a
meeting of Lower House members before the Lower House plenary
session on the afternoon of Dec. 15.

But Takagi himself had consistently opposed submitting a
no-confidence motion against the Abe cabinet. Some non-Minshuto
members even suggested holding a meeting of Diet affairs chiefs of
opposition parties excluding the Minshuto fawning upon the LDP.

Bills discussed in the extraordinary Diet session

Bills cleared the Diet

? Amendments to the Basic Education LawThe revised law includes,
among other things, teaching respect for public-mindedness and
patriotism. The first revision since the law was established in

1947.

? Amendments to the Trust LawThe revised law allows firms to
entrust their businesses to others to facilitate the reorganization
of their operating departments. The first drastic revision since

1984.

? Revision of the Antiterrorism Special Measures LawThe term of the
Maritime Self-Defense Force's activities to refuel warships of the
US and other countries in the Indian Ocean was extended for one year
until November 2007.

? Money Lending LawGray-zone interest rates will be abolished.
Regulations will be placed on total amounts of lending as well as on

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loan sharks and multiple consumer loans.

? Doshu (Regional Bloc) System Special Zone Promotion LawPart of
state authority will be shifted to Hokkaido as a pilot of the doshu
system. Promotion headquarters will be established in the
government.

? Legislation to raise the Defense Agency to ministry statusThe
Defense Agency will be upgraded to the Defense Ministry that can
independently submit bills and make budgetary requests. The
Self-Defense Forces' overseas activities will also be raised to main
duties.

Bills carried over to the next Diet session

? National referendum billThe legislation governs procedures for
constitutional revision. The ruling block and Minshuto presented
their own plans. The two sides reached a broad agreement to set the
voting age at 18.

? Amendments to the Organized Crime Punishment LawThe main factor
is to make it a crime offense to conspire to commit a crime even if
it is never carried out with the aim of countering terrorism. The
JCP, the SDP, and other parties are opposed to revising the law.

Bills scrapped

? Social Insurance Agency reform-related billsComposed of, among
other things, a bill to establish an insurance business corporation
to keep the Social Insurance Agency as a state-run organization in
principle. Following a series of improprieties, fresh bills
including one to fundamentally reform the agency will be presented
to the regular Diet session next year.

(3) Ruling camp focuses on tax breaks for corporations; Heavier
burden expected on households after elections

ASAHI (Page 2) (Abridged)
December 15, 2006

LDP pours energy in dispensing favors

The Abe administration's first tax reform outline includes
large-scale tax-break measures. With an eye on the nationwide local
elections and House of Councillors elections next year, the Liberal
Democratic Party sealed off the controversial issue of whether to
hike the consumption tax and decided to allocate the increase in tax
revenues owing to the recent economic recovery to cover the revenue
shortfall expected from the tax cuts for business corporations. The
ruling party thus poured its energy into dispensing favors to
companies. This year, too, the government has set side the key task
of securing fiscal resources for social security payments and
reconstructing the nation's financial system.

The government's tax reform outline includes a number of
preferential tax-cut measures for corporations. The Koizumi
administration also took considerable tax-break measures for
corporations, but the Abe administration, given the increase in tax
revenues, has come up with even more drastic proposals. The package
reflects a growing desire among lawmakers to cover the decrease in
public works projects with tax breaks. In a meeting on December 12
of the LDP's Tax System Research Commission, many participants
called on the government to hammer out positive measures for local

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communities.

The government's Tax Commission proposed abolishing the preferential
tax system for securities transactions in next fiscal year as a sole
tax-hike measure, but the LDP has already requested that the system
be extended. The New Komeito tried to stop the LDP's extension
proposal, calling it "intended to favorably treat only wealthy
persons."

In an executive meeting of the ruling camp at a Tokyo hotel on Dec.
6, LDP Secretary General Hidenao Nakagawa said, "Stock prices will
unavoidably dip unless the preferential tax system is extended." In
response, New Komeito Secretary General Kazuo Kitagawa asserted,
"Will stock prices really drop once the preferential tax system is
scrapped? Investors have already kept in mind the planned
abolishment of the system. I do not think that the measures will
lead to lowering stock prices." The New Komeito, with an eye on the
upcoming elections, also needs to play up being a "political party
for the public".

