Last updated: January 14, 2011 4:23 pm

Kan reshuffles cabinet to aid budget plans

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Naoto Kan, Japan’s prime minister, has made a veteran policymaker from the opposition his minister for economic and fiscal policy as part of a cabinet reshuffle intended to smooth passage of the state budget and pave the way for tax reform.

The appointment of Kaoru Yosano, who advocated raising the 5 per cent consumption tax when he was a minister for the former ruling Liberal Democratic party, underscores Mr Kan’s determination to stabilise the parlous state finances.

In his second cabinet reshuffle since becoming leader of the ruling Democratic party less than a year ago, Mr Kan also bowed to opposition pressure to replace his powerful chief cabinet secretary, Yoshito Sengoku, and his transport minister.

However, the prime minister’s call for cross-party co-operation in the Diet session that starts later this month was quickly dismissed by opposition groups, with the former ruling LDP promising instead “severe confrontation” and the smaller Your party vowing to “fight the government head-on”.

While the DPJ enjoys a hefty majority in the Diet’s lower house, slumping public support for Mr Kan’s government has encouraged opposition groups, which control the less powerful upper chamber, to threaten legislative gridlock in the hope of forcing an early general election.

However, the prime minister made clear he was determined to push ahead with plans for cross-party discussion on how to fund the heavily indebted state’s fast-growing social security costs as well as paving the way for agricultural reform and possible entry into a Pacific region trade pact.

Analysts said Mr Yosano's appointment as a key co-ordinator of economic and fiscal policy was an attempt to demonstrate determination to work towards fiscal sustainability while making it harder for the LDP to refuse to join cross-party talks.

“[Mr Kan] is emphasising that he is serious about tax reform and social security reform,” said political scientist Masatoshi Honda.

Mr Kan’s reshuffle, which left most ministers in their positions, won a warm welcome from the Keidanren, Japan’s most influential business lobby, which backs a consumption tax rise as part of efforts to narrow the yawning deficit.

Japan’s new bond issuance is set to outstrip tax revenues for the third year in a row in fiscal 2011, while gross state debt is expected to soar above 200 per cent of gross domestic product.

However, the choice of Mr Yosano, who quit the LDP last year and left a small splinter group to join the government, upset some ruling party politicians and could create new tensions within the cabinet.

Mr Yosano’s immediate predecessor as fiscal policy minister is Banri Kaieda, a long-time political rival who ousted him from his Diet constituency seat at the 2009 general election and who now becomes minister for economy, trade and industry.

The prime minister has insisted that Mr Yosano’s views match those of the ruling party, but Mr Kaieda noted their past election battles had been based on policy differences.

“Life is absurd,” Mr Kaieda said.

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