Identifier
Created
Classification
Origin
09TOKYO2305
2009-10-02 06:45:00
CONFIDENTIAL
Embassy Tokyo
Cable title:  

DPJ CABINET PROVIDES OPPORTUNITIES TO ENGAGE JAPAN

Tags:  ECON EFIN PREL INRB ETRD ETTC EAID JA 
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VZCZCXRO9887
OO RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHKO #2305/01 2750645
ZNY CCCCC ZZH
O 020645Z OCT 09
FM AMEMBASSY TOKYO
TO RUCPDOC/USDOC WASHDC IMMEDIATE
RUEATRS/TREASURY DEPT WASHDC IMMEDIATE
RHEHAAA/NSC WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 6588
INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION IMMEDIATE
RUEHGV/USMISSION GENEVA IMMEDIATE 3603
C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002305 

SIPDIS

STATE FOR U/S HORMATS, EEB AND EAP/J
STATE PLEASE PASS TO NSC FOR DANNY RUSSELL AND JIM LOI
STATE PLEASE PASS TO USTR FOR WENDY CUTLER AND MICHAEL
BEEMAN
USAID FOR AA/EGAT MICHAEL YATES AND ODP KAREN TURNER

E.O. 12958: DECL: 10/02/2019
TAGS: ECON EFIN PREL INRB ETRD ETTC EAID JA
SUBJECT: DPJ CABINET PROVIDES OPPORTUNITIES TO ENGAGE JAPAN
ON ECONOMIC ISSUES

REF: A. TOKYO 2238

B. TOKYO 2222

C. TOKYO 2177

D. TOKYO 2137

E. TOKYO 2079

F. TOKYO 2080

G. TOKYO 1757

H. TOKYO 1742

Classified By: Ambassador John V. Roos, Reason 1.4 (B) and (D)

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002305

SIPDIS

STATE FOR U/S HORMATS, EEB AND EAP/J
STATE PLEASE PASS TO NSC FOR DANNY RUSSELL AND JIM LOI
STATE PLEASE PASS TO USTR FOR WENDY CUTLER AND MICHAEL
BEEMAN
USAID FOR AA/EGAT MICHAEL YATES AND ODP KAREN TURNER

E.O. 12958: DECL: 10/02/2019
TAGS: ECON EFIN PREL INRB ETRD ETTC EAID JA
SUBJECT: DPJ CABINET PROVIDES OPPORTUNITIES TO ENGAGE JAPAN
ON ECONOMIC ISSUES

REF: A. TOKYO 2238

B. TOKYO 2222

C. TOKYO 2177

D. TOKYO 2137

E. TOKYO 2079

F. TOKYO 2080

G. TOKYO 1757

H. TOKYO 1742

Classified By: Ambassador John V. Roos, Reason 1.4 (B) and (D)


1. (C) Summary: Prime Minister Hatoyama is working on an
eight or nine-month priority timeline until the Upper House
elections in July 2010. Washington agencies, in developing
priority economic issues to engage the new Japanese
Government, should consider focusing on issues where our two
countries' interests converge during this period when the DPJ
will want results. We are likely to gain the most traction
on issues where the DPJ government is already moving in a
favorable direction, e.g., economic recovery, climate
change/energy, APEC/regional integration, export controls and
combating the financing of terrorism, and development
assistance. In these issue areas, the USG has an opportunity
to make progress and build trust that enables our two
governments to work on more difficult issues after the Upper
House elections. At the same time, we cannot neglect
pressing the GOJ to address longstanding bilateral irritants
such as beef and the pace and direction of postal
privatization. DPJ politicians are already querying the
Embassy about establishing a bilateral economic dialogue (see
comment, para 9),but have yet to approach the GOJ
bureaucracy. Though currently lacking a blueprint for such a
dialogue, these politicians envision talks covering subjects
including a U.S.-Japan Free Trade Agreement, China's rise,
broader regional integration, and IPR protection. End
Summary.

