DAILY SUMMARY OF JAPANESE PRESS 01/07/09

UNCLAS SECTION 01 OF 09 TOKYO 000030

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SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 01/07/09

INDEX:

(1) Government to scrap capital gains tax for foreigners holding
stakes in Japan firms via investment funds (Nikkei)

(2) Pro- and anti-Aso groups shaking the LDP; Meeting after meeting
held by mid-level and junior members, with Lower House election
scheduled to take place by fall; Sense of crisis from plummeting
support ratings (Nikkei)

(3) Questionnaires to candidates for Lower House election: 80
PERCENT of LDP candidates call for review of postal privatization
(Mainichi)

(4) Assistant Secretary Hill: Next U.S. administration also will
recognize importance of abduction issue (Sankei)

(5) Okinawa governor visits U.S., requests concessions on base
problem (Sankei)

(6) Former reporter calls for reciprocal visits to Hiroshima and
Pearl Harbor by top leaders of Japan and the United States; True
reconciliation nowhere in sight (Mainichi)

(7) TOP HEADLINES

(8) EDITORIALS

(9) Prime Minister's schedule, January 6 (Nikkei)

ARTICLES:

(1) Government to scrap capital gains tax for foreigners holding
stakes in Japan firms via investment funds

NIKKEI (Top Play) (Almost Full)
January 7, 2009

The government has finalized a revision to taxation on foreigners
who hold stakes in Japanese companies through investment funds, the
aim being to promote investment in Japan. The feature of the package
is to exclude, in principle, capital gains from taxation. The
measure will also apply to investment through existing foreign
investment funds, on condition that relevant investors account for
less than 25 PERCENT of a fund. The government aims to halt the
slump in investment in Japan, following the slowing down of the
global economy.

Funds need to have held stakes in Japanese firms for at least a
year

Many overseas investors buy into Japanese firms via funds. However,
Japan currently levies a corporate tax of about 40 PERCENT on
capital gains when funds sell shares -- one of the highest rates in
the world.

Foreign investors account for only 4 PERCENT of fund investment in
Japan, which is far below the 75 PERCENT in Britain, the 60 PERCENT
in the EU and the 20 PERCENT in the U.S. The ruling parties' tax
code revision outline for fiscal 2009, compiled late last year with
this situation taken into consideration, mentions that investment
through investment funds should be excluded from being subject to

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taxation, such as income and corporate taxes. The government has
been working out the details. It plans to submit bills related to
tax code revisions to the current Diet session, seeking to end
related corporate and income taxes from April.

The fund eligible for tax exemption is investment limited liability
partnerships -- the most popular fund that is said to make up
roughly 80 PERCENT of funds in Japan and abroad. The advantage is
that since investors are not held responsible for more than the
amount they have invested, their risks will not expand. The benefit
will also apply to existing foreign and domestic funds as well as to
funds established after the revision of the law. However, in order
to ensure stable investment, the funds need to have held stakes in
Japanese firms for at least a year in order to be given this tax
exemption.

Conditions for foreign investors to become eligible for the capital
gain tax exemption include: (1) their stake in these partnership
funds should be below 25 PERCENT ; (2) their stake in management
companies for these funds should be below 50 PERCENT ; (3) they
should not have businesses in Japan; and (4) neither they nor a
family member manages the funds. These restrictions are intended to
limit the exemption to investors seeking return and not
acquisitions. According to the Ministry of Economy, Trade and
Industry, partnership funds targeting Japanese companies number more
than 200 but the money they manage totals only 2 trillion yen.

An increase in investment by foreigners will bring about a strong
yen over the near term. However, over the mid- to long-term, it
could help revitalize the Japanese economy, by boosting investment
by Japanese companies and creating jobs.

In order to lure investment into Japan, a system to exempt taxation
on capital gains applicable to overseas investors who have fund
operators in Japan was established in April last year. However, this
system was not used actively, because many investors were
dissatisfied with it with one complaining, "It is far too costly" or
another saying, "It is inconvenient, because we must prove the
independence of our agents."

