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09TOKYO1163 2009-05-21 09:27:00 CONFIDENTIAL Embassy Tokyo
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DE RUEHKO #1163/01 1410927
O 210927Z MAY 09
					  C O N F I D E N T I A L SECTION 01 OF 06 TOKYO 001163 


E.O. 12958: DECL: 05/20/2019

Classified By: CDA James P. Zumwalt, reasons 1.4(b), (d).

1. (C) Begin text of Scenesetter:

Mr. Deputy Secretary,

The U.S.-Japan Alliance remains strong and Japan will
continue to be a close friend and partner, but our
relationship will be stressed on several fronts over the next
year as Japan wrestles with daunting political and economic
challenges. Two developments dominate the domestic agenda:

-- First, the political consensus that has sustained over
fifty years of LDP one-party dominance is crumbling and the
opposition Democratic Party of Japan -- which has ambiguous
and potentially problematic security policies -- has a
reasonable chance of taking power in the next three months.
Regardless of who wins, the next government is unlikely to
command enough Diet seats to effectively govern, leading to
another year of political gridlock.

-- Second, Japan's GDP dropped by an annualized rate of 15.2
percent in the last quarter, the largest fall in 60 years and
more than double the drop in the U.S. GDP. Once commanding
14 percent of the world's GDP, Japan's share has dropped to 8
percent. As the world's second largest economy, second
largest source of R&D spending, and significant supporter of
international organizations and activities, we need Japan's
support now more than ever. But a debt-to-GDP ratio
approaching 200 percent and a shrinking population and tax
base is fueling tremendous pressure to cut spending
drastically in all areas -- defense included.

Japan's leaders will look to you to reaffirm President
Obama's and Secretary Clinton's message that Japan is a
"cornerstone" of our national security and foreign policy.
Worries that we would pass over or ignore Japan and tilt
toward the PRC have been largely laid to rest by Secretary
Clinton's visit and President Obama's invitation to Prime
Minister Aso to be the first foreign leader to visit the
White House. Nonetheless, unease remains and the Japanese
will look to you for reassurance. There will be intense
interest in the outcome and impact of our policy reviews on
North Korea, Burma, Iran, and Afghanistan/Pakistan. President
Obama's proposals on eliminating nuclear weapons and
assurances we will maintain a nuclear arsenal to guarantee
deterrence have drawn wide approval. Tokyo has publicly
hailed the President's Prague speech and privately expressed
appreciation for our pro-active engagement in crafting the
Nuclear Posture Review (NPR).

Prime Minister Aso has made progress in carving out a larger
international role for Japan and should be commended for his
vision and political courage. Tokyo has played a leadership
role in supporting stability in Pakistan and Afghanistan,
most recently through hosting the highly successful Pakistan
donors conference in April. Japan is expected to dispatch
P-3C patrol aircraft, supported by Ground and Air
Self-Defense Force (SDF) elements, to Djibouti on May 28 to
join two destroyers already in the region conducting
anti-piracy operations. The Diet is on track to pass
legislation that will broaden the SDF's ability work within

On the bilateral security front, the Aso administration has
moved aggressively to implement the 2006 Alliance
Transformation Roadmap, budgeting over one billion dollars
this year for U.S. base realignment and securing Diet
ratification for the Guam International Agreement signed by
Secretary Clinton in February. Japan is also compiling its
National Defense Program Guidelines (NDPG) in tandem with our
own QDR effort. Bilateral consultations over these efforts

TOKYO 00001163 002 OF 006

should help Japan focus its limited defense resources on
capabilities that will enhance the Alliance's effectiveness.
Close and effective coordination in the lead-up to the North
Korea Taepodong launch in April has validated the trend
towards increased interoperability. Nevertheless, there are
still political and business interests pressing the
government to invest in expensive and duplicative satellites
and offensive weapons.

I have attached a list of issues and background material for
your reference. We look forward to seeing you in Tokyo.

