Japanese prime minister Naoto Kan kept political allies in key posts in a cabinet reshuffle today, signaling he plans to try to press ahead with efforts to curb the country's huge debt.
In a sign that worries about Japan's fragile economic recovery could complicate those efforts, Mr Kan was to instruct his new cabinet to compile an extra budget for the current fiscal year to March 31st, Kyodo news agency reported.
But funds for the fresh steps would be found without issuing more government bonds, Kyodo said.
Mr Kan retained finance minister Yoshihiko Noda, who earlier this week oversaw Japan's first intervention in the currency markets in six years to stem a rise in the yen and protect the export-reliant economy.
Mr Noda reiterated today that Tokyo was ready to intervene again if needed.
Mr Kan, who took office in June as Japan's fifth prime minister in three years, defeated rival Ichiro Ozawa in a party leadership vote on Tuesday. Mr Ozawa, a scandal-tainted strategist known for shaking things up, favours spending to stimulate the economy if needed, even if that means increasing public debt.
But Mr Kan must now try to unify his fractured party, where nearly half of the lawmakers voted for Mr Ozawa in the leadership election, as he strives to curb the yen's rise and escape deflation despite a huge public debt.
The Democratic Party of Japan (DPJ) swept to power a year ago promising change after more than 50 years of almost non-stop rule by the conservative Liberal Democratic Party (LDP), but floundered under the indecisive leadership of Mr Kan's predecessor Yukio Hatoyama, who quit in June after his ratings nosedived.
In a nod to the need for party unity, Mr Kan appointed Ozawa backer Banri Kaieda as economics minister and a Hatoyama ally as trade minister.
Some analysts said, however, that Mr Kaieda lacked the clout to exercise much influence on fiscal policy as Japan tries to rein in public debt already twice the size of its $5 trillion economy.
Japanese media said Mr Kan had sounded out Mr Ozawa about taking a mostly symbolic senior post in the ruling Democratic Party of Japan (DPJ), but that Mr Ozawa had declined.
Kan ally Koichiro Gemba becomes the new national strategy minister while keeping his post as party's policy chief job.
Mr Kan has pledged to cap new bond issuance for the fiscal year from next April at this year's level of around 44 trillion yen (€390 billion) and said he would revise spending pledges made when his party swept to power last year if funds fall short. He also wants to debate a rise in the 5 per cent sales tax to fix Japan's tattered finances.
But Mr Kan has also said he would consider an extra budget for this fiscal year if the economy stumbles, and is expected to struggle to cap spending given the rising social security costs of Japan's fast-aging society.
Mr Kan will also be appointing a new foreign minister at a time of tensions with China over a territorial spat and potential friction with the United States over a US military base in southern Japan.
Seiji Maehara, who now serves as transport minister and is known as a proponent of strong ties with security ally Washington, will take over as foreign minister from Katsuya Okada.
Mr Okada, a policy maven with a Mr Clean image who has been critical of Mr Ozawa, takes over as secretary-general, as the government struggles with a divided parliament where the opposition can block bills.
Reuters