Deja vu in Tokyo as the Japanese government nominates (yet another) new candidate to head the central bank and - what do you know - the political opposition indicates (for the second time) it will veto the nomination in parliament. The only difference on this occasion is that time has all but run out for a smooth transition to the helm of one of the world’s key central banks: from Wednesday, the Bank of Japan will have no governor.
The government on Tuesday nominated Koji Tanami, president of the Japan Bank for International Co-operation (a quasi-government lender) and a former top finance ministry bureaucrat, in an attempt to break the deadlock over the BoJ’s leadership, reports the FT.
However, the main opposition DPJ - which controls the upper house of Japan’s Diet, or parliament - immediately indicated it would probably oppose Tanami’s appointment.
The DPJ last week rejected Toshiro Muto, the government’s initial candidate to head the BoJ, on concerns that his finance ministry background could jeopardise the bank’s independence and that he lacked international experience.
But as FT Alphaville noted in an earlier post on the “comic kabuki” at the BoJ, the willingness of politicians to allow their wrangles to leave a void at the helm of the central bank would seem to undermine the supposedly critical nature of the job - and therefore, the legitimacy of concerns about any candidate’s bureaucratic affiliations.
Close association with the finance ministry seems to be the DPJ’s ostensible main reason for opposing BoJ candidates: “It’s clear the finance ministry wants to keep its hold on the BoJ governor’s post and since we rejected Muto, it will be difficult to find a reason to agree to Tanami,” Kenji Yamaoka, a senior DPJ official, said Tuesday.
But there is a neat conspiracy theory doing the rounds among Tokyo’s ever-active pundits: that Yasuo Fukuda, Japan’s prime minister, and his team have twice chosen former finance ministry bureaucrats in full knowledge of the opposition DPJ’s very public position against appointing finance ministry bureaucrats to the job.
Why? Amid growing expectations of an election at some point in the next year, Fukuda, with popularity plunging, puts forward two reasonably well-qualified people for the BoJ job. Finance ministry affiliations have never been a big issue with BoJ appointments in the past. So, as the matter becomes more urgent, the DPJ begins to look more bloody-minded in its opposition. And, hopefully (from the government’s point of view), popular opinion swings against the DPJ.
In a Tuesday note, Richard Jerram, chief economist at Macquarie (Japan), doesn’t rule out the possibility that Tanami will scrape in. He could possibly be more acceptable than the government’s failed candidate, Muto, “as he spent most of this decade in relative obscurity at JBIC, so is less recently associated with the MOF than his successor”.
Tanami’s current job actually involves significant external exposure, adds Jerram, “which could imply he would have some ability in representing the BOJ at international meetings”. However, his lack of specialist understanding of monetary economics would limit his credibility, in Jerram’s view.
In terms of the likely policy stance, Tanami “would not bring any hope of a material change in BOJ policy”, although on balance his appointment, if it did materialise, would seem to imply a shift to a slightly more hawkish stance, notes Jerram.
Whatever the outcome, the FT concludes, the stalemate over BoJ leadership “threatens to undermine the bank’s and the Japanese government’s credibility at a time of major global market turmoil, a soaring yen and sinking stock markets”.
Both the upper and lower houses of the Diet held hearings on Tanami’s nomination on Tuesday and are set to vote on his appointment on Wednesday.
Masaaki Shirakawa, a former BoJ staffer-cum-academic, is the only one of the government’s three candidates to be accepted by the upper house. If all else fails, he will end up as acting governor of the BoJ - which is probably much more than he bargained for.
