Stalemate on Bank of Japan Chief

By Martin Fackler

A political showdown that intensified Wednesday is blocking Japan from selecting the next leader of its central bank, increasing the chances that the post could sit vacant at a time of increasing financial turmoil.

The government of Prime Minister Yasuo Fukuda is at odds with the largest opposition party over the choice of the next governor of the central bank, the Bank of Japan. A successor is supposed to be named before March 19, when the current governor, Toshihiko Fukui, is scheduled to step down.

Finding a successor in time looks increasingly unlikely, after the opposition-controlled upper house of Parliament voted Wednesday to reject the government’s nominee, Toshiro Muto, currently a deputy governor at the bank. The new governor must be approved by both houses of Parliament.

Later the same day, members of Fukuda’s governing Liberal Democratic Party vowed not to give up, suggesting the government could renominate Muto and try again. The government’s top spokesman, Nobutaka Machimura, criticized the upper house vote as “incomprehensible.”

Economists and analysts said the stalemate could drag on, with neither side giving in. Economists also warned that a vacancy at the bank could be a big embarrassment for Japan, creating a leadership vacuum when central banks are struggling to calm markets during an economic slowdown.

“The selection has been turned into a game of chicken,” said Hideo Kumano at Dai-Ichi Life Research Institute. “Until one side flinches, Japan’s ability to make economic policy is greatly hampered.”

Kumano and others said Fukuda might have the most to lose from a prolonged standoff. The prime minister’s popularity ratings have been falling after he was seen as mishandling the government’s response to the sinking of a fishing boat by a military ship.

Some economists said Fukuda could have to compromise to avoid being accused of political incompetence for failing to fill the central bank seat.

The main opposition group, the Democratic Party of Japan, has been threatening for weeks to block Muto, saying his background as a top official at the Ministry of Finance could compromise the central bank’s independence.

On Wednesday, the upper house also rejected one of the government’s nominees for the bank’s two positions of deputy governor.

Opposition lawmakers rejected the nomination of Takatoshi Ito, a professor at the University of Tokyo, saying he was too close to the current government because he serves on an economic advisory committee to the prime minister.

The only nominee approved by the upper house was Masaaki Shirakawa , a former executive director at the Bank of Japan.

Shirakawa’s appointment as deputy governor appears certain, as he now only needs approval of the lower house, which is controlled by the governing party. If a new governor is not named by March 19, Shirakawa is expected to be asked to serve as interim bank chief, economists said.

On Wednesday, the Liberal Democrats said they might go ahead Thursday with a vote in the lower house to approve all three nominees, despite the rejections by the upper house. They said the three represented a well-balanced team with extensive experience in financial and monetary policy.

“We have proposed the best trio for the new BOJ leadership,” the finance minister, Fukushiro Nukaga, said, referring to the central bank. “We will continue trying to gain support” from the opposition.

While major newspapers and some prominent economists have criticized the opposition for politicizing the selection process, Japanese voters appear undecided on which side to blame. The Democrats have scored electoral victories recently for pledging to change the status quo in Japan, including the practice of doling out top government jobs to retired bureaucrats.

“Our disagreement does not mean that we want to use this for political gain,” the Democratic Party’s secretary general, Yukio Hatoyama, said. He said a successor could still be found by March 19 if the government came up with a “qualified person.”

In the days before the vote, Democratic lawmakers mockingly referred to Muto as “Mr. Finance Ministry.”

In confirmation hearings Tuesday, Muto tried to answer criticism by pledging to defend the independence of the bank, which was only freed from the ministry’s control a decade ago.

Originally published by The New York Times Media Group.

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