Fukuda's losing game of chicken
over BOJ By Hisane Masaki
TOKYO - Japanese Prime Minister Yasuo
Fukuda's ruling coalition appears to be losing a
high-stakes political game of chicken with the
opposition camp, with its nominee for the next
central bank chief rejected by the nation's Upper
House on Wednesday.
The
opposition-controlled House of Councilors, or the
Upper House of the Diet (Japan's bicameral
Parliament), voted at its plenary session to block
the government's nomination, made last Friday, of
Toshiro Muto, one of the Bank of Japan (BOJ)'s
current two deputy governors.
With the
clock ticking towards the expiration of incumbent
BOJ governor Toshihiko Fukui's five-year term on
March 19, the House of Councilors' decision
further increased uncertainty over who
will
be his
successor and heightened the likelihood of the top
BOJ post being left vacant for the first time in
Japan's postwar history.
Failure to
resolve the dispute between Japan's ruling and
opposition parties over the top BOJ job could have
profound consequences for the world's
second-largest economy.
The largest
opposition Democratic Party of Japan (DPJ) and
other smaller opposition parties have claimed that
the appointment of Muto as the new BOJ chief would
threaten the central bank's independence from the
government in making monetary policy. They have
made an issue of his 37-year career background
with the Finance Ministry, including his tenure as
administrative vice finance minister, and have
argued for the principle of keeping fiscal and
monetary policymaking separate.
Muto, 64,
who served as the Finance Ministry's top
bureaucrat until two months before taking the
current BOJ post five years ago, is widely
considered to be a fiscal policy expert. Since
joining the BOJ, Muto has been groomed by Fukui,
72, to be his successor. Until the triennial House
of Councilors election last July, in which the DPJ
became the largest party in that Diet chamber and
led the opposition camp to grab a majority of
seats there, Muto had been widely considered to be
an automatic choice to step into Fukui's shoes.
Although Fukuda's Liberal Democratic Party
(LDP)-led ruling coalition enjoys a two-thirds
majority in the House of Representatives, or the
more powerful Lower House of the Diet, the
appointments of the BOJ governor and two deputy
governors require the approval of both houses of
the Diet. The House of Representatives is expected
to approve his promotion, possibly on Thursday or
Friday.
The government and the LDP have
chosen Muto believing that he is the safest bet to
ensure a smooth transition at a time when the
nation's economic growth appears to be stalling
and the turmoil in global financial markets is
continuing. "As the world economy undergoes very
rapid changes, we have to carry out financial
policy and manage the economy with great care. We
should select a person who can cope with such a
situation," Fukuda said last Friday.
The
opposition-controlled House of Councilors on
Wednesday also voted on the government's nominees
for new BOJ deputy governors - Masaaki Shirakawa,
a former BOJ executive director and now a
professor at Kyoto University, and Takatoshi Ito,
a professor at the University of Tokyo. The Upper
House approved Shirakawa but rejected Ito.
Shirakawa, 58, was involved in financial
policy planning at the BOJ for many years and
enjoys international recognition. Ito, 57, once
served as a deputy vice finance minister for
international affairs. He is also a member of the
Council on Economic and Fiscal Policy, the top
government economic policy panel chaired by
Fukuda. Ito is widely known as an advocate of
introducing an inflation-targeting policy, of
which many in the BOJ are skeptical. The five-year
terms of the BOJ's two current deputy governors -
Muto and Kazumasa Iwata, a former professor at the
University of Tokyo - also expire on March 19.
The ruling camp had wanted plenary
sessions of both houses of the Diet to convene on
Friday, hoping the opposition camp would spend
more time considering the government's choice of
Muto. The DPJ said, however, that the plenary
session of the opposition-controlled House of
Councilors was convened earlier, on Wednesday, to
give the government and the ruling parties time to
submit an alternative choice for the next BOJ
chief to avoid the vacancy of the top BOJ post,
despite the Diet chamber's rejection of Muto.
On Tuesday, the DPJ formally decided to
reject Muto as the next BOJ chief. DPJ secretary
general Yukio Hatoyama said immediately after the
decision, "In one word, [Muto] is a figure who
represents the Finance Ministry itself, and we
cannot secure the independence of the BOJ" if he
becomes governor. "It is not our decision that all
candidates are unacceptable just because they used
to be with the Finance Ministry. But Mr Muto is
someone who had been dubbed 'Mr Finance
Ministry'," Hatoyama said.
The DPJ's
decision on Tuesday against Muto came after the
Diet's hearings with him, Shirakawa and Ito, held
earlier in the day. During his hearing, Muto vowed
to strengthen the BOJ's independence from the
government. "I want to contribute to the Japanese
economy, following the ideal of the Bank of Japan
Law," Muto said. "I will increase the BOJ's
independence." The DPJ's former policy chief
Yoshito Sengoku, one of the most vocal opponents
of confirming Muto within the biggest opposition
party, said after Muto's hearing that the
responses from Muto to his and other lawmakers'
questions "did not wipe away our doubts".
