Japan’s parliament confirmed former finance minister Yoshihiko Noda as prime minister today, on the heels of weak economic data. Unemployment rose to 4.7% in July, while retail sales fell.
Noda takes the post from Naoto Kan who resigned Friday over his handling of the Japanese tsunami, and he will be the nation’s sixth prime minister in five years. Now, Société Générale analyst Takuji Okubo says Noda has proven himself to be fiscally hawkish a promising sign for Japan:
“…We would give a high mark on his handling of exchange rate policy. Despite the financial turbulence during the past month, the level of yen against USD is hardly changed from a month ago.
Mr Noda’s reputation as a fiscal hawk should also help to maintain confidence in Japan’s debt sustainability. While it is doubtful that Mr. Noda will be able to implement any major tax hikes in the near term, he seems well aware of the right balance between growth and long term fiscal sustainability.”
Remember Naoto Kan’s push for increases in the consumption tax rate had cost the Democratic Party of Japan control of the upper house of parliament last year. Okubo says while Noda might not be able to raise taxes right away, the Japanese public is aware that the country will need to pay higher taxes at some point and Noda is the perfect fit for that transition. He would also have to be prudent with spending while driving growth.
Noda’s appointment is also expected to come as a relief to Bank of Japan’s governor Masaaki Shirakawa who already has a rapport with Noda. If the U.S. announces a third round of quantitative easing in September, Japan would likely respond with its own easing.
While Noda is a competent leader it remains to be seen if he will get popular appeal. The stock market was a little disappointed with his appointment, but for now Kan’s term is set to end September 2012, and he is expected to see it out without incident.