Japan’s Sanae Takaichi picks ex-premier Taro Aso as party vice-president

TOKYO - Ms Sanae Takaichi, who is expected to become Japan’s next prime minister, chose former premier and party heavyweight Taro Aso on Oct 7 as vice-president of her ruling party, a move some analysts saw as a restraining force against big fiscal spending.

Ms Takaichi also chose former finance minister Shunichi Suzuki as secretary-general of the Liberal Democratic Party, a job that wields huge influence in party affairs, in a line-up of key party posts announced on Oct 7.

The announcements came after the ruling party picked Ms Takaichi, a fiscal and monetary dove, as its head on Oct 4, putting her on course to become

Japan’s first female prime minister

.

Japan’s share prices surged, and the yen slumped this week on market expectations Ms Takaichi will deploy big fiscal stimulus and pressure the central bank to go slow in raising interest rates.

“During the leadership race, the Aso faction backed Takaichi, so her administration may remain strongly influenced by him,” said Mr Takahide Kiuchi, executive economist at Nomura Research Institute.

“Aso’s influence could moderate aggressive fiscal or overly dovish monetary impulses,” he said, adding that Mr Suzuki is also seen as emphasising fiscal discipline.

Mr Aso was prime minister when the collapse of Lehman Brothers in 2008 jolted the global economy. While he served as finance minister when former premier Shinzo Abe deployed his “Abenomics” stimulus policies in 2013, Mr Aso has preached the need to keep heavily indebted Japan’s fiscal house in order.

He is thus seen by markets as holding a more balanced approach on fiscal policy than proponents of aggressive spending like Ms Takaichi.

But bond markets remained jittery on prospects Ms Takaichi’s minority coalition could form an alliance with an opposition party, and agree to its calls for tax breaks and big spending. The yield on the 20-year Japanese government bond (JGB) marked a fresh 26-year peak and the benchmark 10-year yield notched 17-year highs on Oct 7, on market views that her policies may strain Japan’s already worsening finances.

Domestic media reported that Ms Takaichi is in talks to possibly form an alliance with the Democratic Party for the People, which has proposed income tax reforms aimed at boosting take-home pay for working households.

“If Takaichi were to choose the Democratic Party, the size of spending could rise depending on what its leader will demand in exchange for forming an alliance,” said Ms Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.

“There’s no guarantee Aso would serve as a counter force against big spending. Given so much uncertainty, there won’t be many investors willing to buy JGBs.” REUTERS