Ibuki Becomes Japan's Finance Minister; Yosano Replaces Ota

By Lily Nonomiya and Jason Clenfield

Aug. 1 (Bloomberg) -- Bunmei Ibuki was named Japan's finance minister as Prime Minister Yasuo Fukuda turns to a former finance ministry official to help stave off a recession and reduce the world's biggest public debt.

Ibuki, 70, replaces Fukushiro Nukaga amid concern that he failed to rein in spending enough to balance the budget by 2011. Kaoru Yosano, 69, was chosen as economic and fiscal policy minister, replacing Hiroko Ota and returning to the post he held under Junichiro Koizumi from 2005 to 2006.

Fukuda probably chose Ibuki, the Liberal Democratic Party's No. 2 official, as a way to shore up support from within the party. Yosano's appointment, meanwhile, may signal that he's serious about cutting the debt and nurturing a recovery in the world's second-largest economy, said economist Masamichi Adachi.

``The message behind Yosano's appointment is that Fukuda is not giving up on fiscal consolidation,'' said Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. ``Ibuki isn't a big- picture guy, he's just a powerful politician.''

Hosting last month's Group of Eight summit failed to revive Fukuda's support in the polls, prompting the Cabinet reshuffle. His public approval rating has fallen by half since he took office in September, punctured by a feisty opposition that controls the less-powerful upper house of parliament, and criticism within his own party that he lacks a vision for Japan.

Ibuki was education minister under previous Prime Minister Shinzo Abe, and until today served as the LDP's secretary general. He worked in the Finance Ministry's budget bureau after graduating with a degree in economics from Kyoto University.

First Since Miyazawa

He's the first former Finance Ministry official to serve as finance minister since Kiichi Miyazawa ended his last stint in the job in 2001. The father of two also worked at the Japanese embassy in London for four years.

Yosano is head of the LDP's fiscal policy panel, charged with finding ways to cut debt that the Organization for Economic Cooperation and Development estimates at 182 percent of gross domestic product. He favors raising taxes and cutting spending to balance the budget.

Doubling the 5 percent consumption tax by 2015 would help Japan care for one of the world's most rapidly aging societies, Yosano said in a May interview. ``We may not be able to continue our good welfare system after a couple of years,'' he said.

Decisions on taxes may become more pressing as slowing growth causes revenue to decline. Still, even with Yosano in the Cabinet, Fukuda's declining popularity and the prospect of a general election within the next 12 months means any debate on the sales tax may be delayed.

Not Realistic

``I don't think it's realistic to expect the government to seriously discuss raising taxes right before the election,'' said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo. ``That's not the message Fukuda wants to send.''

The last prime minister to raise the sales tax, Ryutaro Hashimoto, had to resign after the 1997 increase led the LDP to an election defeat.

The government will probably miss its goal of balancing the books by the year ending March 2012, according to a Cabinet Office report last month. The Finance Ministry this week increased its cap on general spending for next fiscal year by 1.1 percent to 47.8 trillion yen ($444 billion).

Yosano and Ibuki will inherit an economy that may already be in a recession. Exports, production, household spending and wages all declined in June. Morgan Stanley yesterday cut Japan's 2009 growth estimate to 0.2 percent and said a ``deepening recession'' was possible.

The new ministers probably won't try to influence decisions by the Bank of Japan, economists said. Though the central bank is independent, some officials in the past have urged the policy board to keep interest rates low to spur growth.

``The Bank of Japan doesn't have to worry about political pressure with this Cabinet reshuffle,'' said Shiraishi at HSBC.

The bank has ``normalized'' rates without hurting financial markets and should keep doing so without interference from politicians, Yosano said in an interview in October. He said last month that raising the benchmark rate from the current 0.5 percent would reward Japan's savers.

To contact the reporters on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net; Jason Clenfield in Tokyo at jclenfield@bloomberg.net.