(2) Pro- and anti-Aso groups shaking the LDP; Meeting after meeting
held by mid-level and junior members, with Lower House election
scheduled to take place by fall; Sense of crisis from plummeting
support ratings

NIKKEI (Page 3) (Abridged slightly)
January 7, 2009

A group was launched yesterday in the Liberal Democratic Party that
is composed of members critical of Prime Minister Taro Aso's plan to
hike the consumption tax. Group after group has been launched in the
LDP mostly by mid-level and junior members who are keeping
themselves at arms' length with the prime minister. Looming in the
background is a sense of alarm at the Aso cabinet's sagging support
ratings. At the same time, the party is highly alarmed at any
developments that can be taken as an anti-Aso movement. A
parliamentary league supporting the prime minister was also launched
yesterday mainly by mid-level lawmakers.

With the next Lower House election scheduled to take place by the
fall this year, disturbing developments are likely to continue
unfolding for some time.

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"The envisioned consumption tax hike must not be incorporated into
our manifesto (campaign pledges) for the next Lower House
election."

Seven mid-level and junior LDP lawmakers, including Ichita Yamamoto,
set up a study group yesterday opposing the prime minister's plan to
raise the sales tax in fiscal 2011 or later. The group plans to call
for thorough administrative and fiscal reforms, including a
reduction in the number of Diet seats.

Besides this study group, the LDP has many others, including one
that includes Yasuhisa Shiozaki and those other lawmakers who
pressed the prime minister for an early presentation of a second
supplementary budget for fiscal 2008. There is another parliamentary
group urging the prime minister to completely free up road-related
revenues for general spending. Factions are visibly less eager to
tighten control over their members acting against the party
leadership. A growing number of LDP lawmakers are turning their
backs on Prime Minister Aso who took office just three months ago.

A senior LDP member criticized such developments as grandstanding
for the sake of the next election. Junior members with weak
political bases fear that without strong public support, they might
lose their seats. They are also sensitive to public criticism of tax
increases and pork-barrel spending.

Although the party leadership appears calm on the surface, it is
paying much attention to criticism of a cash handout program and of
moving road tax revenues into the general account. That is because
if a large number of LDP members vote against the second extra
budget, the fiscal 2009 budget and related bills, the administration
could not survive.

A parliamentary group called the Group to Powerfully Revitalize
Japan was set up yesterday. After the group's inaugural meeting, the
group's chair Hiroshi Imazu told reporters: "We don't want to
generate a public image that the party's unity has declined. We,
mid-level members, will band together firmly and support the prime
minister." Last night, there was a meeting of Diet members,
including Election Strategy Council Chairman Makoto Koga, who are
from Kyushu, from which Prime Minister Aso also comes. There seems
to be some kind of relationship between those pro-Aso meetings and
the party leadership's sense of crisis.

Included in what appear to be anti-Aso groups are many individuals
who are close to Yoshimi Watanabe, who plans to leave the LDP. But
at this time, only a handful of people think those developments will
directly result in a campaign to topple the Aso cabinet and
political realignment.

Some members avoided attending the meeting of Yamamoto and others so
as not to be regarded as anti-Aso. Yamamoto emphatically said: "We
are not against the administration. I don't think we will have a
negative impact on the party."

There is this analysis: Even if one remains anti-Aso, that might
just result in sporadic guerrilla warfare. Given a positive
projection for the next Lower House election, the DPJ remains firmly
united. This can explain why some LDP members are slow to take
action, though they are discontent with the current situation.


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Koichi Kato, who aims at uniting liberal forces, has been abstaining
from acting against the administration. Former Secretary General
Hidenao Nakagawa, who is oriented toward political realignment, too,
has shifted weight to intra-party activities.

The group named New Breeze led by former Secretary General Tsutomu
Takebe also met yesterday. The group has many members critical of
the prime minister. In fact, Watanabe showed up at the meeting after
being officially admitted into the group yesterday. Takebe advised
Watanabe not to leave the beloved LDP so easily.

Major LDP groups that have made eye-catching moves over the Aso
administration

Name Main members Assertions/characteristics
Group to Powerfully Revitalize Japan Hiroshi Imazu 4
Shunichi Yamaguchi 6
Keiji Furuya 6 Established on Jan. 6 to support the Aso
administration. Inaugural meeting was attended by 54 people.
Group of Lawmakers from Kyushu Taku Yamasaki 12
Seishiro Eto 8
Seiichi Ota 8 Composed of members from Kyushu, the prime minister's
home turf
New Breeze Tsutomu Takebe 7 Consists mostly of "Koizumi's children"
Group to Realize Policies from the People's Perspective Ichita
Yamamoto 8
Masahiko Shibayama 2
Koichi Yamauchi 1 Opposes specifying in the manifesto a plan to
raise the consumption tax starting in fiscal 2011
Group to Fundamentally Advance the Plan to Use Road-Related Tax
Revenue for General Purposes Yasufumi Tanahashi 4
Kenichi Mizuno 4
Keisuke Suzuki 1 Calls for thoroughly freeing up road-related
revenues for general spending
Group of Lawmakers Seeking the Swift Realization of Policies
Yasuhisa Shiozaki 4
Toshimitsu Motegi 5
Masaaki Taira 1 Composed mostly of mid-level and junior members
critical of the policies of the Aso administration

