SENIOR LDP POLITICIAN ON ELECTION PROSPECTS,

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 000325

SIPDIS

SIPDIS

PARIS FOR USOECD
USTR FOR BEEMAN AND HOLLOWAY

E.O. 12958: DECL: 02/07/2018
TAGS: PREL PGOV ECON EFIN OECD JA
SUBJECT: SENIOR LDP POLITICIAN ON ELECTION PROSPECTS,
FUKUDA'S LEADERSHIP

REF: TOKYO 305

TOKYO 00000325 001.2 OF 002


Classified By: CDA Joe Donovan per 1.4 (b/d)

Summary
--------------


1. (C) Senior ruling party politician Koichi Kato told
Embassy Tokyo February 4 that poor economic management and a
lack of leadership could force the Prime Minister to dissolve
the Diet in the fall, with the ruling coalition likely to
lose its 2/3 super-majority in the Lower House. During the
current Diet session, major issues will continue to be
legislation related to road taxes and related surcharges
(including the provisional gasoline tax),pension issues and
the rural-urban divide. The Japanese people are looking for
vision and leadership, which PM Fukuda has yet to provide,
Kato said. End Summary.

Poor Economic Management Could Force an Election
--------------


2. (C) Senior Liberal Democratic Party (LDP) Diet member
Koichi Kato told Embassy Tokyo on February 4 that, while the
current political situation "is not so bad," the real problem
is Japan's economic situation. With the U.S. economy facing
challenges, the Japanese economy is taking a hit. What the
Japanese people are now demanding is strong leadership and
the ability to manage the overall economy. Unfortunately,
what they are getting is poor macroeconomic management and an
overall inability to show strong economic leadership;
symptomatic of this are the differences between the Ministry
of Finance (MOF) and the Bank of Japan (BOJ) on interest rate
policy, Kato asserted. While the BOJ is seeking to raise
interest rates, MOF is trying to keep them down, ostensibly
to protect businesses but in reality to prevent increased
interest payments on government bonds. This conflict is
playing out in the selection process for the new BOJ
Governor, with MOF wanting to keep interest rates low by
ensuring one of their own, former MOF Vice Minister (and
current BOJ Vice Governor) Toshiro Muto, gets tapped, Kato
explained.


3. (C) Given Japan's economic situation, PM Fukuda must be
able to show both competence and confidence in dealing with
Japan's economic problems, Kato continued. If not, "Fukuda
will be forced to dissolve the Lower House in the fall."
Facing an electorate concerned about the economy and other
issues, it is more than likely that the ruling coalition
would forfeit its 2/3 super-majority in the Lower House.


4. (C) Speculating on the election's possible outcome, Kato
stated the LDP would probably get around 220 seats, with the
opposition Democratic Party of Japan garnering 210 seats, the
Komeito 30 seats, Social Democratic Party 5 seats, People's
New Party 5 seats, Communist Party 4-5 seats, and
Independents 5 seats. With a total of 250 seats, the ruling
coalition would have the 241 seats necessary for a majority,
but would lose the 2/3 Lower House majority needed to
override the opposition controlled Upper House. This will
force the ruling coalition to coordinate more closely with
the opposition on policy, Kato said. (Perhaps in preparation
for this possible outcome, Kato is leading a non-partisan
delegation to Seoul, the opposition members of which were
picked based on their ability to work with the ruling
coalition on Korea issues -- see reftel.)


Diet Issues
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5. (C) Kato expected the following three issues to figure
prominently during the remainder of the Diet's current

TOKYO 00000325 002.2 OF 002


session:

a. Provisional gasoline tax. Kato predicted that, of six
trillion yen in projected tax revenues from the road taxes
and related surcharges, 400 billion yen would be used for
environmental projection. Because pro-environment Diet
members and activists have been asking for 100 to 150 billion
yen annually for environmental initiatives, "400 billion yen
should satisfy them," Kato said.

b. Pension issues. The inability of the government to match
millions of pension contribution records with their rightful
owners will continue to "smolder," Kato predicted.

c. Rural-urban divide. Domestic demand is too little, and
the economic situation in Kato's district, Yamagata
Prefecture, "is severe," he said. This is true for many
other localities as well, and the people are unhappy with the
growing rural-urban divide. Domestic demand would be higher
and the economy stronger, he argued, if the labor market were
in better shape and interest rates were higher. Companies
are not passing profits on to the growing number of
"non-regular" workers, he said (they earn only about 60% of
career workers),and low interest rates have kept average
Japanese from earning a return on the 1000 trillion yen of
deposits they hold, Kato noted.

The PM's Leadership
--------------


6. (C) Japanese voters want to know where the nation is
heading and what they are working for, Kato continued. They
need words and actions from their leaders that they can
understand and appreciate. Kato said that he had suggested
this to PM Fukuda, and the PM had replied that he "would
think about it." Kato did not think that Fukuda considers
himself to be a caretaker PM, but nonetheless wonders why the
PM has not yet offered the public the vision of his
administration. For example, the PM could propose to make
Japan the most advanced science and technology nation in the
world and, to promote this vision, visit science labs around
the nation. Another option is to visit a "village festival",
not in big cities such as Kyoto, but in a small village to
underline the basis and enduring qualities of Japanese
culture. "Japan worked hard to import American culture, but
people are getting tired of it," Kato said. Kato offered
that the PM's focus on basic Japanese culture would help to
boost his popularity.

Comment
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7. (C) Koichi Kato is a former Secretary General of the party
and former Prime Ministerial prospect. Prior to joining the
Diet, he was a MOFA diplomat with experience in China. Long
associated with the party's liberal and internationalist
wing, Kato is considered a foreign policy expert. Having
been returned to the Diet 12 times, Kato enjoys certain
access and insider knowledge. However, since his highly
publicized emotional meltdown after his failed attempt in
2000 to take over the Prime Ministership from Yoshiro Mori,
his influence on day-to-day party affairs has been limited.
DONOVAN