World News

Japan PM rejigs cabinet and juggles yen

TOKYO (Reuters) - Japanese Prime Minister Naoto Kan kept allies in key posts in a cabinet reshuffle on Friday, signalling he plans to press ahead with efforts to curb a huge public debt as he struggles with a strong yen and weak economy.

Japan's Prime Minister Naoto Kan leaves a news conference after winning the Democratic Party of Japan party leadership vote in Tokyo September 14, 2010. REUTERS/Kim Kyung-Hoon

He also appointed a new foreign minister, conservative security expert Seiji Maehara, who faces tense ties with China over a territorial dispute and strains with ally the United States over a U.S. airbase.

A proponent of close U.S. ties, Maehara expressed concern over Beijing’s military build-up at his first news conference as foreign minister, underscoring Tokyo’s growing wariness about its giant neighbour’s intentions.

“I want China to fulfil its responsibility to explain” its military spending, he said. But Maehara also noted that China’s dynamic economy was vital for Japan’s own growth and said he wanted to work to create a “win-win” relationship.

Kan kept Finance Minister Yoshihiko Noda, who earlier this week oversaw Japan’s first intervention in the currency markets in more than six years to stem a rise in the yen and protect the export-reliant economy.

“We have conducted intervention against the strong yen for the first time in six-and-a-half years, and this has had a certain effect,” Kan told a news conference. “There is no change in our stance of taking decisive steps against undesirable currency moves.”

Noda said earlier that Japan was ready to intervene again if needed but added it must work to gain global understanding about its actions, which have sparked criticism from foreign policymakers and raised worries about competitive devaluations.

“I’m aware that there are various opinions. But Japan’s stance is that a prolonged yen rise is undesirable as the economy remains in a severe situation with ongoing deflation,” he told reporters ahead of his reappointment.

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The Democratic Party of Japan (DPJ) swept to power a year ago, promising change after more than 50 years of almost non-stop rule by the conservative Liberal Democratic Party but floundered under the indecisive leadership of Kan’s predecessor Yukio Hatoyama, who quit abruptly in June.

Kan, who took office in June as Japan’s fifth prime minister in three years, defeated rival Ichiro Ozawa in a party leadership vote on Tuesday. Ozawa, a scandal-tainted strategist known for shaking things up, favours spending to stimulate the economy if needed, even if that means increasing public debt.

Kan must now try to unify his fractured party, where nearly half of the lawmakers voted for Ozawa in the leadership poll, while steering through a divided parliament where the opposition controls the upper house and can block bills.

In a nod to party unity, Kan picked Ozawa backer Banri Kaieda as economics minister and Hatoyama ally Akihiro Ohata as trade minister. Some analysts, however, doubted Kaieda would be able to exercise much influence on fiscal policy.

Ozawa declined an offer of a largely symbolic party post, and his backers were likely unhappy with their poor showing in the cabinet rejig. Analysts said the wily strategist would likely stay in the shadows for now, but could re-emerge if opposition parties stall Kan’s legislative agenda in parliament.

Kan ally Koichiro Gemba became the new national strategy minister while keeping his post as the party’s policy chief.

Former Foreign Minister Katsuya Okada, an Ozawa critic with a Mr. Clean image, was drafted as DPJ secretary-general and will play a key role in talks with opposition parties.

Concerns over the government’s performance were underscored by a Reuters poll of Japanese retail investor sentiment which showed that 52 percent of respondents felt the political situation had worsened since the DPJ took office.

Kan has pledged to cap new bond issuance for the fiscal year from next April at this year’s level around 44 trillion yen (£327.8 billion).

He also has said he would revise spending pledges made when his party swept to power if funds fall short, and wants to debate a rise in the 5 percent sales tax to fix state finances.

But Kan is expected to struggle to cap spending given the rising social security costs of Japan’s fast-ageing society.

Acknowledging that opposition cooperation was needed to pass bills, Kan said he wanted to discuss a possible extra budget for this fiscal year to March 31 with opposition parties and, if possible, create a multiparty forum on the social security system and how to fund it. But he stopped short of any specifics.

($1=85.81 Yen)

Additional reporting by Kiyoshi Takenaka and Yoko Nishikawa; Writing by Linda Sieg; Editing by Jonathan Thatcher and Nathan Layne