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Domestic Politics Emergency Contingency Legislation Government proposals outlining how Japan might respond to an attack, originally introduced to the House of Representatives over a year ago, were finally passed and sent to the House of Councilors for consideration in May. Political observers expect that they will be enacted as law before the current Diet session comes to an end in June. The proposals, the first of their kind in post-war Japanese history, had been tied up in committee by differences between the DPJ and the ruling coalition parties. The DPJ had insisted on the insertion of several provisions that members of the coalition, particularly New Komeito, were resisting. Initially it had been suggested that the coalition would take advantage of the split between the DPJ's right and left wings by forcing a vote. Instead however they made sufficient compromises in areas the DPJ was concerned about to secure the support of the opposition's chief negotiator, Maehara Seiji. Following a meeting between the Prime Minister Koizumi and the DPJ President Kan Naoto, the agreement was ratified and the committee passed the bills. The following day the House of Representatives voted overwhelmingly to send the bills to the upper house for consideration. The legislation sets out the guidelines for Japan's response in the event of an attack on its territory or the anticipation of an attack on its territory. The role of the SDF and the power of the Prime Minister to take extraordinary measures in the event of an attack are the main subjects of the bills. DPJ opposition to the coalitions initial proposals centered on what it felt was insufficient protection of civil and human rights in times of crisis. Accordingly, Maehara had sought tougher wording in the sections dealing with these issues. Maehara also sought an assurance that a co-coordinating body would be set up to oversee actions taken to respond to an attack or other threat. In the compromise agreement the coalition agreed to insert a provision stating that rights guaranteed by the constitution would be protected as much as possible if the legislation was ever invoked. They also said that they would 'sincerely study' the feasibility of creating a co-coordinating body along the lines of the US Federal Emergency Management Agency. A third compromise provision gave the Diet the power to halt countermeasures taken by the executive in response to a crisis. Up until now the SDF would have been constrained from acting in an appropriate manner in the event of an attack on Japan by existing laws such as those that regulate traffic and protect against the expropriation of private property. On the grounds that such constraints would inhibit an effective response from the SDF the new proposals remove them. They also regulate the power of the central government to give orders to local governments in times of crisis. The passing of the bills by the lower house was overwhelming. Only the Japanese Communist Party and the Social Democratic Party voted against, stating that they felt the bills were opposed to the spirit of the constitution. For the DPJ agreement over the bills was seen as a test of their credibility as an alternative governing party. The party is composed of former members of the Shinshinto and Socialist parties and is split over contentious issues such as defense planning. Initially there were fears that the former Socialists would vote against the measure but the last minute compromises seem to have satisfied them enough to keep them within party discipline. DPJ Vice President and leading member of the party's left wing, Yokomichi Takahiro, voted for the bills but said that he was not fully satisfied with them and would continue to draw attention to their shortcomings. The expected passage of the legislation has sparked debate on other aspects of Japan's defense policy. Although explicit revision of the constitution's article 9 is still only a remote possibility, the threatening environment in North East Asia has led senior government officials to question whether Japan ought not to lift its prohibition on collective self- defense. The right to collective self-defense is enshrined in Article 51 of the UN Charter, however Japan has chosen to eschew that right under its current war-renouncing constitution. During the committee debate on the emergency contingency bills Defense Agency chief Ishiba Shigeru said that he hoped the day when Japan could engage in collective defense with the United States would come soon. Prime Minister Koizumi himself has also spoken up about the possibility that a pre-emptive strike might be carried out if Japan knew that an advisory was about to attack it. The current government interpretation of the constitution is that Japan reserves the right to carry out such pre-emptive attacks but does not currently possess the ability. Mr. Ishiba has said that Tokyo would rely on the US in any situation requiring a defensive pre-emptive attack on a sovereign nation but the DPJ's Maehara has said that he believes Washington would favor a Japanese request to obtain Tomahawk land attack missiles. Possession of the weapons would enable Japan to target North Korea's missile bases in the event that the intelligence existed that they posed an imminent threat. Other Issues MAY 1 Campaigning began in the gubernatorial election in Tokushima Prefecture, Shikoku. The election was necessitated by the resignation of Ota Tadashi following a no confidence motion passed by the prefectural assembly. Mr. Ota was