Bank of Japan (BoJ) Governor Toshihiko Fukui opened a policy meeting yesterday with a cloud hanging over him in a scandal seen as weakening his credibility as he moves to end five years of zero-interest rates.
Opposition lawmakers have called for Fukui's resignation, saying he was unethical to have kept an investment in the fund of controversial manager Yoshiaki Murakami who was arrested on insider trading charges.
"Many analysts believe the central banker's scandal could affect policy management itself," said the Tokyo Shimbun. "Needless to say, governor Fukui has responsibility to explain what happened."
Despite the two-day policy board meeting, the opposition has asked Fukui to appear before a parliamentary committee today over the scandal.
However, the government came in support of the central banker, who has been popular in financial circles since his appointment by Prime Minister Junichiro Koizumi in 2003.
"Our understanding is that he fully explained the situation. I believe the government and ruling party members in general have understood the situation," said Chief Cabinet Secretary Shinzo Abe, the government spokesman.
"We want the governor to fulfill his duties with the trust of the Japanese public," Abe said.
Fukui has developed a complicated relationship with Koizumi, who openly questioned his plan to end the five-year policy of "quantitative easing," under which the BoJ flooded the financial system with cash to offer easy credit.
But in a show of independence, the bank went ahead with a policy change in March, saying the economy has revived from its decade-long rut and no longer needed the highly unusual policy.
The bank is expected this summer to follow up by raising interest rates, which are now nearly zero, again prompting concern by the government which cautions that the economy remains fragile.
Fukui's scandal could lead to greater influence of the government over the central bank, said the Mainichi Shimbun.
"This may cast delicate shades of meaning to the independence and credibility of the Bank of Japan," the newspaper said.
Fukui admitted on Tuesday in the face of opposition charges that he invested ¥10 million (US$87,700) in 1999 in the Murakami fund when Fukui was in the private sector.
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