Japan's bank crisis resolved,
others remain By Hisane Masaki
TOKYO - Masaaki Shirakawa, who took over
as head of the Bank of Japan (BoJ) on Wednesday,
faces the daunting challenge of preventing the
world's second-biggest economy sliding into a
recession amid growing downside risks both at home
and abroad. Shirakawa, 58, comes with some
strong credentials, despite being the government's
third choice for the post. He has been involved in
financial policy planning at the BoJ for many
years, served as a BoJ executive director between
2002 and 2006, and enjoys international
recognition. But widely seen as a scholarly man,
he will have to show largely untested
administrative and leadership abilities to prove
he is as suitable for the post of BoJ governor in
his own right as the government's third choice.
The appointment of Shirakawa, who has
served as acting BoJ
governor since being appointed
deputy governor on March 20, ended a three-week
leadership vacuum at the Japanese central bank due
to a political stalemate when his 72-year-old
predecessor, Toshihiko Fukui, stepped down on
March 19.
The opposition-controlled House
of Councilors, or the Upper House, of the Diet,
Japan's bicameral parliament, approved the
government's nomination of Shirakawa on Wednesday,
with all parties except the Japanese Communist
Party voting in favor. Shirakawa was confirmed
later in the day at a plenary session of Prime
Minister Yasuo Fukuda's Liberal Democratic Party
(LDP)-led ruling coalition-controlled House of
Representatives, or the Lower House.
Immediately after the Diet approval, the
government formally appointed Shirakawa as new BoJ
chief in a round-robin cabinet decision so he can
leave on Thursday for Washington to attend the
meeting of finance ministers and central bank
chiefs from the Group of Seven (G7) major
industrialized economies at the end of the week.
The G7 comprises the United States, Canada, the
United Kingdom, Germany, France, Italy and Japan.
The absence of a BoJ governor at the G7
meeting would have further underscored the lack of
a sense of crisis among Japanese political
leaders, eroded international confidence in the
nation's economy and added fuel to the sell-off of
shares by foreign investors on the Japanese stock
market.
The opposition-controlled House of
Councilors however rejected on Wednesday the
government's nomination of Hiroshi Watanabe, 58, a
former vice finance minister for international
affairs, for the post of deputy BoJ governor to
step into Shirakawa's shoes, leaving one of the
two deputy governor posts vacant.
The
House of Councilors decided by 121 to 115 to
reject Watanabe, with the biggest opposition
Democratic Party of Japan (DPJ), the Japanese
Communist Party and the Social Democratic Party
voting against him. Three DPJ lawmakers voted for
Watanabe in violation of the party decision and
four other DPJ lawmakers either failed to attend
the vote or abstained from balloting. Watanabe was
approved by the House of Representatives.
Kiyohiko Nishimura, 54, was appointed to
the deputy governor post on March 20. Nishimura,
who served as a member of the BoJ's Policy Board
before taking the current post, is a former
University of Tokyo professor. Chief cabinet
secretary Nobutaka Machimura, the top government
spokesman, said at a regular press conference on
Wednesday that one of the two deputy governor
posts will be left vacant for a while.
The
DPJ, which decided on Tuesday evening to give
Shirakawa the nod for the top BoJ post, had been
widely expected to endorse his promotion because
on March 12 it backed his nomination for the post
of deputy governor. Shirakawa was a professor at
Kyoto University until that appointment on March
20.
The DPJ decided on Tuesday to reject
Watanabe's appointment as deputy governor,
although some of the party's lawmakers had
indicated earlier that the nomination would be
approved. DPJ leader Ichiro Ozawa had expressed
opposition to Watanabe's nomination because of his
background as a Finance Ministry bureaucrat.
The DPJ made the decision on how to vote
on the government's nominations of Shirakawa and
Watanabe after the two nominees' hearings in both
houses of the Diet earlier in the day. DPJ
secretary general Yukio Hatoyama told reporters
that the party made the decision to turn down
Watanabe because it opposes the practice of
amakudari - or "descent from heaven" - in
which senior bureaucrats land post-retirement jobs
at entities related to the sectors they formerly
oversaw.
Finance Minister Fukushiro Nukaga
expressed his disappointment at the DPJ's
decision. ''Why didn't it endorse this talented
person?'' he said, arguing that Watanabe would be
well suited to the job at a time of global
financial turbulence.
The government's
first two choices for the BoJ governor post -
Toshiro Muto and Koji Tanami - failed to clear the
Diet after being rejected by the House of
Councilors. Muto was nixed on March 12 and Tanami
on March 19, the day Fukui's five-year term as BoJ
governor expired.
The House of
Representatives, where Fukuda's LDP-led coalition
enjoys a two-thirds majority, approved both Muto
and Tanami. The appointments of the BoJ governor
and two deputy governors require the approval of
both houses of the Diet.
Muto, 64, served
as the Finance Ministry's top bureaucrat until two
months before taking the BoJ post five years ago.
After joining the BoJ, Muto had been groomed by
Fukui to be his successor. Until the triennial
House of Councilors election last July, in which
the DPJ became the largest party in that chamber
and its opposition camp allies grabbed a majority
of seats from the LDP-led coalition there, Muto
had been widely considered to be an automatic
successor to Fukui.
But the DPJ and
smaller opposition parties claimed appointment of
Muto as a the BoJ governor would threaten the
central bank's independence from the government in
making monetary policy. They have made an issue of
his 37-year career background with the Finance
Ministry, including his holding the post of
administrative vice finance minister, and clamored
for the principle of keeping fiscal and monetary
policymaking separate.
The DPJ and other
smaller opposition parties also rejected the
government's second choice as Fukui's successor,
Tanami, 68, now governor of the
government-affiliated Japan Bank for International
Cooperation, citing his career background as a
former administrative vice finance minister.
