Opposition Lawmakers Reject Bank of Japan Nominee

The main opposition party on Tuesday rejected the government’s nominee to run the Japanese central bank, despite his pledge at parliamentary hearings to act independently in the job.

With Toshihiko Fukui scheduled to retire March 19 as the governor of the Bank of Japan, the battle over whether Toshiro Muto should succeed him raises the risk of a monetary policy vacuum in the midst of a global credit crisis.

Officials with the Democratic Party of Japan met after the hearings and confirmed that they would oppose Muto, a deputy governor at the bank.

Yukio Hatoyama, the party’s secretary general, said Muto could not ensure the independence of the Bank of Japan.

“We are not opposing Muto just because he is a career Finance Ministry official, although he is dubbed Mr. Finance Ministry,” Hatoyama said.

Of the two government nominees for deputy governors, the Democrats rejected Takatoshi Ito, an academic, but accepted Masaaki Shirakawa, a retired central bank official.

This decision raises the possibility that Shirakawa could be confirmed in his job in time to take over as acting governor when Fukui retires. But economists say a temporary central bank chief would be unlikely to make long-term decisions at a time when the world faces fears of a recession in the United States and possibly Japan.

Opposition parties, led by the Democrats, have consistently opposed Muto because of his close ties to the government.

His candidacy is expected to be rejected formally in a vote scheduled for Wednesday in the upper house of the Japanese Parliament. Opposition lawmakers control the upper house, giving them the power to veto the nomination.

Some cabinet ministers said earlier that the government would renominate Muto if he was rejected. Prime Minister Yasuo Fukuda declined to outline the next step.

“I’m puzzled as to what to do,” Fukuda said, “as I don’t know the reason why the Democrats opposed him.”

Muto told Parliament of rising economic risks in comments that echoed the government’s argument that its nominees for the posts of governor and two deputies should be confirmed without delay as fears grow about the U.S. economy.

“Japan’s economy is at a critical stage as it faces various risks at home and abroad,” Muto said.

“Signs of a U.S. economic slowdown are intensifying and downside risks for the global economy are rising. I would strive to gain the public’s trust and ensure the BOJ’s independence.”

He also told the lower house that the current key interest rate of 0.5 percent was still very accommodative, according to the minutes of the hearing.

Yoshito Sengoku, a senior Democratic lawmaker, told reporters that Muto had not persuaded those planning to reject his appointment to change their minds.

“He answered as if he was an honor student, and it did not dispel our concerns,” Sengoku said.

The dispute has added to a political paralysis that has hurt Fukuda’s popularity.

“If the Democrats vote down the candidates, it will be negative for financial markets,” said Takeshi Minami, chief economist at the Norinchukin Research Institute. “With heightening concerns about a deepening U.S. economic slowdown, market participants will be faced with another concern that the BOJ’s moves could fall behind the curve.”

Originally published by Reuters.

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