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Policy Conservative Selected to Head Bank of Japan - 2003-02-24


Japanese Prime Minister Junichiro Koizumi has selected a policy conservative and career central banker to be the next governor of the Bank of Japan. The choice is likely to raise questions about Mr. Koizumi's reputation as a reformer and the country's commitment to battling deflation.

Toshihiko Fukui, if Parliament consents, will replace Governor Masaru Hayami, whose five-year term as head of the Bank of Japan expires next month.

Officials in the prime ministers office say Mr. Fukui was selected for the top post because of his background in financial policy - seen as a key requirement as the world's second largest economy tries to fight deflation.

Mr. Fukui is presently chairman of a private research institute. But he spent much of his career with the central bank before stepping down as deputy governor in 1998 amid a bribery scandal. He is a known supporter of the BOJ's current ultra-loose monetary policy.

As word leaked out of the new appointment, Japanese currency dealers bought the yen and sold the U.S. dollar, expressing disappointment with the selection. The market apparently does not believe that the 67-year-old Mr. Fukui, regarded as a conservative on fiscal policy, will take the bold steps that many analysts believe are necessary for Japan to recover.

Economist Peter Morgan, with the Hong Kong and Shanghai Banking Corporation in Tokyo, concurs with the view that not much is likely to change at the central bank. I think his appointment represents very much continuity of Bank of Japan policy. There are not going to be any big adventures in terms of unconventional policy moves, he said. So I think the real issue is to what extent is there going to scope for coordinated policy between the Bank of Japan and the rest of the government.

While Japan's Finance Ministry has control of foreign exchange policy, the Bank of Japan acts as its agent to intervene in the currency market. Although the bank operates with autonomy, it is supposed to keep its policies in harmony with that of the government. It is also obligated to stabilize prices.

Mr. Fukui has stated in the past that he believes deflation can be solved by changes in the way the government spends money, much the same view held by the present central bank governor.

Mr. Fukui will take the reigns of an economy in trouble. Government data released earlier Monday showed Japan's trade surplus fell in January for the first time in 11 months, slipping 43 percent from a year earlier.

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