Hatoyama Outlines Need for Regulation

By KENNETH MCCALLUM

TOKYO -- Japan's incoming prime minister indicated he might seek more government oversight over financial markets, saying Friday that a balance needs to be struck between free competition and government regulation.

"There used to the naïve idea that if we rely on markets, everyone will become happy. We now recognize that view as problematic," said Democratic Party of Japan President Yukio Hatoyama, who is slated to take office on Sept. 16, following his party's landslide victory in a general election on Aug. 30.

Mr. Hatoyma cautioned against protectionism during a period of weak global economic growth, noting that some signs of protectionist sentiment have appeared in the U.S.

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Associated Press

Yukio Hatoyama

"We must not lose sight of the need to liberalize trade and investment," Mr. Hatoyama said in a speech at a World Economic Forum conference.

Mr. Hatoyama's center-left government is likely to move away from some of the big-business-friendly policies of the current administration under the ruling Liberal Democratic Party.

The DPJ's campaign pledges have called for several measures that could hit the bottom line of large companies, including stricter carbon dioxide emissions reduction goals, a ban on temporary workers in manufacturing and an increase in the minimum wage.

Mr. Hatoyama's latest remarks indicate the activity of major market players could come under more scrutiny when the new government takes over.

He said the worst excesses of what he called "market fundamentalism" have tended to appear in financial markets, as seen for example in Japan's asset bubble in the 1980s, which was followed by more than a decade of economic softness in the world's second-largest economy.

Mr. Hatoyama's statements have been dissected carefully by policy watchers used to dealing with the predecessor LDP, which controlled Japanese politics for half a century. In an essay published last month in Japan and later distributed in English, Mr. Hatoyama wrote that the Japanese economy has been "continually buffeted" by U.S.-led market fundamentalism and that Japan should try to put an end to "unrestrained financial capitalism." Mr. Hatoyama has since made moves to reassure the U.S. that he desires continued strong ties.

The DPJ was an early proponent of a free-trade agreement with the U.S. It said during the campaign that it wouldn't agree to anything that hurt Japanese agriculture -- though other nations' efforts to protect their farming sectors have hobbled other trade-agreement efforts.

Meanwhile, Japan's Ministry of Finance said Friday that Japanese business investment fell by 21.7% from a year earlier during the second quarter, marking the ninth consecutive quarter of decline.

Write to Kenneth McCallum at kenneth.mccallum@dowjones.com