Hong Kong
11 March 2008
Bank of Japan Deputy Governor Toshiro Muto is asking lawmakers in Japan's divided parliament to support his candidacy as central bank chief. As Naomi Martig reports from Hong Kong, opposition members in parliament are likely to block Muto's nomination.
During confirmation hearings in Tokyo Tuesday, Toshiro Muto vowed to defend the Bank of Japan's independence at a crucial time for the economy.
Muto says he will adopt appropriate monetary policy to maintain Japan's economic strength.
He worked in Japan's Ministry of Finance for more than 30 years and was nominated to replace current Bank Governor Toshihiko Fukui, whose term ends next week.
Jeff Kingston is a professor of politics at Temple University in Japan. He says Japan's opposition Democratic Party is against Muto's nomination because they say he will not be as independent as a central bank chief should be.
"The principle that they are trying to promote is that there should be a separation between fiscal policy and monetary policy," Kingston explained. "The Bank of Japan governor sets monetary policy, Ministry of Finance sets fiscal policy."
Muto needs approval from both the upper and lower houses of parliament. The opposition controls the upper house and has vowed to block his approval.
Members of the ruling Liberal Democratic Party argue that Muto's appointment would provide a smooth transition for the economy, at a time when global markets are in turmoil.
The expected stalemate in the nomination process is troubling for some financial analysts, because it raises concerns about a vacuum in Japan's monetary policy when markets are volatile, and consumer price inflation is spreading around the world.
But Kingston says the concerns are exaggerated and that the political woes of Japan's parliament are not likely to contribute to global market worries.
"If the new governor is not named by the time the current governor exits, there are already rules in place for the deputy governors to start carry out his work," Kingston noted. "So really, whoever is going to be the next governor of the Bank of Japan is going to be keeping interest rates low, and it's not a very complicated job."
Japan's interest rates have been left at .5 percent for more than a year. On Wednesday, Japan is expected to sharply lower its growth estimate for the last quarter of 2007.
The Japanese economy spent most of the 1990's in recession and it has grown slowly since then. The Bank of Japan has kept interest rates at or near zero all of this decade, to stimulate spending and growth.
The dollar hovered near an eight-year low against the yen, Tuesday, just above 100 yen. The dollar has weakened over the past several months because of the faltering U.S. economy. Stock prices in Japan remain near two-year lows, having followed U.S. share prices lower over the past several months, because of fears of an international credit crisis.