TOKYO | Mon Aug 29, 2011 2:23am EDT
TOKYO (Reuters) - Japan's ruling party chose Yoshihiko Noda to be prime minister, the nation's sixth leader in five years.
Noda, 54, who must tackle a long list of economic ills while coping with a nuclear crisis, is finance minister in the administration of outgoing Prime Minister Naoto Kan.
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KEY POINTS
-- Noda, a fiscal hawk, was the preferred candidate of financial markets. He was alone among the five contenders in consistently calling for Japan to face painful reforms to rein in the country's ballooning fiscal deficit.
-- He becomes prime minister by virtue of the ruling Democratic Party's majority in parliament's lower house, which is due to approve his appointment in Tuesday.
-- Noda as finance minister since June 2010 has backed the government's proposal to double the 5 percent sales tax by the middle of the decade to fund bulging social security costs and curb massive public debt, which is double the size of the $5 trillion economy.
COMMENTARY
TAKAYOSHI KITADA, GROUP LEADER, INDUSTRIAL STRATEGY CONSULTING GROUP, MITSUBISHI RESEARCH INSTITUTE
"Noda was a member of the previous cabinet and I don't see any drastic changes in direction for the country's energy policy. I think he shares with (outgoing PM Naoto) Kan a view that Japan should wean itself from nuclear power.
"An immediate issue is when and how Japan will be able to restart idled reactors. I don't think Noda's view on this is far from the government's current position, which is to try to minimize the risk of power supply shortages this winter and into next year."
JEFFREY KINGSTON, DIRECTOR OF ASIAN STUDIES, TEMPLE UNIVERSITY, JAPAN CAMPUS
"I don't think he'll last a whole year, but who knows ... Noda has inherited all the same problems -- a divided parliament, a divided party, a strong yen, a Tohoku (northeastern Japan) desperate for progress on reconstruction and an early end to the nuclear crisis. I think the honeymoon will be very short-lived."
MIKITAKA MASUYAMA, PROFESSOR, NATIONAL GRADUATE INSTITUTE FOR POLICY STUDIES, TOKYO
"Cooperation with opposition camps such as the Liberal Democratic Party and the New Komeito party is necessary to move things forward in parliament. Noda, unlike other candidates, has
stressed this need.
"Compared with the Hatoyama and Kan governments, Noda is likely to work well with the opposition to speed up reconstruction from the March disaster.
"Noda was the candidate with the most realistic economic policy, and he will likely implement policies including tax hikes.
"One potential risk is how cooperation among lawmakers within the Democratic Party pans out. Quite a few people ran for the leadership position and intra-party groups fought each other in the leadership election, and thus rifts within the ruling party have become more marked than the divisions between the ruling party and opposition camps."
TOMOMICHI AKUTA, SENIOR ENERGY RESEARCHER, MITSUBISHI UFJ RESEARCH AND CONSULTING, TOKYO
"He seems to be the safest choice, and I mean this in a good way. There seems to be a continuation in policy as he served as finance minister. I also think that unlike his predecessor he is unlikely to make statements off the top of his head, which should give a sense of stability.
"In energy policies, the previous administration's top officials pushed for weaning the nation off nuclear power and replacing it with renewable energy - comments that could have caused misunderstanding. But I think Noda will likely push for a more realistic energy policy. For example, he agrees to the idea of abandoning nuclear power, but he will likely seek direction through a series of discussions."
OSAMU TAKASHIMA, CHIEF FX ANALYST, CITIBANK, TOKYO
"The focus now moves to who is going to become the next minister of finance. Either way we're unlikely to see a big policy change that would impact the yen in a drastic way.
"A slight rise in JGBs won't have a soothing impact on the yen's rise as there are very few investors who base their investment decisions on small changes in JGB yields."
TAKAHIDE KIUCHI, CHIEF ECONOMIST, NOMURA SECURITIES, TOKYO
"The outcome is seen as positive for financial markets. The risk of Japan's fiscal discipline being undermined sharply has decreased.
"Policy cooperation between the ruling and opposition parties will be strengthened under Noda, who has called for a 'grand coalition'. That will be positive for Japan's economy and the stock market as it will help smooth passage of a third extra budget.
