NEWSMAKER-New Japan finmin a fiscal hawk and deflation fighter

Tue Jun 8, 2010 2:19am EDT

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By Leika Kihara

TOKYO, June 8 (Reuters) - New Japanese Prime Minister Naoto Kan has picked fiscal conservative Yoshihiko Noda to be his finance minister, opting for someone with a zeal similar to his own for fixing the country's tattered finances.

Noda, 53, served as one of two deputies to Kan when he was finance minister and has echoed Kan's calls for capping new bond issuance for next fiscal year at the record 44.3 trillion yen ($482 billion) earmarked for this year.

He shares Kan's belief that beating deflation is one of the biggest policy challenges for the government, and that this should be done with cooperation from the Bank of Japan.

But the central bank may find him no less critical of policy than Kan was when he held the job.

Noda, who sees Greece's debt crisis as a warning for Japan to get serious about curbing its huge public debt, will need to help the government craft a strategy on fiscal reform which the government has promised to deliver by the end of this month.

Well-versed in fiscal policy and respected as a steady hand, Noda's likely appointment comes as little surprise and as a relief to markets, although analysts question how much he can achieve ahead of an upper house election expected in July.

"Noda has common sense ideas on fiscal discipline, and that would be comforting for the bond market," said Nobuto Yamazaki, executive fund manager at DIAM Asset Management in Tokyo.

"Public opinion is against letting fiscal spending go unchecked. But there is some uncertainty about how hard Noda would push for tax hikes and big spending cuts, because we have elections this year."

Unlike many senior politicians in recent years, Noda, the son of a serviceman in Japan's Self-Defence force, has no privileged family background.

He started in regional politics in 1993 and joined the Democratic Party a decade ago, earning a reputation as an orator. A fan of combat sports, he is a keen judo practitioner.

As the deputy finance minister responsible for international finance, he occasionally attended overseas meetings, including the G20 finance leaders' meeting in Scotland last November.

The experience may have made him more aware of the need to contain a public debt, now near twice the size of Japan's GDP.

When the Greek debt crisis jolted financial markets in April, Noda wrote on his website that the party should stress the need to restore Japan's fiscal health in campaigning for the upper house election expected in July.

"No major change is expected after Noda takes over from Kan as he's likely to work closely with Kan in cutting the fiscal deficit, so that's good news for the bond market," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.

TOUGH ON BOJ?

For the Bank of Japan, Noda is a familiar face.

He has sat in on the central bank's policy-setting meetings several times as one of two government representatives who may attend but cannot vote.

But that does not guarantee he would be easier to work with than Kan, among the most vocal critics of the BOJ when the central bank was hesitant to loosen monetary policy.

Noda has revealed on his website that at a rate review in March, he urged the BOJ board to clarify how it would pull Japan out of deflation. That was the day the bank eased policy by expanding a fund supply tool it started using in December.

While the comment likely represented the government's view rather than a personal opinion, it still shows that Noda attaches great importance to deflation and the role the BOJ should play.

"I'd like to attend the policy-setting meetings as much as possible and try to convey that beating deflation is a very important task," he wrote.

Little is known on Noda's stance on currency policy. He once brushed off speculation that Japan would step into the market to weaken the yen when the currency jumped to a 14-year high against the dollar in November.

Not prone to gaffes, he is unlikely to stray from the official line, that excessive volatility is undesirable.

But with markets still unstable from the European debt crisis, traders will be looking for any clue on whether he shares another of Kan's beliefs -- that a weak yen is desirable for Japan's export-reliant economy. (Additional reporting by Stanley White, Rie Ishiguro; Editing by Ron Popeski)

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