FUKUI’S FINAL MEETING WON’T BRING RATE CHANGE
BUT POLITICAL STALEMATE HOLDS UP BANK OF JAPAN CHIEF’S SUCCESSOR
HONG KONG (MarketWatch) — Bank of Japan Governor Toshihiko Fukui will preside over his final policy board meeting in Tokyo from Thursday, with the two-day event expected to yield no change to interest rates.
But drama continues to unfold outside the meeting, as a political deadlock increases the chances of a surprise announcement on Fukui’s successor — or even a period where the central bank of the world’s second-largest economy has no governor at all.
Fukui and the others on the nine-member policy board are expected to leave the overnight call rate at 0.5%, the lowest benchmark interest rate among Group of Seven nations.
The meeting will be the 72-year-old Fukui’s last before his five-year term expires March 19. Deputy Governor Kazumasa Iwata will also step down when his term expires this month.
“Uncertainty is now getting bigger and bigger,” said Credit Suisse economist Hiromichi Shirakawa in Tokyo, referring to who takes on the top central banker’s job next.
Deputy Governor Toshiro Muto, whose five-year term also expires later this month, was widely cited in Japanese press reports as the government’s preferred successor.
Muto’s appointment to head up the central bank was considered a near certainty last year before control of the upper house of parliament passed to the opposition Democratic Party of Japan (DPJ) in July.
Prime Minister Yasuo Fukuda’s ruling coalition and the DPJ fell out over the 2008 budget, casting a shadow over Muto’s appointment.
There’s little to suggest a consensus is forming on a suitable candidate, although analysts won’t rule out the possibility of an announcement this week as the government maneuvers to shore up investor confidence as Japan’s stock prices wither.
The 225-component Nikkei Stock Average has declined about 15% since the start of the year and is down about 29% from its high in July last year.
“At a time when uncertainty is mounting again in the equity markets, there is no ruling out the possibility that this situation will create a reason to sell Japanese equities,” said Barclay’s Capital strategist Chotaro Morita in Tokyo.
He added the markets could begin to discount rate cuts if the growing unease over leadership at the bank sparks another sharp drop in financial markets, such as the one seen in January.
As Japan’s economy teeters and downside risks rise in the global economy, critics say the stalemate couldn’t come at a worse time.
“In the worst-case scenario, a vacancy at the top would paralyze the central bank’s policymaking. What then becomes of grave concern is the BOJ’s ability to work closely with other central banks, especially at a time when such cooperation has become vital in the wake of the U.S. subprime fallout,” wrote Naoaki Okabe, senior executive editor of The Nikkei, in an editorial published on the business daily’s Web site dated Thursday morning.
“For lawmakers and political parties to turn the appointment process for a central bank leader into a circus can only be summed up as the ultimate folly,” Okabe said.
Steady as she goes
The BOJ’s nine-member board voted unanimously to hold interest rates unchanged last month. In its February assessment of the economy, the bank said the economic recovery remains basically intact, but noted momentum had weakened in the wake of a sharp drop in housing investment. It noted the outlook for factory output had softened since January, but is likely to pick up as housing improves.
February’s decision marked the third-straight month the policy board agreed unanimously to keep rates unchanged, ending six consecutive meetings to November where some members called for higher rates.
Analysts said the communiqués by the central bank showed a significant step down from its earlier assessments of the economy, as underpinned by a cycle of growth in production income and spending.
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NIKKEI 225 INDEX, through last night’s trading:
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