WRAPUP 10-Japan ruling party picks Kan for PM before election

(For more on Japanese politics click [ID:nPOLJP], for stories on
the economy click [ID:nECONJP])

* Fiscal conservative Kan must tackle public debt

* Departure of PM Hatoyama gives ruling party a boost

* Noda in line for finmin post when cabinet formed Tuesday

* Kan aims to work with the Bank of Japan to beat deflation
(Adds fresh Kan remarks, analyst comment)

By Linda Sieg and Yoko Nishikawa

TOKYO, June 4 (BestGrowthStock) – Finance Minister Naoto Kan, a
fiscal conservative with an image as a challenger to the status
quo, was elected as Japan’s next premier on Friday, improving the
ruling party’s chances in a national election and raising hopes
of bolder steps to fix tattered public finances.

Kan, 63, will become Japan’s fifth prime minister in three
years, taking the helm as the country struggles to rein in a huge
public debt, engineer growth in an ageing society, and manage
ties with security ally Washington and a rising China.

The Democratic Party of Japan picked Kan by an overwhelming
majority to succeed the unpopular Yukio Hatoyama, who quit this
week ahead of an upper house poll expected in July that the
ruling bloc needs to win to avoid policy deadlock. Kan was later
voted in by parliament.

“What I want to tell voters in the upper house election is
that our reforms are becoming more concrete,” Kan said in his
first news conference as prime minister-elect.

“The hopes voters had for the Democratic Party are not just
ending up as a mere dream. They will be realised. That’s what I
want people to know for the election.”

Kan’s rise to the top job and his expected new cabinet
line-up could spell bolder steps ahead to rein in a public debt
that is already twice the size of the economy, but he will face
opposition from many in his party ahead of the election.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on Japan voter support: http://r.reuters.com/myv63g
For more stories on Japan politics click [ID:nPOLJP]
Reuters Insider: Kan for PM http://link.reuters.com/xyd97k
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Hatoyama, his voter ratings in tatters, resigned on Wednesday
just eight months after the Democrats swept to power pledging to
cut waste, wrest control of policy from bureaucrats, and give
consumers more cash so as to stimulate domestic demand.

His abrupt departure has raised concerns among investors that
the government will delay efforts to thrash out plans, due this
month, to cut public debt and craft a growth strategy.

BATTLING DEFLATION, FISCAL REFORM

Financial market players generally welcomed Kan as Japan’s
next leader. His selection improves the ruling bloc’s prospects
at the polls, though many wondered how much would change.

“If Hatoyama had remained the party would have had a big loss
at the election and the political situation would have been
chaotic,” said Hiroyuki Nakai, chief strategist at Tokai Tokyo
Research.

“But with Kan in charge now, the sense of stagnation in
politics and the economy is receding somewhat, even though much
will depend on the makeup of the cabinet.”

Kan, a former health minister who got his start in politics
as a grassroots activist, has forged an image as a fiscal
conservative and occasional central bank critic since assuming
the finance post in January. [ID:nTOE65104R] [ID:nTOE65005A]

He was among the few cabinet ministers to urge early debate
on raising Japan’s 5 percent sales tax, a step economists say is
vital to fund the huge social welfare costs of a greying society.

But on Friday, Kan dodged a question on the sales tax, saying
he would state his stance after forming his cabinet on Tuesday,
when he will be sworn in.

Kan was likely to pick a fiscal reformer, Deputy Finance
Minister Yoshihiko Noda, as his finance minister, a move that
would be welcome for bond markets worried about too much debt.
[ID:nTOE65305M]

Kan said in a statement he would work with the Bank of Japan
to beat the deflation bedevilling Japan’s economy.

As finance minister, Kan has pressured the central bank to do
more in the battle against deflation, although for now the
government and BOJ seem to be on the same page.

He also said he would keep Japan’s policy to cut greenhouse
gas emissions by 25 percent by 2020 from 1990 levels.

Financial markets will be watching the new leader’s comments
on currencies as well.

“(Kan’s) appearance of being in favour of a weaker yen is
being viewed positively by the stock market. For the Nikkei to
move much over 10,000, we need currencies to move towards a
weaker yen,” said Kenichi Hirano, operating officer at Tachibana
Securities. [.T]

STUDENT ACTIVIST, OZAWA FACTOR

Unlike many recent premiers, Kan does not hail from a
political dynasty. That could appeal to voters weary of leaders
born with silver spoons in their mouths who prove inept at
governing.

He got his start in politics as a student activist, later
joining small political parties before helping to found the
then-opposition Democratic Party in 1996.

In the party leadership vote, Kan easily defeated his only
rival, 50-year-old Shinji Tarutoko, a little-known lawmaker who
had won backing from some supporters of party powerbroker Ichiro
Ozawa.

Ozawa, seen as pulling the strings in Hatoyama’s government,
also quit his key post as party secretary-general this week in an
effort to improve the party’s image, tarnished by funding
scandals that embroiled Ozawa, Hatoyama and other lawmakers.

Kan has made clear he wants to sideline the 68-year-old
Ozawa, whose image as an old-style wheeler-dealer has undermined
the Democrats’ pitch as purveyors of change.

But while the wily Ozawa may withdraw into the shadows,
sceptics question whether his influence will entirely fade.

That matters because Ozawa, known as a master campaign
strategist, is reluctant to promise bold fiscal reform steps such
as raising the sales tax ahead of the upper house poll.

The Democrats swept to power in a historic election last year
and will run the government whatever the outcome of the July
upper house poll, but the ruling bloc needs to win a majority in
that chamber to ensure that legislation is enacted smoothly.

Media surveys showed Hatoyama’s resignation had given the
faltering party a boost, but analysts have said the Democrats and
their tiny ally, the conservative People’s New Party, may have to
find new partners, including small parties recently formed by
defectors from the ousted Liberal Democrats.

Kan, who media said would retain policy maven Katsuya Okada
as foreign minister, faces a tough task keeping ties with the
United States on track, since a deal clinched by Hatoyama with
Washington to shift a U.S. airbase within the southern Japan
island of Okinawa is staunchly opposed by local residents.

Kan became Japan’s most popular politician for a time when as
health minister in 1996 he forced bureaucrats to expose a scandal
over HIV-tainted blood products.

Investing

(Additional reporting by Leika Kihara, Hideyuki Sano, Stanley
White, Rie Ishiguro, Yoko Kubota, Kiyoshi Takenaka and Chisa
Fujioka; Editing by Michael Watson)

WRAPUP 10-Japan ruling party picks Kan for PM before election