Domestic Politics

The Trinity Reforms

The so-called Trinity Reforms, the centerpiece of the ruling coalition's tax plans, have long been held up by intra-ministerial infighting. Progress towards an eventual solution of the impasse was made in early June when the Finance Ministry appeared ready to make concessions on key demands.

The Trinity Reforms aim to change the existing relationship between local and central government by cutting subsidies and decentralizing some of the tax raising power of the Ministry of Finance to the regions. Currently Tokyo gives over ¥37 trillion to the regions in the form of subsidies and tax grants. Subsidies are earmarked for services such as education and health care. Tax grants do not have stipulations attached to how they are spent and are often used in public works projects that have recently been criticized as wasteful corporate welfare spending. Disagreement between ministries that are involved in local administration had halted progress on drawing up concrete reform plans. The ministries of Home affairs and Public Management had sought to expedite the transfer of tax raising power while the Finance Ministry, which stands to lose revenue-raising authority under the proposals, had insisted on first cutting central government payments to the regions. In early June Finance Minister Shiokawa Masajuro indicated that he was prepared to see a reduction in the central government's tax receipts as long as acceptable proposals for subsidy reduction and how the local authorities could raise alternative revenue were put forward. Mr. Shiokawa's announcement came on the same day as a report from the Council on Economic Decentralization, a government appointed advisory panel, called for subsidies and tax grants to be cut by several trillion yen by starting in 2006. The council's report made no concrete mention of transferring tax raising powers to the regions and was condemned by several of its own authors as placing undue pressure on local governments to cut spending. The Governor of Tottori prefecture was so incensed he announced, and later retracted, a boycott of Toshiba Corporation, who's chairman Nishimura Taizo is also head of the Council.

The turf war amongst ministries was highlighted in a disagreement between Public Management minister Katayama Toranosuke and Mr. Shiokawa. The Finance Minister put forward a plan to cut ¥4 trillion from subsidies and cede revenue-raising power equivalent to ¥2.8 trillion. Mr. Katayama, who's ministry is responsible for local administration, complained that his government colleague was thinking up figures on a whim, and demanded strict equality between the amount of subsidies cut and the transfer of tax powers. A compromise was brokered later in the month when all concerned ministries agreed to a plan to cut ¥3.6 trillion in subsidies and transfer powers to the local authorities that would allow them to raise between 80% and 100% of this amount, depending on the nature of the subsidies that had been cut. This compromise did not assuage angry LDP members who rebelled in discussion of Mr. Koizumi's plan, forcing him to temporarily postpone publication of details of his broader tax reform proposals. Harmony amongst ministers was also undermined by differences in interpretation of the compromise agreement. Mr. Shiokawa said he understood that cuts would only take place after local government expenditure had been reduced by twenty percent. Mr. Katayama responded by calling this target inflexible and bureaucratic. After further discussion Mr. Koizumi was finally able to publish his economic plan, the third such blueprint he has issued since 2001, late in the month after a meeting of the Council on Economic and Fiscal Policy.

Some commentators have said that the tax reform plan, like the most of Mr. Koizumi's reform plans, lacks teeth and does not go far enough. Financial Services Minister Takenaka Heizo denied these accusations. He said in an interview that reforms as sensitive as those being proposed require a wide range of interests and opinions to be taken into account. That can sometimes give the appearance of ambiguity, but this did not mean that the package was not " something to be reckoned with". Analysts have also raised questions about whether the Prime Minister has enough political strength to prevent dilution of these proposals by opponents. Political maneuvering ahead of the September LDP Presidential election has begun, and it is thought that Mr. Koizumi would be unwilling to openly antagonize those opposed to his reforms so close to the vote.

Other Issues

JUNE 6 Emergency Contingency Legislation governing the powers of central government and the role of the Self Defense Forces in the event of a crisis passed the Upper House by a vote of 202 to 32.

JUNE 12 Tokyo Governor Ishihara Shintaro said that he might have to abandon his plan to revitalize the city's waterfront area by building a casino. Mr. Ishihara blamed the strict guidelines governing gambling in Japan for making the project unfeasible.

