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Viewing cable 07TOKYO748, The Japan Economic Scope - February 16, 2007

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Reference ID Created Released Classification Origin
07TOKYO748 2007-02-22 05:28 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tokyo
VZCZCXRO4167
RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #0748/01 0530528
ZNR UUUUU ZZH
R 220528Z FEB 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 0889
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5306
RUEHFK/AMCONSUL FUKUOKA 9937
RUEHNAG/AMCONSUL NAGOYA 9357
RUEHNH/AMCONSUL NAHA 2402
RUEHOK/AMCONSUL OSAKA KOBE 3421
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 06 TOKYO 000748 
 
SIPDIS 
 
 
PARIS PLEASE PASS TO USOEDC 
STATE PLEASE PASS TO USTR 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - February 16, 2007 
 
Sensitive but unclassified.  Please protect accordingly. 
 
1. (SBU) Table of Contents 
 
3.  Ambassador Schieffer on U.S.-Japan Economic Relations at the 
ACCJ 
4.  Fourth Quarter Real GDP Grew 4.8 Percent; Up 2.2 Percent in 
CY2006 
5.  Minister of State for Economic and Fiscal Policy Hiroko Ota 
on GDP News 
6.  Japan Post Privatization: Level Playing Field Concerns 
7.  Japan to be Third Party in U.S. WTO Subsidy Case Against 
China 
8.  Tyson Beef Shipment Held 
9.  Japan Agriculture Feeling the Heat 
10. ACCJ Washington DC "Door Knock" Set for April 17-18 
11. Nagoya Looks to Attract U.S. Companies 
12. Telecoms:  MRA Signing Set for February 16 
13. EXBS: Unmanned Helicopters Sold to PRC? 
14. Civair: If Matsuzaka Draws a Crowd, Flights to Boston? 
15. Basic Industries: Japan Firms Will Continue to Dominate 
Carbon Fiber Market 
16. Maritime:  New Maritime Subcommittee Discussions on Future of 
Ocean Transport 
17. Agriculture: Hokkaido Biotech Forum Shows Local Anxiety Still 
High 
18. Embassy Fights Unfair Meat Labeling Rules 
19. Regions: The Next Business Leader of Kansai Economic 
Federation is From Tokyo 
20. New Large Scale Retail Stores Applications in Kansai Decline 
 
2. (U) This cable contains the Japan Economic Scope from February 
16, 2007. 
 
3.  Ambassador Schieffer on U.S.-Japan Economic Relations at the 
ACCJ 
---- 
 
The Ambassador made a speech on February 14 to the American 
Chamber of Commerce in Japan regarding the development of East 
Asia and the future of the U.S.-Japan economic relationship.  The 
full text of the speech is attached. 
 
4.  (U) Fourth Quarter Real GDP Grew 4.8 Percent; Up 2.2 Percent 
in CY2006 
--------- 
 
Japan's real GDP grew at a 4.8 percent annual rate in the 2006 
fourth quarter, the strongest growth in almost three years, 
according to preliminary data announced by the Cabinet Office 
February 16. GDP growth was considerably higher than the 3.8 
percent consensus forecast of private analysts. 
Overall real GDP growth reflected strong growth in domestic 
demand, notably a rebound in personal consumption and firm 
business investment, and also strong exports.  With the surge in 
demand, business inventories were down by a half a percentage 
point. 
 
The overall GDP deflator, the broadest measure of overall prices, 
improved from a 0.7 percent year-on-year decline in the third 
quarter to a 0.5 percent drop in the fourth quarter, the smallest 
drop since the last quarter of 2004. 
 
Some private analysts interpreted the results as a tailwind 
nudging the BOJ to raise interest rates at the upcoming Policy 
Board meeting on February 20-21. 
 
Please see attached analysis for more details. 
 
