September 24, 2008 / 12:51 PM / 10 years ago

Fiscal reformer Yosano faces rough Japan economy

Tokyo (Reuters) - Kaoru Yosano, a veteran politician who favors raising Japan’s consumption tax to repair tattered public finances, is keeping hold of the economic policy reins for the world’s No.2 economy, as it heads toward recession.

Japan's re-appointed Economics Minister Kaoru Yosano speaks during a news conference at the prime minister's official residence in Tokyo September 24, 2008. REUTERS/Toru Hanai

The 70-year-old fiscal hawk was retained as economics minister on Wednesday, after finishing second to Taro Aso in the race for prime minister.

Yosano, known to have extensive connections among government bureaucrats, has been supportive of Bank of Japan rate hikes and has said he favored higher Japanese interest rates, which may put him at odds with both Aso and the new finance minister who favor greater stimulus in tough times.

“For the time being, he (Aso) told me to focus on the economy that the people have been concerned about,” Yosano said in a news conference after the new prime minister unveiled his cabinet.

Yosano, one of a number of Japanese politicians who play the chess-like strategy game of Go, is in charge of an economy sputtering under the weight of falling exports and rising raw material and energy prices.

Along with some fellow lawmakers, he published a report in June that argued consumption tax needed to be doubled to at least 10 percent by around 2015 to cut government debt from a sky-high 1- times GDP and to cope with a wave of baby boomer retirements that threatens to blow out health and welfare costs.

But his stance is not shared by many in his party, including Aso, who has touted the need for government spending to bolster rural economies and who is less enthusiastic about fiscal reform.

Other lawmakers argue the government should cut wasteful spending and boost growth to repair its finances and have also criticized Yosano for seeking a tax hike.

Yosano has admitted that raising consumption tax is politically impossible for now after the ruling party lost control of parliament’s upper house in an election last year — allowing opposition parties to stall legislation.

In addition, the growing turbulence in the global economy has made a tax hike difficult. Yosano said last week the upheaval in global financial markets could worsen the Japanese economy.

Some politicians are nervous that rate hikes could send Japan deeper into a downturn but Yosano has said that higher interest rates would benefit the economy overall — by raising returns on a huge pool of savings held by householders.

First elected as lawmaker in 1976, Yosano has held several key government and ruling party posts, including another stint as economics minister under former Prime Minister Junichiro Koizumi in 2005-2006.

When the Bank of Japan raised interest rates for the first time in six years in 2006, to 0.25 percent from zero, Yosano, then the economy minister, was one of the strongest government supporters for the central bank’s move even as other political heavyweights warned it would suppress growth.

Grandson of two well-known poets and a graduate of prestigious University of Tokyo, Yosano started his political career in 1968 by joining the office of Yasuhiro Nakasone, who later became prime minister in the 1980s.

Yosano is a master player of Go and has boasted that he taught Ichiro Ozawa, the leader of the main opposition party, how to play the game many years ago.

But while the ruling coalition bloc hopes to win the upper hand over Ozawa, it was the opposition leader who bested Yosano when they played each other at Go last year.

Editing by Rodney Joyce

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