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Crisis over Bank of Japan nomination

Latest update : 2008-03-12

Japanese Finance Minister Fukushiro Nukaga said on Wednesday the government had no plan to put forward an alternative candidate for a Bank of Japan governor after its nominee was vetoed in the upper house of parliament.


Japanese opposition lawmakers Wednesday voted down Bank of Japan deputy Toshiro Muto as the next central bank chief, defying the government which refused to look for a new candidate.
  
The political standoff makes it increasingly likely that the central bank of the world's second-largest economy will be run by a caretaker governor after outgoing chief Toshihiko Fukui steps down on March 19.
  
"For now we aren't thinking of an alternative proposal to the original nomination," Finance Minister Fukushiro Nukaga told reporters.
  
Chief Cabinet Secretary Nobutaka Machimura urged the main opposition Democratic Party of Japan (DPJ) to reconsider its resistance to Muto, a former heavyweight at the finance ministry.
  
"I have to say that the criticism of him is utterly inappropriate. We don't understand their disagreement with his nomination," said Machimura, the top spokesman for the government.
  
The opposition-controlled upper house voted 129 to 106 to reject Muto's nomination, official results showed. The candidate must be approved by both houses of parliament.
  
Senior DPJ leader Yukio Hatoyama said it was up to the government to ensure the central bank's top spot is filled within a week.
  
"It is fully possible to decide on the next governor in time for the 19th if the government chooses an appropriate person," Hatoyama said.
  
Opposition lawmakers are concerned that Muto, a former top bureaucrat at the finance ministry, is too cosy with the government and that his appointment might damage the central bank's independence.
  
The government, concerned about Japan's slow but steady economic recovery, has in the past put pressure on the Bank of Japan not to raise interest rates, currently the lowest among the world's major economies.
  
Japan's rates have been left on hold at 0.5 percent for more than one year amid growing concerns about the health of the economy.
  
The upper house also rejected the nomination of Takatoshi Ito -- a University of Tokyo professor and economic advisor to Prime Minister Yasuo Fukuda -- as one of Muto's two deputies.
  
But it approved the appointment of Masaaki Shirakawa, a former BoJ executive director, as a deputy governor. If the row over the central bank governor is not resolved in time, Shirakawa could become temporary governor.
  
The political standoff is unsettling investors at a time of global financial uncertainty due to concern about the health of the US economy.
  
Morgan Stanley economist Robert Feldman said that both parties were at fault.
  
"The ruling party proposed a candidate whom they knew the opposition would oppose. So there is blame on both sides on this," he said.
  
He said there had not been sufficient debate on what type of candidate was needed.
  
"The inadequacy of the debate," he said, "makes markets lose confidence that the decisions are being made on the basis of content rather than a political feud."
  
Muto, 64, told lawmakers Tuesday that he would defend the Bank of Japan's autonomy, saying the economy faced a crucial phase.
  
"I will try to win people's trust and I want to firmly secure the independence of the Bank of Japan," he said.
  
But senior lawmakers from the DPJ said they were unconvinced, describing Muto as "Mr. Finance Ministry".
  
The opposition won control of the upper house last year, setting the stage for gridlock as it pushes for early general elections.
  
Relations between the two main parties have been severely strained by a string of disputes culminating in the ruling coalition ramming a state budget through the lower house last month.

Date created : 2008-03-12

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