The New Komeito accepted a one-year extension plan in the end, in
part out of fear that if a negative impact appeared on the stock
market, it might be treated like the culprit. A member of the New
Komeito tax panel said, "We cannot pull the trigger to bring down
stock prices."

Business circles and small businesses are strong voting bases for
the ruling parties. They naturally need to take favorable measures
for companies, with en eye on the next Upper House elections. On the
thorny issue of raising the consumption tax, the ruling camp has
decided to put off to sometime after the Upper House elections.

A senior LDP tax panel member said, with a touch of self-derision,
"We have to delay it, keeping the elections in mind."

Uncertainly over results of "Abenomics'

The ruling camp's tax reform package proposed tax cuts worth 600
million yen by reviewing the write-off system, about 30 billion yen
by abolishing the taxation on affiliated companies' reserves (only
for small businesses),and about 18 billion yen by extending the
special measure on replacement of business property. In the 1990s,
the government took large-scale lavish tax cuts as measures to buoy
up the economy. Now that fiscal reconstruction is an imminent
national task, however, the economic community, as well as the
Ministry of Economy, Trade and Industry had not anticipated this
general scale of cut breaks to come out.

The Abe administration has put forth the policy goal of attaining
economic growth through corporate tax cuts and deregulation. LDP
Secretary General Nakagawa dubbed its as Abenomics, following

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"Reaganomics."

In response, the economic world is growing a call for corporate tax
breaks. Nippon Keidanren (the Japan Business Federation),chaired by
Fujio Mitarai, will praise in its Mitarai vision due out next
January that Reaganomics contributed to reviving the US economy,
calling for similar measures to be taken in Japan. Specifically, the
business group aims to lower the current 40% effective corporate tax
rate to the 10% level. If implemented, it will be a tax cut measure
worth more than 4 trillion yen. Keidanren intends to call in its
vision for a 2% hike in the consumption tax by FY2011. This measure
is estimated to generate more than 4 trillion in tax revenues. This

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means that the increase in consumption tax revenues would make up
for the revenue shortfall expected from the tax cuts.

The policy of encouraging economic growth through corporate tax cuts
is a sort of gamble for Japan, saddled with a huge fiscal deficit,
because Reaganomics did not bring about very rosy results.

Furthermore, a heavier tax burden is likely to be imposed on
households in Japan in the future. In debate on tax reform next
year, the consumption tax will be high on the agenda.

Even some officials in the LDP members are skeptical of the listed
favorable measures for big companies. A senior LDP tax panel member
said when asked over the phone by Mitarai for tax cut measures, "It
is unacceptable for the government to take only measures to make
companies more competitive and take no other measures for others."

(4) Defense Agency's upgrading to ministry: Debate on permanent law
to be accelerated

MAINICHI (Page 2) (Full)
December 15, 2006

The House of Councillors Committee on Foreign and Defense Affairs
yesterday approved a government-introduced package of legislative
measures to upgrade the Defense Agency to the status of a ministry,
and the legislation is expected to clear the House of Councillors in
its plenary sitting today. The Self-Defense Forces-with its overseas
activities being raised to primary tasks-will presumably be called
to play an even more proactive role in the international community.
However, the SDF, unlike foreign forces, will remain saddled with
constitutional constraints in its activities. Prime Minister Shinzo
Abe, who questions such a gap, is thinking of accelerating debate on
the advisability of establishing a permanent law allowing Japan to
send SDF troops overseas at any time-instead of enacting an ad hoc
law for each dispatch. At the same time, Abe will also step up
studies aiming to have Constitution Article 9 reinterpreted for
collective security.

If the legislation gets through the Diet, the SDF will be tasked
with international emergency relief operations, United Nations
peacekeeping operations, and rear-echelon support for US forces
under the Law Concerning Measures to Ensure Japan's Peace and
Security in the Event of Situations in Areas Surrounding Japan or
the so-called "regional contingency security law" as primary
missions. In addition, the government, after heated debates in the
Diet, forged ad hoc laws for the SDF's current activities in the
Indian Ocean and Iraq because Japan had no law-based endorsements
for Japan's dispatch of SDF troops there. These activities will also
become primary missions for the SDF.

