UPDATE 1-Next Japan PM picks Fujii for finance post -media

* Veteran Fujii for finance to soothe market concerns

* Naoshima to take charge of energy, trade - Yomiuri

* Hatoyama firming up other cabinet posts

TOKYO, Sept 15 - Incoming Japanese leader Yukio Hatoyama has decided to appoint veteran lawmaker Hirohisa Fujii as finance minister, the Nikkei businesss daily said, in a move likely to soothe investor concerns the new government will inflate an already huge public debt.

Hatoyama will take office on Wednesday after his Democratic Party's huge election win over the long-dominant Liberal Democratic Party (LDP), bringing to power a government that pledges to put more money in the hands of consumers, cut waste and reduce bureaucrats' control over policy-making.

The 77-year-old Fujii, who served as finance minister in an anti-LDP coalition from 1993-1994, has been widely tipped by Japanese media as likely to take the post.

But some media had reported that the appointment faced opposition from former Democratic Party leader Ichiro Ozawa, a political mastermind whose clout over the new administration is raising concerns about a possible rival power centre that will complicate policy decisions.

Fujii, 77, is known as a fiscal conservative so his appointment would be welcomed by markets worried that the new government's spending plans -- such as child allowances and toll-free expressways -- will boost issuance of Japanese government bonds (JGBs) as Japan struggles to emerge from recession.

"The likelihood that Fujii, who is seen as having a stricter stance on fiscal policy, will be appointed finance minister in the new Hatoyama cabinet is a relief for the JGB market," said Jun Ishii, chief strategist at Mitsubishi UFJ Securities.

Fujii's caution over intervening in currency markets and his backing for ultra-loose monetary policy means he is seen as a technocrat who is unlikely to rock markets.

However, some analysts have expressed concern that the septugeniarian Fujii might have trouble coping with the rigours of frequent international meetings as major countries seek to ensure the global economy recovers from a financial crisis."

Hatoyama, the wealthy grandson of a prime minister, said he would begin choosing cabinet ministers later on Tuesday after a meeting of all the party's lawmakers.

The Nikkei business daily, without citing sources, said Hatoyama had decided to pick Fujii after meeting Ozawa on Monday, and the mass circulation Yomiuri newspaper had a similar report.

Yomiuri, without citing sources, added that the Democratic Party's policy chief Masayuki Naoshima was likely to become the new minister of economy, trade and industry, a role that also includes energy issues.

Hatoyama has already said he would pick Naoto Kan, a former health minister, to head a powerful new agency to oversee the budget process and set policy priorities.

The new National Strategy Bureau will be tasked with reforming what the Democrats say is a cumbersome policy-making system that relied heavily on recommendations from bureaucrats and in which the ruling party competed with the cabinet on decisions. The new agency will include officials from the public and private sector.

Hatoyama has also said Katsuya Okada would become foreign minister -- a post being closely watched in Washington because of concerns that arose about the U.S.-Japan alliance after his party vowed a more independent diplomatic course.