Japan opposition vetoes leave BoJ in global credit crisis

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TOKYO, Mar 12 (Reuters): Opposition lawmakers vetoed the Japanese government's pick for central bank governor today, leaving the Bank of Japan (BoJ) in the middle of the global credit crisis with no successor to Governor Toshihiko Fukui one week before he retires.
The rejection of current deputy governor Toshiro Muto threatens a monetary policy vacuum in Japan at a time when central banks are working together to ease the crisis, including concerted action yesterday to inject hundreds of billions of dollars into credit markets.
The opposition, voting in parliament's upper house, which it controls, also rejected one of the nominees for deputy governor but approved the other, retired central bank official Masaaki Shirakawa.
The government's next step was not clear, although Japanese media have said Shirakawa might be named temporary BoJ head to give the opposition, led by the Democratic Party, and the ruling coalition time to find a longer term solution.
"It is the shame of the government and the Democratic Party," said Morgan Stanley economist Takehiro Sato, adding the two sides in the debate had let the issue go far too close to Fukui's long-known retirement date of March 19.
"Both the LDP and DPJ have to make concessions to each other. The DPJ should have proposed alternative ideas, but they didn't."
There was speculation that the government and opposition might reach a deal under which Muto would be renominated and opposition parties would abstain from voting in return for concessions on other policies, such as whether to cut petrol taxes.
The row has added to the political paralysis in Japan that has sent Prime Minister Yasuo Fukuda's popularity sliding.
"To have such confusion over deciding the top of the BoJ, which holds Japan's purse strings, shows Japan is in crisis," said Masufumi Akutagawa, 29, who works in an IT business.
The rejection of Muto comes amid fears of a US recession and a slowdown, possibly also a recession, this year in Japan.
Fourth-quarter Japanese growth was confirmed by the government at 0.9 per cent Wednesday, confounding market expectations for a sharp revision down.
However Taro Saito, senior economist at Nissay Research said the economy was likely to stall, or even contract, in the current quarter.
"The BoJ is likely to keep rates on hold for the time being, but if the bank were to move it would likely be a rate cut and not a rate hike," he said. "The bank may be forced to cut rates to cooperate with global monetary easing."
While appointing Shirakawa as acting governor would ensure the BoJ had a leader, economists say a temporary central bank governor is not a good solution as the world faces a possible recession in the United States.
Major central banks, including the US Federal Reserve, teamed up Tuesday to channel hundreds of billions of dollars in fresh funds to cash-starved credit markets.
The BoJ spoke out in support of the moves, but took no specific steps of its own to boost liquidity.