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By Stanley White
TOKYO, Feb 25 (Reuters) - Japan should not expand government share buying and needs a targeted approach to fiscal stimulus for an economy deep in recession, said Eisuke Sakakibara, touted as a possible finance minister if the opposition wins an upcoming election.
Sakakibara, known as "Mr Yen" for spearheading intervention in currency markets while vice finance minister in the 1990s, said possible government expansion of share buying to support a stock market near 26-year lows would not work.
"The government shouldn't intervene in equity markets," he told Reuters in an interview. "Stocks will rise if the government enacts good policies."
Finance Minister Kaoru Yosano said on Tuesday the government was looking at expanding stock buying and at other measures. The Nikkei business daily reported that the government may buy stocks directly from the market using public funds, as sliding share prices erode the capital of banks.
Sakakibara was tapped by the main opposition Democratic Party as their candidate for finance minister in an election in 2003 and media reports have suggested he would take the job should the opposition win an election that must held this year.
Asked about the post, Sakakibara, now a professor at Tokyo's Waseda University, said he was not contemplating such a move.
Japan's economy shrank an annualised 12.7 percent in the final quarter of 2008 for its biggest decline in 35 years, and data on Wednesday showed exports plunging a record 45.7 percent in January as the global economic crisis saps demand.
"I wouldn't be surprised to see the economy deteriorate further in the January-March period," Sakakibara said.
"Strong fiscal stimulus is necessary, but it should be targeted at specific industries."
Agriculture and energy were sectors that could be targeted, he said, adding that just lowering taxes or boosting spending on infrastructure would not be enough to lift the economy.
Japan's main opposition party, which has a good chance of winning power, says it would put top priority on creating jobs, strengthening the social safety net and boosting domestic demand.
Prime Minister Taro Aso's popularity has plummeted as he struggles to cope with the recession, and his administration was dealt a new blow last week when his finance minister resigned after being forced to deny he was drunk at a G7 news conference.
"Aso is disastrous and we need to have an election as soon as possible," said Sakakibara, who wrote a book advocating a change in government last year.
The ruling Liberal Democratic Party has held almost unbroken power for more than five decades.
But some political analysts doubt whether the opposition, an untested amalgam of former ruling party lawmakers, ex-socialists and younger conservative lawmakers, can form an effective government given its lack of experience. (Additional reporting by Akiko Takeda and Kei Okamura; Editing by Edwina Gibbs)