New to Governing, But not Inexperienced
--------------


2. (C) Democratic Party of Japan (DPJ) President Yukio

Hatoyama's cabinet, by many measures, is one of the most
experienced and well regarded in recent memory. The
17-member cabinet includes former ministers (Finance Minister
Fujii),subject matter experts (National Strategy Bureau and
S&T Minister Kan),as well as business leaders (METI Minister
Naoshima) and former bureaucrats (Foreign Minister Okada is a
METI alumnus). Observers, as a result, view the cabinet as
experienced and competent, and new ministers are lending
credence to this image in meetings with senior USG officials.
Following its inauguration on September 16, the Hatoyama
government has set about meeting senior USG officials to
explain its policies and build personal relationships. PM
Hatoyama, FM Okada, Finance Minister Fujii, Environment
Minister Ozawa and other officials have or will soon travel
to the United States. While initial impressions are
positive, concerns about the DPJ's ability to navigate some
of the more sensitive economic issues remain.

DPJ Time Line for Success is Short
--------------


3. (C) The DPJ tells us that the party and its policies will
focus on winning the July 2010 Upper House elections so that
the DPJ can jettison its unwieldy coalition with the People's
New Party (PNP) and the Social Democratic Party. This means
that for at least the next ten months, the DPJ will focus on
improving consumer welfare, economic recovery, income
redistribution, and elimination of waste.


4. (C) This short-term timeline is necessitated by the DPJ's
Lower House coalition of convenience and the party's need to
quickly and demonstrably help working families while keeping
the opposition Liberal Democratic Party (LDP) off guard and
off balance. As Upper House member and former Morgan Stanley
derivatives trader Tsutomu Okubo has noted, the DPJ's
economic and social policies are July 2010-focused, and the
coalition the Party has assembled is designed to rapidly pass
pocketbook assistance and budget legislation through the
Diet. Okubo has further told us that following a DPJ Upper
House election victory in July 2010, the Party could
reshuffle the cabinet and turn to longer term economic and

TOKYO 00002305 002 OF 004


other issues. All of this, however, is predicated on a 2010
Upper House victory.


5. (C) The DPJ's priorities and timeline suggest the USG
should take a goals-oriented approach during the new Japanese
government's first year. This approach could aim for
specific successes prior to July 2010 as part of an ongoing
effort to build trust, facilitate cooperation, and deliver
results. To the extent Washington agencies could focus on
DPJ priority agenda items, e.g., economic recovery, energy
and the environment, and better quality and lower cost health
care, there is a real opportunity to make short term progress
and build momentum. There is also a prospect to engage the
DPJ on its stated desire for greater transparency in
government law and rulemaking.


6. (C) This is not to say we should abandon the more
difficult and protracted issues such as postal privatization
and beef. These longstanding concerns should be discussed
and explained, and solutions sought. However, the DPJ will
only reluctantly address issues in politically charged areas
before consolidating its hold on the Upper House of the Diet.
Open disputes related to the U.S.-Japan trade and economic
relationship could strain the coalition and are unlikely to
result in progress during this period.

Convergence
--------------


7. (C) Embassy Tokyo sees at least five main areas on the
economic and trade front where U.S. interests and DPJ policy
priorities will converge over the next ten months:

(a) Economic Recovery: Japan's support for stabilizing and
reviving the global financial and trading systems, as
evidenced by its engagement in the G7 and G20 fora, the IMF,
as well as the government's domestic stimulus and overseas
assistance programs, dovetail in many respects with similar
U.S. efforts to facilitate economic recovery. The DPJ's
focus on domestic demand-led growth is consistent with the
necessary rebalancing of global growth. Finance Minister
Fujii reiterated to Ambassador Roos (ref B) that Japan
intends to work with the USG and the G20 partners toward this
goal. He further added the DPJ is "hard at work" revising
the FY10 budget to meet the party's objectives outlined in
its election manifesto to improve consumer welfare and boost
business confidence. Fujii, a former Finance Minister and
career bureaucrat with experience in the ministry's Budget
Bureau, is well versed in the intricacies of the Japanese
budget.

