Prime Minister Junichiro Koizumi on Monday reshuffled his 17-month-old Cabinet, replacing Financial Services Minister Hakuo Yanagisawa, apparently due to differences over a fresh injection of public funds into ailing banks.

Koizumi gave Yanagisawa’s job to Heizo Takenaka, who will also continue to serve as minister in charge of economic and fiscal policy.

Koizumi retained 11 of the 17 members of his previous Cabinet, including those in key positions, such as Foreign Minister Yoriko Kawaguchi, Finance Minister Masajuro Shiokawa and Chief Cabinet Secretary Yasuo Fukuda.

It was his first Cabinet reshuffle since he swept into office in April 2001. The new Cabinet was officially sworn in at an attestation ceremony at the Imperial Palace in the evening.

“I will reshuffle the Cabinet to accelerate reforms,” Koizumi told the last meeting of the outgoing Cabinet in the morning.

The new appointees are:

Tadamori Oshima, farm minister.

Sadakazu Tanigaki, chairman of the National Public Safety Commission.

Shunichi Suzuki, environment minister.

Shigeru Ishiba, director general of the Defense Agency.

Yoshitada Konoike, minister in charge of disaster prevention.

Hiroyuki Hosoda, minister in charge of Okinawa and affairs related to northern territory.

The two ministers from the Liberal Democratic Party’s two coalition partners retained their positions — Chikara Sakaguchi of New Komeito as health minister, and Chikage Ogi of the New Conservative Party as minister of land, infrastructure and transport.

Koizumi replaced Yanagisawa amid mounting pressure to do so from within the ruling coalition because of the minister’s opposition to a fresh injection of taxpayer money into banks.

Koizumi recently pledged to accelerate the disposal of bad loans, which many economists say is the main drag on the nation’s economy.

During a weekend meeting of finance ministers and central bank governors of the Group of Seven nations in Washington, Japan vowed to step up bad-loan disposals, possibly by injecting public funds into financial institutions.

Yanagisawa has remained opposed to the immediate use of public money for that purpose.

Koizumi also replaced Defense Agency chief Gen Nakatani and farm minister Tsutomu Takebe.

Some ruling coalition members have been calling for the ouster of Nakatani over a scandal in which the Defense Agency compiled lists of personal data on people who had sought information about defense-related agencies in line with the freedom of information law.

Takebe has also been criticized within the coalition for his ministry’s poor handling of the outbreak of mad cow disease in Japan.

Koizumi finalized the new lineup after separate meetings with New Komeito leader Takenori Kanzaki, New Conservative Party head Takeshi Noda and top LDP executives.

Koizumi had vowed not to reshuffle his Cabinet for as long as he remains in office, arguing that the traditional practice of LDP-led governments to rotate Cabinet ministers at short intervals — often in less than a year — only makes politicians dependent on bureaucrats over policy matters.

While eventually caving in to pressures from within the LDP for a reshuffle, Koizumi opted for relatively few changes.

On Friday, Koizumi retained all of the three top LDP executives — Taku Yamasaki as secretary general, Taro Aso as chairman of the Policy Affairs Research Council and Mitsuo Horiuchi as head of the Executive Council.

Koizumi also unveiled a package of fundamental policies, featuring a commitment “to terminate bad-loan problems by the end of fiscal 2004.”

He also said his Cabinet will “respect” proposals to be spelled out by a panel looking into the privatization of four expressway-related public corporations and consider next year’s launch of a new public body to take over the state-run postal businesses as the first step toward his ultimate goal of privatizing the postal services.

Koizumi is believed to have required members of his new Cabinet to support such policy objectives.

In Monday’s reshuffle, Koizumi retained two lawmakers serving as deputy chief Cabinet secretaries — Shinzo Abe and Kosei Ueno — as well as Teijiro Furukawa as administrative deputy chief Cabinet secretary.

The prime minister plans to replace other lawmakers serving as senior vice ministers and parliamentary secretaries in key governmental bodies as early as Tuesday, LDP members said.

Review called for

Financial Services Minister Heizo Takenaka said a review of government policy toward banks, including a fresh injection of public funds, would be necessary to “fix what needs to be fixed.”

“Public funds are not the goal of bank policy,” Takenaka said. “It is one possible outcome that may arise” from a review of bank policy. We must keep all options open.

“Do the banks have an adequate capital base? I mean to make my own decisions.”

Takenaka was given a new Cabinet position after his predecessor, Hakuo Yanagisawa, refused to budge from his cautious stance toward an injection of public funds into banks.

“My attitude toward this issue will not change drastically in one day or even one week,” Yanagisawa told reporters Monday afternoon, after he submitted his resignation together with other outgoing members of the Cabinet.

He added that the issue was one he had continued to ponder until the last minute.

Yanagisawa, who was responsible for the previous rounds of public fund injections into banks in 1998 and 1999, was unable to overcome his qualms about additional use of taxpayers’ money, despite support for an injection being voiced by Finance Minister Masajuro Shiokawa and Bank of Japan Gov. Masaru Hayami .

Senior officials of the Financial Services Agency and the Finance Minister have both expressed support for the use of public funds to promote mergers of ailing financial institutions and eliminate a surplus of banks.