Note: Circled figures denote the number of times elected to the
Diet. Yamamoto is an Upper House member. Shiozaki served one term in
the Upper House.

(3) Questionnaires to candidates for Lower House election: 80
PERCENT of LDP candidates call for review of postal privatization

MAINICHI (Page 5) (Full)
January 7, 2009

Diet debate began yesterday with an eye on a possible dissolution of
the House of Representatives. What kind of views on policy issues do
those who plan to run for the next general election for the House of
Representative have? Based on the answers from surveys of political
candidates conducted from October to December, the Mainichi Shimbun
has analyzed their views by category such as political parties to
which they belong, their age, electoral district in which they will
run.

In the wake of the global financial crisis, Prime Minister Taro Aso
has given top priority to pump-priming measures to bolster the
economy, while pushing back Lower House dissolution. When Mainichi

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asked whether or not the candidates approved Aso's policy of
bolstering the economy, relegating reforms in public finance to the
back-burner, 64 PERCENT of the respondents approved it, while 22
PERCENT disapproved. Seventy-nine percent of the candidates on the
Liberal Democratic Party (LDP) ticket and 75 PERCENT of the
candidates backed by the New Komeito approved Aso's policy. Around
70 PERCENT of the candidates of the Japanese Communist Party (JCP)
and Social Democratic Party (SDP) supported it. However, 46 PERCENT
of the Democratic Party of Japan's (DPJ) candidates disapproved,
while 41 PERCENT approved.

More than one year has passed since the state-run postal services
were privatized. Mainichi questioned about how postal services
should be in the future. Of the candidates who will run in
thinly-populated electoral districts, 77 PERCENT said that the
harmful effects of postal privatization should be reviewed,
exceeding by 11 percentage points the 66 PERCENT of all respondents
who said the same thing. The figures mean that they are unhappy with
service degradation in depopulated areas.

Of the LDP candidates, 83 PERCENT favored review of postal
privatization, while only 14 PERCENT said that the privatization
policy should be continued. These are ironic results in
consideration of the fact that the LDP won a landslide in the 2005
Lower House election conducted under then Prime Minister Junichiro
Koizumi who advocated postal privatization. More than 80 PERCENT of
the candidates of the DPJ and People's New Party favored a review of
the privatization policy. Many candidates of the JCP and SDP said
that the postal services should be returned to the ones that they
were run by the state.

The government shifted in effect the policy of restoring fiscal
health, which was included in the 2006 "big-boned" reform policy
guidelines when it compiled a state budget for fiscal 2009. The
outlook is that tax revenues earmarked for road projects will be
converted to general spending funds, but most of the road-related
tax revenues will be used for road maintenances and public projects.


Regarding the construction of highways in the future, 60 PERCENT of
the respondents said that construction should be drastically scaled
down, while 24 PERCENT replied that roads should be improved as
much as possible. However, 56 PERCENT of the LDP candidates
answered that road should be constructed as much as possible, while
19 PERCENT preferred a drastic cut. In contrast, 77 PERCENT of the
DPJ candidates favored a substantial decrease.

The replies to questions about the Koizumi reform policy line show
that politicians' enthusiasm for reforms is gradually cooling down.

(4) Assistant Secretary Hill: Next U.S. administration also will
recognize importance of abduction issue

SANKEI (Internet edition) (Full)
January 7, 2009

By Takashi Arimoto in Washington

Special Advisor to the Prime Minister on the Abduction Issue Kyoko
Nakayama, who is visiting the United States, met on the afternoon of
Jan. 6 (7:00 AM, Japan time) at the State Department with Assistant
Secretary of State for East Asia Pacific Affairs Hill, who is the

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U.S. delegate to the Six-Party Talks on the North Korea nuclear
issue. Hill said: "I have already briefed the next administration's
transition team on the abduction issue. There is no doubt that the
next administration will fully understand the importance of the
abduction issue and work hard to bring about a resolution."

