Japan’s New Finance Minister

While Japan continues to linger in economic trouble with little hope for imminent recovery, Prime Minister Yukio Hatoyama forced his 77 year-old finance minister Hirohisa Fujii to resign last week and had him replaced with Naoto Kan, a former civic campaigner against government corruption with virtually no experience in economics.

Behind the screens Ichirō Ozawa, secretary general of the Democratic Party of Japan, is manoeuvring the government to abandon some of its campaign promises, a pledge to cut petrol taxes for one thing. That Ozawa is nowadays refered to as “shadow shogun” is telling of the influence he exercises over Hatoyama’s cabinet. The party elder reportedly clashed with former finance chief Fujii who advocated limiting fiscal spending in order to reduce Japan’s gargantuan public debt. Kan apparently favors a more “flexible” approach to solving Japan’s budgetary woes — much to Ozawa’s liking

The appointment of Kan is not only a sign of Ozawa’s seniority however. With his record of fighting red tape, the new finance minister is also likely to be instrumental in this government’s effort to shift power away from career bureaucrats and into the hands of elected officials. Moreover, Kan was a prominent social activist before entering politics and previously served as health minister. As deputy prime minister, he was already tasked with developing a long-term strategy for dealing with Japan’s mounting public debt and in his new job, he is all the more able to turn his plans into a reality.

The Japanese Finance Ministry enjoys a reputation of being something of an impregnable bureaucratic fortress and reforming it to be more answerable to parliament will be quite a challenge for Kan. It successfully resisted past efforts to curtail its budget-making authority although in the late 1990s, the ministry did lose its power to regulate the financial sector to the Bank of Japan.

On taking office, Kan declared that the ministry “will now become a model of how to change Kasumigaseki,” Tokyo’s financial district. He left little room for doubt about his intentions, threatening to replace uncooperative officials and vowing to improve public oversight of the “special accounts,” the vast pools of capital of pension funds and the like that the government has controlled with little disclosure. How his more “flexible” approach to fighting the deficit will work out remains to be seen.