TOKYO (MNI) – On the policy front, new Prime Minister Naoto Kan is
known for his fiscal conservatism.

He has called for a tax hike to allow the government to secure a
stable funding source for additional public spending on job creation,
which would help Japan move out of stubborn deflation.

Out-going premier Hatoyama had repeatedly said he would not raise
taxes for four years from August 2009 — the mandate voters gave the DPJ
last year for the maximum term of the current lower house members of
parliament.

Meanwhile, Kan on Friday blamed “a mistake” in Japan’s past
economic and social policy for two decades of stagnation that is
reflected in the high rate of suicides — three million people every
year — and high unemployment among the youth.

“I believe that we can implement a combination of a strong economy,
a strong fiscal position and strong social security,” he stressed.

As finance minister since January this year, Kan was also careful
in coordinating policy between the government and the central bank. On
numerous occasions he has called on the Bank of Japan in general terms
to continue fighting deflation, but has left the specifics on how to do
so up to the BOJ policy board.

Without making any specific policy request, Kan has repeated he
would prefer to see Japan’s annual inflation rate a little higher than
the BOJ’s loose guidance that in the long term the year-on-year change
in consumer prices should settle somewhere above zero and below 2%.

His tenure as finance chief has been good news for Japanese
exporters, whose recovering profitability has hinged on the yen’s
exchange rates against the dollar and euro.

Unlike his predecessor, Kan has warned pointedly that a sharp
appreciation of the yen would be undesirable for Japan’s economy.

Before stepping down as finance minister for health reasons in
January, Hirohisa Fujii, 76, had made comments that were interpreted to
suggest that he was calling for a stronger yen. He denied it but did say
it was wrong to look at only the advantages of a weaker yen.

Fujii had said that under the Hatoyama administration, economic
policies would be reversed to “reallocate fiscal resources” to boost
domestic demand more than had occurred in previous governments. Those
administrations sought for decades to underpin Japanese exports as the
main driver of growth, he argued.

Kan joined politics in 1974, when he managed an election campaign
for women’s rights activist Fusae Ichikawa. He lost his parliamentary
election bids the first three times he tried but won a Lower House seat
in 1980 as a member of Socialist Democratic Federation. He’s been
re-elected nine times since then while being affiliated with different
political parties.

This political lineage is in sharp contrast to his predecessor,
whose grandfather Ichiro Hatoyama was prime minister from 1954 to 1956
and the first leader of the Liberal Democratic Party, which is now the
main opposition party.

Last year Yukio Hatoyama came under fire for saying he was unaware
of the fact that his wealthy mother donated a large amount of money to
his office. A former secretary to Hatoyama was indicted for falsely
reporting this and other political donations.

Kan gained national fame in 1996, when as health minister he
ordered ministry officials to find missing internal documents that, once
found, unveiled the government’s inaction in preventing tainted blood
from spreading through the medical system.

At the time Kan belonged to a small political party called Sakigake
(meaning harbinger) that was part of the ruling coalition with the
Liberal Democratic Party, which ruled Japan continuously — either
singlehandedly or with a coalition partner — from 1955 until last
summer, except for a brief period from August 1993 to June 1994.

In 1996, Kan, together with Hatoyama and other lawmakers, launched
what would become the current Democratic Party of Japan and served as
co-leader with Hatoyama. Kan then became the first DPJ president in
1998.

In 2002, Kan became the leader of the DPJ for the second time and
oversaw the 2003 merger with a smaller center-right party led by Ozawa,
who has his origin as a conservative LDP politician favoring
behind-the-scenes politics. Ozawa was behind the grand coalition that
ousted the LDP from power in August 1993.

msato@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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