(b) Energy/Climate Change: The DPJ has a deep commitment to
address climate change, reduce the carbon intensity of the
economy, develop and diffuse new technologies for renewable
fuels, build more efficient transportation, and adapt other
energy saving technologies. PM Hatoyama highlighted this
commitment in his September 20 call at the United Nations
Environment Conference for a 25 percent reduction in Japan's
GHG emissions over 1990 levels (ref E). The DPJ's aggressive
policy and its pledge to increase assistance to developing
countries for climate change mitigation and adaptation under
the "Hatoyama Initiative" provide fertile ground for
increased bilateral cooperation on the environment. Minister
of Environment Ozawa told Ambassador Roos (ref A) the U.S.
and Japan have much common ground for cooperation on clean
energy and measures to address global warming. Ozawa also
stressed the importance of technological innovation to solve
climate change, as well as the support of the next generation
of business leaders. This is clearly an area the USG can
work with the DPJ to improve business and export
opportunities.

(c) APEC: The DPJ wants to host a successful APEC Leaders'
Meeting in 2010, and is committed to strengthening relations
with the U.S. and its Asian partners. The Embassy is
confident that DPJ leaders seek close cooperation with the
USG, especially with the APEC chairmanship passing to the
U.S. in 2011, as key to achieving their regional economic,
trade and investment objectives. Washington should consider
working with the DPJ government to advance our regional trade
liberalization agenda, but at the same time recognize the
DPJ's maneuverability may be hindered by domestic

TOKYO 00002305 003 OF 004


considerations.

(d) Export Controls and Counter Terrorism Financing: The DPJ
appears interested in continuing to work with the USG to
prevent the flow of illicit funds and materials from reaching
regimes and individuals determined to undermine regional
stability, in particular when they involve North Korea and
Iran. For example, FM Okada told Iranian FM Mottaki
September 23 on the margins of the UNGA that Iran should
cease uranium enrichment. The United States and Japan have
cooperated closely on non-proliferation issues, and the U.S.
campaigned hard for Japanese candidate Yukiya Amano in his
successful run for Director General of the IAEA. However, we
should also encourage the DPJ to assume a leadership role to
improve global export control and sanctions efforts. One
area where steps could be taken is in shoring up Japan's
inadequate system to combat money laundering and the
financing of terrorism. Improving Japan's compliance with
the Financial Action Task Force (FATF) recommendations (a
FATF peer review determined that Japan was non-compliant in
10 areas and only partially-compliant in 15 areas) would send
a strong signal of enhanced bilateral and multilateral
cooperation in an important economic and law enforcement area.

(e) Development Assistance and the "Hatoyama Initiative":
The DPJ pledged during the election campaign to use foreign
assistance to support "human security" by fighting global
pandemic diseases, protecting the environment and reducing
poverty. Short on specifics, the DPJ pledge appears to
diverge little if any from the Japan's priorities to date for
its substantial ODA program. At the same time, the DPJ has
indicated it intends to review ODA policy and funding levels,
along with other government spending, and may also bring in
some new priorities including a greater role for NGO
involvement in foreign aid implementation. Hatoyama already
has identified development assistance as pivotal to Japan's
role as a bridge between developed and developing countries.
In his speech to the UN General Assembly, Hatoyama
underscored that national security and human security are
intertwined and said Japan will work in partnership with NGOs
and international organizations to increase the quality and
quantity of foreign assistance toward such efforts as Afghan
reconstruction, African development and realizing the
Millennium Development Goals (MDGs). Hatoyama also announced
his intention to ramp up GOJ assistance to developing
countries to help mitigate and adapt to the effects of
climate change. Calling his plan the "Hatoyama Initiative",
the Prime Minister seems intent on making climate change
assistance a signature area of foreign aid. The USG should
continue to cooperate with Japan on mutual priorities,
stressing in particular the importance of Japanese civilian
assistance in Afghanistan and looking for linkages between
our programs in Sub-Saharan Africa, the Asia-Pacific, and on
climate change.

