Reformers in Japan take aim at finance ministry influence

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Michiyo Nakamoto
FT Syndication Service
TOKYO: The Bank of Japan is frequently the subject of intense debate on its monetary policy.
But in the current month it has become the unwitting victim of a damaging dispute that is more about politics than economics.
In a drawn-out battle of nerves that has led to an unprecedented leadership vacuum at the central bank, the ruling Liberal Democratic party and the main opposition Democratic Party of Japan continue to bicker over who should succeed Toshihiko Fukui, who ended his five-year tenure at the BoJ's helm on March 19.
Ostensibly, the confrontation has resulted from divergent views on who is best qualified to lead the central bank.
On one side are the prime minister, Yasuo Fukuda, and the LDP, who appear determined to appoint a former vice-minister of the finance ministry.
Mr Fukuda insisted until the middle of this month that Toshiro Muto, their initial candidate who is a BoJ deputy governor until today and a former ministry of finance vice-minister, was the best man for the job.
When Mr Muto was rejected by the DPJ, the government put forward Koji Tanami, another former vice-minister of finance and currently head of the Japan Bank for International Co-operation.
On the other side is the DPJ, which believes that the BoJ governor should be able to stand up to the finance ministry and defend the central bank's independence.
But behind the tussle over the governor's qualifications is a battle between the LDP and DPJ of a different order, which could have far-reaching consequences for how Japan is governed.
Mr Fukuda's decision to name Mr Tanami, despite the DPJ's clear objections to someone with his background, highlights the extent to which the LDP is under the influence of the finance ministry, analysts say.
By insisting on naming a former finance ministry vice-minister, "the LDP and MoF are trying to run the system by the old MoF rules", says Robert Feldman, chief economist at Morgan Stanley in Tokyo. Under those rules, the finance ministry gets to appoint the next BoJ governor, who must be a former vice-minister of similar age to Mr Muto, in order to preserve the seniority system, analysts say.
The LDP's willingness to abide by the ministry's rules shows that they are "still trying to play a game in which the bureaucracy decides what to do and the Diet rubber stamps it", says Gerald Curtis, Burgess professor of political science at Columbia University.