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* Fujii seen as fiscal hawk, reassuring bond markets
* Unclear how much say he will have on budget spending
* Strong yen views mean intervention seen unlikely
By Hideyuki Sano
TOKYO, Sept 15 Japan's inexperienced new
government has picked a fiscally conservative and seasoned pair
of hands for finance minister, Japanese media say, but investors
wonder how much clout Hirohisa Fujii will have in setting the
Fujii, a 20-year veteran at the finance ministry and a former
minister in the early 1990s, may find his wings clipped as budget
spending -- a key risk for bond markets -- will be led by a
powerful new state planning agency.
Some also fear that, at 77, Fujii may find it hard to cope
with the rigours of international finance meetings as countries
seek to rebuild the global economy after the financial crisis.
Fujii is returning to the job he held for 11 months in
1993-94, when Japan's long-dominant Liberal Democratic Party
(LDP) last lost power.
The pick of Fujii was welcomed by analysts worried that the
new government's spending plans -- such as child allowances and
toll-free expressways -- will boost issuance of Japanese
government bonds as Japan struggles to emerge from recession.
Fujii's backing for ultra-loose monetary policy means he is
unlikely to rock markets but some analysts feared he may try to
wean Japan too quickly off its reliance on exports for growth and
allow the yen to rise.
"What worries me about him is his comments that seem to
support a strong yen," said Kyohei Morita, chief economist at
"Fujii needs to improve his communication with markets,
especially with currency market players, even if he is following
his beliefs. He can let the yen rise after transforming the
economy into one led by domestic demand, but there is risk of the
yen rising further before that happens."
Fujii has recently cautioned against intervening in currency
markets, although Japan sold more than 2 trillion yen for dollars
in markets during his previous tenure as finance minister.
"He's on the record saying that he doesn't believe in
intervention. It's unlikely they would act should the dollar fall
under 90 yen," said Richard Jerram, Macquarie's chief Japan
economist in Sydney.
The Japanese yen rose to a seven-month high near 90 per
dollar on Monday as the U.S. dollar tumbled. FXNEWS [FRX/]
Working in Fujii's favour is his closeness to former
Democratic Party leader Ichiro Ozawa, a powerful figure in the
party, although there have been some media reports that the two
fell out because Fujii urged Ozawa to quit following a
fundraising scandal earlier this year.
Japanese government bond yields JP10YTN=JBTC have been
stable since the Democrats won a landslide election victory on
Aug. 30, but investors are still nervous about their pledges to
spend more on families and consumers that could inflate Japan's
huge public debt, already 170 percent of GDP. FINEWS [JP/]
"I suspect, at the end of the day, they are going to have to
issue more debt to finance the measures. But over the near term,
markets will tolerate additional issuance of JGBs as a way to
sustain some of the stimulus," said David Cohen, director of
Asian economic forecasting at Action Economics in Singapore.
The Democrats say they will pay for new spending by cutting
waste, and analysts say Fujii -- who has pledged to cut bond
issuance -- will make sure that promise is not forgotten.
"The appointment is a positive move for the bond market as
Fujii has placed a strong emphasis on trying to tap sources of
financing so the government does not have to issue more debt,"
said Noriyuki Fukuda, a fixed-income strategist at Morgan
Fujii has said the government will have to consider raising
the 5 percent sales tax to fund ballooning social security costs,
although the Democrats have pledged to hold off on a hike for the
next four years.
Fujii will likely have more say on currency policy, where he
has raised the prospect of a stronger yen, suggesting this
government may move Japan away from its focus on export-led
"If Japan's economy is strong so is the yen, and if it's
weaker than the U.S. economy the dollar will strengthen. It's
quite natural," he told Reuters in an interview in July.
"Unless currency moves are abnormal I don't think we should
intervene in currency markets."
On monetary policy, he has hailed policy steps the Bank of
Japan has taken so far to bolster the economy, and said that the
current interest rate of 0.1 percent is appropriate.
Fujii's two decades experience at the finance ministry, where
he rose to a senior role in the budget bureau, should stand him
in good stead as the new government seeks to reduce bureaucrats'
clout and redirect spending.
But there is also the risk that Fujii, having already retired
once and only just back in parliament after four years away, may
not be a long-term choice.
(Editing by Rodney Joyce and John Chalmers)