5.  (U) Minister of State for Economic and Fiscal Policy Hiroko 
Ota on GDP News 
--------------- 
 
At a February 15 press conference after the release of the GDP 
figures, Minister Ota said, "Data confirm that the Japanese 
economy continues to recover. But it also shows that consumption 
is still weak," according to Nikkei.  She noted, "Price-related 
figures are slowly, but steadily improving. I think the deflation 
exit is definitely in sight." 
 
 
TOKYO 00000748  002 OF 006 
 
 
Regarding the Bank of Japan's position, she said, "I want the 
bank to support the economy through its monetary policy."   She 
added, "We, the government, will aggressively implement reforms 
in order to bolster economic growth," and "I think the BOJ will 
support the economy from the monetary side." 
 
The BOJ will hold a policy meeting next week. 
 
6.  (SBU) Japan Post Privatization: Level Playing Field Concerns 
------------------------------- 
 
Administration and Congressional concern in Washington about the 
course of Japan's postal privatization process -- in particular, 
that the private financial institutions emerging out of the 
process will enjoy unfair advantages against existing companies - 
- is getting attention in Tokyo. 
 
According to Nikkei on February 15, Nobuyuki Kinoshita, Director- 
general of the Office for the Promotion of the Privatisation of 
Postal Services, said U.S. worries were based on a 
"misunderstanding."  He was responding to statements made in the 
House Ways and Means Committee earlier this week and also to 
remarks by U.S. Trade Representative Susan Schwab, who said the 
Administration was closely monitoring the process. 
 
At a February 16 breakfast meeting with the State Department's 
Japan Affairs Director, James Zumwalt, ACCJ members in Tokyo 
connected to the industry expressed appreciation for Ambassador 
Schwab and the U.S. government's continued commitment to a level 
playing field as Japanese regulators proceed on privatization. 
They lamented that the draft "Findings" of the Postal Services 
Privatization Commission on introduction of new products focused 
on consumer convenience rather than a level playing field, and 
said they would make this point to the Commission when they 
testified on February 20. 
 
According to Nikkei, privatization of Japan Post's financial 
services entities will transfer management of more than $3 
trillion of assets into the private sector.  Japan Post operates 
the world's largest bank and insurance company. 
 
7.  (SBU) Japan to be Third Party in U.S. WTO Subsidy Case 
Against China 
------------- 
 
Japanese Trade Minister Amari announced February 16 that the GOJ 
would participate as a third party in the U.S. WTO subsidy case 
against China.  The Japanese Embassy in Washington will brief 
USTR on the decision on February 16.  According to a METI contact, 
the Nikkei story February 15 reporting Japan's decision came 
earlier than the ministry would have liked, but the information 
was basically accurate. 
 
According to the contact, the GOJ sought further information from 
the Chinese on the case but did not receive it.  An interagency 
decision was subsequently taken to move ahead as a third party. 
METI was surprised at how fast the United States had decided to 
lodge a case against China and would monitor closely Beijing and 
Washington's consultations. 
 
According to earlier press reports, because many Japanese 
companies run joint ventures with Chinese partners, Amari had 
hinted that Japan would take a "softer" third party approach. 
Our METI contact indicated this was a concern for the Ministry, 
but ultimately concerns about China's WTO compliance on subsidies 
loomed larger.  How much larger we may know after USTR is briefed 
on the GOJ's decision. 
 
8.  (U) Tyson Beef Shipment Held 
-------------------------------- 
 
A shipment of U.S. beef is being held by Japanese customs 
authorities because it contained two cartons that were not 
certified for export to Japan. 
 
MAFF and MHLW issued a press release on February 15 and the story 
was carried on national television. 
 
When asked if imported U.S. beef should be stopped, Prime 
Minister Abe told reporters, "I've been informed that this case 
 
TOKYO 00000748  003 OF 006 
 
 
is different from the past when we imposed an import ban, since 
no specified risk materials (SRM) were discovered."  The Prime 
Minister added that he would deal with the case "based on the 
facts."  He had instructed authorities to take measures against 
the establishment which shipped the beef in question. 
Earlier in the week, Japanese officials made resolution of this 
incident an additional precondition for discussing age 
restrictions on U.S. beef. 
 
