JAPANESE MORNING PRESS HIGHLIGHTS 09/23/08

UNCLAS SECTION 01 OF 08 TOKYO 002614 SIPDIS DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA; WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION; TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE; SECDEF FOR JCS-J-5/JAPAN, DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR; CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. E.O. 12958: N/A TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA SUBJECT: JAPANESE MORNING PRESS HIGHLIGHTS 09/23/08 Index: Aso victory: 1) Taro Aso nets 70 PERCENT of the LDP votes in a landslide victory, becoming party president and premier; Kawamura to be chief cabinet secretary (Mainichi) 2) Aso's victory cannot mask anxiety in the LDP about his ability to maintain a high support rate, keep party together in going into the next election (Nikkei) 3) Aso will bring in a new cast in his cabinet, while keeping Ishiba on with a different portfolio (Nikkei) 4) Hosoda, the new LDP secretary general, is an expert on election strategy (Tokyo Shimbun) 5) Former Prime Minister Mori was sounded out to be secretary general in order to bolster the party's weak structure (Mainichi) 6) New Komeito now preparing for a Nov. 2 general election (Tokyo Shimbun) Economic affairs: 7) Stimulating the economy will be Aso's next challenge as prime minister, but still no concrete measures on the table (Tokyo Shimbun) 8) Battle of the giants: DPJ's Ichiro Ozawa who advocates great changes in fiscal policy, and Aso, who gives top priority to growing the economy (Mainichi) 9) Nomura Holdings to buy out Lehman's Asia division (Asahi) 10) Mitsubishi-UFJ to invest up to 20 PERCENT in Morgan Stanley (Asahi) Articles: 1) Aso elected LDP president, collecting 70 PERCENT of votes; Kawamura most likely to be named chief cabinet secretary MAINICHI (Top play) (Excerpts) September 23, 2008 The ruling Liberal Democratic Party chose Secretary General Taro Aso, 68, as its 23rd president in a general meeting yesterday afternoon of its lawmakers from both chambers of the Diet and representatives of its prefectural chapters. The presidential race was contested by a record high of five candidates. Aso won a landslide in the first voting, collecting 351 votes or nearly 70 PERCENT of the entire votes. Aso was elected the new LDP president to replace Prime Minister Yasuo Fukuda, 72. Aso is in the final stage of coordinating the appointment of former education minister Takeo Kawamura, 65, an Ibuki faction member, as chief cabinet secretary, a key cabinet post. He will likely to pick former Defense Minister Shigeru Ishiba, 51, another presidential candidate, as minister of agriculture, forestry and fisheries. It is regarded as more likely that former Policy Research Council Chairman Shoichi Nakagawa will be given a cabinet post. Aso to become prime minister tomorrow and launch his cabinet Aso will be named tomorrow the 92nd prime minister or 59th lawmaker to serve in the prime minister's post. He will then launch his cabinet later in the day. His term in office will run through September 2009, the remainder of Fukuda's term in office. Kawamura has built close ties with Aso through education and sports policy. Aso aims to put his cabinet on track as quickly as possible, TOKYO 00002614 002 OF 008 by picking Kawamura, who served as cabinet minister, as chief cabinet secretary. A total of 527 votes -- 386 by LDP Diet members and three votes by each of the prefectural chapters -- were cast in the presidential election. Regarding the number of votes collected by other candidates than Aso, Economic and Fiscal Policy Minister Kaoru Yosano won 66 votes, followed by former Defense Minister Yuriko Koike with 46, former LDP policy chief Nobuteru Ishihara with 37, and former Defense Minister Shigeru Ishiba with 25. There were two invalid ballots. 2) Woes behind Aso's victory NIKKEI (Page 2) (Full) September 23, 2008 Taro Aso, newly elected president of the ruling Liberal Democratic Party, won an overwhelming victory in the LDP's presidential election with two-thirds of all votes. His support base in the LDP appears to be rock solid, but what is in store for his future is still murky. In the LDP, Aso's role is expected to represent his party as a 'campaign face' for a potential election. However, the new LDP president could lose his momentum to run the party once his leadership wanes. "I can say I have fulfilled my role only when we have won in the election," Aso declared after he was elected LDP president. The LDP has now set sail with a vulnerable engine to plow the stormy waters of a general election to be followed by a dissolution of the House of Representatives. The Aso faction, led by Aso, has a total of 20 