After the meeting, Nakayama told the press corps: "I confirmed that
(even after the change in administration,) the U.S. will move
together with us on the abduction issue." Nakayama said that her
reason for visiting the U.S. immediately before the change in
government was "in order to explain to knowledgeable people the
abduction issue and deepen their understanding." She is scheduled
next to meet with former ambassador to Japan Mondale and former
Secretary of State Kissinger. Nakayama expressed her desire to
return to the U.S. after the inauguration and explain the abduction
issue to senior officials in the Obama administration.

(5) Okinawa governor visits U.S., requests concessions on base
problem

SANKEI (Internet edition) (Full)
January 7, 2009

By Takashi Arimoto in Washington

Hirokazu Nakaima, governor of Okinawa Prefecture, arriving in
Washington on the morning of Jan. 6 (late at night on the 6th, Japan
time),visited the State Department to explain the current state of
base issues in Okinawa and make his appeal for a revision of the
Status of Forces Agreement (SOFA) and other concessions.

There were strong doubts about the efficacy of his making a trip to
the U.S. just prior to the change from the Bush administration to
the Obama administration. The governor told the press corps at the
airport in the Washington suburbs his reason for coming to the U.S.
now: "It will take a half a year before the new administration
settles in. In visiting now, I would like by explaining the Okinawa
base problem have (my requests) carry over to the next
administration."

On the relocation of Futenma Air Station (Ginowan City in Okinawa)
to the coastline of Camp Schwab (Nago City in Okinawa),the biggest
issue in the realignment of U.S. forces in Japan, Nakaima expressed
his view that in this visit to the U.S. he did not intend to
proactively raise the question since "views are split in the
prefecture."

According to the prefecture, he reportedly will mainly make three
requests: 1) urge resolution of the various base issues, such as
incidents and accidents involving U.S. military personnel; 2)
request revision of the SOFA; and 3) consolidation and reduction of
U.S. bases.

(6) Former reporter calls for reciprocal visits to Hiroshima and
Pearl Harbor by top leaders of Japan and the United States; True
reconciliation nowhere in sight

MAINICHI (Page 3) (Excerpts)
January 3, 2009

Takahiro Takino


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Fumio Matsuo, 75, a former Washington bureau chief of Kyodo News
Service, finally arrived at Dresden Central Station on the evening
of November 15, 2008, after an eight-hour train ride. The boulevard
stretching from the station is lined with buildings badly damaged by
air strikes (during WWII). Dresden was a city Matsuo had been dying
to visit for the last 13 years.

On February 13, 1995, Matsuo was staying at a Washington hotel on
business as a member of the news agency's new department after
ending his career as a reporter. His eyes were riveted on the
hotel's television screen that was showing a program on the Dresden
Reconciliation. In the closing days of WWII, U.S. and British forces
bombed Dresden. The indiscriminate bombings destroyed 80 PERCENT of
the beautiful buildings in Dresden, including churches, claiming
over 35,000 lives. On the television was the 50th anniversary of the
Dresden Bombings, attended by British royals and top British and
American military officers.

This shocked Matsuo. Reconciliation had been reached between the
United States and Germany. In the last stage of WWII, Japan, too,
suffered indiscriminate bombings that were followed by the atomic
bombs on Hiroshima and Nagasaki. Matsuo also learned that U.S.
presidents had not visited Hiroshima or Nagasaki and Japanese prime
ministers never laid flowers at the USS Arizona in Pearl Harbor. He
keenly realized that Japan and the United States had not reached
true reconciliation. "Words are unnecessary. It is sufficient for
the top leaders of the two countries to join their hands in prayer
and lay wreaths." Resuming his work as a journalist, Matsuo began
calling for reciprocal visits by the top leaders of Japan and the
United States.

Matsuo himself endured one of U.S. raids on Japan as a 12-year-old
child in the western city of Fukui, to which his family and him were
evacuated from Tokyo. He took refuge by laying low in a sweet potato
field when a bomb fell just 20 meters away from him. He narrowly
escaped death because the bomb malfunctioned and splashed unopened
into the paddy instead of dispersing above ground as intended.

Why did Japan go to war with the United States? That intense
experience in Fukui was Matsuo's starting point of his insatiable
interest in the United States as a journalist.

