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Hatoyama's Credibility Make Be Hurt by Reverse on Finance Minister

By John Brinsley

(Bloomberg) — Japanese Prime Minister Yukio Hatoyama, already damaged by voter anger over abandoned campaign pledges, may face new credibility questions after reversing course on allowing his ailing finance minister to step down.

Hatoyama delayed accepting Hirohisa Fujii's resignation even after the 77-year-old minister indicated he might leave on doctors' advice. The prime minister said on Jan. 5 he wanted Fujii to "do his best" to stay. He named deputy premier Naoto Kan to the post the next day.

The premier's wavering over who will oversee efforts to revive a recession-mired economy and keep the world's largest government debt from further expansion comes amid plummeting popularity. Hatoyama has scaled back campaign pledges to increase spending and cut taxes, and postponed resolving a dispute with the U.S. about where to relocate an American military base in Okinawa.

"Once again Hatoyama appears to be lacking in judgment by taking so long to reach a decision," said Koichi Nakano, a political science professor at Sophia University in Tokyo. "He certainly could have handled the Fujii situation better."

Stocks have fallen since the Democratic Party of Japan's Aug. 30 landslide victory, with the benchmark Nikkei 225 Index down 17 percent. By contrast, the MSCI Asia Pacific Index is up 9.4 percent during the same period.

The approval rating for Hatoyama's cabinet dropped to 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., from 75 percent backing in mid-September. The survey canvassed 1,597 households and gave no margin of error.

Back Taxes

The prime minister's reputation was tarnished after two former aides were charged on Dec. 24 with falsifying his campaign finances. The same day he said he would pay about 600 million yen ($6.5 million) in gift taxes dating back to 2002.

Hatoyama last week said in his New Year's statement that the government's "honeymoon period is over," and that he welcomed "severe criticism" of his policies.

"How can I assess Hatoyama's polices when he hasn't introduced any?" Takeshi Niinami, president of Tokyo-based Lawson Inc., Japan's second-largest convenience store operator, said in a Jan. 5 interview. "The government must come up with more detailed measures, and soon."

Fujii was hospitalized on Dec. 28 for high blood pressure and exhaustion. He was one of the few members of the DPJ, which has never governed, with cabinet experience: He headed the Finance Ministry in 1993. Kan served as health minister in 1996 and won public praise for exposing the ministry's role in allowing as many as 5,000 Japanese to contract HIV through contaminated blood products.

Currency Move

Kan told a press conference yesterday that he would like the yen to fall "a bit more," sending the currency down against the dollar and the euro. It was trading at 93.17 per dollar yesterday from 92.32 the day before. Fujii had said he didn't support a weak yen.

Hatoyama is struggling to reverse the trends of an aging, shrinking population and address 13 years of price declines since 1994. Japan's 5.2 percent unemployment rate is near a record high, and price cuts by companies such as supermarket operator Seiyu Ltd., owned by Bentonville, Arkansas-based Wal-Mart Stores Inc. (WMT), threaten to squeeze profits.

While Hatoyama unveiled a 7.2 trillion yen stimulus package in December, the Bank of Japan's quarterly survey of business sentiment the same month indicated the economy's rebound from its worst postwar recession is faltering. Large companies said they plan on cutting capital spending by 13.8 percent this fiscal year, the second-worst projection on record.

Record Budget

Before Fujii left, he oversaw the formation of a record 92.3 trillion yen budget for the fiscal year starting April 1. He was a strong proponent of keeping government bond issuances at about 44 trillion yen, the same as the current fiscal year, to rein in a public debt approaching 200 percent of gross domestic product.

Fujii "was the veteran safe hand on the economy," said Jeff Kingston, director of Asian Studies at Temple University in Tokyo. "Now he's gone and they don't have a huge depth chart in the finance ministry."

Faced with record spending, the administration has backed off pledges to end abolish gasoline surtaxes and ease the burden on local governments and businesses by paying some child-care costs.

Hatoyama has also vacillated on whether to keep a DPJ pledge to remove the Marine Corps Futenma Air Base on Okinawa, abrogating a 2006 U.S.-Japan agreement. Residents want it moved off the island, while the administration of President Barack Obama is pushing to relocate it elsewhere on Okinawa.

Last month Hatoyama postponed any decision until May. Foreign Minister Katsuya Okada and U.S. Secretary of State Hillary Clinton will meet to discuss the issue in Hawaii on Jan. 12, Philip Crowley, assistant secretary of state for public affairs, said yesterday.

Hatoyama and Kan "must reassure markets that the DPJ is up to the task," Temple University's Kingston said. "Futenma is a bilateral issue, but the finance minister of the world's second-largest economy is of global importance."

To contact the reporter on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net.

Regions : Asia

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