TOKYO, Sept 22 - Rejecting pleas from his party's old guard, Japanese Prime Minister Junichiro Koizumi kept pro-reform minister Heizo Takenaka in his key economics and banking posts in a cabinet shake-up on Monday, signalling he would stick to his reform agenda ahead of an expected November election. The fate of Takenaka, an architect of strict banking reforms that are anathema to many ruling party barons, had been the main focus of the cabinet reshuffle.
The shake-up followed the popular prime minister's landslide victory in Saturday's election for president of the ruling Liberal Democratic Party (LDP), which allowed him to stay on as premier. "We are just seeing the sprouts of structural reform and my duty is to grow that into a big tree from the economic standpoint," Takenaka told a news conference. The floppy-haired academic's banking policies have been blamed by critics for hurting the small firms that form the backbone of the economy and the LDP's traditional support, but welcomed by others for prodding banks to clean up bad loans. Koizumi tapped Sadakazu Tanigaki, formerly head of a state-backed corporate rescue body as well as public safety minister, to succeed outgoing octogenarian Finance Minister Masajuro Shiokawa, who stepped down due to ill health. "This is a quite positive message from Koizumi that the second term will see more reform-oriented policies," said Masaaki Kanno, chief economist at JP Morgan in Tokyo. "This is a strong sign that Koizumi is determined to go ahead with reform."
YEN'S SURGE, REFORM PROGRESS
Tanigaki, who has served as vice finance minister, will have to cope with a sudden surge in the yen, which hit its highest level against the dollar in almost three years on Monday, threatening Japan's emerging, export-led recovery. The yen went as high as 111.37 to the dollar on speculation that pressure from trade partners would force Tokyo to stop trying to hold down the yen's value. Koizumi took a hefty 399 of 657 votes up for grabs in Saturday's party poll, defeating three rivals critical of his tight fiscal stance. He has been criticised for being both too slow and too hasty on reform, and some analysts said Takenaka's reappointment meant little would change.
"We'll see gradual progress on reforms, so in that sense it's good. Whether we will see anything terribly radical remains to be seen and I remain somewhat doubtful," said Peter Morgan, chief economist at HSBC Securities. The Tokyo stock market's main barometer, the Nikkei average, slumped on the rise in the yen and media reports Takenaka would lose his banking post. It clawed back some ground on the news that he would keep both jobs but still ended down 4.24 percent. In a surprise move, Koizumi also retained Yoriko Kawaguchi as foreign minister despite pressure from LDP heavyweights to remove the former trade bureaucrat because she lacked political clout.
ELECTION FEVER
Political analysts were impressed with Koizumi's astute footwork in drafting a line-up that would appeal to the same voters who have kept his popularity at well above 50 percent. "He can definitely sell this as not having given in to anyone, because even if he did, it's not obvious," said Chuo University political science professor Steven Reed. "He really knows what he's doing." Former LDP policy chief Taro Aso was tapped as post and telecommunications minister, which means he will oversee Koizumi's plan to privatise the postal system -- another policy opposed by many inside the LDP. Shoichi Nakagawa, a 53-year-old former agriculture minister, was appointed minister of economics, trade and industry. He will have to contend with a tough global trade environment after liberalisation talks broke down in Cancun, Mexico, this month due to a split between rich and poor countries. Many LDP lawmakers and members from traditional support groups such as farmers, construction companies and small businesses dislike Koizumi's reform policies. But they opted for the popular premier as the best bet to lead the party into an election against a re-energised main opposition Democratic Party. In a sign electioneering was on his mind, Koizumi had already surprised media on Sunday by appointing popular Deputy Chief Cabinet Secretary Shinzo Abe, 49, to the pivotal post of LDP secretary general, the party's de facto campaign manager.//