JAPAN: NAKASONE'S LEGISLATIVE AGENDA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000200660001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 7
• Document Creation Date: December 27, 2016
• Document Release Date: May 22, 2012
• Sequence Number: 1
• Publication Date: June 29, 1987
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4 25X1
Central Intelligence Agency
washinggon D. C. 20505
DIRECTORATE OF INTELLIGENCE
Japan: Nakasone's Legislative Agenda
Summary
The regular Diet session ended on 27 May with several key items,
including tax reform, still remaining on Nakasone's legislative agenda.
Political observers believe he has another shot at securing reform when
the extraordinary Diet session convenes in early July. The session will
also focus on passing the supplemental budget that Nakasone touted
during recent visits to Washington and Venice. The press notes that
Nakasone may also push for progress on some of his other major reform
projects, such as education, but we believe an already full docket suggests
progress in these areas, will be unlikely, particularly as succession
maneuvering heats up.
This memorandum was prepared by I Office of East Asian Analysis.
Information available as of 29 June 1987 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, Japan Branch, Northeast Asia
Division, OEA,
DATE
DOC NO _" /Yt t7-2,-O) 4
OIR 3
P& M
25X1
LOA-1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90T00114R000200660001-4
Budget and Tax Reform...Again
Throughout the spring, the Japanese press devoted extensive coverage to one of
the stormiest Diet sessions in recent memory and focused particular attention on
protracted negotiations that led to passage of the FY 1987 budget 22 days after the
fiscal year actually began. In the opinion of Secretary General Takeshita, it was one of
the most unproductive Diet sessions in his 29 years in politics. Only 72 percent of the
bills submitted by the Cabinet were approved during the regular Diet session, well below
the normal 95 percent completion ratio. Among the measures Nakasone was forced to
shelve were major tax reform proposals, including a controversial sales tax. Nakasone
will have another chance to tackle his unfinished legislative agenda when the
extraordinary Diet session, which could last as long as 75 days, begins in early July.
Nakasone's first priority in the extraordinary session will be passage of the
supplemental budget, which includes $41.4 billion in stimulative measures designed to
boost a sluggish economy. In the opinion of one expert, the economic package will
boost GNP by twice the amount of government outlays. However, other commentators
are less upbeat about its impact on growth and Japan's trade surplus. One economist
claims the government package is window dressing, and doubts the government's claim
that the measures will serve to reduce the trade surplus drastically beginning in late
1988. And editorials in Asahi, a leading journal that usually stridently opposes
Nakasone's economic policies, have argued that the pumppriming will only benefit big
business. More specifically, some observers are concerned that most of the public
works funding will be exhausted by the purchase of overvalued land in Tokyo and Osaka.
The second item on the Prime Minister's agenda is tax reform. He hopes to
address this issue as soon as members of an ad hoc bipartisan tax council work out a
package agreeable to the opposition parties. According to press reports, Chairman Ito
of the Ad Hoc Tax Reform Council expects the group to submit its final
recommendations on tax reform toward the end of July. As a result, the Prime Minister
is confident that he will be able to make progress on portions of his tax reform plan this
summer, according to a speech he made in late May.
Some media observers, including Asahi journalists, believe Nakasone may be
overly optimistic about the odds of winning approval of tax reform in the extraordinary
session. Nonetheless, most press stories suggest that Nakasone has laid solid enough
groundwork to complete the program by fall. Observers cite several reasons that
opposition parties may prove more cooperative than they were during the regular
session:
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90T00114R000200660001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90T00114R000200660001-4
? Public support for tax reform is growing. Even before the LDP agreed to amend
the sales tax, criticism of the concept of introducing an indirect tax was
beginning to fade. While opposition parties and labor unions working together
were able to organize a demonstration of 5,000 to protest against the sales tax in
mid-April, an unpublicized, spontaneous pro-reform rally on the same day
attracted almost half this number. In addition, a May poll on tax reform showed
that 90 percent of those queried indicated support for some form of tax reform.
? The opposition parties were united in their antitax reform campaign during the
regular session, but the consensus on strategy is already beginning to fray. Even
among the Socialist and Komeito parties, whose leaders scored points by leading
the attack on the initial sales tax proposals, reportedly many would support Vice
Prime Minister Kanemaru's proposed substitution of a 1-percent "welfare tax"
with proceeds presumably earmarked for popular social programs. Moreover,
pressure from union backers and some of the party elders forced the chairman of
the Democratic Socialist Party to admit that tax reform is necessary.
Editorial sentiment toward adoption of a "welfare tax" appears generally positive.
For example, the Mainichi, one of the newspapers most critical of the initial 5-percent
sales tax plan, has indicated that it favors such a small-scale indirect tax.