members, and its intraparty base is vulnerable. Aso therefore needed to win an overwhelming victory for his prospective government. However, he could not pitch a 'perfect game' since the number of votes he garnered fell short of his expectations. In the end, Aso has no weapons but his popularity. The question is how the rate of public support will turn out after his cabinet comes into office. The Fukuda cabinet's inaugural support rate was nearly 60 PERCENT . Aso, should his cabinet's support rate proves to be disappointing, will lose his momentum from the very start. If he thinks of setting sail with a high rate of support, he will need to clarify his own imprint and ready himself to dissolve the House of Representatives at any time. Aso may also have to be attentive to those called "ageshioha" (rising-tide faction) (a group of LDP lawmakers insisting on economy-first policy measures for economic growth instead of raising taxes for fiscal reconstruction). One of them, former Defense Minister Yuriko Koike, garnered 46 voters from among the LDP's lawmakers, and she won many more votes than expected. "I think she got many more votes than you had expected," said former LDP Secretary General Hidenao Nakagawa, an influential leader of the Machimura faction and one of the ageshioha group. Some in the LDP took it that Koike's candidacy was a touchstone for political realignment in the future. LDP lawmakers were split over the number of votes she garnered. "She couldn't get enough votes for the ageshioha group to get out of the party," one spat out. Meanwhile, some others think Koike has now ensured her voice to a certain extent. She must be disquieting to Aso. TOKYO 00002614 003 OF 008 Under the Fukuda government, Aso has worked together with Kazuo Kitagawa, secretary general of the New Komeito, the LDP's coalition partner. However, some of Aso's campaign staff for the LDP race are insisting that he should tackle one-on-one debates with the heads of opposition parties and Diet deliberations on the supplementary budget for the current fiscal year. "How far is he going to hold deliberations on the supplementary budget?" one of the New Komeito's leaders wondered. If Aso and his government come under fire from the opposition parties in Diet deliberations, his cabinet's support rate is likely to go down. The New Komeito could also distance itself from the LDP. 3) Ishiba certain to get cabinet post NIKKEI (Page 2) (Full) September 23, 2008 Liberal Democratic Party President Taro Aso continued coordination to form his cabinet before its inauguration tomorrow. Aso wants to replace the current Fukuda cabinet's lineup on a large scale and is screening a wide range of candidates for his cabinet. Former Defense Minister Shigeru Ishiba, 51, and Economic and Fiscal Policy Minister Kaoru Yosano, 70, who struggled in the LDP presidential election, are certain to enter Aso's cabinet. Yosano may be retained in his current cabinet post or will likely be appointed to the post of finance minister. Economy, Trade and Industry Minister Toshihiro Nikai, 69, will likely be retained. Former Justice Minister Kunio Hatoyama, 60, close to Aso, and former Economy, Trade and Industry Minister Akira Amari, 59, are also regarded as likely candidates. Health, Labor and Welfare Minister Yoichi Masuda, 59, who has advocated repealing the healthcare insurance system for the elderly in coordination with Aso, and Minister of State for Consumer Affairs Seiko Noda, 48, are highly likely to be retained. 4) Hiroyuki Hosoda appointed as LDP secretary general: Election expert with established reputation for business ability TOKYO SHIMBUN (Page 2) (Full) September 23, 2008 In 2004, he succeeded then Chief Cabinet Secretary Yasuo Fukuda, who had suddenly stepped down over his failure to pay pension premiums. He steadily fulfilled the weighty responsibility of the key post of the cabinet. He is a former official of the previous Ministry of International Trade and Industry. He built a reputation for his excellent business ability. He supported former Secretary Genera Taro Aso as acting secretary general of the Liberal Democratic Party (LDP) during the Abe and Fukuda cabinets. He has been promoted to secretary general, winning the deep confidence of Aso. He is a scholarly type good at analyzing things. His hobby is playing contract bridge. Since he is versed in the election system and election situations, he has earned himself the nickname of an election expert. Some say that he is weak in negotiations and bargaining due to his mild character. When he was serving as Diet Affairs Committee TOKYO 00002614 004 OF 008 chairman, he came under fire because he changed his Diet strategy toward the establishment of conspiracy offenses many times. Hiroyuki Hosoda: Graduated from Tokyo University. Served as chief cabinet secretary, Diet Affairs Committee chairman and acting secretary general. 