Shortly after the DPJ's Tuesday decision,
Fukuda said he does not understand why the largest
opposition party is against Muto's nomination for
the top central bank post. "I don't really
understand why they are opposing it," Fukuda said,
repeating many times, "I'm troubled." The prime
minister also said it is "a bit reckless" to
oppose Muto simply because of his background as an
administrative vice finance minister.
Last
Friday, Fukuda reportedly said after the
government's nomination of Muto, Shirakawa and
Ito, "This is my first and last proposal," making
clear he had no intention of changing his mind on
the personnel proposal even if the DPJ opposed it.
Fukuda also told reporters that the combination of
the three is "well-balanced" and that he "can
probably gain an understanding" from opposition
lawmakers. "If any confusion arises, criticism
will be directed at the DPJ for rejecting the
original personnel plan. So the DPJ will have to
compromise before it comes to that," Fukuda said.
Meanwhile, the DPJ has said that the
government and the ruling parties should be blamed
if the post of central bank governor is
temporarily unfilled because they nominated Muto
at the last minute, knowing he would be turned
down. Last weekend, DPJ acting president Naoto Kan
said, "Five years ago, the party opposed Muto's
appointment to the BOJ deputy governor post.
Unless something comes up that would drastically
change our view, we don't need to change our
stance."
The BOJ law stipulates that if
the governor post is left vacant, one of the
deputy governors will act as a proxy. In the event
that the two deputy governor posts are also
vacant, one of the executive directors will act as
a proxy for the governor.
If Shirakawa
takes the post of deputy governor and if the
governor post is left vacant, he will serve as
acting governor and lead the central bank's
day-to-day operations in accordance with the BOJ
law. The DPJ decided to vote in favor of the
government's nomination of Shirakawa, apparently
in hope of avoiding public criticism for creating
a complete leadership vacuum at the BOJ.
DPJ secretary general Hatoyama said last
Saturday that Fukuda should nominate someone else
as the next BOJ chief and then negotiate a
settlement with DPJ president Ichiro Ozawa. As
incumbent BOJ governor Fukui's successor, many DPJ
lawmakers favor Yutaka Yamaguchi, a 67-year-old
career central banker who served as deputy
governor from 1998 until he retired in March 2003.
Fukuda sad on Monday, however, that there
is no need to present an alternative candidate for
the post. "We have submitted the plan, thinking it
is the best choice ... There is no need to think
about a resubmission now," Fukuda said, while
reiterating his willingness to hold talks with
Ozawa to seek his support for the government's
nomination of Muto if necessary.
It was
not clear as of Wednesday mid-afternoon how Fukuda
will respond to the rejection of Muto. Although
the government said it would consider renominating
Muto as the next BOJ head, he would have little,
if any, chance of being confirmed in the Diet.
Some within the LDP-led ruling coalition insist
that the government should consider nominating
someone else.
Fukuda, who also doubles as
LDP president, has so far been digging in his
heels in the showdown over the top BOJ job. If the
government and the ruling parties replace Muto
with someone else as their nominee for the next
BOJ governor, "it could be interpreted that the
opposition had forced a change in the personnel
decision", an aide to Fukuda reportedly said last
week. Such a scenario would weaken the political
influence of Fukuda, whose public support has been
continuously declining since taking office last
September, succeeding Shinzo Abe.
The DPJ
hardened its stance on the BOJ issue after the
ruling coalition railroaded the fiscal 2008 budget
and controversial tax bills, which would keep
gasoline surcharges in place, through the plenary
session of the House of Representatives on
February 29.
The DPJ leadership had
earlier been believed by some political pundits to
be trying to persuade other party members to agree
to Muto's appointment in order to avoid leaving
the post vacant, even if temporarily. But those
pundits say that Ozawa changed his tack and began
to pursue a strictly confrontational policy toward
Fukuda's ruling coalition to quell a growing
number of his opponents within the DPJ ahead of a
party presidential election in November.
Last November, Ozawa, a former LDP
heavyweight, submitted his resignation, saying he
felt he no longer had the backing of the DPJ
executives after they immediately opposed the idea
of entering a grand coalition with the LDP. The
idea of a grand coalition had come up during his
meeting with Fukuda, held two days earlier. Ozawa
officially retracted his resignation three days
later and returned to his and the DPJ's
long-standing stance of confronting the ruling
camp. "We won't think about a coalition," he said
at the time. But his opponents within the DPJ are
still deeply skeptical of his real intentions.
There are growing worries that the
Japanese economy may already be entering a
recession amid a stronger yen, spikes in prices
for oil and other raw materials, and declining
corporate capital investment. There are also
persistent concerns about a possible recession in
the United States and unstable global financial
markets, both triggered by the US subprime
mortgage crisis.
Against such a backdrop,
many analysts agree that a failure to avoid a
leadership vacuum at the BOJ, even if only
temporarily, would not only create serious
problems for the BOJ in implementing its monetary
policy promptly and effectively but also
underscore the lack of a sense of crisis among
Japanese political leaders, further erode
international confidence in the nation's economy
and add fuel to the sell-off of shares by foreign
investors on the Japanese stock market.
The ruling and opposition camps have
traded blame on the current imbroglio and warned
that they would hold each other accountable for
any consequences. But both sides would probably
find themselves open to public criticism, to a
greater or lesser degree.
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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