TOKYO (AFP) - Japanese Prime Minister Junichiro Koizumi reshuffled his cabinet, tasking a key reformer with privatising the mammoth postal system and replacing his foreign minister amid a diplomatic standoff with North Korea.
The reshuffle, the third since Koizumi took power in April 2001, comes as public support for his cabinet improved slightly to 48 percent in a recent newspaper poll -- still far below the 80 percent levels three years ago.
Reshuffles to appease factions are routine under the conservative Liberal Democratic Party (LDP), but Koizumi declared last week that he would appoint only those who support his cherished plan to privatise the postal system.
The post office manages some 355 trillion yen (3.2 trillion dollars) in savings and insurance funds, making it the world's largest financial institution in terms of assets.
"The privatisation of postal services is the main goal of structural reforms," Heizo Takenaka, 53, told a news conference after being named to a new postal privatization post while keeping his job as economic and fiscal policy minister.
"It is my duty to materialize Prime Minister Koizumi's desire. I will put all my energy into tackling the issue."
Takenaka handed over another crucial cabinet post, the financial services minister, to lower house lawmaker Tatsuya Ito, 43, now that bad loans at major banks are under control.
The postal plan, which risks offending the one million Japan Post workers who traditionally vote for the LDP, was approved by the cabinet this month. It aims to split the post office into four entities starting in 2007.
The aim is to revitalize the economy by allowing private carriers and financial institutions to compete in huge markets dominated by the post office, releasing the system's huge savings into the private sector.
Analysts said Koizumi aimed to tackle the controversial reform before his second term as party president and thus prime minister ends in September 2006.
"I think that the flow of money will change drastically and the economy will get better," said Takashi Noguchi, a political science professor at the University of Tokyo's Institute of Oriental Culture.
"The backlash will be big but at that point Koizumi won't be around."
Former education minister Nobutaka Machimura, 59, was named foreign minister and vowed to improve relations with the United States, fulfil Japan's duties in Iraq and maintain a tough stance on North Korea.
He replaced the unelected Yoriko Kawaguchi, 63, who will remain a special advisor to the premier.
"We will bolster our alliance with the United States as a core policy," Machimura said.
Japan is bidding for a permanent seat on the UN Security Council, a move which has Washington's backing, and is supplying some 550 troops to Iraq on a humanitarian mission.
Japan is also a key member of six-nation talks aimed at curbing North Korea's nuclear weapons ambitions.
"In talks with North Korea our basic policy stance is to hold dialogue and if necessary, exert pressure," Machimura said, adding that economic sanctions would remain an option in dealing with the Stalinist state.
Masao Okonogi, a Keio University political science professor, said Japan's stance towards Pyongyang was unlikely to harden.
"It's not like Kawaguchi was a dove and Machimura is a hawk," Okonogi said. "I don't believe he holds extreme views."
Over the weekend Japanese diplomats returned from talks with North Korean officials in Beijing, expressing "serious concern" about Pyongyang's missile program and noting a lack of progress on the issue of 10 missing Japanese nationals abducted by the North in the 1970s and 1980s.
Sadakazu Tanigaki, 59, retained his post as finance minister. He pledged to maintain prudent fiscal policy and coordination with other industrial and Asian nations.
Yoshinori Ono, 68, replaced Shigeru Ishiba, 47, as director general of the Defence Agency.
Earlier, former farm minister Tsutomu Takebe, 63, was named as the LDP's secretary general -- the number two post at the party. He resolved to support Koizumi's reforms, which have come under fire from some party members.