64 years old. Elected from the Shimane constituency no. 1. Six-term Lower House member. Machimura faction member. 5) New LDP President Aso approaches former Prime Minister Mori about serving as secretary general, reflecting weak political base in party MAINICHI (Page 5) (Full) September 23, 2008 Taro Aso, the new president of the ruling Liberal Democratic Party (LDP),appointed former Deputy Secretary General Hiroyuki Hosoda, a member of the Machimura faction, as secretary general and retained Kosuke Hori, who belongs no faction, in the Policy Research Council chairman's post; Takashi Sasagawa, a Tsushima faction member, in the General Council chairman's post; and Makoto Koga, who heads a faction, in the Election Strategy Council chairman's post. Aso placed importance on factional balance in selecting the four party executives, aiming at building unanimity in the party with an eye on the looming House of Representatives election. Aso's selection of Hosoda as secretary general reflects the weakness of his footing in the party. He has no choice but to give consideration to the Machimura faction, the largest in the LDP, in managing his administration. On Sept. 18, Aso telephoned former Prime Minister Yoshiro Mori, a supreme advisor to the Machimura faction, who just returned home from an overseas trip. Aso: "Thanks to you, I am doing well in the presidential race. Could you do me one more favor? I would like you to control the party." Mori: "What in the world do you mean?" Aso: "I would like you to serve as secretary general." Mori firmly declined to accept Aso's offer. Mori seems to have refused the offer for the reason that there was no precedent for a former prime minister to serve as secretary general. Mori paved the way for Aso's victory in the presidential race, while the Machimura faction was split in two groups -- one supporting Aso and the other backing former Defense Minister Yuriko Koike. In return, Mori had expressed hope that a Machimura faction member would become secretary general. In consideration of that, Aso took a stance of placing importance on the largest faction, by sounding Mori out on the secretary general post. He picked, however, Hosoda, who has the image of a person working behind the scenes, as secretary general. It can be said that Aso took a bullish stance of contesting the next Lower House election under his name alone. 6) Komeito ready for election on Nov. 2 TOKYO SHIMBUN (Page 1) (Abridged) TOKYO 00002614 005 OF 008 September 23, 2008 The New Komeito yesterday launched preparations for a snap election, expecting the general election to be announced on Oct. 21 and held on Nov. 2. The New Komeito made this judgment, given that the ruling Liberal Democratic Party's new president, Taro Aso, has indicated that he will fast-track the fiscal 2008 supplementary budget in Diet deliberations before dissolving the House of Representatives. The LDP and the New Komeito will hold a meeting of their heads today, in which the two parties are expected to enter into final coordination over the House of Representatives' dissolution and Diet deliberations on the extra budget. The House of Representatives Budget Committee is expected to enter into deliberations on Oct. 6 at the earliest. In this case, the general election can hardly be announced on Oct. 14 and held on Oct. ¶26. At first, the New Komeito was cautious about deliberating on the extra budget. In response to Aso's indication, however, a New Komeito executive clarified that the New Komeito's election committee is preparing for voting on Nov. 2. 7) LDP yet to come up with concrete measures to counter DPJ's economy-oriented policy TOKYO SHIMBUN (Page 2) (Abridged slightly) September 23, 2008 New LDP President Taro Aso declared yesterday that his party would fight the next Lower House election centering on economic stimulus measures. The declaration was intended to counter the major opposition Democratic Party of Japan, which has come up with a series of policies pleasing the public. However, without any specifics, the effectiveness of the LDP's economic stimulus measures remains unclear Aso had this to say in his inaugural press conference: "Through my nationwide tour, I have realized that the economy is slipping into recession. Easing economic uncertainty is my mission." The LDP achieved an overwhelming victory in the 2005 Lower House election by making postal privatization the major campaign issue under the Koizumi administration. But in the 2007 Upper House election, the party was badly defeated by the DPJ, which