JUNE 12 Five executives of Seishin Enterprise Co. were arrested over suspicions that they had knowingly breached laws governing the export of possible dual use items that could be employed in the manufacture of weapons. The arrests center around allegations that the firm exported jet mills to Iran in 1999 and 2000 without clearance from the government. The mills can be used to manufacture food and drugs but also to grind materials used in the production of solid missile propellant.

JUNE 17 The Diet voted to extend the current session until July 28 to allow debate of the legislation governing dispatch of the SDF to Iraq.

JUNE 18 The Tokyo Electric Power Co. restarted a second reactor in Niigata Prefecture following safety checks carried out at the facility. 15 of the 17 reactors run by Tepco are still shut down in the wake of the revelation that the company had widely manufactured data related to safety procedures.

JUNE 23 University chiefs have said that proposed changes to the administration of higher education could lead to rising tuition fees for students. Over half of the heads of the ninety-seven national universities said they expected tuition costs to rise if laws transforming national universities into independent entities are passed. The ruling coalition's proposals, which passed the Lower House in May and are being debated by the Upper House, would see the links between government and the universities loosened. Individual institutions would be given more freedom to set fees and decide on curricula.

JUNE 25 A Saitama court rejected a legal challenge to the government's anti-terrorism legislation. A group of 253 plaintiffs had lodged a suit seeking the nullification of the law on the grounds that it violated the constitution's rejection of war as a means of solving international disputes. They had also sought ¥2.53 million in compensation and the recall of all Japanese Self-Defense Force personnel from the Indian Ocean. The court ruled that it had no authority to judge the constitutionality of the law and rejected the suit. The plaintiffs said they planned to appeal.

JUNE 27 The North Korean freighter, Suyangsan, that had been anchored off Toyama for two weeks awaiting permission to dock finally left for China. Port authorities had refused permission for the 874-ton craft to enter Toyama, citing the vessel's failure to meet maritime safety standards. Japanese safety inspectors had notified the captain in May that the vessel did not conform to Japanese standards and had particular deficiencies in terms of provision of lifeboats. Japanese maritime authorities have recently cracked down on North Korean vessels following cases where uninsured vessels had run aground causing damage to private property and the environment. Allegations have also been made that North Korean vessels regularly smuggled goods and people in and out of Japan.

JUNE 29 47 year old Mimura Shingo won the Aomori gubernatorial election to become the youngest prefectural governor. Mr. Mimura, a former LDP member of the Lower House was backed by the ruling coalition. He defeated his closest rival Yokoyama Hokuto by just over twenty thousand votes.

Business and Finance

JUNE 4 Hokkaido International Airlines (known as Air Do) announced a net profit of ¥1.25 billion for the last financial year. This was the airlines first profit since it's founding in 1996. Analysts said that a debt waiver from the creditors had allowed the company to reach profitability under the Civil Rehabilitation Law.

JUNE 6 ANA Co. followed Japan Airlines in announcing that it will encourage staff to take unpaid leave of up to a month. Both companies are struggling to compete in a market depressed by the threat of war, SARS and Japan's economic malaise.

JUNE 11 The Bank of Japan announced it will buy ¥1 trillion of asset backed securities and shorter-term asset backed commercial paper in the next three years. The BoJ also announced that it would purchase risk-bearing securities of non-investment grade BB ratings.

JUNE 12 Teikoku Databank said that Japan's major commercial and regional banks reported a combined ¥10.74 trillion worth of deferred tax assets. The refusal of auditor's to accept Resona Bank's calculation of it deferred tax assets led to it request for emergency public funding last month.

JUNE 21 Noguchi Takuo, a former Vice-President of the Osaka Securities Exchange arrested on suspicion that he tried to manipulate dealings on the bourse over a four year period.

JUNE 25 The Japanese national debt rose to ¥668.76 trillion in the fiscal year 2003. Outstanding government bonds totaled ¥504.25 trillion, non-bond borrowing stood at ¥107.02 trillion and short term financing bills at ¥57.49 trillion.

JUNE 25 Moody's, the investment grading service, reduced the long-term unsecured debt rating of Sony Corporation from A1 to Aa3. Sony's poor fourth quarter results in FY03 heightened fears that its products were losing competitiveness in the world market.

JUNE 26 US insurance company American International Group reached an agreement to purchase GE Edison Life Insurance Co. The purchase will make AIG the sixth largest life insurance provider in terms of income received from premiums.

