Tokyo stock prices rebounded, the yen rose and government bond prices fell today after Japanese Prime Minister Mr Junichiro Koizumi replaced his top banking regulator.
The Nikkei share average, which was down more than 2 per cent in the morning, rebounded to trade down 0.95 per cent in the minutes after the changes to Mr Koizumi's cabinet were announced.
Economics Minister Heizo Takenaka, who has long favoured a controversial injection of taxpayer money into the creaking banking system, will replace Mr Yanagisawa as the head of the Financial Services Agency as well as keeping his current job.
"The man [Mr Hakuo Yanagisawa] set against public funds is now gone and one that is more inclined to using them is in. The stock market is clearly recovering some ground on this development," said Mr Tsuyoshi Segawa of Shinko Securities.
The move may herald a more aggressive approach by Mr Koizumi to cleaning up a banking sector hobbled by at least 52 trillion yen ($424 billion) in bad loans and ending a decade-long deterioration in Japan's financial system.
The dollar was quoted at 121.16/17 yen from around 121.50 before the announcement.
But prices of Japanese government bond (JGB) sank and long-term interest rates rose as bond market investors feared that the government may pay for a more aggressive clean-up of its bad debt by issuing more bonds into an already fragile market.