USDA is conducting an investigation to determine the cause of the 
mis-shipment and plans to share a report with the Government of 
Japan the week of February 19. 
 
9.  (SBU) Japan Agriculture Feeling the Heat 
------------------------------ 
 
Japan Agriculture (JA), the country's leading agricultural 
lobbying group and cooperative, is feeling some heat for its 
monopoly practices. 
 
 The Japan Fair Trade Commission, responding to a Cabinet 
decision made in March 2006, came out February 14 with a list of 
JA's monopoly practices and announced a 30-day public comment 
period ending March 16. 
 
A JA source told us February 15 that the organization was 
expecting the news and was working on remedying some of the 
concerns raised.  In addition it will file its own public 
comments in advance of the deadline. 
 
The monopoly practices JA is accused of are fairly wide ranging 
and include, for example, forcing farmers to use JA distribution 
services and materials in order to qualify for JA credits. 
The Council for the Promotion of Regulatory Reform (CPRR) in its 
annual report at the end of 2006 noted that JA's monopoly 
practices could hinder future measures to revitalize the farming 
sector. 
 
10.  (U) ACCJ Washington DC "Door Knock" Set for April 17-18 
------------------------------ 
 
At a breakfast meeting in Tokyo February 16 attended by the State 
Department's Office of Japan Affairs Director, Jim Zumwalt, 
American Chamber of Commerce in Japan members said they plan a 
series of meetings in April on Capitol Hill and with key economic 
agencies, focusing on the importance of economic integration and 
the other issues identified in the ACCJ's White Paper released at 
the end of last year. 
 
The ACCJ decided to push up the calendar for its annual visit so 
as not to conflict with the Summit meeting between Prime Minister 
Abe and President Bush scheduled for early May. 
 For questions regarding this year's door knock, please contact 
Clemence Mayali at the ACCJ (cmayali@accj.or.jp). 
 
11.  (SBU) Nagoya Looks to Attract U.S. Companies 
------------------------------ 
 
A February 14 forum held by I-BAC (the Aichi-Nagoya International 
Business Access Center) stressed the city and prefecture's 
commitment to welcoming foreign firms. 
 
 Among the participants Consulate staff spoke to were U.S. 
representatives of a Michigan-based forged metal components 
company and a Rhode Island-based company specializing in 
automotive electrical equipment.  Both companies anticipate 
opening Nagoya representative offices to increase sales to 
Japanese automakers as "designed-in" parts, primarily in North 
America. 
 
Despite the fact that neither has plans for production in Japan, 
both companies made clear they have received strong and 
substantial support from JETRO and local authorities for 
establishing offices in Nagoya.  In past years, such support 
would have been much less likely, since almost by definition, any 
success by these U.S. firms in expanding their market share will 
come at the expense of potential sales by competitors from 
Central Japan. 
 
In this case at least, it appears regional authorities are living 
 
TOKYO 00000748  004 OF 006 
 
 
up to their word in promoting the further internationalization of 
the local economy, a conclusion supported by many other similar 
conversations we have had with U.S. firms over the past year. 
 
12.  (U) Telecoms:  MRA Signing Set for February 16 
The United States and Japan will sign a Mutual Recognition 
Agreement (MRA) on Telecommunications Equipment in Washington on 
February 16 capping years of negotiations. 
 
It will be the first mutual recognition agreement between the 
United States and Japan in any sector. 
 
The agreement will allow U.S. and Japanese regulators to accept 
the results of testing labs and certifications on 
telecommunications equipment obtained in either country leading 
to easier market access for manufacturers wishing to sell in 
either Japan or the United States. 
 
MOFA plans to submit the agreement to the Diet in March so that 
the agreement will come into force later this year. 
 
