By Kaori Kaneko
TOKYO (Reuters) - New Japanese Prime Minister Yoshihiko Noda has picked a like-minded fiscal conservative as finance minister and a close ally as his No. 2 minister in his cabinet to be launched on Friday, Japanese media reported.
Private broadcasters TBS and Fuji TV said on Thursday that former ruling party secretary general Katsuya Okada, 58, will take the finance portfolio as Japan's economy grapples with the yen's sharp rise and public debt that is twice the size of its $5 trillion economy.
"Okada was probably the best choice available. He fits the bill for a finance minister: he is well known, knows his financial policies and is trusted by Noda," said Katsutoshi Inadome, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. Okada has also served as foreign minister.
Noda, 54, who was finance minister in the previous administration, was voted in by parliament this week as the nation's sixth leader in five years.
Noda's new government, faces a mountain of challenges: forging a new energy policy while ending a radiation crisis at a crippled nuclear plant, rebuilding Japan's tsunami-devastated northeast and finding funds to pay for that and vast costs of social welfare in an aging society.
"Okada is likely to maintain Noda's fiscal reform drive including the plan to raise the sales tax," said Junko Nishioka, chief economist at RBS Securities in Tokyo.
Noda -- who must unite warring factions in his fractious Democratic Party of Japan (DPJ) while reaching out to the opposition in a divided parliament -- also tapped close ally Osamu Fujmura for the key post of chief cabinet secretary.
Fujimura, 61, will become de facto No.2 in the cabinet, combining the role of top government spokesman with responsibility for liaising with ruling and opposition parties as well as different ministries.
In an effort to win opposition support, Noda on Thursday suggested to the main opposition Liberal Democratic Party (LDP) and its former partner, the New Komeito party, the creation of joint task forces with the Democrats to discuss reconstruction, tax reforms, and economic stimulus measures including steps to cope with a strong yen.
Noda's Democrats and a tiny coalition partner lack a majority in parliaments upper house, where the opposition can block legislation.
Noda's immediate challenge is to draft and enact a third emergency budget to finance reconstruction spending.
The LDP has said would cooperate with the government on reconstruction policies, but wants Noda to call a snap general election once necessary rebuilding steps have been taken. No election for parliament's powerful lower house need be held until 2013.
On Wednesday, Noda filled top party posts with a mix of allies and rivals in an effort to unite party after a divisive leadership contest.
(Reporting by Kaori Kaneko and Kiyoshi Takenaka; Writing by Rie Ishiguro and Linda Sieg; Editing by Edwina Gibbs and Tomasz Janowski)