One in the ruling Liberal Democratic Party has suggested the need
for Japan to meet the international community's needs without delay.
The SDF will now be tasked with these overseas activities as its
primary missions, and it is certain that there will be calls from
within the government and ruling coalition for creating a permanent
law in order for Japan to send SDF troops overseas without taking
time. The government is now conducting case studies in the Cabinet
Secretariat. SDF personnel's use of weapons is currently constrained

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in line with Japan's constitutional prohibition against its overseas
use of armed force. The focus will be on how far to ease the
government's weapons use guidelines or rules of engagement (ROE).


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SDF members on overseas missions are currently allowed to use
weapons in self-defense or emergency evacuation only, and they are
not allowed to use weapons for any other purposes, such as harming
others. For instance, Ground Self-Defense Force members dispatched
to the southern Iraqi city of Samawah were not allowed to use
weapons to cover nearby foreign troops when they were attacked. The
prime minister strongly voiced a question about such a case, noting:
"I wonder if it's unconstitutional to help foreign troops at a time
when they are attacked." This is one of the government's case
studies to reinterpret Constitutional Article 9.

Collective self-defense also envisaged

The Constitution-according to the government's conventional
interpretation of its provisions-prohibits Japan from participating
in collective security. This issue is also likely to get a grip on
reality.

"For the Self-Defense Forces' overseas activities so far, what I
think is the most precarious of all from the legal point of view is
the Antiterrorism Special Measures Law," Defense Agency Director
General Fumio Kyuma stated before the House of Councillors Committee
on Foreign and Defense Affairs in its Dec. 7 meeting. The
Antiterrorism Special Measures Law was established to back up the
United States' air campaign in Afghanistan. Kyuma was apparently
concerned about the risk of exercising the right of collective
self-defense under the law.

In the wake of the Sept. 11, 2001 terrorist attacks, the United
States invoked its right of self-defense and launched attacks in
Afghanistan. The Maritime Self-Defense Force embarked on refueling
US naval vessels under the Antiterrorism Special Measures Law.

An MSDF supply ship refuels a US naval vessel at sea while running
alongside. In case that US naval vessel is attacked then, an MSDF
escort covers the US vessel. This case could conflict with Japan's
constitutional prohibition against collective self-defense. That is
why the MSDF is not allowed to cover US vessels in such a case. This
is the government's way of reading the Constitution. LDP lawmakers
have a question about such a way of interpreting the Constitution.
One of them wonders if the MSDF has no choice but to leave that US
ship in the lurch and get away. Similar situations are also
anticipated in the event of contingencies in areas surrounding
Japan. Under an envisioned permanent law, one of the SDF's primary
tasks in such situations is to back up US forces. The prime minister
has clarified that the government would study the issue of
reinterpreting the Constitution for collective self-defense, as well
as to study the issue of using weapons overseas.

However, if the government creates a legal framework under which
Japan can easily dispatch troops overseas, Japan's defense-only
posture may be undermined. "Judging from arguments in the past over
constitutional revision, we will need to amend the Constitution,
instead of reinterpreting its provisions," says one of the Defense
Agency's senior officials. The New Komeito party, the LDP-allied
coalition partner, is cautious about the idea of reinterpreting
Constitution Article 9. The government will likely study this
matter, with an eye on political schedules ahead, including next
year's election for the House of Councillors.

(5) Editorial: What lies ahead now that a Defense Ministry is being
established


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TOKYO SHIMBUN (Page 5) (Full)
December 15, 2006

A bill to upgrade the Defense Agency to ministry status is expected
to clear the Diet today. The upgrade signifies more than changing a
sign on the building. The step might bring changes to the
Self-Defense Forces' exclusively defense-oriented nature. What lies
ahead after the upgrade?

The Defense Agency has been an agency, not a ministry, since its
establishment in 1954. The Defense Agency has been a symbol of
postwar Japan, which has prioritized economics over military
affairs. The government has explained that the upgrade would result
in no substantial change. Is that true?