The government and the ruling LDP believed
that the trio of a career central banker, a former
career Finance Ministry bureaucrat and a
private-sector academic would form the most
balanced BoJ leadership. The two deputies of
Fukui, a career central banker, were Muto, a
former top Finance Ministry bureaucrat, and
Kazumasa Iwata, a former professor at the
University of Tokyo, whose terms also expired on
March 19.
The ruling and opposition camps
have traded blame on the imbroglio over the new
BoJ line-up and warned that they would hold each
other accountable for any consequences.
Meanwhile, Shirakawa, as new BoJ governor,
takes the post at a time when the Japanese economy
is teetering on the brink of a recession amid a
stronger yen, spikes in prices for oil and other
raw materials, and declining corporate capital
investment. There are also persistent concerns
about a possible prolonged recession in the United
States and unstable global financial markets, both
triggered by the US subprime mortgage crisis.
With Japan dependent on exports for
growth, a higher value of the yen, which makes
Japanese products more expensive on overseas
markets, and an economic downturn in the US,
Japan's largest export market, both hurt the
Japanese economy.
On March 19, the day
Fukui stepped down as BoJ chief, the government
downgraded its assessment of the economy for the
second consecutive month. Economic and Fiscal
Policy Minister Hiroko Ota said at the time that
the nation's longest postwar recovery, which
started in February 2002, has hit a soft patch, or
temporary lull, for the third time.
Ota
said on Tuesday that that there is no change in
her view that the economy is in a soft patch. Her
comments came a day after the government said
Japan's diffusion index of coincident economic
indicators stayed below the boom-or-bust line of
50% in February for the second straight month.
On April 1, the BoJ released a closely
watched tankan quarterly survey showing
that confidence at leading Japanese manufacturers
worsened to its lowest in more than four years.
The survey also showed large Japanese companies
plan to cut business investment by 1.6% in fiscal
2008, which began on April 1.
At its
two-day policy board meeting that ended on
Wednesday, the BoJ, in a widely expected move,
kept interest rates on hold amid mounting concerns
over the outlook for the global, as well as
Japanese, economy and international financial
markets. The BoJ kept the unsecured overnight call
rate - which the BoJ uses as the key target rate
in the short-term money market - at 0.5%.
Shirakawa chaired the latest policy board
meeting for the first time, but in his capacity as
acting BoJ governor because he was formally
promoted to governor after the meeting ended. With
the BoJ's top post still vacant during the
meeting, seven members of the normally nine-member
policy board made its Wednesday decision
unanimously.
The BoJ itself also
downgraded its view on the Japanese economy as
well as its outlook on Wednesday, dropping a
phrase used in recent reports that it was on a
moderate expansion trend. "Japan's economic growth
is slowing mainly due to the effects of high
energy and materials prices," the central bank
said in a report issued after the two-day policy
board meeting ended. As for the outlook, the
report said, "Japan's economy is expected to grow
at a slower pace for the time being and follow a
moderate growth path thereafter."
When
Fukui took the reins at the Japanese central bank
in March 2003, short-term interest rates were
zero. In March 2006, the BoJ scrapped its
five-year-old "quantitative easing" policy and
returned to a more conventional regime of using as
a monetary adjustment target the unsecured
overnight call rate rather than the outstanding
balance of current-account deposits held by
private financial institutions at the central
bank.
It was the first time in about 15
years, except for a brief period from the summer
of 2000 to early 2001 in which the BoJ hastily
lifted the zero-interest rate policy, that the
central bank had reversed its policy to one of
tightening. The quantitative easing policy was
aimed at defeating deflation, which long plagued
the Japanese economy by depressing corporate
earnings and wages. Under the quantitative easing
policy, which the BoJ introduced in March 2001,
the bank flooded the nation's financial markets
with excess cash in the hope of encouraging
borrowing and lending, while anchoring short-term
interest rates at near zero.
In July 2006,
the BoJ ended its near six-year zero-interest
policy as the Japanese economy gained strength
after a decade in the doldrums, lifting the target
for the unsecured overnight call rate to 0.25%
from in effect zero and the official discount rate
to 0.4% from 0.1 % per annum.
In February
2007, the BoJ raised rates by a quarter percentage
point again to 0.5%, in an attempt to rectify what
the central bank itself views as the "abnormal"
state of the credit policy. The official discount
rate - which serves in effect as the cap on the
overnight interbank rate because the BoJ provides
loans to banks at the rate through its
Lombard-type lending facility - was jacked up to
0.75% from 0.4%.
As governor, Fukui
repeatedly warned of the dangers of keeping a very
loose monetary policy. But the nation's interest
rates, still quite low by international standards,
have been left on hold at 0.5% for more than one
year amid growing concerns about the health of the
economy.
While many analysts expect
Shirakawa to pursue a similar policy to his
predecessor and the BoJ to take a wait-and-see
attitude by keeping interest rates steady this
year, others predict a cut in rates in the near
term as the uncertainty over the economy is
growing.
In his confirmation hearing at
the Diet on Tuesday, Shirakawa apparently tried to
avoid committing himself about rates. He said the
bank has no preconceptions about policy and will
"closely examine both upside and downside risks".
Noting that the outlook for the Japanese economy
is "full of uncertainty", he reiterated that the
bank is ready to take "flexible action". But at
the same time he said that it can take one to two
years before the effect of policy emerges and that
the BoJ needs to take longer-term risks into
account.
Hisane
Masaki (yiu45535@nifty.com) is a
Tokyo-based journalist, commentator and scholar on
international politics and economy.
(Copyright 2008 Asia Times Online Ltd. All
rights reserved. Please contact us about sales, syndication and republishing .)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
