What Kan you do?

14 September 2010 By Ian Campbell

Japan’s stock market preferred his rival’s spending promises but it’s good that Naoto Kan, the prime minister, narrowly survived a leadership challenge. Kan is right to stress fiscal caution but he must now be bolder and put pressure on the Bank of Japan to defeat deflation.

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Naoto Kan, Japan's prime minister, survived a challenge for leadership of the Democratic Party of Japan from Ichiro Ozawa, a party veteran, on Tuesday. Kan obtained 721 out of 1,212 points in the vote, defeating Ozawa by a bigger margin than expected.

The Japanese yen, already at 15year highs against the dollar, strengthened further to around 83 yen per dollar because Kan is thought unlikely to tackle the problem of yen strength as resolutely as Ozawa might have done. Japanese stocks fell slightly in anticipation of the result because Ozawa had promised further fiscal stimulus.

Takahira Ogawa, director for sovereign and international public finance in the Standard & Poor's credit rating agency, told Reuters Insider TV that "Japan's rating of AA is still valid but the Japanese government credit is slowly sinking."

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