put top priority on national livelihood. The LDP reportedly suffered the crushing defeat due to expanded social and income disparities and impoverishment in local areas as part of the Koizumi reform initiative. Aiming to repeat the 2007 election, the DPJ is promising for the next Lower House election to eliminate expressway tolls, provide child allowances, and give income support to farmers on the slogan of making Japan into a fair society with no disparity. From bitter lessons learned from the previous Upper House election, Aso in the LDP presidential race played up the need to take economic stimulus measures rather than pursuing the reform policy course that would force a greater burden on the public. That helped Aso to defeat by large margins former Defense Minister TOKYO 00002614 006 OF 008 Yuriko Koike, who advocated the structural reform line, and Economic and Fiscal Policy Minister Kaoru Yosano, who called for fiscal reconstruction. It is particularly noteworthy that Aso won 134 local votes out of ¶141. Backed by overwhelming support from within the LDP, Aso is set to pursue an economy-centered policy course. In the LDP presidential race, Aso pledged as a means to shore up the economy such steps as the implementation of a fiscal 2008 supplementary budget, a comprehensive economic package, including a flat-sum tax cut, tax cuts on capital investments in R&D, and the exemption of the real estate acquisition tax. To achieve economic recovery, he also ruled out a consumption tax hike, at least for the time being. He also presented a plan to review such polities as attaining a black-ink primary balance in fiscal 2011 and reducing the growth of social security spending by 220 billion yen in the fiscal 2009 budget. His plan lacks punch, however. Aso, who has criticized the DPJ's policy as lacking concrete revenue resources, cannot afford to project himself as a big spender. As such, he is cautious about issuing deficit-covering government bonds, although he has indicated that he would not hesitate to resort to fiscal disbursements. The LDP will accelerate its efforts to produce its campaign pledges for the nest Lower House election. Whether or not the party can come up with economic stimulus measures appealing to the public is likely to determine the outcome of the election. 8) LDP President Aso to give top priority to economy; Ozawa to turn around fiscal structure; Both yet to present clear fiscal resources MAINICHI (Page 9) (Excerpts) September 23, 2008 By Kenji Shimizu, Kiyohiro Akama Secretary General Taro Aso's victory in yesterday's LDP presidential election has generally paved the way for the Aso-led LDP to lock horns with DPJ President Ichiro Ozawa in the next Lower House election with the reins of government at stake. How should the two parties' assertions regarding their economic and fiscal policies be viewed? The newspaper examined them while asking for economists' views. In his inaugural press conference, LDP President Aso played up his determination to ease economic uncertainty. He diagnosed the Japanese economy as having slipped into a recession that will "take three years to heal completely." He also made it clear that he would focus on economic stimulus measures, such as cutting taxes on individuals and corporations, for the next three years even by shelving fiscal reconstruction targets, such as bring the primary balance to the black in fiscal 2011. Aso also pledged early implementation of an economic stimulus package designed, for instance, to assist small businesses in raising funds. BNP Paribas chief economist Ryutaro Kono warned that the step that might result in the issuance of additional deficit-covering government bonds and pork-barrel spending on the TOKYO 00002614 007 OF 008 excuse of the U.S. financial crisis and Japan's recession. At the same time, some analysts welcome such steps as tax breaks on capital investment and R&D and preferential tax treatment intended to encourage overseas corporate gains to flow back into Japan. Aso also promised to review the healthcare system for people aged 75 and older. At the same time, Aso indicated that the idea of a consumption tax hike would he shelved for three years. Credit Suisse chief economist Hiromichi Shirakawa said: "Can one discuss a stable social security system without talking about tax increases? Without the alleviation of anxiety for the future, economic stimulus measures would go to waste." A market source watching the situation said, "If Yosano Kaoru, who advocates the restoration of soundness in the nation's finances, joins a new cabinet, he would be able to put a brake on (government spending)." Meanwhile, Ichiro Ozawa, who won his third term as president of the major