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Thursday, March 20, 2008
BOJ TUSSLE LEAVES DIET PARALYZED
Fukuda's coalition finds itself trapped
By MASAMI ITO
Prime Minister Yasuo Fukuda is stuck.
Trapped by the Diet's stalemate over the next Bank of Japan governor, the ruling bloc has been unable to address a pile of government issues on its plate, leaving the political center of Nagata-cho in disarray.
Twice he tried, and twice he failed before BOJ Gov. Toshihiko Fukui's five-year term ended Wednesday. Now the top banking post in the world's second-largest economy is vacant.
Perhaps it's Fukuda's fault. Despite the Democratic Party of Japan-led opposition camp's vocal opposition to former Finance Ministry bureaucrats, he first nominated BOJ Deputy Gov. Toshiro Muto, a former vice finance minister who was summarily rejected by the opposition-controlled Upper House.
Yasunori Sone, a political science professor at Keio University, said he did not understand why Fukuda was so persistent about Muto's nomination. "I think the LDP and DPJ were waging psychological warfare, playing chicken," Sone said.
Then Fukuda stunned Nagata-cho on Tuesday by nominating Koji Tanami, another former vice finance minister.
"I am disappointed by (Fukuda's choice) and that the Finance Ministry is defeating him," DPJ Secretary General Yukio Hatoyama told reporters. "We must create a nation in which the public plays the key role, not the Finance Ministry. It is dangerous that the prime minister's office has fallen under the leadership of the Finance Ministry."
The DPJ, the largest opposition force, has repeatedly stressed that the central bank should not be run by former finance bureaucrats to avoid jeopardizing the BOJ's independence from the government.
Despite the Finance Ministry's influence on BOJ personnel picks, however, Fukuda said Tuesday evening that he firmly believes the opposition will approve Tanami, who currently heads the Japan Bank for International Cooperation.
When asked why, he simply said: "Good sense."
But even lawmakers in the Liberal Democratic Party-New Komeito ruling bloc have questioned his choice.
"I think (Fukuda or his close aide) read (the opposition) wrong," an executive member of the coalition said last week when Fukuda's first choice, Muto, was rejected. "Fukuda should have covered his steps more thoroughly. . . . I wonder who he is consulting?"
"I don't think (the LDP) did a good job of sounding out the DPJ," Sone said. "I think there was a problem in information-gathering as well as (Fukuda's) decision-making capabilities.
Now the BOJ governor's seat is technically vacant. But Fukuda has other issues to deal with — beginning with the passage of the state budget for fiscal 2008, and related bills before the end of fiscal 2007, which comes in just over a week. Considering the deadlock in the Diet, however, the chances of Fukuda getting government business done look bleak.
In the least, the government can breathe a small sigh of relief knowing that the budget, which the ruling bloc rammed through the Lower House amid strong protest on Feb. 29, will clear the Diet just in time due to its 30-day activation clause, which starts after it is sent to the Upper House. But in order to activate key parts of the budget, related bills also must be approved.
Among them is the tax reform bill, which contains a controversial clause that preserves "provisionally added" auto and road tax rates that have been in place for decades, including a tax on gasoline, for another 10 years.
The special tax rates expire March 31. The revenue is solely used to finance nationwide road construction.
On Wednesday, Fukuda told the ruling bloc to draft a revision of the tax reform bill to eventually allow the revenue to be used for other means, in an apparent compromise with the opposition camp.
But the DPJ, led by Ichiro Ozawa, argues that the special rates should be abolished. If the extra rates are removed, gasoline prices would be expected to go down by ¥25 per liter.
"The public will surely be happy if gasoline prices go down ¥25," Sone said. "But the government will have a difficult time trying to secure a source of revenue."
Political analyst Eiken Itagaki said, "When considering the lives of the public, both the DPJ and LDP are going to have to compromise at some point."
In January, Lower House Speaker Yohei Kono mediated an agreement in which the two sides would seek "a conclusion" on the tax reform bill by the end of March.
Fukuda took this as meaning the Upper House will vote on the bill by March 31. But Hatoyama argued that the ruling bloc broke the deal by ignoring opposition legislators and ramming the budget and bills through the Lower House.
The agreement made "with mediation by Kono . . . has now been broken because (the ruling bloc) rammed" through the budget and related bills, Hatoyama said, adding that the party would continue urging Fukuda to dissolve the Lower House and call an election.
Unless the prime minister dissolves the House of Representatives at some point, legislators will keep their seats until September 2009.
Itagaki said Fukuda's difficult situation will not immediately lead to the Diet's dissolution but the LDP may need to choose a new leader.
"People are also already saying Fukuda's situation is hopeless," Itagaki said. "Who knows? Fukuda's Cabinet might not last till the (July) G8 summit."
New BOJ governor case scenarios
Following are likely case scenarios over the selection of a new Bank of Japan governor after the Upper House rejected a government nominee Wednesday for the second time:
Masaaki Shirakawa, already endorsed by the Diet as deputy governor, becomes acting BOJ chief, heads the central bank's day-to-day operations and participates in international meetings such as the Group of Seven gathering of financial chiefs from industrialized economies in April.
The government of Prime Minister Yasuo Fukuda proposes a third nominee for Diet deliberations and voting while Shirakawa is serving as acting BOJ chief.
The government may revise the Bank of Japan Law to put priority on a voting result in the Lower House, where Fukuda's ruling coalition maintains its majority, with an eye to renominating BOJ Deputy Gov. Toshiro Muto, the government's initial nominee who was voted down by the opposition-controlled Upper House.