DEPUTY SECRETARY STEINBERG'S MEETING WITH U.S.

UNCLAS SECTION 01 OF 02 TOKYO 001261

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PASS NSC FOR BADER, LOI

E.O. 12958: N/A
TAGS: ECON BEXP PGOV JA
SUBJECT: DEPUTY SECRETARY STEINBERG'S MEETING WITH U.S.
BUSINESS LEADERS IN JAPAN

Sensitive But Unclassified. Please Handle Appropriately.


1. (SBU) Summary - Meeting June 2 with Deputy Secretary
Steinberg, members of the American Chamber of Commerce in
Japan (ACCJ) Board of Governors discussed the possible
economic policies of a DPJ-led government, Japan's economic
situation, including how the current global recession has
affected Japanese attitudes towards needed reforms and the
U.S. as an economic model, and specific bilateral trade
issues, e.g., those connected with Japan Post's privatization
and the opportunities in the Internet economy. Looking at
issues the ACCJ will raise in their Washington Door Knock
starting June 8, the ACCJ leaders listed a push for renewed
high level dialogue on economic issues, the role the
U.S./Japan economic relations can play in the developing East
Asian regional architecture, and the trade and other benefits
foreign direct investment in Japan yields for U.S. companies
and workers. End Summary.

What would a DPJ Government's Economic Policies be?
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2. (SBU) Responding to the Deputy Secretary's opening
questions about the opposition Democratic Party of Japan's
(DPJ) economic policies and how they differ from the current
Japanese Government's, members of the ACCJ's Board of
Governors stated DPJ figures have begun taking a more
"statesman-like" approach in recent meetings. They noted
many in the DPJ leadership come from the old socialist party
and have strong links to the union movement and the U.S.
business leaders expect a DPJ-led government to be more
focused on consumer affairs, measures benefiting labor, and
strengthening Japan's social safety net. The ACCJ leadership
also expects a more pro-environment approach, including a
move to cap and trade for dealing with greenhouse gas
emissions. They further suggested the DPJ may take stances
against the "Anglo-Saxon economic model" and noted the DPJ
shadow finance minister's recent comments on possibly
developing a common Asian currency along the model of the
Euro as a manifestation of this approach. That said, the
business people stated the LPD's junior partner in the
current ruling coalition, the New Komeito, tends to prefer
policies more in line with the DPJ than those traditionally
associated with the LDP. Discussing the fourth stimulus
package that the Diet just passed, the ACCJ members noted it
contained many proposals originally proposed by the DPJ.

Japan's Economic Picture -- An Upbeat Assessment
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3. (SBU) Japan's financial sector is currently strong,
NikkoCiti Holdings Japan CEO Doug Peterson said, because it
had had little exposure in subprime real estate and because
Japanese firms tend to have large cash reserves. Many
Japanese companies, for example, in the auto sector, reacted
quickly and well to the global economic downturn by choking
off parts/input supplies and running through available
inventories and then shutting down production facilities
until the volumes of products on the market were exhausted.
Japanese production activities, including in the auto sector,
are now picking back up, although a number of specific
sectors, such as electronics and semi-conductors (including
their operations in Korea and China),remain weak.
Developments in the U.S. economy and, to a growing extent,
demand in China -- including for inputs going into products
made in China but sold in the U.S. and other third markets --
will be key factors for Japan's economic outlook. Another
looming negative factor, Peters
on stressed, is the huge government debt, currently about 180
percent of Japanese GDP, an issue neither the LDP nor DPJ
looks ready to address.


4. (SBU) On the outlook for needed economic structural
changes, the ACCJ leadership cited the continued need for
improvements in the tax structure, something that should be
easier in today's environment given corporate Japan's need to

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write off massive business losses and consolidate. They also
noted the global backlash against financial deregulation is
playing out in Japan along with an added factor or backlash
against Koizumi-era reforms that had been designed to
revitalize Japan's economy and enable it to compete better
globally. Despite this backlash, reforms already approved
and in train, including in the financial area, are going into
effect as scheduled.

Bilateral Trade and Other Business Issues Raised
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5. (SBU) Insurance and express mail providers cited continued
concerns about how privatization of Japan Post is playing out
and its implications for U.S. firms. The old,
pre-privatization rules have limited the ability of Japan
Post, with USD 3 trillion in book assets - 25 percent of
Japan's savings, to expand its activities. Now it is allowed
to move into new areas, armed with these tremendous assets
and a still privileged position. Both the insurance and
express mail reps expressed appreciation for Embassy and
other USG actions on their behalf.


6. (SBU) The ACCJ also urged both Tokyo and Washington to
approach the economic relationship with creative and bold
thinking. Members pointed to a draft Internet White Paper,
which calls bilateral dialogue, cooperation, and openness to
develop Japan's Internet economy, including in terms of
getting regulations right, as an example of efforts that can
yield great and on-going benefits, including in terms of jobs
and exports, for both sides. The Board of Governors,
previewing their message in the Washington Door Knock the
week of June 8, also stressed the need for greater U.S.
involvement in the economic integration underway in East
Asia. They were concerned the United States might be left
out or otherwise disadvantaged by some of the trade,
investment, and other economic arrangements now under
discussion in the region, including between Japan and the
ASEANs and other countries, e.g., China. The ACCJ Board
argued deeper U.S. engagement in Asia can build off a more
robust U.S./Japan economic cooperation relationship,
especially during the next two years when Japan and the U.S.
host APEC. The ACCJ also called for a formal high level
dialogue between the U.S. and Japan to focus on economic
competitiveness and recovery.


7. (U) PARTICIPANTS

United States:
Deputy Secretary Steinberg
CDA James P. Zumwalt
Ambassador Jeffrey Bader
EMIN Robert F. Cekuta
D Special Assistant Pamela Park
Econoff William Duff

ACCJ:

ACCJ President Thomas P. Whitson, KPMG FAS Co., Ltd.
Laurence W. Bates, GE Japan Corp.
William R. Bishop, Jr., Nippon Bectno Dickenson Co., Ltd.
Douglas Peterson, NikkoCiti Holdings Japan
Andre Conrad, Aflac International
Jay Ponazecki, Morrison & Foerster LLP
Mitsuyo Teramura, Federal Express
James J. Foster, Microsoft Co., Ltd.
Samuel Kidder, Executive Director, ACCJ
ZUMWALT