James Zumwalt, CDA

2. (C) Begin text of Checklist:




-- LDP Hanging On; DPJ Changes the Guard: Four months ago
public support for Prime Minister Taro Aso was approaching
record lows, threatening to trigger moves to unseat him
within his own ruling Liberal Democratic Party (LDP). But
the emergence of scandal allegations involving opposition
Democratic Party of Japan (DPJ) leader Ichiro Ozawa in March
has since boosted support for Aso's administration. Early
indications are that Ozawa's resignation and his replacement
by Yukio Hatoyama may improve the public's view of the DPJ,
but Aso has used his advantage over the past three months to
demonstrate leadership and make progress on most of his key
legislative goals. Aso's domestic focus for the rest of the
Diet session will be to demonstrate the impact of his
legislative efforts on Japan's ailing economy, an effort that
will require him to extend the term into July. The DPJ has
never been closer to ending more than half a century of LDP
domination, but most members realize this may be their last
chance, and they have a history of self-destructing.

-- DPJ Friend or Foe?: Significant ideological differences
within the party make it difficult to predict the impact on
bilateral relations under a DPJ government. Your meeting
with DPJ President Hatoyama will continue the process begun
by the Secretary of building stronger ties to the party and
helping to moderate its views. Despite its critical stance
on a number of Alliance-related issues, the DPJ will seek
positive relations with Washington and will likely steer
clear redlines we lay down on core issues. In this context,
it will be useful to reiterate Secretary Clinton's message to
former DPJ President Obama on our commitment to implement the
realignment of U.S. forces.

-- Political Realignment in the Offing?: A general election
must be held by this fall. We assess that neither the LDP nor
the DPJ will receive sufficient votes to assemble a stable
coalition government. Voters are disillusioned after three
years of political gridlock, and some may choose the DPJ as a
protest. Others will be driven to vote for change by the
worsening economy. Over 40 percent of Japan's electorate is
undecided. Continuing political gridlock may lead to an
eventual realignment of political forces.




-- Priority One - The Economy: PM Aso's top priority is
implementing economic and fiscal measures to strengthen the
domestic economy during the current global economic downturn
in advance of the coming election. On April 10, Aso
announced a supplemental budget of $154 billion dollars in
government expenditures, projected by USG estimates to

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generate 1.9 percent of GDP in new real demand. The
package's objective is the return of the economy to a
sustainable growth path by fiscal year 2010.

-- Will Stimulus Work?: Aso explicitly described his latest
stimulus plan as Japan's response to the G-20 Leaders' call
for "concerted fiscal expansion." However, Japan-based
economists fear some new spending in the April 10 stimulus
package may be poorly targeted. The DPJ agrees with the need
for fiscal stimulus but is contesting individual elements of
the package, which could delay passage of the bill until late
June and the ultimate impact of the stimulus into the fall.

-- Cooperation Critical: Your counterparts will want your
visit to demonstrate close coordination in jump-starting the
world economy. Japan's current economic contraction is due
to the collapse of global demand, not a domestic financial
crisis. The medium-term economic outlook is gloomy with
rising unemployment, declining business confidence, and weak
global demand for Japanese exports. Marking the steepest
drop since the end of WWII, the country's real GDP fell 15.2
percent on an annualized basis from the previous quarter for
the January-March 2009 period due to falling business
investment, private consumption, housing investment, and
exports. The crisis has reinforced the need for Japan to
shift more decisively toward domestic demand-led growth, but
domestic economic and structural reform efforts have stalled
under Prime Ministers Aso, Fukuda and Abe.

-- U.S. Actions: Japanese banks and financial institutions
had little sub-prime market exposure and corporate and
banking balance sheets are generally sound, the practice of
holding corporate equities among their assets, combined with
a 50 percent decline in domestic share prices over the past
year has forced many financial firms to book large losses.
Companies such as Toyota and Sony have recorded operating
losses, pared employment rolls, and extended factory holidays
in an effort to quickly slash inventories and costs. These
same companies, however, are aggressively shifting
production, and restructuring in an effort to return to
profitability, but Japanese corporate leaders readily admit
that Japan's economic fortunes are tied to a U.S. economic




