Japan Press Weekly

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2008 March 12 - 18 [FINANCE]

Muto should not be appointed central bank governor

Akahata editorial

The House of Councilors voted down Prime Minister Fukuda Yasuo’s nomination of Muto Toshiro to replace Bank of Japan Governor Fukui Toshihiko. The Japanese Communist Party and other opposition parties used their majority to reject the nominee, who is currently a deputy governor of the central bank.

Justify subordination to the U.S.

For more than 10 years, the BOJ has been pressured by the United States to keep the near-zero-interest-rate monetary policy, and the value of interests on ordinary people’s savings has been lessened by 300 trillion yen. Banks have made enormous profits out of the almost zero percent interest rates on savings, and large corporations greatly benefited from the very low lending rates.

It is particularly grave that the BOJ, in an unusual move, backed former Prime Minister Koizumi Jun’ichiro’s “structural reform” policy that increased poverty and economic inequalities.

Partly in response to the U.S. Bush administration’s demand, the BOJ has made up to 35 trillion yen in assets available to major banks as part of its “quantitative easing” policy in addition to the near-zero-interest-rate policy.

While the amount of personal savings has been decreasing dramatically, large corporations, major banks, and speculative markets are left flush with money thanks to the central bank’s irresponsible monetary easing policy.

The BOJ has justified its monetary policy by asserting that if large corporations’ profitability rises, the household economy will benefit, just as the rising water level at a dam flows down to the lower reaches of a river.

The fact of the matter is that even Prime Minister Fukuda concedes in his weekly e-mail magazine that while major corporations are making record profits that are even larger than those in the years of the bubble economy, “the average level of workers’ wages has remained unchanged or decreased for nine straight years.

The BOJ’s mission is supposedly to use its monetary policy to “contribute to the sound development of the national economy” as the BOJ Law states in Article 2. The need now is for the BOJ to change its policy serving major corporations and banks to one of supporting the household economy and small- and medium-sized businesses.

Amid financial and economic confusion triggered by the subprime mortgage crisis, the U.S. Federal Reserve has been cutting its target for the federal funds rate. The important question here is whether the BOJ can maintain its independent judgment when it is faced with U.S. pressure to cut.

Look at the present issue from all angles and you will find it inappropriate to appoint Muto as the chief of the BOJ. In reply to questions at the nomination hearing in the Diet the nominee said, “The BOJ made the right decision” in continuing the near-zero-rate policy in response to the U.S. demand, a monetary policy in the late 1980s that led the economy to frantic economic bubbles.

Muto served the Koizumi Cabinet as a vice finance minister and took part in drafting budgets to pave the way for drastically reducing natural increases in expenditure on social welfare programs. In setting guidelines for budget requests by ministries and other government agencies, he replaced the line-item budgeting system with a procedure that classifies items into those with “discretionary authority” and those mandated by law. The latter category included social welfare expenditures, making it easier to cut them. Muto said, “It was a politically acceptable decision,” thus showing no reflection on this regressive system which he helped to devise.

To prevent vacuum

The Japanese Communist Party also voted against two BOJ vice governor nominees. Ito Takatoshi, a member of the Council on Economic and Fiscal Policy, is unacceptable because he has been a key promoter of the devastating “structural reform” policy. The JCP also opposed the other vice governor nominee, Shirakawa Masaaki, former BOJ executive director, because he supports the existing framework of monetary policy.

The government and the ruling parties argue, “It will be a serious mistake to cause a vacuum in the BOJ governor post.” They are trying to shift their responsibility onto opposition parties. However, such an argument is tantamount to forcing opposition parties to unconditionally agree with the government-proposed BOJ appointments. This will make a mockery of the present system that requires a Diet consensus on appointing the the BOJ leadership.

In order to prevent the BOJ from being without a governor, the government should do its utmost to recommend BOJ executives that are acceptable to all parties.
- Akahata, March 13, 2008