Japan finmin’s health woes keep markets guessing

Japanese Finance Minister Hirohisa Fujii left financial markets guessing on Tuesday on whether he will remain in the post, saying he was still waiting for test results after being hospitalised last week suffering from exhaustion.

The 77-year-old fiscal veteran said the medical results may be available shortly, and a decision on whether he should stay on should be made before parliament convenes later this month.

Fujii’s health problems have added to the challenges that are piling up for the novice Democratic Party-led government as it wrestles with deflation, a fragile economy and huge public debt. Fujii is an advocate of fiscal discipline and one of the few experienced members of cabinet.

“The market had a sense of trust in the government because of Fujii’s leadership in compiling the budget,” said Toshihiko Sakai, manager of foreign exchange trading at Mitsubishi UFJ Trust Bank.

“The budget is already put in shape, but a lack of Fujii’s leadership could mean political instability in the future and is therefore negative for Japanese government bonds.”

Fujii, who has high blood pressure, said last week he was worn out by wrangling about how to finalise the budget. He has been in the post for a little over three months.

“I don’t know what the results of the medical tests will be. But they should be available soon,” Fujii told a news conference, adding he would respect the advice of his doctors.

Often serving as the voice of fiscal restraint, Fujii was the main proponent of sticking to a cap of around 44 trillion yen on new bond issuance in the budget for the year starting in April as the government looks to contain a mountain of debt.

Even if he stays in the post, health problems may cast doubt on whether Fujii is fit enough for the job that includes frequent overseas trips and attending hours of debate in parliament.

Local media have reported parliament will convene on January 18.

“The concern in the market is whether there will be a delay in parliament deliberations on the budget,” said Akitsugu Bandou, senior economist at Okasan Securities.

“It’s better if a decision on whether he stays is made before parliament convenes. But it’s also unclear whether there will be a smooth transition if a new person were to take over the job.”

After three months in office, support for the Democratic Party-led government has slipped below 50 percent as doubts grow about Prime Minister Yukio Hatoyama’s leadership, adding to his headaches ahead of an upper house election in mid-2010.

 The government fears the economy could slide back into a recession this year as falling wages and persistent deflation dampen consumers’ appetite to spend.

Hatoyama’s novice government needs to balance a need for economic stimulus with a need for fiscal prudence due to Japan’s ballooning public debt, which is approaching 200 percent of GDP.

“If Fujii were to step down, markets are likely to start worrying that his successor would call for expansive fiscal spending to achieve the government’s growth target,” said Seiji Adachi, senior economist at Deutsche Securities.

“Even if Fujii stays on, he may not be able to push for fiscal discipline further given his health problems.”

Japan approved on December 25 a record 92.3 trillion yen budget for 2010/11 that will inflate the country’s already huge public debt.

The 2-year/20-year government bond yield spread hit the highest in a decade early in December, when the new government was struggling to rein in spending.

Japanese markets showed little reaction on Tuesday to Fujii’s lastest comments, focusing instead on the prospects for a sustained global economic recovery.


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