Positives of a Koizumi win unclear

In this story: Defined by opposition to others Nikkei takes pause for thought Waiting for cabinet picks RELATED STORIES

TOKYO, Japan -- Japan's markets took a wait-and-see attitude Monday to the prospect of an upset victory for Junichiro Koizumi.

The ruling Liberal Democratic Party votes on a new president on Tuesday.

Koizumi is the front runner after a strong result in regional primaries over the weekend.

Experts said a victory for the former health minister would be positive, both for reform and its markets. But how positive remains to be seen.

"His economic platform is refreshingly vague," Richard Jerram, chief Japan economist for ING Barings, told CNN's Asia Business Morning.

Defined by opposition to others

Japanese stocks have run up as Koizumi gained ground on former prime minister Ryutaro Hashimoto. Hashimoto was the early favorite for the LDP post, as leader of the largest LDP faction.

The next LDP leader is almost certain to take over as Japan's next prime minister, given the party's majority role as leader of the coalition. Observers say Hashimoto would likely preserve many of the initiatives introduced by outgoing Prime Minister Yoshiro Mori.

Koizumi, with his permed hair and sometimes unconventional approach, has defined himself as a reformer. Japanese investors have warmed to the prospect of new ideas.

"The financial markets are taking the view that anything is better than what we've got at the moment, and Hashimoto is basically similar to what we've got at the moment," Jerram said.

A Koizumi administration would be better than the downward drift of the last 10 years, he added. But there are plenty of questions over what reforms Koizumi might push, or be able to push.

Nikkei takes pause for thought

Japanese media reports suggested Koizumi would have to compromise with old-line elements in the LDP, such as policy chief Shizuka Kamei.

"He seems to be cutting deals with the most entrenched parts of the system," said James Malcolm, chief Japan economist for J.P. Morgan.

The stock market took a pause for thought as a result. The benchmark Nikkei 225 ran up 2.1 percent in early trade Monday, on optimism about a Koizumi win.

But the rally didn't last, and stocks ended essentially flat. The Nikkei lost 0.4 percent and stands at 13,715.60. "Everything is still very open," Malcolm said. "Although they like the idea of Koizumi being in power because he's different from everyone else, people are now stopping to think what it would mean for policy."

Waiting for cabinet picks

Koizumi has said he wants to cap the amount of Japanese government bonds issued at $243 billion, or 30 trillion yen. He would like to privatize the post office, which he once headed. And he has said he favors structural reform.

But the rest of his platform has consisted of general statements in favor of issues such as encouraging banks to speed up loan writeoffs. He has also said he supports fiscal reforms.

"It's still unclear what prioritizing fiscal reform means," Malcolm noted. "A lot of the definition has been in juxtaposition of what everyone else would do."

The LDP might choose Koizumi given his public popularity, to boost its prospects for Japan's elections in July. But if he wins, experts are waiting to see what kind of cabinet he picks.

They say they aren't sure how far he can drag the more conservative elements of his party.

Darrel Whitten, chief equity strategist for ABN Amro, believes Koizumi also runs the risk of being swallowed up by his reform efforts if he pushes them too quickly.

"Prior reformist prime ministers got bogged down in the system," Whitten said. "We'll see how loudly people scream when their toes get stepped on."

Japan's PM race goes down to the wire

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