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Friday, Jan. 8, 2010

New finance chief Kan faces fiscal test

Inexperience, temptation to spend worry economists

Staff writer

Deputy Prime Minister Naoto Kan officially replaced Hirohisa Fujii as finance minister Thursday after the veteran financial expert resigned for health reasons.

News photo

Kan's priorities will be to get the 2010 budget passed as quickly as possible and to get a grip on the government's snowballing debt as concerns mount over Japan's fiscal sustainability.

Experts speaking to The Japan Times on Thursday were split over whether Kan will aggressively expand the debt to keep stimulating the economy or maintain the cap on Japanese government bonds as Fujii did to limit government spending.

They also said Kan isn't likely to drastically alter government policies on foreign exchange but might pressure the Bank of Japan to take more financial easing steps to buoy the struggling economy.

Kyohei Morita, chief economist at Barclays Capital Japan, said Kan hasn't had many occasions to express his views on fiscal policy but said he did not know whether Kan shared Fujii's eagerness to stick to the ¥44 trillion bond cap.

Morita also said the government may try to issue more bonds to fund additional economic stimulus measures if the Democratic Party of Japan's public opinion ratings fall in the first half, regardless of who the finance minister is.

"Fujii certainly has more expertise on macroeconomic, finance and international finance issues, such as foreign exchange," Morita said.

Hirokata Kusaba, senior economist at Mizuho Research Institute, said Kan will need to be able to clearly explain his views and get new budgets passed by the Diet.

Kusaba suggested Kan might put priority on spending rather than fiscal discipline if the ruling DPJ thinks it will help it win the Upper House election in July.

Fujii, 77, served as finance minister from 1993 to 1994 and stayed active as a bureaucrat in the Finance Ministry as a budget examiner. His experience gave him a distinct advantage over other lawmakers who might have been vying for the finance portfolio.

Fujii was hospitalized late last month for exhaustion and high blood pressure. He later told Hatoyama he wanted to resign.

Fujii was in charge of compiling the Hatoyama administration's record-high ¥92.3 trillion budget for fiscal 2010. Fujii said it was vital for the government to adhere to its promise of capping JGB sales at around ¥44 trillion and was viewed as a strong proponent of fiscal discipline.

While lacking expertise in economics, finance and foreign exchange, experts say Kan, 63, is an experienced politician who can handle tough questions from opposition lawmakers in the Diet — a skill that will be vital in passing the extra budget for 2009 and the fiscal 2010 budget.

The activist-turned-lawmaker is one of the founders of the DPJ and was appointed to the new position of strategy minister in the Hatoyama administration to lead the newly created National Policy Unit.

He made a name for himself by breaking the scandal over HIV-tainted blood products as health minister and getting the government to accept responsibility for it in 1996.

Kan said Thursday it is desirable for the yen to drop in value a "little bit further," and said he will "cooperate with the Bank of Japan to bring (the yen) to an appropriate level."

Morita of Barclays said Kan may prefer a weaker yen to support exports and to prevent the economy from falling further into the clutches of deflation. He noted, however, the current situation does not particularly require market intervention by governments and the market will not be affected by Kan's appointment.

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The Japan Times

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