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Thursday, March 13, 2008
Critical time for BOJ to lack governor
But economists divided over whether markets would react negatively
With the opposition-controlled House of Councilors' veto Wednesday of Toshiro Muto's nomination for Bank of Japan governor, the prospects are mounting that the BOJ helm will become vacant after Toshihiko Fukui's term ends March 19.
The looming vacancy at the top of the BOJ comes at a critical time for the global economy and just as the Federal Reserve and four other central banks Tuesday agreed to a massive capital injection into ailing financial markets.
"It is as if all the fire engines in the world are set to be dispatched in this state of emergency but only Japan is not able to send one," said Hideo Kumano, chief economist at Dai-ichi Life Institute. "Confidence in the BOJ will decline."
Kumano noted that the political turmoil stemming from two Diet chambers being dominated by different political blocs will continue to affect the fate of crucial bills, including a tax reform bill to allow provisional extra tax rates on gasoline and motor vehicle tonnage.
"The cost resulting from the opposition-controlled Upper House is beginning to be clear," Kumano said. "It's quite big."
But Wednesday's rejection of Muto does not mean the BOJ's daily tasks are in jeopardy.
Since former BOJ executive Masaaki Shirakawa's nomination as BOJ deputy governor was approved by the Upper House the same day, he is expected to become acting governor until a new nominee gets the green light by the Diet.
The House of Representatives, controlled by the Liberal Democratic Party-New Komeito ruling bloc, is expected to approve Shirakawa's nomination Thursday.
Article 22 of the BOJ Law stipulates that the deputy governor will perform the duties of governor if that post becomes vacant — a situation the BOJ claims would be unprecedented.
"Since this is a time when the domestic economy, financial market and global financial environment are extremely unsteady, the BOJ governor and deputy governors should be approved by March 19," Finance Minister Fukushiro Nukaga told reporters.
Upcoming schedules for the BOJ and central bank chiefs include a monthly Policy Board meeting starting April 8, followed by a BOJ governor's news conference and a meeting of Group of Seven finance ministers and central bank chiefs to be held in Washington in mid-April.
Economists, however, are divided on whether the political turmoil over the BOJ governorship will have a negative impact on the Japanese market.
Kumano of Dai-ichi Life Institute warned the move will not be taken positively by foreign investors who account for about 60 percent of trading in Japan.
But Yasunari Ueno, chief market economist at Mizuho Securities Co., claimed the market has not responded so far to the possibility of a vacant BOJ helm.
"For the market, the U.S. subprime mortgage loan crisis has by far a bigger impact than whether the BOJ governor's position is vacant," Ueno said.
Since Shirakawa has abundant experience in BOJ policymaking from his time as a BOJ director, there is no problem with him being acting governor for the time being, Ueno said.