Japanese market fears as poor health forces fiscal champion to step down

JAPAN'S 77-year-old finance minister is set to quit due to poor health, after weeks of exhausting wrangling over the budget.

The departure of Hirohisa Fujii will be a fresh blow to prime minister Yukio Hatoyama, as he struggles with a frail economy and huge public debt.

Mr Hatoyama has said he wants his finance minister to stay on, and if he does go, it could put the fiscal restraint championed by the veteran politician at risk.

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"I want him to keep doing his best," Mr Hatoyama said after broadcaster NTV said Mr Fujii – who has high blood pressure – had told the prime minister he was worried he could not cope with long days of questioning in parliament, due to convene later this month.

Kyodo news agency, quoting an unidentified DJP politician, said Mr Fujii was set to step down. Nikkei news agency, also citing a ruling party MP, said the government had decided to accept Mr Fujii's resignation.

Mr Hatoyama took office in September after his Democratic Party (DPJ) overturned almost five decades of unbroken rule by the Liberal Democrats, but his popular support has sagged in recent weeks due to his growing reputation as an indecisive leader.

Finding a successor for Mr Fujii from within the inexperienced ranks of his party will be another test for Mr Hatoyama ahead of a mid-year upper house election that will weaken the DPJ's ability to pass legislation if it loses.

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

Often serving as the voice of fiscal restraint, Mr Fujii was the main proponent of sticking to a cap of about 44 trillion yen (300 billion) on new bond issuance for the year starting in April, as the government looks to contain a mountain of debt.

Were Mr Fujii to stand down after just over three months in the job, Mr Hatoyama would struggle to find a politician with both Mr Fujii's expertise in budgetary matters and the political clout needed to resist pressure to spend more on economic stimulus projects, which would inflate the already huge public debt.

"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," Seiji Adachi, a senior economist at Deutsche Securities, said.

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

Mr Fujii's two deputies, Yoshihiko Noda and Naoki Minezaki, are possibilities to replace him, as are other cabinet members such as Naoto Kan, the national strategy minister, and Yoshito Sengoku, who is in charge of cutting waste from the national budget.

Even if he stays in the post, health problems may cast doubt on whether Mr Fujii is fit enough for a job that requires overseeing the world's second-largest economy, making frequent overseas trips and attending several hours of debate in parliament.

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