heavily criticized by the LDP dominated body following his attempts to investigate the behavior of his predecessor, Endo Toshio who was forced from office by a bribery scandal in April 2002. The three candidates, who are all running as independents with party backing, are Mr. Ota, who is backed by the main opposition parties, Mr. Iizumi Yoshikado, a former head of the prefecture's environment department who is backed by the ruling coalition parties, and Mr. Shinohara Shigeo, a local businessman. MAY 10 The Democratic Party of Japan and the Liberal Party agreed to postpone a decision on merging the two parties until the end of the month. Although support for the move is high amongst Liberal Party members and the DPJ leadership the rank and file of the latter party is split. Disagreement about the issue cost Hatoyama Yukio his job as DPJ leader earlier in the year. Sources for the two parties said that consultation and negotiation would continue until a final decision could be made. MAY 15 Aomori Governor Kimura Morio resigned over an extra-marital affair with a constituent who had sought his aid on a tax related matter. In March the Aomori prefectural assembly had adopted a non-binding resolution calling on him to resign and was due to pass a no-confidence motion in him on the 16th. MAY 18 LDP backed Iizumi Kamon won the Tokushima gubernatorial election in a campaign that stressed the divisiveness and lack of leadership of his opponent Ota Tadashi. Mr. Iizumi has said that he will not seek to carry out a controversial plan to build a dam on the Yoshino River. A referendum in January 2000 on the matter saw 90% of voters oppose the plan. MAY 20 Former Labour Minister Murakami Masakuni was sentenced to twenty-six months in prison and fined ¥72.8million after being convicted of accepting bribes from an industrial consultancy. Mr. Murakami accepted ¥50 million in cash and had rent to the value of ¥22.78 million paid by KSD in return for promoting their bid for a government construction contract. Mr. Murakami, 70, has protested his innocence since the story first became public. After the verdict was announced he immediately appealed to a higher court and was released on bail of ¥100 million later the same day. MAY 20 The Ministry of Economy, Trade and Industry released a list of firms that had attempted to supply technology to North Korea that could be used in the production of weapons. MAY 21 The House of Councilors approved a package of data protection measures aimed at preventing the unauthorized collation and circulation of personal information by government bodies and private companies. The proposed laws had generated controversy amongst the media who accused the ruling coalition of undermining civil liberties. Following passage of the bills all organizations collating data will have to specify what the purpose of their activities is and take steps to prevent the transfer of personal information to third parties without an individuals consent. Academic researchers, religious and political groups and newspaper companies are all exempt from the stipulations of the bill. Freelance writers and certain types of publication however are not. The Japan Magazine Publishers Association has vowed to fight the laws. MAY 22 The General Association of Korean Residents in Japan, a pro-North Korea group, said that the Man Gyong Bong-92, a cargo ship that travels a route between Wonsan and Niigata, would re-start in June. The government has been called upon to stop the ship from entering Japan over allegations that it is a conduit for drugs manufactured by the North. MAY 26 Long running talks between the DPJ and the Liberal Party on a possible merger broke down when Ozawa Ichiro, the Liberal leader, rejected a DPJ proposal to form a joint parliamentary caucus as an interim step. Mr. Ozawa complained that the proposal would hamper both party's election campaigns and he denounced the absence of a timetable for a full merger. The leadership of the DPJ had been strongly in favor of the merger but where unable to convince a sufficient number of diet members to support them. Many DPJ members are suspicious of Mr. Ozawa's intentions as he has a record of dissolving political parties that he has formed. He was a founder of Shinshinto, which split apart in 1998 due to internal tensions. Many anti-Ozawa Shinshinto members later joined the DPJ. Former DPJ leader Hatoyama Yukio resigned from the party's top policy making council over the failure of the negotiations. Mr. Hatoyama had initially agreed the principles of a merger with Mr. Ozawa but was forced to step down from his role as party leader when he could not achieve consensus on the matter. Current party leader Kan Naoto said he intended to focus on consolidating unity within the DPJ rather than continuing to pursue a merger. MAY 28 Fighter aircraft from the Air Self Defense Force left for Alaska to take part in the Cope Thunder exercises with the US. Aircraft and personnel from India, Singapore, Thailand South Korea and several NATO countries are also taking part. Japan's contingent of about two hundred and seventy people is the second largest after the US. MAY 30 Government sources indicated that they intend to begin discussions with the coalition parties on plans to deploy an upgraded missile defense system. The plans are rumored to include deployment of the upgraded PAC-3 with the Air Self- Defense forces by fiscal year 2006. Defense Agency officials are reportedly also seeking to amend the National Defense Program Outline and the Mid-Term Defense Program to reflect the need for