Business welcomes change to Koizumi

Koizumi celebrates his come-from-behind election to LDP president on Tuesday afternoon

In this story: Change viewed as positive A tempered stance A deal with Kamei? RELATED STORIES

By Staff and wire reports

TOKYO, Japan - Business interests welcomed Japan's new leader Junichiro Koizumi with optimism.

But all eyes are now on how far Koizumi -- elected president Tuesday of the biggest party in the ruling coalition -- will be able to push reforms.

"He is at heart a radical reformer, and I don't have many doubts about that," said Garry Evans, Japan equity strategist with HSBC. "The question is whether he sticks to his principles and … whether he's able to push through what he wants to push through."

Japanese stocks closed essentially unchanged again. The benchmark Nikkei 225 index ended Tuesday up, but only just, gaining 0.2 percent to stand at 13,743.18 points.

It had a similarly narrow drop Monday. But Tuesday's numbers mask a certain bullishness about Japan's new leader.

The Nikkei rallied in the afternoon as it became clear Koizumi would win. Japanese stocks also showed no follow-on from a bad Monday for U.S. markets. Nasdaq dropped almost 5 percent.

"The market is quite sensitive that this is a change for the better," Evans at HSBC said. He added that Japanese stocks will react "quite strongly positively" if there are signs that Koizumi has a mandate to push reforms.

Change viewed as positive

Many experts feel any shakeup is a positive, after Japan has languished in a decade-long slump. Koizumi has broad public support. He came from behind to give Japan its first real choice in a leader for years.

Koizumi clinched the post of president of the ruling Liberal Democratic Party (LDP) Tuesday afternoon. Strong support in regional primaries helped him capture 298 of the 487 votes.

Victory assures he will replace lame duck Yoshiro Mori when the Japanese parliament votes on its prime minister on Thursday.

The wild-haired former health and welfare minister has championed reform in the runup to his come-from-behind victory.

"It is my responsibility to build the party, so that we can say with confidence that it is the Liberal Democratic Party that will change Japan and move ahead with major reforms," a jubilant Koizumi said after his victory.

But experts say he has been cannily vague about what form those reforms will take.

A tempered stance

Koizumi says he favors structural and fiscal reform. He would also like to cap the Japanese government's issuance of bonds at 30 trillion yen. He favors eventual privatization of the post office, which he once headed.

Koizumi has posited some more radical -- and sometimes contradictory -- ideas. He has said he would like to see Japan elect its leader in a U.S.-style presidential election, rather than the current government vote for a prime minister.

But analysts say Koizumi has recently tempered his stance. They are waiting to see what kind of cabinet Koizumi appoints before assessing where he might go with reforms.

Tomoko Fujii, director of economic analysis for Nikko Salomon Smith Barney, said it is positive that Koizumi wants to tackle structural change, abandoning the pump-priming approach of the past.

"Assuming he's not going to change his position, the prospects of reform for the Japanese economy would brighten," she said. "But in the near term he doesn't have a strong political base, so he needs to compromise."

A deal with Kamei?

As leader of the largest faction, former prime minister Ryutaro Hashimoto was originally a firm favorite for the LDP leadership.

Local media reports suggest Koizumi brokered a deal with LDP policy chief Shizuka Kamei, who withdrew from the race and threw his support behind Koizumi.

Kamei favors a much more traditional approach to economic reform, mainly driven by government spending. How much Koizumi compromised remains to be seen.

There was another sign of optimism Tuesday, as Japan reported brisker output. The Ministry of Economy, Trade and Industry said its all-industries index rose 1.4 percent in February. That's double forecasts.

But Koizumi undoubtedly faces a tough road. Tackling issues such as bad loans with Japan's banks is thorny.

Experts say real reform will certainly lead to bankruptcies and higher unemployment. Pushing reforms too quickly could hurtle Japan into recession.

Keith Henry, a principal at Asia Strategy, said the jury is still out. Despite Koizumi's maverick reputation, it will be difficult for him to push a radical agenda.

But this is the first time in years Japan has witnessed real political change.

"He has a long history of being a critic of the establishment, but now he's part of the establishment," Henry said. "He's a good politician. He can be a good prime minister."

Reuters contributed to this report.

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