Tokyo to Propose a Central Bank Chief Amid Political Feuds, Still No Clear Choice

The Japanese government will put forward its candidate for Bank of Japan governor Friday in a step toward ending political wrangling over the job.

Toshihiko Fukui is set to retire as governor in less than two weeks, and the government and opposition parties have been sparring over who should succeed him.

The bank’s current deputy, Toshiro Muto, whose term ends on the same day, March 19, has been widely seen as the government’s choice to succeed Fukui but is opposed by some lawmakers in the opposition, which can veto a nominee because it controls Parliament’s upper house.

“Given the atmosphere within the party, it looks almost certain that Muto would be voted down,” said Kohei Otsuka, a lawmaker in the main opposition Democratic Party, although it was unclear whether others in his party shared that view.

There has been media speculation that the government and opposition might turn to a compromise candidate to head the central bank, with the bank’s former deputy governor Yutaka Yamaguchi mentioned.

On Friday, Fukui will supervise his final policy board meeting reviewing interest rates. The market consensus is that the central bank will keep its benchmark rate unchanged at 0.5 percent.

Political deadlock over who would replace Fukui has prompted talk of a policy vacuum, which could undermine Japan’s market credibility, although traders remained focused on fears of a U.S. recession and a sliding dollar.

“The schedule is decided for the appointment but there is still a risk of a policy vacuum if the government proposes Muto,” said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Securities.

“We are watching to see if other candidates emerge and if those people are hawks or doves,” she said, adding that Yamaguchi would be seen as less likely to cut rates.

The new governor will face an economy predicted to be heading for a sharp downturn and possibly a recession in the first half of this year, in the wake of the U.S. subprime mortgage crisis.

“We will put forward who we think are the best candidates, so I strongly hope that they will be accepted,” Nobutaka Machimura, the top government spokesman, told a news conference announcing the appointment timetable. “The central bank’s independence is important, so it is important that a person with awareness of this is selected.”

A delay in filling the post would be taken as a further sign of the political weakness of Prime Minister Yasuo Fukuda, who is struggling with a divided Parliament and slumping ratings.

Both sides have said they do not want the naming of the new governor and two deputies to be a political issue.

But the appointments have been caught up in a dispute over the annual budget, which the ruling coalition pushed through Parliament’s lower house last week, angering opposition lawmakers seeking more debate and prompting them to suspend cooperation with the government.

The government’s nominee will face questions from lawmakers in Parliament next Tuesday.

Some Democratic Party lawmakers have strongly opposed Muto. They say appointing a former senior bureaucrat like Muto, who was once deputy finance minister, would hurt the central bank’s independence in setting monetary policy.

Otsuka questioned Muto’s ability to steer monetary policy in the face of a rapidly changing global economy and markets, although he acknowledged that the deputy governor was adept at building consensus.

Asked about Yamaguchi, Otsuka said that he was an option but that the Democrats had not yet formed a firm view on him.

Some lawmakers are wary that if the appointment is held up, both the government and the Democrats will be blamed by voters.

Yamaguchi, called a compromise candidate by the Japanese media, is seen as slightly more hawkish on interest rates and lacking Muto’s skills at political maneuvering.

But economists say respect earned overseas and experience in battling Japan’s financial crisis of a decade ago make Yamaguchi, 67, well equipped to take the helm at the central bank at a time of global market turbulence and amid fears of a U.S. recession.

Separately, Hiroki Tsuda, the deputy finance minister, said Thursday that Japan’s economy was continuing to recover, although the pace of improvement was moderate.

He also said that risks to the economy were heightening somewhat because of the effect of the subprime mortgage crisis on the U.S. economy and global financial markets, as well as high oil prices.

Originally published by Reuters.

(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.