Once the Defense Agency becomes a ministry, the SDF's overseas
activities will also be upgraded from secondary to a main duty. Many
observers believe that taking advantage of the upgrade, the Abe
administration will now accelerate its efforts to establish a
permanent law to facilitate SDF overseas missions and to reconsider
the use of the right to collective self-defense, which is prohibited
under the Constitution.

Prime Minister Shinzo Abe has been eager to enact a permanent PKO
law. The Liberal Democratic Party defense policy subcommittee has
drafted a bill enabling the government to deploy SDF troops
overseas, as needed, even without a UN resolution or a request from
an international organization.

SDF missions overseas, including the dispatch to Iraq, have always
required special measures legislation. The scope of specific cases
must be examined thoroughly before allowing the government to
dispatch SDF troops overseas, as needed. The LDP plan is designed to
allow overseas missions with prior Diet approval. The plan has no
brakes.

In parallel with the effort to establish a permanent law, there is a
move to relax the guidelines on the use of weapons by SDF personnel,
which are now strictly only to be used for defending themselves or
international agency workers under their control. Allowing the use
of weapons to assist foreign troops would raise questions on the
consistency with Article 9 of the Constitution, which prohibits use
of force overseas.

Abe has announced a plan to study individual, specific cases to
identify what kind of case falls under the exercise of collective
self-defense. Such a plan seems to reflect his intention to open to
door to intercepting enemy missiles headed for the US and rescuing
foreign troops.

Even a partial lift of the ban would result in a phased integration
of the SDF and the US military and much greater chances of the SDF
becoming embroiled in combat. Article 9 might become a dead letter.

Some of our concerns are on their way to reality. For instance, the
plan to upgrade SDF overseas activities to a main duty made the
National Defense Program Guideline produced two years ago.
Additionally, a decision has already been made to establish a Ground
Self-Defense Force central rapid response group tasked with serving
as a control tower for overseas missions and to set up its command
at Camp Zama along with the US joint operations command.

Amendments to the Basic Education Law including a goal of nurturing

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an attitude to love the country is expected to clear the Upper House
along with the defense ministry bill. The Abe administration is
beginning to show its true colors.

(6) LDP's Aso to launch faction tomorrow; Mixed motives to create
"grand Kochikai"

NIHON KEIZAI (Page 2) (Full)
December 18, 2006

Foreign Minister Taro Aso tomorrow will launch his own faction, to
be made up of the members of the Liberal Democratic Party (LDP)
faction that used to be headed by Yohei Kono. With that event,
whether the factions led respectively by Aso, Makoto Koga and
Sadakazu Tanigaki -- all drawn from the former Miyazawa faction
(Kochikai) -- will form a "grand Kochikai" will likely draw
political speculation. Influential lawmakers and junior and
mid-level members in the three factions have begun working for that
goal though with different motives. If momentum picks up, friction
will intensify among the three factions.

Exhilaration not spreading

At a party to dissolve the Kono faction on the evening of Dec. 15,
Aso said, "I plan to launch the new faction on the 19th." He has
been secretly working on increasing the numbers of members.

On the night of Nov. 21, Aso sounded out Tanigaki about a reunion of
former Miyazawa faction-affiliated lawmakers. He also has actively
worked on inducing independent lawmakers to join him in order to get
at least 20 lawmakers -- the number necessary for running in a LDP
presidential election -- in order to secure the position of being
the most likely candidate to succeed Prime Minister Shinzo Abe.

Aso met on Dec. 13 with Yuya Niwa, chairman of the LDP General
Council, to explain his plan to set up a new faction. He paved the
way for cooperating with Niwa, who is still at odds with Koga ever
since the factional leadership race. Shunichi Suzuki, a Koga faction
member and Aso's brother-in-law, who is eager to create a grand
Kochikai, took part in the Dec. 13 meeting.

Niwa, however, calmly said: "Mr. Aso is excited about a merger, but
it is not so exciting." Tanigaki reportedly is equivocal about Aso's
idea. Many predict that the number of lawmakers joining the new
faction will be less than 20.