In 2005 the United States exported about $1 billion in 
telecommunications equipment to Japan and Japan exported about 
$1.6 billion in telecommunications equipment to the United States. 
One of the benefits of the agreement will come through speeding 
up the process of bringing telecoms products to market by opening 
up competition among certification labs. 
 
U.S. telecoms equipment makers, including Motorola and Cisco as 
well as many smaller firms are expected to benefit. 
 
13.  (SBU) EXBS: Unmanned Helicopters Sold to PRC? 
------------------------------ 
 
Press reports state that Yamaha Motor Co. may have sold seven or 
eight unmanned helicopters to China, violating METI export 
control laws. 
 
Yamaha allegedly understated the helicopters' performance 
capabilities thereby skirting the Foreign Exchange and Foreign 
Trade Law of 2005. 
 
Sales of the aircraft are strictly controlled due to their 
potential to be used for military purposes and the dispersal of 
chemical weapons. 
Shizuoka and Fukuoka police raided Yamaha offices and questioned 
ten officials in January 2006. 
 
We are following-up with METI contacts to determine the status of 
this case. 
 
14.  (U) Civair: If Matsuzaka Draws a Crowd, Flights to Boston? 
---------------------------- 
 
The Boston Globe ran a lengthy piece on February 11 about how the 
Red Sox are "reinventing" themselves to welcome Daisuke Matsuzaka 
to the team.  Aside from lifting the Red Sox's fortunes, 
Bostonians hope Matsuzaka will draw more Japanese visitors to the 
home of the bean and cod. 
 
Pat Moscaritolo, head of the Greater Boston Convention and 
Visitors Bureau told the Globe that there were about 12,000 
visitors from Japan last year, and they are expecting at least 
20,000 this year.  Moscaritolo estimates this could mean an 
additional $14 million flowing into the local economy.  A tour 
operator affiliated with All Nippon Airways sold out 350 packages 
that included Sox tickets in three days, he said.  The package 
cost $3,000. 
 
However, Peter Grilli, president of the Japan Society of Boston, 
noted the lack of nonstop flights from Japan to Boston places the 
city at a competitive disadvantage to Seattle and New York, 
respective homes of Japanese stars Ichiro Suzuki and Hideki 
Matsui. 
 
15.  (U) Basic Industries: Japan Firms Will Continue to Dominate 
Carbon Fiber Market 
------------------- 
 
Three Japanese companies -- Toray, Teijin Ltd., Toho Tenax Co., 
 
TOKYO 00000748  005 OF 006 
 
 
and Mitsubishi Rayon Co. -- together have 70 percent of the 
global carbon fiber market, according to a February 9 Nikkei 
story. 
 
Nikkei reports the three firms are expected to continue to 
dominate the market as it expands because of their advanced 
production technology.  Sales of the material, moreover, are 
adding substantially to the companies' bottom lines. 
Toray is the number one carbon fiber producer worldwide with 34 
percent market share in 2006 and is aiming to expand its market 
share to 40 percent by 2010. 
 
Toray announced on February 9 that it will spend 55 billion yen 
to increase its production capacity by 4,000 tons or some 30 
percent by December 2008. 
 
In addition to Japan, Toray will develop production in the United 
States at its plants in Decatur, Alabama and Tacoma, Washington 
-- and France.  (See Toray's press release for details on planned 
production increases and locations.) 
 
About half of the planned increase is for production of Boeing's 
787 jet for which Toray is the exclusive supplier, according to 
Nikkei. 
 
Toray foresees carbon fiber demand expanding by 15 percent per 
year.  In addition to aviation, increased use for auto parts and 
gas tanks as well as other non-aviation products is expected. 
Toho Tenax also plans to open a large production facility in 
April 2008 in Japan, says Nikkei. 
 
16.  (U) Maritime:  New Maritime Subcommittee Discussions on 
Future of Ocean Transport 
------------------------- 
 
The Ministry of Land, Infrastructure and Transport (MLIT) 
announced on its website that the 12th meeting of Maritime 
Subcommittee will be held on February 16 at the Mita Meeting Hall 
in Tokyo.  MLIT Minister Tetsuzo Fuyushiba is scheduled to give 
the opening remarks. 
 
