Japan PM-elect's pick of powerful ally raises worry

Fri Sep 4, 2009 7:46am EDT

By Isabel Reynolds

TOKYO (Reuters) - The choice of a powerful former leader of Japan's new ruling party for a key role raised concerns on Friday that incoming Prime Minister Yukio Hatoyama has created a rival power center that will muddle policymaking.

Veteran lawmaker Ichiro Ozawa will assume the post of secretary-general of the Democratic Party of Japan (DPJ), just months after a fundraising furor for him to resign.

Ozawa was the DPJ's chief campaign strategist and helped mastermind its historic defeat of the long-ruling Liberal Democratic Party (LDP) in an election for parliament's lower house last Sunday.

Since Ozawa can take much of the credit for the victory, this will boost his clout within the party anyway, but his appointment to the No. 2 position makes it all the more likely that he will try to pull strings from behind the scenes, as he did the only other time the LDP was ousted.

"The question is to what extent Ozawa can restrain himself," said Tomoaki Iwai, a professor at Nihon University in Tokyo.

"There may be times when he can't and speaks out on policies at news conferences or tries to decide things without going through the proper decision-making process."

Katsuya Okada, the current secretary-general, dismissed concerns about a dual party structure.

"The party leader and Mr. Ozawa agreed that policy-making would be unified and that the secretary-general would not interfere," he said in an interview on Friday.

Parliament will formally vote Hatoyama in as prime minister on September 16. Hatoyama, who has emphasized that he will choose its cabinet members himself, said on Friday he wanted to complete the cabinet line-up by the end of September 16.

Ozawa, 67, stepped down as party leader in May after his close aide was charged with accepting illegal donations. The scandal is likely to come back into focus when the aide's trial gets under way in the coming months.

Although the appointment had been expected, newspapers speculated that Ozawa would act as the power behind the throne and some voters were concerned.

"I am a bit worried," said 41-year-old banker Shintaro Yamaoka. "Ozawa has power and numbers in the party. I wonder if Hatoyama will be able to carry out his own intentions."

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Broadcaster NHK said on Friday that Hatoyama had picked close ally Hirofumi Hirano for chief cabinet secretary, a position that Hatoyama said would focus on parliamentary affairs in his new government.

But Hatoyama said he would not be able to make decisions on his cabinet at least until talks on a coalition agreement with two small parties are over, which is expected as early as early next week.

"I have of course some ideas in mind, but we are not yet at the stage to announce them," Hatoyama told reporters.

Hatoyama has also said he wants two other former party leaders, Okada and Naoto Kan, to take top portfolios.

Okada and Kan have been tipped as candidates for finance minister, a vital post as Japan struggles out of its worst recession since World War Two.

The head of a new National Strategy Bureau, likely to be deeply involved in drawing up the budget and setting policy priorities, will also be a key appointment.

Investors have expressed concern that the new government will need to increase already high borrowing to fund its election promises and the appointments will be key to identifying the balance between social spending and reining in the fiscal deficit.

"The biggest concern -- even bigger than who will be the new finance minister -- is how they will secure funding for all their promised programs," said Yutaka Miura, senior technical analyst, Mizuho Securities.

A third name often floated for the finance post is Hirohisa Fujii, who served as finance minister in an anti-LDP coalition from 1993-1994.

Hatoyama's choice for foreign minister will be closely watched after concerns the Democratic Party's policy of building a more independent stance from the United States could damage ties with Tokyo's biggest security ally.

Negotiations continued on Friday on a coalition agreement with the two tiny parties which could help make up for the Democrats' lack of a majority in the less powerful upper house of parliament but whose policies are markedly different.

Mizuho Fukushima, leader of the Social Democratic Party, said on Thursday the alliance was very likely to go ahead, but media said the talks would run into next week.

(Additional reporting by Chisa Fujioka, Colin Parrott, Linda Sieg, Yoko Nishikawa, and Elaine Lies; Editing by Alex Richardson)