opposition Democratic Party of Japan on Sept. 21, has declared an overhaul of the makeup of the national budget, saying: "Giving top priority to the public livelihood, we are going to turn around the economic and fiscal structures." His party has pledged to eliminate expressway tolls and provide each child with an allowance of 26,000 yen a month starting in fiscal 2009. The DPJ's pledges also include the abolition of the provisional rate of the gasoline tax to lower gasoline prices, which is easy to understand for general public, according to Hideo Kumano, chief economist at Daiichi Life Research Institute. There is strong criticism that how Ozawa will secure the 22 trillion yen for those plans is unclear. But Ozawa dismissed that as "poisoned thinking bred under the bureaucracy-led system under the long LDP administration." He stressed that 22 trillion yen could be spent for policies from the general and special accounts. He also presented a plan to implement policies in three stages: in fiscal 2009, in two years, and in four years. 9) Nomura to purchase Lehman Brothers' Asia business ASAHI (Page 1) (Full) September 23, 2008 Nomura Holdings has reached a basic agreement with Lehman Brothers that it would succeed the failed company's Asia business, which is in effect a takeover. Nomura reportedly won the bid for hundreds of billions of yen. Lehman Brothers' business in the Asia-Pacific Region, including Japan and Australia, will come under Nomura's wing. The concerned business area includes the investment section responsible for mergers and acquisitions. Nomura said that since the purchased business does not include the principal transaction section's assets and debts, such as stocks and bonds, it has avoided risks of incurring losses in the future. The contract also includes that Nomura will also take over its employees, which number more than 3,000. As such, it will likely be able to secure very important human resources for securities business. Nomura is deemed as the most promising bidder for Leyman's Europe business as well. Britain's Financial Times online reported that Lehman's negotiation partners have been narrowed down to Nomura. Lehman Brothers, established in 1850, was one of leading U.S. TOKYO 00002614 008 OF 008 securities firms. It, however, filed for bankruptcy with its bid to sell itself falling through. The firm will thus be disbanded with its businesses throughout the world split and sold off. 10) MUFG to take up to 30 PERCENT stake in Morgan Stanley to become top shareholder ASAHI (Top Play) (Abridged slightly) September 23, 2008 The Mitsubishi UFJ Financial Group (MUFG),which has Tokyo Mitsubishi-UFJ Bank under its wing, on September 22 said that it plans to make a massive investment in Morgan Stanley, a leading U.S. securities firm. Nomura Holdings, the largest domestic securities company has also released a plan to effectively take over the Asia-Pacific division of Lehman Brothers. The global financial crisis has led to the border-crossing reorganization of the securities industry. Japanese banks, which once suffered from bad loans, are now bailing out U.S. financial institutions. MUFG will aim to obtain up to a 20 PERCENT stake in the ordinary shares of Morgan Stanley. Its aim is to become an equity-method affiliate of that firm. As the top shareholder, it will strengthen its business areas, such as stock trading and consultancy for M&As, by using Morgan Stanley's global operation network. MUFG is said to have been approached by Morgan Stanley and agreed to invest in it. It will swiftly determine the assets of Morgan Stanley and obtain that firm's shares, using the system of third-party allocation in increasing capital. The two companies will confer on the investment ratio with a focus on between 10 PERCENT and 20 PERCENT . If MUFG has a 15 PERCENT stake in that company, it would become its top shareholder. Securing a 20 PERCENT stake means it will invest more than 900 billion yen on the basis of the company's net assets as of the end of August. MUFG has been strengthening its overseas presence. It has decided to make UnionBancal Corporation under its wing a wholly owned company, investing about 380 billion yen. MUFG will increase its presence in the U.S. market. Since the subprime mortgage crisis became serious last year, Japan's megabanks, whose financial standing is relatively stable, have been approached by many European and U.S. banks for financial assistance. In response, Mizuho Corporate Bank invested approximately 130 billion yen in Merrill Lynch, a leading U.S. securities firm. Sumitomo Mitsui Banking Corporation also decided in June to invest approximately 100 billion yen in Barclays Bank, a leading British Bank. SCHIEFFER