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Japan's new finance head faces tough economic road

(Agencies)
Updated: 2009-09-17 16:08

TOKYO: Faced with the daunting task of reinvigorating the world's second-biggest economy, Japan's freshly installed prime minister turned to one of his party's most experienced hands as finance chief.

Delivering change may well depend on veterans like Hirohisa Fujii who know how to work the system.

At 77, Fujii is the new Cabinet's oldest member whose lengthy resume includes a previous stint as finance minister in the early 1990s. Earlier in his career, he spent more than two decades working in the Ministry of Finance.

Fujii takes over at a critical time for Japan's economy, which is struggling to emerge from its deepest recession since World War II. People are anxious amid record unemployment, falling wages and intensifying deflation.

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Although he has a reputation as a fiscal conservative, Fujii said this week that improving the economy will be his top priority even at the expense of Japan's precarious fiscal health. The Organization for Economic Cooperation and Development - a grouping of industrialized nations predicts Japan's public debt, already the highest among member countries, may reach 200 percent of gross domestic product next year.

"Of course, government finances are important, but my principle is that the economy comes before government finances," Fujii said Wednesday, according to Kyodo news agency.

Prime Minister Yukio Hatoyama's Democratic Party of Japan could bring sweeping changes to Japan Inc. by shifting the focus of the government's economic policy to workers and families instead of corporate profits. The party has promised cash handouts to families with children, toll-free highways and income support for farmers. The estimated bill comes to 16.8 trillion yen ($184 billion) when fully implemented starting in the 2013 fiscal year.

Hatoyama must overcome doubts about whether his largely untested government can actually execute. In that regard, Fujii is the logical choice to assuage such fears, analysts said.

His experience adds substance to the neophyte government and as a product of the bureacracy, Fujii could help balance the Democrats' spending ambitions with more fiscally conservative finance ministry officials. His budgetary know-how will likely come in handy as the Democrats search for waste to slash in order to fund their initiatives.

Despite recent comments, economists agree that given his background, Fujii is unlikely to support rampant government spending that would seriously undermine public finances.

"What the Democrats need to show in next budget is how they will earn their money, not just spend," said Martin Schulz, economist at Fujitsu Research Institute in Tokyo. "If they don't, they will lose their trust immediately from the public and Ministry of Finance."

Critics also worry that the Democrats' people-friendly policies could put companies at a disadvantage and derail Japan's long-term growth prospects.

Businesses will likely pay for the Democrats' policies with higher corporate taxes, said Kyohei Morita, chief Japan economist at Barclays Capital.

"For households, this Cabinet is good in the short-term," he said. But "if we want the economy to recover, we need a strong corporate sector."

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