ballistic missile defense. The cost of deploying the advanced PAC-3 system has been estimated at ¥200 billion. Business and Finance Resona Bank A fresh reminder of the troubled state of the Japanese banking system was given in May when Resona Bank, the core entity of Resona Holdings Co. and Japan's fifth largest bank, was forced to apply for an emergency injection of public funds. Resona, who's constituent banks have not made a profit in three years, held an emergency board meeting on the 17th to submit it's application, citing a capital adequacy ratio that had fallen below the 4% limit required by law. After convening a meeting of the financial crisis response committee the government agreed in principle to use public funds to rescue the bank under the Deposit Insurance law. The final figure was eventually agreed upon as ¥1.96 trillion, enough to lift the capital adequacy ratio above 12%. Government officials were quick to stress that the money was simply 'public assistance' and did not amount to nationalization. As part of the terms of the 'public assistance' however, Resona Bank is said to have agreed to accept a specialist team from the Financial Services Authority to investigate it's banking operations, especially in the areas of risk management and legal compliance. A separate team from the FSA is scheduled to conduct an investigation into the recoverability of many of the bank's outstanding loans. Six of the top directors have resigned to take responsibility for the crisis, including Resona Holdings President Yasuhisa Katsuta, who will be replaced by Japan Railways East Co. Vice President Hosoya Eiji. Mr. Eiji was credited with leading the successful privatization of the former state owned rail company. As part of the rehabilitation process Resona also announced that staff numbers would be reduced, salaries cut by 30% and summer bonuses foregone. Resona Bank was formed in March by the merger of Asahi and Daiwa Banks, which had previously been separate entities within Resona Holdings. The group also operates Kinki Osaka, Nara and Saitama Resona Banks. The main market of the bank is in the Kansai region centered on Osaka where it is a lender to many small and medium sized enterprises. The region has been particularly hard hit by the continuing weakness in the Japanese economy. Resona's status as a major regional lender led Osaka governor Ota Fusae to petition Financial Services minister Takenaka Heizo on its behalf. Several of the bank's largest corporate customers, such as Pentax Corp, Sharp and Matsushita electronics have expressed confidence in the future prospects of the lender and have said they have no plans to cut their business ties with it. The trigger for Resona's troubles came when one of its auditors, Shin Nihon, refused to sign off on the banks calculation of its capital. Specific objections were raised to the treatment of the deferred tax assets that Resona had adopted. These items consist of expected excess tax repayments that would be made to the bank after it had made a profit. Including deferred tax assets in capital is a very common approach amongst Japan's other major banks. Under an FSA program for banking reform however, auditors are required to calculate deferred tax assets much more strictly than in recent years. The auditing company, one of Japan's largest, refused to accept Resona's profit forecasts and accordingly disallowed the deferred tax assets from capital. The capital adequacy ratio of the bank then fell to below levels required by domestic law. Reaction to the government's handling of the affair was mixed. Whilst the comparative swiftness with which action was taken was generally praised, sharp differences emerged between the LDP and the DPJ over the state of the financial industry as a whole. Kan Naoto, President of the DPJ, was quoted as saying that the system remained in crisis despite the spending of trillions of yen in public money. He criticized the government for its approach to reforming the sector and called on them to forcibly inject public money to help clean up the balance sheets of the largest banks. Chief Cabinet Secretary Fukuda Yasuo rejected the idea of an imminent collapse of the system however. He claimed that since no other banks had reported under capitalization problems there was 'no danger' of Resona's problems happening to another firm. Other observers were not so sure. Many pointed out that the silence of the other major banks did not necessarily indicate that they too were not facing capital adequacy problems. It is estimated that up to half of the capital of the largest banking groups is in the form of the same deferred tax assets that were responsible for Resona's crisis. Furthermore, optimistic talk about addressing the capital adequacy weakness actually preceded Resona's request for a public bailout. The bank had raised ¥120 billion in capital from investors just months ago, saying it would boost the ratio above 6%. The government's involvement in the financial sector has grown considerably in the last few years. The intervention to assist Resona has made the taxpayer the largest shareholder in the group, eschewal of the word 'nationalization' notwithstanding. In becoming so closely involved, the state has acted to shore up companies far beyond Resona itself. Two of the group's largest shareholders are the insurance companies Asahi Mutual Life and Dai-Ichi Mutual life. A precipitous collapse in Resona's share price would have undermined those companies as well. Life insurance providers are already in difficulty due to the declining stock