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Fiscal reform a priority for Japan’s likely next finance minister Noda

City A.M. Reporter
YOSHIHIKO Noda, the front-runner to be Japan’s next finance minister, announced yesterday that he wanted to set a path for fiscal reform to bring the country’s debt under control.

With an upper house election expected in July, Naoto Kan and his new finance minister will be under market scrutiny over how serious they are about reining in public debt, now around twice the size of the economy.

The prime minister-elect Kan is a fiscal conservative and is perceived to be a challenger to the status quo. But financial markets do not expect any major shift in economic policy as Kan hands over the finance ministry baton.

Some analysts have suggested that the looming election could also keep Kan from promising bold reforms due to opposition from many within his party to any talk of tax hikes or big spending cuts.

But markets hope that under Kan, who is seen as having a better grip on economic affairs than Hatoyama, the government will get more serious about taking bolder steps to rein in public debt. Its first task will be to come up with a long-term fiscal reform plan by June, as scheduled.

Credit rating agencies have already threatened to cut Japan’s sovereign debt rating unless it comes up with a credible plan to rein in its public debt, which is the biggest among major industrial nations.

“Kan will probably seek balanced fiscal reform, one that doesn’t end up hurting the economy. He understands the lessons Japan learned in the past, when the drive for fiscal discipline came at a bad time and pushed the economy in a deep downturn,” said Naoki Iizuka, senior economist at Mizuho Securities.