September 15, 2009 / 2:55 AM / 9 years ago

Japan cabinet takes shape, Fujii for finance: media

TOKYO (Reuters) - Japan’s incoming prime minister Yukio Hatoyama will pick a veteran lawmaker for finance minister, domestic media said on Tuesday, adding experience and fiscal caution to his untested party’s line-up.

Japan's incoming prime minister Yukio Hatoyama leaves his Democratic Party plenary meeting in Tokyo September 15, 2009. REUTERS/Issei Kato

The expected appointment of Hirohisa Fujii, who also served as finance minister in 1993-1994, was welcomed by analysts worried that new government spending plans will inflate Japan’s already huge public debt as it struggles to emerge from recession.

Hatoyama will take office as prime minister on Wednesday after a stunning election win that brings to power a government pledged to put more money in the hands of consumers, cut waste and reduce bureaucrats’ control over policy-making.

He has already chosen Naoto Kan, an ex-party leader and former health minister known for scrapping with bureaucrats to head a powerful new agency tasked with overseeing the budget process and setting policy priorities.

Hatoyama has also said Katsuya Okada, another former party leader, would become foreign minister, a post being closely watched because of concerns about the U.S.-Japan alliance.

The Democrats have pledged to adopt a diplomatic course more independent of close ally Washington, a shift from the LDP’s stance that put U.S. ties at the core of its security policies.

The choices will give ballast to a cabinet that will inevitably be composed mainly of novice ministers, analysts said.

“There is a lack of depth at the top, but he is taking some of the most talented and experienced people and putting them in key posts,” said Jeffrey Kingston, director of Asian studies at Temple University’s Japan campus.

Japanese media had widely tipped Fujii for the finance post, but recent reports had said his appointment faced opposition from former party leader Ichiro Ozawa, a political mastermind whose influence is raising concerns about a possible rival power center that could complicate policy decisions.

RESET BUTTON

“The party will have to try to live down the long shadow of Ozawa-style politics, because for a party that has promised to hit the reset button on ‘politics as usual’ it doesn’t look that way,” Kingston said. “Hatoyama is more of a waverer than a leader ... but power changes people,” he said.

Japanese media said Democratic lawmakers known for keeping their distance from Ozawa would likely get cabinet posts.

“It does look as if Hatoyama is trying to form a star-studded cabinet of all the big shots in the DPJ,” said Sophia University professor Koichi Nakano.

“The ultimate fate of the government will depend on policy coordination, given these are fairly big figures in the DPJ with commensurate policy preferences, or even egos.”

Analysts welcomed the expected choice of Fujii for the finance post given his reputation as a fiscal conservative aware of the risks of Japan’s ballooning public debt.

“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 Morgan Stanley fixed-income strategist.

Hatoyama’s Democratic Party of Japan (DPJ) has promised not to raise Japan’s 5 percent sales tax for the next four years while the government focuses on cutting waste.

But Fujii has called for discussion of an increase to fund the soaring social security costs of an aging society.

Hatoyama told reporters he would appoint Shizuka Kamei, leader of a small conservative coalition ally the People’s New Party to a post in charge of bank supervision and postal services, after earlier reports that he would get the defense portfolio.

A former LDP heavyweight, Kamei left the party in 2005 over then-premier Junichiro Koizumi’s postal privatization plans.

Hatoyama needs Kamei’s cooperation in parliament’s less powerful upper house to pass bills smoothly. Media reports said Social Democratic Party leader Mizuho Fukushima, 53, another coalition ally, would be put in charge of consumer affairs and policies to boost the low birth rate.

The Democrats have vowed to centralize decision-making in the cabinet, and the new National Strategy Bureau will be tasked with reforming what the Democrats say is a cumbersome policy-making system that relied heavily on recommendations from bureaucrats.

That means Fujii could have somewhat less influence over the budget process than past finance ministers.

Fujii, a former finance bureaucrat, has backed the Bank of Japan’s ultra-loose monetary policy.

Slideshow (2 Images)

But some analysts fear he may try to wean Japan too quickly off its reliance on exports for growth and allow the yen to rise since the Democrats have pledged to try to shift Japan to a model of domestic-led growth.

“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,” said Kyohei Morita, chief economist at Barclays Capital.

Additional reporting by Yoko Kubota; Writing by Linda Sieg; Editing by Bill Tarrant

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