Managing Areas of Divergence
--------------


8. (C) As the DPJ's leadership continues to articulate and
refine its economic and trade agenda, Embassy Tokyo also sees
areas where Japanese government policies could diverge from
those of the USG:

(a) Trade: The new DPJ-led government is unlikely to further
liberalize trade before the Upper House elections next
summer. Traditional, entrenched interests will resist any
liberalization efforts, but this should not deter the U.S.
from continuing to encourage the DPJ government to live up to
its party platform pledges. The DPJ is, however, unlikely to
significantly change Japan's position on the Doha Development
Agenda, and will likely support NAMA and services
liberalization efforts while maintaining its reluctance to
liberalize trade in agriculture. Cooperation via APEC and a
steadily improving economy will help generate some positive
movement, but we expect Japan to pursue objectives that have
minimal effect on its protected domestic economy. For
example, we believe it will work to improve the food security
of the poorest APEC member economies in a way that minimizes
change to Japan's own protectionist agriculture policies. We
need to continue to press on access for U.S. beef and beef
products, even though we are pessimistic about progress under
new Socialist Food Safety Minister Fukushima Mizuho and new

TOKYO 00002305 004 OF 004


Minister for Agriculture, Forestry and Fisheries (MAFF)
Hirotaka Akamatsu. Over the longer term we are more
optimistic that Minister Kan (a scientist),FM Okada (a METI
trade bureaucrat alum),and Ichiro Ozawa, who was behind the
DPJ's election campaign proposal (later scaled back) to
pursue a Free Trade Agreement with the U.S., might steer the
DPJ to a more open trade policy. Their decisions to weigh in
on trade, agriculture, investment, and other international
economic issues could set the tone for successful engagement
with Japan in these areas following the summer 2010 election.

(b) Redistribution vs. Productivity: the DPJ's particular
brand of economic populism suggests its domestic agenda will
be aimed at promoting redistribution such as more handouts
for families with children, free education, direct payments
to farmers, and more small business support, than at
productivity increases to drive future growth. In order to
lay the groundwork for progress in the longer term, we should
continue to stress in our discussions with the Japanese the
need to increase productivity, particularly services sector
productivity, and to undertake key structural reforms,
particularly labor market liberalization.

Comment: Discrete Objectives and the DPJ Election Timeline
-------------- --------------


9. (C) Comment: The next several weeks leading up to the
President's visit to Tokyo in November and Japan's assumption
of the APEC chair for 2010 in December present an opportunity
to partner with the Hatoyama Administration. Selection of a
few economic objectives where we stand the best chance of
making progress prior to the Upper House elections can result
in accomplishments and generate momentum to resolve some of
our more intractable issues such as beef and postal
privatization later. We are working to identify the levers
of power in the new DPJ government so that we are able to
focus our limited resources on the decision-makers. Key DPJ
politicians are already querying the Embassy about
establishing a bilateral economic dialogue, i.e., a
"Strategic Economic Dialogue" (the DPJ's term). They
currently have no blueprint for such a dialogue, but envision
talks covering subjects including a U.S.-Japan Free Trade
Agreement, China's rise, broader regional integration (APEC
and the "East Asian Community" concept),and IPR protection,
e.g., the Anti-Counterfeiting Trade Agreement (ACTA). DPJ
politicians, notably Kitagami Keiro, Fujisue Kenzo, Odachi
Motoyuki, Ogushi Hiroshi, and Okubo Tsutomu, have put thought
into the substance of a U.S.-Japan dialogue, but the DPJ has
not initiated discussions with Japanese bureaucrats. The
first summit meeting between the President and PM Hatoyama in
Tokyo in November could help focus what the two governments
aim to accomplish in these "economic partnership areas" by
summer 2010. End Comment.
ROOS