JUNE 27 Figures for May showed the nation's unemployment rate to be stuck at 5.4% for the third month in a row.

JUNE 30 ANA Co. said that it was ordering 45 of Boeing's 737-700 series aircraft to replace its current fleet of Airbus A320's and Boeing 737-500's.

JUNE 30 The Finance Ministry announced that Japan has spent almost ¥629 billion intervening in foreign currency markets from late May to late June. The interventions were largely to curb the rise of the yen which had been putting pressure on exporters.

International Politics

South Korean President Visits Japan

Roh Moo Hyun first state visit to Tokyo was meant to cement joint policy towards Pyongyang, promote friendlier relations between the neighbours across the Sea of Japan and generally focus on the future. The insensitive remarks of a leading Japanese politician, unfortunate timing and Mr. Roh's unpopularity at home overshadowed much of this agenda however and exposed the new South Korean president to sniping from political rivals in Seoul.

There are no shortage of links between Japan and South Korea: Historical and cultural bonds stretch between the archipelago and the peninsula stretch back over a millennium, bilateral trade totaled over US$45 billion last year and both countries are currently united in concern about the threat posed by the North's nuclear ambitions. Hopes for cordial relations always seem to founder on some issue however. Usually it concerns the divergent understanding of the period of Japanese colonial rule from 1910 to 1945. Shortly before President Roh began his visit LDP Policy Affairs Research Council head Aso Taro showed how explosive his own interpretation of history was. In remarks he made at the University of Tokyo Mr. Aso insisted that a 1939 decree made by Japanese authorities compelling ethnic Korean's to adopt Japanese nomenclature was in response to requests from the Korean's themselves. Furthermore he insisted he had met some elderly South Koreans who confirmed this view for him. Lawmakers in Seoul reacted predictably, directing withering criticism at Mr. Aso who promptly apologized- not for actually making the remarks but for the fact that they were misinterpreted. "There are various ways on both sides to understand history" he said, in a statement that could have done little to soothe South Koreans. The 1939 decree was much resented by those who saw it as an attempt to eliminate traces of their culture and force on them a Japanese identity.

This inauspicious atmosphere surrounding the visit was not helped by the fact that President Roh arrived just as legislation removing some of the constraints on the Self Defense Forces was being passed by the Upper House. Mr. Roh regretted that Japan had not consulted with Seoul and Beijing to explain the nature of the legislation, saying that it would have been desirable given the level of suspicion about the Japanese military that exists in Asia. Furthermore Mr. Roh found himself meeting the Emperor on June 6, a date known as Hyonchung? Il in the South when respect is traditionally paid to Koreans who have died in the service of their country, including those who perished during the Japanese occupation. Although the Emperor did not allude directly to the colonial era he did praise Mr. Roh for his courage in coming to Japan on such a day. Political opponents in Seoul were less kind to the President. A representative of the opposition Grand National Party branded the trip "idiot diplomacy". Nor was Mr. Roh any more successful in narrowing differences between his government and the ruling Japanese coalition on North Korea policy. Although both sides agreed on several points, significant disagreements between Tokyo and Seoul still remain. At a joint news conference with Prime Minister Koizumi the South Korean President said that, while he believed a policy of dialogue and pressure should be pursued towards the North, his government put more emphasis on dialogue and less on pressure than the Japanese side did. In a speech next day to the Diet he did not use the word pressure at all. Similarly Mr. Roh didn't mention the possibility of tougher measures being used again Pyongyang, a formulation Mr. Koizumi and US President George W Bush used during their meeting in May. The two leaders did show a more or less united front however. The joint statement from their meeting noted that both sides sought peace on the peninsula and held out the prospect of massive aid for the North if it abandoned its nuclear and missile programs. They called for the inclusion of their two countries in any further talks held between the North, the US and China like those that took place in May. Mr. Roh also said for the first time that he supported Japan's attempts to solve the abduction issue before diplomatic normalization could be discussed.

