Japan reshuffle targets economy

Mr Koizumi worries about the slow pace of reform

Japanese Prime Minister Junichiro Koizumi has appointed a new, reformist finance minister as part of a sweeping cabinet reshuffle.

Sadakazu Tanigaki, previously minister for public security, takes over from the 81-year-old Masajuro Shiokawa, who is stepping down because of illness.

Combined with the reappointment of Heizo Takenaka, the minister for economic policy and financial services and one of Japan's most prominent liberals, the move is seen as an attempt to accelerate economic reform.

Mr Koizumi's government needs to create jobs, bolster battered banks and regain the trust of the international investment community.

KEY APPOINTMENTS Sadakazu Tanigaki, 58: Newly appointed finance minister Heizo Takenaka, 52: Reappointed as minister for economic and fiscal policy Yoriko Kawaguchi, 62: Retained as foreign minister Shoichi Nakagawa, 50: Newly appointed trade minister Taro Aso, 63: Newly appointed minister for public mananagement and home affairs

Mr Koizumi was re-elected as leader of the ruling LDP at the weekend, a victory that triggered the reshuffle. He is now likely to call a general election, as early as November.

But financial markets, which have long been sceptical of the political will to tackle tricky reforms, were unimpressed by the reshuffle, which left almost all other cabinet members unchanged.

"Overall it's more of the same, which is not particularly good because it implies inaction," said Richard Jerram of ING Securities.

The Nikkei share index was down 3.9% after the reshuffle announcement, but the fall reflected events over the weekend and concerns over Japan's exchange rate, analysts said.

Pros and cons

Under Japan's current cabinet structure, Mr Takenaka has more economic influence than the finance minister, who is largely restricted to policing the currency, the yen.

Mr Takenaka was brought in in 2001 to co-ordinate economic reform, and his breezy, vigorous style was initially seen as a welcome change from the traditionally cautious pace of Japanese politics.

The Nikkei share index closes down 4.2%, despite cautious optimism over the reshuffle Why a soaring yen has battered Japanese shares

There had been persistent rumours that Mr Takenaka was to be relieved of one of his two ministerial portfolios in the reshuffle, owing to dissatisfaction at his abrupt methods.

But there are wider concerns that Mr Takenaka has achieved little, and that the focus of his reforms - on structural elements such as the health of the banking sector - is misplaced.

Many economists now argue that Japan could kick-start growth more efficiently by making the yen cheaper and boosting exports - something within the province of the finance ministry.

Mr Tanigaki said he would not change the country's foreign exchange policy, adding only that currencies should be stable and reflect economic fundamentals.

Political boost

The reshuffle comes at a time when the Japanese economy seems to recovering almost of its own accord.

Growth is exceeding even government forecasts, powered by an unexpected surge in exports, and there are even signs that unemployment may be starting to ease.

Any economic bounce will be good news for Mr Koizumi, who has faced mounting opposition - not least from within his Liberal Democratic Party (LDP).

Some in the LDP's old guard - to which the outgoing finance minister belonged - had demanded Mr Takenaka's replacement.