Kan will replace Fujii as Japan’s new finance minister

Author: Tobias Harris, MIT

As expected, Fujii Hirohisa announced his resignation as finance minister on Wednesday. Hatoyama Yukio wasted no time naming his replacement: Kan Naoto will shift over to the finance ministry, and Sengoku Yoshito will take over for Kan as head of the national strategy bureau while continuing to run the government revitalization unit.

Kan’s appointment was to a certain extent obvious. Having been deeply involved in the budgetary process, he is better able than most to defend the budget in Diet debates in the months to come. While Sankei — who else? — sees this move as the latest battle in the struggle between Hatoyama and Ozawa Ichiro for power, moving Kan to the finance ministry will not hurt Hatoyama politically.

Kan is a Hatoyama stalwart, has an independent following among the party’s backbenchers, and is one of the few DPJ members with previous ministerial experience. As I suggested yesterday, it does raise questions about the future of the new cabinet organizations created by the Hatoyama government, both of which are now headed by Sengoku, but the role to be played by these bodies was already uncertain, and, as Michael Cucek suggests, might make their work more coherent. As finance minister, Kan may be more of a deputy prime minister than he was when he was actually deputy prime minister. He will be more visible as finance minister, having more opportunities to present the government’s policies, and, if Ozawa is in fact wielding undue influence, Kan is in a better position to push back.

That is, unless Kan is occupied fighting the finance ministry’s bureaucrats. While Fujii was one of their own number, Kan is very much not. After all, Kan made his name during the mid-1990s when as minister of health he fought his own ministry’s bureaucrats over their response to an AIDS-tainted blood scandal. His early involvement — when he was at the peak of his popularity — in the political party being formed by the Hatoyama brothers gave the DPJ a boost during its first years. But by the same token, Kan has not made many friends in Kasumigaseki. While during the campaign he backed away from overheated anti-bureaucrat rhetoric, he remains on uneasy terms with the bureaucracy, including the finance ministry’s officials. Back in October, Kan gave a speech in which he referred to bureaucrats as oobaka/ (大ばか), which translates literally as great fools but also has some more colorful translations, for mindlessly squandering public money.

It’s possible that Kan’s relationship with the ministry will be more antagonistic than Fujii’s, but, on the other hand, given that the partnership between the Hatoyama government and the finance ministry is a matter of convenience for both sides — and that the ministry was shifting the DPJ’s direction even before Fujii was tapped as finance minister — Kan may be able to maintain the relationship Fujii forged. And if Kan lasts in the job, he will be in a position to introduce lasting changes to the budgeting process, as discussed here.

Meanwhile, it bears asking whether Kan’s appointment will have any consequences for the government’s economic policies. We got a glimpse at Kan’s thinking recently when he debated Takenaka Heizo, Koizumi Junichiro’s reform czar, at a meeting of the committee responsible for drafting the government’s latest economic strategy. Takenaka advanced his supply-side structural reformism: deregulation, privatization, and tax reform to encourage more investment by the private sector. Kan answered by defending the DPJ’s focus on the demand side, stimulating more consumer spending. At the same time, Kan is adamant about cutting wasteful spending. Given Kan’s role in drafting the government’s economic strategy, his appointment will not make much difference in the outline of fiscal policy over the medium term.

But on other policy areas, Kan’s views are less clear. He has stated that it is too soon to debate tax reform, including a consumption tax increase. It is unknown how far he will let the yen’s value rise, although in a speech in November, Kan fingered the high yen as a cause of Japan’s stagnant growth and said that the government would watch market developments carefully.

In short, the transition from Fujii to Kan will matter more in terms of its political ramifications for the Hatoyama government than for economic policy. Kan was already playing an important role in economic policy. Moving him to the finance ministry gives him more formal power as an economic policymaker.

Finally, it is worth noting just how unusual it is that Kan is now finance minister. Thirty years ago, Kan was first elected to the Diet as a candidate from Eda Saburo’s Social Democratic Federation, which split off from the Socialist Party. Today he is the head of the ministry that is the very heart of the Japanese establishment. While it is common to point to DPJ politicians like Hatoyama and Ozawa and conclude that the DPJ is a pale imitation of the LDP, Kan’s career shows that the DPJ’s victory has brought new politicians, with different backgrounds and different concerns from LDP politicians, to the fore.

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