Tokyo Chooses Acting Central Banker As Its Nominee

The Japanese government on Monday picked the acting governor of the Bank of Japan, Masaaki Shirakawa, as its latest nominee to head the bank permanently, finally finding a candidate that the opposition was likely to approve after weeks of a crisis.

The government, scrambling to resolve a dispute that has left the Bank of Japan without a permanent leader for the first time in 80 years, wants a governor in place in time for a meeting of finance ministers from the Group of 7 industrialized nations Friday in Washington. The meeting will look at a strategy to deal with turbulent global markets and concern about a U.S. recession.

But while the government’s third attempt at picking a governor is likely to be approved by the Japanese Parliament, with senior opposition lawmakers already expressing support, the dispute may carry on in a fight over the latest government nominee for deputy governor.

Alongside Shirakawa, the government nominated a former Finance Ministry official, Hiroshi Watanabe, for deputy governor despite opposition concern about former Finance Ministry officials serving at the central bank.

The nomination of Shirakawa comes before a two-day policy meeting at the central bank starts Tuesday, which he is already set to lead as acting governor.

The meeting is not expected to cut the already very low rates in Japan but will be watched closely for any sign that the central bank has become more pessimistic about the Japanese economy.

Financial markets have been more focused on U.S. problems, but analysts say Japan needs to send a permanent bank governor to the G- 7 meeting because a stand-in would likely be unable to commit to long-term decisions in talks with other central bankers.

Shirakawa, a former top official at the Bank of Japan, is seen by economists as a logical choice to break the political logjam.

“Shirakawa, as a career central banker, is expected to act flexibly if economic and financial market conditions worsen,” said Mamoru Yamazaki, chief economist at RBS Securities.

Opposition parties, which control the upper house of Parliament and can thus veto nominees to head the central bank, rejected the government’s two previous candidates because they spent much of their careers in the Finance Ministry, a connection the lawmakers said would threaten the central bank’s independence in monetary policy.

The showdown reflects a broader political impasse that is undermining confidence in Prime Minister Yasuo Fukuda, who is already suffering public doubts about his leadership that have cut his support rates to 24 percent, a public poll by the Mainichi newspaper showed.

Parliament is to question the two nominees Tuesday, before a vote scheduled for Wednesday – leaving just enough time for Shirakawa to catch a flight to Washington.

Helping Shirakawa’s case is that he has already won parliamentary backing as a deputy governor last month.

Shirakawa himself has shrugged off labels like hawk or dove, saying only that his views are not that different from those of the Bank of Japan before his appointment as deputy governor.

Investors say there is a 20 percent chance of a rate cut by June and a 50 percent chance of a cut by year-end.

If the Bank of Japan “is forced to change its scenario for the worse, a rate cut could be proposed,” Yamazaki said. “Still, Shirakawa is an advocate of normalizing interest rates, so he will likely raise rates to more normal levels in the long run if uncertainties over the U.S. and Japanese economies clear.”

Watanabe’s appointment is less certain, as he is a former vice finance minister for international affairs. To get the job he would need support from the main opposition Democratic Party, which opposes the custom of alternating top Bank of Japan posts between central bankers and Finance Ministry officials.

That system is an example of “amakudari,” or descent from heaven, whereby civil servants parachute into cushy jobs after retiring.

The leader of the Democrats, Ichiro Ozawa, said the issue did not arise with Shirakawa, a career central banker. But asked if Watanabe could replace Shirakawa as deputy governor, he said: “The opinion that it is not desirable for this post to take the form of amakudari is held by many in the party.”

Originally published by Reuters.

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