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Monday, April 21, 2008

JAPANESE PERSPECTIVES

Squabbling ruined chance for private-sector BOJ chief


Special to the Japan Times

The dispute over replacing the Bank of Japan governor, whose seat was left vacant when Toshihiko Fukui's five-year term ended March 19, was finally settled April 9 when Deputy Gov. Masaaki Shirakawa was officially promoted to chief of the central bank.

The new BOJ governor was welcomed by leaders of other industrialized nations as he attended a Group of Seven meeting of central bankers and finance ministers in Washington on April 11 and during the subsequent dialogue with private-sector financial leaders. It was a great pleasure to see Gov. Shirakawa carry out his new duties smoothly there. However, I would like to make three comments on the selection of the new governor.

First of all, it is clear that the political process leading up to the selection damaged Japan's international credibility. Around the world, it was reported that Japanese politicians are unable to make timely decisions on important matters amid rapidly changing global circumstances.

The vacancy at the BOJ's helm was extremely unusual in that if it had dragged on much further, it would have seriously affected international trust in the central bank.

The protracted search occurred at a time when central bankers in other major economies may have needed to make a phone call or two to discuss a financial emergency. It is fortunate such an emergency did not happen when the BOJ was without a leader.

It must also be noted, however, that routine BOJ operations were never hampered by the governor's absence. The regular Policy Board meeting April 9 was smoothly handled by the deputy governor. This is why the BOJ has deputy governors — to fulfill the job of governor when the seat is vacant.

The second issue is Prime Minister Yasuo Fukuda's nominees for governor and deputy governor. Not just the first set, but all three.

Each time the government's nominees were presented to the Diet, Fukuda picked a combination of career BOJ officials and former Finance Ministry bureaucrats. Fukuda's repetition of this strategy exposed him for his lack of political wisdom and his inability to deal with a divided Diet, where his ruling coalition lacks a majority in the Upper House.

If only Fukuda had considered choosing a private-sector expert with a solid financial background, the Democratic Party of Japan or other opposition parties would have found it difficult to reject such nominees, and the embarrassing vacancy in the BOJ's top post would have been averted.

Even though the ruling coalition parties — the Liberal Democratic Party and New Komeito — appear to understand they no longer control the Upper House, their behavior tends to be dictated by the same old modus operandi. What they need to do is kick their old habits and move faster to deal with the upcoming political agenda and the gridlock in the Diet.

The political mess over the "provisional" extra rates on gasoline and other road-related taxes, for example, might have been avoided if Fukuda had acted more quickly to propose freeing up the revenue for things other than road construction.

Problems rest with the opposition- leading DPJ as well. While rejecting the BOJ nominees by citing the need to eliminate Finance Ministry influence and stop the "amakudari" (literally "descent from heaven") practice of arranging postretirement jobs for elite bureaucrats — reasons that appeared to have been conveniently brought up only after the nominees were announced — the party seemed to be prioritizing its political interests.

It is only natural for a political party to aim for power. But for the DPJ to take it, it must first recognize the responsibility the opposition camp bears as the majority force in the Upper House, spell out a clear set of policy standards, and try to demonstrate that it is capable of running the government.

Otherwise, its path to power will only fade away. The most recent political impasse was the result of poor strategy on the part of the ruling bloc, and the DPJ has not yet shown voters it can play a positive role. The opposition's boycott of the Diet's proceedings only exposed the immature aspects of Japan's political process, and in that sense the DPJ contributed to the erosion of Japan's international credibility.

The third problem is that the nation's business organizations missed out on a chance to enable the appointment of private-sector experts to the position of BOJ governor.

They merely urged the government and lawmakers to avoid creating a vacancy at the central bank's top position, without pushing their own candidates for the job. The radical changes in today's economic circumstances require that the private and public sectors combine their capabilities and experience.

BOJ governors and deputy governors have been appointed from the private sector before. Those business organizations are not supposed to be think tanks or observers. They are supposed to be pursuers of the policy objectives agreed on by their members.

Did their silence on the most recent BOJ dispute mean the private sector currently does not have people capable of doing the job? If so, that is quite regrettable.

Teruhiko Mano is a professor at Seigakuin University Graduate School.

Teruhiko Mano is a professor at Seigakuin University Graduate School.


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