-- Support for Alliance: Many Japanese are becoming more
concerned about the state of our bilateral relationship due
to uncertainty about our China policy and lingering
disappointment with our decision to delist North Korea as
state sponsor of terrorism. But while pacifism remains
deeply ingrained in Japan, there is an emerging consensus
among the public and opinion makers -- due to the DPRK threat
and the PRC's growing power projection capabilities -- that
the U.S.-Japan Alliance is vital to Japan's national
security. Our bilateral security ties remain strong and were
reaffirmed by Secretary Clinton in February when she signed
the Guam International Agreement (GIA) on the realignment of
U.S. Forces, which commits Japan to complete the relocation
of Futenma Marine Corps Air Station on Okinawa and to provide
funds for USMC-related facilities on Guam.

-- Defense Spending: We need to continue to encourage Japan
to take on a greater role in its own defense. Japan is now
compiling its National Defense Program Guidelines (NDPG) and
5-year Mid-Term Defense Plan. These policy reviews offer us
a chance to influence the future shape of Japan's defense
posture. In addition to encouraging greater defense
spending, enhanced information security, and broader legal
authority to the Self-Defense Forces, we are encouraging

TOKYO 00001163 004 OF 006

Japan to focus on deepening operational capabilities in ways
that will enhance our Alliance's deterrent value, including
long-range lift, ballistic missile defense (BMD),
sustainment, and maritime operations.

-- Information Security: The U.S. and Japan established a
Bilateral Information Security Task Force (BISTF) in 2007 in
the wake of the unauthorized disclosure of Aegis operational
data by a Japanese MSDF member. Since that time, Japan has
made progress towards strengthening information security
procedures within its ministries, but much work needs to be
done on cyber security and establishing a legal framework to
allow for effective background investigations and security
clearances. The State Department co-chairs the BISTF with
DOD and ODNI at the DAS-level.

-- TIP: Your visit will coincide with the release of the
annual Trafficking in Persons Report Tier Rankings, a
potential irritant to our bilateral relationship. G-TIP has
once again slated Japan to be ranked as a Tier Two country,
despite the fact that Tokyo has met or exceeded requirements
earlier set by Washington. Senior Japanese officials have
repeatedly warned that they will cease cooperating with us on
the issue, having determined that our ranking system is not
objective, not applied equally across countries, and poorly
substantiated. Greater confrontation over this issue will
not help us achieve our goals regarding trafficking in Japan.
Quite the opposite, by recognizing Japan's substantial
achievements, we could elevate our relationship to a true
partnership in working to resolve this problem worldwide.

-- Child Porn: On a related topic, a bill to criminalize the
possession of child pornography has been slow to move through
the Diet, due to concerns over privacy issues. An expression
of interest on your part in the progress of this legislation
could refocus efforts by supporters of the bill to gain
passage before the end of this session.

-- Hague Convention on Civil Aspects of International Child
Abductions: We have more child abduction cases with Japan
than any other non-Hague country and have yet to resolve a
single case. We have been working closely with Canada,
France, the UK, and others to encourage Japan to become the
82nd signatory to this convention. Currently we are aware of
73 cases involving over 100 children who were abducted by a
parent in the United States and brought to Japan. CA DAS
Michelle Bond met with Foreign Affairs and Justice Ministry
officials to urge Japan to accede. There is growing
congressional and press interest in this issue.

-- IAEA Election: International Atomic Energy Agency (IAEA)
Director General: Japan continues to strongly advocate on
behalf of its candidate for IAEA Director General, Ambassador
Yukio Amano. The GOJ is coordinating closely with the USG in
Washington, Vienna, and Tokyo on outreach to key countries,
and has expressed appreciation for continued U.S. support of




-- Afghanistan/Pakistan: In April, Japan hosted the
ministerial-level Pakistan Donors Conference, which garnered
over five billion dollars in pledges. Japan matched our
contribution, pledging one billion dollars in new funds over
two years. In Afghanistan, Japan is working more closely
with the PRTs , assigning a full-time liaison officer to
NATO's office in Kabul and dispatching the first of what will
eventually be four officials from the Ministry of Foreign
Affairs (MOFA) to the Lithuanian PRT in Chaghcharan. With
$1.4 billion dollars pledged since 2002, Japan is the third

TOKYO 00001163 005 OF 006

highest bilateral contributor (behind the United States and
the United Kingdom) to Afghanistan. An additional $300
million dollars in the supplemental budget will support the
2009 Afghan elections and other security programs, including
payment of salaries for the entire Afghan police force for
six months and contributions to the NATO helicopter trust

-- Iraq: Japan is the second largest contributor to Iraqi
reconstruction and is moving to establish an office in Erbil.
In January the two countries signed a "Comprehensive
Partnership" agreement, and Japan can be counted on to
continue to support Iraqi reconstruction.

