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IdentifierCreatedClassificationOrigin
09OSAKAKOBE45 2009-03-16 23:13:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Consulate Osaka Kobe
Cable title:  

KANSAI ECONOMIC RECOVERY OUTLOOK

Tags:   ECON EFIN PGOV JA 
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FM AMCONSUL OSAKA KOBE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1309
INFO RUEHKO/AMEMBASSY TOKYO PRIORITY 8431
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0255
RUEHNAG/AMCONSUL NAGOYA PRIORITY 2381
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RUEHBJ/AMEMBASSY BEIJING 0445
RUEHUL/AMEMBASSY SEOUL 1142
RUEHSH/AMCONSUL SHENYANG 0066
RUEHGH/AMCONSUL SHANGHAI 0036
RUEHGZ/AMCONSUL GUANGZHOU 0012
RUEHHK/AMCONSUL HONG KONG 0207
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
					  UNCLAS SECTION 01 OF 03 OSAKA KOBE 000045 

TREASURY FOR FOSTER AND WINSHIP
STATE PASS USTR FOR CUTLER AND BEEMAN

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV JA
SUBJECT: KANSAI ECONOMIC RECOVERY OUTLOOK

SENSITIVE BUT UNCLASSIFIED. CONTAINS PROPRIETARY
INFORMATION.



1. (SBU) Summary. Kansai-based business people and
experts are generally optimistic on the mid to long
term outlook for Kansai's economic recovery. In the
short term, they cite lack of economic confidence and
the uncertainty over Japan's leadership and political
outlook are the biggest obstacles to recovery. As
elsewhere in Japan, there is a tendency to look to the
U.S. for action to resolve the current global economic
crisis and a sense that a number of Japanese companies
are using the situation to execute restructuring
decisions that might not be possible in more prosperous
times. End summary.



--------------------------


Bank of Japan


--------------------------




2. (SBU) Meeting with Embassy Tokyo EMIN March 10, a
top BOJ Osaka Branch official identified public
disappointment with the political leadership and the
mass media's negative economic reports as primary
contributors to record low consumer confidence. Still,
the BOJ official was generally optimistic about the
long term prospects for economic recovery in the region
that includes Osaka, Kobe, and Kyoto, saying the
economic downturn is cyclical in nature and that the
dramatic global economic stimulus efforts will have
equally dramatic effects after the inevitable lag
between action and effect.



3. (SBU) The BOJ Osaka Branch official does not
believe that Kansai's and Japan's model of export-led
growth has been discredited and is in need of
replacement. With a greater percentage of Kansai's
economy in manufacturing, the shocks are heavier and
more apparent, especially in the auto and consumer
electronics industries, he says, but China and India
will begin to recover within a year and resume buying
Japan's exports. Kansai manufacturing levels may not
completely return to prior levels, but they will
revive to a large extent. It is neither reasonable nor
fair, he continued, to suggest Kansai manufacturers
should have been more proactive in diversifying from
the export oriented manufacturing model that was so
successful over the past years. The currently popular
argument that former Prime Minister Koizumi, Minister
of State for Privatization of the Postal Services Heizo
Takenaka, and President of the Council for Promoting
Regulatory Reform Yoshihiko Miyauchi were wrong to
deregulate the economy is "really stupid" as are the
media articles equating the reforms with succumbing to
USG pressure. Koizumi's direction was correct and the
USG does not need to worry that Japan will reverse
course, opined this BOJ official.



4. (SBU) Citing the the most recent BOJ survey of
consumer sentiment (seikatsusha ishiki chosa), the BOJ
Osaka official said 86 percent of respondents answered
that the current economic situation is "bad." When
asked why they thought so the two most popular
responses were that "the Mass Media says the economy is
bad" and "statistics show it is bad." The result is
surprising, he continued; one would have expected more
responses such as reductions in salary or lay-offs.



--------------------------


Proctor & Gamble


--------------------------




5. (SBU) The Osaka BOJ branch's generally optimistic
outlook was echoed by Proctor and Gamble President
Hatsunori Kiriyama. While noting some cost cutting
efforts including a shift away from television and
toward web-based advertising, slight dips in consumer

OSAKA KOBE 00000045 002 OF 003


consumption and increased price competition from store
brand products, P&G continues to do well, says
Kiriyama. Following a decade or more of recession
since the 1990s, Japanese consumption of beauty and
skincare products is unlikely to contract much from the
current levels. Demographic shifts will likely mean a
shrinking market for some P&G items like diapers, but
an increase in consumption in skin care and hair
coloring among Japan's aging population.



6. (SBU) Ms. Yukiko Tsujimoto, P&G Director for
External Relations raised concerns with the "overly
protective nature" of the GOJ on regulatory issues. In
particular, P&G is concerned with restrictive consumer
protection limitations on advertising, the potential
for new, more constraining rules on employment, and
protectionist sentiment emerging out of the current
economic climate. Approximately half of P&G products
sold in Japan are imported or use imported raw material
and some Japanese regulatory requirements have been
constraints, added Kiriyama.



--------------------------


Short Term Pain for SMEs


--------------------------




7. (SBU) While generally agreeing the long term outlook
for Kansai's economy is good, an advisor to small and
medium sized enterprises, Nobutaka Uenaka of the
Higashi-Osaka Creation Core, wonders whether many of
the SMEs he advises can survive long enough to be part
of the recovery. One larger SME he advises, an
automobile parts supplier with operations in the Nagoya
area as well as China and Malaysia, has cut salaries by
50 percent and taken other steps such as moving offices
out of Nagoya to a cheaper location. Without new
orders, says Uenaka, the company cannot survive for
more than about six more months.



8. (SBU) Takumi Hirai, an economic commentator and
associate professor at Poole Gakuin University, notes
an additional strain on SMEs. As large Japanese
companies have gone to commercial banks to boost
liquidity, the SMEs have been crowded out. Hirai
cautions, however, that the special credit guarantee
program for SMEs could create "zombie" companies.
While recognizing that many "SMEs may be fading quietly
away", like the BOJ's Matsuda, Hirai believes the
biggest obstacle to recovery is psychological,
overcoming the widely-held perception that the economy
is bad.



--------------------------


Politics Lags the Economy


--------------------------




9. (SBU) Panasonic Vice Chairman Masayuki Matsushita
commented that while the economic situation remains
severe, Japan's politicians and politics are failing to
provide policy solutions. Neither he nor Kansei
Economic Federation Chairman Hiroshi Shimozuma were
positive on the GOJ's actions taken thus far to
stimulate the country's economy. Matsushita noted,
however, companies are taking actions to restructure
and to come out of the current crisis more competitive.
Panasonic's founder, Matsushita told EMIN, "Bad
economic times -- like booming economies -- can be good
times for a company." Panasonic too is making changes
during the downturn; he would not, however, discuss
company thinking regarding the laying off of employees.



--------------------------


Pro-Business Policies Needed


--------------------------




10. (SBU) Kankeiren Chairman (and Sumitomo Metals
President) Hiroshi Shimozuma did indicate he would
prefer the continuation of a Liberal Democratic Party-

OSAKA KOBE 00000045 003 OF 003


led government after the general election. Above all,
strong pro-business policies that stimulate the
economy, including through tax cuts, are needed. While
government policies to strengthen the safety net for
the unemployed are important, it is not a wise course
for the government to mandate job-sharing to try to
staunch unemployment. "Job sharing might work in a
department store, but not on the factory floor," he
said.



11. (U) This cable was cleared with Embassy Tokyo.

DONG