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A Fiscal Expert Takes Reins in Japan

Author: Sheila A. Smith, Senior Fellow for Japan Studies
August 29, 2011

A Fiscal Expert Takes Reins in Japan - a-fiscal-expert-takes-reins-in-japan

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Monday's election of Yoshihiko Noda as the new president of the Democratic Party of Japan to replace outgoing Japanese Prime Minister Naoto Kan looks to continue what now seems an annual transition in Japanese leadership.

Due to be voted into office by parliament Tuesday, the fifty-four-year-old Noda is a moderate voice in the DPJ. He has a steady temperament and a reputation for fairness in a party where loyalties have been severely tested of late.

Monday's vote reveals that divisions remain within the DPJ, which took power in 2009. The split in the party centers on those who support the controversial former secretary-general of the party, Ichiro Ozawa, and those who do not. Five candidates entered the race on Saturday, but no one won a majority in the first round. The Ozawa group's candidate, Banri Kaieda, minister of Economy, Trade, and Industry, came out in the lead, but without a majority. In the runoff, Noda defeated Kaieda 215 to 177. With a large segment of the party still firmly committed to Ozawa's group, Noda will need to resolve these differences as he forms a new cabinet.

Like Kan before him, Noda moves to the prime minister's office from the Ministry of Finance, where he managed the yen's rise in increasingly uncertain global financial markets. He has developed strong ties with the G8 finance ministers since assuming the post last year, and has worked closely with the Obama administration to settle the yen in the wake of the March 11 disasters.

As prime minister, Noda will have a full agenda. Post-tsunami reconstruction in northeastern Japan, including the management of the Fukushima Daiichi nuclear plant, remains at the top of the nation's list of concerns. Moreover, the question of how Japan will ride out the expected pressures on its energy supply over the next year and the longer-term energy policy review will also be a challenge.

Yet it is the area where Noda is most experienced--fiscal matters--that could prove to be Japan's greatest challenge. Significantly, he was the only candidate in Monday's race to support an increase in Japan's consumption tax. A similar position last year cost the DPJ dearly in the Upper House election, and remains a sore point within the party. In his speech to fellow DPJ members, Noda also said Japan must get its fiscal house in order if it is to play a strong role in global affairs. Noda is pro-trade and a strong advocate of expanding Japan's trade relations with its neighbors and of exploring the Trans-Pacific Partnership favored by the United States.

But diplomacy is not likely to be at the top of his priority list. Noda will need all of his party's support--as well as the support of opposition party legislators--if he is to lead Japan out of the difficulties it currently faces. He is likely to be firmly focused on domestic coalition-building for some time.

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