Financial markets are wondering who will occupy the key economic posts in the new government of Liberal Democratic Party President Chief Cabinet Secretary Shinzo Abe, who is all but assured of becoming the new prime minister next week.

Abe’s selection Wednesday was widely expected, and analysts’ attention has been focused on who the new finance and financial services ministers will be and how Abe’s economic policy will take shape.

“Mr. Abe is widely expected to continue Prime Minister (Junichiro) Koizumi’s reform drive,” said Koji Ochiai, senior market analyst at Mizuho Securities Co.

At the same time, Abe’s policies, especially on economics, still look vague, and it is unclear how he will differentiate himself Koizumi, he said.

Ochiai and other analysts said they are keen to know whether Kaoru Yosano, the financial services minister known as a staunch advocate of independence for the Bank of Japan, will be given one of the key posts and which one.

Yosano’s next job could signal what the new administration’s stance toward the BOJ will be and offer a clue on how the next Cabinet will tolerate future interest rate hikes, they said.

“The Abe administration is expected to consider it desirable for the BOJ to take a relaxed monetary stance, one of the incentives for a lower, yen” said Osamu Takashima, chief analyst at Bank of Tokyo-Mitsubishi UFJ.

The BOJ scrapped its “zero-interest-rate” policy in mid-July, raising the unsecured overnight call money rate to 0.25 percent from virtually zero for the first rate hike in six years. How fast additional rate hikes will be made is of major interest to the market.

The Diet is all but certain to pick Abe as Japan’s new prime minister Sept. 26, given the LDP’s majority in the House of Representatives, which has the final say. If elected, he is expected to form his new Cabinet the same day.

Takashima said it is obvious that Abe is taking a cautious approach to the consumption tax debate, but that the timing of any hike will have important implications for the Japanese economy and the financial markets.

Takashima said that if the consumption tax, which stands at 5 percent, is hiked in April 2009, for instance, the economy will see an improvement in the latter half of fiscal 2008 as consumers go on a buying spree. This will encourage yen-buying against other major currencies, he added.

Afterward, however, the economy will likely slow down for about a year, leading to a fall in the, yen he said.

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