Fujii, Next Japan Finance Chief, to Take On Officials
Hirohisa Fujii, Japan’s next finance chief, will draw on his two decades at the Finance Ministry to try to wrest budgetary control from bureaucrats and fund his party’s promises without swelling the public debt.
Fujii, 77, told reporters in Tokyo that Democratic Party of Japan leader Yukio Hatoyama offered him the post. Hatoyama will announce his Cabinet after parliament approves him as prime minister today.
The DPJ, which unseated the Liberal Democratic Party that held power for all but 10 months since 1955, has pledged to support households battered by two decades of economic stagnation. If confirmed, Fujii’s biggest challenge will be convincing investors he can uphold pledges from providing childcare handouts to abolishing highway tolls without blowing out the largest debt burden in the industrialized world.
“Japan’s fiscal conditions are worsening considerably and there are concerns over what’s going to happen to the nation’s public debt, depending on who will be the new finance minister,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “In that sense, Fujii is a good choice as he gives an impression that he will manage debt properly.”
Fujii said he was also asked to head a government tax panel. Unlike his predecessor, Kaoru Yosano, he won’t hold a second portfolio as minister for banking regulation. Shizuka Kamei, leader of DPJ coalition partner the People’s New Party, said yesterday he accepted an offer to become financial services minister.
Served Before
Fujii was an LDP lawmaker from 1977 until he left the party in 1993 to participate in a coalition that toppled the ruling party. He served as finance minister in that government, which lasted only 10 months, and worked with Treasury officials including current Secretary Timothy Geithner and former head Lawrence Summers during his term.
Before entering politics, Fujii spent 21 years at the Finance Ministry, where he rose to the position of budget examiner. Hatoyama asked Fujii not to retire from politics before the Aug. 30 election, sparking speculation he will take the finance portfolio.
His most immediate issue will be compiling next year’s budget, a process that has been delayed because the DPJ has vowed to take control over the process from bureaucrats to prevent spending it calls wasteful.
Budget Test
“Budget compilation will be the first real test for the DPJ,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “If they can wrest control of the budget from bureaucrats as they have promised, they’ll be able to cut wasteful spending. If not, they’ll need to rely on bond sales.”
The DPJ wants to reduce the bureaucracy’s role in setting policy. Economists say Fujii’s background will help the party come good on that promise without turning the ministry against the government.
“He may be able to control bureaucrats well and probably won’t hurt the market by doing anything extreme,” said Nobuto Yamazaki, executive fund manager at DIAM Asset Management Co. in Tokyo.
Japanese government bonds have remained little changed since the election, with 10-year notes yielding 1.32 percent at 11:53 a.m. in Tokyo from 1.315 percent before the Aug. 30 vote. The yen traded at 90.98 per dollar, close to a seven-month high of 90.21 reached two days ago.
Yen Intervention
Fujii indicated this month that he is opposed to buying or selling the yen to influence currency levels, saying the government should only step into the foreign-exchange market “when speculative funds cause abnormal movements.”
Any currency intervention should be done in concert with other governments, he said in a Sept. 3 interview. Japan hasn’t entered the foreign-exchange market since it sold yen in 2004.
The new ruling party must also deal with record unemployment and deflation that threaten to derail a recovery from the nation’s worst postwar recession. The jobless rate rose to 5.7 percent in July and consumer prices plunged an unprecedented 2.2 percent.
Streamlining spending and finding money for all of Hatoyama’s election promises won’t be easy. The party plans to increase spending on child care and tuition aid, lower gasoline taxes and eliminate highway tolls. To support workers, it promises to provide 100,000 yen ($1,100) a month for job seekers enrolled in training, raise the minimum wage and expand employment insurance.
Won’t Be Easy
Hatoyama wants to do those things while keeping new bond sales within the 44.1 trillion yen, almost a tenth of gross domestic product, allocated for the year ending March 2010. The DPJ plans to tap unused money from outgoing Prime Minister Taro Aso’s 13.9 trillion yen extra budget instead of selling debt.
Fujii said on Sept. 3 that the incoming government may redeploy as much as 5 trillion yen in stimulus spending currently slated for “wasteful” programs, including scrapping plans for a “manga” comic-book museum.
Even if the DPJ is able to pull together enough money this year, the magnitude of its programs will make it hard to compile subsequent budgets, economists say.
The party says it needs to find 7.1 trillion yen to fund its election pledges for the year starting April 1. That number would swell to 16.8 trillion yen by fiscal 2013, according to its campaign manifesto.
Japan’s public debt is already approaching 200 percent of GDP and finances are being squeezing by falling tax receipts. The DPJ has also pledged not to raise the consumption tax from the current 5 percent, limiting its funding options.
“No matter who is finance minister, the party will manage in the first year, but it’s going to be impossible not to increase new bond sales beyond 2011,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Ultimately they’ll be forced to choose between raising the sales tax or seeing public finances collapse.”