-- Iran: Japan maintains a "normal" relationship with Iran
and sees itself as a possible intermediary between Iran and
the United States. Shortly after Iranian Foreign Minister
Mottaki visited Tokyo for the Pakistan Donors Conference,
Foreign Minister Hirofumi Nakasone traveled to Tehran,
despite our urging to the contrary after President
Ahmadinejad's racist speech in Geneva. In meetings with
Mottaki and President Ahmadinejad, Nakasone pressed hard for
a favorable response to President Obama's overtures, and also
sought the release of Roxana Saberi. He urged Iran to play a
more "responsible" role, but did not raise Ahmadinejad's
Geneva remarks or Iran's support for Hizbollah and Hamas.
Japan and Iran have announced their intention to engage in
several joint projects pertaining to Afghanistan, including
border cooperation and the training of Afghan refugees in
Iran who are preparing to return home.

-- North Korea: Discussions on the situation in North Korea
and the status of the Six-Party Talks will be a constant
theme during your visit and will draw widespread press
attention. Japan remains exceedingly uneasy about the DPRK,
particularly in light of the most recent test launches.
Special Envoy Bosworth's two visits have helped reassure
Japan that our policies are still in sync, but you can
reinforce that message. You will be expected to express
concern for the fate of Japanese citizens abducted by the
DPRK, and your words will be parsed carefully for any clues
to potential changes in our approach. The government remains
firm in its refusal to provide energy assistance to Pyongyang
as long as the DPRK's August 2008 pledge to open a
reinvestigation into the fate of Japan's abductees remains

-- China: Japan's relations with its other immediate
neighbors are generally stable, although problems persist
just beneath the surface. Prime Minister Aso has been
successful in defusing, for the time being at least, the
sharp conflicts over history that damaged relations with
China during the Koizumi years and has successfully led the
first Trilateral Dialogue with Japan-China-Korea and won
agreement from Beijing to re-start Japan's version of the SED
after a long hiatus. While Japanese acknowledge that good
U.S.-China relations are in Japan's interest, they also fear
that the United States will discount Japan's interests in
pursuit of more robust relations with China. Japan has been
sensitive to recent Chinese actions around the disputed
Senkakus and has sought explicit U.S. reassurance on our
commitment to aid Japan in the case of an attack on the

-- South Korea: Territorial disputes over the Liancourt
Rocks (Takeshima/Tokdo) remain an irritant to relations with
South Korea, but both sides have expressed a desire to build
a Japan-ROK relationship that is "different from the
relationship up until now." Prime Minister Aso and ROK
President Lee Myung-bak have struck up a particularly good
personal relationship, and the pace of "shuttle diplomacy"
has picked up markedly since Aso two took office.

TOKYO 00001163 006 OF 006

-- Climate Change: Japan is an enthusiastic supporter of the
Major Economies Forum and has been eager to engage Special
Envoy Stern and his team on coordination of our efforts in
the MEF and the UN. The aim for Japan is to achieve an
agreement in Copenhagen that the U.S. can be a part of and
one that includes meaningful actions by developing countries,
especially China and India. To do this, the GOJ will have to
bring along the Japanese business association, Keidanren,
which, influenced by Japan's heavy industry, has opposed
serious efforts to reduce Japan's emissions even though many
Japanese companies stand to benefit from the move to a green
economy. Prime Minister Aso has said he will announce a
mid-term target for greenhouse gas reduction by this June,
which will be a test of his ability to navigate between
business interests and a popular desire in Japan to take
action on climate change.