Nakasone has an ambitious legislative gameplan outside of the fiscal policy field,
which we attribute to his desire to sustain leadership momentum as succession
maneuvering gets under way. Press reports suggest that his strategy of raising
numerous policy issues is designed to keep opposition parties off balance as well. Even
under the most optimistic scenario, however, the Diet would be hardpressed to address
many of the other issues Nakasone has raised, particularly as succession manuevering
begins to distract party leaders as Nakasone's 30 October departure date nears:
? Agricultural Reform. In the remaining months of his term, Nakasone may try to
ride hard on agricultural interests as a means to set the stage for his successor
to liberalize the domestic rice price support system. Despite the hardline he
adopts in discussions with U.S. officials, Agricultural Minister Kato, in speaking to
domestic audiences, reveals a policy preference strikingly close to
Nakasone--arguing that the food distribution system must be reformed before
import liberalization can be contemplated. To begin this process, Kato worked to
cut farm subsidies by 20 percent starting last fall and says he wants to abolish
them totally in the future.
? Education Reform. Major daily reports indicate that Nakasone is closely
monitoring the progress of deliberations on this issue. His Ad Hoc Commission
on Educational Reform has already produced its third set of recommendations,
which the Japanese press has characterized as the most drastic on this subject
since the War. The final recommendations, which include a change in the start of
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90T00114R000200660001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4
the school year--switching it from April to September--are scheduled to be
announced this August. 25X1
Finally, Nakasone plans to reintroduce a bill to privatize Japan Air Lines (JAL).
Although privatization was originally scheduled for July 1987, the legislation was delayed
by the sales tax wrangle. Many labor and management issues surrounding the sale of
JAL stock remain to be settled, but the ruling party has said it plans to pass the
necessary legislation by the fall anyway.
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90T00114R000200660001-4
------------------------------------------------------------------------------------------------------------------------------------
--- Foreign Affairs ---
Foreign ministerial level Japan-USSR consultations revived after
eight years, clearing way for economic and cultural exchanges and
visits to grave sites in the Northern Territories by the
Japanese for the first time in 11 yrs.
Acted as a host of the successful Economic Summit in May. Firmed up
relations with ROK and the PRC during second visits since taking
office.
Use trip to US in late April to improve US-Japan
bilateral atmosphere; reduce tension.
Initial hopes for Summit with Gorbachev have fallen by
wayside.
Successful "goodwill tour" to Eastern bloc countries of East Germany,
Yugoslavia, and Poland.
------------------------------------------------------------------------------------------------------------------------------------
--- Defense Issues ---
Established a crisis management apparatus, dubbed the National
Security Council.
Secured ruling party parliamentary endorsement of National Defense
Program Outline as official plan.
Built consensus necessary to approve an official government policy
favoring SDI participation.
Foster further consolidation of distinct defense
missions under individual services.
With passage of budget, gained Diet approval of a new
policy breaking 1 percent ceiling on defense spending.
Continue to encourage industry participation in SDI
through completion of bilateral MOU agreeable to
industry.
Upgrade status of the lower house National Security
Research Committee.
Passed the bills to divide Japan National Railway (JNR) into six
private corporations effective 1 April 1987.
Created six Cabinet Secretariat offices to enhance prime ministerial
leadership and to improve crisis management.
Reduced or held constant for the fifth consecutive year the amount
budgeted for current national government expenses.
Pass a revised tax reform bill by the fall.
Complete privatization of railways.
Gain Diet approval of privatization of Japan Airlines
in September.
Act on final recommendations of Educational Reform
Council once they are released. The reform bill
is due to face Diet approval in 1988.
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90T00114R000200660001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4
Achieved major liberalization of the financial system.
Passed bill reallocating lower house seats.
Reformed health insurance for elderly and infirm.
Encourage debate on reform of price supports to set the
stage for agricultural reform.
Adopted comprehensive economic package to stimulate
domestic demand.
Enact five-day work week.
----------- -----------------------------------------------------
--- Political ---
Achieved record breaking LDP majority of 304 plus by holding Helped maintain status quo at the polls
"double elections" in July 86. during the nationwide local elections in April.
Play the role of "kingmaker" in choosing his successor
and continuing to be a major political force in the
- --next administration.
--------- ---------------------------------------------------------
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4
SUBJECT: Japan: Nakasone's Legislative Agenda
1 - Donald Gregg, Office of the Vice President
1 - William Brooks, Department of State
1 - Chuck Kartman, Department of State
1 - Dan Morris, INR/EAP/Japan
1 - Cdr. (Ret.) James Auer, DOD/ISA/EAP
Kim Fitzgerald, Department of Commerce
1 - Maureen Smith, Department of Commerce
1 - Doug Mulholland, Department of Treasury
1 - David Germany, Council of Economic Advisers
Central Intelligence Agency
1 - Director, DCI/DDCI Executive Staff
1 - NIO/EA
1 - NIO/Economics
1 - C/EA/RR
1 - OEA/NEA/Korea Branch
1 - OEA/NEA/STI Branch
1 - OEA/NEA Division
1 - OEA/China Division
1 - OEA/SEA Division
1 - D/OEA
1 - C/Production/OEA
1 - FBIS/NEAD
1 - DDI
1 - Senior Review Panel
1 - PDB Staff
1 - C/PES
1 - CPAS/ILS
5 - CPAS/IMC/CB
1 - LDA/EAD/AB
1 - DDO/EA Division
1 - DDO/EA=I
DDI/OEA/NEA/Japan
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/05/22 : CIA-RDP90TO0114R000200660001-4