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Where politics shouldn’t be: Is Muto’s tenure as next BOJ Governor already in danger?

November 20, 2007
By Ken Worsley


With current Bank of Japan Governor Toshihiko Fukui set to step down next March, talk has been surfacing over who his successor will be. One thing is certain: The appointment of such a position should be above party politics.

We noted back in June that a Bloomberg survey had indicated current BOJ Deputy Governor Toshiro Muto as the most likely successor to Mr Fukui. That, however, was before the July Upper House election, which saw the Democratic Party of Japan take control of that house of Japan’s parliament.

Why is that relevant? An appointee to the position of BOJ Governor must be approved by both houses of the Diet, and the DPJ doesn’t seem to be a big fan of Mr Muto, who previously held the position of Vice Minister of Finance from 2000 to 2002. This is the highest position in the Ministry of Finance that may be held by a bureaucrat.

It’s worth noting that in February, the last time the BOJ voted to increase the nation’s benchmark interest rates, Mr Muto cast the lone dissenting vote in an 8-1 decision. With LDP pressure often put on the Policy Board not to increase interest rates (more so during the Abe administration, perhaps less necessary now), was Mr Muto sending a message that he was still on their team? At the same time, Mr Muto has publicly expressed the same opinion that his boss has - namely, that the BOJ needs to gradually raise interest rates.

On Monday, DPJ Vice President (and former President) Katsuya Okada told reporters why he stood against Mr Muto’s nomination to the position, saying, “In general, I don’t think that it’s a good idea to put a former top finance official in charge of monetary policy.”

The grounds for Mr Okada’s opinion may make sense in the light of LDP practice to put their favorite sons in charge of Ministries and institutions such as the Bank of Japan. The DPJ finally has some muscle and needs to flex it, or needs to do something to show they have some say in how things are run. At the same time, the line given by Mr Okada means nothing. If the DPJ truly feels that Mr Muto is unable to do the job, they need to give real reasons why. Perhaps it is too early just yet. Then again, we might see Mr Muto rejected by the Upper House without fair reasons given. After all, this looks more like politics than banking.

Filed Under Bank of Japan, Ministry of Finance, Monetary Policy, Politics 

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Comments

4 Responses to “Where politics shouldn’t be: Is Muto’s tenure as next BOJ Governor already in danger?”

  1. Matt Dioguardi on November 21st, 2007 5:09 am

    This is an interesting discussion. Thanks.

    I really have no idea who he is, but I’m guessing Atsushi Mizuno would be the best man for the job as he’s the only one who voted to raise rates at the last meeting.

    Of course a committee of bureaucrats meeting every 3 months or so to determine the price of peanut butter (I mean the overnight interest rate) certainly can’t do a good job as the free market would do. Alas …

    Here’s an interesting article for you:
    www.elliottwave.com/features/default.aspx?cat=gw

  2. Ken Worsley on November 22nd, 2007 6:37 pm

    Thanks Matt…haven’t looked at Elliot Wave in some time, though that one is at least almost free of the gratuitous marketing language they seemed to rely on a few years ago. Good read…though being good contrarians, they should recognize that the ‘housing slump’ in Japan combined with the Nikkei getting ravaged is the setup of a housing boom next year and means some nice discount shares will be out there for a certain period of time coming soon.

  3. Fukui, Muto sound glum on economy; BOJ to revise GDP projections downward? Japan Economy News & Blog - Business, Economy, Marketing and Economic Reports on January 11th, 2008 11:21 pm

    […] has often come up as the most likely successor to Fukui as the Bank of Japan Governor. Of course, there could be some political hurdles to this appointment and confirmation, as we commented on a few months […]

  4. Yomiuri piece on the Bank of Japan Governor debacle is dead wrong Japan Economy News & Blog - Business, Economy, Marketing and Economic Reports on March 21st, 2008 12:22 am

    […] this event never should have come to pass, but it did - and we predicted trouble with this nomination back in November. The risk of nominating Mr Muto for the BOJ Governor position should have been clear and obvious to […]

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