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Japan PM to tap fiscal hawk in new line-up: report

TOKYO (Reuters) - Japan’s prime minister will give a fiscal hawk a key post when he revamps his cabinet on Friday, media reported, a move probably meant to show he is serious about tax reforms needed to curb the country’s huge public debt.

Japanese Finance Minister Kaoru Yosano leaves a news conference in Tokyo June 24, 2009. REUTERS/Issei Kato

Prime Minister Naoto Kan will appoint former administrative reform minister Yukio Edano as his de facto deputy and offer ex-finance minister Kaoru Yosano, a fiscal conservative, a government post, Japanese media said a day ahead of the changes.

“I’m sure it is intended to send a message -- that he is serious about fiscal reform -- but it depends on who the other ministers are,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo, referring to Yosano.

Feldman added that Edano, mooted for the No. 2 cabinet post, had done a good job in his previous government job, which focused on cutting wasteful spending, and had “very broad policy experience”. Edano is now deputy secretary general of the ruling Democratic Party of Japan (DPJ).

Giving Edano the key post could, however, exacerbate a rift in the ruling party over scandal-tainted strategist Ichiro Ozawa, since Edano has been a critic of the veteran politician.

Kan confirmed he would present a new cabinet line-up on Friday. He gave no details but told a news conference that he and Yosano had similar views on fiscal and social security reform.

Yosano, a vocal advocate of raising Japan’s 5 percent sales tax, said he had not been approached but echoed Kan’s concerns.

“What Prime Minister Kan is saying about fiscal policy, tax reform and the welfare system are problems that can’t be avoided. Trade policy is also important,” he told a news conference.

“If I can help on these two issues, I would like to do so even if it’s from the sidelines,” he said, adding he would leave the small, conservative Sunrise Party he helped found last year.

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TOUCHY TAX TOPIC

Kan, whose support rates have halved from the 60 percent enjoyed when he took office last June as Japan’s fifth premier since 2006, this month again raised the touchy topic of boosting Japan’s 5 percent sales tax to fund the ballooning costs of providing social welfare for Japan’s fast-aging population.

“The question is whether we can face problems that have been ignored for 20 years,” Kan told a DPJ convention on Thursday.

Kan is also pitching the need for trade liberalization keenly sought by businesses but opposed by powerful farm lobbies.

Kan is reshuffling the cabinet largely to replace Chief Cabinet Secretary Yoshito Sengoku, potentially smoothing the path for debate on the budget for the year from April when parliament opens this month.

Parliament’s opposition-controlled upper house passed non-binding but embarrassing censure motions against Sengoku and Transport Minister Sumio Mabuchi in November over their handling of a territorial dispute with China.

Opposition parties have threatened to boycott a debate on the 2011/12 budget unless the two are sacked.

The government can enact the budget because the DPJ controls the powerful lower house, but the opposition can block enabling legislation in the upper chamber.

Mabuchi will also be replaced, Japanese media said.

Kyodo news agency, quoting a lawmaker, said Kan might appoint Yosano as a cabinet member in charge of tax and social security issues, health minister or an adviser to the premier.

Yosano, who served as finance minister in 2009 when the now opposition Liberal Democratic Party was in power, has also held the posts of chief cabinet secretary and economics minister.

Analysts said Yosano’s appointment would be a sign of commitment to fiscal reform but would not be enough to convince markets that the government was willing or able to act.

“Unlike last year, it is no longer enough for the ruling party to merely draw up agendas toward fiscal restructuring, reining in debt and securing tax revenue. They have to begin following through with them,” said Koichi Ono, a senior strategist at Daiwa Securities Capital Markets.

Private economists largely agree that raising the sales tax will be essential but many lawmakers, including in the ruling Democratic Party, fear angering voters, especially ahead of local elections in April.

Additional reporting by Leika Kihara, Kiyoshi Takenaka, Kaori Kaneko and Yoko Kubota; Writing by Linda Sieg; Editing by Nathan Layne and Tomasz Janowski

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