Japanese Prime Minister Naoto Kan will keep political allies in key posts when he reshuffles his cabinet later on Friday, media said, signalling he plans to try to press ahead with efforts to curb the country's huge debt.
In a sign that worries about Japan's fragile economic recovery could complicate those efforts, Kan was to instruct his new cabinet to compile an extra budget for the current fiscal year to March 31, Kyodo news agency reported. But funds for the fresh steps would be found without issuing more government bonds, Kyodo said.
Media have said Kan was likely to retain Finance Minister Yoshihiko Noda, who earlier this week oversaw Japan's first intervention in the currency markets in six years to stem a rise in the yen and protect the export-reliant economy.
Noda reiterated on Friday that Tokyo was ready to intervene again if needed.
Kan, who took office in June as Japan's fifth prime minister in three years, defeated rival Ichiro Ozawa in a party leadership vote on Tuesday. Ozawa, a scandal-tainted strategist known for shaking things up, favours spending to stimulate the economy if needed, even if that means increasing public debt.
But Kan must now try to unify his fractured party, where nearly half of the lawmakers voted for Ozawa in the leadership election, as he strives to curb the yen's rise and escape deflation despite a huge public debt.
The Democratic Party of Japan (DPJ) swept to power a year ago promising change after more than 50 years of almost non-stop rule by the conservative Liberal Democratic Party (LDP), but floundered under the indecisive leadership of Kan's predecessor Yukio Hatoyama, who quit in June after his ratings nosedived.
Party unity, fiscal priorities
In a nod to the need for party unity, Kan was set to appoint Ozawa backer Banri Kaieda as economics minister and a Hatoyama ally as trade minister, media said.
Some analysts said, however, that Kaieda would not be able to exercise much influence on fiscal policy as Japan tries to rein in public debt already twice the size of its $5 trillion economy.
"Fiscal reform is a matter for the finance minister, who is Noda, and they will stick to their reform stance," said Tsuneo Watanabe, a senior fellow at the Tokyo Foundation, a think tank.
Japanese media said Kan had sounded out Ozawa about taking a mostly symbolic senior post in the ruling Democratic Party of Japan (DPJ), but that Ozawa was likely to decline.
The Asahi newspaper reported that Kan ally Koichiro Gemba, currently DPJ policy chief, will become the new national strategy minister while staying on in the party's policy chief job.
Kan has pledged to cap new bond issuance for the fiscal year from next April at this year's level of around 44 trillion yen ($512.7 billion) and said he would revise spending pledges made when his party swept to power last year if funds fall short. He also wants to debate a rise in the 5 percent sales tax to fix Japan's tattered finances.
But Kan has also said he would consider an extra budget for this fiscal year if the economy stumbles, and is expected to struggle to cap spending given the rising social security costs of Japan's fast-ageing society.
Kan will also be appointing a new foreign minister at a time of tensions with China over a territorial spat and potential friction with the United States over a U.S. military base in southern Japan.
Seiji Maehara, who now serves as transport minister and is known as a proponent of strong ties with security ally Washington, will take over as foreign minister from Katsuya Okada, media said.
Okada, a policy maven with a Mr. Clean image who has been critical of Ozawa, takes over as secretary-general, the party No.2, as the government struggles with a divided parliament where the opposition can block bills.