"Given his track record of actively intervening in the currency market, the choice of him as leader will be somewhat of a weak-yen factor and positive for the stock market."
MASANAGA KONO, CHIEF STRATEGIST AT AMUNDI JAPAN, TOKYO
"The fact that we will have a new prime minister is positive as things that have been stalled under Kan's administration will start rolling soon.
"The market has been worried about a potential tax hike supported by Noda, but regarding steps to curb the strong yen, there are hopes that he will come up with swift measures using his expertise."
SHINJI NOMURA, CHIEF FIXED-INCOME STRATEGIST, SMBC NIKKO SECURITIES
"JGBs were buoyed after Noda, who is known as a fiscal hawk and favors raising taxes to reduce reliance on debt, won the ruling party election.
"The JGB market will favor Noda as prime minister, but we are unsure if he can accomplish his objectives until we see who will be the leaders in the party, as Trade Minister Kaieda received a lot of support."
ADRIAN FOSTER, HEAD OF FINANCIAL MARKETS RESEARCH FOR ASIA-PACIFIC, RABOBANK INTERNATIONAL, HONG KONG
"Noda's appointment is a bit of a continuation of the status quo, which is not a positive if you consider Japan's long-term challenges.
"He is known as a hawk on fiscal policy and that could calm some in the market.
"This doesn't decrease the prospect of intervention so if the dollar is below 76 yen the market is going to be on edge.
"We do have to give Noda the benefit of the doubt and some time to lay out his policies.
"There is a still relatively strong home bias, so Japanese investors will continue to favor JGBs. I've never been of the view that Japan would become another Greece."
NAGAYUKI YAMAGISHI, INVESTMENT STRATEGIST AT MITSUBISHI UFJ MORGAN STANLEY SECURITIES:
"Noda as finance minister has gained a reputation as a fiscal conservative, so his election could be a negative factor weighing on stocks. But we don't see a big impact on stocks from political developments."
TAKUJI OKUBO, CHIEF ECONOMIST, SOCIETE GENERALE SECURITIES, TOKYO
"Of the five candidates, Noda was the best choice for Japan's economy. His victory is positive for fiscal consolidation and for the smooth compilation of the planned third supplementary budget (for reconstruction).
"If Noda had lost, it could have led to speculation of a vacuum in Japan's currency market intervention, but Noda is likely to keep trying to tame the yen's appreciation.
"He is likely to allow the Bank of Japan to stick to its current stance on monetary policy rather than forcing other measures. The BOJ is expected to ease policy further through its asset-purchase program, possibly before the next U.S. FOMC. There is no change to this outlook with Noda's victory."
BACKGROUND
-- Noda has said Japan will need to raise taxes temporarily to help pay for rebuilding from the devastating March 11 tsunami. But he has grown more cautious about the timing of any rises, saying economic growth and fiscal reform are both vital.
-- He has promised firm steps including intervention against excessive and rapid currency moves and wants to work closely with the Bank of Japan.
-- The new premier will have to cope with a resurgent yen that threatens exports, forge a new energy policy while ending the worst nuclear crisis since Chernobyl, and find funds to rebuild from the devastating March 11 tsunami at a time when ballooning public debt has already triggered a credit downgrade.
-- He faces a divided parliament and internal party rifts, raising concerns that he will join a gallery of short-lived prime ministers. No Japanese prime minister has lasted much more than a year since 2006.
-- The Democrats swept to power two years ago promising to change how Japan is ruled. But the party quickly lost momentum, dogged by internal divisions and a hung parliament as its novice team confronted the global financial crisis and the March disaster that left 20,000 dead or missing and pushed the economy back into recession.
-- Moody's Investors Service cut Japan's sovereign credit rating last week citing a buildup of public debt and a lack of leadership and a long-term strategy to cope with its fiscal challenges.
-- One of the new leader's first challenges will be seeking opposition help in parliament, where the opposition controls the upper house and can block legislation. Noda has floated the idea of a "grand coalition" with opposition rivals.
(Editing by Edmund Klamann and Michael Watson)
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