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3 Markets play guessing games over
Bank of Japan By Hisane Masaki
oft-stated BOJ stance. He added
that it is inappropriate to suggest the timing of
policy changes in advance.
Muto also said
the rate hike in February didn't directly target
foreign-exchange markets and yen carry trades.
"The February rate hike was aimed at achieving
sustainable economic growth with price stability,"
he said. He also said that the US economy as a
whole remains solid and that there is a strong
possibility that
it
will achieve a soft landing despite the recent
subprime-loan problem. Subprime loans account for
only about 13-14% of the entire US housing market
and their woes are unlikely to affect the entire
US economy, he observed.
Meanwhile, Muto
is widely seen as the top candidate to succeed
Fukui as BOJ chief. Fukui's term of office expires
on March 19, 2008. In fact, according to a recent
poll of 24 prominent economists, conducted by Jiji
Press news agency, 19 said Muto is the
front-runner in the race. Muto, 63, joined the
Finance Ministry upon his graduation from the
prestigious University of Tokyo. He served as
administrative vice finance minister, the top
bureaucratic post at the ministry, between June
2000 and January 2003. He took the current post of
deputy BOJ governor in March 2003, when Fukui also
became governor.
A few other people are
seen as candidates to succeed Fukui next March,
including Takenaka, now professor of economics at
Keio University, and Kazumasa Iwata, another BOJ
deputy governor and former professor of economics
at the University of Tokyo.
Takenaka, 56,
served as state minister for economic and fiscal
policy, minister of internal affairs and
communications, and state minister for
privatization of the postal services under
Koizumi. He played a key role in pushing through
Koizumi's reform programs. Takenaka won a seat in
the House of Councilors in a 2004 election,
although he left public life by relinquishing his
parliamentary seat and returned to academic life
last autumn.
Takenaka is a vociferous
critic of the recent BOJ policy and an advocate of
an inflation target. He said, "Deflation is still
lingering in Japan. The biggest problem is an
interest-rate hike in the absence of economic
overheating or inflation," and warned that
deflation may become more serious. The BOJ has not
specified an inflation target and remains
unaccountable for the results of its decisions, he
said. "The imbalance between its great power and
its limited accountability is a problem," he said.
"In order to maintain its independence, the BOJ
should set an inflation target."
Iwata,
60, joined the then Economic Planning Agency after
graduating from the University of Tokyo. But he
later left the government agency and began to
teach at the university. Before assuming the
current BOJ post in March 2003, Iwata served as
director general of economic assessment and policy
analysis at the Cabinet Office for about two
years. The BOJ's nine-member policy board,
including Fukui, Muto and Iwata, made the February
decision to raise rates by a vote of 8-1. The only
No vote was cast by Iwata. It is quite unusual for
the votes to be split among the governor and
deputy governors.
In January, the BOJ
faced formidable political pressure from many
within Abe's government and the Liberal Democratic
Party over rate policy. Hidenao Nakagawa, the
LDP's secretary general and No 2 man after Abe,
who concurrently serves as party president, went
so far as to warn that the ruling coalition might
consider revising the BOJ Law to weaken the
central bank's decision-making power. Nakagawa, a
close aide to Abe, said at the time that if the
BOJ "cannot unify its judgment on the economy and
policy targets to conform to those of the
government, it will represent a major flaw in the
legal system". The BOJ Law was revised in 1997 to
strengthen the central bank's independence from
the government. The revision took effect the
following year.
The BOJ Law stipulates
that the nine members of the central bank's policy
board, including the governor and two deputy
governors, "shall be appointed by the cabinet,
subject to the consent of the House of
Representatives [lower house of Parliament] and
the House of Councilors". The chances of Takenaka
or Iwata becoming the next BOJ governor will grow
if Abe, who is pursuing a pro-growth economic
agenda, manages to survive the July House of
Councilors election and stay in power, many
pundits say.
To be sure, Muto may be a
safer bet than others. But at the same time, the
Jiji Press survey of 24 prominent economists tells
an interesting story. Only five of them answered
that they wanted Muto to be the next BOJ governor,
while three expressed support for Iwata. Kazuo
Ueda, dean of the Faculty of Economics at the
University of Tokyo and former BOJ policy board
member, also won support from three, followed by
Takenaka, who was backed by two.
Meanwhile, the Abe cabinet formally
appointed Hidetoshi Kamezaki, a senior vice
president of Mitsubishi Corp, and Seiji Nakamura,
president of MOL Ferry Co, as of Thursday to
replace two members of the BOJ's policy board
whose term of office expired the day before. Both
Kamezaki and Nakamura are widely expected to take
the middle ground on monetary policy.
Hisane Masaki is a Tokyo-based
journalist, commentator and scholar on
international politics and economy. Masaki's
e-mail address is yiu45535@nifty.com.
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