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By Masahiro Hidaka
Jan. 22 (Bloomberg) -- There's almost no chance that Japan will fail to appoint a central bank governor before Toshihiko Fukui's term expires in March, an opposition lawmaker said.
``It's 99 percent impossible'' that the Bank of Japan's top position will be left unfilled, Kohei Otsuka, deputy head of the Democratic Party of Japan's upper house policy council, said in an interview in Tokyo on Jan. 17. DPJ leader Ichiro Ozawa ``has no intention'' of letting the post become vacant, Otsuka said.
The party's landslide victory in Upper House elections last July gives it the power to block the nominations for Bank of Japan governor. Some economists say a stand-off between the government and opposition could delay any appointment, leaving a leadership void at the central bank.
``The chances are better than half they won't find a replacement for Fukui in time,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``Everything depends on Ozawa, who's basically the DPJ's decision maker.''
The DPJ already vetoed three of 28 candidates for other government-appointed jobs in November, the first such rejections in parliament in 56 years.
Otsuka said the government should present three candidates: a former central banker, an ex-Finance Ministry official and another person with neither experience. Otsuka, who worked at the central bank until 2000, is one of the DPJ's lawmakers involved in the process for selecting the governor.
Opposition to Muto
In 2003, the DPJ opposed the appointment of Deputy Governor Toshiro Muto, a former Finance Ministry official, citing objections to parachuting senior bureaucrats into top government appointments. Muto is the frontrunner to replace Fukui, according to a Bloomberg News survey of economists in December.
Muto meets required credentials, but ``there are other former Finance Ministry officials who also do,'' Otsuka said.
``The DPJ believes a Muto-led bank would be less independent from the bureaucracy,'' Morgan Stanley's Sato said. ``The DPJ believes monetary policy and fiscal policy should be absolutely separate.''
Fukui's policy board will leave the benchmark overnight lending rate at 0.5 percent at the conclusion of a two-day meeting in Tokyo today, according to all 38 economists surveyed by Bloomberg News.
The government wants to begin the selection process for appointing the governor and two deputies in February, Chief Cabinet Secretary Nobutaka Machimura said on Jan. 11. The five- year terms of both Muto and fellow deputy Kazumasa Iwata also expire in March.
Negative Effects
Otsuka said he will consider reappointing the current deputy governors because there may be negative effects from reshuffling the three leadership posts at the same time.
Otsuka named Yutaka Yamaguchi, a former deputy governor and now adviser to Barclays Plc, as a possible candidate to head the central bank, adding that those who don't have experience as deputy may also qualify.
Other people economists say could replace Fukui include Kazuo Ueda, a former central bank board member, and Haruhiko Kuroda, head of the Asian Development Bank and a former Finance Ministry official.
Otsuka said there may still be a 1 percent risk of a leadership vacuum, but that will ``depend on how the government and the ruling coalition handle the matter.''
Fellow DPJ lawmaker Naoki Minezaki, also involved in the selection process, said in an interview last month that a vacancy would be a ``disaster.''
To contact the reporter on this story: Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net .
Last Updated: January 21, 2008 18:50 EST
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