On August 16, 2005, Matsuo contributed an article to the opinion
page of The Wall Street Journal in which he proposed that the U.S.
President lay a wreath in Hiroshima and that Japan pursue
reconciliation with its Asian neighbors. On the following day,
Matsuo received a telephone call from former White House spokesman
Speakes expressing his support. U.S. Ambassador to Japan J. Thomas
Schieffer, too, said he would like to listen to his story. He felt
that the United States took his proposal more seriously than Japan.


Shortly after returning from Germany, Matsuo listened to a lecture
by former ASDF Chief of Staff Toshio Tamogami, held at the Foreign
Correspondents' Club of Japan. It was painful to watch Tamogami
repeat his stock argument that there had been no "aggression," while
giving consideration to the United States. Matsuo felt sorry for
him. Reconciliation begins with bring matters to closure. He thinks
putting a closure to matters is his mission as a survivor.

Late last year, Matsuo was invited to a civic lecture event in Kofu
City titled "Paying Tribute to the War Dead and Reconciliation."

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Students and elderly people were all ears when he spoke. One said,
"I cannot understand the meaning of reconciliation," and another
noted, "In the end, the wishes of the country with strong military
might and the dollar will take precedence over other things." The
session continued until beyond 9 o'clock. Matsuo said to the
student: "Please study the United States well; reconciliation will
follow."

(7) TOP HEADLINES

Asahi:
Israel attacks 3 UN schools in Gaza

Mainichi:
Government to inject public funds into more than 40 regional banks

Yomiuri:
New law eyed to dispatch MSDF to clamp down on pirates off Somalia

Nikkei:
Government to scrap capital-gains tax for foreigners holding stakes
in Japan firms via investment funds

Sankei:
Prime Minister Aso orders Japanese version of Green New Deal:
Investment into environment to create 800,000 jobs

Tokyo Shimbun:
Cash payouts to high income earners as well

Akahata:
JCP's Sasaki urges Aso to come up with emergency measures to protect
livelihoods

(8) EDITORIALS

Asahi:
(1) Cash-benefit plan: Prime Minister Aso, don't hesitate to change
your mind
(2) Housing support for elderly living along

Mainichi:
(1) 20th anniversary for Emperor's reign: Emperor for the people
(2) United States must stop Israel from attacking Gaza

Yomiuri:
(1) Ruling, opposition camps need cooperation, not just
confrontation
(2) How to prevent decline of college students' academic
performances

Nikkei:
(1) Auto manufacturers urged to take preparatory steps for the
future
(2) Japan, China should calmly realize agreement on gas fields

Sankei:
(1) 20th anniversary of Emperor's reign: The Emperor hopes for unity
of people
(2) Diet interpellations: Early enactment of budgets indispensable

Tokyo Shimbun:

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(1) Time to ban worker dispatch to manufacturers
(2) Hast to rebuild relationship of trust with China

Akahata:
(1) Second extra budget has no prospect and warmth

(9) Prime Minister's schedule, January 6

NIKKEI (Page 2) (Full)
January 7, 2009

07:34
Took a walk around the private residence in Kamiyama-cho

10:10
Met with Deputy Chief Cabinet Secretary Matsumoto at the Kantei.
Then met with outgoing and incoming Deputy Foreign Ministers Otabe
and Kono.

11:47
Government-Ruling Parties Liaison Council

12:46
Met with Secretary General Hosoda and Diet Policy Committee Chairman
Oshima. Attended a lawmakers meeting.

13:02
Lower House Plenary session.

16:26
Met with Chairman Endo of the Special Committee on Water Safety and
New Komeito Foreign Affairs Division chief Hamada. Finance Minister
Nakagawa was present.

17:05
Met with Environment Minister Saito and Vice Minister Nishio.

17:34
Council on Economic and Fiscal Policy. METI minister Nikai remained.


18:00
Delivered to former Tokyo Institute of Technology President Masuo
Aizawa and others letters of appointment as members of the Council
for Science and Technology Policy. State Minister for Science and
Technology Policy Noda was present.

19:18
Met with LDP lawmakers elected in Kyushu constituencies, including
Foreign Affairs Research Commission Chairman Yamazaki at Toranomon
Pastoral Hotel.

20:06
Met with LDP Tax System Research Commission Chairman Tsushima and
Deputy Chairman Yanagisawa. Chief Cabinet Secretary Kawamura was
present.

22:15
rrived at the private residence.

SCHIEFFER