Koga faction takes action

The Koga faction, the largest of the three factions, has suddenly
begun to move. Koga will have a party honoring the memory of the
late Prime Minister Hayato Ikeda, who founded the Kochikai, which
will mark its 50th anniversary next year. Koga's aim is to play up
being the next head of Kochikai.

Koga and Tanigaki agreed on Dec. 7 to cooperate with each other with
the idea of forming a grand Kochikai in mind. Koga was believed to
have helped Tanigaki boost the number of LDP members supporting him
in the September LDP presidential election. With the cabinet of
Prime Minister Shinzo Abe suffering from dropping public support
rates, their moves will likely set off speculation.

Tanigaki has grumbled to his aides, "It is limited what a faction
with a membership of only a dozen or so can do." Separate from Aso's

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"love call" to Tanigaki about forming a grand Kochikai, cooperation
between Koga and Tanigaki could be strengthening. The fate of their
cooperation cannot be seen since Koga is at odds with Jiro Kawasaki,
an aide to Tanigaki.

Generational clash

Lawmakers from the three factions who are now serving their sixth
term or more in the Diet got together at a Chinese restaurant in
Tokyo. At the gathering, Shuichi Suzuki underscored the need for
creating a grand Kochikai.

Some veteran lawmakers of the three factions still suffer from the
aftereffects of past divisions such as the so-called Kato rebellion
in November 2000 in which Koichi Kato called on then Prime Minister
Mori to step down. A mid-level lawmaker of the Koga faction
commented: "We, junior members, will be able to grab leadership if
we unite while veteran lawmakers are competing." A tug-of-war over
forming a grand Kochikai is taking on an aspect of a generational
clash. This is making it difficult to create a grand Kochikai. Views
toward the grand Kochikai notion in the LDP remain icy.

(7) Sakhalin-2 project: Japan facing challenge in securing
resources; Future course of supply contract unclear

MAINICHI (Page 9) (Full)
December 16, 2006

It is now certain that management lead over the Sakhalin-2 project
to develop oil and natural gas fields near Sakhalin -- which is the
largest liquefied natural gas project in the world -- will be
shifted from Japanese and European companies to Russia's state-run
Gasprom. Though the contract to supply gas to Japan may be
implemented for the time being, it is unclear what will happen in
the future. Japan's strategy to secure resources has now hit a major
snag.

When the Sakhalin-2 project goes into full operation in 2008,
production of crude oil is expected to be 180,000 barrels a day and
output of natural gas will be 9.6 million tons a year in terms of
LNG.

These numbers corresponds to 4% and 18%, respectively, of what Japan
imports of these resources. In particular, Japanese companies, such
as TEPCO and Tokyo Gas, have already signed contracts for imports of
LNG starting in 2008.

Royal Dutch Shell of the Netherlands and Britain, which has a 55%
stake in the project company, has had the lead in the project, but
the transfer of such authority to Gasprom means that the project
will essentially come under the actual control of the Russian
government, according to an informed source.

Royal Dutch Shell, Mitsui Bussan and Mitsubishi Corporation were
forced to give up a large quantity of shares they possessed, because
their plans to sell LNG starting in 2008 could be upset if
negotiations dragged on any longer. Having already invested a large
amount of money in the project, these companies could experience the
risk of lagging behind in obtaining the expected returns from their
invested capital. For this reason, they had no other choice but to
accept Russia's demand, which is aimed at taking the lead in the
project.


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The Japanese government, however, remains optimistic, with one
senior official from the Ministry of Economy, Trade and Industry
noting, "If the project does not progress, Russia will find itself
in trouble. It will execute the contracts with the Japanese
companies for the time being." However, there is no guarantee of a
stable supply in the future. Gasprom once unilaterally stopped
supplying gas to the Ukraine, following the breakdown of gas price
talks with it. Russia has the reputation of using natural resources
as an international bargaining chip, as one informed source put it.

Since LNG supply-demand is tight across the world right now, a
sudden suspension of supply could be a major blow to Japan.

All this may be to Russia's disadvantage because an increasing
number of Japanese companies are now distrustful of Moscow for
applying pressure to bring Gasprom into the project, brandishing the
threat of suspending the project for environmental reasons.

SCHIEFFER