Japanese Parliament again rejects government effort to name central bank successor
TOKYO: As the monetary authorities in Washington and elsewhere fight to contain the deepening financial crisis, Japan may have added to their problems by failing to find a new leader for its central bank on Wednesday.
The top post at the Bank of Japan now sits empty after a political standoff in Parliament blocked selection of a successor to the current governor, whose five-year term ended on Wednesday.
The standoff in Parliament came to a head on Wednesday when the upper house, which is controlled by the opposition, rejected the governments last-minute effort to fill the position, vetoing its second nominee in a week.
The defeat has been widely seen here as a damaging political setback to an already unpopular prime minister, Yasuo Fukuda, who has been increasingly blamed for the banks leadership vacuum.
Until the position can be filled, world economic leaders now face the uncomfortable prospect of having no leader at the Bank of Japan, the central bank of the worlds second-largest economy.
Economists and former bank officials call it a humiliating situation for a country that has been trying for years to assume an international political role commensurate with its $5 trillion economy.
“Its a national disgrace,” said Mikio Wakatsuki, a former executive director at the bank who is now chairman of AXA Life Insurance of Japan.
“Japan is at risk of becoming the missing link in multinational efforts.”
The biggest problem, Wakatsuki and others said, is the blow to confidence in Japans ability to manage its own economy, particularly at a time of global financial turmoil. While the deputy governor will step in to run day-to-day affairs at the bank, a high profile vacancy will only raise further worries about Japans direction as its growth stalls and economic policy appears increasingly adrift.
World economic leaders may also feel the loss. Lack of a chief means there will be no one at the Japanese central bank to confer regularly with overseas counterparts like the Federal Reserves chairman, Ben Bernanke.
Former central bankers say such informal discussions are important to work out joint moves or weigh the wisdom of market interventions.
Moreover, Japan has a lot to offer to other central banks in the current crisis, former central bank officials here said. The country is the only major economy to have recently weathered a housing market meltdown and resulting banking crisis on a similar scale to the problems in the United States. Indeed, Japanese central bankers are eager to point out the parallels between their nations financial collapse in the early 1990s and what is happening now in the American economy.
“We have faced a problem of the same magnitude before,” said Takashi Anzai, a former Bank of Japan official who is now president of Seven Bank, a retail bank based in Tokyo. “We bring rich experience to the table.”
Anzai said a vacancy at the central bank also hamstrings Japan from taking more aggressive action to prop up the slowing global economy. He said a central bank leader could help stimulate Japans now lackluster domestic demand, turning the nation into a new engine of growth as the American economy sputters.
“We are the No. 2 economy, after all,” he said. “When America is in trouble, there must be more we can do.”
For the time being, however, Tokyo has shown itself able to offer little more than political gridlock and finger-pointing.
The main opposition party, the Democratic Party of Japan, has warned for weeks it would not approve nominees who come from the nations powerful Ministry of Finance, saying they would undermine the central banks independence. Despite the warnings, both candidates offered in the past week by Fukuda held top posts at the ministry.
Both sides have blamed the other for the impasse.
But public opinion seems to be turning increasingly against Fukuda, especially after he unveiled the second nominee, Koji Tanami, a former vice finance minister who now heads the Japan Bank for International Cooperation.
Even many members of his own party, the Liberal Democratic Party, or LDP, expressed disbelief at Fukudas seemingly stubborn insistence on nominating former ministry officials.
Political analysts said the choice reinforced the public perception that the prime minister was under the thumb of powerful ministry bureaucrats, as traditionally has been the case here. They said this would only strengthen the opposition Democrats, who have gained popularity recently by vowing to change politics as usual in Japan.
Political analysts speculated that Fukuda either grossly underestimated the opposition by the Democrats, or simply could not come up with a more appealing candidate in time. Either way, they said, he has the most to lose from a prolonged stalemate, which could force him to resign by eroding support within his party.