market, and a bill giving them permission to cut guaranteed payouts to policyholders is currently being debated by a lower house committee in the Diet. Although the rescue of Resona has won plaudits, some commentators such as Keio University economist Fukao Mitsuhiro have warned that the burgeoning extent of the state's involvement with financial institutions is unhealthy. Company Results FY02 All Nippon Airlines Nomura Holdings Inc Olympus Optical Co. Nikon Co. NTT DoCoMo Inc. KDDI Co. Mitsubishi Heavy Industries Ltd Casio Co. Isuzu Motor Co. Sky Perfect TV Wowow Co. Japan Tobacco Inc. Tokyo Electric Power Co. Japan Telecom Holdings Co. Other Issues MAY 2 Daiwa Construction Co. filed for bankruptcy with debts of ¥23.05 bn. MAY 4 Aizawa Hideyuki, chairman of the LDP anti-deflationary panel told an Asahi TV discussion show that he believed Japan would require a ¥6 trillion supplementary budget to bolster the weak economy. Mr. Aizawa also called on the Bank of Japan to increase the amount it spends on purchasing corporate shares. MAY 6 Travel on trains during Golden Week fell 9% compared to last year, while travel on aircraft fell by almost half. Analysts blamed the fact that the holidays were broken up this year, as well as the fear of SARS and the generally weak economy. MAY 16 Data released by the Finance Ministry showed that GDP growth in the first quarter of 2003 was virtually zero. Cabinet officials put the extremely low growth rate down to the impact of the war in Iraq as well as a fall in exports, which declined for the first time in five quarters. MAY 20 The coalition parties announced that they had agreed upon a bill amending the Insurance Business law that would allow insurance companies facing financial difficulty to cut guaranteed yields to policyholders. The cabinet submitted the bill to Diet for debate. The financial position of many life insurers has declined with the collapse of stock prices and the low interest rates that are prevalent. Returns on investments have fallen below the high levels promised to attract customers during the bubble period. MAY 21 Bank of Japan president Fukui Toshiko announced plans to increase the amount of money in the accounts of banks held by the BoJ in a bid to increase the liquidity of the system. Observers had forecast the move to calm the markets in the wake of the bail out of Resona Bank and the continued fall in stock prices. MAY 21 The Ministry of Land, Infrastructure and Transport said that the Development Bank of Japan would extend low interest loans to Japan Air Systems Co. and ANA Co. to help cope with the effect of the collapse in air travel due to the Iraqi war and the SARS virus. The Bank had previously extended loans in the aftermath of the terrorist attacks in 2001. MAY 23 Hokuriko and Hokkaido Banks announced that they planned to merge in FY2004 to become the second largest regional bank in Japan after the Bank of Yokohama. The new entity would have combined deposits of ¥8.3 trillion and over five thousand employees. Analysts say that the management of the bank will be looking to improve profitability through costs cutting and other rationalization measures. MAY 23 Ishihara Shintaro, Governor of Tokyo criticized the rigidity of existing banks lending practices and promised to create a new strategic lending model when he unveiled plans for a new government-backed bank aimed at financing small and medium sized companies. The bank would offer collateral free loans to small high tech companies overlooked by regular lenders. It is hoped that by co-operating with credit unions and Tokyo Tomin Bank the new lender will be able to draw on their experience with small enterprises. Initially the Tokyo Metropolitan government will provide ¥100 billion and other entities such as JR East Co. and the Ito Yokado chain will provide another ¥50 billion. The bank also hopes to take in ¥5 trillion in deposits from ordinary investors. The Financial Services Minister Takanaka Heizo welcomed the move but other observers were more circumspect. Minister of Economy, Trade and Industry Hiranuma Takeo said that wanted to wait and see what risk management tools the new bank would employ and Miki Shigemitsu, chairman of the Japanese Bankers Association warned that as shareholders, taxpayers would have to shoulder any losses that were made. MAY 25 Finance Minister Shiokawa Masajuro suggested that the government will raise the consumption tax in FY2007 if Koizumi Junichiro is re-elected as president of the LDP. Mr. Koizumi has previously gone on record as saying the tax would not be raised during his tenure of office, a pledge that Mr. Shiokawa suggested ought not to be taken at face value. Chief Cabinet Secretary Fukuda later said that no government decision has been taken on the issue and the remarks made by Mr. Shiokawa reflected his own opinion. MAY 28 Sony Corp. announced plans for a new growth strategy to combat the poor forecast it has made for FY2003. CEO Idei Nobuyuki said that the company intends to focus on high growth areas such as plasma TV's and DVD recorders. Unprofitable units within its electronics division will be cut, and in-house production of key components for items such as digital cameras increased. Sony Corp. forecast that its performance this year would be substantially worse than last due to harsh market conditions and the failure of a restructuring drive. International Politics MAY 1 The government announced that it would begin distributing temperature-taking devices to all major airports to check passengers arriving from SARS afflicted areas for elevated body