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Japanese PM nominates Shirakawa to lead bank

Bloomberg

Japanese Prime Minister Yasuo Fukuda nominated Masaaki Shirakawa to lead the central bank, seeking to fill a vacancy left after the opposition rejected his two previous candidates.

Deputy Governor Shirakawa, who has been acting chief since Toshihiko Fukui retired on March 19, was proposed at a meeting of lawmakers in Tokyo, a statement released by the upper house of parliament in Tokyo said.

Hiroshi Watanabe, a former Finance Ministry currency official, was proposed to replace Shirakawa as deputy, the statement said.

The proposals are subject to the approval of the opposition, which last month used its control of the upper house to block Toshiro Muto and Koji Tanami, saying their backgrounds at the Finance Ministry would compromise the Bank of Japan’s (BOJ) independence.

Fukuda’s support has slumped to the lowest since he took office in September, and the main opposition party yesterday called on him to hold an election before July.

“Settling the BOJ issue won’t give Fukuda much relief,” said Takehiro Sato, chief economist at Morgan Stanley in Tokyo. “Politicians and the public no longer trust his ability to lead the nation and his term might end as soon as May.”

The prime minister’s support fell to 24 percent in a Mainichi Shimbun survey published yesterday, while his disapproval rating climbed to 57 percent. Forty-five percent of those who disapproved of Fukuda said he lacked leadership skills.

Shirakawa, who worked at the bank for 34 years before becoming a college professor in 2006, may be required to attend a parliamentary hearing on his nomination today, the same day he chairs his first meeting of the central bank’s policy board.

Policy makers will keep the benchmark overnight lending rate at 0.5 percent at the two-day meeting, the median estimate of 41 economists surveyed by Bloomberg News showed.

If selected, Shirakawa, 58, will have to steer policy as growth slows and inflation quickens to the fastest in a decade.

Since becoming deputy, he has said the central bank is ready to take flexible action if necessary because the outlook for the economy is becoming more uncertain — language some analysts say indicates a willingness to reduce interest rates.

At the same time, Shirakawa has said Japan’s monetary conditions are “very accommodative,” suggesting borrowing costs are cheap and funds are sufficient to spur growth. Japan’s key rate is the lowest among major economies.

“If Shirakawa becomes governor, that would reduce the possibility of a rate cut in the second quarter as he is slightly leaning toward raising rates,” Sato said.

“The Bank of Japan’s monetary policy will depend on political pressure and developments in the economy and financial markets,” he said.
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