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Japan Appoints New BoJ Head
[Analysis] A three-week leadership vacuum at the central bank ends
Hisane Masaki (hmasaki)     Print Article 
Published 2008-04-10 13:15 (KST)   
Masaaki Shirakawa, who took over as head of the Bank of Japan (BoJ) on Wednesday, faces the daunting challenge of preventing the world's second-biggest economy sliding into a recession amid growing downside risks both at home and abroad.

Shirakawa, 58, comes with some strong credentials, despite being the government's third choice for the post. He has been involved in financial policy planning at the BoJ for many years, served as a BoJ executive director between 2002 and 2006, and enjoys international recognition. But widely seen as a scholarly man, he will have to show largely untested administrative and leadership abilities to prove he is as suitable for the post of BoJ governor in his own right as the government's third choice.

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The appointment of Shirakawa, who has served as acting BoJ governor since being appointed deputy governor on March 20, ended a three-week leadership vacuum at the Japanese central bank due to a political stalemate when his 72-year-old predecessor, Toshihiko Fukui, stepped down on March 19.

The opposition-controlled House of Councilors, or the Upper House, of the Diet, Japan's bicameral parliament, approved the government's nomination of Shirakawa on Wednesday, with all parties except the Japanese Communist Party voting in favor. Shirakawa was confirmed later in the day at a plenary session of Prime Minister Yasuo Fukuda's Liberal Democratic Party (LDP)-led ruling coalition-controlled House of Representatives, or the Lower House.

Immediately after the Diet approval, the government formally appointed Shirakawa as new BoJ chief in a round-robin cabinet decision so he can leave on Thursday for Washington to attend the meeting of finance ministers and central bank chiefs from the Group of Seven (G7) major industrialized economies at the end of the week. The G7 comprises the United States, Canada, the United Kingdom, Germany, France, Italy and Japan.

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The absence of a BoJ governor at the G7 meeting would have further underscored the lack of a sense of crisis among Japanese political leaders, eroded international confidence in the nation's economy and added fuel to the sell-off of shares by foreign investors on the Japanese stock market.

The opposition-controlled House of Councilors however rejected on Wednesday the government's nomination of Hiroshi Watanabe, 58, a former vice finance minister for international affairs, for the post of deputy BoJ governor to step into Shirakawa's shoes, leaving one of the two deputy governor posts vacant.

The House of Councilors decided by 121 to 115 to reject Watanabe, with the biggest opposition Democratic Party of Japan (DPJ), the Japanese Communist Party and the Social Democratic Party voting against him. Three DPJ lawmakers voted for Watanabe in violation of the party decision and four other DPJ lawmakers either failed to attend the vote or abstained from balloting. Watanabe was approved by the House of Representatives.

Kiyohiko Nishimura, 54, was appointed to the deputy governor post on March 20. Nishimura, who served as a member of the BoJ's Policy Board before taking the current post, is a former University of Tokyo professor. Chief cabinet secretary Nobutaka Machimura, the top government spokesman, said at a regular press conference on Wednesday that one of the two deputy governor posts will be left vacant for a while.

The DPJ, which decided on Tuesday evening to give Shirakawa the nod for the top BoJ post, had been widely expected to endorse his promotion because on March 12 it backed his nomination for the post of deputy governor. Shirakawa was a professor at Kyoto University until that appointment on March 20.

The DPJ decided on Tuesday to reject Watanabe's appointment as deputy governor, although some of the party's lawmakers had indicated earlier that the nomination would be approved. DPJ leader Ichiro Ozawa had expressed opposition to Watanabe's nomination because of his background as a Finance Ministry bureaucrat.

The DPJ made the decision on how to vote on the government's nominations of Shirakawa and Watanabe after the two nominees' hearings in both houses of the Diet earlier in the day. DPJ secretary general Yukio Hatoyama told reporters that the party made the decision to turn down Watanabe because it opposes the practice of amakudari - or "descent from heaven" - in which senior bureaucrats land post-retirement jobs at entities related to the sectors they formerly oversaw.

Finance Minister Fukushiro Nukaga expressed his disappointment at the DPJ's decision. ''Why didn't it endorse this talented person?'' he said, arguing that Watanabe would be well suited to the job at a time of global financial turbulence.

The government's first two choices for the BoJ governor post - Toshiro Muto and Koji Tanami - failed to clear the Diet after being rejected by the House of Councilors. Muto was nixed on March 12 and Tanami on March 19, the day Fukui's five-year term as BoJ governor expired.

The House of Representatives, where Fukuda's LDP-led coalition enjoys a two-thirds majority, approved both Muto and Tanami. The appointments of the BoJ governor and two deputy governors require the approval of both houses of the Diet.

Muto, 64, served as the Finance Ministry's top bureaucrat until two months before taking the BoJ post five years ago. After joining the BoJ, Muto had been groomed by Fukui to be his successor. Until the triennial House of Councilors election last July, in which the DPJ became the largest party in that chamber and its opposition camp allies grabbed a majority of seats from the LDP-led coalition there, Muto had been widely considered to be an automatic successor to Fukui.

But the DPJ and smaller opposition parties claimed appointment of Muto as a the BoJ governor 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 holding the post of administrative vice finance minister, and clamored for the principle of keeping fiscal and monetary policymaking separate.

The DPJ and other smaller opposition parties also rejected the government's second choice as Fukui's successor, Tanami, 68, now governor of the government-affiliated Japan Bank for International Cooperation, citing his career background as a former administrative vice finance minister.

The government and the ruling LDP believed that the trio of a career central banker, a former career Finance Ministry bureaucrat and a private-sector academic would form the most balanced BoJ leadership. The two deputies of Fukui, a career central banker, were Muto, a former top Finance Ministry bureaucrat, and Kazumasa Iwata, a former professor at the University of Tokyo, whose terms also expired on March 19.

The ruling and opposition camps have traded blame on the imbroglio over the new BoJ line-up and warned that they would hold each other accountable for any consequences.
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. This is the first part of an article that originally appeared on Asia Times.
©2008 OhmyNews
Other articles by reporter Hisane Masaki

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