The Japanese government yesterday proposed a former finance ministry heavyweight to head the Bank of Japan, risking a clash with the opposition, which fears the central bank's independence could be compromised.
Prime Minister Yasuo Fukuda's government nominated Bank of Japan Deputy Governor Toshiro Muto to take the helm of the central bank and steer Asia's largest economy through the global credit crisis.
A feud between Japan's two largest political parties has raised fears in financial markets of a vacancy at the top of the central bank when the bank's current governor, Toshihiko Fukui, steps down in less than two weeks.
The government has insisted that will not happen, although the resurgent opposition has yet to say whether it will approve Muto.
"We cannot allow a vacancy when the Japanese economy is unstable," Finance Minister Fukushiro Nukaga told reporters.
The main opposition Democratic Party of Japan (DPJ), which controls the upper house of parliament, has been critical of Muto as a candidate because of his background as a former top finance ministry bureaucrat.
But in financial markets he is seen as a safe pair of hands to pilot the world's No. 2 economy through an economic downturn and possible recession.
"The DPJ is being bullheaded, trying to take over the administration, but they should avoid causing further anxiety for already shaky markets," Tokai Tokyo Securities analyst Makoto Sengoku said. "If they refuse the government's nominations, they will probably face a backlash from the public."
Along with Muto, the government proposed former Bank of Japan executive director Masaaki Shirakawa and University of Tokyo professor Takatoshi Ito for the two deputy governor posts, ruling party lawmaker Takashi Sasagawa told reporters.
The candidates face parliamentary hearings on Tuesday, followed by further deliberation by lawmakers.
Analysts said Muto would be unlikely to bring a significant change to the leadership of the central bank, although he appears somewhat less eager than Fukui to raise the country's super-low interest rates.
"Mr Muto has a neutral view on monetary policy with a little bit of dovish inclination," said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.
The central bank left interest rates on hold at 0.5 percent yesterday at its final policy meeting under Fukui, who oversaw the end to the unprecedented era of free credit, but was forced to shelve plans to return rates to more normal levels.
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