BOJ FUKUOKA BRANCH MANAGER SAYS KYUSHU ALSO HURT BY RISING

UNCLAS SECTION 01 OF 02 FUKUOKA 000042 SENSITIVE SIPDIS STATE FOR EAP/J, EEB/OIA, AND EEB/BTA E.O. 12958: N/A TAGS: ECON EINV ENRG PREL JA SUBJECT: BOJ FUKUOKA BRANCH MANAGER SAYS KYUSHU ALSO HURT BY RISING OIL PRICES AND LABOR SHORTAGE Sensitive but Unclassified - Not for Internet Distribution SUMMARY ¶1. (U) Bank of Japan Fukuoka Branch Manager Keiji Kono told EMIN August 12 that because of its long standing ties to Korea and China, Kyushu increasingly looks to elsewhere in Asia rather than to Tokyo for business opportunities. However, rising energy costs are hurting Kyushu's economy, particularly since it has become the secondary center in Japan for automobile production. Kono opined the region's industry will be forced to become more energy efficient and may look to nuclear energy. That does not mean constructing new nuclear power plants is straightforward, however, as Kyushu's Electric Power's President noted in a follow-on meeting. In addition, Kyushu, like other parts of Japan, Kono noted, continues to wrestle with labor shortages and that further steps are needed; the current generation of temporary workers, for example, who receive little or no training, have limited career options. Agreeing on the need to increase women's role in the job market, Kono described measures the BOJ is taking to retain its female workforce. End Summary. BUSINESS OUTLOOK IN KYUSHU ¶2. (SBU) Kono began his meeting with EMIN noting that while Japanese are generally pessimistic, in his view, the Japanese economy as a whole, and specifically that of Kyushu, is in relatively good shape. He noted the area's historical ties to Korea and China and said people in the region are confident Kyushu will continue to develop closer links to the rest of Asia and will look there rather than to Tokyo for business investment and opportunities. In fact, he stressed that the ratio of Kyushu's trade with Asia is larger than with Tokyo. As a result, Kyushu businesses see interaction with Asia as the primary engine of growth and development. 3) (SBU) Kono emphasized while this strategy of capitalizing on historical links with Asia has been successful, there are still problems that need to be addressed. While many Kyushu-based businesses invest in Asia, there is still little foreign investment into Kyushu. He added that while people in Kyushu are more open than in other parts of Japan, they remain cautious regarding foreign investment. That said, he thinks if Korean businesses invested more heavily in Kyushu, other foreign investors would likely follow suit. Kyushu has become a tourist destination for many Asians, mostly from Korea and Taiwan. Because of this strong dependence on Korea, he is increasingly concerned about the impact of a declining Won. KYUSHU AS A SECONDARY INDUSTRIAL BASE 4) (SBU) Kono said Japanese investment in Kyushu focuses on the region as a secondary industrial base. With Nagoya facing a labor shortage, Kyushu and Tohoku are potential areas for new facilities related to auto production. He said Kyushu has the advantage of a strong pool of labor and so Toyota, Nissan and others have established a growing presence here. He added other industries, such as Canon, have also invested in Kyushu. However, given that 60 percent of the cars produced in Kyushu are bound for the U.S. market, anxiety has grown in the local business community. Declining sales of its Lexus and Highlander models assembled in Kyushu in the face of rising fuel costs led Toyota Kyushu to cut 600 jobs, roughly 10 percent of its workforce. (Note: Toyota expects to rehire about 500 workers later this year as it begins production on two new hybrid models. End note.) Kono also said rising prices would affect businesses and would force them to develop more energy efficient technologies as well as boost the attractiveness of other sources of energy, e.g., nuclear power. BUILDING NUCLEAR POWER PLANTS IN JAPAN IS STILL A CHALLENGE 6) (SBU) In a separate meeting, Kyushu Electric Power's (Kyuden) president Toshio Manabe told EMIN Kyuden will begin operation of Japan's first Pluthermal nuclear power plant in Genkai, in Saga Prefecture in 2010. Manabe said most Japanese oppose the project and this sentiment intensified since the earthquake in Miyagi prefecture earlier this year, which occurred just as public support for nuclear energy was beginning FUKUOKA 00000042 002 OF 002 to increase. He said concerns focus primarily on technical matters rather than the fundamental issue of the use of nuclear power. Overcoming public sentiment is difficult and will require convincing local government, academics, fishermen and others of the importance of the project. Building support, Manabe said, now centers on providing subsidies and economic support. The central government provides subsidies to the governments of the locality where the plant will be situated and, in the Genaki case, to the local fishing industry. Moreover, Kyuden encourages its employees to shop at merchants who support the project. Manabe also emphasized Kyuden makes sure to maintain transparency and publicize the power plant's safe operation. Manabe said that these may seem like small measures, but they go a long way in showing the positive impact on local business and avoiding the spread of rumors. SHRINKING LABOR FORCE REMAINS A CHALLENGE 5) (SBU) Bank of Japan Manager Kono also discussed the challenges of Japan's shrinking labor force. The proportion of part-time workers is currently very high. Because they don't get the training full-time workers receive, they lack the skills necessary for upward mobility. If the situation continues, it will constrain their future opportunities and productivity. To address the problem, Kono agreed with EMIN that women should play a larger role in Japan's economy. He stressed the BOJ is trying to improve working conditions for women and is encouraging them to stay on after they have children. Recently adopted flex-time and extended maternity leave policies are just a few of the measures the Bank is implementing even though the Bank has traditionally been considered a very "conservative" work environment. However, such solutions remain elusive in the agriculture and fishing industries. The average age for workers in both industries is over 60 years and there are few incentives for younger workers to become farmers or fishermen. Kono said this leads to three important questions: 1) will more groups come to the government for assistance? 2) How will the government respond to these requests? 3) once industries begin to receive subsidies, how will the government wean them off the subsidies? Moreover, because of the small share of the GDP these two industries comprise (less than two percent for agriculture and less than one percent for fishing),providing such subsidies will have no impact on Japan's overall economy. CARRINGTON