temperatures. Shizuoka Prefecture announced that it would meet the medical costs of anyone hospitalized with the disease. MAY 3 The Defense Agency is considering updating the 1995 National Defense Program Outline to include references to missile defense and weapons of mass destruction. The agency is expected to request funding for a missile defense system in its next budget submission. MAY 3 The Ministry of Economy, Trade and Industry said that it would extend the government backed trade insurance scheme to cover losses incurred due to the SARS virus. If plants owned by Japanese firms in affected areas are forced to close for more than six months then owners will be eligible to make a claim. Ricoh Co. announced that it was closing down its Beijing unit from May 5-11. MAY 8 After meeting with the five abductees, Chief Cabinet Secretary Fukuda Yasuo said that Japan was not ruling out the imposition of economic sanctions on North Korea. The five asked Fukuda to ensure the government does everything it can to speed their reunion with their families still in the North. MAY 8 The Japan Defense Agency confirmed reports that the Japanese supply ship Tokiwa transferred fuel to a US oiler that was later used by the carrier Kitty Hawk, which took part in the US led war in Iraq. The JDA noted that such actions were permissible under the anti-terror legislation as the Kitty Hawk was not in the Persian Gulf when it received the Japanese supplied fuel. The government also announced that the anti-terror legislation under which the Tokiwa was operating would be extended beyond its expiry date in November. Under the law, Japanese ships have so far supplied over ¥11 billions worth of fuel to coalition forces in the Indian Ocean. MAY 10 A Japanese man in Shanghai was quarantined as a suspected SARS sufferer the Japanese consulate in the city announced. On May 11th a team of Japanese medical experts sent by the Health Ministry arrived to assess ways of reducing the risks to patients and staff in hospitals where there are SARS sufferers being treated. The Health Minister Sakaguchi Chihara proposed that Taiwan be allowed to join the WHO as an observer. Taiwan's full membership is opposed by the PRC. Taipei has been struggling to deal with an outbreak of the deadly contagion. MAY 11 Senior Vice Foreign Minister Motegi visited the Japanese embassy in Baghdad and met with Jay Garner, one of the leading officials in the Office for Reconstruction and Humanitarian Assistance. MAY 15 A Taiwanese doctor who visited western Japan on a tour was hospitalized with the SARS virus on his return to Taipei. Officials in the areas which the doctor visited later said that there had been no apparent cases of the disease reported amongst local residents. Fear of the SARS virus also caused the postponement of the East Asian Football Championships scheduled to be held in Yokohama and Takashimaya Co. said that they were closing their store in Taipei after an employee of a concession was hospitalized with the virus. MAY 16-18 The 3rd Pacific Island Leaders Forum began in Okinawa. The leaders of Japan and sixteen other small island states agreed to co-operate in areas such as environmental protection, trade, IT education, waste treatment and disposal and the fight against international terror. Papua New Guinea's Prime Minister and the Prime Minister of Fiji both requested Japan do more to popularize their islands as destinations for Japanese tourists. MAY 17 Indonesian officials and representatives of rebel leaders from the province of Aceh began talks in Tokyo on how to salvage a peace agreement. MAY 23 Prime Minister Koizumi visited President Bush at his ranch in Crawford, Texas on his way to the Middle East. The two leaders discussed the North Korean crisis, the Japanese economy and Tokyo's role in post-war Iraq. On the flight from Japan the Prime Minister had indicated that the recent passage of a UN Security Council resolution might allow Japan to send the SDF to take part in the re-building of the country under existing legislation. Prime Minister Koizumi had previously ruled out extending the current Diet session passed June, a move that would be inevitable if a contentious new bill on SDF dispatch was to be debated. MAY 26 Mr. Koizumi returned to Japan after visiting Egypt and Saudi Arabia where he held talks with leaders. The Prime Minister welcomed the positive response from the two countries to his suggestion that Japan set up a forum to facilitate dialogue and cultural exchanges with the Middle East. MAY 30 According to figures supplied by the Japan National Tourist Office the number of foreign visitors to Japan in April fell 25% from the same month a year earlier. Officials put the decline down to the disruption caused by the SARS virus. Of the estimated 5 million people who visited Japan in 2002 about one third came from China, Taiwan and Hong Kong SAR. MAY 30 Prime Minister Koizumi met his Chinese counterpart Hu Jintao on the sidelines of the celebrations for St. Petersburg's 300th anniversary. The two leaders discussed the need to find a peaceful solution to the crisis on the Korean peninsula, China's measures to control the spread of the SARS virus and possible Japanese participation in building a high-speed rail link between Beijing and Shanghai. Relations between Mr. Koizumi and the Chinese leadership have been strained by the Prime Minister's visits to Yasakuni Shrine. China claims that it shows insensitivity to the past suffering of its people at the hands of the Japanese military.
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