A Maritime Bureau official confirmed that this is a new round of 
discussions, a main theme of which is the future of Japan's ocean 
transport industry, including the tax and competition policy 
governing this sector. 
 
We plan further coverage after meetings with MLIT officials 
covering these and related issues. 
 
17.  (SBU) Agriculture: Hokkaido Biotech Forum Shows Local 
Anxiety Still High 
------------------ 
 
On January 15, a Consulate staff member joined forty others in 
attending a region-wide forum on biotechnology in Sapporo.  The 
forum was the last of eight "regional communication meetings" 
hosted by the Society for Techno-innovation of Agriculture, 
Forestry and Fisheries with sponsorship from the Ministry of 
Agriculture, Forestry and Fisheries.  Fourteen residents from 
across Hokkaido representing a wide range of age groups 
participated in a panel discussion on biotechnology and 
genetically modified organisms (GMO). 
 
The majority of panelists expressed serious anxiety about GMOs, 
mainly focusing their discussion on food safety concerns. 
Panelists, however, expressed dissatisfaction with the GOJ for 
the way it disseminates information on biotech products.  Several 
participants asked the GOJ to clarify why it approves of GMO 
products and encourages further advancement in biotech research 
but still does not strongly recommend use of GMO products. 
 
At the conclusion of the forum, many participants left 
disappointed, stating that the meeting had failed to alleviate 
suspicions and anxiety regarding GMOs. 
 
18.  (U) Embassy Fights Unfair Meat Labeling Rules 
--------------------------------- 
 
On February 9, Embassy Tokyo submitted comments to a draft MAFF 
proposal on Wagyu beef.  Please click here for the comments. 
 
TOKYO 00000748  006 OF 006 
 
 
 
19.  (U) Regions: The Next Business Leader of Kansai Economic 
Federation is From Tokyo 
------------------------ 
 
The Kansai Economic Federation (Kankeiren) informally announced 
its next Chairman, Hiroshi Shimozuma, the Chairman of Sumitomo 
Metal Industry, starting in May.  It is the third time for 
Sumitomo Metal to serve as the head of the Kansai region's prime 
business lobby group. 
 
Kankeiren has been struggling to name a new leader to succeed 
current Chairman Yoshihisa Akiyama, Chairman of Kansai Electric 
Power Co., Inc., who has been in charge for eight years.  After 
the top candidate, Daikin Industry Chairman Noriyuki Inoue, 
refused, citing Daikin's renewed attempt at entering the U.S. 
market in 2007, Mr. Shimozuma, already a Kankeiren vice chairman, 
decided to take over. 
 
Mr. Shimozuma is well-known for revamping Sumitomo Metal after a 
period of decline.  Although Sumitomo Metal is one of the leading 
businesses originally from Osaka, the company has shifted its 
headquarters to Tokyo, and Mr. Shimozuma lives there.  This has 
led some businesspeople to complain that Shimozuma is ill-suited 
to represent the needs of the Osaka business community. 
 
20.  (SBU) New Large Scale Retail Stores Applications in Kansai 
Decline 
------- 
 
The number of applications for new large scale retail store 
openings in the Kansai declined 15 percent (76 cases) last year, 
due in part to the revised  town planning laws.  Among the six 
prefectures in the region, the number of applications in Wakayama 
and Nara decreased by 60-70 percent from the previous year, while 
Osaka held steady and Kyoto increased modestly. 
 
The gap between large store openings in rural and urban areas is 
growing.  A Kyoto city official in the commercial promotion 
section predicted that the trend of more urban and less rural 
large stores will continue.  In November 2007, nationwide 
regulations will come into force restricting new starts of stores 
larger than 10,000 square meters in suburban neighborhoods. 
SCHIEFFER