Bank of Japan Nominee Replaced, but Standoff Holds

The Japanese government proposed its second nominee for the governor of the Bank of Japan on Tuesday, only to see him swiftly rejected by the main opposition party, leaving Parliament once again deadlocked just a day before the current governor retires.

The rebuff means Japan will likely appoint a temporary Bank of Japan head to replace Toshihiko Fukui when his term ends at midnight Wednesday, a stopgap measure that analysts had said should be avoided in the midst of a global credit crisis.

Political analysts said they were stunned that Prime Minister Yasuo Fukuda, having seen one former top Finance Ministry official vetoed by the opposition-controlled upper house of Parliament, had nominated someone with the same credentials.

The government had put forward Koji Tanami, the 68-year-old head of a state-funded lending agency, as its second pick for governor.

He was once vice minister of the Finance Ministry, the top bureaucratic position in the ministry and the same job once held by Toshiro Muto, whom opposition parties rejected last week.

While Muto, currently a deputy governor of the bank, was rejected for his close ties to the government, the main opposition Democratic Party also cast doubt on Tanami’s abilities.

“We have doubts about whether he can do the job as he is not an expert on international financial problems,” the Democrats’ secretary general, Yukio Hatoyama, said. “We have to be very careful about the selection because the BOJ governor has a responsibility to protect people’s livelihoods.”

With Tanami set to be rejected, it will bring the government back to square one in its search for a new Bank of Japan leader, with a deputy governor slated to take over once Fukui’s term ends.

Parliament has already approved one new deputy governor, a former Bank of Japan official, Masaaki Shirakawa. The Democrats said they would back a second nominee for the other deputy governor, a Bank of Japan board member, Kiyohiko Nishimura, when parliament votes on Wednesday.

One small opposition party broke ranks and said it would vote with the government on the central bank nominations, but its four lawmakers would not be enough to swing the balance in the upper house, which must approve nominations for the Bank of Japan.

Fukuda, already under fire from voters over a broad paralysis in policy making, had said he believed the Democrats would make a “sensible decision.”

“Tanami is knowledgeable about both international finance and the domestic economy,” Fukuda told reporters before the opposition decision. “He’s perfect in terms of both character and insight.

“Monetary policy needs independence from the government, but it also needs coordination with the government,” he said.

Underlying the succession battle is a traditional rotation of the job of heading the Bank of Japan between career central bankers and former Finance Ministry officials.

Tanami is “a different name but more or less the same kind of candidate,” said Jun Azumi, the Democratic Party’s deputy head of parliamentary affairs.

The deadlock over Fukui’s successor is not expected to have a large effect on monetary policy since Japanese interest rates are near rock bottom, analysts say, but they said the crisis in financial markets means a permanent governor is needed.

Originally published by Reuters.

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