- The Washington Times - Monday, February 24, 2003

Japanese Prime Minister Junichiro Koizumi nominated a career central banker on Monday to be the head of the Bank of Japan, after much speculation over who would replace outgoing governor Masaru Hayami, whose five-year term ends March 19.

The new leader and his team will inherit an economy is well into its 12th year of weakness, with few signs of definite improvement in sight. Yet initial response to the new line-up has largely been positive.

Toshihiko Fukui, who was deputy governor of the BoJ in 1998, is Koizumi's pick to replace Hayami. The prime minister also named Toshiro Muto and Iwata as the two BoJ vice-governors. While all nominations need legislative approval, most analysts expect the confirmation hearings to go without a hitch.

"This is a strong team … it may actually shift the balance so that the BoJ holds more clout than other agencies (in setting economic policy)," not unlike the Federal Reserve Board's clout in directing U.S. economic and monetary policy, said one Japanese government official on condition of anonymity.

Fukui became (and remains) head of Fujitsu Research Institute, a think tank affiliated with the electronics manufacturer, after spending nearly 40 years at the BoJ. He left the bank in 1998 after a bribery scandal involving a mid-level central banker, although Fukui himself bore no direct responsibility for the incident.

Fukui has maintained close ties with the current governor and is seen by many as a safe choice who won't stray far from his predecessor's path.

Muto is a former vice-minister of finance and accordingly well-connected to the Ministry of Finance, which remains the single most powerful financial agency in Japan. As for Iwata, he is an academic who is also a senior official of the Cabinet Office, with close ties to the prime minister.

Many expect Iwata to be the brains behind the BoJ's policy, while Muto and Fukui will ensure that those ideas are actually implemented.

At a news conference in Tokyo following the prime minister's announcement, Economy Minister Heizo Takenaka pointed out the need for the financial ministries to work closely together. And Deputy Trade Minister Seiji Murata said that he hoped the BoJ would pursue monetary policy that will take into consideration not just domestic but also international financial concerns.

Business executives, on the other hand, were more forthcoming in their high hopes for the new line-up at the BoJ.

"Mr. Fukui is a quiet man, but he is decisive," said Hiroshi Okuda, who heads Japan's largest car manufacturer, Toyota Motor Co., and is chairman of the business group Keidanren. Meanwhile, the Japan Chamber of Commerce head Nobuo Yamaguchi also welcomed the nomination, stating that Fukui was the "most appropriate person" for the job.

Still, given the tasks awaiting the central bank, some worry that the 67-year-old Fukui will be too conservative and cautious to pursue proactive policies to jump-start the ailing economy. For one, given Fukui's close ties with the current governor, it is unlikely that he will deviate far from the efforts that the central bank has already taken to stimulate growth, which would rule out untested measures such as inflation targeting.

Deflation has weighed down the economy for the past three years, as expectations that prices will continue to fall have stifled both consumer and business spending. That, in turn, has kept a lid on growth.

But Fukui, like Hayami, has made it clear that he believes that structural reform must come first and foremost, to ensure that monetary policy is effective. In particular, Fukui has been vocal about his concern over the ailing banking system, which continues to be bogged down by non-performing loans amid still-depreciating real estate prices.

"The good thing about the new line-up is that it will encourage lively debate … and there will be an ability for implementation" of whatever is decided within the BoJ, the government source said. The central bank has until now played second fiddle to the more powerful Ministry of Finance and only recently gained legal independence from the financial agency.

The extent to which the BoJ can assert its independence is debatable.

But even if Fukui were able to press ahead with everything that the BoJ were to prescribe, monetary policy alone can't eliminate the country's economic woes. But unlike Federal Reserve Chairman Alan Greenspan, whose advice has been sought on issues beyond the scope of the central bank, it's highly unlikely that the BoJ will have much influence over the fiscal or financial issues plaguing Japan's economy.


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