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Bank of Japan struggle tests prime minister's leadership

The opposition rejected a second candidate Wednesday.

By Takehiko KambayashiCorrespondent / March 20, 2008



Tokyo

Prolonged political confusion that has blocked selection of Japan's next central bank chief has damaged Prime Minister Yasuo Fukuda's leadership at a time of economic jitters at home and abroad.

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The term of the current governor of the Bank of Japan (BOJ), Toshihiko Fukui, ended Wednesday. But lawmakers in the world's second-largest economy have settled on no one to replace him.

The Upper House of Japan's parliament, controlled by the opposition Democratic Party of Japan (DPJ), voted against Koji Tanami, the head of the Japan Bank for International Cooperation, a government lending agency, Wednesday. Mr. Fukuda's first pick, Toshiro Muto, the current central bank deputy governor, was rejected by the opposition last week.

The political gridlock comes as the nation is said to be heading into a recession and central banks are teaming up to avert a global financial crisis triggered by the US subprime loan problem.

Critics blame Fukuda for picking a candidate whom DPJ leaders were likely to reject. They charge that Fukuda's repeated failures could lead to his fall, fueling concerns that Japan may be in another era of revolving-door cabinets under weak leaders, say analysts.

"The ruling LDP [Liberal Democratic Party] is likely to bring Fukuda down," says Minoru Morita, a Tokyo-based political analyst, noting that the party has no strong leaders. The LDP "is like a shaky old mansion that is about to collapse."

Shinzo Abe, Fukuda's predecessor, abruptly stepped down for health reasons last September after the LDP suffered a crushing defeat in the Upper House election in July. His cabinet lasted less than a year.

The Fukuda cabinet's approval rating has steadily declined, reaching 33.9 percent in a March 15-16 survey by the major newspaper Yomiuri Shimbun. Its disapproval rating is 54 percent.

Some analysts say the bank crisis will harm Japan's image abroad. "[Any] excuse Japan throws up will probably be given short shrift if other nations judge that Japan has abandoned its responsibility to help stabilize the global economy," editorialized the major newspaper Yomiuri Shimbun Wednesday.

Mr. Tanami, like Mr. Muto, was a former top bureaucrat in the Finance Ministry. Opposition DPJ leaders have argued that the central bank must retain its independence from the Finance Ministry. DPJ Secretary General Yukio Hatoyama also said that as a bureaucrat, Tanami lacks sufficient experience in international financial markets. Still, Mr. Hatoyama noted recently that the DPJ could support some former bureaucrats who have monetary policy expertise.

Masaaki Shirakawa, a Kyoto University professor and former BOJ official who has been approved as the BOJ's new deputy governor, will fill the top slot as acting governor. Some DPJ leaders now support Mr. Shirakawa as BOJ chief.

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