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Friday, Sept. 26, 2008

Economists split over Nakagawa's dual financial duties


Staff writer

Prime Minister Taro Aso's appointment of Shoichi Nakagawa to head both the Finance Ministry and the Financial Services Agency drew mixed reactions Thursday as economists wondered whether the move will help Japan cope with global turmoil or compromise the FSA's regulatory role.

News photo
Not-so-light reading: Shoichi Nakagawa (right), doubling as finance minister and financial services minister in a controversial one-man appointment, is handed key documents by the outgoing financial services chief, Toshimitsu Motegi, on Thursday. KYODO PHOTO

Aso said Japan is the only member of the Group of Seven industrialized nations that separates regulatory functions from financial affairs.

"When finance ministers are discussing the (crisis), there isn't any other minister who says 'We're not in charge of policies on financial organizations,' " he said in his first news conference Wednesday.

Asked if the Finance Ministry and the FSA should be merged, he replied, "We won't know unless we carry it out."

We may find out soon. Nakagawa, a former policy chief for the Liberal Democratic Party, has been entrusted with both posts. It is the first time a finance minister has headed the FSA since its regulatory functions were separated from the ministry in 1998.

Some economists welcomed the move, echoing Aso's argument that it would be better for one person to hold both posts at a time when the global financial system is on the verge of a crisis of confidence.

But others cast doubt on the move, warning that it could lead to government protection for the financial sector and looser regulation of big business.

"This is not a time of peace. This is a time of emergency," said Hidehiko Fujii, chief economist at Japan Research Institute Ltd. "Under this situation, it is a viable option."

Because the global financial system is in such tumult, Fujii said, it is important to come up with comprehensive financial measures and policies from both domestic and global viewpoints.

The FSA chief and other FSA officials are not invited to the meetings of G7 finance ministers and central bank chiefs because, unlike other countries, they are not part of the Finance Ministry.

The FSA was a division of the Finance Ministry until 1998. At that time, Japan was facing a financial crisis from the collapse of Hokkaido Takushoku Bank, a major regional bank, and Yamaichi Securities Co., which was Japan's fourth-largest brokerage.

It also came to light that Finance Ministry bureaucrats in charge of inspecting financial organizations had been wined and dined by officials from the major banks in exchange for information on inspections.

Such scandals prompted a groundswell of opinion that too much power was concentrated in the Finance Ministry and that the division controlling the inspections should be made independent.

So in June 1998, the inspection division became a separate entity called the Financial Supervisory Agency. Two years later, the Finance Ministry's financial planning division merged with the agency, which was renamed the Financial Services Agency.

Yutaka Harada, chief economist at Daiwa Institute of Research Ltd., said there hasn't been a thorough debate on whether the Finance Ministry and the FSA should be separate entities.

The only reason the FSA was established was "because of the scandal and voices of criticism that the Finance Ministry failed to supervise" the financial organizations, Harada said.

But he also said having one person serve as both finance minister and financial services minister may make it easy for the government to inject public funds into banks and brokerages that find themselves cornered.

"Because Mr. Nakagawa is not opposed to government spending, he may inject public funds" if he thinks it's necessary, Harada said.



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