Mr. Roh's stated desire was to focus on the future and avoid arguments about the past. In this he was only partly successful. Although important issues such as a free trade agreement between the two sides, voting rights for Korean permanent residents of Japan and the removal of restrictions on Japanese cultural products exported to the South were all discussed, history remains a divisive issue as Mr. Aso's remarks showed. The South Korean President in his speech to the Diet on June 8 noted that Japan's investment and aid since the 1950's had helped his country industrialize, and he was grateful for that. He also warned that Japan's failure to reflect sincerely on it's colonial past would encourage "anxiety and doubts" about the country and hinder a true reconciliation. Suspicion and mistrust appear to linger still between the two neighbours.

Other Issues

JUNE 2 US Deputy Secretary of Defense Paul Wolfowitz met with Defense Agency head Ishiba Shigeru to discuss ongoing co-operation between the two countries on the issue of ballistic missile defense.

JUNE 10 A Taiwanese doctor who sparked panic after he was hospitalized with SARS shortly after visiting Japan was released from Mackay Memorial Hospital having recovered. Occupancy rates in hotels in areas the infected 26 year old had visited when touring Kansai plunged shortly after his illness was revealed. He recorded an audio message apologizing to Japanese nationals for the inconvenience and unnecessary fears he had caused.

JUNE 12 TThe visiting head of the US Missile Defense Agency met with the head the Japanese Defense Agency and said that he could see great benefit in Tokyo adopting a layered missile defense system that could intercept incoming missiles in both their midpoint and terminal phases. Lt-General Ronald Kadish said he was hopeful that co-operation between the US and Japan would continue on the development of components for a sea-based mid-point interceptor system.

JUNE 18 Officials at the World Health Organization said that the initial outbreak of SARS appeared to have been contained but that further research on the origins and transmission process of the disease was required. Officials stressed the need for continuing vigilance to prevent further large-scale outbreaks.

JUNE 20 Japan's chief delegate to the International Whaling Commission, Morimoto Minoru, threatened the possibility of Japanese withdrawal from the body following a stormy meeting in Berlin. Mr. Morimoto and the Agriculture, Forestry and Fisheries Minister Kamei Yoshiyuki also threatened to suspend Japanese funding for the IWC. The cause of Tokyo's unhappiness was the decision of the Commission to establish a committee dedicated to conservation of the mammals. Whaling nations such as Japan and Norway accused the anti-whaling nations of violating the remit of the organization, saying that it had authority only to set ways to manage existing whale stocks and was not charged with conservation activities. Japan is the largest donor to the London based IWC providing ¥18.2 million, over 8% of the budget. Japan has argued that since the global ban on commercial whaling in 1986, recovering cetacean populations have drastically reduced fish stocks. A Japanese proposal to increase its haul of Minke and Bryde's whales was rejected. Currently coastal communities in Japan can catch 50 Minke whales per year.

JUNE 22-26 Indonesian President Megawati Sukaroputri held talks with Prime Minister Koizumi and met the Emperor and Empress during the first official visit by an Indonesian head of state to Japan since 1968. The President agreed with the Prime Minister to set up a working group to explore the possibility of a free trade agreement between the two countries. Talks are expected to focus on investment liberalization and the exclusion of the politically sensitive agricultural sector from any agreement. Japan currently has one functioning FTA with Singapore. Working groups similar to the proposed Japan-Indonesian one already exist with Thailand and the Philippines. The two leaders also discussed the ongoing fighting in the separatist province of Aceh. Foreign Minister Kawaguchi Yoriko asked Sukarnoputri to ensure civilian casualties are kept to a minimum.

JUNE 25 Japan decided to suspend further ODA grants to Myanmar, as it had not received satisfactory assurances regarding the fate of pro-democracy campaigner Aung San Su Kyi who has been imprisoned by the ruling military junta. Japan is Myanmar's top aid donor, providing ¥2 billion in FY02. Japan resumed ODA to the South East Asian country in 1995 following a six-year suspension in protest at the overturning of election results in 1989.

JUNE 28 Foreign Minister Kawaguchi Yoriko visited Vladivostok to meet with Russian officials. She visited a partially Japanese funded project to decommission nuclear submarines from the Pacific Fleet and discussed the situation in North Korea with an aide of President Putin. She also lobbied for the construction of an oil pipeline from Siberia to the Sea of Japan. Both Tokyo and Beijing have been keen to tap central and far eastern Russia's energy supplies and both have been pushing competing plans for pipelines. Okamoto Iwao, head of the Natural Resources and Energy Agency is expected to visit Moscow in July promote the Japanese plan.