Bank of Japan Makes Fresh Start Under “New Leadership”

Text of report in English by Japan’s largest news agency Kyodo

[By Shinya Ajima]

Tokyo, March 21 Kyodo – The Bank of Japan made a fresh start Friday under the new leadership of Deputy Governor Masaaki Shirakawa as political wrangling has left the central bank without a governor for the first time since the end of World War II.

Shirakawa, who now assumes the role of acting governor, told a news conference the central bank will place top priority on handling a financial market turmoil stemming from the US subprime crisis amid growing uncertainty over the global economy.

Shirakawa, who was a BOJ executive director for monetary affairs between 2003 and 2006, also vowed to fulfil his responsibility as the head of the central bank until a new governor is appointed.

The Japanese central bank remains without a governor after Governor Toshihiko Fukui ended his five-year tenure Wednesday. The Diet rejected two nominees for the post of BOJ governor submitted by the government of Prime Minister Yasuo Fukuda.

The Diet did, however, approve Shirakawa and Kiyohiko Nishimura, a member of the board, to serve as deputy governors of the central bank.

The BOJ’s Policy Board chose Shirakawa as the chair of the decision-making body on Friday.

Nishimura told the same news conference that a leadership vacuum causes “hardship” for the central bank, while stressing that the BOJ will make appropriate policies at a time when it needs to promote policy management in a careful manner.

Earlier in the day, Fukuda told the deputy governors, as he handed letters of appointment, he expects the two to draw on their past experiences and to work hard at a time when global markets are being “rocked by turbulence,” according to Chief Cabinet Secretary Nobutaka Machimura.

The five-year tenures of Shirakawa and Nishimura, both former economics professors, began Thursday, a public holiday in Japan.

On Wednesday, the opposition-controlled House of Councillors voted down the government’s nomination of Koji Tanami, a former vice finance minister and currently the governor of the Japan Bank of International Cooperation, for the post of BOJ governor.

It was the second rejection of a government nominee for the post following the upper house’s rejection last week of the government’s initial nominee, Toshiro Muto, then BOJ deputy governor and another former vice finance minister.

The Democratic Party of Japan and other smaller opposition parties argued that the appointment of a former top Finance Ministry bureaucrat to head the BOJ would hurt the independence of the central bank from the government when making monetary policy decisions.

The House of Representatives, the lower house controlled by Fukuda’s ruling coalition, approved both nominees. But they failed to secure the backing of the Diet as the BOJ leadership appointments require approval from both houses of parliament.

On Friday, Fukuda said it will be difficult to pick a new candidate amid political wrangling involving the DPJ and called on the main opposition party to “use common sense” in selecting a new BOJ governor.

DPJ Secretary General Yukio Hatoyama separately said that the vacancy period for the BOJ governorship should not be prolonged because such an absence is not desirable in view of Japan’s national interests, and called on the government to make efforts to appoint a new governor before the next policy-setting panel meeting in early April.

As Nishimura’s successor, who also has to secure Diet approval, has yet to be decided, the Policy Board, which usually has nine members, made a new start Friday with only seven.

If the government fails to obtain Diet approval for the next BOJ chief by mid-April, Shirakawa “will have to participate in” the upcoming Group of Seven meeting of finance ministers and central bank governors in Washington, the top government spokesman said.

Analysts said the leadership vacuum at the BOJ could seriously damage the credibility of the bank and deal a blow to Fukuda as his government tries to weather a difficult time in gl obal financial markets stemming from the US subprime mortgage crisis with a leaderless central bank.

Finance Minister Fukushiro Nukaga told a separate press conference Friday morning, “As the global economy and financial markets remain unstable, we have to limit the vacancy in the BOJ governorship to a minimum.”

Originally published by Kyodo News Service, Tokyo, in English 1252 21 Mar 08.

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